Apple’s forecast earlier this week of a looming twenty per cent earnings drop next quarter has further fueled speculation that the company’s golden days are behind it.
During an analyst briefing following the announcement, Apple’s CFO Peter Oppenheimer blamed the disappointing prediction on a stronger US Dollar, channel inventory being cleared, the continuing decline in iPod sales and the fact that customers were putting off iPhone purchases.
The first revenue drop in 13 years from one of the world’s most profitable companies – second only to Exxon Mobile in 2013 – shows that the gloss is coming off the tech industry’s most iconic brand.
What can CEO Tim Cook and his team do to find a product, and a strategy, that will recapture the market’s imagination?
Another Jesus moment
The iPhone is looking a bit tired and the innovations that once excited consumers now look pretty run of the mill.
For Apple, another ‘Jesus Phone’ could solve the malaise but it’s hard to see how the company could recapture the market’s imagination the way it did in 2007.
Bigger screens, thinner phones just how far can you push the form factor? And what features can Apple deliver that aren’t being delivered by competing devices?
Find new markets
With incremental improvements to existing product line unlikely to help, Apple needs new markets. In developed countries smartphone growth has reached its limits as markets become saturated – the iPhone has 69 per cent market share in Japan.
Customers are now holding on to their iPhones for longer, partly because telcos are withdrawing handset subsidies.
The extended product retention dynamic that crippled the PC market in the last decade is now hurting Apple. The irony won’t be lost on old Dell, Acer or Gateway shareholders, who have seen it all before.
Finding new markets is an imperative for Apple’s management and earlier this week, the company announced it has signed an agreement with Megafon, Russia’s second biggest telco, to sell the iPhone.
Apple’s great hope is China with CEO Tim Cook telling analysts that the first week of the company’s agreement to sell phones through China Mobile was “the best week we’ve ever had in China”.
China Mobile is currently only selling through stores in 16 cities but is going to grow to over 300 in the next year with Apple estimating 31 per cent growth in revenue through Chinese stores.
iWatch to the rescue?
Apple fans love to gossip about new products and there’s a lot of buzz about Apple preparing to launch the iWatch or some other wearable technology to rival Google Glass.
The problem for Apple however, is that the wearable space is still nascent. It’s picking up pace but can’t generate the margins or volume that Apple is used to, with estimates of the entire market being worth only a seventh of the company’s 2013 $45 billion profits.
Wearables also present another problem for Apple, most are voice activated and Siri has fallen well behind Google Voice Search. Now with Intel entering the market it’s going to be harder for Apple to keep ground in this space.
Cloud based services in general have proved to be problematic for Apple and it’s unlikely the markets for these products are going to big enough, or sufficiently profitable, for the company to continue its financial growth.
Should an iWatch appear, it won’t generate enough cash to replace the falling iPod and iPhone revenues.
The IoT opportunity
One market that does hold promise is the Internet of Things (IoT), estimated by Cisco Systems to be worth $14 trillion within a decade.
The iBeacon tracking technology, built into the latest iPhones, is an opportunity for Apple. US department store Macy’s, apparel chain American Eagle and the New York Mets are all experimenting with iBeacon and the technology is being rolled out in Apple’s own stores.
This plays into Apple’s evolving mobile payment strategy, but putting a viable service in place will require Apple to forge relationships with retailers and manage them well.
The universal remote control
Another area where Apple could make the most of the IoT trend is in becoming the remote control of the new connected world.
The iPhone and the iPad have become standard devices for mobile computing and could be the answer to what IT industry veteran and former Apple executive Jean-Louis Gassée describes as the “basket of remotes” problem.
It may well be that Apple’s future could lie in being the humble universal control of the connected lifestyle, which could be a profitable segment of a massive industry.
Apple has been one of the miracle stories of the technology industry but its astronomical growth, propelled by a once in a lifetime shift in an industry, just can’t be sustained or repeated.