Apple inc. (AAPL) is one of the largest technology companies in the world, as measured bymarket value, and continues to dominate in the categories it invented or popularized, such as the smartphone and tablet. Although it seems that Apple is at the top, it still has significant weaknesses.
Key learning points
- Apple has become a household name and one of the most valuable companies in the world.
- Despite its dominance in mobile devices and computers, the company faces a number of significant challenges.
- These weaknesses include expensive products, access to higher competitive areas, and incompatibility with other software.
The closed ecosystem
Many loyal Apple customers consider the company's tightly controlled software and services to be one of its key strengths, as it gives Apple control over every aspect of the devices it produces. Overall, however, this puts an additional burden on Apple's development cycle, as software, security, and many other details become an internal responsibility.
Moreover, Apple is activelicensing agreementsfor the sale of content, including Apple TV, Apple Music and the App Store.From a management perspective, this is the water Apple should be focusing on.
The largest revenue generation comes from hardware, but the closed nature of Apple's ecosystem forces the company to be active in all other sectors as well. Compare this to Samsung – by connectingAndroidand the rest from Google Inc. (GOOG) ecosystem, Samsung can focus on iterating on the hardware and innovating the design of its devices rather than having to monitor third-party apps or roll out operating system updates.
Innovatietempo
The high product expectations for each new version or model Apple creates may ultimately prove to be the company's biggest weakness. Apple has developed a fantastic onefeelingthat is associated with products that work perfectly and are designed to feel advanced and natural at the same time. These high expectations mean Apple can't throw away experimental products or serviceson the marketwithout damaging the brand.
This inability to experiment makes it harder for Apple to innovate as quickly as Google on services or as quickly as Samsung on hardware. So Apple has to rely on its leadership and employees being so far ahead that the slower release schedule still results in Apple leading the market.
So far, Apple has maintained its lead over most of its major companiesproduct lines, but the size of the lead remains fairly stagnant. At the same time, other technology manufacturers have adopted this and regularly release upgrades and new models themselves. For example, Samsung's Galaxy S line of mobile phones now sees a new release every year.
Other concerns
Some of the other issues include Apple's expensive products and moving into more competitive areas. While Apple's more expensive products may appear to be less of a problem in an emerging economy, they could become a problem if the economy takes a step back. The company also relies on its brand image to spend a lot of money on advertising, which may change in the future.
As Apple gets even bigger and looks for new ways to grow its revenue, it will likely enter more competitive markets – such as Apple TV, where it competes with content-only players, for example Apple TV. Netflix (NFLX). Due to its entry into the payments market, it will also compete with e.g. Chase (JPM) and PayPal (PYPL).
In short
There are hundreds of tech companies that would love to have Apple's weaknesses, as long as they also had strengths to draw from. These include a huge onewar Christ, a strong brand and much of the infrastructure of the range of successful products is still intact. That said, Apple must continue its high level of innovation. Apple's competitors will continue to close the gap between their products and Apple's and eliminate the premium Apple charges for its products and services.
