Wednesday, May 01, 2013

Apple's new core competencies, and where they lead

Back when Steve Jobs had just resumed control of Apple, as the iCeo (‘i’ for interim), the focus was on trimming back speculative projects and making the company concentrate on its core competencies, which, at that time, meant Macs – two desktop lines, one consumer and one professional, and two laptop lines, also one consumer and one professional.

A lot has changed in the meantime, Macs included, and Apple has a whole new set of core competencies. These include materials, fabrication methods, automation, radios and antennas, solid state storage, integrated circuit design, operating systems, APIs, development and application software, natural language comprehension, cloud storage, and powerful encryption. They also have an experienced and adaptable supply chain, a large and growing distribution network, and stellar customer satisfaction.

So, looking at this collection (and even this list is incomplete), what can we conclude about where Apple is headed?

First, Apple is too heavily invested in hardware to become a company that only concerns itself with software. If there was ever a time when such a move was under serious consideration, those bridges have long since been burned. If anything, Apple is now more of a hardware company than it was a decade ago.

On the other hand, Apple gains too much advantage from its software and services ecosystem to let that go. The pairing of apps and online businesses is a cash cow, from which Apple has gained a huge amount of experience, experience that is now being applied to building out their iCloud services. Remember iTools? Apple hasn't pushed their online services through four iterations – iTools, .Mac, MobileMe, and now iCloud – just because they were bored with the names. Sure, they were a little late getting into this game and haven't executed in the same deft manner as they do with hardware and operating systems, and really they have yet to broadly succeed in the social space. But they continue to try.

It's notable that we haven't yet seen a series of acquisitions. Apple could easily afford to pick up a few social internet operations, cobble them together, and integrate them with iCloud. That they haven't done so might be taken as an indication that it just isn't that important to them. Alternatively, you can interpret it as meaning that they won't be satisfied with anything not developed in-house, to Apple's exacting standards. Considering how visibly embarrassed Steve Jobs was by the awkward roll-out of MobileMe, I lean toward the second interpretation. If they were to acquire one-to-several such companies, that would be a clear indication of their intention to stake out a significant piece of the social pie. Meanwhile, iCloud has several hundred million active users and is growing rapidly, meaning that even services only available between iCloud users can no longer be taken lightly. Given sufficient intrinsic value, iCloud may begin to gain converts, corporations and associations as well as individuals.

Apple's design prowess and its family of closely-related, scalable operating systems make it rather simple for the company to prototype new devices, not only in categories we already associate with the company but of practically any sort whatsoever. Taking the device to market is another matter. Apple's brand more easily stretches to encompass some new additions to the product family than others.

Moreover, Apple doesn't have much experience with moving parts. There was the arm on which the display was mounted, for the second major iteration of the iMac, but aside from that the only examples of mechanical design from the company are hinges, clasps, switches, including keyboards, and the SIM drawer in iPhones and cellular iPads. Other examples, like the trays in early optical drives and the active insertion that came later, were designed and built by suppliers. Of course, as with IC design, Apple only stands a few acquisitions away from possessing leading-edge mechanical design skills, so we can't eliminate products with moving parts from consideration.

The biggest question is where the market opportunities in closest conjunction with Apple's existing competency set lie. There have already been open hints that they are getting into the wearable computing business, which is likely to mean more than just an iWatch, even though that by itself should prove very profitable. They may also have something comparable to Google Glass in development. Wearable augmented reality, a VR layer over physical reality, especially if it is unobtrusive enough to be worn routinely, should prove to be huge market. The potential applications are endless.

But even the wearable market will sooner or later begin to feel limited. To continue to grow, Apple must find markets beyond gadgets, and the sooner they lay the groundwork for this the better. One such possibility is 3D printing. Apple could buy their way in, acquiring a user base so long as they maintain those relationships without significant disruption, and begin to push the technology (for example printing circuitry as well as structure). Combined with support in Xcode for programming common microcontrollers, this would, in short order, endear them to the hobbyist community, with moderate investment and minimal risk. And as those hobbyists generated designs worth producing in larger numbers, that would drive demand for the 3D printing equipment. And, so long as that equipment was up to Apple's usual standard of quality, it would act to stretch the brand without distortion or dilution.

And, really, that's the trick for all of us, to find ways of growing with integrity, without sacrificing who we are.

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