Lacking a magical new product of iPhone proportions, the corporate, its focus, and its culture are absolute to change.
A product category that might launch an iPhone-like growth wave now that the smartphone market approaches saturation. For perspective, 2021 iPhone revenue was $192B, quite 1/2 Apple’s total revenue of $366B, this from almost nothing ($123M) in 2007. And this doesn’t count App Store revenue, mostly for iPhone apps. The numbers aren’t directly disclosed but reliable sources estimate tens of billions of dollars in net revenue, the riches Apple gets to stay after paying developers.
We’ve checked out three fields of opportunity: The unacknowledged Apple Car (the “Titan” project), Augmented Reality (AR) devices, and forays into the healthcare market, none of which could be a feasible candidate. The car project looks unrealistically adventurous; AR devices, while more likely, probably wouldn’t enjoy the everywhere-all-the-time use that’s the mark of smartphones; and, while the healthcare field is big and hospitable simpler ways to spend our money, doing-well-while-doing-good devices, like hearing aids, don’t offer iPhone-like potential. I hope I’m wrong on one or more of those opportunities, but I just don’t see a large new Apple hardware growth wave in our future.
I was considering all of this while watching Tim Cook and his team of presenters introduce new Apple Watches, AirPod Pros, and improved iPhones during Apple’s latest unveiling event. “New iPhones! New Apple Watches! New AirPods!”, exclaims Greg Kumparak of TechCrunch. I assume Mr. Kumparak’s breathlessness is somewhat facetious. There was a stimulating Satellite Communication feature, currently for emergency use only, but otherwise I had a tough time summoning his level of pleasure.
Certainly, Apple continues to maneuver its products forward, but with little hope for an additional breakthrough of iPhone proportions. One can’t call Apple hopeless — too many critics have had to eat their “Apple is Doomed” proclamations — but without a Next Big Thing in its future, Apple can be viewed as living in incremental mode. Perhaps it’s reached a stage where it’ll survive — and little doubt thrive — by simply improving existing devices, looking forward to its tentacular array of services to usher in new customers and fortify the loyalty of its faithful.
This led me to reconsider my interpretation of Apple’s business model and therefore the way the corporate thinks of itself.
In a 2021 MN, I criticized Apple management for creating vague identity statements. i believed that the “Enriching Lives” credo, while mellifluent, could mean anything and thus fails to be a cynosure, a polestar for company employees.
I suggested an easier, sharper statement: Apple makes personal computers, small, medium, and large. Everything else Apple does has but one raison d’être: They push up the volumes and margins of the company’s main hardware products. for instance, App Stores exist to create Watches and iPhones and Mac Pros more useful, more pleasant, thus improving revenue and profit. (I also checked out Microsoft’s statement of purpose, “Our mission is to empower one and all and each organization on the earth to realize more,” and offered a sharper redefinition: “We create business software for people and organizations.”)
It’s only a year later, but I’m already changing my tune. rather than a model that casts personal computers because the star with everything else relegated to a supporting role, I see Apple’s money pump running on a virtuous circle of Devices and Services that job together to, ahem, enrich people’s lives.
In this model, Apple’s most fruitful growth will come from an ever-expanding array of Services: banking, more sports streaming, and, yes, advertising, pegged at only $4B in 2021 but alleged to grow to $10B or more within the next few years, and more.
(“Ads?” you’ll rightly ask, “What about the iAds failure? Apple’s walled garden may be a non-starter for ads.” Yes, iAds was a failure, but that was quite a decade ago when Steve Jobs hoped to succeed in 50% of the mobile ad market. the corporate has changed since then. By promoting its privacy protection and anti-tracking features, Apple has made serious inroads into an advertising market that has been dominated by social networking sites, such a lot in order that Zuckerberg et al. complain that Apple is hurting their bottom line. If Apple continues to grow its ad business, accusation of hypocrisy will definitely follow. Food for a future Monday Note.)
Apple has long recognized that Services has serious revenue potential. within the call that traditionally follows Apple’s quarterly earnings release, Tim Cook and CFO Luca Maestri have repeatedly emphasized that the Services business is both a stabilizer and a growth engine, reaching almost 20% of total revenue within the company’s most up-to-date quarter (ending June 2022), with margins within the 60% range.
My feeling is that Cook and his team are way previous us — or me, anyway. They’ve known for a long time that Apple has entered a unique era. With no Next Big Thing on the horizon — with Devices in a very safe-but-slow incremental upward incline — the corporate has been compelled to maneuver into conquest mode with its Services. This forced change in priorities has consequences, the compass needle points in a very different direction. The reward system, people hired, career opportunities, “How We Do Things Here” culture…everything changes.
As an example, the introduction of an “Apple Bank” or an “Apple Search Engine” could yield the corporate more glory — and profit — than would a new-and-improved iDevice running on the newest, fastest, coolest Apple micro chip. Yes, a more robust iPhone would be cool, but the market is cooling…
It pains this aging geek to think such thoughts, but I can’t help but assume that Apple will evolve into a special type of company. Nonetheless, I still want to work out an Apple Car and see the company’s still performing on that bet as a possible head against incrementalism.