As the tax kerfuffle around Apple continues to generate opprobrium across the globe the real focus for Apple watchers will be the new devices Apple CEO Tim Cook will unveil in September.
The launch will inevitably be preceded with a flurry of rumours but Cook probably won’t mind that as long as it assuages the demands of Apple’s many fans and its growing legion of critics. Many of whom are quick to point out that Apple has lost its creative mojo.
With Samsung (Android) taking a bite out of Apple’s market share, growth slowing and margins starting to shrink, it would seem there will be until Apple can wow the crowds with its next gadget.
It’s unlikely that Apple pays much heed to the negative media attention heaped its way off late. After all here’s a company that has come close to death before and found its way back to the top. The recent bout of discontent around share performance is perhaps a case of mismanaged expectations on the part of Apple, and also a reflection of how the market perceives Apple.
Measuring Apple's worth
Asymco’s Horace Dediu points out that a bet on Apple today is a bet on the iPhone. Five years ago it was a bet on the iPod and before that it would have been the iMac.
“At no point do Apple shareholders own Apple, at any given moment they own whatever is the dominant product that Apple makes, so there is a sweet spot when this product is growing,” Dediu says.
And when those products supposedly start to lose its shine? Well, we have a crisis and the stock plummets. That’s pretty much the scenario that’s playing out at the moment.
Speaking to Technology Spectator at the ThoughtWorks Live conference earlier this month, Dediu said that the market needs to re-evaluate its definition of what Apple stands for.
“My definition of Apple is that it’s not a product it’s a process, a process to create products,” Dediu says.
According to Dediu, markets are too often caught up with optimisation and the product creation process is voodoo and is not seen as an investable thesis.
“We don’t perceive innovation as valuable and that’s the fundamental thesis for investing in Apple, it embodies the idea that innovation is a process that’s repeatable.”
Reshaping the user-experience narrative
The rise of the smartphones is an object lesson in how market dynamics can change in a blink of an eye, bringing the incumbents tumbling down to earth.
Dediu spent eight years at Nokia and his time there proved to be most instructive. It might sound funny today but by 2001, both Nokia and Microsoft had put horses in the race early (Symbian and Windows Mobile), however, at that point the growth prospect of smartphones just didn’t seem that healthy.
According to Dediu, there was a lot of disillusionment once the early excitement faded and it looked like the smartphone story just wasn’t going to pan out as expected.
In a perverse way both Nokia and Microsoft may have been too early to the market with their respective hardware (based on stylus, keypad, keyboard etc) and Dediu says that those reached their limit with regards to user adoption very quickly.
The catalyst of course was when Touch UI came into play and Apple’s singular emphasis on user experience changed the game. While Google was able to join this party the likes of Nokia and Microsoft had too much baggage.
Having said that, both Apple and Google clearly feel that there’s a need to reshape the user experience narrative. It could be voice (Siri), it could be wearable computing (Google Glass) but standing still isn’t an option.
It’s possible that Apple’s next release could provide a glimpse of the ongoing revolution of human interface. Voice, gesture controls (Samsung’s S4 already has that, by the way) could play a bigger role in Apple’s next devices. With human interface design still an area of exploration and given its potential to redefine mobile computing; it’s only a matter of time before Apple reveals whether it can devise a new disruption.
A low-end iPhone, or should that be a mid-end iPhone
The current negativity around Apple is a product of the market’s inability to look past the iPhone. But then again maybe the iPhone really has peaked? And if it has, then there is perhaps a case for Apple to consider releasing a low-end product.
The iPhone has so far played a game of skimming the market to get the best customers and cherry-picking operators to maintain an aura of exclusivity. It’s a strategy that is unique to the iPhone because it didn’t take long for Apple to release an iPad mini. So what’s Apple’s reasoning for pulling its punches with the iPhone?
Dediu believes that Apple’s strategy has been driven by a belief that optimising delivery to the existing market is more worthwhile than trying to meet the deluge of demand that a low-end product, say an iPhone Nano, will create.
That strategy may have been fruitful so far but it’s hard to imagine that Apple can leave a market of billions sitting untouched. Just what a low-end product will look like is anybody’s guess, but JP Morgan analysts believe that Apple could do a repeat of the iPad Mini by releasing a phone that is priced at the $350 mark. It’s not exactly bargain basement prices but it’s still a lot cheaper than the current rate.
This should bring the budget-conscious consumer on board and also appeal to customers in the developing world. According to JP Morgan analysts, this phone could be "a 4" screen device with plastic casings, running one-generation older silicon, with two variants running on FDD [frequency division multiplex] and TDD [time division multiplex] LTE networks.
There’s no reason why Apple can’t embark on this route come September. The key challenge will be whether it can retain its mystique of exclusiveness at a cheaper price point. Given the size of the prospective market and what we have seen with the iPad, Apple may be willing to sacrifice some margin to ensure that it can target a new market segment and hope that it’s unique design aesthetics can draw a big enough crowd.
Dediu also says that there are other things that Apple could do by pushing the boundaries of wearable computing. Essentially, experiment with new form factors to reframe the discussion around user experience.
“The low-end phone could be a wristwatch,” says Dediu. But, we’ll just have to wait and see what Apple’s process of innovation delivers in September, until then brace yourself for a flurry of speculation.