Kari McMahon

@karimcmahon

Don’t Count Apple Out Yet….

Why Apple has huge potential in 2019?

On January 2nd 2019, Tim Cook published a letter to shareholders outlining Apple’s revised financial estimates for Q1. Cook expects revenues to be lower than the original forecast driven predominantly by unexpected macroeconomic factors in China. This revised forecast coupled with a fairly recent announcement that Apple would no longer be providing quarterly unit sales in financial reports spooked investors to the point that it resulted in a 10% drop in share price on Jan 3rd and an abundance of negative press:

“Dow closes down more than 600 points as Apple has its worst day since 2013” — MarketWatch
“The iPhone has lost its magic” — CNN
“Is This the End of the Age of Apple ?” — New York Times

Investors examining only the headlines, stock market reaction and narrowly focussing on Apple’s core product line may be left asking what does Apple have to offer?

Quite a lot actually.

However to realise Apple’s potential we must move away from our traditional expectations of the company. We must look at the company business model holistically instead of purely focussing in on the shiny products that originally brought Apple success.

Brand Matters — Sustainability & Responsability

Apple has an incredibly powerful brand driven from an exceptional understanding of customer experience. Apple have always understood how users want to interact with technology, successfully enabling users to achieve their functional goals while also appealing to their aspirational needs and desires. This is demonstrated in every aspect of the customer journey from the TV advertisements to the store experience to the final product. Apple’s understanding of the consumer has led to international dominance which will no doubt be a feature of study in marketing courses for the foreseeable future.

In 2018 we saw technology companies embroiled in a number of scandals from Cambridge Analytica at Facebook to the walkouts at Google to the Amazon HQ2 controversy. Apple have remained generally unscathed from controversy this year. When politicians talk about regulating technology companies, you rarely hear Apple portrayed as a baddie — perhaps this is due to Apple’s stance on data privacy which is on the conservative side in comparison to most technology companies. Apple does not intend to use customers data to increase revenue streams — this is most noticeable when you compare Siri and Alexa’s intelligence. Alexa appears significantly smarter but this comes at the cost of storing personal information which Apple choses not to do. In the current climate Apple appears like the responsible big brother trying to do what’s right and respectfully admitting when it’s wrong, this is a rare quality amongst technology companies at the moment. Cook is definitely capitalising on this new image, often one to keep his opinions to himself called out Mark Zuckerberg when asked by a reporter what he would do if he was faced with the problems Zuckerberg is facing:

“I wouldn’t be in this situation.” — Tim Cook
“We can make a ton of money if customers were our product. We have elected not to do that” — Tim Cook

We shouldn’t underestimate Cook’s strategy on data privacy and responsibility. In the wake of the various scandals relating to Facebook, Amazon and Google consumers are looking for companies that are transparent and will act in their interests. Consumers are increasingly demanding more information on the sustainable and societal impact of companies and their products in the world. The Nielsen group states that “2018 is the year of the sustainable shopper and it’s soon to be the decade of the sustainable shopper” with millennials being the driving force in this change. “Millennials are twice as likely (75% vs. 34%) than Baby Boomers to say they are definitely or probably changing their habits to reduce their impact on the environment” and millennials are also wiling to pay more for ‘products that have social responsibility claims (80% vs 48%).’ Responsibility and sustainability are set to be driving factors when it comes to consumer purchases in the future.

Apple have already won half the battle. Their brand recognition and loyal following of fans and press who are willing to try and test any products and/or services released means that Apple can take risks to understand how best to position themselves in the marketplace. We already know Apple can create fantastic and innovative ( yet expensive ) products and services. So if Apple can continue to hone the brand to appeal to the responsible consumer and produce products that this consumer base desires while they still have a strong following then Apple can remain a dominant technology player.

Currently there is a huge gap in the market for technology companies that can produce products and services at scale in a responsible manner. Despite consumers disappointment with companies like Amazon because of their treatment of workers, tax payments and the HQ2 controversy, Amazon continues to maintain market share. The big tech companies have no competitors who can achieve similar effective customer experience responsibly and these companies rely on customers dependance on convenience and low prices winning out over their conscience. After hearing an increasing number of concerning stories regarding Amazon I decided to try and stop using prime. I have been a loyal user since the service was introduced to me in around 2014 when it was free for students. For years I couldn’t recommend the prime service enough, it was flawless. However this Christmas my conscience won out and I decided I could no longer give money to a company that acted in such an irresponsible manner. I instead used a multitude of services to deliver my Christmas presents. Unfortunately using services other than Amazon was quite frankly an inconvenient and costly experience demonstrating how Amazon manages to maintain customers despite controversy. There is a huge gap in the market for Apple to swoop in and grab market share in areas like this. Apple know how to produce great products and experiences at scale. Apple could fill gaps in the technology market where the conscientious consumer wants to spend a bit more and guarantee the right protocols and processes are being followed.

Apple are already on track with their approach to the environment. Apple have undertaken a number of initiatives which aim to make their processes environmentally friendly from their office design to reusable packaging. The annual environmental report outlines the steps Apple is taking to achieve this. Apple was even at the top of Greenpeace’s greener electronics guide in 2017 , a significant improvement from when they scored a 2.7 / 10 in Greenpeace’s first report in 2006.

Apple is continually thinking about its impact on society from environmental goals, employee satisfaction, impressive job creation stats and data privacy. However Apple is also not shy of controversies from reports of unpaid taxes to poor quality of life for workers in factories in China that produce the iPhone. The response from Cook and Job regarding suicides at the Foxconn factory in China has always been particularly alarming especially since they have clear determination to continue manufacturing from there even after multiple reports on the horrible conditions— this could remain a sticking point in their image and perhaps demonstrates it is not entirely possible to produce responsibly at scale. However if Apple could turn a page on the manufacturing scandal in the same way as they have with other controversies and take accountability, Apple could be set to dominate with a new image. However many feel domination could be limited because of the declining sales growth of the core product line, it is inevitable that Apple will need to explore and expand in new areas. If Apple can leverage their existing customer base and beef up their approach to sustainability and environmental responsibility, Apple should be able to easily expand and refine their product line potentially enabling them to become the key brand for the contentious consumer.

Let’s explore Apple’s product line to understand potential areas for opportunity:

Apple’s Product Line

Apple’s existing product line is vast but definitely under utilised. Starting with Beats — what exactly happened there?

The beats acquisition garnered huge amount of press, it seemed like it was going to be a game changer. However innovation appears to have dwindled in the Beats space resulting in products that produce tidy revenues around the holiday period but generate little excitement, how long can that last for? The lack of innovation could be down to the success of AirPods which even surprised Apple who are already working on the AirPod’s 2 rumoured to be released this year. Apple definitely understand the headphone business and we shouldn’t snub this aspect of the product line. If Apple can balance its focus between traditional luxe headphones with Beats and innovation with AirPods then headphones could still be a very fruitful revenue stream for Apple. Another outcome of the Beats acquisition was Beats radio — a costly endeavour initiated with Radio 1’s prized DJ Zane Lowe. The radio service is still running however Apple have been rather tight lipped on statistics regarding Beats One which leaves you wondering if it is as successful as they expected or is it time to call it quits and spend the money else where?

2018 was a successful year for the Apple Watch. We are often sold the narrative that the Apple Watch is a flop but in fact the underdog product is an incredible success. Prices are lower now that we have a few generations of the watch meaning the Apple Watch has become much more accessible to mainstream audiences. It is unlikely the Apple Watch will have sales figures like the iPhone or MacBook but it is still a great product that will help Apple diversify their portfolio and enable further expansion into wearables as well as services that will compliment those wearables.

Of course we can’t forget the core product line — iPhones, Macs & Tablets. These products will always provide a significant portion of revenues but with sales growth slowing, Apple will need to look at potential options to offset the poor growth. At the moment I see two options to offset slowing sales — the first is offering an upgrade service as suggested in the media, the second is enabling users to design their own Apple Product. With the core product lines reaching maturity and multiple generations of each product existing, everyone has their own opinions on what the best features are — so why not let consumers design their own Apple product ? If consumers want to keep Apple products for longer why not enable them to create the ultimate individual Apple product to keep ( at least within the realms of technological possibilities). Thinking outside the box of in regards to how users can leverage Apple’s existing products may give Apple the edge they are looking for; As long as they don’t let trying too woo unhappy critics distract from innovation at the company — Apple were quick to announce the release of 3 new phones this year after the backlash from investors in relation to the revised forecast estimates, it appeared the announcement was Apple’s attempt to calm investors.

Apple’s Services

Apple News is one area of the existing product line that has huge potential for subscriptions. Personally I think the news app is under utilised by Apple. I recently got a MacBook and think the news app is great, I can read all my favourite publications in one place as well as receive non intrusive news notifications while I am working on my Mac. Apple consolidates a range of news information in one place to which helps users can gain a balanced outlook on the world. I think it would be great to see Apple come to the forefront of news apps with a product that has so much potential. Currently it is very costly to subscribe to multiple reputable news outlets, if Apple could offer some kind of consolidated package subscription service it could be a huge win in the subscription space. With Apple being an independent party who are managing the consolidation of different reputable news sources this may be a service that will help combat against fake news and appeal to the conscientious consumer. Also with Apple’s access to location based services they could also bring local news reporting to the digital age. There are for sure lot’s of exciting opportunities with this service.

Apple Music is a divisive topic because a lot of money was invested into the Apple Music service and it still lags behind their core competitor Spotify. Apple perhaps jumped into the deep end too quickly with the unnecessarily build out of the failing beats radio and costly senior management hiring decisions. However Apple seems to be dedicating resources to this space, they may never catch up to Spotify but they can certainly still have a significant chunk of the pie.

Apple health is perhaps the most exciting area of services that Apple has to offer. Mainly because no major technology companies are significantly focussing their efforts on health and even if they were, would you trust them with your data? Apple is already collaborating with exciting med tech companies and appears to be ahead of the curve in this space. Apple thrives when it can think out of the box and innovate, the health space gives opportunity for this and I am excited to see what happens. Recent reports have shown Apple is in talks to collaborate with Medicare plans to subsidise Apple watches for at risk seniors and Apple’s hiring in the health space is up 400% from 2017. Apple definitely have something up their sleeves in the health space, so keep your eyes peeled for development.

Apple In 2019

https://www.pexels.com/photo/photograph-of-laptop-in-dark-area-986812/

The decline in sales, macroeconomic factors and the increasing magnifying glass from society on technology companies behaviour should be igniting a spark of innovation at Apple. We may not see numbers on the financial reports change significantly in 2019 but we could see a definite change of tone from Apple towards regulation, privacy and innovation, it is likely Apple will show they are exploring new avenues which will garner investor confidence.

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