Apple Must Win the Living Room to Grow
Apple has introduced only one new product since Tim Cook took the reins as CEO: The watch. It’s doing well, but it will always be a niche product. So what’s the next big thing?
Apple plays the long game very well. But the golden goose of the iPhone (60% of Apple’s revenue) is 11 years old and essentially commoditized. Consumers are not upgrading as often as in the past and Apple is resorting to discounts for the first time to move product. As a result, Apple’s valuation has, unsurprisingly, fallen. So what’s next?
Apple has recently shown little or no vision beyond its current ecosystem and has also come under fire for its “monopoly” power as a software retailler for the iPhone. As a result, sales are sliding for the first time in more than a decade and Apple’s share price is following.
So where should Apple look for its next market? Apple already owns your desktop and your palmtop. And it’s working on AI which has been “coming soon” for years — and of course, Apple should continue to work on it. There is the car market — which Apple is unlikely to enter in the near term. It’s going through tectonic changes ranging from car sharing, to self driving and electrification. (This would be a bet the company move even for Apple.)
I’d argue that Apple’s next market should be the living room — which we should call the “media room” because that’s what it has become. The challenge? The global battle for the living room is already at battle-of-the-giants stage led by Comcast, Disney, Google, Sky, Netflix and Amazon, etc.
Apple — which virtually owned the streaming home entertainment market when iTunes launched, now has less than 20% of that market in the US and much less overseas. This means Apple no longer has the luxury of building vs. buying. Yet, in a vainglorious example of hubris, Apple is trying to build content with its studio project. It will not succeed.
If I were in Tim Cook’s shoes (having failed to introduce a single product during his tenure), I would use some of Apple’s record $240B cash pile for acquisitions.
First, I would acquire Netflix (valued at $122B) for its 130M members in 190 countries and impressive production arm. Yes it’s expensive which is exactly why Apple should acquire it: no one else can afford it. Apple’s billion customer reach & cash can grow Netflix far faster than it can organically: Apple wins streaming media.
Second, I would acquire Sonos (valued at a mere $1B) the sleekly Apple-like wireless whole-house audio company whose iPhone (and Android) controlled products already have Siri voice compatibility. Buying Sonos will help Siri from losing to Google’s Voice and Amazon’s Alexa voice UI — an increasingly important battleground. Apple wins the living room.
“Hey Siri, I want to watch Incredibles 2 in the living room.”
Yes Netflix is a big bet, but Apple’s presence & brand would dramatically accelerate Netflix’s subscriber base. The alternative is to try to win share from incumbents AND trying to steal talent from existing studios like Netflix. In an oligopolistic $180 billion market, it’s too late for DIY.
So there it is Tim Cook: Hey Siri — buy Netflix and Sonos and let’s own the living room. I mean the media room.
n.b. I own no interest in any of the companies mentioned.
