What else can Apple do?

The past year was very positive for the Cupertino behemoth. With the iPhone 6 and iPhone 6 Plus dominating the news before and after launch, it was a year of strong financial performance and increasing market momentum.

When I look at Apple overall, I see a company that has been able to grow its brand and market share by marrying software, ease of use, and elegant design – but ultimately by selling hardware. The nice shiny objects are what get consumers' attention. This can be seen by looking at the level of replacement sales that Apple's iPhone upgrades have generated. In years where improved software and services were introduced alongside changes in design, replacement sales have been greater. With the iPhone 6 and iPhone 6 Plus, Apple played the "larger screen" card that many have been waiting for, and the mix of replacement cycles from previous iPhone models, as well as conversion from Android, have been amazing. This upgrade cycle technique has worked well for them, but it's a strategy with a finite horizon, since all hardware – even Apple hardware – is subject to eventual commoditization. It's an unavoidable truth for any manufacturer.

Apple certainly understands this and, on top of delivering value through the ecosystem and software, is planning for growth in other areas with different revenue opportunities. Apple Pay is at the top of their list. Another important new area will be a music pay-for-service (as opposed to a live-stream service) that would leverage the 2014 acquisition of Beats Music and Beats Electronics.

It's an approach that asks, more urgently than ever: "How do we add value to the hardware – value that doesn't necessarily come from the hardware itself?"

This impacts the consumer decision matrix when considering the iPhone 6 or iPhone 6 Plus. Will a person buy the iPhone 6 because of Apple Pay? Perhaps not today, but in a year's time – when Apple Pay is everywhere, when the consumer better understands the value and perceives the convenience – absolutely. This will cement the relationship that people have with Apple, and drive revenue to Apple from sources other than the consumer.

I believe that Apple will continue to build value into their platforms – and consumers will perceive that value coming not only from cool hardware, but from the full range of great services that run on a seamless platform, regardless of which one of their portfolio of Apple devices they may be using. This is how Apple will continue to drive increasing user loyalty.

Through their partnership with IBM, Apple is also moving in a more distinct way into the enterprise. While Apple's products have been used in the enterprise for years, most of them make their way there through the backdoor of "Bring Your Own Device" (BYOD). With IBM, Apple can more effectively penetrate IT departments without having to compromise their "consumer first" focus. Rather than trying to do it alone, Apple looked for a well-established brand in the enterprise market that has the trust of many CIOs. Moving deeper into the enterprise will increase sales volumes, with less seasonal influence and price sensitivity, and also increase the amount of time users spend on their devices.

In the midst of all this, there is the wearables-unknown represented by the Apple Watch. While today's consumers might say they are not interested in wearables, we know that Apple can create new markets. Both with the iPhone and iPad, Apple reinvented markets that existed previously in smartphones and tablet PCs. Apple has been clever in emphasizing the design of the Apple Watch. This will allow for a wider addressable market than focusing on tech alone. It also aligns nicely with Apple's ability to deliver technology in a seamless way, making its gadgets more appealing to consumer segments that are not "into" technology, per se. For example, consider the adoption of the iPad by customers over 50. While the attention is on sales, and the crystal balls are out as we determine volumes and replacement cycles, I would argue that what Apple Watch will do for Apple, beyond additional revenue, is much more interesting and will have longer impact. The Apple Watch should:

  • Lock in the most valuable consumers more securely.
  • Help Apple understand more about these consumers by spending almost 24 hours a day with them. The battery charge time is about the only time you will not wear it. As Mr. Cook recently stated, he takes it into the shower with him!
  • Make Apple Pay even easier, driving usage.
  • Offer more revenue opportunity to developers, solidifying Apple's leadership in the app store business.
  • Give Apple a hook into the ecosystem for users who might have a smartphone on a different OS, but want Apple Watch. In France, for instance, 63% of consumers on an Android smartphone would change their OS for a wearable device. Yet, our study says only 16% of French iOS users are willing to leave the Apple ecosystem.
  • Apple Watch might also become a "hero" product for Apple, allowing more flexibility on the iPhone pricing, especially in emerging markets. This way, Apple could have its cake and eat it, by maintaining the prestige of the brand while driving iPhone into even more pockets.

Do I expect Apple to actually make a car? I don't. It won't go that far. But I do think they want to be in our cars, and they are presently working toward that goal. While CarPlay hasn't taken off as fast as some expected, do I believe Apple will control my dashboard? Absolutely.

Apple is all about my user experience. As their customer, Apple wants to further expand that connection with me into my car, home, work, and leisure and learn more about what I do. With that new understanding, they can perfect the devices and services they offer. That's the core difference between Apple and Google. Google wants to know more about me so they can perfect their search and advertising technologies. That's not what Apple does. Apple uses knowledge about me to make and sell more and better devices to me, to perfect the software and services that motivate me to use the products I have, and to expand my portfolio of their products.

Unlike its competitors, Apple OS doesn't exist in a vacuum, but has long been an integral part of the consumer platform mix. They haven't merged iOS and MacOS – some say they will, and some say they won't. They're making it very simple for consumers to move painlessly from one to the other. All consumers care about is that the experience they get – phone, tablet, Mac – is very similar. It's enriched and takes advantage of the unique design elements of the different products, but rarely requires me to learn something that feels foreign.

Apple has always sought to sell more devices to the same household, rather than one thing to everyone. They don't want to become a mass-market brand, but they do want to sell me as many pieces of the platform as I will buy – the iPhone, iPad, Mac, Apple TV, and Apple Watch. This has made for a very loyal, committed, and engaged customer base. It's a customer base that drives multiple kinds of revenue and produces excellent ROI. It also distinguishes Apple from virtually every one of their competitors, although others are trying to adopt some of the same strategies. This allows them to deliver value through software and services, and not just hardware. While this approach is a harder sell for the mass-market consumer, the higher-end consumer appreciates and values it.

Apple continues to confound pretenders to the throne. No other technology company has ever built a more valuable, more engaged set of customers.

Carolina Milanesi is Chief of Research at KANTAR WORLDPANEL ComTech. Carolina joined KWP Comtech in 2014 after 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manger. You can follow her on Twitter @carolina_milanesi.

  • I have an uncontrollable urge to peer review this like an agenda manager. That title is too long for a start ;-P This would work better as an impact analysis template too.
  • I don't know what you are talking about. It seemed like a good article to me. At least it was longer than the typical two-sentence things that a lot of tech writers excel at. My only real disagreement is that I think there is pretty much a mountain of evidence that Apple is in fact attempting to make a car. They may give up and decide it's not for them, but it would seem they are making the attempt.
  • It was an inside joke. Don't worry about it.
  • I'm still waiting for the 6th-gen iPod touch... Sent from the iMore App
  • I do feel like Apple is at a crossroads of sorts. They've been at the forefront of technology as each form factor has emerged - Macintosh, PowerBook, iMac, iPod, iPhone, iPad,  Watch. Today seems to have reached a saturation point for tech as discrete screens and slabs of metal and silicon and glass. Apple is indeed expanding beyond the desk and beyond the pocket - into the real world of our houses, our cars, our TVs, and on our very bodies. The full blown car seems like a stretch - but it would be a reflection of Cook and Ive's passions for auto design, environment, and health/safety. Reducing pollution, savings tens of thousands of lives and millions of productivity hours would very much align with their mission statement of enriching customer's lives.
  • "They've been at the forefront of technology as each form factor has emerged " Tell me where they've been at the forefront of computer technology? They trail! They sell more, just like McDonald's sells more food than most restaurants. Meanwhile, everybody else innovates and pushes ahead! flipping Apple faithful, baaaa baaaaaaaaaaaaaa
  • I wonder what it's like to be a troll.
  • You're giving him or her too much credit with the 'troll' title. Clueless? Check
    Ignorant? Yep
    Ridiculously uninformed? U betcha.
    Apple indeed HAS led the 'way' technologically now for a decade and a ½. We just didn't know it the first ½ and only few knew the dirst decade. Those in the past ½ decade that haven't figured out what Apple is doing to the world technologically are all three of the above. Which is fine, if you're living under a rock somewhere. From the Mac to the iPod the iPhone to the iPad and $6/share to nearly $800 in ten years, borrowing a hundred and a ½ million from Gates to make payroll to buying damn near EVERY compelling new, up-start businesses for themselves.
    When wealth is as large as Apple's, their 'cache' as pure as it is today and actually DELIVERING on their word (and for the most part, on time!), WITH a genuine product, with genuine support and genuine resale value a ½ decade later (try selling ANY other OEM's electronic piece five years from now, other than Apple, you'll have a hard time giving them away. I just sold my wife's 2010 MBA for $350!!!) and the Eco system, IMHO the MOST important aspect of today's 'technology' --- iOS and OS X's abilities to run (remember you can run any OS you want on OS X) MORE software than EVER, in history and at far better proces, and without the 'box'!
    They're poised for greatness and if you're unable to see that, I get it. Plenty doubted Edison and Tesla too. And Carnegie, and Darwin and Newton....the list goes on. Imagine meeting up with someone you KNOW from the past that literally 'changed our world'. That you'd studied, you knew the changes they'd made and the the longevity of their inventions, theories or principles Wouldn't you feel like a dumbass meeting Thomas Jefferson today...if you were the only one in the room that said, 'nah man, I'm with Britian on this one ...see ya all later?' Apple's impact on our society is MASSIVE and growing like a weed. They're now 'rich' enough to 'blow' a thing or two, IOW...get something wrong. I just don't think they will! Enjoy the small world you live in, there's a WHOLE LOT more to 'see' though if you open your eyes
  • I'm not sure how this post answers "what else can apple do." Sent from the iMore App
  • Something from left field which always makes me laugh though ... If you discount *financials*, Apple is currently (last year and the beginning of this), having one of the *worst* years in decades. Lacklustre new products, poor to non-existent product upgrades, languishing products like Apple TV and iPad mini, botched software updates, delayed product releases, increased software bugs, iCloud outages, poor advertising, expensive acquisitions, etc. The list just goes on and on.
  • Having one of the worst years in decades... Haha Sent from the iMore App
  • It's inarguably true though. The trick is to ignore the "making shitloads of money" part, which of course no one ever does.
  • Isn't that whole "making shitloads of money" part the whole point of a business?
  • But on current trends, financials aside, not a long term solid business plan. Posted via the iMore App for Android
  • Double-post. Sorry. Browser got a spasm of some sort.
  • I use Apple laptops because they're good for running VM software, and are decently made. I use Apple smartphones because iOS annoys me the least among mobile operating systems and generally has better quality apps. They're tools I deem worthy of my money. I don't use Apple/Beats headphones because they sound like crap. I don't have a need for an Apple Watch yet, so it'll be off my radar for at least a year, or until I see some sort of deep Strava integration to enrich my cycling, whichever comes first. I won't ever drive a car named Apple, unless they somehow bring Ayrton Senna or Jim Clark back from the dead to drive for them in F1, in which case I might reconsider. Personally, I think it'd be better if they go deeper into the healthcare sector, but that's just me. TL;DR - I buy Apple products that fit my work/life/style/whatever. I don't love Apple. I have no interest in their history, and, aside from the safety of my iTunes purchases, don't have much interest in their future either. They're a profit-driven tech company, and I'll treat them the same way I treat all profit-driven tech companies. If they make something I deem useful, I'll get it (provided I can afford it). If not, then I won't. Simple as that. As long as they stay out of the motorcycle market, I don't really care what they do, tbh.
  • Roll of paper towel and paint it with a golden line and sell it for 6000$
  • There's a fundamental flaw in the premise for this article, namely that all hardware is subject to commoditisation. Experience shows this not to be so. I will provide just a few examples: Ferrari, Mercedes, Rolex, Martin Guitars, RayBan, Bally Shoes, John Deere. Apple may well be among this elite company. At the very least, you cannot just assume it isn't.
  • If Apple does make an all electric car, is the State of New Jersey going to allow them to sell those cars at Apple stores (Or Apple dealerships)? All the auto dealers who don't sell electric cars will be up in arms against Apple on this one, unless they are given "incentives" to back down...
  • What else can Apple do? They can deliver on their commitment to innovate television. I have been a cord cutter for six years and the only "innovation" i see from Apple is a lower price for program bundles. That's why I left cable tv. I dom't want pre selected bundles. Apple bundling tv programs is no different than cable tv bundles. Give me the freedom to select which programs I want to watch be it only one or several. That would be innovation.
  • stop yaking about the watch it has turned me off about it