2013 4 26 mindshare digital pov taking a bite out of apple
1. Taking a bite
out of Apple
Norm Johnston 26/04/13
Background
Apple has recently been under intense pressure as competitors, particularly Google and Samsung,
continue to gain market share by introducing new and highly competitive products. As a result
Apple’s share price has dropped and its stock market value has tumbled by 40%. Has the post-Job’s
Apple finally lost its shine?
Details
Given that the early adoption phase for smartphone, tablets, and phablets is now over in many
markets, it should come as no surprise that Google’s Android OS is gaining share as HTC, LG,
Motorola and others battle over the mass market audience, which has never been Apple’s natural
customer base.
Apple’s business has been built on a disruptive smaller volume, larger value approach compared to
Google’s larger volume, lower margin formula. Apple’s strategy is threefold: 1) create brilliant and
connected products in a largely closed ecosystem; 2) appeal to early adopters and latent followers
with enough cash to pay for expensive devices; 3) squeeze incremental revenue through services,
applications, and to a lesser extent advertising. To put things in perspective, consider that Apple
makes a $368 profit for each iPhone while Google makes roughly $10 per phone. Furthermore,
Apple makes 30% from sales of iTunes applications compared to Google’s measly 5%. Sustaining
such margins was always going to be difficult; Apple’s most recent Q2 2013 results indicate that
even with decent sales of iPhone and iPads, the company suffered a YoY quarterly drop in net profit
to $9.5bn compared with $11.6bn last year.
Implications
Apple’s CEO Tim Cook hinted this week that Apple has some big plans for Q3 and a solid line-up for
2014. Apple’s relative silence during its recent stock price plummet may in fact indicate a quiet
confidence in its future product releases. Of course it doesn’t hurt to have a massive cash reserve
of $137bn to weather the storm. The key question is what are those Q3 and 2014 plans?
Speculation is rife that Apple, while still iterating and improving on its existing product portfolio,
has moved on to the next big thing and is quietly preparing to disrupt yet another industry. Pundits
have long speculated that Apple is due to launch its own TV set, a highly cluttered and competitive
market with tough margins and all kinds of broadcasting and content legal challenges. However,
the TV set remains the one screen in a multi-screen ecosystem where Apple doesn’t fully play (note:
the current Apple TV product has an Apple EPG and streaming ability to your existing TV). Don’t bet
against Apple redefining the TV experience.
A second area of speculation is an iWatch wristband; the long-mooted Dick Tracey phone watch may
actually be functioning somewhere in an Apple lab. An Apple watch would capitalize on the recent
wearable tech craze (Jawbone, Nike Fuelband, Google Glass) and could port iTunes content, Siri,
Facetime, and of course your phone to your wrist. It’s the type of disruptive, jaw-dropping product
Steve Jobs would have loved.
On the other hand, Apple may be preparing to simply improve its iOS experience, and unleash new,
graphene-powered, memory-boosted iPhones and iPads. With Samsung’s new Galaxy S4 giving
Apple a run for its money, an upgrade beyond recent releases may be necessary to defend its share.
Summary
Apple has excelled in disrupting and defining industries with its technology. CEO Tim Cook has
hinted something is on the way; Steve Jobs may have planned a few more surprises for us. Stay
tuned.