What’s wrong with Apple?

Apple presentation. Photo: Ben Miller
By Tor Wallin Andreassen

5 April 2019 09:27

What’s wrong with Apple?

The value of a firm is reflected in anticipated future earnings. Apple’s customers are not as excited as they used to be and the share value is dropping.

On 1 August, 2018, Apple’s share peaked at USD 227 making it the first company ever to reach a market cap of USD1 trillion. By early April 2019 its shares trade at USD195. Something has happened to Apple.

Partly as a response to the decline in share value, Apple’s CEO, Tim Cook, 25 March took the stage in Steve Jobs Auditorium at Apple's head quarter in Cupertino, CA, and announced that “Today is going to be a very different kind of event”.

It sure was!

Watching the event from Norway via my MacBook Air, my three “non-ding in the universe” takes from the event were:

  • No new devices were mentioned – only new services: TV+, News+, and Arcade
  • A transition from per unit pricing to subscription-based pricing
  • Building higher fences around Apple’s customers

The general impression after the announcements is that the company or its management has run into a dead-end innovation alley. We do not know what to innovate next! Entering is upgraded and repackaged services available for all family members on all platforms.

My question is: Does this change in how Apple create value, excite customers? Most likely not.

Second, Apple’s announcement signals a move from pricing per unit to subscription-based pricing. The change in how they capture value, is more than interesting.

Finally, they have built fences around customers thus making it harder for them to leave the ecosystem of highly integrated Apple products and services.

History has proved that locking in customers is not a sustainable business strategy. Most customers like to be associated with the one firm that is perceived as the most attractive firm in the category. My claim is that Apple is faltering on the relative attractiveness dimension which should predict reduced customer loyalty and a continued drop in the top line.

Apple’s current innovation strategy is far away from Steve Jobs’ sales pitch to Pepsi’s CEO John Scully when he tried to recruit him to Apple: ”Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?” Scully came and later fired Jobs from his company. However, Jobs returned to Apple mid 1990s (and Scully had left) and made Apple the most innovative firm on the planet by introducing a series of never-seen-before-products like iPod, iPhone, iPad, iTunes, etc. Customers’ response was delight and admiration.

After Jobs death 5 October 2011, Tim Cook took over. Cook’s legacy is that he trimmed the logistics and removed inefficiencies and negotiated better prices from suppliers. Apple’s shareholders thrived on the carry over effects of innovation energy from Jobs and the operational trimming by Cook. The share peaked August 2018.

With marginal upgrades or innovations, customers did not feel the same urge to upgrade to the latest gadget. Compensating for the impact on revenue from increased time between customers’ upgrades of iPhones and iPads, Apple increased prices significantly - especially for iPhone. Today, customers not only feel numb in their wallet but flat on their emotions. In short: The juice has left the Apple resulting in an increasing tendency to exit from the iOS -garden and enter the Android garden. With falling retention rates, Apple’s revenue is taking a hit.

New York Times journalist Fahrad Manjoo claimed rhetorically that Steve Job’s question to John Scully, today could be paraphrased: “Does Tim Cook want to sell prestige TV for the rest of his life, or does he want to change the world?” 

Only Tim knows what Tim wants. Two things are for sure: Customers want Apple to make a ding in the universe, not in their wallet. Customers want to be excited, not merely satisfied. Can Tim do that? Can Tim give the audience “one more thing?”

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