April 29th, 2013
04:59 PM GMT
Editor's note: Victor Basta is the MD of Magister Advisors, an M&A advisory firm to the technology industry. The firm has worked on 16 transactions since it was founded three years ago, including the sale of C3 to Apple for $250 million and LoveFILM's $320m exit to Amazon. Below is his view on Apple's future.
After last week’s earnings, it is even clearer that Apple is not the company you think it is. Its future value will not be as a hardware designer and innovator. It will more likely be as a great software and services business, underpinned by the everyday actions of the hundreds of millions of credit card-enabled users subscribed to the iTunes store.
The iTunes store is now ten. But read the newspapers and you’ll find nearly zero references to iTunes, despite it being core to Apple’s future.
All the talk last week was about hardware and the battle with Samsung. This is the “last war.” Even if Apple steps forward with its “best ever” device in the autumn, how many days before Samsung responds with a better product? Apple can no longer become the first $1 trillion company by simply making better mousetraps.
Apple executives are clearly frustrated by this constant device focus. Tim Cook, on the earnings call, audibly emphasized “SERVICES” as much as he felt he could. Apple’s next products only need to be “very good”’ to keep consumers loyal and spending money on software and content. Keep it that way and the Apple profit machine will march on, though not without strategic threat.
Amazon, rapidly building its capabilities as a device-assisted ecosystem of credit card-enabled users, is Apple’s new major competitor. A string of acquisitions leaves little question that Amazon will offer new digital devices and services. In recent years Amazon has quietly acquired SnapTell, an image matching startup; IVONA Software, a text to speech service; Yap, a voice to text startup; Touchco, a specialist in touch screen technology; and Evi, a Siri-style mobile app that turns phones into mobile assistants.
Amazon clearly has broad aspirations to be a key mobile player, which puts it on a collision course with Apple. Amazon has a huge ecosystem of credit-card-enabled users, great devices to download content, a huge trove of valuable content behind the devices, and a world-class buying experience that other retailers try to copy. Apple will face bigger challenges from Amazon than anything it is seeing from Samsung.
This is a two horse race. Neither Google, Facebook, Samsung, Nokia nor Microsoft have this combination of great consumer service and software nor a huge credit-card payment base. Amazon though, importantly, is not hamstrung by legacy or expectation.
Amazon has another emergent advantage. The Kindle, which Amazon astutely sells at a loss, is now owned by tens of millions of customers. They use their Kindles to buy from the Amazon store. This is exactly the same as Apple’s model, yet arguably the model is better.
Amazon currently gets a fraction of the attention that Apple gets. Yet there is a no doubt that it is fiercely competitive. Many great retailers have already been “Amazoned” by the online book-seller from Seattle. It leaves us wondering, if Apple and Amazon’s strategies are heading in the same direction, albeit from different starting points, is even the mighty Apple at risk from this relatively quiet achiever?
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