Prediction: Apple's next wave of growth will be driven by services.
The Techcrunch post today around AAPL shares slipping sounded familiar and prompted a quick search for the last time I’d read the same thing. My research turned up 2005, Apple had been on a tear driven by iPod growth and analysts were predicting market saturation and forecasting slower growth. Shortly afterwards, Jobs announced a switch to Intel chips for the entire Mac line and Apple growth resumed. Shares dipped briefly in 2006 when analysts started getting nervous about the transition, but they have gone up since to stratospheric heights.
From a hardware standpoint, it’s difficult to see where new growth could come from. Intel’s roadmap doesn’t have anything amazing happening on it till mid 2009 with the introduction of Nehalem so that will limit big power boosts for the Mac and Macbook lines. The iPod line has fully integrated video, phone and internet and Apple TV has also been upgraded recently. From a software standpoint, Leopard is still pretty new and so it’s clear why analysts had pinned so much hope on new revenues coming primarily through AT&T.
With (relatively) disappointing sales, it does appear that Apple has few avenues open now for the kind of growth investors are demanding. However I think they may be missing the imminent launch of the App Store which will enable purchase and downloads of native iPhone and iPod Touch applications over the air.
While Jobs has claimed they aren’t looking to make any money from the App Store, this also is very reminiscent of the position he took with iTunes and we all know how that one went. I think the App Store will unlock completely new value for the iPhone and iPod Touch which will ignite sales for both. But I also think that the App Store is likely to be a surprise revenue generator as well. Unlike iTunes where sales are for one time transactions, many of the applications are likely to be recurring services. As far as I know Apple hasn’t made any announcements around how they’ll handle services revenue through the App Store but if they continue to take 30% of the revenue it could add up fairly quickly.