This past week’s record earnings report from Apple was unable to meet The Street’s high expectations for the company’s performance.
Questions over the Apple's growth potential caused the stock to fall significantly. It is an argument that has been used to characterize Mircrosoft -- It is hard to grow when you are huge. Personally I’m not too worried about Apple’s business. I find it astonishing the market share Apple has attained in San Francisco cafe’s — the illuminated Apple logos are lined up like aluminum shrines to Steve Jobs. If SF is an indicator of greater technology trends, the future bodes well for Apple. With that said there are a couple areas where I believe they could still find growth.
Recurring revenue products
Apple’s business is mostly dependent on reselling their customers devices year after year to maintain their revenue — which up to this point has worked pretty well. But it reminds me of the PC software world where customers had to re-pay for the latest versions. I once worked for a company with this business model. While it might work when a market is immature and quickly changing, it became difficult to maintain as the software matured. The company had to spit out update after update to boost revenue whether the new version contained meaningful functionality or not. It is difficult to get customers to pay for fancier toolbars.
Steve Jobs used to boast about the number of credit card numbers Apple had in the iTunes store, but if they never charge those cards, what good is scale? Instead of charging customers on a one off basis to buy media, they need to move to subscription services. iTunes and iCloud should be Netflix, Spotify, Hulu, Google Apps, Flickr, and DropBox all rolled into one. On the media side they are pushing a dated business model of ownership, which I believe is hold out from the physical world of CDs, books, and DVDs.
Over the long term, I think Amazon and Jeff Bezos will be proven to have this one right. Sell the devices at cost as a gateway to sell services. As the price of devices approaches zero, it is going to be increasingly difficult to command a higher margin for a premium device.
More focus on the business market
There is a massive amount of untapped potential in the business market for both iOS devices and the Mac. Apple’s competitors are floundering. The Blackberry appears to be on its death bed, and Windows 8 is failing to gain the momentum Microsoft was hoping for. But there has been little focus from Apple to get the devices rolled out in corporations. I see devices like the iPad being used by our customers in the financial industry, but often times they are purchased by employees. Apple needs to steal a play from the RIM playbook and make it easy for corporations to standardize on their products. IT departments love standardization. Apple’s limited device permutations should make them very appealing to IT managers.
We use quite of few Macs for development. Some we purchased online and others we purchased at the local Apple store. Apple provides discounts based on the amount of business a company does with them, but their online accounts are not synchronized with their retail stores. If you use a lot of Apple computers, having a store near by that service them is benefit over their competitors, but their stores are almost solely focused on the retail market. If they could use the Apple store as a base to service their corporate customers they could gain significant leverage from their existing infrastructure.
Overall the stock looks cheap, but the company needs to capitalize on their massive user base to grow. As amazing at it seems, I think there is still growth to be had.