The first microcomputer I used for serious work was a BBC Model B, to create a file index for the Health and Safety Executive. The next was an Apple Mac Plus, to produce a student newspaper with PageMaker. That was 1989 and I’ve been using Macs professionally ever since. For two decades I’ve heard people predict the demise of Apple, and I’ve never believed a word of it. The company just had too much potential to fail. For the first time, while the naysayers are silent, I’m not so sure.
Apple looks on top of the world at the moment — almost literally. It’s now the third most valuable company on the planet by market capitalisation.
The list of top 10 publicly traded companies makes interesting reading:
[TABLE=6] (Source: Wikipedia. Apple was worth $16bn in 2000. NB none of the current top PLCs can hold a candle to the Saudi national oil company, which is valued in the several trillions.)
Apple’s recent growth has been immense. Much of this new value comes from new revenue streams — a rare thing for megacorps. Four years ago, the iPod touch, iPhone and iPad did not exist. Now, of the roughly $25 billion Apple earns each quarter, two-thirds of it comes from flogging iOS devices, as this remarkable chart shows:
(Source: Silicon Alley Insider.)
But, for all the hoo-ha, there are three causes for concern:
First, we’re in another bubble. Technology companies are again being valued at fantasy levels. The Economist noted this week that Facebook is said to be worth more than Boeing and that Microsoft bought Skype for some 400 times its operating income. The paper takes it as read that the current boom will be followed by bust; the only question is the extent to which the process may affect those tech companies that actually have viable business models. Apple, as the current poster boy for success, could be hurt when the wider industry gets devalued.
Second, the Steve Jobs effect will soon be coming to an end. Apple’s extraordinary brand image is thanks to Jobs’s vision and Jony Ive’s elegant homages to Dieter Rams. Jobs is not likely to be running Apple in a couple of years. His departure will knock double figures from the company’s valuation. Who can replace him?
Third, and most importantly, it’s not at all clear where Apple goes from here. It has been hugely successful in redefining platforms, but has a less impressive record of holding onto leads. That’s all right if you can keep finding markets to revolutionise. But how many more new spaces can Apple identify?
The story so far:
The two Steves effectively invented the personal computer market in 1977 with the Apple II. In 1985, a year into the era of the Macintosh, Bill Gates urged then Apple CEO John Scully to licence Apple’s technology to other computer manufacturers, predicting that whosoever had the “momentum” provided by the largest development community would come to dominate the market. Apple chose to ignore the advice and a few months later Gates introduced Windows for the “IBM PC” architecture, which was so licensed.
Windows remains dominant in desktop OS, clocking at about 92%, according to StatCounter‘s sampling method. The same method puts Apple at between 6 and 6.5% – about the same as it was 25 years again when Gates wrote his letter, and shortly after the Mac was introduced.
If you’re Apple, PC market share isn’t a hugely relevant statistic. Macs aren’t targeted at the entire market. The business strategy Jobs came up with when he returned to the fold in 1996 has been immensely successful: high-end gear for media professionals that earn big margins, and beautiful consumer products that together provide a seamless environment for computing, telecoms and media consumption.
It’s in the latter area that Apple’s fortunes have blossomed.
In 2001 Apple released the first iPod and transformed itself from a computer company to a services company with some great hardware. Before the iPod, nobody had used a portable music player since the Walkman went out of fashion. Since then Apple has sold a third of a billion players, most of them made in iPod City, a 3-square-km plant in Shenzhen that squeezes in 300,000 employees.
iPod sales are now in decline because the market has polarised into ultra-cheap micro players at the one end, and a part of the feature set of smartphones at the other. But on the way, Apple has changed the way people consume.
The smartphone world was revolutionised by Apple, although RIM before it deserves a mention. Thanks to them a market based on hardware features became one based on operating systems.
By 2009, just two years after Apple entered the mobile phone business, the iPhone was the best selling smartphone model in the world.
The world smartphone market continues to grow rapidly: 83% year on year in Q1 2011, according to Canalys. Apple’s still selling a lot of units, but is no longer the big story. Google’s Android now counts for 35% of smartphone subscriptions, up from 10% that same time last year. (The bigger loser was Nokia’s Symbian — down to 26% from 45% in Q1 2010.)
Focusing on smartphone operating systems in the US, comScore’s leader board for January 2011 shows a market transformed in just three months:
This looks a bit like what happened with Windows for desktop operating systems: Apple were first to market and had the superior product, but a rival got itself onto more hardware — so that’s where the software development happened. Will this prove true also for Android?
In 2010 this was all about Apple. A whopping 84% of tablets sold in 2010 were iPads.
But again Google is the interesting player this year. Gartner’s projections for the “media tablet market” read thus:
Another all-too-familiar story for a market where OS has proved to be the primary determinant of consumer purchases.
The iTunes Store is possibly the most impressive thing Apple has ever done. Where before was nothing, now people buy most of their music, films, and software as digital files and download them directly to their devices — and Apple takes a cut. In September 2010, after seven years in operation, the iTunes Store had sold 10 billion songs. Amazingly, it took half as long to sell 10 billion apps for iOS devices. The iPod was successful because of iTunes. The iPhone is successful because of apps sold on iTunes.
The billions of download sales aren’t especially profitable for Apple. But they’ve encouraged people to buy the company’s mobile devices.
The emergence of Android as a challenger to iOS puts all that under threat.
Google’s operating systems will be on the majority of smartphones soon enough, and tablets will follow. That’ll give Android a lot of “momentum”, as Gates put it a quarter of a century ago. To stop third-party development leading to a Google monopoly, Apple would have to consider licensing its software again. But it’s extremely improbable. Apple’s philosophy on this matter is as hard-wired as its device-OS integration.
What are the alternatives? Apple could become a media company, turning iTunes into a multi-platform store where people using HTCs and Samsungs can buy music, video and software. But there’s nowhere near as much money in that, and Apple’s only strength over any competition would be that it was there first. Not a good prospect.
Permanent revolution seems to be the only real choice — to again find a new space to transform and make its own. Apple has done it several times before, and has been smart enough to move into new areas before sales started to slip.
And that was what made me confident about Apple in the past. There was always a sense that something exciting and completely new was on the horizon.
I don’t get that sense now. What possibilities remain? Google has already sewn up online ads and cloud computing. The social network/messaging sphere is out of reach. Apple could have another stab at home entertainment systems, but they’d be unwilling to go all the way — including live TV — if that meant partnering with the networks. They could try to repel the Android horde with a stripped-back, low end iPhone with the same OS but none of the smart hardware features. “Iphone mini” clones sell well in east Asia. But there’s nothing stopping Android from annexing the same space again. Is there a killer feature still in the pipeline for iPads? I’m not persuaded.
Unless Apple surprises everyone with something new (and I hope they do), in a few years they will be managing decreasing market share in mobile devices, and at a rate they never saw with desktops. And there may be nowhere left to go.