Apple, iPhone and the Empire Paradox

Much has recently been said about Apple in the media. In fact, much is always being said about Apple in the media. The company, whose market capitalization makes it "the largest in the world", adopted an effective marketing strategy under the leadership of Steve Jobs; to "make news." And journalists, hungry for prefabricated content, play the game with great enthusiasm.

Of course, from the point of view of strict financial performance, Apple's story is extraordinary. Its shares have increased in value by over 5,000% since its IPO. Although many analysts predicted the brand's decline after the death of Steve Jobs in October 2011, one must admit that on the contrary, the new president, Tim Cook did an extraordinary job.

In five years, the share value has tripled.

Historically, Apple's success is due to an unprecedented capacity for innovation that combines performance and design in an original approach. So when competitors began to efficiently mimic the design of its computers, Apple announced the launch of the iPhone on January 1, 2007.

This product, which has evolved from year to year, has taken on mythic proportions. "It is the consumer product that has had the greatest success in human history," says Duncan Stewart, director of research at Deloitte Canada.

From 2007 to 2016, Apple sold a billion iPhones at a rate of hundreds of millions of units each year. The iPhone now represents 65% of the company's revenue. If we add the iPad – with more or less the same applications as the iPhone – the two products contribute 75% of its revenues.

This success obviously puts into perspective Apple's attempts at diversification into smart watches, entertainment and software. For example, it is estimated that the Apple Watch generated sales of approximately $3.5 US billion dollars in one year. Although this is a colossal sum in absolute terms (for you and me, at least), the contribution of this product to Apple's total revenue of $234 US billion in 2015 is marginal at best.

Meanwhile, new players emerge on the smart phone market dominated by Apple. Fortunately, this is a difficult market to penetrate as evidenced by BlackBerry's endless downward spiral and the difficulties that the giant Microsoft has experienced with its Windows Phone. Even a player that seems solid, like Samsung, has experienced setbacks. The Galaxy Note 7 debacle – first recalled and then completely pulled off the market – risks damaging the Korean brand's reputation. Problems with the battery exploding have prompted airlines to prohibit using, charging and even carrying it on board their aircraft. Warnings of anti-Samsung bans are now repeated on each flight; and as there are nearly 100,000 takeoffs per day worldwide, this is a serious marketing disaster.

Some anticipate that Apple will soon announce new products. Does its foray into the world of payments preface a move into banking? To see the difficulty banks had recovering from the 2008 crisis, the complexity of financial reporting and regulatory requirements, as well as Apple's recent conviction for tax evasion in Europe, this seems unlikely. Its positioning as a service provider in the field of payments is interesting, but has the advantage of limiting its exposure to the financial services industry; a complex area that is highly competitive and overly regulated.

Others predicted the acquisition of Tesla or diversification into the automotive market. In the first case, the recent merger of Tesla and its cousin, Solar City, makes it a less attractive target for acquisition. Its size, its own diversification, complexity and the central role played by Elon Musk's personality in the evolution of this new joint venture renders project it less likely. As to whether Apple will succeed in developing a car from scratch, nothing is impossible.

The question is this: Can a company that created the most successful consumer product in human history repeat this success?

Whatever happens, one thing is certain: Apple is not done surprising us.

The author

Francis Gosselin

Francis Gosselin

President, FG8 Conseils