Is There Opportunity in Automotive?
I don’t necessarily think that Apple has to find another iPhone-sized business. Exxon still sells oil and Toyota is still mainly peddling cars. Large corporations find that these hugely successful product lines become all-consuming, making it difficult to spread their time and attention.
I do believe that Apple should stay on the forefront of predicting what smartphones could morph into. That’s why the Apple Watch, Airpods, and augmented reality are so important.
But I hear a fair amount of criticism from Wall Street asking why Apple doesn’t dive head first into automobiles. Easy for someone with no risk to themselves to ask. That’s like telling your co-worker he should invest his life savings into a long-shot startup business.
But if you take a non-emotional survey of the automotive industry, how much opportunity is there for Apple? If you look at the largest automakers in the world, there’s only one automotive company that is even able to bring in more revenue than Apple. Outside of the top three automakers, all other car companies bring in revenue that is only a fraction of what the iPhone does.
Are Wall Street analysts thinking that Apple could immediately become one of the largest automakers in the world? Are they going to be uncharacteristically patient and give Apple ten years to build their manufacturing infrastructure and claw their way to the top? Because to “be the next iPhone”, creating a business on the size of even Honda Motor Company isn’t going to do it. It’s going to be panned as a dismal failure.
And I haven’t even touched on the distraction it would be. In the manufacturing world, we have a saying: “complexity breeds cost”. The more movable parts a product has, the more you need to spend on manufacturing, overhead, and warranty costs. Playing with that phrase, I would propose that “complexity costs focus”, meaning that the more complex products are, the higher cost you will pay with people power within your organization.
Apple and Toyota are comparable in terms of top-line revenue. However, Apple has double the gross margins that Toyota does and less than half the administrative costs. A lot of this difference is because Apple owns their retail presence while Toyota uses dealerships.
But I hear a fair amount of criticism from Wall Street asking why Apple doesn’t dive head first into automobiles. Easy for someone with no risk to themselves to ask. That’s like telling your co-worker he should invest his life savings into a long-shot startup business.
But if you take a non-emotional survey of the automotive industry, how much opportunity is there for Apple? If you look at the largest automakers in the world, there’s only one automotive company that is even able to bring in more revenue than Apple. Outside of the top three automakers, all other car companies bring in revenue that is only a fraction of what the iPhone does.
Are Wall Street analysts thinking that Apple could immediately become one of the largest automakers in the world? Are they going to be uncharacteristically patient and give Apple ten years to build their manufacturing infrastructure and claw their way to the top? Because to “be the next iPhone”, creating a business on the size of even Honda Motor Company isn’t going to do it. It’s going to be panned as a dismal failure.
And I haven’t even touched on the distraction it would be. In the manufacturing world, we have a saying: “complexity breeds cost”. The more movable parts a product has, the more you need to spend on manufacturing, overhead, and warranty costs. Playing with that phrase, I would propose that “complexity costs focus”, meaning that the more complex products are, the higher cost you will pay with people power within your organization.
Apple and Toyota are comparable in terms of top-line revenue. However, Apple has double the gross margins that Toyota does and less than half the administrative costs. A lot of this difference is because Apple owns their retail presence while Toyota uses dealerships.
But a lot of this difference is also due to automobiles being more complex than iPhones by an exponential factor. All this complexity means higher cost and more people to manage it. So not only would Apple have a pretty big mountain to climb with generating revenue from automobiles on par with the iPhone, they are going to have to deal with an infinitely more complex and higher-cost product.
Now Apple could probably do it if they decided it was important enough. But they would have to fundamentally change as a company to do it. The whole structure of the company would need to split at the very least to allow for two major business directions.
Many people want Apple to get into automotive because they want a company to make an Apple-like car, carrying through Apple’s philosophy of focusing on the details and user experience. But I say the opposite. Because I like Apple’s attention to detail and focus on the user experience, I don’t want them getting into automotive.
Now Apple could probably do it if they decided it was important enough. But they would have to fundamentally change as a company to do it. The whole structure of the company would need to split at the very least to allow for two major business directions.
Many people want Apple to get into automotive because they want a company to make an Apple-like car, carrying through Apple’s philosophy of focusing on the details and user experience. But I say the opposite. Because I like Apple’s attention to detail and focus on the user experience, I don’t want them getting into automotive.
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