My POV: What Will Apple Do?

I always find myself reading articles regarding the next big thing that will happen in digital commerce, marketing or media. Predictions of a major acquisition that will change the landscape, or the impending doom of a company that squandered its position or opportunity. Sometimes I'll share the article. Sometimes I'll comment on it. Regardless, I always enjoy reading them, whether I agree or not.

So, for kicks, I thought I'd summarize my thoughts on one of my favorite companies - Apple - and what I see over the next 12-18 months now that they will be bringing a huge sum of money back to the U.S. Take note, I have no real insights to share. This is pure water-cooler conjecture on my part - so take it for what it is, and assign no value to it beyond entertainment.

Disclaimer: I own Apple stock (as I would imagine almost everyone in my LI network does, either directly, or indirectly through an investment fund or ETF).

So why Apple? I see a "hardware" company that is so much more - yet they haven't figured out how to prove that to the rest of the world. Put simply, Apple needs to transform from a great hardware company with complementary services, to a leading services company with great hardware.

The obvious now stated, hardware is of course critically important to Apple, and the interconnectivity and familiarity across their devices is what creates a consistent, controllable experience their customers have come to expect. This is the "Apple Experience", which is largely a "walled garden" and has historically been both a differentiator and (somewhat of a) limitation for Apple.

Over the past 17 years, Apple has lead the way into a new age of digital disruption and media consumption with a set of innovative products such as the iPod, iPhone, and iPad, along with complementary applications such as iTunes and Siri. This paved the way for the App Store - a massively successful, yet very much controlled ecosystem.

Apple has excelled at identifying untapped opportunity to create category-defining products that set new standards and changed how consumers live life. From 2001-2010, the name Apple was synonymous with innovation.

While Apple had set the bar when it came to innovative products, over the past 8-10 years a number of large technology companies have gone after the vast majority of consumers who weren't yet a part of the "Apple Experience" (most notably, Alphabet / Google, Samsung and Amazon). One could argue there is less disruption and innovation to be had on the hardware side nowadays (until of course the next big thing is released, and we all wonder why no one ever thought of it before). While more competition and less white space may be the current reality, Apple is still very much focused on bringing to market unique, high quality products with an unmistakeable brand cache that further entrenches them with their loyal customers (see Apple TV, Apple Watch, iPhone X, and HomePod). These products may not have the same transformative effect, enthusiasm and adoption as early iPods, iPhones and iPads - but plenty of consumers have proven they will buy them, and in some cases pay up to do so. (Note: Apple hasn't quite figured out how to break through on TV yet, and it's way too early to pass judgement on HomePod).

On the flip side, you can make the argument Apple missed the opportunity to lead the way in digital streaming and artificial intelligence. Apple devices have helped forever change consumer behavior and expectations, but others have better capitalized on it so far. We all know the examples: (iTunes vs Netflix & Spotify; Siri vs Alexa & Google Assistant). In fairness, Apple is not alone in missing the early days of this shift - many media and telecom companies are playing catchup, with more at stake.

That said, Apple's "Services" business (iTunes, App Store, Apple Music) can still very much be the growth engine of the future, with hardware serving as the trojan horse. The question is what is Apple's strategy regarding their Services business in relation to their Hardware business? Should Apple continue to force consumers into a "walled garden"? Should Apple try to be a content creator / producer? Should Apple bring to market its own self-driving car? Are there larger acquisitions Apple should look into?

Well, here are some of my thoughts on areas of potential focus or opportunity:

1. A.I.: This area (including improved voice & image recognition) may be more likely attacked through acquisitions of smaller startups with attractive IP and talent, but I wouldn't count out Apple looking at companies like Twilio.
2. Digital Content Distribution / Streaming: Sirius XM (this just seems too easy)
3. Consumer Products: Sony (complementary to beats acquisition and Apple TV, that comes along with studio / movies / music / gaming assets (in particular playstation) Apple could make use of - and there's plenty of opportunity for efficiencies / cuts / divesting of Sony products that would no longer be applicable under the Apple umbrella). Another considerations is Dyson (out of left field, but Dyson's high-quality, cache consumer brand fits in nicely to Apple's positioning, and could be leveraged as part of a future "smart home" strategy).
4. Digital Payments: Complementary to Apple Pay and opportunity to expand Services revenue beyond the "walled garden" - two companies stand out to me: Stripe (valuing infrastructure and developer enablement) and/or Square (valuing applications and devices for small business).

Regarding Tesla: While many believe (or hope) Apple has eyes to acquire Tesla, I'm not convinced yet. Perhaps one day Apple will want to get into the car manufacturing game, but for now, focusing on software to extend the Apple Experience into cars (Apple Car Play) seems to make more sense. Let's also not forget that Tesla is very much an energy company - does that fit for Apple? Besides, there is A LOT of investment needed here beyond the acquisition. Is Apple ready for that? Perhaps in the near term Apple engages in strategic partnerships, investments or joint ventures to accelerate their influence in the automotive industry, rather than buy a car company.

Regarding Spotify: Apple could of course decide to just buy themselves into a larger position in digital music streaming, but given recent news re the growth of Apple Music, I'm not sure they'd see enough value in doing so. Perhaps to block Facebook, Google or Amazon making this move. Perhaps. (btw, some people would point to Pandora - but at this point, unless they have some compellingly unique IP that Apple covets and can get on the relative cheap, I'm not sure I see the point).

Regarding Netflix: While Netflix would appear to be the way to make a huge move into content and perhaps leapfrog Amazon and Google, as well as Facebook - I'm not sure I see them wanting to make this big of a move right now in content arena. This is not a set-it-and-forget-it acquisition. Similar to my point re Tesla, this is a highly competitive space that will take enormous investment in time and capital beyond the acquisition. Would Apple really want to go from "we'll put $1 billion into content" to "we'll just spend a couple of hundred billion, and make this a core focus going forward." Time will tell.

Regarding Hulu: If, somehow, Apple was able to finagle a deal with Disney / Fox / Comcast to acquire controlling interest of Hulu, I'm sure they'd be interested in such a deal given it would be a much more reasonable alternative to enter the market, as opposed to Netflix - but this deal seems too complicated, at least in the short term.

Regarding Disney: We've all heard the rumors - I don't buy it.

Regarding Twitter / Snap / Pinterest: There's merit in Apple acquiring highly popular, unique apps to derive more services revenue (in this case, primarily advertising) and further control the user experience on their devices. That said, I think Twitter is a more likely acquisition of a news media company, or perhaps Alphabet / Google. Snap would seem way to niche (and unprofitable) at this point to justify the valuation, and Pinterest just doesn't seem like a fit.

Others to keep in mind: Fitbit, Roku, Wink, Ecobee, GoPro

I don't expect to hit with any meaningful degree of accuracy in the above. But, what the hell. Fun to speculate.