Apple's Next Moves?

I had been gathering my thoughts for a blog post about the future of Apple when the sad news came out that Steve Jobs has taken another leave of absence due to his medical problems.  It’s a shame to see a person at the height of his creative powers sidetracked by health concerns, and one can only wish him well.

The company he leads has grown magnificently since he returned as CEO in 1997, passing arch-rival Microsoft to become one of the most highly valued companies in the world.  But remaining in the pantheon will require considerable skill as well as perhaps a good dose of good luck, because doubling in size when you’re a $6 billion company is a lot easier to do than when your sales have grown to $60 billion.So with or without Steve Jobs, Apple faces significant challenges in the coming years, and the major themes about the future of the various industries in which it competes offer a lot to think about.  So what are Apple’s best options going forward?  That’s what I’ll explore here, in a thought experiment about strategy in a rapidly changing market.•••The actual thought piece that I ended up writing came out to about 10 pages, which is too long for a blog posting.  We’ve sent it to our subscribers, and if you’re interested in receiving a copy please sign up for our Innovation Tips and Tools in the box to your right, or send us an email, and we’d be happy to send it to you.•••Apple’s revenue history shown in the graph below tell us that the rapid sales growth of its iOS (mobile) products and services are the key to the company’s recent success, so going forward it will  most likely continue to focus on growing the iOS user base.Here are some iOS growth opportunities:•    Apple is interested in new markets where it can own recurring, subscriber-based revenue streams.  The technology that calls out here is video streaming, and Apple is already targeting the home market, where it competes with Netflix and ShowBox.  But in a convenient demonstration of the complexity of this market ecosystem, Apple’s TV device also delivers Netflix.Netflix itself, by the way, is a very interesting story.  Having forced Blockbuster into bankruptcy with a superior business model, it has become a darling of the stock market.  Yet Netflix faces formidable competition not only from Apple, but from Wal-Mart, which has announced its own video streaming business, and from Google, not to mention the cable providers like Comcast.Despite all these formidable competitors, or perhaps because of them, you might think that there are scenarios in which Netflix itself could become an attractive acquisition candidate for Apple, particularly with its growing subscriber base of 20 million families.  But Apple’s iTunes database includes 200 million accounts, so the real challenge for Apple is not to expand it’s number of accounts by 10% through an acquisition, but to get a larger portion of the 200 million to become subscription customers rather than transaction-based customers.What Apple needs, in other words, is its own entertainment subscription service.  Perhaps it gets one by developing it, or perhaps by buying Netflix or another competitor.•    Providing content – news, movies, music – to iPads on a subscription basis could also become an attractive market as the number of iPad users increases beyond the 15 million sold to date.•    The company is also obliged to look for new device markets with significant growth potential.  Perhaps Apple has another huge new product in the wings, but whether it has the next big thing or not, it could make a lot of sense to go after the commodity smart phone market by making a smaller iPhone at a lower price that can reach more customers around the world as an entry level device.•    Apple will also certainly continue to make iTunes and the App stores as attractive as possible for content makers to sell their creations.•    And lastly, Apple will look for markets where the company can act as a gateway between its device users and the providers and advertisers who want to reach them, which means that Apple will attempt to break through in the emerging mobile advertising market. Implementing expanded advertising capabilities was the intent behind Apple’s acquisition of Quattro Wireless in early 2010, and iOS version 4, released last summer, provided more mobile advertising tools than previous versions.There is also an interesting growth opportunity for Apple in the Macintosh market.•    Apple will also look for markets where it can leverage its customer loyalty to capture new customer segments, which suggests that a renewed effort in the enterprise market to make the Mac platform a solid choice for corporate IT departments is in the offing.  By providing unparalled tools to link phones, pads, and corporate IT systems, the company could conceivably expand its market share in the PC market and grow its Macintosh revenues.Will all of these efforts transpire?  Probably not – the world is too complex to assume that they would.  And will there be other initiatives that I haven’t mentioned?  Of course – Apple’s notorious and tantalizing secrecy only inspires the imagination to consider what might be as yet unrevealed.But the purpose of this exercise has been not so much to predict, as it is to think about the market ecosystem in which Apple competes, and to explore some of the markets and possibilities that could enable the company to sustain its meteoric growth rate and maintain its lofty market cap.•••Apple remains one of the most interesting of all high tech companies, and indeed of all companies, and hopefully Jobs will regain his health and continue to exercise his unique form of creative leadership to bring more of the new, unexpected, useful, and delightful products, services, and business models that have characterized Apple’s first 35 years.•••