Nassim Taleb Likes Steve Jobs, Not Apple

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Nassim Taleb, author of The Black Swan, isn't a fan of Apple (NASDAQ: AAPL ).

In his most recent book, Antifragile, Taleb makes numerous references to the Apple products he owns and draws on the wisdom of the late Steve Jobs to help support some of his arguments. But despite his high opinion of Jobs, Taleb isn't a fan of Apple.

"I am a fan of Steve Jobs, not Apple," Taleb told Benzinga.

In The Black Swan, Taleb focused on the concept of Black Swans -- rare, significant and unpredictable events. In Antifragile, Taleb attempts to provide an answer to the Black Swan problem: How does one deal with a world susceptible to Black Swans?

One of Taleb's central themes in Antifragile is the concept of "optionality." Optionality, just like an options contract, means having the right to collect on the upside while avoiding the obligation of the downside. (When a trader buys an options contract, they have the right but not the obligation to exercise that contract.)

Apple's corporate strategy limits optionality, as the company maintains tight control over its devices. On the other hand, both Microsoft (NASDAQ: MSFT ) and Google (NASDAQ: GOOG ) have embraced it: The former allowed Microsoft to dominate the PC business in the 90s; the later might allow Google to surpass Apple in the mobile handset market.

Microsoft allowed third party hardware manufacturers to build its PCs, while going out of its way to court developers to write applications for the Windows operating system.

There were negative consequences to be sure; the Windows operating system is much more susceptible to computer viruses and hardware failure. But the ultimate outcome was undeniable: Microsoft has had, since the mid 90s, a practical monopoly on the PC.

The same might be true for Google in the mobile world.

Google has been even more aggressive than Microsoft in its push. Rather than charge hundreds of dollars for a license, Google gives Android away completely for free. It even allows companies like Amazon (NASDAQ: AMZN ) to reverse engineer its operating system for their own purposes.

This has led to Google taking a commanding share of the global smartphone market -- 75%.

Still, in the U.S., where consumers are more able to afford Apple's expensive iPhones, Android is in the minority. But there are signs this may be changing.

Apple shares have slumped since last September, and continue to trade lower following the release of the company's fourth quarter earnings. Apple sold 48 million iPhones in the last quarter -- a significant amount, but less than many analysts had anticipated.

There are also rumblings that Apple has been surpassed in the high end phone market. Samsung's Galaxy S3, with its larger screen, is believed by many to be a better phone than the iPhone 5. At the same time, the LG-produced Nexus 4 offers similar hardware to Apple's iPhone but costs less than half -- making it more attractive to budget conscious consumers.

By giving away its operating system, Google is using the optionality of the broader market. Different hardware manufacturers will tinker with different style handsets which will appeal to different consumers.

Perhaps consumers want larger phones. Or, perhaps they want cheaper phones. Perhaps they prefer phones with keyboards or longer battery lives. To Google, it doesn't matter. Google benefits no matter which Android phone wins out -- or even better, if many different ones do.

Apple, on the other hand, must accurately predict the type of phone consumers want. And there are growing signs that management may be losing touch.

On the earnings call Wednesday, CEO Tim Cook was asked what he thought about the larger screen on Samsung's phone.

"We've put a lot of thinking into screen size and we think we've picked the right one," Cook said.

The problem here is that Cook must be certain. If he's wrong, and consumers strongly prefer a different screen size, Apple's iPhone empire could be toast.

Google doesn't have this problem. Instead, Google shifts the downside of this question to Samsung, Sony (NYSE: SNE ), Motorola, LG, and HTC (among others) while it retains the upside.

If Samsung makes a fantastic phone, it supports Google's Android operating system, and Google benefits. But if Samsung is surpassed in quality by say Sony, it doesn't matter to Google, as it still benefits.

Of course, Apple could alter its strategy and make a variety of different iPhones, and in the end, it might be forced to. But that could be costly, eating away at Apple's margins and stressing its supply chain.

Shares of Apple traded near $443 on Friday, down about 1.5%.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AAPL , AMZN , GOOG , MSFT , SNE

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