The future for Apple
The iPod/iTunes success for Apple is formidable. I would therefore like to open up for a discussion on the longer term implications. Here is my starting point:
iPod sales are growing exponentially. As Steve said at the U2-presentation, each quarter brings sales that are larger than the total previous sum of sold iPods. Yearly sales of 20-30 million are realistic. The Walkman of the 21st century indeed!
With increasing sales, Apple can press raw material prices down, meaning that the profit will be bigger, or prices can be dropped, so that the customer base will grow even more.
At present iPods account for 25% of Apples ternover and profits. What will happen to the company when the iPod division accounts for 75%?! There are several models out there:
Maybe institutional investors will demand that Apple splits in two, so that Apple iPod Inc. can be floated as a separate company with attendent mega-profits for existing shareholders. This must be a real possibility, since it is a classic model for developing new companies - read any business school text book.
Maybe Apple will continue to expand into other digital lifestyle products, so that the iPod becomes one of many products, some of which could even overdwarf the iPod. Apple Digital Lifestyle Inc. would offer dozens of the coolest electronic products and services for the home, where breathtaking design couples with ease of use to open up new markets, products and services, most of which we have not even thought of yet. I am sure Apple is well on the way in this regard! Their retail stores and homepage show this clearly!
Maybe the halo-effect will really pay off, especially whilst Microsoft in reality is doing no new development because all resources are being directed towards plugging all the gaps and security loopholes in their existing products. If there is a market for 30 million iPods a year, and 5-10% of these switch from pc to Mac, then we could see 1-3 million extra Macs being sold per year - most likely iMacs and iBooks. That would make a significant impact on Apple's turnover and profit.
Maybe the halo-effect will work in two ways. First, more Mac sales. Secondly, more sales from Digital Lifestyle products and services. This would probably have an organic and exponential beffect on Apple's growth. Lets hope Steve and Co. are ready for it!
Comments??!!.....
iPod sales are growing exponentially. As Steve said at the U2-presentation, each quarter brings sales that are larger than the total previous sum of sold iPods. Yearly sales of 20-30 million are realistic. The Walkman of the 21st century indeed!
With increasing sales, Apple can press raw material prices down, meaning that the profit will be bigger, or prices can be dropped, so that the customer base will grow even more.
At present iPods account for 25% of Apples ternover and profits. What will happen to the company when the iPod division accounts for 75%?! There are several models out there:
Maybe institutional investors will demand that Apple splits in two, so that Apple iPod Inc. can be floated as a separate company with attendent mega-profits for existing shareholders. This must be a real possibility, since it is a classic model for developing new companies - read any business school text book.
Maybe Apple will continue to expand into other digital lifestyle products, so that the iPod becomes one of many products, some of which could even overdwarf the iPod. Apple Digital Lifestyle Inc. would offer dozens of the coolest electronic products and services for the home, where breathtaking design couples with ease of use to open up new markets, products and services, most of which we have not even thought of yet. I am sure Apple is well on the way in this regard! Their retail stores and homepage show this clearly!
Maybe the halo-effect will really pay off, especially whilst Microsoft in reality is doing no new development because all resources are being directed towards plugging all the gaps and security loopholes in their existing products. If there is a market for 30 million iPods a year, and 5-10% of these switch from pc to Mac, then we could see 1-3 million extra Macs being sold per year - most likely iMacs and iBooks. That would make a significant impact on Apple's turnover and profit.
Maybe the halo-effect will work in two ways. First, more Mac sales. Secondly, more sales from Digital Lifestyle products and services. This would probably have an organic and exponential beffect on Apple's growth. Lets hope Steve and Co. are ready for it!
Comments??!!.....
Comments
sure wish I'd bought a LOT more AAPL when it was 18/share
Understand that all this hype about Apple right now just that.... hype. This is coming from a guy who loves Apple to death.
However what we are trying to watch Apple do is something they, and Steve Jobs specifically have NEVER done correctly yet. Steve Jobs is being lauded because of the work with Apple and Pixar but his greatest shortcoming with regard to both of them could be exposed in both instances at the same time. I would find that strangely ironic.
Jobs with the iPod, with Pixar pictures, etc is trying to create a franchise within a commodity environment. When you do this, you get a little pricing control which allows you to generate some decent profits. The most famous example of this is probably Coca-Cola. Another example is Starbucks coffee.
Jobs has always insisted on and created a environment for the generation of great products. Yet no matter how great an achievement a product is, it eventually will become a commodity. The only thing being an innovator does is give you a bit of time to create a franchise around your brand then be able to charge a little extra later on for being a known name. Yet Jobs has never been able to successfully execute the second phase of this. His "art" is always too special for the commodity phase. He seems to believe that the market will never catch up or people will never choose the imitators at a third of the price. He has been proven wrong every single time.
In fact Jobs won't even compete in areas where he thinks the market is going to commoditize the product. He wouldn't do a PDA with Apple. Apple no longer sells 15 or 17 inch monitors because they are becoming low priced commodities. Jobs didn't want to release the eMac to the general public and of course the often discussed mini-tower aka headless Mac is still no where to be seen.
Apple saw they could be an innovator with the iPod. We've spent time speculating about what it would be like if Apple could bring similar innovation in other areas, but it won't happen. Jobs knows there are too many other people interested in those markets and they will commoditize it before anyone can get a foothold there. This is why there is no Apple digital camera anymore. No Apple videocamera, no Apple video iPod, etc.
Apple managed to create a franchise so far with the iPod but all the various commodity folks are lining up on all sides. They want to come crashing in with their players and they are going to flood the market with $50-100 players that probably hold a gig or two of flash ram within the next 18 months or so. I mean they will before that as well, but the point is that in 18 months the market will be huge enough and cheap enough that if Apple has not jumped in with both feet and matched what everyone else is doing plus about say a $10 per unit franchise charge, then the entire value of their franchise, the profits associated with them, etc. will be gone and Apple will be (again) marginalized. Apple will be able to charge $59 for a $50 player just because it is an "iPod" but they will not be able to charge $159 which always seems to be Job's thinking.
The same issue could befall Pixar at the same time. Pixar has a lead with regard to 3d animation. For a while they were pretty much the only player. Yet it is obvious that most of the major studios, including Disney, now have their own 3d animation departments in place. The Pixar lead is shrinking quickly. Also Pixar appears to be giving up the partner that helped overcome Job's greatest weakness. Disney couldn't create the 3d pictures Pixar could, and didn't attract the talent and storylines Pixar has in the last few years, but they did Jobs the favor of turning all the Pixar pictures and in turn the Pixar name into a valuable franchise.
Jobs can gush on and on about the artistry that went into Violet of the Incredible's hair. The reality is that the kids want Violet in their Happy Meal and could give a crap about the artistry. Actually what I should say is they enjoy the artistry but not enough to pay a premium for it for eternity and also not enough to forgo seeing what they enjoy avoid entire market segments for the "sanctity" of that art.
Disney does that for Pixar. They make sure the website has silly cornball flash games, advice columns, other nonsense that helps create and sustain the franchise. They put the toys in the happy meals, the board and videogames, etc on the shelves. They are the perfect balance to Jobs who would believe all these things that wring out extra profits and give you the slight pricing edge in a commodity market are below his art.
So, the point is, we will see if Jobs has changed. Perhaps getting older has finally made him wise up to what he is doing. I grew up in the 70's and miss what I call "pretentious rock bands who believe they are going to change the world with this 4 minute song." It created some pretty decent music. I mean sure the reality is that the delusional belief helped their music a bit. Of course it didn't change the fact that even the most successful groups would probably be playing the county fairs in 10 years singing that same tired old song. Their delusion helped their music and hopefully they grabbed their money while they could.
Jobs is wonderfully delusional. It helps in what he does. But the reality is that he needs to to realize that Toy Story characters end up in Happy Meals. They also make third pictures that, with a decent script probably add $400 million to your bottom line.
This stuff is mass produced, pop culture. You don't need a music player to hold 10,000 songs because it is all "art." You need it to hold 10,000 songs because most of those songs are average and a good number are crap. While people are at least paying attention to your "art" you've got to grab the money because a couple years down the road, they've moved on. People in 2006 will grab the $59 iPod over the $50 Sony because they remember how much they wanted the $400 iPod when they were 12. They will NOT pay any more than that though. It's why that same tired band can still command $25-30 at the state fair to play the song that you screwed your first girlfriend to in the backseat once upon a time. It is one part nostalgia, one part lazy thinking, one part good enough compared to the others.
Here's to hoping Steve has learned.
Nick
Amorya
I'd recommend selling within the next two or three weeks.
Originally posted by trumptman
My opinion? If you have some Apple stock, enjoy the huge run up right now and then sell soon grabbing your profits while you can.
Understand that all this hype about Apple right now just that.... hype. This is coming from a guy who loves Apple to death.
Originally posted by Amorya
Do we want steve to have learned? It's that delusion that makes Apple products great. I know that I for one would rather Apple sit at 5-10% marketshare and churn out insanely great stuff because they have to, than sit at 40% and make crap because they can.
Amorya
The tradeoffs you assume are nonsense. Coke doesn't have a choice between making their syrup taste worse and owning the market. Starbucks doesn't either.
Apple still makes mass market products. They are still assembled outside the United States with parts bought from various suppliers. You might like their design or software a bit better, but that doesn't mean either everyone else will, or that it is worth the market premium.
Also, by your logic, the iPod should currently "really suck" since it owns a large percentage of the market. That of course is nonsense.
Nick
i agree with the tone of you analysis but to refine your point, i think he wants to enter the commodities market on his own terms.
apple has released several commodities products already: wirelss keyboard, wireless mouse, isight etc...
why would he release these products and not others? there are definitely alternatives for these products yet he released them.
i always thought the isight could be attached to ipod to make a video/camera combo. if it can be done in a camera phone it can be done on an ipod. it would make the isight a nescessity for an ipod.
as always,
chung lee
ps. apple has always positioned themselves as a boutique company and in your opinion to their detrament.
While Jobs is around Apple will do fine. Without him though, I really do see the demise of Apple as a possibility. And if someone else as visionary as Jobs takes his place then it wont be Apple anymore.
Originally posted by garyp
I'm not selling. I'm waiting 'till AAPL dips to 50 & buying more. Apple will become the world's biggest name in digital entertainment. The Apple logo that you see on your boot screen will be seen by billions at the beginning of most movies. Also, Apple will smash the TV networks by delivering superior content. TV is crap, & everyone knows it. Apple will rule communication & entertainment. It will be one of the biggest brands on earth.8)
It's that kind of thinking that'll keep apple from taking advantage of the TV craze.
What do people watch in their 50"+ plasmas, projection DLPs, and LCDs? Movies yes, but 90% of the time it's TV.
People are spending ungodly amounts of money on TVs and tv accessories (cable, satellite, tuners, tivos).
TV is MOSTLY crap, but not everyone knows that. I watch news and c-span 95% of the time. I can tell you that I cherish each one of my copies of historical footage or my favorite authors doing speeches on c-span's booknotes. I have it on my computer, I've burned them onto DVDs for people, and sometimes I take snapshots out of the footage and send them to people.
Tv is mostly crap, but there's a LOT of it. even if you only like a 1% of the content, that's still 2 or 3 hours a day of good, solid, material. Apple should damn well allow you to manipulate it into the best conveyance possible (on your time, no commercials, and on any device).
Originally posted by Amorya
Do we want steve to have learned? It's that delusion that makes Apple products great. I know that I for one would rather Apple sit at 5-10% marketshare and churn out insanely great stuff because they have to, than sit at 40% and make crap because they can.
Amorya
completely agree - i like being elitist!
Originally posted by trumptman
The tradeoffs you assume are nonsense. Coke doesn't have a choice between making their syrup taste worse and owning the market. Starbucks doesn't either.
Apple still makes mass market products. They are still assembled outside the United States with parts bought from various suppliers. You might like their design or software a bit better, but that doesn't mean either everyone else will, or that it is worth the market premium.
Also, by your logic, the iPod should currently "really suck" since it owns a large percentage of the market. That of course is nonsense.
Nick
If you read what he said, he said he'd rather had a 5-10% market share and made great products then a 40% and made crap products because they could. He's not saying their are at the moment.
Think of the pop-star, becomes successful with young teen girls, they can then make any old crap and people will buy it, but indie groups that appeal to the minority will sell mass market sometimes but will normally be minority, they still make good records because they have to! The Beatles could get a way with ob-la-di and yellow submarine because they were successful.
Originally posted by UnixPoet
The future of Apple depends on one thing and one thing alone: a Mr. S. Jobs being in charge.
While Jobs is around Apple will do fine. Without him though, I really do see the demise of Apple as a possibility. And if someone else as visionary as Jobs takes his place then it wont be Apple anymore.
that is a problem though. Apple can't rely on one person, i think he needs to realise that if Apple is going to have any future without him he needs to start working with other people. Bill Gates isn;t needed for mircosoft to be successful, Jobs is needed by Apple.
Originally posted by MacCrazy
.... Bill Gates isn;t needed for mircosoft to be successful, ....
And you know this how?
Originally posted by MacCrazy
If you read what he said, he said he'd rather had a 5-10% market share and made great products then a 40% and made crap products because they could. He's not saying their are at the moment.
Think of the pop-star, becomes successful with young teen girls, they can then make any old crap and people will buy it, but indie groups that appeal to the minority will sell mass market sometimes but will normally be minority, they still make good records because they have to! The Beatles could get a way with ob-la-di and yellow submarine because they were successful.
I hate to break this to you, but after the initial advance, most things become decidedly average. This is even true with music performers.
The initial post stands. No matter how great we think the iPod, people are already matching and surpassing it with regard to specs. Apple is going to bring out a flash-based player and so will everyone else. We WILL see this market commoditized. When that happens, Apple will either compete or retreat. The stock run up has been based on the HOPE tht they will compete. However Steve Jobs has never pulled off the franchise within a commodity market bit yet.
If the Indie band wrote "better" music than the pop princess but decided their "art" was worth $40 for ten songs. You would probably tell them to kiss your ass. You would recognize that no matter how much better or worse the music happens to be in your subjective opinion, the reality is that it is not good enough to justify being 400% higher than most other music in a commoditized market. In fact your reasoning would probably fall in the opposite direction. You would think that since the indie band doesn't need pyrotechnics, million dollar music videos and bad boob jobs to cover up their lack of talent, that the music shouldn't cost as much.
Apple and Jobs specifically have NEVER realized this. They simply believe that their art, which is subjective anyway, will always demand a premium. It hasn't worked. If they try the same method with the iPod, we will wonder why the hell Apple is still selling $200 iPod mini's in six-twelve months when everyone else is selling $50 two gig flashram based players. Apple can still compete in that market. They can even still command a small franchise premium. But if they don't join the commodity rush, they will be crushed.
Nick
Originally posted by trumptman
Apple and Jobs specifically have NEVER realized this. They simply believe that their art, which is subjective anyway, will always demand a premium. It hasn't worked. If they try the same method with the iPod, we will wonder why the hell Apple is still selling $200 iPod mini's in six-twelve months when everyone else is selling $50 two gig flashram based players. Apple can still compete in that market. They can even still command a small franchise premium. But if they don't join the commodity rush, they will be crushed.
Nick
Apple usually charge more because they sell less units. The iPod should be a lot lower now though. I don't mind paying more for Apple because let's face it, it's a lifestyle product. Like expensive clothes brands, people pay more for style, I'm also paying more for an easier life with less stress, I think it's worth it!
Originally posted by trumptman
I hate to break this to you, but after the initial advance, most things become decidedly average. This is even true with music performers.
The initial post stands. No matter how great we think the iPod, people are already matching and surpassing it with regard to specs. Apple is going to bring out a flash-based player and so will everyone else. We WILL see this market commoditized. When that happens, Apple will either compete or retreat. The stock run up has been based on the HOPE tht they will compete. However Steve Jobs has never pulled off the franchise within a commodity market bit yet.
If the Indie band wrote "better" music than the pop princess but decided their "art" was worth $40 for ten songs. You would probably tell them to kiss your ass. You would recognize that no matter how much better or worse the music happens to be in your subjective opinion, the reality is that it is not good enough to justify being 400% higher than most other music in a commoditized market. In fact your reasoning would probably fall in the opposite direction. You would think that since the indie band doesn't need pyrotechnics, million dollar music videos and bad boob jobs to cover up their lack of talent, that the music shouldn't cost as much.
Apple and Jobs specifically have NEVER realized this. They simply believe that their art, which is subjective anyway, will always demand a premium. It hasn't worked. If they try the same method with the iPod, we will wonder why the hell Apple is still selling $200 iPod mini's in six-twelve months when everyone else is selling $50 two gig flashram based players. Apple can still compete in that market. They can even still command a small franchise premium. But if they don't join the commodity rush, they will be crushed.
Nick
Yea, you could be right. But you could be wrong. Or you could be right, but a long time in the future. Personally, I don't believe people want the DIY yourself approach to home PCs and consumer electronics anymore. That's what MS is pushing. You have to assemble all these pieces of software and hardware yourself and troubleshoot everything and nobody stands behind it.
Right now, nobody and I mean nobody else is offering an integrated music platform besides Apple, which makes all the pieces and stands behind the experience. Nobody else is offering an integrated computing experience either. How does your product become a commodity when nobody else is offering it?
Let me put it this way, do you think in 30 years people will be doing things like installing a new "Operating System"? Do most people today build and fix their own home heating and cooling systems? Do people want to buy their car transmission from one company, their engine from another, the body from another, all the electronics from another and then have to get it all to work?
This is impossible. There is no way that the Apple way (integrated unit that performs a function) is not the future of home PCs and consumer electronics (it pretty much always was that way with consumer electronics to start with. PCs are next).
I believe the Apple integrated way will become more and more successful and eventually competitors doing just what apple does will arise. Then maybe Apple will be in a commodity market.
Originally posted by trumptman
The initial post stands. No matter how great we think the iPod, people are already matching and surpassing it with regard to specs.
People have been since the iPod came out (remember those big clunkers with 20GB drives, when the iPod was at 5GB and 10GB?). Some of them are getting closer, but with a true consumer product specs are not the whole deal.
You can hit every bullet point, and still have a product that flops because it deserves to.
Apple is going to bring out a flash-based player and so will everyone else. We WILL see this market commoditized. When that happens, Apple will either compete or retreat. The stock run up has been based on the HOPE tht they will compete. However Steve Jobs has never pulled off the franchise within a commodity market bit yet.
Will?! They have! Flash players are already 40% of the market. It's already commoditized. It's easy to forget that much of the skepticism around the first iPod revolved around the argument that the market was already saturated with cheaper commodity players.
And that's the problem with your argument: The iPod has always been a commodity product. Early examinations of the first iPod remarked on how it was almost entirely made of off-the-shelf parts, including the OS.
Apple's trick to surviving has been getting extremely favorable prices for high-end commodity parts, integrating the hell out of them, and offering them with a world-class jukebox program (and lately, a world-class music store with relatively liberal DRM).
The advantage to this approach is that it keeps them near the high end spec-wise, keeps the price/performance tradeoff reasonably balanced, and vests their real advantage in areas important to consumers where the rules of the commodity market are irrelevant.
Their main challenge is to keep coming up with catchy uses for new technologies (viz. iPod photo), without losing sight of the absolute simplicity and the killer app—music—that made the iPod what it is. Now, this isn't easy. But everyone else faces the same problem, and this problem happens to be one that Apple solves better than anyone else does right now. Everyone else has a "yes, but" solution.
Apple and Jobs specifically have NEVER realized this. They simply believe that their art, which is subjective anyway, will always demand a premium.
On the other hand, what analysts have never realized is that howevermuch they'd like everything to boil down to concrete, measurable things like spec lists, manufacturing efficiencies and marketing budgets, the consumer market is inherently based on subjective judgment. The challenge is to come up with a subjectively superior design which is subjectively judged to be superior, all things considered, by enough people. Sofar, it's pretty clear that the iPod has hit this mark, however difficult it is to define, however impossible to quantify.
Apple's failure with the Macintosh had nothing to do with their failure to join "the commodity rush." In fact, the "commodity rush" has crushed both the father of the platform (IBM) and the company that offered the first completely commodified version of that platform (Compaq). More casualties are anticipated.
The real trick is to avail yourself to the extent possible with commodity parts, and assemble them into a product that transcends those parts.