Will Apple's hardware focus cause them to fall behind Google and Facebook?
Venture capitalist Fred Wilson spoke at the TC Disrupt conference in NYC and TechCrunch wrote a quick summary of what he said. Apparently Wilson thinks that by the year 2020 Apple won't be a top three tech company. I assume he's talking about market capitalization here, and currently Apple is the most valuable technology company in the world based on that metric. Wilson suggests that, instead, Google and Facebook will be in the top three along with another new name we haven't heard of yet. His logic? Apple is "too rooted to hardware", which is "increasingly becoming a commodity." Furthermore he's a big believer in the cloud and says, "Their stuff in the cloud is largely not good. I don't think they think about data and the cloud." So, is Wilson right?
I can understand Wilson's prediction that Apple ceases to be #1. After all, Facebook and Google are very powerful businesses, and they are both incredibly strong players in mobile advertising. I believe the advertising industry is now in the midst of a huge shift in spending away from radio and print and towards online, especially mobile. Just a few quarters ago people thought mobile traffic wouldn't easily be monetized. Today Facebook brings in 59% of ad dollars from mobile users and Twitter brings in 78% from the same segment. Mobile is huge.
If hardware does get commoditized further and Apple continues to rely so much on hardware, they'll suffer. But we have to remember that Apple isn't a hardware company. They're a product company. And the difference is important to understand.
Apple may seem to be a hardware company on the surface, especially based on their financials, but they have a massive commerce business with iTunes, apps, and more. Apple's iTunes business is so big that, if split off, it too would be a major tech company — #130 on the Fortune 500 according to Horace Dediu of Asymco. This business is growing and will continue to grow.
Additionally, I think Apple has proven its ability to manage a long term trend towards cheaper hardware (desktops, notebooks, MP3 players) while still selling premium priced products at high margins.
But I do see Wilson's point about the cloud. Apple can do so much more. They talk a big talk. Tim Cook says that iCloud is Apple's strategy for the next decade. But they haven't really done much with it yet. I still feel like I can't trust iMessage to deliver messages so I use Voxer, Skype and BBM. iCloud still doesn't even have the most basic file organization capabilities. I would seriously love it if Apple provided me with enough space, at competitive prices, to back up all of my iOS devices and photos.
Even still, I think it's a massive exaggeration to suggest that Apple doesn't think about the cloud. Clearly they do, but they haven't been on top of their game when it comes to execution. I can understand the argument that Apple's cloud folks perhaps are not the best in the business. They're not as good as Dropbox or Amazon or even Microsoft (gasp!)
Can Apple stay on top? This week the stock crossed back over $600 briefly. The market value of Apple is over $500 billion. Google is worth $347 billion and Facebook is worth $150 billion. If Fred Wilson is right we should all be buying Google and Facebook while shorting Apple stock. I'm with him on the former (I am long both stocks), but there's no way I'd be shorting Apple here.
I'm still pretty bullish on their long term growth.
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