Yesterday, Apple hit a major valuation milestone becoming the first $1 trillion public company. Many Wall Street analysts and market pundits are calling it an important milestone. Well, apparently Tim Cook doesn’t think so. But it is a time to reflect on how the investor community and Wall Street have gotten Apple wrong consistently for quite some time. And they continue to get Apple wrong as they continue to characterize Apple as an iPhone company or a consumer product company, or a hardware company.
Apple is a solution company and they have been for a better part of a decade. What does that mean? Apple is one of the few companies in the world that has been able to build a successful business fusing hardware, software with services and content in delivering customer experiences that are frankly unparalleled in pretty much any industry you can think of. The tremendous consumer value that Apple has been able to deliver is due to the quality and integrity of the vertical stack of business, technology and creative capabilities that Apple has managed to develop and implement horizontally across its hardware, software, service and content offerings – its solution offerings.
This isn’t just lip service because Apple is able to command massive ASPs for its iPhone portfolio relative to the overall smartphone market and consistently defies the expectations of Wall Street analysts. Keep in mind, Apple is increasing the average value per iPhone unit shipped – $724 ASP for this last quarter – against the backdrop of a broader smartphone market in which Android device manufacturers are struggling with persistent commoditized pricing (ASP of $200), and are having to compete for a miniscule pool of profits (13% of profit share according to Canaccord Genuity) that Apple leaves behind.
What can explain this unconventional dynamic that seems to defy gravity? How is it that Apple can continue to get people to pay a huge premium over other high-end Android offerings? The simple answer is it’s not the hardware. It is the life-augmenting solutions that Apple delivers to its customers with a level of artistic, technical, functional and social quality that the likes of Microsoft, Google and Facebook struggle to match or replicate. It is the elegant and finely crafted blend of iconic hardware designs (Apple is still offering the 5-year old iPhone 5 design via the iPhone SE), essential and quality software, industry-redefining physical and digital services (Apple Retail’s $5,546 sales/sq. ft. according to eMarketer), which delivers a brand experience garnering top customer satisfaction ratings across the board year over year.
Did all of this happen overnight? No. Apple has been working at this for a long time. What Apple has achieved is very difficult with many iconic digital companies such as IBM, Cisco, Google and many others still working on making the transition from a legacy as a product or software-oriented company to becoming a solution company. Apple’s unique solution-based business model will be their key differentiator for the foreseeable future because they simply do it the best and have a significant lead over their competitors.
While quarterly units of iPhones shipped seems like a convenient metric for measuring the success or failure of Apple, it isn’t. It is obsolete and no longer explains the present or future of Apple. For years, Tim cook has been saying it – installed base. That is the metric that is key today and going forward, which stands at 1.3 billion active iOS devices as of the beginning of this year.
With the average lifespan of an iPhone estimated by Asymco’s Horace Dediu to be over four years and with over 81% of iOS devices running the latest version of iOS compared to 12% of the approximately 2.3 billion Android devices running Oreo, Apple will be able to continue to go to market with new digital services based on ARKit for augmented reality, HomeKit for consumer IoT, and HealthKit for connected fitness and healthcare much faster than their competition. We recently witnessed this phenomenon as ARKit put Apple at the forefront of the augmented reality race and put Facebook in the rear-view mirror. Apple has what every digital firm dreams of – an Agile ecosystem.
Apple’s $1 trillion market cap is a milestone, but not for Apple. It presents Wall Street and the business scholars a moment to consider viewing Apple with a different lens rather than a convenient, conventional lens. After all, Apple is still and continues to be about “Think Different.”
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Managing Director, neXt Curve
August 3, 2018
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