During this seismic shift in revenue source Apple’s overall revenue rose from $24 billion in the year ended September 2007 to $42.9 billion in the year ended September 2009. The March 2010 quarter showed $13.5 billion, and so Apple is still growing quickly.
It’s easy to see how the iPhone rose in relative importance to be the biggest earner, and combined with the overal revenue numbers it is clear that iPhone is driving overall revenue growth for Apple. The iPad, meanwhile, may well be the new iPhone and be the main source of revenue for the next few years.
Apple deals in revolutions, and the iPod, iPhone and iPad all created new markets. The iPod is now a small part of the overall business, the iPhone the main part and the iPad represents the near future.
This is classic McKinsey 3 horizons stuff. Here’s how Apple would have seen the world through the three horizons spectrum in, say, 2008, when the iPod dominated, the iPhone was new and the iPad was locked in secret labs.
Apple ensured that there was a continuous stream of new products to replace the older ones in its portfolio. They needed to do this as the fast follower companies quickly catch up with each product category (such as iPod) and make that market too competitive to earn excess returns.
The question for now is what is after the iPad, and in particular what is next that will justify the enterprise value of $209 billion, and a price over earnings (trailing 12 months) ratio of 22.6x. (These are big numbers)
The iPad and iPhone are not enough, as they will eventually be commodities. That’s not to say that Apple won’t have the best products in each class, but the margins will be a lot smaller.
Apple’s valuation implies that the market not only believes the iPhone and iPad will be successful, but also that the next big thing will emerge and be a success as well. That’s a good bet given Apple’s track record, as their design-led approach has given them a sustained product development advantage over their competitors in the last 10 years.
However success in business is hard to hold for a long time, and companies will increasingly copy Apple – not their products, but their design-led approach to business. Being design led is very difficult to achieve, as I’ve seen through Better By Design work with Equip Design, but the results are worthwhile. It’s a long process to be design led, taking years. It’s difficult to do and hard to keep – with Sony’s design-led dominance in the 1990s not carrying over into this century. Companies place design and designers into core roles in the business. It’s hard to find design thinkers that get business and vice versa, but the resulting culture change and the benefits of being design led are increasingly obvious.
Perhaps being design-led will become a business prerequisite. It was not too long ago when lean manufacturing and total quality management were foreign concepts – concepts which are now part of most large manufacturing businesses.
We consumers can only hope.