Apple's Next Act (Part 1): A Heady "Vision"
The Apple Vision Pro is not just a $3,500 gadget...
In August 2020, Apple Inc. AAPL 0.00%↑ made history: It was the first American company to achieve a $2 trillion market value.
Apple’s success formula was simple and powerful: Invent products folks didn’t realize they needed — but fell in love with once they had them. And create a technology “ecosystem,” so that each of those gadgets worked together … seamlessly … and in a way that created rivers of accompanying revenue.
That strategy has worked … for years. Every time it seemed like growth would stumble, Apple would invent something new to ignite its next profitable run. From the Macintosh to the MacBook to the iPod to the iTunes store to the iPhone to the iPad, Apple kept proving it had something new and cool “up its sleeve” to answer the question: “What’s next?”
We’ve reached another of those junctures … another one of those “what’s next for Apple” moments … as the iDevice king faces:
Four straight quarters of slowing sales;
Declining iPad and Mac sales;
Shrinking sales in AirPods;
Flat-lining sales and increased competition in Greater China — Apple’s third-largest market and its key manufacturing hub.
Investors want to know: What will power Apple’s “Next Act?”
It’s a fair question. And it’s one that can’t be decisively answered right now.
That’s why we have to watch out what’s playing out right now with the Apple Vision Pro headset.
The “Visionary” Path
Apple’s strategic “vision” for the $3,500 Apple Vision Pro is more about augmenting the world around us — what the digerati refer to as a “mixed reality.” That’s very different than the “alternate” (i.e. “digitally remastered,” or fake) reality that’s the goal of the rivaling Quest headset invented by Meta/Facebook (META).
Think about Apple’s strategy this way.
Up until now, you’ve used your iPhone or iPad to get the latest football scores, stock prices or headlines, check your emails, peruse Facebook or Instagram, play games or stream “content” like music, TV shows and movies .
But if you don a Vision Pro headset, you can rev up your experience in much the same way a triple expresso will rev up your metabolism.
In a work environment, it’ll be like having multiple monitors to bounce between — except you’ll be wearing those monitors, meaning they’ll accompany you wherever you go.
With pictures, the Apple Vision Pro is the company’s first 3D camera — with a panoramic potential that can transport you from an office in Maryland, to say, a vacation you took in St. Petersburg, Florida.
With TV shows, movies and gaming, Apple says the Apple Vision Pro turns any room into a personal theater.
(You can watch Apple’s demos for the vision Apple Vision Pro here.)
The Apple Vision Pro is “Apple-centric.” It not only taps into that aforementioned Apple ecosystem, it improves it. And with a magnifier potential not seen since the iPad debuted in 2010.
The Ecosystem Playbook
When the iPad launched, the buildup was massive. To the Apple naysayers, it seemed downright excessive.
Those naysayers said the iPad seemed an “in-between” product — too big to fit in your pocket or purse like an iPhone, but too small for the work you can do on a Mac or PC.
Those naysayers came out of hibernation again when the Apple Watch debuted in 2015 — dismissing it as an expensive wristwatch with derivative features.
But they kept overlooking the loyalty of Apple devotees — and the power of that ever-growing ecosystem. Indeed, one report found that 27% of Apple users own three of four of the following devices:
· iPhone
· iPad
· Mac computer
· Apple Watch
An additional 30% owned all four of those products.
Once you’re in an Apple product, you’re in that Apple ecosystem — a “world” in which the iDevices all connect and work with each other. You can begin a task on your Mac at the office, review it on your smartphone during a lunchtime doctor’s appointment and use the iPad on your nightstand to give it a final check before sending it along and “switching off” (your lights and your brain) for the night.
No matter what device you are using, you can easily access photos, messages, and your favorite apps.
The iPad gives you a bigger screen to watch a movie on a plane ride.
The Apple Watch lets you leave your phone at home when you take your afternoon run (while still staying in contact with your family or your job).
The iPhone is a pocket-sized, do-it-all/carry-it-anywhere computer.
And the Apple Vision Pro is being positioned as another of these ecosystem “extenders” — and is next-level in terms of “augmented reality.”
It’s the “Too Expensive” Argument (Again)
One of the biggest criticisms of the Apple Vision Pro is its $3,500 sticker price.
And that’s true.
Instead of the headset, you could buy two iMacs and an Apple Watch Series 9:
And those same naysayers claim that “rival” offerings are cheaper (for instance, the Meta Quest 3 headset sells for $500).
Over the next few years, it’s likely to play out as more than just a “price” story. Because all Apple products work together, there’s no need for (yet) another password. No need to download different (clunky) browsers. You can stay inside that legendary ecosystem. You get great features — like 3D photos. You know that Apple will keep making it better, adding exclusive features. And you know that, as unit sales climb, unit prices will fall.
What’s Ahead
The skepticism before the Feb. 2 Apple Vision launch was understandable.
Analysts at the Los Angeles-based Wedbush expected Apple to sell 150,000 headsets in the first year. At a predicted 1.5 million, the Bank of America BA 0.00%↑ forecast was 10 times higher.
A Jan. 22 report from MacRumors shared that an Apple analyst named Ming-Chi Kuo estimated that Apple’s headset sales during its pre-order weekend were between 160,000 and 180,000. And Statista.com forecast sales of 350,000 units here in year one, 1.5 million in year two, 3.6 million in year 3, 9.3 million in year four and a full 12.6 million in year five (2028).
With such a massive forecast disparity, it’s a total guessing game as to what to expect at this early juncture. We don’t know what sales or production volumes will look like. And Apple maintains Fort-Knox-like security about production costs, so margins and profits are impossible to handicap.
Even so, as Mac Observer writer Ronin Thakker says: If the more-aggressive predictions pan out, “Apple might do to headsets what the iPhone did to smartphones.”
So track the “buzz.” See what reviewers, trade journal writers and early adopters are saying. Analysts will use that as an “input” in their next forecasts. As sales ramp up, Apple’s unit costs will moderate, margins will surge and the “sticker shock” will likely disappear.
Key questions will get answered — including the biggest: Can headsets become a “mainstream” hit?
Or will it end up as niche purchase for gamers and deep-pocketed gadget freaks?
For crucial context, I turned to my personal network — specifically, Dave Zeiler, a friend, colleague and a collaborator for 25 years and counting — and a tech guru who was an early independent Bitcoin miner (when it was still possible for individuals to do that).
He’s also a longtime expert on Apple.
Dave was a journalist for more than 35 years — half of that stretch at The Baltimore Sun. During his time there, Dave had a specialized blog that focused on all things Apple. The blog eventually became a nationally respected, “must-read” endeavor; the company itself would actually reach out with news items.
(Something really cool: Dave’s work was so respected that he was granted an in-person, one-on-one interview with Apple co-founder Steve Wozniak; and that interview with “Woz” was actually picked up by international news outlets.)
Dave’s part of my “network.” And here as we build the SPC community, I’ll share expert insights from my network with you.
Starting with this multi-part report on “Apple’s Next Act.” I asked Dave for an early assessment of the Apple Vision Pro.
Here’s what Dave shared:
“Bill, if there’s one thing I’ve learned about Apple, it’s this: Whenever you’re faced with the ‘over/under,’ take the over. Now, I grant you … the Apple Vision Pro is kind of a ‘toe-in-the water’ product. But one that Apple clearly sees a future for. The company dropped about $100 billion on R&D over the past five years — and one report estimated that at least $20 billion of that went into the headset. You can see the payoff … Apple says it’s filed more than 5,000 patents related to Vision Pro.
Apple doesn’t make that kind of investment — or set up that kind of intellectual property protection –unless it sees a major payoff down the road.
Granted, that payoff will take a few years … but that’s okay … that’s what Apple does … it ‘plays the long game.’ That’s a perfect descriptor of the ‘ecosystem strategy.’ It plays the long game … a strategy that supports, adds muscle to, and feeds off of itself. The Vision Pro won’t supplant the iPhone as a top source of profits anytime soon … but it doesn’t have to. It just needs to make the Apple ecosystem bigger, more-productive and more valuable. As Apple develops the Vision Pro as a product – and gradually lowers the price tag – you can watch as it evolves into a key contributor down the road.
For now it shows Apple isn’t resting on its laurels despite its success. Apple knows as well as anyone that tech companies must keep innovating to stay relevant and maintain growth.”
Now you see why – with Apple – Dave prefers to take the “over” on wagers about products or company success.
It’s not a “sure thing” – nothing is – but the odds of Apple finding a way to win are always good.
The point of this “research exercise” — to borrow from and paraphrase Apple’s 1997 “Think Different” campaign — is to think differently about investing.
For most folks, the launch of the Apple Vision Pro is just a news event. But for us — the folks who want to invest their way wealth — the headset is part of “Apple’s Next Act.” It follows the ecosystem blueprint that’s powered the company for years: The company invents a new device to expand its ecosystem — and and finds new sources of revenue to keep the dollars rolling in.
Here in Part 1 of our “Apple’s Next Act” special report, we shared a rundown on the company’s newest ecosystem addition.
In Part 2, we’re gonna delve into a “Next Act” revenue stream that holds a lot of promise.
You can access Part 2 here.
See you there …
