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Apple's Demise: What is That About?

This article is more than 10 years old.

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Two contrasting views on Apple. Eric Jackson on Forbes says Apple can go to $1650 by end 2015. Edward A. Zabitsky, of Toronto-based ACI Research, quoted in the Sunday Telegraph this weekend says $270 (see also a video discussion here on Apple and smartphones).

What could derail Apple? The question is worth asking if only because it helps pinpoint Apple’s (AAPL) strategic strengths, and many companies can learn from those. But there is also a weakness - Apple's attitude to “social business”.

One part of Zabitsky's analysis - Apple is able to sell its products at a premium price because of a temporary advantage in content. iTunes/App Store is a good centralised access point for content and lite-functionality.

Take away that advantage and you may also take away Apple's premium pricing, dragging it into a lower price, high volume market (a place it last visited with the Nano) and a potential scrap with Amazon (AMZN), who also have great content and a phone of the way, and other parts of the Android device and content ecosystem, such as Samsung but more on their terms.

I guess by extension he is saying apps are not sustainable as a business model, which presumably means HTML 5 will make apps obsolete (something that featured high on RIM’s wish-list). As good content becomes more available  users will go in search of  it at other ease-of-use content sites. Zabitksy has Apple on sell.

He acknowledges that Apple’s huge developer community gives Apple several advantages. The developer ecosystem is a huge advocacy group, provides a wider range of apps means than competitors and increasingly seamless use between Apple devices means that new products are quickly leveraged into the market.

As Eric Jackson pointed out it took 6 years to sell 100 million iPhones, but will take only 4 years to sell 100 million iPads so familiarity with the apps world and the UI is helping sell across Apple's device range.

Translated to a strategic level these advantages are coupled with Apple’s ability, in the Jobs’ years, to make all the right calls on the form factor of its devices. The iPhone, larger than Nokia (NOK) handsets but a revelation for a generation brought  up unreadable, barely usable Nokia screens; sector-defining size in the tablet market; great use of miniaturization in the category-defining ultra, the Mac Air.

And the various design advantages, a UI which made smartphones truly a way to access the web. Now a bet on Siri and a voice UI, coupled to Cloud. Prior to that the development of the iTunes/App Store platforms, both capable of dealing with billions of monthly calls, and their integration with their music industry partners (with billing and transparency) and their telco partners.

Add in the development of the service line of business through iTunes, Genius, to video and now file storage, and file sharing and no doubt a dip into the collaboration market.

Apple has also proved itself to be a master of radical adjacencies, easing into new markets, and creating new market categories, erasing its failures from memory very quickly (the first generation of iPhone had the habit of bringing down broadband mobile networks, the second generation dropped calls easily).  All the while maintaining first rate interaction with the information ecosystem around them.

When Nick Vitalari and I looked at Apple’s strategic options portfolio for The Elastic Enterprise, we were amazed by the range of decisions that Apple faces at any one time, and its ability to make the right calls on M&A and the OS, as well as the various platform configurations it manages. We felt that Apple had invented, over a decade of experimentation, accumulated experience, luck, and good judgment, a new way to scale a business.

So what could go wrong?

On device sales I think Eric Jackson is misjudging how the various markets will evolve.

“Smart phones are going to be every person’s primary computing device.  72 million iPhones were sold last year, but they might sell 6x that in 2015, assuming 1.5 billion smart phones are sold then with Apple keeping a 32% share.”

Well, I think it more likely that much of that growth will come from emerged markets where the brand values of Samsung, HTC and ZTE, even of Nokia are strong. And the devices will be underpowered, and more Cloud dependent. For “smart” read “feature” and cheap. Assuming Apple does reap 32% market share, won't it be with a much cheaper phone? And if so won't that imply a market-share strategy somewhat distinct from that pursued by Apple now?

These growth markets are not homogeneous either. They innovate more quickly at the service end than we do in the USA or Europe. They are good at making use of limited functionality. Device makers have to be more responsive to that as well as adept at creating services. Extrapolating Apple sales into this flux is the misjudgement.

I suspect the winner in those markets will need more cultural diversity than Apple shows – Nokia has been a long term investor in the economic growth of those markets and has helped trigger and support some of that growth, so there are loyalty factors at work that Apple will be hard pushed to brush aside as it did in the USA, when Nokia’s screen was unreadable.

It’s also clear that China, a market without siblings, uses social networking in an entirely different way, so even though there are strong westernized aspirations, there are simply different emotional needs. The network is more significant than the app and there are plenty of good social networking phones.

Equally I suspect mobile ads will never reach the leave of contextualization that advocates assume and that Eric Jackson believes will be a source of growth. Delivering high quality context in real time to people on the move without interrupting their activities? There has to be a better way of interacting with customers than than and we are graduating slowly towards it – real customer-side personal data asset management.

These are all ways of saying growth doesn’t extrapolate easily. There are other risks though, of a different order.

The first thing is that Apple is running a new type of company with economic sub-systems, like the developer ecosystem, that are relatively new to management. And if we believe what we used to write about Jobs, the chances are the new team will be wrong footed and will make poor decisions somewhere down the line. It has all the characteristics of being a social business yet operates within closed walls, a contradiction that is working for them right now but might not as other companies offer customers more.

Also nobody has yet run a platform and ecosystem business of this kind, on this scale, and it would be foolish to claim that Apple will not miss Jobs’ ability to make the calls as they continue to invent. I think they are missing what it means to be a social business.

The second possibility is that Apple’s lack of affinity with emerging markets could count against it as competitors like Samsung and HTC grow from their natural habitat in those Asian markets and simply understand better what the various emerging middle classes want, need and can afford, and as Nokia possibly exploits its historic relationships better.

In fact, companies that are doing well in these markets are re-learning the role of management and the enterprise in new ecosystems. That is the essence of the new social business, being part of the local ecosystem and learning what the new global market is all about.

And a third is that a new competitive environment is now forming. It includes Apple, Facebook, Google, and Amazon, and its main focal point is ownership of the customer, primarily the affluent customer in a declining middle class in America and Europe.

There is a possible cul-de-sac awaiting this small army of American giants.

On one level the battle is about content and devices of course. Amazon, Facebook and Android,a long with Apple, all have interesting content strategies and with Amazon expected to launch a smartphone, only Facebook will lack a handset of some kind.

Zabitsky seems to take the view that search will also play an increasingly important role and that, as the mobile experience covers the globe, finding what you want will be the key to a content strategy.

So do you go with Siri, Google or a new Facebook search? We don't know a whole lot about how that will play out, though we have seen in the case of Bing that Google's search advantage is very sticky. And its mobile strategy is sharpening up.

But I think the pivot point will be around how you regard the customer, whether you use that platform and interaction to build intelligence on the user, or intelligence for the user. Why do I say that? Because I think the big four will need to move the competitive platform in some radical way.

The current strategy of customer ownership, customer data acquisition and ever more refined marketing, flies in the face of social business. We simply do not need more inference-based marketing, however big the data-sets that support it. But the American marketing machine is all about dominating precisely that space and in maintaining a duality between company and customer (still referred to as the target).

These different activities converge on the concept of customer ownership – having those credit card details, addresses, gender information, preference data and so on for selling at us.

The company that wins will build true affinity with its customers by revolutionising the relationship, and primarily by terminating the dualism of company and customer.

Of these risks I think the most dangerous though is the least predictable. Apple manages a supremely successful version of a new enterprise form, built around ubiquitous connectivity, highly scaled business platforms, and free flowing ecosystems. At all points you have to say, we really don’t know how these systems can or should be sustained. It takes an exceptional leader to have those insights. Apple no longer has that benefit but by the same token few companies do and they all have to tread this path.

Part of this environment is also the information infrastructure, which turns out to be highly unpredictable. It has for the most part been supportive of Apple. In 2008/2009 I watched as the information infrastructure in mobile, at that time dominated by TechCrunch and GigaOm, utterly decimated Nokia’s reputation and its executives’ confidence.

There seemed to be no way Nokia could repair the damage, whatever time or consideration it asked for.  Its hugely successful global footprint was totally ignored as its performance in the US market became the only benchmark.

The concern for any company (just ask BestBuy) is: what happens when the new information machine turns against you. So far it has been very pro-Apple. But as Apple, Amazon, Google and Facebook emerge more clearly in each other's sites will it be given such an easy run?

So yes, Zabitsky is right to express reservations and the long term predictions seem overdone. Nonetheless Apple did perfect this way of doing business and is still its leading light. You wouldn’t want to bet against them maintaining a successful high margin business but to assume that can also be a high volume business means ignoring what the competition are capable of and how the global market will change.

Follow me on Twitter @haydn1701.