Is Apple entering the plateau phase?
Upon the passing of Steve Jobs, consumers and investors wondered if Apple would be able to continue its long trend of success under new leadership. There was very little risk of in the short term, as faithful customers were sure to rally and support Apple following the event. At the same time, there was some fear of a share price drop, but this failed to materialize for two main reasons. First, most of this risk was already baked into the existing share price since Mr. Jobs’s health had already been in a state of decline. Second, the new CEO Tim Cook was plenty familiar with positions of leadership at Apple and was well-known within the industry. The company has since (temporarily) moved past Exxon Mobil as America’s most valuable company based on market capitalization.
That said, it remains to be seen if Apple can continue its furious pace of innovation and stranglehold on consumer loyalty. No longer facing only Microsoft as a primary competitor, its iPhone and iPad now face competition on both the hardware and software fronts from companies such as Samsung, Motorola, HTC, and Google. Its recent refresh of the iPhone, the 4S, was welcome, but not as aggressive as some had hoped. All large growing companies must eventually plateau; the following are a few signs Apple may be starting this phase of its life.
Market saturation: Today, Apple has products in every size niche from the iPod shuffle, to the iPhone, to the iPad, to the larger MacBooks and Mac PC’s. Other than perhaps the TV market (which is reliant upon external content and wouldn’t fully exploit Apple’s user-oriented operating systems) and the server market (which wouldn’t be willing to pay the same price premium consumers do for elegant design and operation), it will be difficult to introduce novel hardware products without moving to a completely different market segment. That’s not to say it can’t be done, but it will require ideas and development that aren’t a natural extension of its existing lineup. Geographically, it is popular around the world, and while lucrative new markets still exist to be tapped, it will be increasingly difficult to identify and take advantage of them. In terms of software, the new iCloud platform is a great way to synchronize activity between multiple Apple devices, but it remains to be seen how profitable this will prove long-term. Apple could use this as a springboard to other nascent market segments, such as home automation.
Company size: As one of America’s largest firms, Apple must face the fact that big organizations tend to become heavy and slow due to the longer time it takes to devise and implement ideas. Steve Jobs was a powerful force as a leader and helped stifle any tendency for Apple to rest on its laurels. This becomes increasingly difficult as it gets bigger.
Competition is ramping up: While early Apple competitors such as the Microsoft Zune were panned, today’s offerings such as Android, the newest HTC phones, and Galaxy tablets, though still not as revered as Apple’s, are much more competitive. The fact that Android is available on so many devices naturally helps its market share expansion compared to iOS. While Apple currently outsells each of these and provides a more unified experience between hardware and software, one can no longer preemptively dismiss the competition.
Price position: Apple worked itself into an enviable position: that of being the most expensive product in its segment while still leading in sales. Its appeal has led consumers to be willing to pay a price premium for a well-designed product and since it owns its own retail outlets, it doesn’t have to share revenue with retailers. Today, tablets from Samsung and Asus, among others, are priced higher than the equivalent iPad. Again, Apple still outsells the rest, but the fact that it is no longer at the highest price point represents an interesting scenario. It does not necessarily represent a problem yet, but if Apple finds itself having to compete on price, it would erode both its profitability advantage as well as its reputation.
All companies must eventually see their growth level off, and Apple appears to be in the early stages of doing so. While it can still take actions to stay ahead of the innovation curve, it will be hard for it to remain the same kind of nimble organization. Its most rapid share price appreciation has likely passed, and if it does institute a dividend as some have speculated, it will join Microsoft, Oracle, IBM and others who have matured and experienced a similar transition.