Oct

30

Apple, from David Lillienfeld

October 30, 2013 |

 I'm a bit concerned about the last Apple quarter report—not because of what's going on right now but because the thing that i was hoping to hear was that the company wasn't concerned about margins so much as market share. That was the mistake of the 1980s—Apple focused on keeping margins up. Scully thinks that that was a mistake though not as much as firing Jobs. I think he has it backwards. Amazon is worth a fortune without having worried much about earnings. Apple would be the same—if it focused on market share first.

On the innovation front, Apple has always been about changing the relationship between man and his environment. That's what the iPod was, that's what the iPhone was, that's what the iWatch will be about, ditto for the iTV. What are the next two things in Apple's quiver? Try these two:

1. Apple purchases Nest, creates an iTune interface for all manner of modules to control a house. For instance, it reaches an agreement with Whirlpool to put those modules into Whirlpool's products. The modules cost all of $20-30, but they allow you to control everything in your house remotely. Everything.

2. Apple reaches an agreement with Ford to put an Apple iCar into each Ford auto. The iCar contains a description of what properties you want the car to be optimized for. Speed? Mileage? Handling soft ride? Handling firm ride? and so on. You could even build into the iCar a module, software programmable by an insurance company to monitor driving habits, a la Progressive. You could change the iCar with an iTunes like interface, and each driver in the family could have their own iCar. Junior wants the car? Dad puts the iCar into the car—using a secured compartment that Junior wouldn't have access to. Why? Because Dad's put a special limit on the iCar to keep Junior from going more than 70 for more than 15 seconds every 15 minutes. (Junior may need that momentary spurt to escape an accident.)

Ford would like the device because it could segment the market with it—the more expensive the car, the more capabilities in the iCar, and the iCars could be separated on the basis of the attached device, much as differentiates the iPhone 5 from the 4S.

There's lots Apple could do with such a device.

Strange that I have't heard anything about it—and that would sell quickly. You could even upgrade the iCars with each model year. Apple would have secured built in obsolescence. Upgrading the motor? Upgrade your iCar. Etc.

Now, if I can think of that, why hasn't Apple?

Jeff Watson comments: 

If you don't like what's going on, you can always short the stock.

Ed Stewart comments: 

Tying the aspirational Apple brand to something so lame as a mainstream car company seems like a terrible idea to me.

As for Nest, I think about my smoke alarm or other appliances in the home only once every 3 years or so, if that. It is a non-issue that does not solve any significant need. I can handle my smoke alarm without notes from my iphone. Why apple would want to tie in with such things once again seems a non-starter to me, degrading to the brand's appeal. If anything such features could be done through an app of little significance, a side feature among tens of thousands for those who want it, developed by a third party.

I could be dead wrong, of course. One person's strategic brilliance appears banal and foolish to another.

Good thing we can trade and sort things out.

Carder Dimitroff writes: 

I'm not an expert on Apple. I have no idea what they may be developing. However, I do think David may be offering an interesting idea.

Somebody will offer a simple home management system to manage energy consumption. It would take someone like Apple or Google to figure out a simple, easy to use system. It also could come out of somebody's garage.

Pressure is building for consumers to gain control of their energy consumption. Despite low wholesale prices, retail energy prices continue to increase. Regulators are promoting demand side management policies. Intermediaries are happily removing themselves between the consumer and the [volatile] power markets. Smart meters are being deployed across the nation to help consumers become responsive to market conditions.

The setup is nearly complete. A new day is arriving. Consumers will become fully exposed to the dynamics of the deregulated power markets, which operate 24/7 and change every three to five minutes.

The utility will always own the meter and outside wires. The consumer will own everything behind the meter. Creative developers will begin focusing behind the meter and help consumers manage their purchases of electric, natural gas and water.

Residential and commercial consumers will need programmable sensing and control devices. I have no idea what the technology will look like. However, it needs to be simple, buried and invisible to slow adoption consumers (like automobile computers). It also must manage energy consumption without altering lifestyles.

This is more than managing a thermostat. It is about controlling everything on the consumer side of the meter.

Apple and Google are very aware of energy issues. They are aggressively investing in large-scale alternative energy production facilities (solar, wind, fuel cells). Google invested in high voltage transmission lines.

Combining their energy knowledge with their consumer electronics experience suggests they are in a unique position to offer innovative demand-side management technologies. This would include the opportunity to manage massive amounts of data (Oracle is already trying to claim this space). If Apple or Google takes this path is another question.

Apple and Google have already demonstrated that change usually comes from the outside. One fact we know, consumers cannot expect their plain old utilities to develop innovative technologies. The question for me is whether Apple or Google can still deliver an out-of-the-ballpark product.


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4 Comments so far

  1. Stefanie Harvey on October 30, 2013 3:36 pm

    iCar is superfluous. Every major auto manufacturer has both autonomous programs and infotainment departments; the software side is covered.

  2. Bob Bosko on October 30, 2013 7:20 pm

    Have you driven a Tesla or been a passenger in one yet?

  3. Stefanie Harvey on October 31, 2013 2:49 pm

    Bob, not sure if you’re asking me or David, but yes I have.

  4. Orson Terrill on November 4, 2013 7:27 am

    Apple is hardly worth the hair splitting, and here’s why: First compare Apple’s market capitalization performance to their stock performance. The executive culture there looks like they will be getting paid via stock hold dilution for a long time; considering they are also hoarding incredible amounts of cash from shareholders… that’s not a pretty image.

    Apple is hollywood, Google is Silicon valley. Apple doesn’t innovate. They sell the sizzle not the steak. They had an idea (the guts) for a larger phone when everyone was going smaller; creating efficiencies from more integration between software and hardware meant they had a solid 2 year lead for a comparable product. We can romanticize the qualities of manic CEOs, rightfully, but when we do, we lose that these basic plays are what really mattered. Now its Over. Every idea they’ve had in the last decade is the same idea in different sizes. Furthermore, as the net gets faster, computational devices will “hollow out”. There will be less native software, AND hardware. There is going to be less physical product to compete over/with (per item, not in total). Design will matter more; this part of the story is Apple’s bright spot: Lexus not Toyota.

    Of course Apple’s stock is undervalued. Even if Apple came out with products that doubled their sales, there are diminishing returns in the stock itself. That is the nature of mega-stocks, is it not? The rules of diversification ensure that money managers are unlikely to generate the demand necessary to make them expensive, even when they have substantial growth. Consider the structural problem: If Apple were to run to 1 trillion in the next year (100%), that would be equivalent to nearly 30% of Gross Private Savings, yet their stock would have only doubled. Do you honestly believe it is likely to very likely that Apple could triple or quadruple in that time period with that kind of constraint? That would take $500 billion- $1.5 trillion in value from somewhere else; relative undervaluation would become more common amongst other companies.

    At this point, for a medium term speculator it is probably best to buy a Jan. 2016 $500 call, and sell a $600 call for the same month to fund your venture.

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