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3 Ways That Apple Could Stumble: A Higher Ed Perspective
September 4, 2012 - 9:00pm

Apple is now the most valuable company on the planet. It has a market capitalization of $632 billion dollars. A share of Apple stock, bought today, will cost you $675.   

What follows are some risks are I see for Apple. I think that these risks for Apple have been under-reported, and I offer them not as an argument to sell your Apple stock but perhaps as a counterweight to all the Apple hype. 

3 Risks for Apple:

1. iCloud Could Crash: Apple is at the beginning of a long-term project to tie together all its hardware and software, and all Apple customer data, to its iCloud. Having my calendar events, documents, videos, photos, audio files, and photos automatically sync across all my Apple bought hardware is terrific. The value of Apple's hardware platforms increase as they become more integrated. The switching costs for moving off an Apple device grows in proportion to the degree to which apps and content are "locked in" to an Apple login. So Apple is betting that iCloud will tie together your devices, your content, and and your software.   This is a good bet, as long as iCloud does not go offline.  A major security breach could cripple iCloud.  So could a system wide server failure. This risk is shared by Google, Amazon, and Microsoft - no tech company that is using the cloud to tie together hardware, software and content is immune from these cloud risks. On our campuses we are also migrating many of our applications and much of our content to the cloud. We do so, however, mindful that this migration to the cloud comes with risks as well as benefits.  You should factor in these cloud risks as well when you make your investment decisions.

2. Competitor Hardware Could Get Really Cheap:  If you look around my campus you will see that most of our students carry around Apple products.  Not everyone, which is a good thing as a heterogenous environment is a more stable and innovative environment, but the majority.  Mac laptops, iPads, and iPhones are everywhere.  Apple makes a healthy margin on all this hardware.  But what if Google got really serious about pushing hardware out into the market?  Google does not need to make any money on hardware, as Google makes money on advertising.   Could a really cheap and really functional Chromebook turn into a reasonable substitute for my MacBook Air? How low can the price of the Nexus 7 go?   Google could even bundle open source learning materials and open source content, and if they got really smart they could develop a free cloud based Moodle LMS.  Apple's business model is built around hardware not becoming a commodity. But Google could afford to lose money on hardware and make it up long term by capturing eyeballs and data. Amazon might be able to make the same bet, with a content sell business model as opposed to an advertising business model.  How good and cheap will Amazon's new Kindle Fire be when announced later this week? I'm not sure that Apple's hardware is improving as fast as Google's hardware is both improving, becoming integrated with more free cloud based software, and getting cheaper.

3. Content Channels Could Bypass Apple: How much content do you buy from Apple? I don't buy any. My paid content comes almost exclusively from Amazon and Netflix - with Amazon taking almost all my content dollar. Audiobooks and e-books are the big cost, but I also pay a monthly subscription to Amazon Prime at least partially for the bundled digital content. The iTunes music store is no longer particularly relevant to my purchases, and I've never bought a book or rented a movie from Apple. Both consumers and content providers have many choices beyond Apple. As long as Apple can keep selling tons of iPads and MacBooks with high margin then the lack of a compelling content business will not harm Apple. Apple does not need to make money on content, as content drives hardware sales. But if Apple should slip in hardware, if Google or Amazon (or Microsoft) should come out with compelling hardware at lower prices than Apple will not be diversified into content.  Higher ed people are content people.  We like our campuses and our building, but know that they are only important to the extent that they allow our faculty and our students to create and share knowledge.   

What risks do you see for Apple?


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