Apple’s earnings are down according to the latest quarterly report. And iPhone sales are down. There are also rumors that Apple will need to postpone its car launch till 2021. After very long growth and huge iPhone success, Apple is now in a situation where it must really find new growth areas. The Apple Pay and iPad segments have positive signs. But is it enough?
The mobile phone business has been very tough for years. Apple and Samsung have done well by dominating a larger segment (Apple phones and its content and apps, and Samsung phones and their components) of the value chain than most other phone companies. Chinese companies have come to the market with very competitive prices, but it also still unsure how sustainable this is as a strategy.
Apple iPhone has been a status symbol and it has offered the best working ecosystem. But it is losing those positions. It is not very unique to have an iPhone anymore, and people who look for something unique can try to find something else. The Android ecosystem is also starting to work really well, and when it is more open and offers also a better integration to many Google services, it can actually offer better usability and more services to the user than Apple’s ecosystem.
Apple’s phone business growth has been weak in its old markets for some time, but its new business in China was able to boost growth in the past year. But now the company should really win more market share to get growth. It is very hard in mature markets and it can easily mean lower average sales prices and require more products to different market segments - and this means more costs.
Smaller-size iPads sales and prices indicate growth, but it is still hard to say if this is a longer-term development, or something else. Apple Pay has grown 400% a year, but we still talk about small numbers. And Google has taken the payment market seriously too. Android Pay is now in a few countries, like the US, UK, Singapore and Australia, but they plan to have it in over 20 new countries in a year. And they also plan to integrate it to other Google services, like browsers.
Apple Watch has been the most important new Apple product during last years. It is important for Apple Pay too. But it is not yet in the mainstream, and it is still quite far to have a significant impact on Apple’s revenue or bottom line. The real use case and value of smart watches are still question marks to many consumers.
Apple’s content business was important for its device business, but there are now much more players that can offer content to phones, tablets, TVs and laptops. Of course, Google and Amazon are strong also in that business. And Apple’s business models are no longer very competitive or unique in the content business.
Apple invests in new things too, like cars. Apple is not a very transparent company, so it is harder to evaluate these new areas, but in the car business, for example, the competition will be very tough. There are strong brands from the traditional automobile industry and new companies like Tesla. And then there are companies like Google that have excellent data and AI competence to make self-driving cars, and also companies like Uber to offer transportation as a service.
Apple is still a very healthy company and makes a lot of money. It also has very loyal customers. But it is definitely in a situation where it must re-think its offering and business models, when lower cost manufacturers take hardware business with Android, Google and Microsoft can offer more software, Amazon, Google and Spotify offer more content, and Google and Facebook more important online services.
It has been speculated that with payments Apple could also get to the banking business (e.g. when the PSD2 directive in the EU opens interfaces to offer banking services), but it is still a long way to go to get to finance services. Apple has surprised the markets on the past with new products and innovations, but those were mainly brought by Steve Jobs. Now in the post-Jobs era Apple must really prove its capability to innovate.