apple demise

Shrinking Apple?

Suggesting in public that technology giant Apple is no longer a growth company is likely to get you a raised eyebrow, or perhaps a gesture toward a nearby user tapping or swiping away on their iDevice of choice. The chances are that right now you are within 10 metres of a product produced by Apple, if it’s not in your pocket; it’s in your ears, jacket pocket, bag or attached to the person sitting nearest to you. But despite this amazing level of penetration, the company credited with creating a truly global market for consumer electronics is subject to increasing murmurs about declining market share, competitiveness and profitability. We examine both sides of the argument here.

Still Growing

2003 was a notable year for several reasons. Aside from the English Rugby team returning from Australia with the World Cup, it signalled the true start of the iPod revolution. The redesigned third generation iPod is the truest ancestor of the current generation, and was launched in conjunction with an iTunes version that could operate with any operating system. That event, ten years ago, signalled the beginning.

iPod, iPhone, iPad, MacBook Air, MacBook Pro. The beginning of a decade of product launches accompanied by a never before seen fanfare and adulation. New Apple offerings were subject to countdown clocks and incessant online speculation. Launch presentations were afforded the same status as an address to the nation. Product rollouts were preceded by lines of aficionados camping out on the streets outside Apple stores, previously something that only U2 could claim on a regular basis.

It wasn’t just hardware either. The iOS operating system created a beautiful, intuitive user interface that is accessible even to babies (plenty of YouTube videos are testament to this), while the lessons from iTunes were applied to the App Store, the result? 50 Billion Downloads in less than 7 years as of 2013, Fifty Billion. And omnipresent through it all, Apple’s rock star in a black turtleneck: Steve Jobs.

So knowing all of this, how could there possibly be scope to suggest Apple’s growth engine is running out of steam?

A Company in Decline

No Jobs. No hope? Maybe not, but there can be no doubt that Apple’s golden era was synonymous with Steve Jobs. In his second stint at the helm of the company, he stopped attempting to compete with old rivals IBM and Microsoft in markets they dominated and instead redefined entire markets around his vision for how the products in them should look and perform. Compare the MacBook Air with any laptop made between 2000 and 2010 and you see what that means. But Jobs’ passing signalled an end of an era.

Jobs’ aura and the appeal of working in an organisation with excellence in its DNA attracted the best and brightest minds the world had to offer. Apple won the consumer battles largely because for many years they had won the talent wars. But the tide has turned. Research shows that the talent flow away from Apple to Facebook is a staggering 15:1. They also lose 3 employees to Google for every one they gain.

Competition is emerging from every corner. Google is now much more than a search engine. Its 2005 purchase of Android catapulted it into direct competition with Apple’s iOS. Industry estimates show that Android phones have a 75% market share on devices developed by Samsung, HTC and LG as of late 2013. That’s a formidable coalition to be competing against. The hardware battle, where the iPhone was for so long the undisputed king of cool for handsets, paints the same sombre picture. Samsung has captured almost 30% of the global smartphone market while Apple is treading water around the 20% mark, hampered by indifference to the latest iPhone 5.

Which is a problem. Consumer technology companies rely heavily on the ‘cool’ factor. Apple did this with phenomenal success when painting Microsoft as ‘beige, boring and out of touch’. Now Samsung has taken a page directly from that playbook and reversed the roles. Their ads positioning the iPhone as the naff smartphone for your mum and dad were also backed by a $200 million marketing avalanche. It was aided by an indifferent popular and critical reaction to new products such as the iPhone 5 and iPad mini, which, far from being game changers, were at best incremental tweaks to existing products.

Where to Now?

Concerns about the future growth of Apple have been reflected in the stock price, which has fallen precipitously in the last 12 months. The challenge is now to decide how best to leverage the brand loyalty of its followers, utilise its human talent and deploy its vast reserves of cash to create new and innovative products. If it can find a way to do this effectively Apple will soon regain its position as a market leader. If not? Well hold onto your iPod, it may become a collector piece.

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2 Responses to Shrinking Apple?

  1. Yuen Tuck says:

    Great insight. I have the same concerns about Tesla – a company that has increased its market cap X3 in recent months: that’s not at all healthy.

    • Raj Padarath says:

      Great point Yuen, publicly listed companies share prices will in the long term reflect the value of the business, so we have to ask ourselves, has Tesla’s business value tripled, or just its share price?

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