Henry Ford didn't invent the automobile. He didn't invent the assembly line. He invented the mass-market auto industry. In its first full year of production, the Model T captured just 11% of a market consisting of 123,990 cars. Fifteen years later, in 1924, the Model T represented 62% of a market consisting of 3,185,881 cars. To say the growth of the auto market was largely the growth of the Model T would be no exaggeration.
Two years later, the market was still growing but Ford's share wasn't merely shrinking in relative terms. Sales of the Model T were plummeting in absolute terms.
The story of Apple, so far, is the story of Ford before the cliff. Sales of its dominant iPhone are still growing but market share is shrinking and so are profit margins. Apple can continue to be a strong player, but its dominance of the phone and tablet markets has begun to erode and management will have a job just defending its now-diminished share price. This is what the dramatic correction of recent weeks is telling us.
Apple didn't invent the digital musical player, the graphical user interface or the touchscreen. It invented iTunes and the iPod, added a phone and screen and adapted them to the mobile broadband networks that were already being created. Apple also lucked into the unseen serendipity (even by Apple) of the app revolution.
Apple's accomplishments during its heyday boiled down to a single accomplishment. Its design and engineering teams were leaps ahead of all others in incorporating the latest technological possibilities into a package that could fit in your hand. Apple was unbeatable because of its mastery of the iPod form factor.
What was the likelihood that Apple would remain unbeatable? Zero. Nowadays the newest things being fitted into your hand aren't hardware and operating-system innovations at all. They are cloud services, which Apple hasn't been strong at (Google has) and which Apple isn't necessarily likely to become strong at.
The Model T couldn't have been the Model T unless the automobile were on its way to becoming too interesting a product for consumers ever to be satisfied with a single model, a single manufacturer, a single design statement.
The same is true of the iPhone. Different customers not only want different things from their smartphones, they want difference for its own sake, which explains the otherwise inscrutable shifting of coolness cachet from the iPhone to Samsung's Galaxy S line.
Some analysts still hope that ecosystem lock-in will let Apple lock in considerable dominance of a market that otherwise wants to explode into diversity. But ecosystem lock-in was never the strong force it was cracked up to be. The coming of the cloud was destined to obliterate any inclination toward winner-take-all, as Pandora and Spotify have already begun making iTunes look like a convoluted nuisance.
Nor did the slightest reality attach to the hope that Apple somehow would keep finding new industries to reinvent the way the iPod reinvented music distribution. This was a bet on soft and squishy miracles in a competitive world full of people every bit as intelligent and cunning as Apple's leadership. The desperation with which stock punters have posited TV as Apple's next opportunity has been especially pathetic to watch.
Also true, though, is that these unrealistic expectations never found their way into Apple's share price. All through the company's spectacular run, the stock was priced skeptically in relation to the growth that was actually coming. Indeed, it would not be too strong to say that a skeptical stock market has treated the cash on Apple's balance sheet (currently $137 billion) as if it were a sizable share of all the cash the company would ever earn.
The drop in Apple's share price, down 36% since mid-September, has not been the popping of a bubble or a collapse of confidence in management. The drop is easy to arrive at simply as the multiple of some modest lowering of Apple's expected sales growth and some modest lowering of its expected profit margin on those sales. The world thought Apple (in Model-T terms) was entering 1925. Now it thinks early 1926 may be closer to the mark.
Not that this means some horrible, Ford-like sequel lies ahead—wherein management refuses to adapt to a market where competitors have caught up and in some ways surpassed the Model T. Tim Cook and his management team ought to be up to avoiding self-delusion. No offense to Steve Jobs, but a charismatic founder has more leeway to commit catastrophic mistakes.
But here's a scary thought. By definition, Apple's share price today rests even more heavily on its vast cash hoard. If the company really wants to disappoint shareholders, just keep fanning their fear that they'll never see this cash in the form of dividends or stock buybacks.
A version of this article appeared February 6, 2013, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Apple's New Normal.