Beyond devices: Apple big push into content and services

Apple Online Store“Do tech’s titans really need to be acting like they grew up in the Depression, hoarding their dough? And will they eventually spend it wisely? Or foolishly? Apple, to take just the most absurd example, holds some $51 billion in cash and equivalents,” Tiernan Ray reports for Barron’s.

“Apple’s cash may rise to $72 billion this year, according to a report that Gabelli analyst Hendi Susanto put out Friday,” Ray reports. “That’s $78 per share in cash, perhaps going to $103 in 2012, Susanto estimates.”

“Though the cash hoards will seem even more ridiculous next year, reasons for companies to hold onto their war chest will increase markedly. Apple, for one, will need to invest to meet a major challenge,” Ray reports. “No matter how many iPads and iPhones it sells in 2011, the competitive focus is shifting to the ‘ecosystem.’ This comprises not just computing devices and software, but also ‘services,’ which basically means content and functionality that is hosted on Apple’s own computers in its data centers.”

Ray reports, “Apple is certainly gearing up for big investments. Its capital expenditures are expected to jump more than 55% this year, to $4 billion, according to Caris & Co.’s Robert Cihra, mainly for online infrastructure.”

Full article here.

MacDailyNews Take: By SteveJack:

HBO has long produced compelling original content in order to retain and attract new customers. For example, Boardwalk Empire has an annual budget of $65 million. Other series are far less costly, yet still quite successful. Plus, HBO routinely tops critics’ lists and awards which generates free publicity and even more consumer interest.

Imagine if Apple took less than 1/50th of their cash on hand ($1 billion annual production budget equals 15+ Boardwalk Empires) to bankroll the production of exclusive content for iPhone, iPod touch, iPad and Apple TV? Last quarter – 90 days – Apple’s net profit was $4.31 billion. Take a mere 20 days of profit and roll it into exclusive, compelling content. As we all know, getting the old guard media to play has always been an issue with Apple TV.

Apple has already sold some 130+ million iOS devices. Apple could more than double that figure in 2011 alone (150 million more iOS devices). By mid-2012, Apple could have sold more iOS devices than there are people in the United States.

What if Apple began to invest in quality original content? What if Apple used the broadcast and cable networks as a testing ground and then began to outbid for hit series? Even better, and also far less costly/risky, what if Apple simply allowed talented producers and directors to go directly to an audience of hundreds of millions via iTunes (70/30 split with Apple, naturally)? Think the next Boardwalk Empire producer can make more signing a contract with HBO or by selling directly to their audience via iTunes? And, BTW, promising series like, say, Jericho, FlashForward, and many, many others that fail to reach critical mass within a traditional broadcast network model very well might be profitable in a direct-to-iTunes model. They wouldn’t have to be abruptly cancelled, they’d just move to the iTunes Store and continue production for as long as they remained profitable. Or, what if Apple and HBO/other networks partnered somehow? With quality exclusive content, how many extra Apple hardware sales would result? And how would Apple’s iAd fare? (Very well, if I had to guess.)

There are many more questions and possibilities, but almost all of the answers require a huge war chest.

SteveJack is a long-time Macintosh user, web designer, multimedia producer and a regular contributor to the MacDailyNews Opinion section.

29 Comments

  1. Two words: Vertical Intergration.

    Which is what Apple has always done, first hardware & software then later adding iPod, iTunes etc into the mix. Now they are expanding it into “the cloud”. How long until “iSearch” hits the market as a rival to Google & Bing?

  2. “iSearch” serves no purpose. Search is merely a vehicle for gathering customer information and distributing advertisements. Apple is already doing that with iAd. Creating a search engine to go head-to-head with Google is the kind of foolish thing Microsoft does. Looking at the reason for search, i.e., ads, and attacking Google at its ad supported core is the kind of thing that Apple does.

    If you want to know what Apple is going to do next, stop focusing on the vehicle and start focusing on the destination that vehicle is taking you too. For example, content is the vehicle but hardware sales is the destination. Things become a lot clearer when one focuses on where Apple is going rather than focusing on how they are getting there.

  3. It is definitely about the ecosystem. And more and more people are finally starting to realize that.

    The NBC Comacast deal doesn’t seem to be doing so great. Maybe Apple could pick up NBC for a steal. There are 2 or 3 shows that I watch on NBC. I doubt that wool happen though.

    HBO has great production quality, but most of their content is not family friendly. Most of the content I wish was on Apple TV is family friendly stuff. Chuck, Modern Family, The Office, 30 Rock, etc.
    Give me access to good content, without commercials, and I’ll pay for it. And i think most people are willing to pay for it too.

    Apple definitely has a huge advantage. If you compare android device x vs iOS device y, they might seem very similar. But when you look at the whole ecosystem, no one else has anything like it. And i think Apple’s media/app/content ecosystem will just continue to improve.

  4. @Falkirk
    I disagree. Google took Search and made it fly. Then they spoiled it somewhat by tying it to the visual clutter/noise of ads.
    But Search is the universal, enduring killer app. E.v.e.r.y body uses it, all the time and they always will in future. We live in a growing ocean of information. Search is the only way to navigate that and get useful results. It is a field Apple cannot afford NOT to do. imo

  5. If anybody want to make the very best computers and operating system, they have to do it better than Apple

    If anybody want to make the very best search engine, they have to do it better than Google.

    No start up, not even a mature player, can get get close enough, even if supported with a giant war chest.

  6. @DJ

    Wouldn’t it have been nice if there had been an option for Apple to pick up a canceled show like Firefly? Or Deadwood? Apple could take preorders for subscriptions to a season, and if they get enough, they greenlight the show. I don’t see it happening any time soon, but it’s fun to think about.

  7. @O – It costs about $1M to win a House election and about $8M to win a Senate race. So, 435 X $1M plus 34 X $8M would work out to about $700M in the next election cycle. It’s doable for less than 2% of the war chest. The trick would be finding 469 of the right people, willing to do the work of America for only $175K per year plus benefits. There won’t be too many of the current crop worth keeping.

  8. @falkirk and chano,

    Very astute reasoning Falkirk but there’s more to consider. Both search (as it is structured and driven today) and apps are merely a paradigm, a human construct for dealing with information. But Apple, as you accurately illustrate, sees the cloud as something well beyond Google or Microsoft’s more limited vision. Because they control their own ecosystem they can seamlessly tie media and information creation, search, exchange, consumption and repurposing into one easily usable, almost magically aware extension of the human mind. Microsoft never will, coming from its legacy of pure tool building. Google never will (though part of them comes closer) they are too fractured and tied to a geek mentality. Apple could integrate a search engine very quickly if they chose to..they could buy Yahoo, rebrand it, improve it and integrate iAd if they wanted to…

    Apple is capable of enormous strides in the next couple of years. You aint seen nothing yet.

  9. “Search is the universal, enduring killer app.”-chano

    No it’s not. Google doesn’t make any money on search. None. They make their money on the ads connected to those searches and the data they can gather and sell to advertising companies. Stupid Microsoft, as usual, doesn’t realize this and spends their money and their time skating to where the puck was instead of skating to where the puck is going.

    Even Google realizes that search is passe. Facebook is one of their biggest rivals because people are looking to new ways to find the information they seek. Straight computer searches are great when you know what you want. Its when you’re looking for hints and suggestions that Google fails. How can it find what we want when even we don’t know what we want?

    Now if Apple could create a heuristic search program that made intelligent suggestions, then I’d tell Apple to pour the whole $50 billion into it, because that, indeed, would be a killer app. It must be much harder to do than I think it is. Netflix is trying to do it with movies, Pandora is trying to do it with music, in a limited way, Apple is trying to do it with their “genius” suggestions. None of them are even close to adequate, in my opinion.

    Apple doesn’t make its money by following others. When they created the Apple II, there wasn’t anything like it on the market. Same with the Mac, the iPod, the iPhone and the iPad. Apple isn’t going to become a third search engine in an already overcrowded field that is diminishing in importance. Apple doesn’t enter markets – it re-invents them.

  10. The Apaches never willingly engaged in combat if they weren’t convinced they would win. Similarly, Apple will only enter an arena of competition when they know they can do a better job than the others are doing. Last year the company bought a mapping company, PlaceBase, with no comment and recently acquired another one (Poly9) this year. It is a good bet they are cooking up something and expect it to be better than Google.

    With their cash pile they can do this plus gather content assets as well.

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