520 - How Does Apple Do It? (Conclusion)

Last week we asked how Apple blends its small but passionate “fanbois” cult, its unique operating system (iOS) and the total control over its products to create its present success, and can it last?”

The “cult” helps Apple in a several ways. They line up to buy Apple’s newly released products creating a bandwagon mentality, they believe that whatever Apple offers is the best there is and worth whatever Apple wants to charge for it and they assume that any problems or deficiencies in the product are unavoidable and not Apple’s fault. They are generous and vocal in their devotion to Apple products and influence the purchasing decisions of friends, family and acquaintances to a degree that far outweighs their number. The competition has no champion like the “fanbois.” There are no Samsung, Dell or HP cults. These companies face the cold, steely-eyed glare of skeptical buyers, critically evaluating the technological and practical worth of competing products, all with the same OS (operating systems) and applications.

Since Apple products (PCs, tablets and smart phones) have their own unique OS and applications, there is no head to head competition with the other industry leaders in the product arenas they share. Apple is free to set their prices based on whatever the market will bear. Apple’s profit margins are many times those of their competition.  

Having ownership and complete control over the OS and applications make integrating hardware and software design an easy job for Apple. Conversely their competition has little control over the OS they get from Google or Microsoft or the thousands developers creating applications making hardware integration more complicated. The downside for Apple comes from the fact that there are many more engineers and developers designing applications and hardware for Android and Windows than there are for iOS. In the long run Apple invariably falls behind in product and applications technology.

It is a pattern that s all too familiar with Apple products Their new products are well received at introduction  and lead the industry (In the USA) for a year or two, then competitive technology pushes past them and they start to lose market share. Apple loyalists will continue to buy Apple products regardless of the technology so sales eventually stabilize at some lower level (like Macs and Tablets) and Apple cash cows the products indefinitely. 

Apple’s spectacular profits today are driven almost solely by iPhone sales. Apple PC sales are stagnant and iPad sales have fallen for the past five quarters. The worldwide demand for smart phones has grown so fast that iPhone sales have continued to rise even as Apple loses market share to Android smart phones. The huge surge in iPhone sales over the past two quarters has been a result of iPhone users pent up demand for a large screen iPhone. Apple held off releasing large screen models for years in order to protect iPad sales. The release of large screen iPhones last Fall created a large but unsustainable bubble in iPhone sales and profits.  Worldwide Smart phone sales are expected to slow in 2015 as markets become saturated.

So with their flagship product, the iPhone, on the downward slope, what will drive Apples future growth? Certainly not the iWatch. It’s years late to the “wearable technology” scene and offers nothing new. Even the “fanbois” are tepid on the iWatch. The original “Fanbois” from the 1980s are pushing into their 60s now and later generations are not nearly as committed. The Apple cult is an American phenomenon with little impact outside the USA. The Androids hold only a small lead over iPhones sales in the USA but Androids outsell iPhones ten to one in the rest of the world. While the USA is still the World’s largest technology product market, the rest of the world is catching up rapidly and China may pass us this year. Apple’s markets are shrinking.

Has Apple reached its peak and started the long slide into oblivion like so many once high flying companies? Probably not, Apple is not a manufacturer or wedded to home grown technology. Apple is a “marketing company” with one hundred and fifty billion dollars in the bank. While Apple’s current products are in decline and will likely have a near term negative effect on earnings and stock prices, Apple has the money and the smarts to reinvent themselves and continue to thrive. What’s next for Apple? Who knows, maybe they’ll even come up with something we can sell here at The Computer Factory.