Apple’s Greatness Is Fading
by Matt Ward | Feb 26, 2018
Apple’s an interesting company—a true underdog success story that defined consumer tech and later became the most valued company on Earth.
And while everyone knows Steve Jobs, few truly understand Apple, especially going forward.
Warning: I have never really liked Apple (which is ironic, as I write this on a MacBook Pro) and could be considered a cynic. For Apple fans afraid of cold hard facts and analysis, this may not be the article for you.
But for anyone interested in tech and understanding Apple’s future, specifically their growth opportunities, Achilles’ heels, and potential acquisitions, let’s get down to business.
Be warned, this is a long one. Grab some coffee.
This is the fourth in a series of in-depth articles on the future of the tech giants—including a breakdown of their business models, biggest threats, future plans, and probable acquisitions.
Gods of the Valley - A Series
Part 1: Amazon Eats the World
Part 2: The Future of Google
Part 3: Facebook: The King of Communication
Part 4: Apple's Greatness Is Fading
To understand the future, we need to understand the here and now and build off it. And, like any company, Apple’s complicated. Compared with our other top tech giants, however, Apple is a piece of cake.
Tim Cook has two primary drivers: hardware and services. And as an optimizer, he has polished these to perfection, to the tune of $215B in 2016.
And that was a down year.
Apple is a money-printing machine. Consumers, thanks to incredible branding and past product quality, are hooked.
Hardware is hard. It isn’t an easy business to be in.
Yet in spite of capital constraints, R&D costs, and manufacturing mishaps, Apple is still crushing it. Here is a breakdown of Apple’s revenue by product (both constant and normalized).
As expected, the iPhone, iPad, and Mac make up the majority of the revenue. But with growth in services and several new product lines discussed below, look for Apple to finally see a bit of diversification in their business.
1. The iPhone—the #1 smartphone
The iPhone launched in the Summer of 2007 and changed the world. Since then, the iPhone has dominated Apple’s business and bottom line, increasing from just 1.2M sales in Q1 of 2008 to over 78M in Q1 of 2017.
The growth is staggering and makes up the lion’s share of Apple’s operating revenue, 69.4% (Q1 2017). And although Apple loves to point out that the iPhone was “Designed in California,” the US is by no means the entire market, accounting for just ⅓ of all iPhone sales in 2017.
And if we’re being honest, the iPhone is about much more than just the phone; it is the connection with consumers, the driver of iTunes, the App Store, AirPods, accessories … pretty much the whole shebang.
This creates potential problems going forward, which Apple recognizes and we will discuss in a later section.
That said, they still sold more than $87B worth of iPhones in the first half of 2017.
2. The iPad—the #1 tablet
Steve Jobs was a product genius, and while the iPad was one of his more obvious “inventions,” it has still been good to Apple—and defined a category.
Although the iPad is still important for Apple, iPad fever peaked in 2014 when it accounted for 20% of Apple’s top-line revenue. Today, with over 360 million units shipped since 2010 (as of May 2017), the iPad is fading and losing market share.
Now Apple holds a declining 25% market share and accounts for only 20.8% of new tablet purchases worldwide (although still the #1 brand).
The numbers kind of speak for themselves. Tablets last even longer than phones, so reorders are a real problem.
3. Mac—the #4 laptop
Here we see the same problems as iPad, only intensified.
The issue is that the world is going mobile. We reached peak PC; now things are winding down.
Combine these trends with Apple’s lack of focus on its computer division—the terrible touch bar, the unfixable keyboard, and being out-innovated by Microsoft—and it isn’t a pretty picture.
It seems safe to say Mac isn’t a focus for Apple anymore, and they are falling behind in market share because of it.
4. Beats—the #1 headphones
Apple acquired Beats in 2014 for $3B, and in doing so, they acquired an icon and an incredibly hot brand. Beats revolutionized the music/headphone industry, focusing on making music awesome to listen to and less about the exactness of the audio quality. This, coupled with the hip-hop cred of the doctor himself helped Beats soar, quickly becoming the most popular brand with the cool kids.
Today, Beats is a big part of Apple’s empire, although unfortunately, revenue numbers aren’t public. We do know that Beats made a reported $1.3B in 2013. I imagine shelf space in Apple’s 499 retail stores worldwide has skyrocketed this number.
And then there’s the other thing …
5. AirPods—the #1 Bluetooth headphones
AirPods are Apple’s first big hit since Jobs. These tiny in-ear headphones have exploded in popularity, mainly because Bluetooth is awesome and a much easier, more enjoyable experience.
Had Apple aficionados tried other Bluetooth headphones on the market before the launch of the AirPods, we wouldn’t be having this discussion. But between the intentionally out-there hipster style, the superb performance, Apple’s signature “I’m better and cooler than you” branding (which to be honest is the core of everything they do), and their extensive retail network, Apple sold a lot of AirPods.
And while 2017 was big, 2018 will be even bigger. Apple expects to double sales, reaching a whopping 26–28 million units the year after release. That is much faster growth than the original iPhone and on par with the iPad.
And although the lower price point (~$179) means less revenue contribution for the company, the sales come at a much-needed time as other divisions underperform.
6. Apple Watch—the #1 wearable device
When Apple launched the Apple Watch in 2015, there was one big problem—the product had no use case. There wasn’t a single thing that the watch was good for.
It was kind of a build it and they will come product. And that is what happened, initially.
As you can see, after the initial fans lined up to get the latest gadget, the sales started to stagnate. Recently, Apple’s released a new version with actual functionality! Now you can make calls and have wireless connectivity, even without your phone. Suddenly a use case or two were born.
And now the Apple Watch is quickly eating up the wearables market. Obsessed Apple fans will buy anything, and now that there is more than just perceived value, people are biting, buying nearly four million units in Q3 of 2017.
The question going forward is how the wearables market will shake out. If smartphones are any indication, Apple will offer the premium product, and Android or other generic versions will eat up most of the mass market.
7. Apple TV—the #4 smart TV device
11 years ago, in the winter of 2007, Apple launched the Apple TV. They wanted to own the home and replace cable TV. It is fair to say they fell miles short, and instead ended up just pushing an overpriced box.
Apple missed the key that Netflix picked up on—quality original content is compelling—which was the biggest of the opportunities.
Rather than creating the content, Apple expected the wide variety of online video services to beat out cable. They were wrong.
A shoe store with a million options is overwhelming—the fewer, more personally tailored options presented, the better.
Today, Apple’s market share continues to decline due to non-competitive premium pricing and a non-differentiated product. Expect this trend to continue.
Services—Apple’s term for its software division—has been a major area of growth for Apple and something they will focus more heavily on in the future. They understand the challenges of hardware and the margins on services (provided through software). Thanks to the success of their services division (Q4 of 2017 the services category brought in $8.5B, up 34% YoY) and fear over declining iPhone sales, expect Apple to double down here.
Services to Exceed 33% of Apple Gross Profit by 2020—Credit Suisse
1. The App Store—the #1 mobile app store
The App Store is incredibly valuable for Apple, bringing in $8.6B per year and ⅓ of the revenue from Services. It is also the reason Apple won, at least initially. And it is something Jobs resisted for quite some time.
The App Store has given iOS a big leg up on Android. It brings in 75% more revenue than Google Play despite the difference in downloads. This is a self-reinforcing cycle whereby the top developers focus their efforts on iOS (because that’s where the money is) to the detriment of Android.
2. Apple Music—the #2 streaming music service
Apple’s streaming music service has been huge for the company, and it’s clear that the world is moving away from downloads and towards streaming.
With a large user base and iTunes as a lever, Apple is very focused on building out its subscription base. Whether they surpass Spotify or not, Amazon is coming, and Apple needs the subscription business revenue to offset hardware risk.
Apple Music has been one of the largest contributors to Apple’s services revenue rise, exploding from nothing to 27 million subscribers in 24 months. That is incredible growth and up to $3.2B per year in recurring revenue.
A little later, we will talk about Apple’s ultimate plan with Apple Music and how it all plays out.
3. Apple Pay—the #1 mobile payment system
The world is going cashless.
Between mobile payments (at stores, online, etc.), peer-to-peer payments (like Venmo), and of course cryptocurrencies, paper money is disappearing rapidly (due to, among other things, inconvenience).
As the shift to cashless occurs, Apple is uniquely suited to dominate.
Because retail payment systems require infrastructure (PoS, card readers, cash registers, etc. … ), it takes time and energy to implement new payment methods. And because implementing payment systems isn’t the primary business of barbers, bakeries, and coffee shops, it is fair to assume winner-take-all dynamics apply here (because shops won’t want to set up dozens of payment systems). There will be a few accepted payment systems and everything else will fail to get adoption.
Apple has a real shot to win the mobile payments market, especially in the US. With 36% of US merchants accepting Apple Pay (Feb. 17) at 700k+ locations (March 15) and a 90% market share (Aug. 17) of the US contactless payment market, Apple is making waves.
That said, only 27% of eligible iPhone users have used Apple Pay to date (Aug. 17), meaning there’s massive room for improvement. And while Apple Pay transaction volume increased 450% from 2016 to 2017, there is still a long way to go.
Apple also released Apple Pay Cash last November, a peer-to-peer payment system, which should be interesting to watch unfold, especially given the added functionality it enables for all Apple Pay users. More on this below.
Apple pretends to be in the consumer cloud business, but it is a bit of a joke. The only people who use iCloud are iOS users, and even they only use it to back up their devices. The majority of the “real” consumer cloud market belongs to Dropbox, Google, Box, and Microsoft.
That said, one industry analyst believes that Apple makes significant revenue from iCloud, possibly as much as $4B per year—mainly as an iPhone upsell.
While this number seems unreasonably high, it is also safe to say most iOS users would pay a few bucks for more storage; they are already invested in the platform and used to upsells anyways.
If this is indeed the case, Apple would be the #1 consumer cloud provider, although I’m skeptical.
5. Apple Stores—the #1 retail store
There are 499 Apple stores around the world, and they are the key to Apple’s empire. Apple has built their stores into an amusement park-esque experience where fans flock just for fun, often leaving with extra items.
Between their incredible customer service and creative inbound marketing, Apple gets buyers out in droves.
Any other brand would kill for this kind of following.
6. ARKit — the #1 augmented reality dev tool
This past summer, Apple made a big announcement: ARKit, a new framework to allow iOS developers to easily create interactive augmented reality experiences for the iPhone and iPad. Since then the world has been watching, and developers have been delivering. Apple is betting big on AR, finally being a first mover again!
Here is a demo of some of the awesome things people have built. Expect this augmented reality trend to accelerate in 2018.
While Apple is the most valuable company in the world and killing it financially, it isn’t all rosy. There are some major issues. Let me explain.
1. The end of the smartphone
Smartphones won’t be around forever. And we are entering an era where Moore’s Law is hitting the limits of economic feasibility.
Users used to speculate that Apple slowed down old iPhones (after launching new ones). This has since been confirmed (although Apple claimed it was all in the name of battery power).
The truth is, Apple needed a reason for consumers to reorder. Apple’s valuation and cash flow projections are based on yearly releases and upgrades every two years. What happens when consumers stop upgrading early?
It is obvious Apple knows this and is trying to cash in on this iPhone thing for as long as possible.
In 2016, Apple had a hiccup, with iPhone sales dropping 5.3% in Q3 of 2016 (compared to the previous year). A 5.3% drop plus weak performances across several other product lines was enough to force the company to take on a ton of debt to pay off investors. Are you serious?
While Apple had more than enough cash, I imagine the tax implications of moving their money made taking on debt more attractive financially.
Either way, Apple is clearly too dependent on the iPhone, accounting for 69.4% of their revenue.
And, up until the iPhone10, changes were superficial at best. There was no real reason to buy, other than the “I’m cooler and better than you” effect of owning the latest iPhone.
Trip with all your eggs in one basket, and it can all come crashing down. Apple needs to diversify big time.
2. Greed and lack of innovation
Which Apple products within recent memory were remotely innovative or worthy of Steve Jobs?
The first thing that comes to mind is Apple’s new HQ (although I suppose that doesn’t count). That is just about greed and ego and certainly not for consumers.
Unfortunately, Apple replaced a visionary product genius with a logistics and optimization specialist. The result, as expected, is efficiency. Today, no company is more efficient than Apple at extracting dollars from its customers. And Tim Cook takes this up a notch with his dongles and adapters mindset.
In consumer tech, accessories are always the highest margin products. Whereas, for the iPhone or Mac to be competitive, they need to keep prices reasonable (iPhone X aside …), this isn’t the case for accessories.
Before I built and sold our e-commerce company, accessories were always the exciting part. When you’re purchasing a $1500 laptop, do you stop to think about the $89 dongle, the $9 to $39 lightning adapter, the $39 thunderbolt cable, or any one of dozens of Apple upsells?
Of course not. The percentage of the purchase price is so low that you don’t bother to compare, although you’re paying many times more than a competitive price for the product.
And guess why you’re buying all these adapters and devices, including those wireless headphones? It’s because Apple is removing all the basic ports to push more and more little accessory upsells.
But Cook’s greatest innovation is definitely slowing the old iPhones. Nothing drives up demand like “accidentally” destroying the old product.
Everyone understands the pros and cons of short- versus long-term thinking and gratification. And Apple, for one, is focused on the short term. Apple isn’t focused on usability or innovation anymore. They’re focused on annoying high-margin accessories that have driven profits and market caps through the roof in recent years.
Removing ports, removing headphone jacks, removing all simple functionality to force an additional purchase, all in the name of profit and aesthetics is downright troublesome. And Apple’s flops on new product lines and innovation are embarrassing: the Macbook Pro slider, the Watch, the car, the marginally better iPhone at ever-increasing prices …
Apple is building fluff features for the sake of showmanship and sales. That’s usually a formula for disaster.
Bold prediction: Apple has peaked, and short-term greed has offset a long-term growth mindset. This is a company that has to buy someone to save their ass and remain relevant.
3. Non-diversified business
Today, Apple is a hardware business with ~80% of revenue coming from physical products. As working wages rise in China, India, and overseas, this creates a strain on Apple’s core business.
Hardware is hard and risky. It is very capital intensive and has long manufacturing/sales cycles with historically decreasing margins. While this worked for Apple to date, I would question the feasibility of a primarily hardware-based business going forward. If Apple isn’t able to grow its services revenue substantially, this may lead to problems.
That said, Apple has more than a quarter trillion dollars in the bank (mainly overseas). This is enough to float any business for quite a while assuming they aren’t killed with taxes or robbed by the EU anytime soon.
But as we saw with the iPhone sales drop, cashflow is challenging, and if we see several quarters of below-average performance across the iPhone, iPad, and Mac product lines, Apple is in for a world of hurt.
4. Voice computing
Siri is shit. Compared with Amazon’s Alexa and Google Now, Apple is being left in the dust.
This creates big problems as we move to an increasingly digital world where IoT devices, many with speech-based controls, spread through society.
Apple dropped the ball big time here. Had it invested in this space, Apple, rather than Amazon and Google, could have owned the home. Now instead of participating in the upside, it gets to watch from the sidelines.
This creates a self-reinforcing loop where Apple falls further and further behind in voice-based computing. If Apple doesn’t incorporate Alexa and Google Now into its devices, Apple’s offering will suffer.
While not an immediate problem, what happens when “the consumer tech” company can’t keep up? If we end up talking to our robots/devices, Apple is dead in the water.
A big part of the problem is that Siri started in an era before today’s NLP technology was possible. That meant consumers suffered years of awful experiences and still hate Siri to this day. This, coupled with Apple’s laziness in this regard, looks really bad for the company’s future.
Apple is uniquely positioned for major growth in several verticals. And, given proper motivation, Apple can grow into a more diversified, sustainable business. Here are a few ways.
As host of The Syndicate podcast and a fan of numerous tech, VC, and blockchain-based shows, I’m bullish on podcasting. That said, the numbers speak for themselves.
While not hugely lucrative currently (due to inefficiencies in the system), 21% of individuals over the age of 12 listened to a podcast in the last month—that’s 57 million Americans (and growing rapidly). Attention and advertising dollars are flooding the space.
The biggest challenges today are the complexity of advertising and lack of analytics. Unlike most digital advertising, it is hard to set up and measure podcast advertising. You don’t know where listeners drop off or if they even heard the ads. And finding/onboarding publishers is a one-off process requiring significant time investment.
There is no simple easy-to-use system for buying and selling podcast ads. Yet, given these limitations, podcast advertising is still expected to reach $395M by 2020.
This is something Apple could dominate to effectively diversify their business (while eating into Facebook and Google’s advertising duopoly).
Apple may already be realizing this. While iTunes already dominates podcast discovery and the iOS podcast app has a 60–70% market share, Apple is starting to offer analytics and tracking on podcasts.
This is the type of stats advertisers need to see before committing, and something only Apple can offer. To date, there is no other way to collect this data.
Podcast ads outperform traditional advertising. The reason is simple; the listener knows, likes and trusts the host. After spending countless hours “with” them, you feel like you know them, making podcast ads more engaging and trusted than other forms of traditional advertising.
While the average ad recall from print and tablet-based magazines is only 52%, podcasting has demonstrated recall rates of 89%—a 71.1% improvement over the mean.
And the results are even more marked versus full-page takeover display ads on mobile (i.e., what Facebook does; 45% recall) and desktop (35% recall). Plus, listeners say they are 56–61% more likely to eat at the restaurant mentioned.
While it is still the early days for podcast advertising, what happens when setting up and tracking ads across podcasts in a variety of industry-specific verticals that convert better than Facebook mobile ads becomes as easy as setting up a Facebook ad?
More and more money would pour into podcast advertising due to its targeted, long-form engagement, likely leading to exponential revenue growth, potentially with Apple at the center.
And since weekly podcast listeners listen to an average of five hours and seven minutes of podcasts per week, there is a huge amount of monetizable, highly focused customer attention that Apple could take easily advantage of.
2. Expanding Apple Music
Apple Music has been one of the largest contributors to the growth in Apple’s services revenue. But it isn’t only about the revenue. This growth allows Apple to pour resources into the platform, including original content. And with a $3.2B per year budget, Apple can start to get creative because Apple Music doesn’t need to make money right away. Apple has more cash than it can count.
If, by delaying gratification, Apple can build a better, more diversified product than Spotify or Amazon with a huge base of original content, they could create competitive advantages beyond their user base. That is where true growth and sustainability come in.
Plus it would be a perfect one-two punch with…
3. Expanding original video content and streaming service
Apple has been a player, albeit a laggard, in the video space. While iTunes has always offered pay for purchase (or rental) content, video has gone the way of music—streaming.
There is so much potential in video. In 2016, the streaming video on demand market worldwide was $10.96B, expected to increase 20% by 2021. And Netflix alone is valued at $94B.
The market for quality video content is constantly increasing. Content (and attention) is king, and video, more than any other medium (short of VR), completely captures attention.
Netflix will spend $6–8B on original content in 2018. In 2017, they produced 1,000 hours of original programming. And with shows like “House of Cards,” “Orange Is the New Black,” and “Narcos,” Netflix is nailing the content.
Amazon is hot on their heels with a $4.5B budget, and Apple is planning on dropping $1B this year.
Note: Don’t forget Disney’s launching their own subscription video service, which will bloody the waters even more.
People pay for quality content. Subscription revenue trumps ad dollars every day.
It is a race to own the user, and Apple needs to drop some dollars (and hire awesome people) to make this happen.
And Apple could have a competitive advantage here, leveraging its massive customer base and constant connectivity to create a content kingdom. By pairing original video with Apple Music, Apple could create a highly defensible, unique offering for iOS users.
One challenge here is that Apple overcharges (pretends to be premium) for everything. In the world of streaming services, it is much more about content than brand. If Apple can create a superior offering/content (which at this point will be challenging), perhaps they can charge more. But, to be honest, they should focus on acquiring as many paying customers as possible. It is all free money for them anyways.
If they pour the $3.2B per year in Apple Music subscriptions into both audio and video content, they could really start to build something special.
4. Expanding Apple Pay
The mobile payments market is exploding, currently exceeding $700B, and it isn’t slowing anytime soon.
And with the launch of Apple Pay Cash in November of 2017, Apple is finally entering the peer-to-peer payments space—a massive part of the market that is growing rapidly—estimated to break $1.08T in 2019.
With over 700 million iPhones in use worldwide and more than one billion iOS devices, Apple already has the user base. By implementing P2P payments inside the existing iMessage interface, Apple could introduce hundreds of millions to the world of mobile money.
They should poach one of the top execs from a leading P2P payments company to expedite this process. This is probably Apple’s largest, most lucrative, and capital-efficient growth opportunity for the foreseeable future. They can’t afford to f*ck it up.
5. Starting a venture capital arm
Apple has more money than God. They can (and should) put this to good use, investing in the companies of the future.
Google Ventures (Google’s venture capital arm), with a $2.4B fund focused on investing in the disruptive and game-changing companies of the future, has provided the perfect case study, buying exposure to fast-growing industries. Their portfolio is top-notch, including the likes of Uber, Medium, Jet.com, Slack, Stripe, HubSpot and dozens of other promising start-ups.
A venture arm would present Apple with great opportunities for future partnerships and acquisitions (like Nest with Google), but would also diversify Apple’s risk across a portfolio of winners.
This strategy of redeploying wealth into the ecosystem not only furthers tech and economic development worldwide but ultimately creates a scenario where it is hard for Apple to lose, regardless of the fate of the company.
It has been argued that Apple’s policy of secrecy has prevented this. This is a stupid reason. Google Ventures isn’t limited to investing in applicable technologies for Google. Instead, it focuses on the all-around best companies and drives massive returns.
This should be the model if Apple attempts VC. By keeping the fund isolated from the inner workings of Apple, fund managers could focus on deploying Apple’s obscene amounts of cash into future big bets.
6. iMessage as a platform play
When it comes to technology and societal trends, Asia is almost always miles ahead. This is especially true with mobile and messaging apps.
WeChat, China’s version of Whatsapp, is the most ridiculous, life-encompassing application in existence today. Users do everything through WeChat, from paying for goods, P2P payments, and sending Bitcoin to booking an Uber (actually Didi), ordering food or wine, or reading the latest news.
And of course, with such a high degree of use and importance (and control) in consumers’ lives, WeChat is an incredibly valuable, profitable product/platform.
iMessage should try to follow suit.
WeChat is owned by Chinese internet giant Tencent, a massive conglomeration with a market cap of $543B (more than Facebook). And while WeChat’s revenue and profit numbers are not public, as of August 2015 it was valued at ~$83B, ½ of Tencent’s total market cap. This implies WeChat, a messaging app may be worth over $271B today.
This makes Whatsapp’s measly $19B acquisition seem tiny by comparison.
If I controlled Apple/iMessage, I would build out a platform focused on being WeChat. We have already established the massive value WeChat has built in the Chinese market. But outside of China, WeChat is a nobody.
That means iMessage could become the de facto mobile app/experience for iOS users, owning every mobile interaction, but that is a much longer shot.
Here the big challenge is cultural norms. Western consumers, unlike their Asian counterparts, are not used to living life via a messaging app. And while the opportunity is huge, changing user perception of iMessage into anything other than messaging will take significant time (and marketing).
Additionally, while China is an almost completely cashless society, and mobile payments are norm, the West isn’t there yet. For iMessage and Apple Pay to own this space, significant infrastructure changes would need to occur.
But damn it anyways, that is how you own the world—by making big bets.
By diversifying out of a hardware-only business model, Apple would significantly reduce its risk and position itself to own (possibly) the next paradigm of UI.
7. Expanding AR
With the release of ARKit, Apple brought augmented reality to the everyday consumer. Now, with hundreds of millions of AR devices suddenly out there, AR becomes attractive, especially for developers.
There is a non-negligible chance that the internet’s next wave will be based around augmented and/or virtual reality. A company at the cutting edge, like Apple, should focus on its OS approach in facilitating (and controlling) this transition.
In business, true wealth accrues not to the first movers or to the businesses but to the platforms.
The company that builds the platforms, interfaces, and mediums of exchange that facilitate augmented and virtual reality start-ups (and companies) will be the one that wins.
While plenty of companies are fighting to be the goggles of the future, this isn’t an exciting battle. Instead, Apple should focus on building/acquiring the infrastructure and services needed to support this new wave of innovation—think the Youtube, the App Store, or the AWS of AR/VR (likely with B2B- and B2C-facing platforms).
That said, Apple is pursuing AR/VR headset manufacturing and plans to release them in 2019. They acquired Vrvana, an augmented reality headset startup in 2017 for a reported $30M.
While headsets are in their wheelhouse, it increases their dependence on hardware, which is inherently risky. But we are also projected to hit 99M AR/VR headsets sold worldwide by 2021, so the growth opportunities are very tempting.
That said, to date VR shipments have grossly underperformed forecasted numbers. It will be interesting to see if AR follows suit.
When Apple enters the headset space, they should consider strategies for recurring revenue, possibly with in-app subscriptions or membership access to exclusive worlds/content, etc.
Strategic Acquisition Opportunities
For Apple, build it or buy it is barely a discussion. With over ¼ trillion dollars in the bank, Apple needs to make some acquisitions to build for the future, and diversify out of their risky 80%+ hardware business model.
With Apple’s increased focus on video and original content to compete with Netflix, an acquisition only seems logical.
There are several ways this could play out and many potential candidates.
Here, I like Netflix. Apple could easily afford it ($94B market cap), and the synergies with Apple’s existing business model and customer base are enormous.
If Netflix were added as a home screen option to every iPhone, iPad, and Mac, imagine how many more subscribers Netflix would easily acquire, each paying $10.99 per month.
People pay for quality content. And Apple’s war chest added to Netflix’s content creation skills could end the streaming video war once and for all.
Note: For a more outlandish yet also incredibly lucrative opportunity, Apple could buy Disney. The synergies are everything that’s applicable to Netflix plus the entire theme park and merchandising arm. This is an unlikely scenario, given Disney’s $167B market cap, but would be infinitely more interesting (and likely lucrative) than merely buying Netflix
Apple Music will play an enormous role in the future of the company. Pandora could be an interesting pick up for them. Pandora, the most used music streaming service (free version), has a market cap of only $1.13B. That is chump change for Apple. Between distribution and licensing deals and upsell opportunities to existing Pandora subscribers, this could be an interesting deal for Apple.
The other interesting player here would be SoundCloud, the streaming service that nearly goes bankrupt every few months. As Soundcloud clearly hasn’t figured out monetization, this could be an interesting plug and play with Apple’s existing infrastructure and customer base.
SoundCloud has raised $467M to date. They aren’t worth that now. An acquisition (or takeover) could pay back investors and set Apple up for success, taking down one of the few competitors in music and podcast hosting/streaming/discovery.
Apple has dropped the ball big time with Siri. To make up lost ground, Apple should consider acquisitions/acqui-hires of the top AI and voice computing start-ups and experts in the industry.
Who these firms are, I have no idea. But to stay competitive in the coming IoT world, Apple needs to make a move now.
Apple should not buy Tesla. Apple isn’t serious about autonomous vehicles or the auto industry and has no experience in the space.
Apple isn’t a car company; they care too much about aesthetics and far too little for functionality.
If Apple dropped $58B for Tesla and botched the business, that could be their undoing, especially as smartphone sales start to stagnate.
Apple has a lot going for it: $250B in the bank and some of the smartest folks in the world working in their new spaceship HQ.
Call me a naysayer, but I’m bearish on Apple. The recent short-sighted greed and lack of major innovations have me worried. In a connected world, the best user experience ultimately wins out. And right now, Apple isn’t providing that (we didn’t even go into their buggy iOS releases, but … ).
On the whole, Apple is a great company. But compared with Google, Amazon, and Facebook, they are falling behind.
Apple is getting a C+. If they sort out their issues, build up Apple Music and Video, and effectively capitalize on Apple Pay and ARKit, they are set for massive success. But there are too many question marks today …
A decade from now, what will the world look like? Will we still have the same techno-overlords, or will Blockchain or other big and disruptive changes upset the status quo?
These are the big questions facing founders and investors today. But chaos creates opportunities, which are what we all want, and the next ten years will redefine the world as we know it (and likely what it means to be human).
Will Apple still be on top, or will they crash and burn? Apple feels a lot like Microsoft of the 2000s, resting on past success. Any thoughts?