Does
Apple Need a New Blockbuster to Thrive?
On September 7, Apple introduced its latest iPhone, which offers
a dual camera system for the 5.5-inch screen version; upgrades the device’s
processor, wireless connectivity and the home button; and notably excludes a
headphone jack. The company also announced that it has revamped the Apple Watch
with built-in GPS, better fitness tracking, and waterproofing.
As Apple CEO Tim Cook reaches the 5-year mark of his tenure, the
latest enhancements to the iPhone and the Apple Watch are critical to address
concerns about the firm’s ability to keep growing — a tall order for a company
expected to have annual sales north of $200 billion. “It’s the best iPhone we
have ever created,” said Cook about the iPhone 7. “There’s a reason why you see
so many iPhones everywhere you look. We’ve now sold over a billion of them. The
iPhone has transformed the way we do things every day.”
The emphasis at the launch event was on Apple’s ecosystem as
much as on the iPhone: The company highlighted a new Nintendo Mario game
available through the App Store, reported growth in paid subscriptions to Apple
Music (now at 17 million) and shared news that Pokémon Go will be coming to the
Apple Watch.
The iPhone has clearly been a success. But that puts pressure on
CEO Cook to deliver a new product that can generate similar revenue. Meanwhile,
analysts are giving Cook high marks, especially for hitting financial
milestones. In the last five years, Apple revenue has surged from $65.2 billion
for fiscal 2010 ending Sept. 30 to $233.7 billion for fiscal 2015. Wall Street
is projecting sales of $215.45 billion for fiscal 2016.
Sales of the iPhone and iPad have been slumping, however. Apple
has had two consecutive quarters with year-over-year revenue declines. The
biggest product launch of the Cook era has been the Apple Watch, a device that
hasn’t delivered iPhone-like volume.
“Clearly, Cook is meeting his financial milestones, but he was
left with an enviable position, and it’s unclear how much of Apple’s success
has been due to his value and decision-making,” says Wharton management
professor David
Hsu.
Hsu adds that the knock on Cook and Apple of late is that the
innovation engine has stalled. Apple is historically mum about its product
development plans, and it’s unclear where Apple stands on initiatives like
augmented and virtual reality, autonomous vehicles and artificial intelligence.
Google parent Alphabet has been vocal about all of those technologies and has
experiments underway. Facebook has invested heavily in virtual reality. And
Apple’s most direct competitor, Samsung, has launched a line of virtual reality
products. “There is a lot of disruption happening, and it’s difficult to
repeatedly strike gold,” says Hsu.
Kevin
Werbach, a legal studies and business ethics professor at Wharton, says
given Apple’s success, “it’s incredibly difficult to move the needle further….
Apple has enjoyed some of the largest quarterly profits in corporate history
under Tim Cook. It’s now one of the largest companies on earth in terms of
sales and market capitalization. Even great innovations and successful products
won’t necessarily make a dent against that backdrop.”
Saikat
Chaudhuri, executive director of the Mack Institute for Innovation
Management at Wharton, says the criticism of Cook may be overblown given the
expectations. “Every company starts maturing at some point, and it’s hard to
[come up with] redefining products every time.”
In other words, Apple’s ability to reinvent categories such as
music with the iPod, mobile phones with the iPhone and computing tablets with
the iPad may not be repeatable, says Hsu.
Kartik
Hosanagar, a professor of operations, information and decisions at
Wharton, argues that Cook has done well continuing Apple’s tradition.
“Fundamentally, Apple is healthy and has pursued a similar strategy as under
[former CEO Steve] Jobs. In that sense, Tim Cook has delivered. He has also
left his own mark in terms of company culture. Apple is seen as a far more
socially and environmentally conscious company,” says Hosanagar. “The company
has taken a stand on a number of social issues and launched new programs — such
as matching employee donations and better monitoring of their suppliers in
terms of their environmental and social footprint. This helps with employee
morale and retention.”
Of course, Hosanagar acknowledges that Cook hasn’t delivered a
blockbuster product. Over time, that reality may eclipse everything else Cook
has accomplished.
“Overall, I’d give him a B+. He deserves credit for a smooth
transition,” says Hosanagar. “If he delivers on a new successful product, he
gets an A as far as I’m concerned.”
What’s Next?
“Apple wants something to be almost perfect before it releases a
product,” says Hsu. “It’s the same strategy that Jobs had, and it’s been
carried forward by Cook. It’s very top down, yet high risk.”
The risk is clear: Apple depends on big-bang product launches.
When you contrast Apple’s approach with that of Google and Facebook, two
companies actively experimenting on a range of products, there are concerns,
says Hsu. “At Google, the approach is that [the company] doesn’t know what’s
going to change the world so it’s going to place some bets around,” says Hsu,
who added that Facebook and Google are also actively acquiring companies. “It’s
a different game that Apple is playing.”
Analysts say that it may be time for Cook to make his own mark.
If Apple doesn’t have the next big thing, the company could outline what it
sees as big bets for the future. Being more open could buy Apple time to turn
one of its research areas into a significant new product category. Hsu says
Apple today is more akin to where Microsoft was during the glory days of
Windows, and Apple can continue make money from its platform and services for
years to come.
Chaudhuri suggests that Apple can expand its footprint with
corporations, invest more in artificial intelligence and tinker with new forms
of hardware that combine the smartphone and laptop. The “internet of things”
could also be a big market for Apple. “Apple still plays a huge role in the
connected device market on the consumer and business side,” he says.
According to Werbach, one thing Cook has right is that he’s not
trying to be Jobs. Nevertheless, Cook’s chore is to reposition Apple away from
being a company that largely relies on hardware to one that revolves around
services. On the company’s last two earnings calls, Cook talked about the
potential for recurring revenue and subscriptions from the company’s various
services.
“Apple occupies a unique position in the current technology
world. It’s the only big player based primarily on hardware as opposed to
services, commerce or software. Microsoft, Amazon, Alibaba, Facebook, Tencent
and Google have completely different economics,” Werbach notes. “For almost
everyone else at scale, with the exception of Samsung, hardware is largely a
commodity business. And Samsung doesn’t have Apple’s skill at integrating
hardware into compelling user experiences.”
Another issue for Apple is that it’s the only player its size
with an entirely proprietary stack of technology from semiconductors to
software and services. That approach gives Apple an edge in some areas, but may
hurt the company in situations where it has to connect to other technologies,
Werbach points out.
Cook may also have to increasingly focus on public policy, as
have Microsoft and Google. Apple has had a public fight with the FBI over
privacy and is now dueling with the European
Union over taxes. “Apple has never built the same public policy relationships as
Google and Microsoft, or even companies like Intel and Cisco,” says Werbach.
Needless to say, Cook’s next five years are going to have some
unique challenges. What’s unclear is whether any CEO can do it all. Hsu says
it’s quite possible that the Jobs-to-Cook era at Apple will be like the Bill
Gates to Steve Ballmer handoff at Microsoft, which struggled to outline a clear
vision under Ballmer. Microsoft has since been reinvigorated under CEO Satya
Nadella. “I could see Apple going sideways for a long time before new blood
comes in,” says Hsu.
Would Steve Jobs Have Delivered?
According to Chaudhuri, the prism Cook is viewed through is
unfair. Yes, Steve Jobs launched the iPhone, but the timing for the device was
perfect as mobility, wireless networking speeds, hardware advances and content
came together at the right time. “It’s not fair to pit Cook against Jobs. Jobs
got everyone used to waiting for a new product that defines a category,” says
Chaudhuri. “Jobs was unique.”
Chaudhuri argues that Jobs may have taken the same path Cook is
taking now. “Once you have a dominant platform in place, it makes sense to
build on it,” he notes. “Apple faces the same tradeoffs as any market leader.
You have to balance what you can do to exploit the products you have and keep
up with the next generation of technology.”
Jobs would have had the same issues Cook faces to deliver growth
from a large base of sales. “If Jobs were still alive, we could be talking
about how he lost his mojo,” says Chaudhuri. “Which companies have been able to
produce radical innovation every few years over time? Just because Jobs had
three blockbusters in a row doesn’t guarantee another.”
Indeed, Werbach says the iPhone may have been a generational
product launch. “It may well be that the iPhone was a once-in-a-generation
product, not just for Apple, but for the tech sector as a whole,” says Werbach.
Meanwhile, Werbach notes that it’s worth remembering that Jobs
wasn’t always the executive now viewed as a legend. “Jobs wasn’t always the
Steve Jobs we canonize — he was fired from Apple, and even after he returned,
it took several years of gradual turnaround before the iPhone catapulted the
company into the business stratosphere,” says Werbach. “Cook, to his credit,
has managed to humanize Apple in important ways, without losing its edge. Maybe
he hasn’t changed the world like the previous guy, but that’s a bit too much to
expect.”
In the end, Cook’s biggest challenge may be managing
expectations and not innovation.
http://knowledge.wharton.upenn.edu/article/does-apple-need-new-blockbusters-to-thrive/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2016-09-13
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