Apple’s stock price has been battered since last September. Growth and profitability have not been the usual off the charts this last year. Are Apple’s glory days over or is this a pause in Apple’s ascent to greater heights? What are Apple’s key strengths and weaknesses going forward?
Let’s go straight into the thick of the weaknesses first. Then I’ll tell you what I like about Apple’s prospects.
Apple is first and foremost a hardware and software company. The cloud is not Apple’s first love and not their native language like it is at Google and Amazon. Google, Amazon and Facebook are all in on the Cloud and it shows. Apple is playing catch up and hasn’t gotten everything right with iCloud. iTunes is aging.
As communications and whole industries have gone digital, the Cloud has grown in importance. If Apple doesn’t keep investing heavily here, they can’t stay competitive. Apple’s ill-fated introduction of Apple Maps and stumbles with DotMac, MobileMe and now iCloud show they are persistent and committed to success in the Cloud. They know it’s a deal-breaker. I don’t see any reason they can’t master this area. But I do believe we will see Google stay ahead of Apple overall in the Cloud.
The Cloud is not ruling the world yet, though. During the heyday of Web 2.0 back in 2005 and 2006, there was a growing consensus that “everything is going to the Cloud”. Not so much. The introduction of the iPhone in 2007 and native apps and Apple’s App Store in 2008 made web-based apps seem limited. Users have spoken. They want snappy and powerful native apps that benefit fully from being optimized to the hardware of an iPhone, iPad, smartphone or tablet with all their powerful sensors. At minimum, Apple has bought itself a chunk of time here to play catch up in the Cloud. The jury is still out on which side will dominate when the dust settles. Will the Cloud resurge or will native apps sustain their current lead? Sooner or later the cloud with HTML 5 and beyond will be cool. That it will make device-optimized apps obsolete is questionable at best right now.
Premium Pricing in a Bad Economy
Apple has carved out a position in the market as a premium quality producer. As Apple says, “We don’t make junk!”. Apple has it made selling to the affluent because they are viewed as the maker’s of the best quality devices and the best user experience. If price is no object, most go for iPhones, iPads and Macs. That’s fine but eventually you run out of rich people and have to sell to the rest of the economy and the world. Apple has done pretty well to date on this front by leveraging their economies of scale. However, Samsung, specifically has the same scale as Apple and isn’t limited to producing for the top tier. There is plenty of evidence in places like China and India especially, lots of phones are going to the Android side. The problem is much worse where there is no subsidy for phones like there is here in the US.
Sometimes Bigger is Better and One Size Does Not Fit All
Competitors, especially Samsung, have had a field day producing gadgets that are bigger or smaller than what Apple makes. There have been large wins with larger phones all the way up to the 5.5″ Samsung Note 2. The biggest win there is in price sensitive markets where people have been sold on the bigger screen of the iPad, need a phone and can’t afford 2 wireless devices.
There are very good arguments to be made for a single device to serve as both an always connected internet phone and an always connected tablet. It’s cheaper and you get that lovely 24/7 connectivity we all prefer. Bigger screens are more impressive. You might occasionally regret the size when holding it with one hand or trying to fit it in a tight pair of jeans, but content and web pages sure look good with more screen real estate. Big phones have got to be great in the showroom!
What about the other side of the coin? Apple has demonstrated excellence in design, innovation, quality and customer service. Yes. These are Apple’s core strengths. How are these holding up in the face of fierce competition especially from Google and Samsung?
The competition’s imitation keeps improving and HTC has created a great looking and feeling large Android phone with the HTC One. The top three contenders, Samsung, Google and Amazon are well beneath Apple’s dazzling designs but, as we’ve said, a low price does wonders to smooth over that deficiency. Not everyone cares that much about great design. Here’s hoping Apple keeps finding ways to use all that money they have in the bank to secure the best deals on components. Apple makes the iPod touch which is a super cheap iPhone almost, so they know how to cut corners on costs when they want to. A cheap iPhone would be an iPod touch with a cellular antenna. With a subsidy, Apple would be giving them away free.
Apple still has a large lead here but Google has upped their game (thanks to Matias Duarte) making the stock Android user interface and Nexus devices look and feel much better. The top contenders are all playing the design game now. We think this competition will continue, but now Apple is striking back with iOS 7 a bold and arresting makeover that may be what the doctor ordered for reviving their lead in the design space. Those who are intimately familiar with actual use of the iOS7 betas have come away impressed. iOS 7 will very likely be a hit with its unique multilayered, translucent experience. Anyone getting bored with iOS as we’ve come to know it will be wowed all over again.
Yes, we think Apple has been slacking a little in the innovation department but then that’s what it always looks like before they blow us away with their big new things that come only every few years. We all waited year after year for a smaller laptop and finally got a MacBook Air and an iPad. Both have been way cool but they didn’t come out as fast as we would have liked. Chalk it up to greatness.
I think iOS 7 looks super innovative and the new Mac Pro shown off at the World Wide Developer’s Conference in June looked off the charts amazing! TV seems to be taking awhile and that hurts Apple’s image a bit. I also love OS X Mavericks because it addresses a lot of longstanding issues in OSX brings them up to the level of excellence we expect from Apple. These aren’t earthshaking improvements, but they will be well-appreciated.
Apple is still clearly the leader in computer and mobile hardware and software right now. To a point, everyone else is still playing catch up. I do want to acknowledge that Google has a mind of its own, has lots of money and does interesting things with it. Also, Microsoft’s introduction of the Surface tablets is innovative in its own way. Lets not forget the Metro UI and Windows Phone which are legitimate innovations too. One of the differences between how things are going now and how they went with iPod dominance is that the industry sees that mobile phones and tablets are to a large degree replacing desktop and notebook computing as we’ve known it. There is a sense of urgency along the lines of innovate or die that wasn’t present back in the iPod days. It took a few years to develop but there is a true creative ferment that Apple has to contend with.
Quality is how Apple rolls. They aren’t going to change in this regard and the competition will undercut them when they can and cut corners in doing so. In a sea of products and advertising, quality stands out. Samsung and Amazon have shown that quality isn’t everything in their smartphone and tablet offerings, though. In price sensitive markets, a lot of people just want to get into the game.
Tim Cook has his hands full, but as he says, don’t under estimate Apple. They have lots of cards to play. It’s clear they have a good chance of staying on top.