Technology

Apple: A Product Plateau?


There are only so many world-changing products a company can create, but there's still plenty of room for Apple to extend established product lines

Where does Apple go from here? The question lies at the heart of the media and industry buzz that so often surrounds a company adept at surprising and confounding even the most jaded observers. It's particularly pressing in light of the oblique reference to a "new product transition" made by Apple (AAPL) Chief Financial Officer Peter Oppenheimer during a July conference call with analysts.

So I am left wondering, what might Apple have under its belt to surprise and delight customers over the next 6 to 24 months? Indulge me while I consider the prospect that at least for the foreseeable future, Apple has done virtually everything it could reasonably be expected to do, given consumer needs and the current state of tech and the economy. There are only so many world-changing moments that even Apple can create.

Apple has had quite a string of them in the past several years. The launch of the first iPod, for example, occurred seven years ago this month. The rest, as they say, is history. The iPod for Mac users begat the iPod for Microsoft (MSFT) Windows users, which begat the iTunes store, AppleTV, and the iPhone.

The Next Big Thing

Now the Web is rife with rumors that Apple will next introduce a device that bridges the gap between the iPod touch and the Mac—a machine that's one part mini-mobile PC and one part media and entertainment device. The idea seems obvious to anyone who's used the iPod touch for e-mail and Web-browsing but wants a larger screen. While other PC companies like Dell (DELL) and Asustek build mini-notebooks, Apple could best them all, or so the argument goes.

But then what? As obvious as the path to a tablet device seems now, I have trouble imagining the next obvious path that Apple might follow in 2009 and 2010. In fact, the company may very well be nearing a product plateau. And here's the real kicker: That may not be a bad thing.

Make no mistake. I see the potential for developments with established Apple product lines. Perhaps as soon as next year, the iPhone will evolve into a family of phones. Much like the iPod now comes in four flavors—touch, nano, classic, and shuffle—it's fair to expect that the iPhone will come in more than one model. The iPhone nano, for example, might appeal to those who think the current model is too big or too expensive.

Revving Up AppleTV

And something important has to happen to AppleTV, which still seems to be little more than the "hobby" Apple CEO Steve Jobs said it was last year. I see the potential for hardware and software enhancements, including TiVo (TIVO)-like DVR features, a DVD player slot, and so on. Apple could take the features of AppleTV and pack them into an actual TV set—but that's unlikely. Selling TVs is a cutthroat, low-margin business better left to the likes of Sony (SNE), Panasonic (MC), and Sharp.

But I see less potential for radical new lines of products. There simply aren't many to choose from. Sales of Macs are growing at rates that are the envy of the PC industry, the iPhone is now making its debut all over the world, and the iPod is closing on the sale of its 200 millionth unit. That's three very healthy business lines, and I'm not sure Apple necessarily needs another.

In his keynote at the Worldwide Developers Conference in July, Jobs said there are "three parts to Apple now"—the Mac, the music business including the iPod and iTunes, and the iPhone. He used the image of a three-legged stool to make the point. I prefer to think of it as a tripod, and I think Apple can and will do very well to enhance and grow these three legs without the need for building a fourth.

Consumers Concerned With Credit

And would that be such a bad thing? With the economy heading into certain trouble, consumers around the world are paring discretionary spending. The marketplace for new products that might change the world may have hit a saturation point, and consumers are more concerned about lowering the balances on their credit cards than on maxing them out on new stuff.

Apple's in a very different place than it was seven years ago. On the eve of the iPod introduction, Apple had just emerged from debacle of the Mac G4 Cube and for most of 2001 had been reporting financial results that were unimpressive by today's standards. Less than a week before the introduction of the iPod, Apple reported a $25 million net loss on sales of $5.4 billion for the fiscal year. Sales for the quarter that ended September 2001 quarter were less than $1.5 billion.

Analysts expect that Apple will finish its September quarter this year with $8 billion in sales, and end the fiscal year with $32 billion in revenues.

Press the Offensive

Now, Apple and its customers would be well-served if the company concentrates on making everything better, faster, and cheaper. While the Mac is in the minds of many already a better personal computing platform than Microsoft's Windows, it's time to press the offensive. There is no reason that better Macs and better Mac operating system software can't push Apple's market share in the U.S. north of 10%, from 8.5% in the second quarter.

Continued software upgrades will add new and improved features and functionality to the Mac and iPhone, increasing the appeal to new customers and keeping existing users happier longer. It's also time to get things working right that haven't. Case in point: MobileMe, which illustrated that Apple overreached by trying to launch too many products at once.

And for all its relevance in North America, I think the iPhone gives Apple an important opportunity in international markets. As I've argued before (BusinessWeek.com, 9/20/07), the iPhone establishes a beachhead Apple can use to introduce itself and its other products, especially the Mac, in markets where it hasn't participated strongly. Markets like China and Russia come to mind.

No Time for A Breather

I'm not suggesting that Apple should slow down and take a breath on the innovation front. Not at all. The company now operates within substantially wider borders than it did when it unveiled the first iPod in 2001. Rather than widening those borders even further, there lies within them plenty of room for important, even if not world-changing innovations—not to mention scope for expanding Apple's business.


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