Despite a small dip in iPhone sales, a surge in the average sale price helped propel Apple to a record quarterly profit in Q4 2017. As is the case with almost every Apple news story, the details were carefully scrutinised to fuel speculation about Apple’s future. Critics argue that the company has simply run out of imagination and is being surpassed by its rivals. This article sets out an argument as to why such speculation may be ill-informed and why Apple could have a very bright future.
Apple critics point to the recently announced Home Pod, a wireless smart-speaker, as evidence that the company has lost the ‘magic’ that made it legendary. Apple, they argue, is late to the party (Amazon and Google have been there for years), Siri is an inferior digital assistant and the Home Pod is too expensive. Therefore, it appears to follow that the product will only resonate with diehard Apple fans and lack wider appeal. It would appear that Siri is an inferior voice recognition software compared to offerings from Google and Amazon. But perhaps this is missing the point. The Apple recipe has always been to wait, watch and trump the first-movers in the industry. And they have done just that. In the Home Pod, Apple has taken a different tack and prioritised the speaker’s sound quality.
While no one can say for certain how good the speaker sounds at home, as it has not been released to the public, early access previews to journalists were met with positive tones. By taking the time to watch the competition, Apple identified a flaw with competitors’ products – their tinny sound. The standard versions of the Amazon, Alexa and Google Home smart speakers only contain one small driver that cannot deliver room-filling sound. And while Google has responded with a ‘Max’ version of its speaker, it costs more than Apple’s offering. Moreover, Apple is making the assumption that customers will value a warm, rich sound over the greatest voice recognition technology, especially if they have guests over.
What’s more, the Home Pod closely ties into existing Apple services, such as Apple Music and iCloud. As mentioned later in this article, the services business is now a Fortune 100 business in its own right. Apple’s formula is to wait, watch and eventually leapfrog the competition. This is the same move the company pulled-off when it designed the iPod, the iPhone and the iPad, neither of which was the first market entrant, but all of which went on to dominate in their respective category. In short, classic Apple lives on.
Apple has been on a steady march, designing and developing more of its own custom silicon. By designing their own microchips, often for a very specific task, it allows their devices to perform more efficiently and offer a seamless user experience. In comparison, devices that use off-the-shelf, general purpose components tend to perform slightly worse and are a bit clunky. For example, Apple’s highly successful ‘Air Pods’, wireless earbuds, were made possible using a custom, low-power Bluetooth chip called the W1 that sips power while effortlessly connecting to other Apple devices. A generic item bought from an electronics supplier would likely lack the necessary attributes that make the W1 wireless chip an elegant solution.
Apple has also dramatically broadened the features and capabilities of its signature A-series of processors, the ones used in every iPhone and iPad since 2010. The latest iteration, the A11, features individual motion, graphics, security and machine-learning elements within the main processor. These co-processors carry out very specific background tasks, such as tracking your steps or authenticating your fingerprint, while using a fraction of the power that the main central processing unit would require. This capability was developed in-house, which allows Apple to circumvent expensive technology agreements with rivals or suppliers like Samsung and Imagination Technologies.
Apple CEO, Tim Cook, who was previously in charge of distribution at Apple, has spent a great deal of time shoring up the company’s strategic position in the technology industry. Apple invests heavily in the fundamental technologies that power its products, allowing them to produce a seamless experience, get a jump on rivals and control their component costs. Looking ahead, even microchip giant Intel should be worried. Currently, Intel powers the entire Mac computer line-up. However, given the progress that Apple has been able to achieve with its A-series of processors, it may not be long before Apple decides to design their own laptop chips. Remarkably, the latest Apple A11 processor bests an equivalent low-power Intel Core M3 offered in the svelte MacBook laptop. Admittedly, the Mac’s operating system is designed to run on Intel chips, ensuring Intel custom for the time being; however, an A-series powered Mac looks to be on the cards in the next few years.
Indeed, there has already been a casualty from Apple’s strategy. Imagination technology, a designer of graphics processors, has been let go as an Apple supplier. Instead, Apple developed its own graphics processor designs for the A11.
Apple Music, iMessage, iCloud
While the virtues of the Apple ecosystem have been extolled, particularly the elegant user experience, there is no getting away from the fact that many people do not want to be tied down in Apple’s prescriptive ecosystem. That said, there are perhaps even more people who will begrudgingly go along with it when on balance they can see the benefits in terms of the user experience.
Over the last few years, Apple has been adding more and more to its services line up; it started with iMessage, iCloud and more recently a streaming music service – Apple Music. These core services are designed to tightly integrate with the Apple hardware you buy. For example, photos taken on your iPhone are automatically uploaded to the cloud, whereupon they can be accessed by your other Apple devices. Moreover, the new Home Pod speaker is specifically designed to work with Siri and Apple Music. This services business, which is already the size of a Fortune 100 company, has great potential to grow. Apple is already investing in developing original television content which could eventually join a fully-fledged TV subscription service. Ultimately, the objective of the services business is to enrich the user experience and enable Apple devices to work together in concert. In the closed Apple ecosystem, Apple devices help sell Apple services and vice-versa.
Three reasons have been outlined as to why Apple is well positioned to thrive in the technology industry. Its singular focus on the user experience puts it at odds in some ways with its competitors, who instead strive to one-up each other on features; even if they are of dubious merit. And despite Apple’s critics, who bemoan the locked-down ecosystem, the approach has delivered handsomely for shareholders. Going forward, until a rival successfully bests this unique operating strategy, Apple’s best days could still be yet to come.
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