Reality Absorption Field: Apple Shrugged

Like other public companies, Apple is judged by financial analysts on its ability to maintain and improve unit volumes and revenues, market share and margins. But since it would be difficult for Apple to substantially increase its share and profitability in many of its categories, what Apple is really judged on at a macro level is its ability to disrupt, launch and capture the value in product categories.

In this, the company isn't quite alone; Amazon and Google, for example, are also expected to be disruptive, but each flanks Apple. Since it has to run on the tight margins of an Internet retailer, the expectations of Amazon are not as broad as they are for Apple. Its current obsession, for example, seems to be trying to kill Netflix. On the other hand, much has been made of Google's moonshots such as the self-driving car (and surely many more behind lab doors). These represent amazing, even inspiring, research efforts that may demonstrate Google's commitment to innovation to investors. However, it's impossible to tell when they may have an impact on Google's short-term financial performance.

Apple, on the other hand, is expected to not only invent or reinvent new categories, but ones that represent the next great successive growth curve for the company. At the risk of comical understatement, this is not so easy. Take, for example, the alleged Apple watch. Wearables appear to be the only way to do to the smartphone what the smartphone did to the PC; this explains Google's interest in the market.

The manifest engineering challenges include design, input methods and a long battery life. But Apple must go beyond that to satisfy the Street. It must show that this is a market the size of the next iPod, iPhone or iPad and that it can enter it with a product that carries comparable margins. Furthermore, it must show that it can reinvent the rules of wrist wear to the point where it can defend an opportunity that will attract a host of competitors from out of the woodwork.

It would not be in Apple's nature to shy from such a challenge with a product, but it also would not be in Apple's nature to ship that product before it's right. This is not to say that Apple doesn't substantially revise products after their release, e.g., AppleTV, but it's rare that the company is expected to get something right on the third try as in Microsoft lore.

Unfortunately, the Street hates that as well. You know how Apple keeps missing shipping dates for its watch and TV? And how those are the only two game-changing products it could possibly be working on? Of course you don't. But some of financial analysts seem to believe both of those scenarios to be true. Management teams should be scrutinized, but there will certainly be no letting up on fundamental skepticism regarding Tim Cook's team until it can create the next sea change opportunity for Apple.

To stay focused on the products that have meant success for the past 15 years, Apple must show the apathy of the honey badger when it comes to stock price changes driven by such skepticism while its financial results are sound. Until then, the most reassurance one can derive is in the imminent Mac Pro. While it is in a category that will make a seismic difference to Apple's revenue, the scope and ambition of its redesign is a signal that Apple intends to keep capturing imaginations as it captures revenue.

Ross Rubin is principal analyst at Reticle Research, a research and advisory firm focusing on consumer technology adoption. He shares commentary at Techspressive and on Twitter at @rossrubin.

via TUAW - The Unofficial Apple Weblog

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