There is a growing consensus in the technology industry that Apple is falling behind and needs to do, well, something. I understand the sentiment because it’s been awhile since Apple toppled an industry. But it’s not exactly raining frogs in Cupertino.
iPhone sales may have plateaued but it did so at record levels. Again. Ditto for the Mac. The moribund PC industry suffers while Apple’s Mac chugs along despite the company not paying much attention to desktop Mac customers. iPad? There’s some hurt there but Apple sold more iPads last year than Dell did PCs, so it’s not exactly a business ripe for the dumpster.
Look. Up ahead. It’s a bird. It’s a plane. No, it’s a wall.
The Hardware Wall
Apple is a technology company like no other. First, Apple is a hardware company. Software simply goes along for the ride. What about the growing Services group? It goes along for the hardware ride, too. No hardware, no Services group. The problem I see is that hardware has become something of a commodity, which explains why Apple always chooses the premium end of the product spectrum. First, that’s where the gross margins are and that translates into gross profits. From hardware. Software and the ecosystem, with some of the Services group thrown into the mix, are dependent upon hardware.
Apple will have trouble growing revenue and profits solely on hardware because the premium end of any technology has limits. Software is a no go and only used to differentiate Mac, iPhone, and iPad from other hardware on the market.
That leaves the Services group, now the fastest growing component of Apple’s somewhat diverse product mix. Yes, Apple gets most revenue and profits from iPhone, but diversity exists in Mac, iPad, and Services and all are wildly profitable. Since Apple struggles to grow hardware sales, and software is a no-go, then Services is the future.
Apple should buy Disney. No. Wait. Apple and Disney should merge. Each company needs what the other has.
Google’s YouTube and now YouTube TV should be a wakeup call for a company that makes hardware. Amazon and Netflix have become major players in media content, and neither one makes much from their hardware efforts; certainly nothing along the lines of revenue and profit that Apple makes. Disney has a massive trove of content and a brand name nearly as valuable as Apple. Apple’s own walled garden ecosystem of services and connectivity often is considered Disneyesque in nature.
Look around the technology landscape. AT&T is into content. Verizon, too. Sony sells hardware with access to Sony content. Amazon and Netflix have become giant content distributors and are disrupting the content market. Meanwhile, Apple chugs along, selling iPhones and Macs in ever greater numbers, but missing the mark entirely with Apple TV. Even Apple Music struggles against Spotify. Apple needs a content boost to the Services business and what better partner than Disney?