Apple: Better, Faster, Cheaper Is Not Disruptive Innovation, But Is That OK?

| About: Apple Inc. (AAPL)

Summary

It's hard to find anyone who is excited about what Apple put forward this week.

No great new feature that would simply make all those Android users pale with envy.

Is Apple no longer the disruptive innovator out to change the world? We will have to wait and see.

Yesterday, Apple (NASDAQ:AAPL) had a big press conference. It is the kind of thing where historically Apple showed off new products that drove a lot of excitement, sales, profits and equity value improvement. But yesterday, well, not so much.

A lot of people like to pick on Apple, and in tech the platform, and brand, wars are legendary. But this time it is hard to find anyone who is excited about what Apple put forward:

  • A new iPhone SE, which is essentially an updated iPhone 5 with new features, like a higher definition camera. But, most importantly, at $400 it is $50 cheaper than the old 5. So we have a better product that is cheaper.
  • A 9.7-inch iPad Pro, which is smaller than the current iPad Pro - and closer to the size of the original iPad in 2010. But this iPad Pro starts at $599, where the current, larger product starts at $799. So we have a faster product than previously available in this format, and it is $200 cheaper.
  • There is now a new, mesh band available for the Apple Watch. Oh, and the price was dropped $50.

There was no discussion about a new "killer app" that would make the Apple Watch indispensable. No discussion about new deals with retailers to expand iBeacon. No discussion about big deals that would push greater payment volume through Apple Pay. No great new feature that would simply make all those Android users pale with envy.

At day's end, Apple's stock was nearly unchanged. People have become used to seeing these events demo products so fantastic that they simply cannot live without them. However, there was really nothing new at this event. And that is unusual for Apple. So lots of analysts are saying that Apple has lost its mojo. And its P/E (price/earnings multiple) remains moribund around 11.

These announcements were clearly targeted at expanding the market for Apple products. Although its products are icons, Apple does not have 50% market share in any product category. Its products may be cool, easy to use, trendy and often have features beyond competitors, but they also have long been pricey. Very profitable, but also priced high enough that any competitor found it easy to under-price Apple's smartphones, tablets, PCs or smart watches.

Apple's products have always done well with American consumers. But increasingly, the market is shifting internationally and to more business uses. In these markets, price matters. Consumers in many countries simply cannot afford Apple products at their historical price points, even if they love the brand and/or the features.

Likewise when businesses are looking to buy hundreds, or thousands, of devices to replace old, outdated and increasingly failing PCs even a $10 price difference is meaningful to purchasing departments. It's great that Apple's iOS has the most developers and the most apps. And it is great to have large, notable intermediaries building enterprise apps that run on iOS like IBM (NYSE:IBM). But when it comes to actually winning the sale, a lot depends on price. And that has always been Apple's big sticking point.

Some might say that Apple is becoming more like Microsoft (NASDAQ:MSFT). Whether that is true or not will take time to tell. But it is true that this particular event was not about disruptive innovation. It was not about wildly new products that will "change the world." It was about sustaining innovation. It was about "more, better, faster, cheaper" in Apple's ongoing effort to defend and extend its leadership position in several categories. To keep winning, Apple needs to make sure developers know that its products will continue to sell, and sell, and sell (thus the one new announcement, which was a new language for writing health care apps - CareKit.) Apple was showing developers it intends to expand sales the old-fashioned way, by winning more in the trenches against competitors that may not have the cache or features, but have a lower price. Developers won't have to go Android to be price competitive.

And one would hope that the re-engineering in these products will allow Apple to maintain those fantastic profit margins, even at these lower prices.

Will this hurt the Apple brand image? Will the improvements and price cuts be enough to improve international and business sales? Will these changes drive up unit volumes, where softness has caused investors to push down Apple's stock price? Can Apple simultaneously drive wider sales of its products at lower prices, and create new market shifting products? Is Apple no longer the disruptive innovator out to change the world? We will have to wait and see. But this event is one that clearly tees up these questions for customers, suppliers and investors.