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Wednesday, January 5, 2022
Apple will need to enter uncharted territory to reach $4 trillion
It’s a remarkable feat for a company that needed a cash infusion from rival Microsoft in 1997 to stay afloat. But $3 trillion is Monday’s news. So where does the company go from here?
There’s the obvious — more iPhones that get people into the company’s ecosystem and accessories like the Apple Watch and AirPods to keep them hooked. But the company will also need to take big risks on its way to $4 trillion.
“Apple needs to assume that the sort of market power that they've enjoyed with the App Store and in the price of the iPhones, that's going to disappear,” explained Duke University Fuqua School of Business professor Campbell Harvey.
Thankfully for Apple, it already has a track record of jumping into established device and services categories and outshining its competitors with ease. Need proof? Look no further than the iPhone, Apple Watch, and AirPods to name a few of its products Apple developed by cribbing notes from competitors before leaving them in the dust.
But the company’s most anticipated upcoming products — its mixed reality headset and long-rumored Apple car — will be different from anything Apple has offered before.
Headsets are clunky and uncomfortable, Apple needs to change that
I’ve used headsets ranging from the Oculus Quest 2 to Sony’s PlayStation VR, and besides making me sweat like an animal after 15 minutes, the on-screen content is relatively pixelated.
But Apple has a knack for taking problematic products and making them hits. The iPhone wasn’t the world’s first smartphone when it launched in 2007. And the Apple Watch and AirPods weren’t the first smartwatch and wireless earbuds when they debuted in 2016. But they’ve all gone on to be bestsellers, because Apple improved on the design and capabilities of its competitors.
When it comes to headsets, however, Apple will not only have to improve comfort and image quality — it will also have to ensure plenty of apps can take advantage of the hardware. After all, while current consumer headsets are largely geared towards gamers, Apple is looking for volume sales, and that means offering apps that appeal to non-gamers too.
And even when Apple launches its headset, it might be some time before the mainstream gets on the bandwagon, if it ever does, according to Loup Ventures’ Gene Munster.
“The initial headsets’ demand when they first come out is going to be muted at best,” Munster explained. “I think it will grow into something that we use all the time. But to put that into perspective we're talking about a $2,500 to $3,000 headset that is still going to be uncomfortable for a lot of people to wear.”
However, the headset could evolve into an essential product. Apple has managed this before with the Apple Watch, which had a chilly reception before the company shifted its focus to fitness and saw sales explode. And if Apple can do the same with the headset, Munster explained, it could eventually rival the iPhone’s sales.
Apple’s car will drive its future
While it’s easy to see where Apple’s headset fits into its product portfolio, the rumored Apple car is about as far afield from its base expertise as it gets. But if Apple can pull off a car of its own, it could dictate the company’s future as much as the original iPhone did.
The car’s journey has had its fits and starts with Apple originally opting for its own electric self-driving vehicle, then switching to producing just the self-driving technology to power a car, and back to an electric self-driving car of its own again.
As Tesla has proven, building a car brand is no easy task. What’s more, Apple is entering a crowded space with companies like Rivian (RIVN) bringing its trucks to market and contenders like Vinfast bringing its electric cars to the U.S. Traditional automakers like Ford (F) and GM (GM) have also jumped into the EV space. Even Sony is getting in on the game, revealing a second electric vehicle prototype and plans for an electric vehicle company at CES 2022.
Still, Apple’s own car will immediately be desirable because it’s made by Apple. In October, the company began selling a polishing cloth for $19, which sold out in days. No, a polishing cloth isn’t the same as a car, but brand loyalty can go a long way.
Innovation will be key
For Apple to pull any of this off, and more, it will have to continue to invest heavily in research and development. In 2021, the company spent a staggering $21.9 billion on R&D. For comparison, Microsoft, the closest company to Apple in market cap, spent $5.6 billion.
“I think part of the stock price today being so high, is that investors actually have the confidence that Apple is going to do something really innovative again in the future,” Harvey said.
That, he explained, will be key to preventing Apple from becoming complacent with its current profit drivers, its iPhone and services, and ensure it stays ahead of the competition.
“Do you really believe that in 10 years people will be carrying around a clunky iPhone? Or anything like what we've got today?” Harvey asked.
It’s clear that Apple understands how to change with the times. It successfully pivoted from selling computers to iPods to iPhones to Apple Watches. But its foray into the still-unproved headset market and push into the automotive arena will be its biggest test yet.