Apple woes from building great products!
Apple has out done itself! It has created phenomenal products that are so good and of such good quality and durability that customers are delaying the upgrade cycle and keeping their phones for more than 24 months. This success has led Apple to revise its forecast and attributed to the fact that customers want to keep their devices longer.
Of coarse the news included worries about China and a host of other uncertainties. Yet the fact remains, that the devices are so good that there seems to be few compelling reasons for a quick upgrade.
In my opinion this is a testament to Apple’s prowess in being the gold standard of consumer devices. Apple has always strived to take a mundane product like an mp3 player or a cell phone and creating a wonderfully thought out device that would perform all the same functionality in a very robust and beautiful package. That has been Apple’s success. Taking a product we have all been using and repackaging it in a way that the consumer will love. Then after tying it in to Apple’s efficient ecosystem, it becomes a must have item. Think iPod, iPhone, iMac and today the new AirPods!
I believe that these woes are transient because Apple’s business is thriving and doing well. Apple has built upon its products a giant services business, from iTunes, the Apple Store to its Apple TV platform. These services are growing at a double digit pace and I do not see that slowing down anytime soon. The hardware has become a necessity to enjoy the benefits of this walled garden ecosystem. You can delay upgrading the hardware and this may add some elasticity to the demand curve for Apple products but the fact remains that you need the hardware to continue using it. This has been the key success of the overall Apple strategy.
In my opinion, the current crisis is caused by multiple factors some of which are political and external but some are also due to the fact that some of the incremental upgrades to iPhones are not as enticing. There have not been too many new, must have, features that compel consumers to upgrade. Couple that with the fact that most carriers have stopped subsidizing new devices, consumers are keeping their phones for as long as they can. Also the cheap temporary battery replacement program that allows customers to swap out their phone batteries for $29 to $79 dollars is also a reason to keep the phone longer. A transient issue!
I believe Apple will always innovate and there will be new enticing features that will compel consumers to upgrade. Also the computing requirements of the hardware will also need to be upgraded with future IOS releases. So the future is bright, yet the elasticity of the supply curve needs to be better managed by Apple. This should either be done from a corporate marketing strategy or from a PR perspective in notifying Wall Street and investors in advance.
Nevertheless, there is a lot of love for the Apple ecosystem and consumers will always upgrade their devices to use it.