Apple' results, the "experts" and where the puck is going

Apple [AAPL] will report yet another profitable quarter later on today, anticipated at $9 billion plus -- more than Microsoft and Google made in their last quarter combined. So naturally, analysts and investors are "preparing for a disappointment."

[ABOVE: Because any day is better with a little Ellen Feiss.]

Wall Street is stupid

That's weird when you think about it, as the story really is that even mid-way through a global depression Apple remains a highly profitable firm, mainly (around 70 percent) on strength of iPhone sales.

It's a shortsighted tragedy that investors are disappointed in Apple's achievements within this environment. They are not unhappy because the company isn't making money, but because the profit it's predicted to book is lower than in the previous quarter for the first time in a decade.

Investors aren't panicking over revenue, but over growth. In the current economic climate, investors are being (or have been) completely unrealistic.

Apple's shares have fallen dramatically as a result of this anticipated disappointment/revaluation, as investors apparently ask themselves stupid questions such as: "Has Apple lost its cool?" or "What new devices could the company possibly introduce that might create new markets?"

Investors needn't worry of course. It's believed the company has a raft of new products on the way -- things like the iWatch, iPhone mini, new iPads and a raft of online services designed to supplement these new product paradigms.

Intelligent investors may want to spend a little time thinking about the latter category -- services. Here's why:

Life after products

Smartphones are becoming commodities.  That's inevitable as Apple's competitive followers choose to deliver products many ordinary folk probably at least see as "informed" by Cupertino's user interface and product design choices.

A plethora of similar seeming devices are now available at varying prices, display sizes, speeds. It's a dizzying task to navigate this fractured market. Windows, Google, Apple all vie for victory in volume sales.

It's a deeply competitive game -- just watch as "sneaky" Samsung engages in its dirty tricks campaign to seize the box-shifting crown. Because it will never be Apple, Samsung wants to become the new Dell, delivering utilitarian devices to a price conscious market.

Devices will become homogenized. The differentiators that matter (at least based on those devices we have available today) will be display size, graphics power, speed, call quality, durability, price and design.

As the tough battling in this market batters brand identities the logo won't be enough to separate one device from another.

We're moving away from making purchasing decisions based on the device itself, and moving toward decisions driven by what we can do with that device.

We're moving toward decisions based on available online services. It will be services that help manufacturers make their devices unique.

Apple has known this for years.

The service industry

Apple critics will note that it has held a patchy reputation for services: .Mac, MobileMe, Maps -- all the "M"-class services have been a bit of a problem for the company. Meanwhile its current service, iCloud, has attracted criticism from some quarters.

Thomas Carlyle called history, "a distillation of rumor." Oscar Wilde once reflected that: "Anybody can make history; only a great man can write it."

The point is that Apple has a history of attempting to create online services. Within that history there's some failures. Failure is inevitable when you attempt enough new challenges -- it's only those who never seize the challenge who never fail. That's just common sense.

When it comes to online services Apple has tried, sometimes failed.

Apple has had some successes too -- imagine the Find My iPhone system if applied to future connected devices in public libraries, hospitals or the home?

  • You'd never lose a book
  • You'd always find your car keys
  • Nursing staff would always be able to find a defibrillator in a hurry, even in the largest institution.

iTunes is another success, up to a point, though the current iteration of the application has all the hallmarks of Microsoft-era bloatware with much-loved features stashed in illogical places. It may be time iTunes was torn apart and reintroduced as specific standalone apps for specific tasks: music, movies, podcasts, shopping and more.

Building blocks

There's evidence that suggests Apple long ago anticipated the move to distinguish connected devices from the competition on the basis of Internet services.

  • When the first iPhone was introduced, Apple's Steve Jobs disappointed developers at first: Apple didn't ship iPhone app development tools, instead it simply urged developers to create apps in HTML5.0. Developers were unhappy, Apple relented and now we have the App Store and a vibrant developer economy. But Job's original plan to use HTML5 hinted at a more open service-driven device vision that was unfortunately too far ahead of its time.
  • Apple's war on Flash may have seemed like something for nothing to many observers. It wasn't. Adobe spent billions to acquire Macromedia and take possession of Flash because it hoped to use it to create an identity in the mobile device services market: however, Adobe's corporate-focused executives failed to make sufficient investment in the technology.

The effect of that lack of investment was that Flash wasn't fit for purpose when the true age of mobile devices began. It consumed battery life and wrapped developer in proprietary technology. Over-dependence on Flash would have stymied the evolution of mobile devices, mobile apps and next-gen mobile services. Flash had to go.

It's instructional that Macromedia/Adobe's Kevin Lynch (who knows his stuff) now works for Apple. His vision for Web services and mobile devices far exceeded the capability of Flash. Apple has invested in his vision.

  • Another big example is Apple's huge investment in vast server farms across the planet. Do you really think the full capacity of these places is vested in people's iTunes media collections, iCloud back-up and email? There's no way that's the big picture.

Put together it's hard to avoid the conclusion that Apple has been making significant investments in putting together the infrastructure it will require to deliver a series of unique services designed to differentiate its devices from the competition.

What might these be?

iTunes music streaming and a vast new mobile payment system make sense. Extension and improvement of iCloud services also seem inevitable. Siri will become ever more capable as the evolution moves along.

When it comes to Apple's next-generation products (iWatch, for example) I imagine we will see the company provide a range of powerful services navigated by touch, gesture and voice, all supported by these vast server farms.

These plans could also involve development of solutions for the connected home as the company seeks to forge position in the emerging M2M markets.

Whatever these services might become, Apple surely recognizes it will need to deliver services that match or exceed those available elsewhere. It is to be hoped that Jony Ive's design team will be able to offer up these new breed mobile services in as human-centred a fashion as its devices have become.

It's important he does, as the future of Apple depends on its successful evolution from being a device-centric firm into a services and solutions provider -- unless, of course, Apple thinks different.

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