jeudi 27 novembre 2008

Apple: Conclusions and recommendations

6 Conclusions and recommendations

What advice can be given to a company that multiplied by 3 its revenues in just 3
years (not being a start-up, but an $8 billion multinational) and that from an
“ancillary” activity, like retail, is able to squeeze $5 billion and half a billion of
profit? In order to give an answer I think that we should step back for a moment.
Apple today earns money through electronic devices, but competition in this field is
increasing and hardly they’ll be able to maintain high margins. Apple has already
stepped in the service market: the iTunes, although barely profitable, is a leader and
the App Store (a store for software for handheld devices) is growing quickly. The
development of mobile telecommunications should enable in the near future cheap
mobile data tariffs. Leveraging its devices Apple could evolve in a Content Service
Provider. Already today, through the App Store they can sell music, movies, TV
shows and software to iPod Touch and iPhone users. The war for future distribution
standards is just at the beginning. Apple should be very careful in adopting closed
proprietary standards, because even the most wonderful device, if doesn’t have enough
developers creating innovative applications for it, won’t gain the benefits of network effect
and thus could be relegated as niche product.

Developing a wide network for content distribution could provide a source of profit for an
undetermined time. It is also possible to envision a future where Apple sells its devices at an
highly discounted price, in order to enlarge the user base and make money through the
services sold over its digital content delivery channel, a strategy already successfully adopted
by video game console producers, most notably Sony, with it PlayStation console.

My personal opinion is that Apple should use wisely the market share it’s gaining. The
hardware is not a sustainable business in the long term, and a transition towards services will
be inevitable. The “digital hub” should be the Trojan Horse for new, innovative formats of
content distribution. Apple already lost the desktop war, I hope they learned from their

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