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Apple Store in Beijing.
It looks as if the next big Apple product will be...big! After moving away from the computer business into the much more portable consumer device and cellphone game with iPods, iPhones, and iPads, the next frontier for Apple is reportedly TV. And not just any TV, but a TV that will, naturally, completely re-invent the whole idea of TV according to Apple's design values.
Felix Salmon has been pondering the "What's Next" question for Apple and comes to an essentially mathematical conclusion:
Today, however, Apple’s market capitalization is $362 billion. If the company invents a new product which is just as successful as the iPod, and which makes Apple just as much money, and which is completely unanticipated by the market, how much should the stock rise? The present value of $25 billion in future profits is still substantial — but even if you put it at $20 billion, that just gooses the share price by 5% or so. If you look at Apple today, the company’s cash in the bank — its liquid assets — is a significantly larger number than the total revenue it’s made from every iPod ever sold.
If you grow to 50 times your previous size, your new products don’t become 50 times more successful. Or even 10 times more successful. Apple, like all companies, has certain economies of scale, and it has millions of people devoted to its ecosystem. But the market isn’t going to give it credit for having a pipeline filled with unknown products that are going to be bigger than the iPod. The iPad will evolve; the Apple TV will get Siri voice control; the computers will get faster and thinner. All of these things will be profitable for Apple — the company’s not going away any time soon.
I remember thinking back when the iPhone was on the horizon that cell phones and wireless generally was a scratchy, tough business that haughty Apple had no business getting into. And I was profoundly wrong, missing the fact that Apple was ultimately trying to perfect the smartphone as we (then) knew it.
The iPad I figured would be huge, so I'll give my self points on that one.
The iTV on the other hand...well, I've had numerous discussions about it, as well as the prospect of Apple entering the gaming-console ecosystem. Again, I tend to view TVs — flatscreens, HD, plasma, whatever — as commodities, much as a thought on pre-iPhone cells as a commodity. I'm a victim of having grown up in the PC era, when Apple computers were always a niche product, exclusive and expensive, while cheap everyday PCs — Wintel boxes — were the name of the game, transmission systems and staging areas for products.
My iTV talks often come to the same place: Nobody replaces their TV every two years, and if they have multiple sets, the usually max out at two, with maybe some smaller units adding to a household suite of sets. The expectation is that iTV will radically refine the generally unpleasant TV interface, probably by bringing voice-interfacing online via Siri and introducing motion-activated swiping that won't require touching the screen. The iTV will be controllable from, presumably, all other Apple devices.
But the iTV will also be ex-pen-sive! Let's say conservatively $1500 per unit for something in the 40-plus-inch ballpark, with the price perhaps going as high as $2000 or $2500. By effectively getting every customer to pay for two sets while getting just one, I'm assuming that Apple figures it can capture its desired high profit margins and exploit its customer base's willingness to pay for the Apple experience.
This worries me because even if Apple gets away with steep pricing, and even if it introduces the iTV at multiple price-points and sizes to somewhat cover itself on this front, the company will still be seeing folks lock into a device for lengthy timeframes. It's hard to imagine Apple not innovatively upgraded the iTV's design and hardware with some frequency. Maybe the company thinks it can do that and capture new customers. Maybe the interactivity will capture the convergence crowd — people who want an Apple TV, an Apple car, an Apple house, Apple robots servants... You get the idea. All Apple, all the time, everywhere.
Apple has broken the back on the commodity-technology trend before, obviously, with the iPhone. The iPad so defines the tablet market that it has so far actually prevented it from becoming commodified (although the Kindle Fire represents the beginning).
But as Felix points out, there's not as much room for the company to run, in terms of its financial performance. He's right to see the iPod as the real game-changer, the device that made the iPhone possible.
The iTV looks more like an extension of the iPad and computer paradigm into a more ubiquitous technology. One wonders if it's coming at a bad time, however. In America, anyway, people are buying fewer TVs than they did in the past. Maybe an Apple TV will reverse that. But then again, can your Apple innovation tradition revive a declining concept?
Apart from the business case and the financials, there's another factor, which is that younger people have adjusted their lifestyles in the Age of the Gadget. Apple has capitalized fantastically on this, by creating beautiful devices that stress mobility: MacBook Airs, iPods, iPhones, iPads. Who really wants a desktop computer anymore? And who wants Apple to build a TV that forces them to sit in a room — or for that matter forces you to have a room that's big enough to accommodate the iTV? There's a degree to which the giant flatscreen TV is an artifact of the pre-foreclosure era, when people built entire homes around entertainment systems.
Anyway, iTV is coming. So we'll get to see how this all plays out. But I take some consolidation in knowing that I probably can't be as wrong as I was about the iPhone this time around.