Apple Inc. (AAPL) is among one of the largest tech companies in the world, as measured by market cap, and continues to dominate in the categories that it invented or popularized, such as the smartphone and the tablet. While it seems that Apple is at the top of its game, several weaknesses have emerged that the company should address if it is going to stay on top in this ever-competitive technological environment.
The Closed Ecosystem
Many of Apple’s loyal customers see the company’s tightly controlled software and services as a major strength of the company, as it allows Apple to control all aspects of the devices it produces. Overall, however, this puts an additional burden on Apple’s development cycle as software, security, and many other details become an in-house responsibility.
On top of this, Apple is in the business of running licensing agreements for its content sales, including iBooks, iTunes, Apple Music, and the App Store. From a management perspective, this muddies the water on what Apple should focus on.
The biggest revenue generation comes from hardware, but the closed nature of Apple’s ecosystem forces the company to be in all the other businesses as well. Contrast this to Samsung. By plugging into Android and the rest of Google Inc.'s (GOOG) ecosystem, Samsung can focus on iterating the hardware and innovating on the design of its devices rather than having to police third-party apps or roll out operating system updates.
Pace of Innovation
The high product expectation for each new version or model that Apple has created may ultimately prove to be the company’s biggest weakness. Apple has developed an amazing brand that is associated with products that work perfectly and that are designed in such a way as to feel both advanced and natural at the same time. These high expectations mean that Apple can’t throw experimental products or services at the market without hurting its brand.
This inability to experiment makes it harder for Apple to innovate as rapidly as Google does in the services space or as fast as Samsung in the hardware space. So Apple has to depend on its leadership and employees being so far ahead of the curve that the slower release schedule still results in Apple leading the market.
So far, Apple’s been able to keep its edge in most of its major product lines, but the size of its lead is getting smaller. At the same time, other tech manufacturers have caught on and are themselves rolling out upgrades and new models on a regular basis as well. For example, Samsung's Galaxy S line of mobile phones sees a new release every year or so now.
The last weakness isn’t unique to Apple, but it has emerged as a big one. The question is whether CEO Tim Cook can provide the leadership Apple needs to stay on top of the device game. Following Steve Jobs is a tough act, particularly when his second run at Apple took the company to the top of the technology sector. Jobs was behind the core products that continue to drive revenue at Apple, whereas the major post-Jobs release, the Apple Watch, has yet to impress. That’s not to say that iterations like the iPhone X or iPhone 11 Pro don’t require leadership, but it may require a different kind of leadership to keep Apple’s reputation for visionary products.
Tim Cook has been able to run the company successfully in his tenure as CEO but there is a difference between running a company that has already established itself as a dominant leader in the market as opposed to running a company that continues to be one of the most innovative firms in the world. Steve Jobs was a visionary, and it was his vision that took Apple to where it is today. People like Jobs are rare, so expecting Cook to be like Jobs will never come to fruition. However, time will tell if he can ensure Apple remains as one of the most cutting edge and innovative companies on the planet.
The Bottom Line
There are hundreds of tech companies that would love to have Apple’s weaknesses as long as they also had its strengths to pull on. These include a massive war chest, a powerful brand, and much of the infrastructure still intact from its streak of hit products.
That said, Apple needs to get back to that pace of innovation it had under Steve Jobs, or the company will not be able to deliver the high expectations expected from its core customers. If the brand erodes, Apple’s competitors will continue to close the gap between its products and Apple's and eliminate the premium that Apple charges for its products and service offerings. Steve Jobs is gone, and Apple needs to keep finding its way without him, something that the company has historically struggled with.