Apple’s Next Big Thing: A Business Model Change

by Jean-Louis Gassée

Lacking a magical new result of iPhone extents, the company, its concentration, and its way of life will undoubtedly change.

The past three Monday Notes (here, here and here) saw potential candidates for Apple’s NBT (Next Big Thing), an item category that could launch an iPhone-like development wave now that the smartphone market approaches saturation. For viewpoint, 2021 iPhone income was $192B, the greater part of Apple’s total income of $366B, this from almost nothing ($123M) in 2007. And this doesn’t count App Store income, generally for iPhone apps. The numbers aren’t straightforwardly unveiled however reliable sources estimate a huge number of dollars in net income, the wealth Apple will keep after paying engineers.

We’ve seen three fields of chance: The unacknowledged Apple Car (the “Titan” project), Augmented Reality (AR) gadgets, and forays into the healthcare market, none of which is a feasible candidate. The car project looks unrealistically adventurous; AR gadgets, while more probable, probably wouldn’t partake in the wherever all-the-time utilize that is the mark of smartphones; and, while the healthcare field is immense and open to additional viable ways to spend our cash, doing-well-while-doing-great gadgets, like hearing aids, don’t offer iPhone-like potential. I trust I’m off-base on at least one of these potential open doors, yet I simply don’t see a tremendous new Apple hardware development wave in our future.

I was pondering all of this while watching Tim Cook and his team of moderators present new Apple Watches, AirPod Geniuses, and further developed iPhones during Apple’s latest disclosing occasion. “New iPhones! New Apple Watches! New AirPods!”, exclaims Greg Kumparak of TechCrunch. I assume Mr. Kumparak’s breathlessness is somewhat facetious. There was a fascinating Satellite Communication feature, presently for crisis utilize just, however in any case I had a hard time calling his degree of fervor.

Certainly, Apple keeps on pushing its items ahead, however with little expect another breakthrough of iPhone extents. One can’t call Apple sad — such a large number of pundits have had to eat their “Apple is Ill-fated” proclamations — yet without a Next Big Thing in its future, Apple could be seen as living in incremental mode. Perhaps it has reached a stage where it will make due — and presumably flourish — by essentially working on existing gadgets, depending on its tentacular array of administrations to get new clients and brace the loyalty of its faithful.

This drove me to reexamine my interpretation of Apple’s business model and the way the company considers itself.

In a 2021 MN, I censured Apple management for making vague personality statements. I felt that the “Enhancing Lives” philosophy, while mellifluent, could mean anything and subsequently fails to be a cynosure, a North Star for company workers.

I recommended a more straightforward, sharper statement: Apple makes personal PCs, small, medium, and large. Everything else Apple does has yet one raison d’être: They push up the volumes and margins of the company’s main hardware items. For example, App Stores exist to make Watches and iPhones and Mac Professionals more valuable, more pleasant, in this way further developing income and benefit. (I also took a gander at Microsoft’s statement of direction, “Our central goal is to enable each individual and each organization on the planet to achieve more,” and offered a sharper redefinition: “We create business software for individuals and organizations.”)

It’s just a year later, however I’m already changing my tune. Instead of a model that casts personal PCs as the star with everything else relegated to a supporting job, I see Apple’s cash siphon running on an ethical circle of Gadgets and Administrations that cooperate to, ahem, enhance individuals’ lives.

In this model, Apple’s most productive development will come from a consistently expanding array of Administrations: banking, more games streaming, and, indeed, advertising, fixed at just $4B in 2021 yet expected to develop to $10B or more in the next two or three years, and more.

(“Ads?” you may appropriately ask, “What about the iAds failure? Apple’s walled garden is a non-starter for ads.” Indeed, iAds was a failure, yet that was over a decade ago when Steve Occupations wanted to reach half of the portable ad market. The company has changed from that point forward. By advancing its privacy assurance and anti-tracking features, Apple has made serious inroads into an advertising market that has been dominated by social systems administration locales, to such an extent that Zuckerberg and others complain that Apple is harming their primary concern. On the off chance that Apple keeps on developing its ad business, accusation of pietism will certainly follow. Nourishment for a future Monday Note.)

Apple has long perceived that Administrations has serious income potential. In the call that traditionally follows Apple’s quarterly earnings release, Tim Cook and CFO Luca Maestri have repeatedly emphasized that the Administrations business is both a stabilizer and a development motor, reaching almost 20% of total income in the company’s latest quarter (finishing June 2022), with margins in the 60% range.

My inclination is that Cook and his team are way ahead of us — or me, anyway. They’ve known for some time that Apple has entered an alternate era. With no Next Big Thing not too far off — with Gadgets in a safe-yet sluggish incremental upward slant — the company has been constrained to move into triumph mode with its Administrations. This constrained change in needs has outcomes, the compass needle focuses somewhere unexpected. The reward framework, individuals employed, career potential open doors, “How We Get things done Here” culture… everything changes.

As an example, the presentation of an “Apple Bank” or an “Apple Search Motor” could yield the company more greatness — and benefit — than would a better than ever iDevice running on the latest, fastest, coolest Apple Silicon chip. Indeed, a superior iPhone would be cool, however the market is cooling…

It pains this aging nerd to think such considerations, however I can’t help yet assume that Apple will develop into an alternate kind of company. Regardless, I actually want to see an Apple Car and see the company’s actually dealing with that bet as a potential head against incrementalism.

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