Apple – Nokia moment?

Apple will be hoping that the Metaverse goes nowhere.

• Apple has no choice but to go all-in on the Metaverse because if the Metaverse does replace the smartphone and Apple does not have a compelling offering, then it will suffer a similar fate to Nokia between 2007 and 2015.
• As things are today, the smartphone is the centre of the digital universe and all other digital devices orbit around it.
• It is the primary device where users spend their digital lives and everything else must work with the smartphone or wither and die.
• The proponents of the Metaverse aim to change that with compelling hardware, software and services that will mean that many of the services that are enjoyed on smartphones today are better consumed somewhere else.
• At the moment, this is most likely to be some form of head-mounted (or brain-mounted if Mr Musk gets his way) device where the Metaverse is overlayed onto the real world and can interact with it.
• This is by no means a foregone conclusion but given the levels of investment that are being poured into the Metaverse across the entire sector, there is a real possibility that the Metaverse does fulfil its potential.
• This uncertainty is why RFM Research considers two scenarios in its Metaverse research; one where the Metaverse succeeds and one where it remains a niche oddity (see here).
• However, this is a risk that Apple cannot afford to take because if it does take off and Apple does not have a compelling product with which to replace the iPhone, then its business will decline into oblivion.
• Furthermore, all of the other products that orbit the iPhone would also struggle as they would have lost both their anchor in the digital ecosystem and the cohesion of iOS.
• This is why I am certain that Apple is working full tilt on a Metaverse related product and the rumour that something has been demonstrated to its board comes as no surprise.
• I also suspect some hints to be dropped at WWDC 2022 as well as a renewed focus on AR in particular.
• Assuming that the Metaverse takes off and Apple is ready with a product, it still represents a period with the greatest level of risk that Apple has faced for over 20 years.
• This is because when it came into the smartphone business in 2007, it had nothing to lose as it had no legacy to protect.
• In 2028 or 2029 which is when RFM Research thinks that the transition may begin in earnest, this will be a very different story as Apple will be in the same situation that Nokia was in 2007.
• One of the reasons why Nokia failed to come up with a decent smartphone was because it had a gigantic (at the time) and hugely cash generative business that it had to protect.
• This made it slow to react and very risk-averse and the same problems are likely to beset Apple when or if the transition happens.
• It is at these dislocation points of a market when leadership changes hands and older companies give way to new and there are plenty of reasons to think that the same will happen here.
• Apple’s best chance of navigating the transition successfully and ensuring that iOS becomes rOS (reality operating system) with its share intact is to invest heavily now and ensure it is ready for 2028 or 2029.
• The other thing it must be willing to do is to put its legacy iPhone business at risk by pushing the Metaverse as hard as it can at the right time potentially suffering revenue and profit losses in the short term.
• Failure to take these risks may mean that newcomers out-execute Apple in this area and take over its position as the preeminent vendor of the device where users prefer to live their digital lives.
• This is why deep down I suspect that Apple would prefer for the Metaverse to be a total failure and that users continue to spend all of their digital lives on their smartphones.
• This would mean no market dislocation and virtually no chance of any upstart nipping in and stealing its crown.
• However, for the next 6 years at least, it looks like pretty plain sailing for Apple in terms of market share, but the big problem is going to be growth given how mature the smartphone market has become.
• Apple has corrected 24% from its highs making it an outperformer as far as much of technology is concerned but it is not enough to put it back into the value territory where I would be tempted to buy it.