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Apple's Eternal Search For A 'Next Big Thing'

Apple's Eternal Search For A 'Next Big Thing'

09.09.2014 09:48

Apple successively redefined the MP3 player market with the iPod, the smartphone market with the iPhone, and the computer market with the iPad. Now, faced with growing competition, it needs a new 'killer product.' For years, Apple has dominated the premium end of consumer computing markets with gadgets.

Apple successively redefined the MP3 player market with the iPod, the smartphone market with the iPhone, and the computer market with the iPad. Now, faced with growing competition, it needs a new 'killer product.'



For years, Apple has dominated the premium end of consumer computing markets with gadgets that redefined their product class - iPod, iPhone, iPad. The company's highbrow design ethos has given it an exceptionally loyal following.



"Apple doesn't invent new product categories," Berlin-based communications designer Martin Dorken said. "Apple picks a consumer electronics technology, makes a top-end version, and sells it at a premium. Recently, they've put a lot of money into "smart home" systems - so you'll be able to control your house remotely from your smartphone.



"But with Google, Facebook, Amazon, Sony, and Samsung all sitting on huge piles of investable cash, looking for the next big thing, Apple isn't the only company contesting the premium niches anymore."



Market share is secondary



Apple's smartphone and tablet market shares are declining. The bulk of global consumer electronics growth is occurring in emerging markets in Asia and Latin America, where fewer customers can afford Apple's high-priced gadgets. Apple's share of global smartphone sales in Q2 2014 was only 11.9 percent, down 1.5 percent from Q2 2013.



But Apple isn't interested in selling hundreds of millions of cheap gadgets - it would rather sell tens of millions of expensive ones.



"Apple doesn't care what its market share is as long as it wins as close to 100 percent as possible of the most profitable share of the market," Jim Edwards, technology columnist for Business Insider, said.



"Most smartphone makers are losing money," Edwards said. "Only Apple and Samsung are profitable, and Apple is making bigger profits than everyone else put together."



The high prices Apple charges translate into exceptionally fat profit margins. As long as millions of well-off customers continue to believe that Apple's gadgets are better than anything else on the market, the company will prosper.



The competition isn't asleep



But competitors have emerged with premium smartphones and tablets that are better in important ways than Apple's expensive offerings.



Samsung and HTC, in particular, have taken direct aim at the premium smartphone segment with their Galaxy and HTC One phones. Both have featured larger, more user-friendly screens than the iPhone in recent years - which is why the iPhone 6, to be unveiled this week, is expected to feature a bigger, better screen than did the iPhone 5.



Ultimately, however, the more important competition may be on the software front.



People buy smartphones for the applications that run on them - and those applications always run on a particular operating system. In that respect, Apple is sticking to a risky minority strategy.



According to Strategy Analytics, 85% of the smartphones that shipped in Q2 2014, including Samsung and HTC's phones, run Google's open-source Android operating system. Apple's proprietary operating system, iOS, is used only by Apple's iPhone and iPad.



The benefit to Apple is that its proprietary OS binds people into the family of Apple gadgets. Software designed for one Apple handheld device will run on any Apple device - and only on Apple devices. This makes it inconvenient for Apple users to buy non-Apple devices.



The risk to Apple is that people tend to stick to what they're used to, and 85% of smartphone users are getting used to Android. Android users will upgrade to more expensive smartphones as they get richer, and they are likely to choose high-end Android devices - like Samsung's Galaxy phones - rather than switching to Apple.



Moreover, even low-end Android smartphones made by Chinese makers like Huawei and Xiaomi, a third the price of an iPhone, are of increasingly high quality.



And while its worldwide market share is only around 4 percent, Microsoft's Windows Phone has reached the 10-percent mark in some European markets by appealing to buyers looking for a premium experience without Apple's premium price.



"It's not obvious that in the future, phones will be expensive devices," said Edwards. "Why would someone pay $700 for an iPhone when they can get an excellent Android phone for $100?"



Apple always needs to find the next big iWhatever



Apple's challenge is to provide compelling answers to that question - or to redefine entire product categories with new premium gadgets. The product category up for redefinition at the moment is the wristwatch.



And Apple's new iWatch, set to be unveiled alongside the new iPhone, may well set the standard for elegance and functionality in the emerging smartwatch category, just as the iPhone set new standards in the mobile phone market seven years ago.



But why would someone who already has an Apple smartphone also buy an Apple smartwatch - and keep buying upgrades, even as a stampede of competing makers rushes into production in coming years?



The best reason could turn out to be health monitoring. That's an area where Apple has been making a big push, Edwards said.



A smartwatch can do something a smartphone cannot do. Nestled against the user's skin, a smartwatch can measure the wearer's heartrate, and report it over wireless networks. That's useful for remote monitoring of cardiac patients.



But that's just a start. If a future generation of smartwatches can automatically monitor blood chemistry, a whole new world of preventive medicine applications opens up. The company that makes the very best health monitoring gadgets will sell a lot of pricey gadgets.



It will not be entirely surprising if Apple turns out to be that company.



 
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