Lack of innovation shifting Apple to game of volumes?


Very few people might know or realize this now but initially, the goal of Apple was to create cheap products that can be bought by ordinary people.

Prior to Apple’s initiative computers were luxury products that most people did not take seriously. Of course, over time this changed and on Steve Jobs second coming, Apple turned into a company that sold with high margins.

Since that period Apple saw a dominant and successful period and what was different between Apple and other companies was that because they were creating products that were different and innovative.

For example, the iPods gave the Apple a new direction to think in. With the success of a music player they started selling music as well and a new dimension and source of revenue came into existence.

Similar stuff happened with iPhone and iPads and of course, Mac themselves upheld the quality of an Apple product.

The problem is that all this started with one man and now in the past few months nothing has happened to prove that Apple will be able to do that again. Of course, it might, but the indications are not good.

In such a scenario, it will have to do what other companies do- reduce price or release cheaper versions of their already excellent franchise products. Now, it is not something to scoff at. It is what most companies do. For example, Samsung became the biggest smartphone company in the world by selling phones ranging from Rs. 8000 to Rs. 40000.

Apple has started doing the same as well. It launched iPad mini which is seeing an incredible sale. Also, it is marketing its older models – iPhone 4 and 4S quite aggressively in the market (In India, we have seen offers on the iPhone 4). What this has done is increased its revenue overall but has affected its margins.

Apple announced its Q1 results and it saw an increase in its revenue – $43.6 Billion from last quarter and even surpass the expectations of $41 billion. Its net profits however fell from $11.6 billion to $9.5 billion. This is because of the falling gross margins that were 47.4% last year Q1 and are now down to 37.5%.

The main reason for this is of course Apple products are now selling at lower margins than previously.

The investors also don’t seem too confident on Apple’s future – The share prices have fallen significantly over past 6 months.

apple-share-price-fall Apple has not played the game of volumes ever and while other companies live by it, does Apple really has the necessary means to win this game, I am not sure. I think it is a better bet for them to innovate and bring a unique product that can change the game again. Otherwise, it is going to be difficult for Apple to keep up the stellar record in revenues that they hold!


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