More than 10 years after the launch of the first iPhone, sales of the device account for more than 60 per cent of revenues; 52.2m were sold in the three months to March; and the top-of-the-range $1,000 iPhone X, at first condemned as too expensive, is outselling cheaper, older Apple models. Awash with cash, Apple was able to increase its dividend and launch a plan to buy back a further $100bn of shares.
Yet the boon of having a successful product, and the expectations that creates, can become a curse if mishandled. Having failed to expand from its highly successful action cameras into higher margin products such as drones, GoPro has achieved the rare distinction of becoming a reverse-unicorn. Its market value has fallen back below $1bn. Eastman Kodak, now a byword for the downside of digital disruption rather than for a century and more of photographic advances, went bankrupt after becoming over reliant on its core line of analogue film. Big pharmaceutical companies are always in a wearying quest for the next blockbuster drug, which makes them prone to regulatory whim, cost-cutting buyers, and rival producers of generic compounds.
The first rule of avoiding smugness about success is not to believe your own propaganda. That is hard for Apple, which has accustomed itself and its fans used to regular showy presentations of its next big thing.
A second rule is to plough back profit from your blockbuster into development of a balancing range of other products. Alphabet is trying to do this on a grand scale by seeding newer businesses with the continuing profit from its core Google search business.
As the Financial Times’ “ Race to a trillion” series has made clear, Apple is ahead of Alphabet, Amazon and Microsoft in the march to a $1tn valuation, in part because of its growing services business, which includes downloads from its App Store, iCloud storage, and subscriptions to the Apple Music streaming service.
It is arguable whether this counts as diversification, given the interdependence of services income and iPhone sales. But the fact Apple investors are starting to think of services as insurance against plateauing iPhone sales is a reminder of the third rule for one-product companies: make sure your investors believe the diversification story. Kodak was unable to shake Wall Street’s conviction that it should go on milking analogue film for profit, long after the company should have won its owners’ backing to invest in lower-margin digital imaging and hardware.
When revenues from the iPhone stop growing, though, Tim Cook, Apple’s chief executive, could look for reassurance to Bloomsbury, publisher of JK Rowling’s Harry Potter books. It just enjoyed an upward spike in its shares on the back of strong full-year profits. The stock has not recovered the peak of the mid-2000s, before shareholders had to contemplate the bleak prospect of life after the teenage wizard had grown up and moved out. But in the two decades since the first bestseller appeared, the group has built a solid portfolio of other assets — and continues to enjoy returns from what Apple would call an “installed base” of fans.
Technology is a less forgiving sector and this is not the outcome that all Apple investors, hungry for the symbolic $1tn valuation, would choose. But it points to the possibility of an alternative ending that does not inevitably involve stagnation and collapse.
Get alerts on Innovation when a new story is published