Apple: So What Could Possibly Go Wrong?

The last post looked at a myriad of things that Apple seems to be doing right, and I have to say that even then it was only a partial list. For example, iCloud is clearly a major new initiative that promises plenty of innovation ahead, and we've all seen published excerpts from the Steve Jobs biography that talk about how he's finally "cracked the code" on Apple TV. Even so, Apple will stumble at some point, it's just inevitable. No technology-based business that I can think of, has ever been able to sustain the sort of tear Apple is on for more than a couple of decades at most, and it's now just over ten years since the iPod first hit the market & fifteen years since Jobs returned via the purchase of NeXT.

So what could possibly go wrong? Well, here are just a few potential maggots I can think of that could invade Apple's core businesses:

Forcing competition into being: as has been argued elsewhere, Apple's five year exclusive deal with AT&T for the first iPhone models basically brought into being the only real competitive threat Apple has in that space today: Android. The very success that Apple saw forced Verizon to respond in kind when AT&T started leaching away customers in their droves; Google's Android was a tailor-made, open-source spoiler, and Verizon gave them a guaranteed market. Between them and the likes of HTC and Samsung, Android rapidly developed into a real competitor, to the point where device shipments for the two platforms are running neck-and-neck. And because Apple is now so broad in its product line offerings, you can see similar alliances popping up elsewhere with perhaps the Microsoft/Nokia pairing being the one most likely to bring new arms to bear in this war. (It's therefore interesting to note that Microsoft is reputedly paying an initial $250 million to get Nokia moving to Windows 7, and that's real money, even in Silicon Valley.)

As Apple looks to conquer new markets, the temptation must be great to do the same sort of thing again. After all, financially it did work extremely well, allowing Apple to focus on getting the iPhone right before moving-on to support other wireless technologies. So you could imagine, for example, an exclusive deal with Sony for iTV or perhaps Ford for the iCar entertainment system, as a way of getting deeply immersed in those spaces before allowing others to join the party. OK, perhaps we are out in the weeds somewhat, but you get the point. The risk with exclusive deals is either that they go sour at a point where divorce is difficult or, when they go well, they cause stronger alliances to emerge elsewhere in order to compete effectively.

Ticking-off the DoJ: so far, Apple has sat resolutely-planted on top of its cash mountain, refusing to spend large on major acquisitions of the sort an Oracle or HP would see as almost routine.  However, as that pile of money fast approaches $100 billion there are some signs emerging that this could change.  But, as the old maps never used to say, "here there be dragons".  Apple is now of a size, and has achieved such dominance in many of its chosen markets, that there will be those who are just itching for an excuse to break it up, and there's nothing like a big, headline-grabbing acquisition to give them exactly what they are looking for by way of an excuse to probe into every dark corner of what is surely one of the world's most secretive companies.  Indeed, my take is that Apple must have already passed on a bunch of opportunities for just this reason and so will be extremely careful if and when a larger play is made, that they think they can manage the vagaries of the process, both in the USA and of course in Europe, where Apple has already had run-ins before.

The patent war goes nuclear: oh boy. The fragile peace that's existed in the arcane world of technology patents, held in place for many a long year by a gentleman's agreement amongst companies not to sue the bejesus out of each other, is rapidly breaking down. The temptation became just too great, the prize too rich. To date, disputes have been settled (either in or out of court), money has changed hands and every one's life has continued much as before; "it's just business", as the Mafioso would say. However, just as with the national nuclear deterrents, it all relies upon the concept of mutually assured destruction. No tech company yet feels strong enough to wage all out war on their foes because to date all the major players have had enough patents in their armoury to mount a pretty devastating counter offensive if they so choose.  Now, though, with all the M&A activity going on specifically in order to round up more patent ammunition (Motorola, anyone?), it's quite possible that someone, somewhere might be able to collect enough of an arsenal to feel safe in pushing the big, red button, unleashing a legal Armageddon from which in practice few could could emerge unscathed.

Market saturation: an obvious one, perhaps, but a real problem nevertheless.  I mean, just how many iPods does anyone need?  (I have three of differing generations but only regularly use one of them, and feel no real compulsion to upgrade the older ones any time soon.)  Ditto iPhones Macbooks, etc.  At some point, the pace of innovation just isn't high enough to keep you reaching for your credit card with every new announcement out of Cupertino.

Competing with partners: perhaps as a by-product of a larger acquisition, or just because, quarter-by-quarter, the machine gets hungrier and hungrier but still needs feeding, Apple may find itself competing with those who today view themselves as partners.  The music industry; all of Apple's extensive supply chain providers; cell phone carriers; Hollywood; all could fall neatly into that category.  Depending upon the size of the perceived threat, the magnitude of the response could be sufficient to trigger some major realignments in the industry.  Suppose, for example, Apple bought Warner Brothers.  Would other labels still license their content to Apple, or would they decide instead to run the risk of losing sales by fracturing the markets, giving rights to the likes of Microsoft, Samsung or someone else, any of whom could be seen as much less of a threat?

Someone out-innovates them: for sure unlikely, at least in the near term, but not impossible.  For example, you can easily argue that Netflix is fast becoming to video downloading what iTunes was to music retailing (and if you wanted an interesting candidate as to where Apple might spend some of it's cash, here's a good place to start your idle speculation from, especially with their recent precipitous drop in stock price!)  Similarly, Apple's position in the enterprise, while growing rapidly now thanks to the iPad, is still relatively weak (though, alas, so too  are many of the other players who are targeting major corporations, and in the case of RIM, seemingly getting weaker with each passing quarter.)  In short, the tech world is still evolving rapidly and even Apple has its limits.  Other pretenders to their crown will come along, and one of them may just be quick enough or savvy enough to cause a major upset.

Again, all of the above is hardly an extensive analysis, and I couldn't do more than guess at this point which, if any, of the threats discussed are the most pressing.  All you can say for certain is that, at some point, Apple will miss. When it does it will be a big shock to the system (and to the markets) and a lot of people will come out of the woodwork saying "I told you so" and acting all smug and righteous.  Regardless of how or when all this plays out, I'll nevertheless do what I can to resist the urge to be one of them because, and despite all of the above, I think we all want them to continue to do what they do best: give us new stuff to play with that's fun, amazing and actually, at times, even useful.  And that really is a very difficult thing to do, to do well, and to do well enough in order to dominate multiple markets.

Simply Stunning

Early-on in the silicon revolution, Intel recognized that the way to build a world-beating company was to drive semiconductors to being seen as a basic domestic commodity, in the much same way as soap powder or cornflakes already were.  And it's hard to argue that they didn't succeed, at least given just how many microprocessors we are surrounded by on a daily basis.  However, with their latest set of results, Apple is now showing that it's possible to take another route to that same goal, that of affordable aspiration.

Apple just posted 1Q12 revenues in excess of $46 billion, a sales performance that yielded a profit of $13 billion.  The jaw-dropping numbers continue: 15 million iPads, 37 million iPhones, 5 million Macs. In three months. Wow.

The highly-tuned Apple ethos of making sleek, highly-capable devices that can delight users, regardless of their level of technical expertise, has changed how the world thinks about technology, and also what we now expect from all other manufacturers.  Time and again, Apple produces things we don't even know we want, but do so in such a way as to ensure that overnight the latest, greatest device somehow becomes a must-have item, rapidly becoming as close to a commodity purchase as it's possible to get, at least as far as personal discretionary spending goes.

Thanks to their canny pricing practices, we can all aspire to being connected with what the Apple brand represents: cutting edge technology married with leading edge design, and all that a price that's just within reach.  It's cool, chic, and, almost at the level of a bonus feature; hell, it's actually useful, too, and hence very easy to justify buying.  "Sure, it might be a bit of an indulgence, but go ahead.  You deserve it, and anyway it will make [insert favourite task here] easier", says the voice inside your head.  Of course, we don't need it at all, but so what?  This is all about wanting, about temptation, and you know how good we humans are at resisting that particular urge. 

There is no better place to be in terms of selling stuff.  Sure, I could aspire to owning a Ferrari, but I'm never going to be able to afford one, at least not the one I'd want.  However, the next Macbook refresh is only months away and my personal laptop is 5 years old now, so I'm already starting to think about what the specifications might look like, especially if the rumoured high-resolution displays do indeed show up.  And judging by their last quarter results, I'm not alone in playing that game.

In their own way, Apple has also achieved high-tech nirvana with their business model: they are the market leader, can command premium prices, and get to enjoy the lowest supply-chain costs in the business.  In every single segment in which they participate, they are the leaders; they lead financially, they lead in branding and image, they lead in innovation.

Today, they have (again) overtaken Exxon in terms of market capitalization, regaining top-dog status as the most valuable U.S. company.  With their momentum showing little signs of slowing, it's a position they look likely to hold for quite some time yet to come.

Apple:every home should  have one, and pretty soon they probably will.