$29.4 billion…
That’s how much Apple spent on research and development over the past 12 months.
The result?
An 80-minute, high-gloss presentation showcasing the company’s lightest-ever pro model phone.
The reality?
It’s one gram lighter than the previous model.
Source: X.com/@theapplecycle
For context, one gram is roughly the weight of a paperclip.
In the tech world, there’s a growing trend to romanticize innovation. But innovation is NOT the linchpin of successful investment in technology.
After all, despite splurging nearly $30 billion to shave just one gram from the weight of the iPhone, Apple is still the most valuable company in the world. And shares of the company are up 203% over the past five years.
An even more crucial element of tech is hiding in plain view. But it goes unnoticed as the industry focuses on innovation.
Let me explain…
Avoid This Mistake
The idea that a tech company needs to be an innovator is not just misleading. It can be dangerous.
Take social media giant Meta. It has virtually monopolized our online social interactions with Facebook, Instagram, and WhatsApp.
But it didn’t invent social media. A long-defunct company nobody remembers anymore called SixDegrees did.
But here we are, two decades later, and Meta is still the dominant force.
It understood the landscape, bought Instagram and WhatsApp, and cornered the market – all without being an innovator in the purest sense.
On the flip side, you have Snapchat. It’s a platform of true innovation.
Innovations including augmented reality filters, disappearing messages, and “stories” (collections of photos and videos that users can share with friends) emerged from Snapchat’s labs.
But these are features, not foundational business models. And although they’re innovative, have they transformed Snapchat into a market dominator like Meta?
No.
Snapchat has 397 million users versus Meta’s 3.8 billion.
And over the past five years shares of Snapchat are down nearly 4%. Shares in Meta are up 76% over the same time.
Snapchat, for all its creative prowess, is a niche player. It did not make the leap from innovator to market leader. This is common in tech where features can be copied, improved upon, or simply made obsolete in the blink of an eye.
What does all this mean for you as a tech investor trying to make money?
It means you should be wary of the Innovation Trap. It’s the lure of investing in a company solely because it’s breaking new ground.
As Snapchat proves, being an innovator is not an automatic ticket to market dominance or long-term profitability.
Billionaire investor Warren Buffett once said: “First come the innovators, then come the imitators, then come the idiots.”
Sometimes, the imitators – and even the idiots – wind up laughing all the way to the bank.
So, the next time you consider investing in the latest “game-changing” tech firm, remember it’s far more important to have a business model that works than to be innovative.
Don’t get too caught up by the allure of innovation. Instead, consider the big picture – from market potential and competition to revenue models and profitability.
Apple and Facebook often face scrutiny for either imitating innovative features or lacking them altogether. But both firms continue to outperform their competitors. This proves that a stock’s success isn’t solely anchored to innovation.
Often, it’s the less glamorous factors such as profit margins, cash flow, and stock buybacks that drive share prices upward.
Regards,
Colin Tedards
Editor, The Bleeding Edge