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  (Source: Worth3D)
Missteps has soured some customers to Apple, who clings to the #2 spot

Forget those pesky lawsuits from open source supporters, swirling antitrust investigations, worries about malware, and complaints of fragmentation.  Google, Inc. (GOOG) continues its wanton destruction of its foes in the smartphone and tablet markets, even as its internet services continue to dominate usage, and its PC apps gain ground.  Oh, and Google is building a stable of robots, self-driving cars, and drone-powered hotspots as well.

I. Google is the New Alpha Dog

Perhaps no device is more beloved and important to the modern consumer than the smartphone.  Thus it is unsurprising that the smartphone industry's top three superpowers -- Apple, Inc. (AAPL), Google, and Microsoft Corp. (MSFT) -- have locked up the top spots in a number of brand value studies in recent years.

Moreover, given Google's visibility and seemingly sky-high high-tech ambitions, it's perhaps unsurprising to see the Mountain View, Calif.-based brand topping the charts in valuation.  In one of the early brand value rankings of 2014, Millward Brown placed Google in the coveted top spot of its 100 Top BrandZ rankings.

Brandz Top 100

That spot had been held by Apple since 2011.  Google climbed to #2 in 2011, but at last has broken through in terms of image, eclipsing its rival in everything from sales to obnoxious hipster cachet (with its Google Glass Explorer, aka "Google Glasses").

The world's second largest market research agency -- a subsidiary of WPP plc's (LON:WPP) Kantar Group -- says that Google's brand is worth $158.84B USD, thanks to a 40 percent rise over last year.  Microsoft -- currently in third place in the smartphone market -- saw a modest 29 percent rise (to $90.18B USD) under the fresh leadership of new CEO Satya Nadella.

Apple, meanwhile plunged 20 pecent in valuation.  The drop was quite unusual as outside of Chinese firms, Apple had nearly twice the brand devaluation of any other value-losing company in the Top 100's top half.  In short, one of branding's top analysts has suggested Apple is not only the biggest loser in the tech sector, it's perhaps the biggest loser of any top company.

Google Glasses
Google has captured the hipster vibe that Apple long seemingly had a monopoly on.
[Image Source: BGR]

Apple's chief hardware rival, top Android phonemaker Samsung Electronics Comp., Ltd. (KRX:005930) (KRX:005935), was far behind Apple and Google in 29th place, but did grow 21 percent to a brand value of $25.89B USD.

The rise of Google and fall of Apple in brand value in many ways mirrors the pair's battle in unit sales.  Apple recently settled with Google and entered talks with Samsung after it slipped to a legal stalemate in last month's jury trial.

Jurors found that while Samsung infringed on Apple's slide-to-unlock patent in some devices, as well as background link-generation and autocorrect algorithms, Apple also appeared to have used Samsung technology.  Jurors found Apple guilty of infringing on Samsung's video patents with its "FaceTime" video chat software.

Tim Cook
Apple CEO Tim Cook yells at members of Congress, during a hearing. [Image Source: Reuters]

The verdict was a blow to Apple, which has long prided itself on being a step ahead of rivals.  Now, Apple is showing the first signs of falling behind.  Its executives are reportedly at their wits end with frustration over attacks ads from Samsung and Microsoft's Nokia Devices brand.  Apple's own advertising partners are comparing its current malaise to its flirtation with bankruptcy in the 1990s.

II. Apple is Strong in Short Term, But Trouble May Lie Ahead

Today Apple is still one of the world's most profitable companies, pocketing $10B+ USD in a quarter.  It has a strong international retail presence, and an entrenched legion of OS X/iOS ecosystem adherents.

For all its multi-faceted struggles -- from Apple Maps' woes to the mixed sentiments over iOS7 design styles -- Apple still has a number of fans and well-wishers.  While many of this crowd have grown tired or frustrated from Apple's uninspired recent efforts, they've given it the benefit of the doubt on account of their love of its past releases.

On the other hand, Apple has also become a bit of a punchline at times.  When President Barrack Obama's healthcare.gov site suffered issues, he compared it to iOS 7.  And that's coming from a self-proclaimed fan of the iPhone who owns an iPad.

iPhone 5C
The iPhone 5C missed its sales targets, in part because Apple marketed a $700+ USD phone as a "budget" option.

There's still enough positives for Apple's most loyal supporters to lash out at its critics (and like Millward Brown after its latest rankings).  But for the first time in nearly a decade, despite its strong residual profitability Apple has effectively stalled, with no clear path ahead.

Profitability can turn south fast -- just as BlackBerry, Ltd. (TSE:BB).  Apple and its chief will need to maneuver much more deftly in order to prevent a BlackBerry-like slide as consumer interest wanes.

The iPhone's growth has been somewhat subdued from the wild levels of its earlier years, but it continues to grow as Apple pushes and expands in markets it previously had no sales in or a weak presence due to pricing (e.g. China).  Likewise, while Mac growth has flatlined, it has done so at a very challenging time for all PC makers.

The one really glaring alarm bell is the iPad's recent sales struggles.  

With the iPad, Apple has gone not from wild growth to more sedate progress, but actually saw a fall in year-to-year quarterly sales in calendar Q1 2014 (Apple's fiscal Q2 2014).  Meanwhile Samsung and Chinese OEM Lenovo Group Ltd. (HKG:0992saw record sales, driving Android to its clearest lead yet in the tablet market.

Android now is outselling Apple nearly 6-to-1 in the smartphone space, and roughly 2-to-1 in the tablet space.

iPad
The iPad is the biggest trouble spot for Apple.

The concern for Apple isn't in the short run.  It's still the top force in digital music and arguably has the best app store in the mobile market.  It's still more profitable than any Android phonemaker even with recent dips in profit magins.  And it is a strong second in terms of unit share, with especially strong sales in valuable markets such as the U.S. and Canada.

The concern for Apple is primarily in the long term, given the sharp drop in consumer perception and the corresponding stall in iPad sales -- telltale signs of deeper issues with the business.

III. Apple Needs to Diversify and Strengthen its Current Core via Acquisitions

For that reason perhaps the most dangerous contribution to Apple's brand drop has been its failure to aggressively acquire smaller, innovative startups.  Steve Jobs knew the value of this all too well, having acquired much of the multi-touch trappings of the original iPhone from a little-known firm named FingerWorks.

Google has spent deeply, scooping up a variety of firms, boosting its fledgling internet utility, wearable electronics, connected home, and robotic car efforts.  At the same time, while it's been more than willing to open its wallet, it's kept reasonably disciplined, generally getting good bang for its buck.

Google Nest purchase
Google's acquisition victories included Nest in Q1 2014. [Image Source: Digital Trends]

But even a firm like Facebook, Inc. (FB) which earns criticism for overvaluing and overspending in some ways, is tapping into the same key to long-term success as Google, albeit in a less economic fashion.

By contrast Apple only acquired a handful of firms last year despite having well over $100B USD in cash.  In the last year and a half, Tim Cook recently disclosed that his company averaged 16 bids per year -- many of which didn't succeed.  Most recently Apple has reportedly entered talks to buy Beats for ~$3B USD.

But overall the picture in terms of acquisitions has been that Google is racing ahead, while Apple stands still.

Apple Money
[Image Source: SoManyMP3s]

But it's not too late with Apple sitting on a huge pile of cash.  Factor in that even if Apple's iPhone follows the trend of the iPad -- posting small declines in unit sales and lower profit margins -- the company should enjoy strong residual income for the next few years, at least.

Normally for a company as profitable as Apple, a weakening brand image isn't necessarily the end fo the world.  Where it hurts Apple more then most, though, is that Apple has long relied on favorable consumer sentiment to command top dollar from its products and stir growth.  Further, Apple has no fallback source of income if device profits fall.  Where as Microsoft can afford to lose money yearly on its low-volume, low-margin mobile portfolio, Apple has no enterprise stronghold of profitability to lean upon.

IBM
IBM's survival and success illustrates the value of diversification, a strategy Apple should perhaps try. [Image Source: Reuters]

For that reason perhaps the best long term outcome for Apple is to follow in the vein of International Business Machines, Corp. (IBM).  While no longer a direct force in the consumer electronics market, IBM's flexibility and willingness to undergo drastic evolution over the years have allowed it to not only survive, but earn the #3 spot ($107.54B USD) in the brand survey -- just ahead of Microsoft.

Source: Millward Brown





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