Is Apple’s Greatness Fading?

Apple’s an interesting company — a true underdog success story that defined consumer tech and later became the most valued company on Earth.

And while everyone knows Steve Jobs, few truly understand Apple — especially going forward.

Warning, I have never really liked Apple (which is ironic as I write this on a MacBook Pro) and could be considered a cynic. For Apple fanboys afraid of cold hard facts and analysis, this may not be the article for you.

But for anyone interested in tech and understanding Apple’s future, specifically their growth opportunities, Achilles Heels, and potential acquisitions, let’s get down to business.

Be warned, this is a long one. Grab some coffee.

This is the 4th post in a series of in-depth articles on the future of the tech giants — including a breakdown of their business models, biggest threats, future plans and probable acquisitions.

Gods of the Valley Series
Part 1: Amazon Eats the World
Part 2: The Future of Google
Part 3: Facebook: The King of Communication
Part 4: Apple's Greatness Is Fading

Understanding Apple’s business

To understand the future we need to understand the here and now and build off it. And like any company, Apple’s complicated. Compared with our other top tech giants however, Apple is a piece of cake.

Tim Cook has two primary drivers: hardware and services. And as an optimizer, he has polished these to perfection — to the tune of $215B in 2016.

And that was a down year…

Apple is a money printing machine and consumers, thanks to incredible branding and past product quality, are hooked.


Hardware is hard. It isn’t an easy business to be in.

Yet in spite of capital constraints, R&D costs and manufacturing mishaps, Apple is still crushing. Here is a breakdown of Apple’s revenue by product (both constant and normalized).

Sources: SeekingAlpha, Statista

As expected the iPhone, iPad, and Mac make up the majority of the revenue. But with growth in services and several new product lines discussed below, look for Apple to finally see a bit of diversification in their business.

1. The iPhone — the #1 smartphone in the world

The iPhone launched in the Summer of 2007 and changed the world. Since then, the iPhone has dominated Apple’s business and bottomline — increasing from just 1.2M sales in Q1 of 2008 to over 78M in Q1 of 2017.

The growth is staggering and makes up the lionshare of Apple’s operating revenue, 69.4% of (Q1 2017). And although Apple loves to point out that the iPhone was ‘Designed in California,’ the US is by no means the entire market — accounting for just ⅓ of all iPhone sales in 2017.

And if we are being honest, the iPhone is about much more than just the phone — it is the connection with consumers, the driver of iTunes, the App Store, AirPods, accessories… pretty much the whole shabang.

This creates potential problems going forward, which Apple recognizes and we will discuss in a later section.

That said they still sold $87B+ of iPhones in the first half of 2017, so…

2. The iPad — the #1 tablet in the world

Source — LifeWire — Y axis is millions of units sold

Steve Jobs was a product genius, and while the iPad was one of his more obvious “inventions,” it has still been good to Apple — and defined a category.

Although the iPad is still important for Apple, iPad fever clearly peaked in 2014 when it accounted for 20% of Apple’s topline revenue. Today, with over 360M units shipped since 2010 (as of May 2017), the iPad is definitely fading and losing market share.

Now Apple holds a declining 25% market share and accounts for only 20.8% of new tablet purchases worldwide (although still the #1 brand).

Source: USA Today

The numbers kind of speak for themselves. Tablets last even longer than phones, so reorders are a real problem.

3. Mac — the #4 laptop

NOTE: This was written before the M1 Macs were introduced which changes the game entirely!

Here we see the same problems as iPad, only intensified.

The issue is that the world is going mobile. We reached peak PC, now things are winding down.

Combining these trends with Apple’s lack of focus on their computer division — the terrible touch bar, the unfixable keyboard, and being out-innovated by Microsoft and it isn’t a pretty picture.

It seems safe to say Mac isn’t a focus for Apple anymore, and they are falling behind in market share because of it.

4. Beats — the #1 headphones in the world

Apple acquired Beats in 2014 for a $3B, and in doing so they acquired an icon and an incredibly hot brand. Beats revolutionized the music/headphone industry — focused on making music awesome to listen to and less about the exactness of the audio quality. This coupled with the hiphop cred of the Dr himself helped Beats soar, quickly becoming the most popular brand with the cool kids.

Today Beats is a big part of Apple’s empire, although unfortunately, revenue numbers aren’t public. We do know that Beats did a reported $1.3B in 2013 — I imagine shelf space in Apple’s 499 retail stores worldwide has skyrocketed this number.

And then there’s the other thing…

5. AirPods — the #1 Bluetooth headphones in the world

AirPods are Apple’s first big hit since Jobs. These tiny, in-ear headphones have exploded in popularity — mainly because bluetooth is awesome and a much easier, more enjoyable experience.

Had Apple aficionados tried other bluetooth headphones on the market before the launch of the AirPods, we wouldn’t be having this discussion. But between the intentionally out-there, hipster style, the superb performance, Apple’s signature “I’m better and cooler than you” branding (which to be honest is the core of EVERYTHING they do) and their extensive retail network, Apple sold a lot of AirPods.

And while 2017 was big, 2018 will be even bigger. Apple expects to double sales, reaching a whopping 26–28M units the year after release. That is much faster growth than either the original iPhone and on par with the iPad.

And although the lower pricepoint (~$179) means less revenue contribution for the company, the sales come at a much needed time as other divisions underperform.


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6. Apple Watch — the #1 wearable in the world

When Apple launched the Apple Watch in 2015, there was one big problem — the product literally had no use case. There wasn’t a single thing that the watch was good for.

It was kind of a build it and they will come product. And that is what happened, initially.

As you can see, after the initial fans lined up to get the latest gadget, the sales started to stagnate. Recently Apple’s released a new version with actual functionality! Now you can make calls and have wireless connectivity, even without your phone. Suddenly a use case or two were born.

And now the Apple Watch is quickly eating up the wearables market. Obsessed Apple fans will buy anything and now that there is more than just perceived value, people are biting — buying nearly 4M units in Q3 of 2017.

The question going forward is how the wearables market will shake out. If smartphones are any indication, Apple will offer the premium product and Android or other generic versions will eat up most of the mass market.

7. Apple TV — the #4 smart TV device

11 years ago in the winter of 2007, Apple launched the Apple TV. They wanted to own the home and replace cable TV. It is fair to say they fell miles short —and instead ended up just pushing an overpriced box.

Apple missed the key that Netflix picked up on, quality original content is compelling — which was the biggest of the opportunities.

Rather than creating the content, Apple expected the wide variety of online video services to beat out cable. They were wrong.

A shoe store with a million options is overwhelming — the fewer, more personally tailored options available/presented, the better.

Today Apple’s market share continues to decline due to non-competitive premium pricing and a non-differentiated product. Expect this trend to continue.

Software and Services

This has been a major area of growth for Apple and something they will be focusing more heavily on in the future. They understand the challenges of the hardware and the margins on services (provided through software) and thanks to the success of their services division (Q4 of 2017 the services category brought in $8.5B, up 34% YoY), and fear over declining iPhone sales, look Apple to double down here.

Source: Credit Suisse

Services to Projected to Exceed 33% of Apple Gross Profit by 2020— Credit Suisse

1. The App Store — the #1 paying mobile app store in the world

The App Store is incredibly valuable for Apple, bringing in $8.6B per year and ⅓ of the revenue from Services. It is also the reason Apple won, at least initially. And it is something Jobs resisted for quite some time.

The App Store has given iOS a big leg up on Android. It brings in 75% more revenue than Google Play despite the difference in downloads. This is a self-reinforcing cycle whereby the top developers focus their efforts on iOS (because that’s where the money is), to the detriment of Android.

Source: MacRumors

2. Apple Music — the #2 streaming music service

Apple’s streaming music service has been HUGE for the company, and its clear that the world is moving away from downloads and towards streaming.

Source: PWC

With a large user base and iTunes as a lever, Apple is very focused on building out their subscription base. Whether they surpass Spotify or not, Amazon is coming and as Apple needs the subscription business revenue to offset hardware risk.

Apple Music has been one the largest contributors to Apple’s services revenue rise, exploding from nothing to 27M subscribers in 24 months. That is incredible growth and up to $3.2B per year in recurring revenue.

A little later we will talk about Apple’s ultimate plan with Apple Music and how it all plays out.

3. Apple Pay — the #1 mobile payment system in the world

The world is going cashless.

Between mobile payments (at stores, online etc), peer-to-peer payments (like Venmo) and of course cryptocurrencies, paper money is disappearing rapidly (due to, among other things, inconvenience).

As the shift to cashless occurs, Apple is uniquely suited to dominate.

Because retail payment systems require infrastructure (PoS, card readers, cash registers etc…), it takes time and energy to implement new payment methods.mAnd because implementing payment systems isn’t the primary business of barbers, bakeries, and coffee shops it is fair to assume winner take all/most dynamics apply here (because shops won’t want to set up dozens of payment systems). There will be a few accepted payment systems and everything else will fail to get adoption.

Apple has a real shot to win the mobile payments market, especially in the US. With 36% of US merchants accepting Apple Pay (Feb 17) at 700k+ locations (Mar 15) and a 90% market share (Aug 17) of the US “contactless payment” market, Apple is making waves.

That said only 27% of eligible iPhone users have used Apple Pay to date (Aug 17) — meaning there’s massive room for improvement. And while Apple Pay transaction volume increased 450% from 2016 to 2017, there is still a long way to go.

Apple also released Apple Pay Cash last November, a peer-to-peer payment system which should be interesting to watch unfold, especially given the added functionality it enables for all Apple Pay users — more on this below.

4. iCloud

Apple pretends to be in the consumer cloud business, but it is a bit of a joke. The only people who use iCloud are iOS users and even they only use it to back up their devices. The majority of the “real” consumer cloud market belongs to Dropbox, Google, Box and Microsoft.

That said, one industry analyst believes that Apple makes significant revenue from iCloud, possibly as much as $4B per year — mainly as an iPhone upsell.

While this number seems unreasonably high, it is also safe to say most iOS users would pay a few bucks for more storage — they are already so invested in the product/platform and used to upsells anyways.

If this were indeed the case, then Apple would be the #1 consumer cloud provider although I’m skeptical.

5. Apple Stores — the #1 retail store in the world

There are 499 Apple stores around the world and they are the key to Apple’s empire. Apple has literally built their stores into an amusement park-esque experience where fans flock just for fun — often leaving with extra items.

Between their incredible customer service and creative inbound marketing, Apple gets buyers out in droves.

Any other brand would kill for this kind of following.

6. AR Kit — the #1 augmented reality dev tool in the world

This past summer Apple made a big announcement — ARKit, a new framework to allow iOS developers to easily create interactive augmented reality experiences for the iPhone and iPad. Since then the world has been watching, and developers have been delivering. Apple is betting big on AR, finally being a first-mover again!

Apple’s big challenges

While Apple is the most valuable company in the world and killing it financially, it isn’t all rosy. There are some major issues here, let me explain.

1. The slow death of the smartphone

Smartphones won’t be around forever. And we are entering an era where Moore’s Law is hitting the limits of economic feasibility.

Users used to speculate that Apple slowed down old iPhones (after launching new ones). This has since been confirmed (although Apple claimed it was all in the name of battery power).

The truth is, Apple needed a reason for consumers to reorder. Apple’s valuation and cash flow projections are based on yearly releases and upgrades every two years. What happens when consumers stop upgrading early?

It is obvious Apple knows this and is trying to cash in on “this iPhone thing” for as long as possible.

In 2016 Apple had a hiccup, with iPhone sales dropping 5.3% in Q3 of 2016 (vs previous year). A 5.3% drop plus weak performances across several other product lines was enough to force the company to take on a ton of debt to pay off investors. Are you serious?

While Apple had more than enough cash, I imagine the tax implications of “moving” their money made taking on debt more attractive financially.

Either way Apple is clearly too dependent on the iPhone, accounting for 69.4% of their revenue…

And up until the iPhone10, changes were superficial at best. There was no real reason to buy, other than the “I’m cooler and better than you” effect of owning the latest iPhone.

Trip with all your eggs are in one basket and it can all come crashing down. Apple needs to diversify big time.

2. Greed leads to lack of innovation

Which Apple products within recent memory were remotely innovative or worthy of Steve Jobs?

The first thing that comes to mind is Apple’s new HQ (although I suppose that doesn’t count). That is actually just about greed and ego, and certainly not for consumers.

Unfortunately, Apple replaced a visionary product genius with a logistics and optimization specialist… the result, as expected is efficiency. Today no company is more efficient than Apple at extracting dollars from its customers. And Tim Cook takes this up a notch with his dongles and adapters mindset.

In consumer tech, the accessories are always the highest margin products. Whereas for the iPhone or Mac to be competitive, they need to keep prices reasonable (iPhoneX aside…), this isn’t the case for accessories.

Before I built and sold our ecommerce company, accessories were always the exciting part. When you’re purchasing a $1500 laptop, do you stop to think about the $89 dongle, the $9 to $39 lightning adapter, the $39 thunderbolt cable or any one of dozens of Apple upsells?

Of course not. The percentage of the purchase price is so low that you don’t bother to compare — although you are paying many times more than a competitive price for the product.

And guess why you are buying all these adapters and devices, including those wireless headphones — because Apple is removing all the basic ports to push more and more little accessory upsells…

But Cook’s greatest innovation is definitely slowing the old iPhones. Nothing drives up demand like “accidentally” destroying the old product…

Everyone understands the pros and cons of short vs long term thinking/gratification. And Apple for one is focused on the short term. Apple hasn’t focused on usability or innovation anymore, they are focused on annoying, high margin accessories that have driven profits and market caps through the roof in recent years.

Source: TechCrunch

Removing ports, removing headphone jacks, removing all simple functionality to force an additional purchase, all in the name of profit and aesthetics is downright troublesome. And Apple’s flops on new product lines and innovation are embarrassing — the Macbook Pro slider, the Watch, the car, the marginally better iPhone at ever-increasing prices…

Apple is building fluff features for the sake of showmanship and sales… that is usually a formula for disaster.

Bold prediction: Apple has peaked and short term greed has offset long term growth mindset. This is a company that HAS to buy someone to save their own ass and remain relevant.

3. A hardware heavy business

Today Apple is a hardware business with ~80% of revenue coming from physical products. As working wages begin to rise in China, India and overseas, this creates a strain on Apple’s core business.

And hardware is hard and risky. It is very capital intensive and has long manufacturing/sales cycles with historically decreasing margins. While this worked for Apple to date, I would question the feasibility of a primarily hardware-based business going forward. If Apple isn’t able to grow its services revenue substantially, this may lead to problems.

That said, Apple has more than a quarter trillion dollars in the bank (mainly overseas). This is enough to float any business for quite a while assuming they aren’t killed with taxes or robbed by the EU anytime soon.

But as we saw with the iPhone sales drop, cashflow is challenging and if we see several quarters of below-average/expected performance across the iPhone, iPad, and Mac product lines, Apple is in for a world of hurt.

4. Siri sucks for V=voice computing

Siri is shit. Compared with Amazon’s Alexa and Google Now, Apple is being left in the dust.

This creates big problems as we move to an increasingly digital world where IoT devices, many with speech-based controls/computing begin to spread through society.

Apple dropped the ball big time here. Had they invested in the space, Apple rather than Amazon and Google could have owned the home. Now instead of participating in the upside, they get to watch from the sidelines.

This creates a self-reinforcing loop where Apple falls further and further behind in voice-based computing. If Apple doesn’t begin to incorporate Alexa and Google Now into its devices, Apple’s offering will suffer.

While not an immediate problem, what happens when “the consumer tech” company can’t keep up. If we end up talking to our robots/devices, Apple is dead in the water.

A big part of the problem is that Siri started in an era before today’s NLP technology was possible. That meant, consumers suffered years of awful experiences and still hate Siri to this day. This coupled with Apple‘s laziness in this regard looks really bad for the future of the company.

Where Apple could growth

Apple is uniquely positioned for major growth in several verticals. And given proper motivation, Apple can grow into a more diversified, sustainable business. Here are a few ways how.

1. Podcasting

As host of The Syndicate podcast and a fan of numerous tech, VC and blockchain-based shows, I’m bullish on podcasting. That said, the numbers speak for themselves.

While not hugely lucrative currently (due to inefficiencies in the system), 21% of individuals over the age of 12 listened to a podcast in the last month — that’s 57M Americans (and growing rapidly). Attention and advertising dollars are starting to flood the space.

The biggest challenges today are the complexity of advertising and lack of analytics. Unlike most digital advertising, it is hard to set up and measure ads. You don’t know where listeners drop off or if they even heard the ads. And finding/onboarding publishers is a one-off process requiring a significant time investment.

There is no simple, easy to use system for buying and selling podcast ads. Yet given these limitations, podcast advertising is still expected to reach $395M by 2020.

This is something Apple could dominate and do to effectively diversify their business (while eating into Facebook and Google’s advertising duopoly).

Apple may already be realizing this. While iTunes already dominates podcast discovery and the iOS podcast app has a 60–70% market share, Apple is starting to offer analytics and tracking on podcasts.

These are the type of stats advertisers need to see before committing, and something ONLY Apple can offer. To date, there is NO other way to collect this data.

The thing is, podcast ads grossly outperform traditional advertising. The reason is simple, the listener knows, likes and trusts the host. After spending countless hours “with” them, you feel like you know them — making podcast ads more engaging and trusted than other forms of traditional advertising.

While the average ad recall from print and tablet-based magazines is only 52%, podcasting has demonstrated recall rates of 89% — a 71.1% improvement over the mean.

And the results are even more marked vs full-page takeover display ads on mobile (45% recall, ie what Facebook does) and desktop (35% recall). Plus listeners say they are 56–61% more likely to eat at the restaurant mentioned (Source).

While it is still early days for podcast advertising, what happens when setting up and tracking ads across podcasts in a variety of industry-specific verticals that convert better than Facebook mobile ads become as easy as setting up a Facebook ad?

Then more and more money will pour into podcast advertising for its targeted, long-form engagement — likely leading to exponential revenue growth — potentially with Apple at the center.

And since weekly podcast listeners listen to an average of 5 hours and 7 minutes of podcasts per week (Source: Salesforce), there is a huge amount of monetizable, high focused customer attention that Apple could take easily advantage of.


2. Expanding Apple Music

Apple Music has been one the largest contributors to Apple’s services revenue rise, exploding from nothing to 27M subscribers in 24 months. That is great growth, up to $3.2B per year in recurring revenue.

But it isn’t only about the revenue. This growth allows Apple to pour resources into the platform, including original content. And with a $3.2B/yr budget, Apple can start to get creative because Apple Music doesn’t need to make money right away. Apple has more cash than it can count.

If by delaying gratification Apple is able to build a better, more diversified product than Spotify or Amazon with a huge base of original content, they could create competitive advantages beyond merely their user base. That is where true growth and sustainability come in.

Plus it would be a perfect 1–2 punch with…

3. Expanding Apple’s original video and streaming service

Apple has been a player, albeit a laggard, in the video space. While iTunes has always offered pay for purchase (or rental) content, a video has gone the way of music — streaming.

There is so much potential in the video. In 2016 the streaming video on demand market worldwide was $10.96B, expected to increase 20% by 2021. And Netflix alone is valued at $94B.

The market for quality video content is constantly increasing. Content (and attention) is king, and video more than any other medium (short of VR), completely captures attention.

Netflix will spend $6–8B on original content in 2018. In 2017 they produced 1000 hours of original programming. And with shows like House of Cards, Orange is the New Black and Narcos, Netflix is nailing the content.

Amazon is hot on their heels with a $4.5B budget, and Apple is planning on dropping $1B this year.

NOTE: Don’t forget Disney’s launching their own subscription video service which will bloody the waters even more.

People pay for quality content. Subscription revenue trumps ad dollars everyday.

It is a race to own the user and Apple needs to drop some dollars (and hire awesome people) to make this happen.

And Apple could have a competitive advantage here, leveraging their massive customer base and constant connectivity to create a content kingdom. By pairing the original video with Apple Music, Apple could create a highly defensible, unique offering/upsell for iOS users.

One challenge here is that Apple overcharges (pretends to be premium) for everything. In the world of streaming services, it is much more about content than brand. If Apple can create a superior offering/content (which at this point will be challenging), then perhaps they can charge more. But to be honest, they should focus on simply acquiring as many paying customers as possible — it is all free money for them anyway.

If they pour the $3.2B/yr in Apple Music subscriptions into both audio and video content, they could really start to build something special.


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4. Focusing on Apple Pay

The mobile payments market is exploding, currently exceeding $700B — and it isn’t slowing down anytime soon.

And with the launch of Apple Pay Cash in November of last year, Apple is finally entering into the peer-to-peer payments space — a massive part of the market that is growing rapidly — estimated to break $1.08T in 2019.

With over 700M iPhones in use worldwide and 1B+ iOS devices, Apple already has the user base. By implementing p2p payments inside the existing iMessage interface, Apple could introduce hundreds of millions to the world of mobile money.

They should poach one of the top execs from a leading p2p payments company to help expedite this process. This is probably Apple’s largest, most lucrative and capital efficient growth opportunity for the foreseeable future. They can’t afford to F*ck it up.

5. Starting a VC arm

Apple has more money than god. They can (AND SHOULD) put this to good use, investing in the companies of the future.

Google Ventures (Google’s venture capital arm) with a $2.4B fund focused on investing in the disruptive and game-changing companies of the future has provided the perfect case study — buying exposure to fast-growing industries. To date, their portfolio is top-notch, including the likes of Uber, Medium,, Slack, Stripe, HubSpot and dozens of other promising startups.

A venture arm would present Apple with great opportunities for future partnership and/or acquisitions (like in the case of Nest with Google), but would also diversify Apple’s risk across a portfolio of winners.

This strategy of redeploying wealth into the ecosystem not only furthers tech and economic development worldwide, but ultimately creates a scenario where it is hard for Apple to lose, regardless of the fate of the company.

It has been argued that Apple’s policy of secrecy has prevented this. This is a stupid reason. Google Ventures isn’t limited to investing in applicable technologies for Google, instead of focusing on the all-around best companies and driving massive returns.

This should be the model if Apple attempts VC. By keeping the fund isolated from the inner workings of Apple, fund managers could focus on deploying Apple’s obscene amounts of cash into future big bets.

6. iMessage as a platform (like WeChat)

When it comes to technology and societal trends, Asia is almost always miles ahead. This is especially true with mobile and messaging apps.

WeChat, China’s version of Whatsapp is the most ridiculous, life encompassing application in existence today. Users do EVERYTHING through WeChat, from paying for goods, p2p payments and sending Bitcoin to booking an Uber (actually Didi), ordering food/wine or reading the latest news — encompassing 30% of mobile app usage in China — compared with Facebook’s 13% for US users, this is impressive.

And of course, with such a high degree of usage/importance (and control) in consumers’ lives, WeChat is an incredibly valuable, profitable product/platform.

iMessage should try and follow suit.

WeChat is owned by Chinese internet giant Tencent, a massive conglomeration with a market cap of $543B (more than Facebook). And while WeChat’s revenue and profit numbers are not public, as of August 2015 it was valued at ~$83B, ½ of Tencent’s total market cap. This implies WeChat, a messaging app may be worth in excess of $271B today…

This makes Whatsapp’s measly $19B acquisition seems tiny by comparison.

If I controlled Apple/iMessage, I would build out a platform — focus on being WeChat. We have already established the MASSIVE value WeChat has built in the Chinese market. But outside of China WeChat is a nobody.

That means iMessage could become defacto mobile app/experience for iOS users, owning every mobile interaction — but that is a much longer shot.

Here the big challenge is cultural norms. Western consumers, unlike their Asian counterparts, are not used to living life via a messaging app. And while the opportunity is HUGE, changing user perception of iMessage into anything other than messaging will take significant time (and marketing).

Additionally, while China is an almost completely cashless society and mobile payments are the norm, the West isn’t there yet. For iMessage + Apple Pay to own this space, significant infrastructure changes would need to occur.

But damn it anyways, that is how you own the world — by making big bets.

By diversifying out of a hardware-only business model, Apple would significantly de-risk it’s business and position itself to own (possibly) the next paradigm of UI.

7. Diving into Augmented Reality

With the release of ARKit, Apple brought augmented reality to the everyday consumer. Now with hundreds of millions of AR devices suddenly out there, AR becomes attractive, especially for developers.

There is a non-negligible chance that the next wave of the internet is based around augmented and or virtual reality. For a company like Apple at the cutting edge, they should focus on their OS approach in facilitating (and controlling) this transition.

In business, the true wealth accrues not to the first movers or to the businesses but the platforms.

The company that builds the platforms, interfaces, and mediums of exchange that facilitate augmented and virtual reality startups (and companies) will be the one that wins.

While plenty of companies are fighting to be the goggles of the future, this isn’t an exciting battle. Instead, Apple should be focusing on building/acquiring the infrastructure and services needed to support this new wave of innovation — think the Youtube, the App Store or the AWS of AR/VR (likely with B2B and B2C facing platforms).

That said, Apple is pursuing AR/VR headset manufacturing and plans to release them in 2019. They acquired Vrvana, an augmented reality headset startup in 2017 for a reported $30M…

While headsets are in their wheelhouse, it increases their dependence on hardware which is an inherently risky business. But we are also projected to hit 99M AR/VR headsets sold worldwide by 2021 so the growth opportunities are very very tempting.

Source: Vrvana promotional video

That said, to date VR shipments have grossly underperformed forecasted numbers — will be interesting to see if AR follows suit.

When Apple enters the headset space, they should consider strategies for recurring revenue, possibly with in-app subscriptions or membership access to exclusive worlds/content etc…

NOTE: Apple is currently working on AR glasses and plans to release them in 2019. They acquired Vrvana, an augmented reality headset startup in 2017 for a reported $30M. Hopefully, they realize the platform play as well…

Strategic acquisitions?

For Apple, build it or buy it is barely a discussion. With over ¼ trillion dollars in the bank, Apple needs to make some acquisitions to build for the future, and diversify out of their risky 80%+ hardware business model.

1. Apple needs Video

With Apple’s increased focus on video and original content to compete with Netflix, an acquisition only seems logical.

There are several ways this could play out and many potential candidates.

Here I like Netflix. Apple could easily afford ($94B market cap) and the synergies with Apple’s existing business model and customer base are ENORMOUS.

If Netflix was added as a home screen option to every iPhone, iPad, and Mac, imagine how many more subscribers Netflix would easily acquire — each paying $10.99/mo.

People pay for quality content. And Apple’s war chest added to Netflix’s content creation skills could end the streaming video war once and for all.

NOTE: For a more outlandish yet also incredibly lucrative opportunity, Apple could buy Disney. The synergies are everything that’s applicable to Netflix plus the entire theme park and merchandising arm. This is an unlikely scenario given Disney’s $167B market cap but would be infinitely more interesting (and likely lucrative) than merely buying Netflix

2. More Music helps

Apple Music will play an enormous role in the future of the company. Pandora could be an interesting pick up for them. Pandora’s most used music streaming service (free version), has a market cap of only $1.13B. That is chump change for Apple. Between distribution and licensing deals and upsell opportunities to existing Pandora subscribers, this could be an interesting deal for Apple.

The other interesting player here would be SoundCloud, the streaming service that nearly goes bankrupt every few months. As Soundcloud clearly haven’t figured out monetization, this could be an interesting plug and play with Apple’s existing infrastructure and customer base.

SoundCloud has raised $467M to date. They aren’t worth that now. An acquisition (or takeover) could pay back investors and set Apple up for success, taking down one of the few competitors in terms of music or podcast hosting/streaming/discovery.

3. Apple’s weak on AI

Apple has dropped the ball big time with Siri. To make up lost ground, Apple should consider acquisitions/acqui-hires of the top AI and voice computing startups and experts in the industry.

Who these firms are, I have no idea. But to stay competitive in the coming IoT world, Apple needs to make a move NOW.

4. Anti acquisition — Tesla

Apple should not buy Tesla. Apple isn’t serious about autonomous vehicles or the auto industry and has 0 experience in the space.

Apple isn’t a car company — they care much too much about aesthetics and far to little for functionality.

If Apple dropped $58B for Tesla and botched the business, that could be their undoing — especially as smartphone sales start to stagnate.

The Scorecard

Apple has a lot going for it, $250B in the bank and some of the smartest folks in the world working in their new spaceship HQ.

Call me a naysayer but I’m bearish on Apple. The short-sighted greed and lack of major innovations recently has me worried. In a connected world, the best user experience ultimately wins out. And right now Apple isn’t providing that (we didn’t even go into their buggy iOS releases but…).

On the whole, Apple is a great company. But compared with Google, Amazon, and Facebook, they are falling behind.

Apple is getting a C+. If they sort out their issues, build up Apple Music and Video, and effectively capitalize on Apple Pay and AR Kit, they are set for massive success. But there are two many question marks today…

Closing thoughts

A decade from now, what will the world look like? Will, we still have the same techno-overlords as today or will Blockchain or other big and disruptive changes upset the status quo?

There are big questions facing founders and investors today. But chaos creates an opportunity which is what we all want, and the next 10 years will redefine the world as we know it (and likely what it means to be human ).

Will Apple still be on top, or will they crash and burn? Apple feels a lot like Microsoft of the 2000s, resting on past success. Any thoughts?

My money is on Amazon – here’s why.


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