Last week’s Apple earnings report was a disappointment. While everyone knew iPad sales were gonna tank, and no honest, rational person expected Apple Watch sales to impress, declines for both Mac sales and iPhone sales spooked pretty much everybody.
Get used to it.
The majority of Apple’s sales and profits comes from iPhone. We’ve not quite reached Peak iPhone, but we are edging ever close to Peak iPhone Value. Nearly everyone who wants an iPhone and can afford an iPhone has one, and everyone who has one uses theirs throughout the day, and there’s little Apple can do to move the needle on either of these until everything, including inside our cars, our homes, our appliances, our roads, all go digital.
This puts a hard limit on the value Apple can extract from iPhone — incessant talk of “ecosystem” and “services” will do little for the top-line.
Those who can have iPhone, do have iPhone, and all that iPhone can potentially do — for now and the next few years — it can already do, and the users are doing it.
That’s not a good spot to be in.
Apple makes its money by selling high-margin computerized screens to the world’s 10%, plus those who believe they will someday make it into the club. But how many high-margin computerized screens can you sell? That’s the crux of the issue. Do not forget this.
The fundamental problem for Apple is that the iPhone and the Mac are more than adequate for nearly every user, and every user’s use case. Think it through. You have an iPhone and a Mac. You don’t really need any more high-margin computerized screens in your life.
But Apple, as corporations do, wants more, and so it must sell you many many more of what it makes — computerized screens — than just the two you already have.
This will not be easy.
The two primary paths for Apple to sell more high-margin computerized screens are to seek out new markets, such as China, India, medical facilities, and schools. That’s for another post. The second path is to encourage you to buy more than 2 screens, insisting that you need an Apple Watch and an iPad, for example.
But you know you don’t need these. iPhone and Mac are all you need, by far.
Apple’s marketing machine will attempt to convince you that you can do better, live better, be better, if you have Apple Watch. Apple will try to convince you that your phablet is still too small but your Mac too big for when you lay down or lean back — so you should buy an iPad.
You know the truth.
And this is a big problem for Apple.
It gets worse.
For the past 4 decades, Apple has optimized itself to sell high-margin computerized screens. But now that we have the high-margin computerized screens we need, iPhone and Mac, our wants and needs shift to those other gadgets, devices and ‘smart things’ that make our lives better, happier, faster, simpler — like Amazon Echo.
But Apple doesn’t have the skill set to make these.
The Apple Watch is a failure. The Amazon Echo is a slow-burning success.
One was an un-needed high-margin computerized screen for the wrist. The other was a combination speaker and Internet companion that everyone loves.
Apple absolutely should have made an Echo equivalent. A portable speaker connected to a voice-based personal digital assistant, Siri not Alexa, and linked to our account, iTunes not Amazon.
Apple didn’t because Apple couldn’t.
The Amazon Echo (and numerous other cool, smart, connected devices, most not yet created) do not and will not require another high-margin computerized screen. We will operate them independently or by using the computerized screens we already have.
Remember: Apple needs us to buy even more high-margin computerized screens than we already have because that’s what Apple makes.
This is why Apple is “secretly” working on a VR unit. Virtual reality offers that rare opportunity for still another high-priced computerized screen in our lives that can actually do things better than iPhone or Mac — things that we want to do, unlike with Apple Watch which is basically for show.
The world doesn’t need an iPad (or iPad Pro). The world doesn’t need Apple Watch. No matter what the bloggers tell you. Their efforts have utterly failed to goose sales of these products because users know immediately that such products are unnecessary in their life.
A VR device, however, with adequate software, apps and gaming, could prove very desirable.
Unfortunately for Apple, that technology is still 3-8 years away from mass consumption. And until that time, Apple is going to miss out on all the cool stuff.
Like Amazon Echo.
Apple’s strengths are well-documented:
- Branding and retail
- Procurement and logistics
- High-margin computerized screens, particularly supplemented with
- High-margin flash drives
The first two are how Apple sells so much. The second two are what Apple sells. But with a billion “active users” and well over 500 million iOS and Mac OS devices in actual use, the next frontier for Apple customers are products Apple can’t make, products like Amazon Echo.
Apple has almost no successful experience selling devices like the Amazon Echo, the very devices its users want, the very devices that complement its own existing products. Apple knows this. This is why the company did not make an Echo equivalent, but instead put untold resources into making Apple Watch. It’s a high-margin screen, using high-margin flash, and which demands branding and retail. Corporations do what they are capable of doing. For Apple, that’s building high-margin computerized screens, even when they are unnecessary and unwanted.
No doubt Apple convinced itself that everyone wanted a screen on their wrist, because corporations always assume users want what it’s good at.
Reality hit Apple hard with last week’s earnings report. Only, it had almost nothing to do with currency fluctuations or iPad buyers holding off on getting the newer model, as so many wrongly reported. Rather, it’s because Apple already makes two of the three screens where humans spend nearly all their stare-time: smartphone and laptop. And they still haven’t figured out how to make big money on television screens, the third screen, nor will they because the television screen is ruled by content, not flash drives, not computerization, and also because Apple’s business focus only thrives where users are legitimately rewarded for replacing their screens at least every two years. Still another post topic.
We have an iPhone. We have a Mac. And we want to use these devices, which we’ve already purchased, to do even more: to control our refrigerator, our dishwasher, our home thermostat, our speaker system, our front door, our lighting…
But Apple is a computerized screen + flash-drive company and all those other devices and smart things don’t require a computerized screen or a flash drive, and so the company is flailing, trying to convince us to buy Apple Watch when we want Amazon Echo, or insisting we need iPad Pro in addition to our laptop, when we all know we don’t.
There is no easy way out of this.
The very best, coolest, most innovative products to come down the pike over the next few years are likely to not require a high-priced screen. That leaves Apple on the sidelines. Big, but not interesting.