Monday was packed with the pure excitement and adrenalin of Apple's annual WWDC keynote. Sure, the stock may have declined slightly that day, but this is mostly due to overall market weakness that day and not Apple pessimism. Now that we’ve had a couple of days to digest Apple’s announcements let’s discuss what it means to investors.
Let’s review what Apple actually unveiled in the keynote session:
That’s it. Those were the big three new product announcements. If you wanted to stay very high level and miss a lot of the detail, you could suggest that Apple investors didn’t get anything to cheer about. Some upgraded products - big deal.
I think Apple has done a wonderful job of tightening up its platforms and making me, as a consumer and a business man, want to give them more money.
Apple has just made it easier for themselves to justify the high margins they earn on their products. This has everything to do with software and cloud services, and almost nothing to do with hardware (save the newly redesigned Macbook Pro which gave all of us a geekgasm).
Let’s look at an example: Apple is now integrating iMessage into Mountain Lion and simultaneously coupling it into iCloud. So iMessages delivered to an iPhone will now also be delivered to a Mac and iPad if they are all on the same AppleID.
Apple’s iOS device business is massive compared to the “puny” (yet still making every competitor jealous) Mac business. In fact, Apple has sold over 385 million iOS devices so far. Contrast that with 65 million Macs that are out in the wild. All of those iOS users now have more reason to buy a Mac. Perhaps this explains why the new Macbook Pro and Mountain Lion got so much airtime on Monday.
Apple has two powerhouse operating systems with iCloud glueing them together on many levels. This locks in customers to the Apple platform. Of course when we say “locks in”, we mean that in a good way. We all voluntarily lock ourselves in. It’s a psychological force, not real force. We’re free to leave Apple at anytime. We choose not to because they make products that add ease to our lives.
It also doesn’t hurt that Apple has gone out of its way to add extra differentiators to its products, which have nothing to do with tying the platforms together. The new Apple mapping service and turn-by-turn navigation is a good example. So is the elegant beauty of the redesigned Macbook Pro. Those are things that draw in new customers, while pleasing old customers enough to keep smiling and keep pulling out the credit card.
Apple has 400 million credit cards on file with mass of customers who use iTunes and the App Store. That’s an insanely huge number of people. It’s probably close to 10% of the entire world population among those old enough to have a credit card. It’s probably the largest customer base in the world.
That gives Apple leverage with nearly any potential partner. Leverage drives gross margin.
I like that.