Where Apple is Most Exposed

While Apple has been sliding a little of late I think you could make a compelling argument that they are near the top of their game with strong growth in most of their market segments. But all companies have hills and valleys. The next few years could as easily be down as up and it’s probably time to take a look at the down side because the Apple Fan base is solidly glued to the up-side.

(For those wondering why I don’t do something similar with regard to Microsoft, I did and you can find it here.)

Why I thought this would be particularly interesting it that Apple’s key assets aren’t just products, they are their unique CEO and their loyal users. What brought the users to mind was an excerpt from a recent book “True Enough: Learning to Live in a Post Fact Society” by Farhad Manjoo. He uses a study done by a number of psychologists on Israel/Palestine behavior to explain the Apple fan’s behavior of blindly supporting everything Apple does and thinking those that don’t “must be licking someone’s balls.”

In the excerpt, even Walt Mossberg is quoted as having been singled out by the Apple fans as being biased against Apple. The folks over at MacUser, clearly not having read the book nor intending to, proved Manjoo’s thesis. MacDailyNews, also not reading the book, even goes further to prove Manjoo’s points of groups using selective exposure and selective selection to avoid uncomfortable truths.

(selective exposure is when a person avoids information they disagree with like not reading the book; selective selection is where they read something but actually don’t take in the parts they disagree with.)

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I should point out the Mac users are just one of many examples – most having virtually nothing to do with technology – that showcase this twisted behavior. It covers bigotry, religion, and politic. I think it should be required reading in school.

The stuff on the 911 and Kennedy assassination conspiracies is worth the price of this book alone. But this is a tech publication so let’s flip back to where I think Apple’s exposures may reside.

The 80/40 Rule

I typically identify products that are important to a company by how influential they are in their respective markets, and attach risk to them to the extent they could become less influential.

At 80 percent and over they are the market. As they drop below 80 percent and approach 40 percent they are at increasing risk, and as they drop below 40 percent, if their dominance was critical to the firm, the sharp decline in dominance can bring the company down.

Also recall that it is the control of the market – not the actual market share – that is important. For instance, in the similar Microsoft piece I link to in the opening I argue that while Microsoft may be dominant with Windows, their mid-year reduction of support for XP effectively drops their control below 40 percent.

Apple’s Crown Jewels

In order of exposure I think Apple has 5 key things that could be called crown jewels but only three are products.

In reverse order of importance they are 5) the Mac Platform (hardware/software), 4) the iPod/iPhone Line, 3) iTunes, 2) the Mac Fan Base, and 1) Steve Jobs. This already starts out being interesting because I’ve never had the CEO pop up in an exercise like this, let alone pop to the top.

Mac Platform: This is not a keystone product (a keystone product is one where, were it lost, it would take a lot of the related products with it) and it hasn’t carried Apple for some time now. It is large enough so that were it lost Apple would feel a lot of pain, but losing the Mac would not necessarily put any of the other key product lines (iPod/iPhone/Apple TV/iTunes) at risk, as they are actually more prevalent on non-Mac platforms.

While not over 80 percent (though the PC market they occupy is a distinct niche), currently Apple has virtually 100 percent of that niche given the distinct differences between Windows and the Mac platform.

The biggest risk to this dominance is the blurring distinctions between the Mac segment and the Windows segment. Initially, because the platform is now surging, this provides significant upside potential, but the larger PC companies are starting to focus on the same value attributes currently driving the Mac.

If they can close the gap they enjoy substantial economy of scale advantages and, in a merged market, Apple would immediately fall well below the 40 percent in terms of share and influence, putting this at high risk.

For now there is more upside potential than real downside risk but that could change quickly.