Business is all about making money out of satisfying customers. Apple has done this with its signature finesse. The company has proved its mettle time and again. For five consecutive years (2012-2016), Apple was the most valuable US brands, beating the likes of Google and Amazon.
Though Apple’s position declined to the number two, the company has maintained its cash flow and currently, Apple’s market cap has crossed the mark of $1 trillion. At the end of the second quarter of 2018, Apple’s cash on hand was $267.2 billion, which is $17.9 billion less than $285.1 billion reported at the end of the corresponding period in 2017.
What Apple – A Cash-Rich Company Can Do?
With so much cash, Apple must have its plans to invest and spend the cash judiciously. However, I can’t resist the idea of sharing a few tips on how Apple should spend its cash.
I base my suggestions on the historical data and my observations as a self-appointed tech journalist. This editorial is born from the fertile brainstorming sessions at my office with my colleagues. It is a potpourri of funny as well as some serious proposals for the company.
Spend More on Research and Development
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When Cook ascended as the CEO of Apple, this passion for innovation subdued. An analyst from Bernstein claimed that Apple needed to shatter its “Uncle Scrooge” image by investing more in research and development.
Since Cook has taken charge of Apple (2011), the company spent $51 billion in R&D, and this is not enough, according to the Bernstein analyst.
The analyst said, “While Apple’s current R&D spending is large, our benchmarking analysis suggests that Apple appears to still be under spending on R&D today, perhaps by a factor of 2x.”
Toni compared Apple’s revenue, gross margins (GM), and research & development budget. He found that “Apple spent 5.1% of its revenue on R&D while reporting GMs of 38%. Our analysis suggests that normalized R&D spend for a tech company of a similar gross margin profile might actually be closer to 10%, suggesting that Apple could double its R&D and be relatively in line with peers.”
This clearly indicates that Apple needs to spend more on research and development. Bring more innovation in products like iPhone X, which has nothing newer than Face ID and TrueDepth camera. People were not willing to spend an exorbitant amount on the two technologies, and perhaps, therefore, Apple saw less-than-expected sales of iPhone X.
Don’t put other-than-iPhone-stuff on the back burner
Recently, Apple released its unaudited summary data of third-quarter revenue (2018). This data clearly mentions that the iPhone, which is a leading light in Apple’s ecosystem, contributes a lot to Apple’s revenue. If you compare other products & services of Apple, iPhone is way far higher on the ladder than Apple’s services and other products.
Apple’s services include Digital Content and Services, AppleCare, Apple Pay, licensing and other services. While its other products include AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories.
The reportable segments of the data include the Americas, Europe, Greater China, Japan, and the rest of Asia Pacific.
The figures are shown in the report lead us to believe that Apple’s other products and services either need a marketing push or product innovation. There can be two reasons why users are not willing to respond to Apple’s other products: either they are costly, or they don’t fulfill the user’s expectations.
In both cases, Apple has to take initiatives to find reasons and deliver that “insanely great product.”
If this doesn’t happen, Apple’s dream of creating a strong ecosystem will shatter.
As mentioned above, Apple should spend enough time, money, and technology on the products that do not fetch good revenue for the company.
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Apple’s expansion plans should include acquisitions. Though Apple has made nearly 100 mergers and acquisitions since 1988, company’s largest acquisition of Beats Electronics took place in 2014. Since then, there has never been any notable merger or acquisition by Apple.
With its colossal pile of cash, Apple can easily kick start acquisition spree. According to Citi Research analyst, Apple should restart its acquisition journey with video game companies like Activision Blizzard, Electronic Arts, and Take-Two. But Mr. Cook may not be interested in taking over the gaming software companies as iOS games are already minting more money than popular games like Nintendo and others.
Remember, Apple has made its iOS devices so strong that they have become a good gaming platform. As a result, major publishers and developers introduce to the iPhones and iPads. Thus, Apple earns more from iOS games than any technology company does from its games.
When Nintendo was celebrating the success of Pokemon Go, people forgot that Apple was happier with its 30% revenue share.
So what Apple can do in the gaming industry with its cash? It is a fact universally accepted that gaming arena is growing like anything, leaving behind movie and music industries. Here is a chance for Apple to beat its rivals like Sony and Microsoft, both have their own gaming consoles viz. PlayStation and Xbox respectively.
The consoles can be targeted at the premium market segment as low and medium markets are already happy with games on their iOS devices.
Augmented and virtual reality is the future of consuming contents. Both require a killer combination of high-end software and strong hardware. Apple has secretly been working on its AR/VR project for the last ten years, but nothing concrete has come out yet. Probably, the company should level its focus on acquisitions in this field. HTC Vive and Oculus Rift are two leading VR headsets Apple can set its eyes on.
Another fruitful acquisition for Apple is Tesla. Everybody knows that Apple wants to save the disaster of its car project. On the other hand, Tesla needs to be saved from its delusional idea about company’s future growth. This is the right time Apple takes over Tesla.
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A sometime ago, Jignesh drew a comparison between Steve Jobs and Tim Cook. Innovation was Steve’s forte. He always believed in producing a kickass product that needs less marketing. It is known to everyone that Jobs was a “wartime CEO”, who always wanted to create “insanely great products.” For this, he would spend bucks like anything.
Apple seems to have relied on rumors and gossips to market its upcoming products. Leaks have always contributed a lot to create hype for the products in the pipeline. Before release, Apple creates tremendous mass hysteria about iPhones and iPads. The same happens with software release as well.
Bloggers and social media influencers fan the blazing flames of rumors. But this can be dangerous for the brand, which enjoys such a mad fan following across the globe. A strategic marketing plan can reap better results for Apple.
Apple is now in the “safe” hands of Tim Cook, who, unlike Jobs, doesn’t believe in manufacturing a revolutionary product. Since Cook has taken the reins of Apple, there has been a dearth of innovation. As a result, Cook has garnered appreciation from the employees but there is no big applause from customers for Cook.
Let the authoritative words come from an expert. During an interview with The Daily Telegraph, Ken Segall, said, “The passing of Steve Jobs created a completely different approach to marketing which we can see the results of.” Segall further added, “As a marketer, I look at that and can see the difference between Steve being there – and not being there – very clearly.”
Segall believes “Tim Cook goes by recommendation of the people around him. In the old days, Apple used to do things that get a lot of attention,” Segall told the publication.
In this scenario, Apple needs to redesign its marketing strategy. A pro-active approach will always bring good results. When sales decline, it is the marketing team that gets an ear-bashing.
Apple has used product placement and buzz creation by positive reviews as its strongest marketing tools. While product placement works for a long time, positive reviews by influencers have the shorter lifespan. Though consumers are influenced by expert recommendations, it is a Herculean task to find experts, who can shout loud about your products or services.
The company needs to take a U-turn on this beaten track. Invest more money in the marketing campaigns and reach out to the customers more aggressively.
If not for iPhone, Apple has unlimited scope to project its iPads and MacBooks lineup as one of the essentials in its ecosystem. The declining year-on-year sales of iPads and MacBooks indicate that Apple either needs to improve the product quality or invest more money in the marketing of the two products.
“At the beginning of 2012, the iPad was the leader of the tablet market as Apple’s iPad accounted for almost 60 percent of total global tablet shipments. The company has seen its share decrease over the years due to increasing competition from Samsung and Lenovo and in the fourth quarter of 2016 held only 24.7 percent of the market share.” – Statista
Similarly, Apple’s Mac computers require a boost. “With just about 6.9 billion U.S. dollars generated in revenues during the first quarter of 2018 (1Q ‘8 calendar year), sales of Mac computers accounted for under 8 percent of Apple’s total revenue. This share has varied between seven percent and 15 percent since 2013.” – Statista
Opening their Apple Stores in developing nations can be a smart move for Apple. While the company has already set up many Apple Stores in the United States and other 23 nations, it has squarely neglected markets of India, China, and Russia.
Consumers in India and China can be categorized in the aspirational classes. It is a fact that Apple’s stores have become a sight for sore eyes. With its architectural marvels, Apple Stores attract a lot of visitors even as not many may be interested in buying products. The stores can help Apple spread the message via word of mouth.
Emphasis the Focus on Asian Countries
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China and India are the two biggest markets for Apple. The two countries have emerged as superpowers in the last two decades. With many young customers, India and China serve a good ground for Apple. Products of Apple are seen here with aspirational values, and therefore, it can be easy for the company to persuade the consumers to buy the products.
According to a report, “Apple is now within touching distance of crossing $2 billion in sales from India although the world’s most valuable technology company faced significant headwinds late last year because of the impact of demonetization, which slowed down the pace of its growth in the country and hurt sales.”
However, the price of Apple products is the biggest challenge in India. Consumers here have developed a sort of penchant for Apple, but since iPhones, iPads, and Macs carry the high price tag, they are not willing to go for the latest Apple products; instead, they like to buy older iPhones like iPhone 6, iPhone 6s, and iPhone 7.
Indian government’s recent decision of demonetization has also caused negative impacts on the sales of Apple products.
In China, Apple has to battle legal scuffles with the authorities. Recently, Apple has to comply with new cybersecurity laws in China and the company is shifting its iCloud data to local company’s servers.
Apple is known for its privacy policies world over, but here in China, the company has to make compromises with its policy. In a bid to improve its business relations with China, Apple is planning to source OLED displays from a Chinese company.
Even though Apple takes care of legal issues in China, the company has to face stiff competition from local brands like OnePlus, Oppo, and Vivo. Although these brands may not compete with Apple on the technology turf, they can edge out Apple with its lower-priced devices.
Streaming Services & Scripted Television
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The television landscape is shaken up by Netflix and Amazon. Both started off a few years ago, and now they have become leaders, challenging the Hollywood by signing stars of the silver screen. The success of Netflix and Amazon chiefly lies in the fact they have heavily invested in scripted shows. It is said that the two are pouring money in more than 500 scripted TV shows.
The TV marketplace began to be crowded, as other tech companies smelled good money in this domain. Apart from Netflix and Amazon, there are now Apple, Google, and Facebook vying for the larger chunk.
There is stiff competition between these big brands and original content is and will be the key to success. And to create original content, companies need to invest more money. Apple, with its huge cash, can rope in the creative community to create scripted shows, which can be streamed on its Apple TV exclusively.
To this effect, Apple has hired two of Hollywood’s most respected studio executives to oversee this project creating original television-style content.
But Apple, in addition to investing money and creating scripted shows, has one more challenge to tackle. While Netflix is said to be investing nearly $8 billion on content in 2018, Apple has allocated a meager $1 billion for original programming.
Producing scripted shows requires a huge amount, as there are many overheads as well as initial investments. A large portion goes in to sign actors and actresses, who are popular in Hollywood and American television.
Apart from creating original contents, Apple needs to rely on third-party contents, and for this purpose, the company has to forge partnerships with other broadcasters, TV channels, and telecommunication companies. This naturally requires a lot of money.
The challenge for Apple doesn’t end here. There are many Apple TV users out there to stream contents on the smart TVs. However, when somebody types Apple TV in Google, the search engine shows results like “What is Apple TV and how it works.”
Surprisingly, there is little awareness about the product. Unlike other Apple products, Apple TV is not popular enough. There can be strong reasons why people are so much ignorant about this smart TV.
Time and again, experts have raised questions about the efficiency of Apple TV. Apple released its TV in 2007, and after eleven years, the TV is in its fifth generation.
As per many insiders, Apple has to work out on apps, remote, gaming, and cost of Apple TV to make it more popular among consumers.
If you look at the cost of Apple TV, you will find it beyond the pockets of users, who have already spent many dollars on iPhones, iPads, or Macs.
The current version of Apple TV 4K is available at $179 (32GB) and $199 (64GB). The experts suggest that Apple should reduce this price to $129 and the Apple TV (2015) should be available at $99.
Users, who are not willing to pay for entertainment, would like to lose the purse strings for news and sports on Apple TV.
Since Apple believes in innovation, people may expect the company to introduce live TV contents. Till date, Netflix and other streaming services have failed to bring live contents on their network. There are millions of takers of sports and news; if Apple invests its bucks in the two areas, the scope is unlimited.
Uses of smartphones and tablets have to rely on apps to watch live contents. Apple can make a successful foray into live TV turf with its cash and technology.
Paying its debt
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Finally, Apple can pay its debt from the pile of cash it has amassed by this time. According to Bloomberg, “The tech company held about $136 billion of corporate bonds as of the end of March.”
For the first time since 2013, Apple’s holdings of company debt reduced in the latest quarter.
Apple’s cash is Apple’s cash, and nobody can admonish the company as to what it should do with its cash. Through this article, I have shared my thoughts and opinions with my readers. Apple is a strong brand, and it will regain its position of number one in the list of most valuable US brands. Its increased market cap is an indication that Apple will soon become number one brand.
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Is there any other thing Apple should invest its money in? Share your feedback with us in the comments below.