Apple's latest results reveal a company at a crossroads

While Apple's results reveal that the tech giant has a positive future, business challenges still remain, says Neil Bruce, head of mobile at Mindshare UK.

 Neil Bruce, head of mobile, Mindshare UK
Neil Bruce, head of mobile, Mindshare UK

The results unveiled by Apple yesterday paint a rosy picture for the future of the tech giant. Analyst predictions have been surpassed, with an increase of sales by 12% and of net income by 13%. This growth has been underpinned by mobile, with iPhone sales now accounting for 57% of sales.

At an Apple event last week, Tim Cook mentioned that the iPhone 6 and 6 plus had "set a new high water mark" for sales and although they were only on sale for the final ten days of the quarter, shoppers bought 10m of the gadgets during their first weekend on sale. The impact on revenues of this has been significant.

The elephant in the room for Apple is, of course, the iPad, with sales continuing to slump

Although much has been made of the iPhone 6 and 6 plus, another interesting point is that with Apple’s new range of phones, they’re better placed to reach all sectors of the market than ever before. With the iPhone 5c now essentially free on a low-cost contract, there will be customers who would traditionally move for an Android powered device thinking of Apple. Will Apple products gain traction in the developing world? This is still unlikely but at least steps are being taken in the right direction.

The elephant in the room for Apple is, of course, the iPad, with sales continuing to slump. Although Cook announced last week that 225m iPads have been sold in just four years, interest has been slowing resulting in 1m fewer sales year on year.

This trend is symptomatic of the tablet market at present, with a recent Gartner study showing that tablet sales in 2014 will only see 11% growth over last year, compared to growth of 55% the year before.

Jumping ahead

We’ve had to watch yesterday's rollout of Apple Pay from afar in the UK, but a cursory look at Twitter overnight indicates that it was a success. With the launch of Apple Pay, Apple effectively walked into a market that PayPal, Visa, Google et al have been trying to crack for years (and that could be worth $170bn by 2018) and leapfrogged all competitors.

Apple has 800m credit cards on file with iTunes and these will be able to be used to pay for goods and services seamlessly

Apple has 800m credit cards on file with iTunes and these will be able to be used to pay for goods and services seamlessly. Moreover, by allowing payments to be authorised using the TouchID on the phones, the payment process is incredibly quick and secure. This will be particularly beneficial in the US, where Chip and Pin and contactless technology isn’t prevalent.

Security fears

For me, the success of Apple Pay depends on how well Apple can communicate the security of the product. Despite the fact that using biometrics makes this an extremely secure way to pay from the physical point of view, there are still, perhaps unwarranted, doubts about the security of digital data from consumers. The iCloud hacking did nothing to dispel these fears.

You only have to look at my parents, who now wrap their credit cards in tinfoil for fear of being hacked, to understand who we are trying to convert!

You only have to look at my parents, who now wrap their credit cards in tinfoil for fear of being hacked, to understand who we are trying to convert!

We’ve seen Apple move to consolidate their ecosystem. They’ve stopped selling Fitbit products in their retail stores as they see Fitbit as a potential competitor in the Smartwatch space, and have stopped selling Bose headphones – perhaps seeing them as a competitor for their newly acquired Beats brand. Further consolidation is likely to occur moving forward as Apple seeks to maximise the revenue gathering potential of its ecosystem.

In summary, it’s been a huge quarter for Apple, with the launch of two new phones, a smart watch, a mobile wallet and two slightly revamped iPads. These developments will no doubt put Apple in a good position moving forward. However, I feel that one point of note is that Apple’s operating costs continue to rise. Apple now anticipate that their Q1 2015 operating costs will increase to between $5.4 and $5.5 bn – up $1bn from their estimates for Q1 2014 last year. Is this continued increase in costs a result of developing multiple product lines? And if so, will they see sufficient return on these investments?

What’s the impact going to be on advertising?

In a word, positive. Two weeks ago, the Internet Advertising Bureau released its latest ad spend figures and one of the highlights was that mobile now accounts for 20% of all digital advertising spend – up from 14% in the first half of 2013. Moreover, mobile ad spend accounts for a fifth of total spend, nearly a third of display and over half of social media ads.

Users of Apple products monetise significantly better than Android users

Within the operating system space, it's common knowledge that users of Apple products monetise significantly better than Android users, so from a mobile marketer’s perspective, a potential narrowing of the gulf between Android and iOS penetration will be positive.

I’m also interested to see the role that advertising will play for Apple moving forward. Apple has been clear in stating its mission as a product-led business. Products such as iAd were built to help app developers monetise their products and in so doing continue to increase the volume of apps in the iOS store. However, at iAd’s launch in 2010, Steve Jobs boldly claimed that it would capture 50% of the mobile ad market.

I still wonder whether Cook will have one eye on the mobile advertising market, which Google and Facebook now dominate (accounting for over 55%). Recent product launches such as the ad-funded iTunes Radio, the launch of cross-device ad retargeting for iAd and the acquisition of Beats audio indicate that Apple is preparing for a more concerted attack on the market.

Will this ever become the most important revenue stream for Apple – of course not, but it can only grow.

 

 





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Apple's latest results reveal a company at a crossroads