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  • Apple — Always on the Ropes?

    May 3rd, 2016

    You have to wonder just how bad Apple’s situation must be — at least in the minds of certain skeptics. After all, every real or perceived setback must be a symptom of a fatal disease. Perhaps Apple got where it is today as a fluke, a few happy accidents over the years. How could that company actually succeed at what it does anyway?

    Do I really have to answer such silly questions?

    This attitude has been present ever since Apple began to emerge from being mostly a personal computer company. When the first iPod came out, a $399 gadget that let you store 1,000 songs in your pocket, the critics didn’t take it seriously. They didn’t take it seriously either when it became the number one product of its kind on the planet.

    When Microsoft introduced the Zune, first a rebadged Toshiba digital media player, the general attitude was, “Take that Apple!”

    What didn’t take was the Zune. They didn’t sell so well, and I recall one instance where a couple of twenty-somethings hung out at a convenience store hoping to sell a Zune or two. Nobody cared. Nobody even bothered to look, but I observed the situation for a few moments to see what was going on, and soon left. A few years later, the Zune was history.

    Nowadays, the iPod is still around, but it hardly generates any attention. There are still three models, led by the iPod touch, but the iPhone is the best iPod, and there are hundreds of millions of them out there. The original iPod is still in use, probably still selling more than all or most competitors at their best. But who cares? When an iPod touch is updated every two or three years, the media mostly overlooks that development, but it may be years before the product disappears.

    The iPhone quickly supplanted the Mac as Apple’s number one tech gadget, and it had a steady growth curve, first in the double digits, until things really began to settle down in the last two quarters. The general perception is that the smartphone market is pretty much saturated in the industrialized world, but there is still hope for ongoing sales in decent quantities as developing countries have more and more citizens who can afford one. Apple CEO Tim Cook says over and over again he’s very optimistic about the prospects in China despite recent financial headwinds there. It’s an “overreaction” to talk doom and gloom, but what would you expect him to say?

    The conventional wisdom has it that the iPhone 6s wasn’t so different that people who already had a good smartphone would be anxious to upgrade. It was compared to the iPhone 6, and if you didn’t need a little snappier performance, 3D Touch, the ability to take 4K videos and a few other things, it wasn’t such a big deal. Ignored was the fact that most of the people who’d upgrade had a handset two or three years old. So the new iPhone represented a huge change. People who believe you are supposed to upgrade every year might disagree, but most people do not buy new handsets that often.

    Certain tech pundits will often get new gear each year to stay abreast of technology, but their needs are rarely those of regular people.

    So where does the iPhone go? Will the next model feature some unknown technology that advances the state of the art, or just a few faster things, and a few new things to spruce it up somewhat? If you consider the target audience, isn’t that still a pretty big deal?

    Now it may well be that Apple might consider dropping the price some. Profits are high, but Apple has clearly learned a thing or two in dealing with the supply chain. The iPhone SE, for example, is $50 less than its immediate predecessor, the iPhone 5s. So what if Apple cut $50 from the retail price of all new iPhones this fall? Would it be possible? Would Apple find a way to keep the high profits? Just remember when $100 was chopped off the price of the MacBook Air without really hurting margins.

    But Apple must exist in an alternate reality. The lack of substantial improvements in Android handsets year-over-year isn’t getting so much attention. The fact that Apple is one of two companies making decent profits — but it’s still far ahead of the other company, Samsung — is also ignored. So even if Apple sells fewer copies, it remains a thriving business.

    Indeed, Apple makes high profits from other products with lower sales, including the Mac, iPad and, yes, the iPod.

    Without doubt, Apple is developing new products and expanding services. The latter has experienced double-digit growth and, with over a billion activated devices out there, promises to be a sustaining business. This is the advantage of lock-in and an integrated ecosystem. People buy one Apple gadget, then buy another, and begin to take advantage of iTunes, Apple Music and other services.

    There might be an Apple Car on the horizon. But even if there isn’t, it’s very likely Apple will continue to expand CarPlay. Perhaps car-related gear will be sold as well, but I’m not at all certain whether that’s a business Apple would ever want to enter. But embedding Apple’s ecosystem in an auto is a sure way to build services revenue.

    The potential of the Apple Watch has yet to be realized, except for the claim that sales for the first year exceeded that of the original iPhone. Regardless, there’s little doubt Apple is working on products and services you and I have no idea about. It’s not as if they are ignorant of the realities, and aren’t considering ways to resume growth.



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