Reading the papers, you would think that Apple had announced two stink bombs last week in the iPhone 5C and iPHone 5S. Wall Street dumped the stock. The tech pundits panned the products. The influencers were disappointed that Apple hadn’t followed their uninspired advice: cheapen the brand with low priced versions and do a deal at any cost with China Mobile. As they say, “If you can’t do, become an anal-yst.”
But I saw the Apple product announcement differently. I thought it was entirely consistent with their long-term strategy and brand positioning. As I see it, the strategy of Apple is to methodically take over and dominate an increasing number of tech segments. With the iPod they took out mobile music and crushed the incumbent, Sony. The Walkman never recovered. With the first iPhone, they took over a vast array of tech niches: wireless phones, texting, personal information management, digital cameras, simple handheld games, mobile search, weather, stock quotes, maps and mobile email. The first iPhone destroyed Motorola in the cellphone space, the Palm Pilot and its PIM niche, Blackberry’s mobile email monopoly, the Japanese digital camera vendors and handheld game vendors – again poor Sony and in addition Nintendo, among others — Yahoo! for stocks and weather, and Nokia for texting. The market caps of these losers flowed into Apple and its stock market valuation soared. The iPhone One was a cataclysmic event for a vast swatch of the consumer tech industry.
Subsequent iPhones continue the march to consumer tech dominance. The iPhone 3G added GPS to its Google maps destroying the GPS device market led by Garmin. The iPhone 3GS added video which destroyed the camcorder industry. With each new model, the camera got better and better. With the iPhone 4 a user facing camera made personal video conference possible killing any start-ups or competition in the field. Siri added voice recognition which spelled the end of natural language vendors like Dragon.
With the iPhone 5S, Apple is now challenging the game console vendors — again Sony, Nintendo and now Microsoft — with high resolution Retina displays coupled with super fast, low energy chips. The A7 together with the Retina screen will be able to compete with the best gaming system on the market – and as part of a tech bundle that does just about everything the heart desires.
Apple put the technology strategy that supports the 5S, the A7 processor, in motion long before Steve Jobs died. Apple’s investments and acquisitions in microprocessor design technology over the past five years, now position it to challenge high-end consumer chips from Intel, IBM, AMD and Samsung. The A7 is 40 times faster than the chip in the iPhone One and twice as fast as the A6 in the iPhone 5. It also uses less energy. Speed and battery life are two critical dimensions of the smart phone experience where Apple is increasingly positioned to win with proprietary technology.
With such compelling technology creating a competitive advantage, why would Apple compromise on price just to win a few more units sales in China. Apple has always been the Neiman Markus of the tech sector why give up its high end positioning and high gross margins now for a cheapening of the brand. It is always better to compete on features and ‘speeds and feeds’ than price.
Also consider the proprietary M7 motion sensor. This chip will destroy another set of consumer tech vendors, the digital pedometer vendors. This may not be as big a market as high-end video games or handheld video games, but it is another example of Apple quietly consuming one consumer tech niche after another: digital exercise assistants. Within one year, every iPhone 5S and 5C user will know how many steps he or she took in the last 24 hours and how close they got to the 10,000 steps per day recommended minimum. Runners will know the exact time it takes them to cover each mile of their course. Cyclists will be able to track their speed and pedal rates. The iPhone 5S and 5C are going to turn Americans into walkers again and we will start losing the pounds and getting more healthy. In addition, the motion sensory chip can monitor automotive speeding and turn off annoying WIFI access queries if the phone is traveling in a car.
Looking ahead, I hope that Apple will continue to develop the cloud technologies that can take advantage of the amazing power of these new chip sets. iCloud is a good start but more can be done. I am hoping that they have an iCare service in the works that will consolidate all my medical records a secure cloud so I won’t have to fill in those repetitive forms every time I go to a new doctor or the emergency room. The doctors will be able to simply look up my medical history from a central repository online by plugging my iPhone into a console.
With regard to China Mobile, I have no idea what is really going on. Obviously China Mobile is a huge market with 700 million subscribers, so there must be some very, very serious negotiations going on.
Note: The author is long Apple common stock.