Has Apple Fallen?
By Todd Hixon
Apple reported a year-over-year earnings decline for the first time in a decade. Its stock has corrected severely, giving back 40% of its gains over the last ten years (chart). Is this the beginning of the end, or just a correction of expectations that were out of line?
Apple’s stock price for 10 years to April, 2013.
Apple’s business is driven by iPhone and iPad these days. Both have been huge successes, and both have lost share to competitors who employ the Google Android OS. iPad dominates tablets, however Android is widely forecast to take the lead in the next year or so. iPhone lost the smart phone market share war two years ago, and Android is now well in the lead.
The current meme holds that Apple has not innovated since the iPad launch in 2010, and its special capacity to define consumers’ digital lifestyle passed on with Steve Jobs. Tim Cook told analysts that Apple has a terrific product pipeline for the next 18 months, but details are lacking.
This is one man’s opinion, as we like to say in the venture capital world, meaning I have my view, but there are a lot of moving pieces here, and I could always be wrong.
Data via CivicScience.com.
My view: Apple has not fallen, but maturity is catching up with it in this incarnation, and its ability to defy gravity is diminishing towards the normal reality.
Samsung and Google, a formidable duo, set their sights on Apple back when the iPhone first launched. They have invested hugely in world-class product, both hardware and software. The chart above shows that this investment is paying off: the operating system is actually a bigger purchase factor for Android buyers than it is for iOS buyers, which indicates that it makes a big contribution to perceived value.
The biggest difference in purchase factors, as the chart shows, is the identity of the manufacturer, which I take to mean brand. Samsung must have seen this data too, as they dialed up their U.S. mobile advertising spend 5x in 2012 and now outspend Apple. Samsung’s product design has less flair than Apple’s, but their performance is excellent, and they have variations for every taste and broad channel presence. It’s reasonable to assume that Samsung will close the brand value gap with Apple in this decade, much as they did with Sony in displays in the last decade.
The final frontier in this battle is the cloud. Tech savvy mobile users are learning the benefits and the “how-to” of putting more and more of their key data and services in the cloud. That’s what I think the “Post-PC Era”* has come to mean (more). Google is a cloud company and has built up a cloud services suite that exceeds Apple’s capabilities in many areas, but at this point lacks the integration and consumer simplification that Apple does very well. Android users get a premium experience from Google’s cloud services. Google maps is the poster child for this, but it has many other facets: Google Voice, Google Drive, Google Now.
Apple has some wonderful advantages, however. The Apple brand is iconic. Apple has executed and leveraged a retail strategy with unique success. iTunes is the most highly utilized consumer cloud service: it is unequalled as a content delivery platform, and Apple has special relationships with the music and video industries. Apple’s computer business gives it unique ability to deliver a whole-home solution to consumers.
So, as we move towards the denouement of the second act of the Apple story, the battle has become pretty equal, and Apple, previously king of the tech gods, is now one of the pantheon. I hope there will be a third act to this drama, however, because Apple has done so much to enrich the lives of many, not least me.
* So-named by Steve Jobs
[This post first appeared at blogs.forbes.com/toddhixon on April 24, 2013.]