To lead the future, it has to focus more on cost-conscious mass markets while innovating differently
Apple Inc has truckloads of cash. It holds about $232 billion in cash and marketable securities. Most of this pile is lying overseas. Indeed, this is a lot of money. This also means the Cupertino-based gadget company can buy up Greece if it wants to. No doubt, Apple is the world’s richest company. According to Bloomberg, it generated more than $234 billion in revenues in fiscal year 2015. So, by any measure, Apple should be the world’s safest enterprise, and the very question about its future faltering can seem like an act of ultimate foolery. But things are not so simple.
It is a fact that Apple’s market in the developed world stands saturated now. Almost everyone in these geographies who can afford an iPhone or iPad has one already. And the rest will have them sooner or later. Only a fraction of these populace will keep buying Apple’s updated devices. So many analysts expect the best way for Apple to enhance its kitty is to go to markets where affluent people are willing to buy its snazzy gadgets.
India and China – with their billion-plus population – feature prominently in this list. But these are no easy markets. Google’s Android OS is dominating them already. And in gadgets, Chinese smartphone companies have made a huge disruption with their cheap, affordable and good-quality smartphones that can give Apple a run for its money. Granted, the iPhones cater to a different audience. It plays in the premium segment, which is merrily ignored by most popular gadget makers in India or China because, for one, there are not many takers or, two, there is more money in going mass-market.
Still, the middle-class in these markets would love to buy iPhones. But their worry, of course, is the exorbitant price tag. Even after the arrival of convenient EMIs, the sales of iPhones are not up to the mark in India. So, Apple must do something about it. Many argue that Apple won’t do it as it will affect its premium image. Well, history has given enough examples of businesses sticking to their guns ignoring the writings on the wall. Samsung, or even Nokia, would know better.
Further, a key problem with Apple’s strategy is it has not been able to channelise it’s superb innovation skills into other streams like Google has done recently. Still it relies heavily on the gadgets to power up its present as well as future. Nearly 57% of Apple’s total Q3 2016 earnings came from the iPhone sales. The Services segment accounted for 14% of the total revenues and the Macs formed 12% of the pie, while the iPads accounted for 11%. Clearly, the iPhone is Apple’s hero. And if it doesn’t play well, it could turn out to be the villain going forward.
Juxtapose this scenario with reports – unconfirmed, though – that Apple had to cancel over half of its manufacturing order sometime ago for the iPhone 5 due to weak demand. The report caused a significant dent in Apple’s market valuation. The specter of saturating or falling demand is going to haunt Apple more than ever now. Already, Apple core-competency areas are getting increasingly competitive. Google’s Android is not an upstart anymore. It is shining more than ever with flexible features and its declared openness.
Another rival, Microsoft, has boldly moved into newer pastures. It is now making its PC and mobile products better and stronger. And the company has its finger in many a healthy pie. Again, Apple’s hardware rivals such as Samsung and HTC are now playing in the super-premium segment with increased confidence, belting out innovations that can match Apple’s. In sum, the game has changed, and if Apple doesn’t know it yet, it’s napping. Or if it thinks the cash reserve will take care of its future, it’s management urgently needs to read some history text books.
Diversification is the only way it can get out of this mess. From wearables (where it already has a presence) to virtual reality to creating corporate products to building solutions for cloud, AI and so on, there are many areas Apple can invest vigorously. The sooner it does it, the better.