Apple's future without Steve Jobs

News Analysis

Apple's future without Steve Jobs

Bill Goodwin

Steve Jobs, the man who co-founded Apple in the 1970s, rescued it in the 1990s, and turned it into one of the most innovative and successful companies in the noughties, has a pedigree that few can match.

So his decision to stand down as chief executive last month following his long personal battle with cancer, while not a surprise, created a storm. Jobs and Apple are so intricately intertwined that it is difficult to imagine the future of Apple without him at the helm.

Jobs has left the company in a uniquely strong position. His successor, Tim Cook, has been groomed for the role of CEO, and brings 13 years of experience at Apple, where he was responsible for global sales and supplier relationships. And Jobs will not leave Apple completely. He takes over in the newly created position of chairman of the board.

Apple's rapid growth

Since 1997, Apple has grown astonishingly rapidly, with wave after wave of innovative products. The iPod in 2001, was followed by the iPhone six years later and the iPad in 2010, transforming Apple from a specialist computer manufacturer into a company with mass-market appeal.

By May 2010, Apple had grown to become the largest technology firm by market value, overtaking Microsoft. More recently, in July, Apple reported its profits had doubled and revenues were up 82% year on year. The company shifted more than 20 million iPhones and nine million iPads in just three months.

Source: Gartner

Although Apple is largely consumer-driven, its products are increasingly finding favour with business. iPhones are coveted by executives and Gartner has named the iPad as the device of choice for sales teams. Businesses see apps for iPhone and iPad as essential promotional tools. And few publishers feel able to ignore the iPad as an alternative to print publishing.

Apple's close control of its technology has given it a reputation for playing hard ball. It has been accused of using its muscle to bar companies such as Adobe and Google from making their technology available on the iPhone and iPad, prompting questions from the US Federal Trade Commission and the US Department of Justice.

And Apple's intention to charge publishers 30% of their subscription revenue from the iPad has caused ripples in the publishing industry. Worse, from the publishers' point of view, are Apple's plans to retain rights over the subscription data from customers who sign up for magazines or newspapers using Apple's iTunes market.

"Apple is certainly leveraging its position in a way that is not beneficial to larger media organisations," said Windsor Holder, analyst at Juniper Research.

The company has faced negative publicity over the working conditions in some of its suppliers' factories. Apple discovered underage workers at some plants, cases of involuntary labour and companies fabricating wage documentation.

Its Chinese supplier Foxconn hit the headlines with a string of suicides at its Shenzhen factory. The factory hired counsellors and built anti-suicide nets. And it has made improvements to employee welfare following intervention from Apple.

Increasing competition

Externally, Apple's dominance of the smartphone and tablet PC market is under attack from the open source alternative, Android. Backed by Google, Android offers a lower cost rival to Apple's proprietary technology.

Today the iPhone, powered by Apple's iOS operating system, has almost 20% of the smartphone market, putting it ahead of rivals Samsung and Nokia, each with 16%, and HTC with 11%.

For a mobile phone supplier with only one design of handset, cornering the market in this way is a remarkable achievement. But analysts do not expect Apple to maintain its dominance as cheaper smartphones enter the market.

Apple's sales will not fall, but the market for smartphones will expand, according to Daniel Ashdown, analyst at Juniper Research. "We don't see shipments of the iPhone declining over the next five years. Apple will lose market share, however, because of the way the market is diversifying. There are cheaper smartphones coming in at the bottom of the market," he said.

The real threat to Apple could come from Microsoft Windows Phone 7, according to Frank Gillett, analyst and vice-president at Forrester.

Microsoft became a credible competitor to Apple in February this year, when it formed an alliance with Nokia, the struggling Finnish mobile phone manufacturer. Nokia dropped its Symbian operating system in favour of Windows Phone 7 in a move widely seen as a last ditch attempt to break Apple and Google's smartphone duopoly.

"There is some innovation in Android, but it does not look as interesting as Windows Phone 7. It's going to be interesting to see how this plays out," said Gillett.

Source: Gartner

Rising tablet supply and demand

It is a similar story with the iPad. Apple had 90% of the tablet market in 2010, but its share is likely to shrink to 68% next year, according to Juniper Research, as rival Android-based tablets take off. Forecasts from Garter suggest the gap between the iPad and Android-based rivals will close significantly by 2015.

Source: Gartner

Samsung's tablet poses a serious threat to the iPad, according to Ashdown. The 7in Samsung Galaxy tablet has sold well and the 10in version is expected to attract attention when it is launched.

And it won't be long before Microsoft enters the tablet market. The next version of Windows is likely to feature tablet functions. "Having Office on a table could be a really big selling point. It could be a really exciting prospect," said Ashdown.

Innovative and profitable business

Apple's enviable market share does not tell the whole story. Work by Asymco.com and other market researchers show that when it comes to share of profits in smartphones, Apple is way ahead.

Research by Horace Dediu, published on Asymco, suggests that Apple has the highest share of smartphone profits, at 28% - a figure that is on an upward trajectory. Samsung is a close second, with Nokia trailing in third position and heading downwards.

"What you see is Apple and [Blackberry-maker] Rim have most of the profits, HTC and Samsung have a little bit and Nokia has very little," said Forrester's Gillett.

In the longer term, the popularity of Apple's iTunes library with application developers will go a long way to determine Apple's future. If the Android store proves more profitable for developers than iTunes, that could hit Apple hard.

"Unit share is important is because whoever has the most intense focus on software provides the most interesting ecosystem," said Gillett. "The real story here is how much money the developers are making. If they believe they make the most money with Android, that's where they will go."

Apple is continuing to innovate. Its iCloud service, due to be launched shortly, will allow people to back up their music, apps, photographs and calendars to the cloud. Once in the cloud, people will be able to access their library from any device.

"A company such as Apple, especially Apple, plans long term," said Gillett. "It already has products in the pipeline [to deliver in the next] 24 months, and some detail of products further out is pretty well set out.

"When you look at the team that is building up around Apple, what is interesting is they have a common vision and a shared approach. What we are going to find out is whether that team can keep it going without Steve Jobs," said Gillett.


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