Monday, October 28, 2013

Just Stop It: Apple Does Not Need a New Category

Every time one more journalist wakes up from his sleep they talk about how Apple may be doing fine for now but it really really needs a new breakthrough product.

Time Magazine says "Apple has to create a new category, or it will sink into normality".

Apple is doing very well leading one of the biggest transformations in last 20 years. You would have to be a complete idiot to expand out of an extremely large market where you have a strong lead (at least as measured by smartphones actually used by people to connect to the internet).

Apple is making ungodly sums of profit in a highly lucrative market that is still growing very fast. This is a market (smartphones) that grew 46% as a category, according to Gartner.

Let me address some of the ideas raised:
  • Big Market: I think you have to be living under a rock to believe that smartphones are not a huge category - and as we all know Apple is going after the non-PC segment tablet market too and leading. 
  • Growing Market: The phone and tablet markets are growing fast. 
  • Unsaturated Market with High Replacement Rates: Yes, everyone in the silicon valley seems to have the latest gadget but the numbers tell you clearly that the market is growing very rapidly as a category.
Now let's look at the ideas everybody seems to want Apple to execute on:
  • Televisions: Well, you don't kill a TV with a better TV. You kill it with a Retina screen iPad Air. And Apple TV. And iTunes.
  • Wearables: The only wearable I wear every day and would turn around my car for is -- my phone. Samsung and Apple are loading up the phone with sensors. The wearable accessory market is a blip. Go ahead sync your Basis and FitBits with your iPhone.
  • Cars: Yes, some very smart analyst has written a letter to Dear Leader that Apple should buy Tesla. Yes, the CEO of one of the most undervalued companies should burn its cash and/or stock on one of the most overvalued companies. I love Tesla but Apple is already doing what it needs to do - own the experience inside the car with relationships with likes of BMW.
The reality is Apple has been delivering some amazing innovations but they are just not that buzzworthy. Let's note a few:
  • With A7, Apple has essentially taken on Intel and Qualcomm. When you buy Apple phone or tablet, you are essentially also helping it sell more chips.
  • With Siri, Apple is breaking new ground in voice. 
  • With iPhone 5S, Apple is entering identity market. 
As you will note, Apple is not really directly entering any of these markets. Its focusing on delivering a great experience to its customer where it knows its channel and the costs, has high margins and can win. 

I just don't see why you would run around throwing darts when your core product and go-to market is very well aligned, working and delivering tremendous cashflow and profits in a growing market.

If anything, Apple needs to double down on the markets its already in. This how the greatest companies like FedEx, WalMart, Amazon, etc have all won. Good to Great and the hedgehog concept requires this discipline. 

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