One thing that staggers the mind is the amount of money Apple has on hand. During last Tuesday’s 3Q earnings call, it was announced that the company has US$76.2 billion cash on hand — actually a combination of cash, short-term investments, and other items that would take an accountant to sort out. While Apple CEO Steve Jobs has publicly stated that “we do feel that there are one or more strategic opportunities in the future” as the reason to have all that money on hand, I thought it would be more fun to think about ways to spend $76.2 billion on frivolous things.
Fun article, but Apple doesn’t buy things frivilously. I’ve felt for a while Apple’s cash position had a larger purpose, that larger purpose being that Apple has plans to buy something really, really big — when the time is right.
What thing?
Think a bit about how Apple has succeeded. It’s succeeded by taking an industry and finding a way to disrupt it; to change the rules such that the industry leaders are weakened and Apple’s position is strong. It did this in computers by taking an industry that was rife with beige boxes and marketing messages around gigahertz and megabytes and convincing consumers it really was about style and looks and getting things done; a computer to use, not a computer to geek, and one that won’t clash in the living room.
Ditto music; it’s hard to remember now, but iTunes and the whole online music thing was a big experiment and risk. But Apple is now the dominant player in music sales not because they took on Tower and Wal-Mart directly, but because they disrupted the industry and shifted consumer demand into areas Apple could sell to where the existing players couldn’t tread. By the time the industry reacted, Apple had taken the business away.
If Apple learned nothing else from the Mike Spindler era, it was that standing up to a 800 pound gorilla and expecting to beat it going head to head is a stupid idea. the real profit is in changing the game, disrupting an industry such that the current leaders can’t compete soon enough to keep Apple from taking a chunk of it away.
So if you want to see where Apple is looking to future growth and new endeavours, look both at what it’s strong at (consumer electronics, large back-end infrastructures, style and finish and design, and strong customer support) and then consider what industries might be vulnerable to Apple deciding to come in and take off a hunk in an Apple way.
What industry has a strong consumer component, significant technology needs, huge back end infrastructures and low customer service rankings? Our friends, the wireless carriers (and secondarily our other friends, our ISPs that feed broadband into our houses).
The problem with taking on carriers is they have all sorts of built in chokepoints: it’s a brutally expensive industry to get into, and even if you have the cash, you have the problem of acquiring frequency spectrums (licensed by the US goverment) and cell tower permits (licensed by local governments full of NIMBY no-sayers), and it would take years to build out a network — all the while, the other carriers would ahve time to see you coming and get ready for the fight. You also need a massive back end infrastructure to manage provisioning, billing, customer service and things like email and the like. And you need to build up the technology to replace existing carriers SIM cards and the inherent lock-in of devices they cause.
But what if you’re Apple? And you have iCloud, a back end infrastructure already designed to support millions of iPhones and iPads? And you have iPhones and iPads, meaning you don’t need to worry about a handset manufacturer leaking your plans to the other carriers. And you have, oh, $80 billion dollars IN CASH hanging around getting bored?
The SIM lockout issue is a problem, unless you’ve developed your own (which rumors have surfaced that Apple is working on). The other entrance chokepoints — spectrum and cell tower placement?
Apple has $80 billion in cash. Sprint’s market cap is about $16 billion (roughly). Clearwire’s is under a billion. Apple could buy a carrier tomorrow — basically out of petty cash — at a good market bump over the stock value so that Wall Street smiles on the deal. Given Apple isn’t currently in that market, anti-trust issues should be minimal. Given financing is more or less “we’ll write you a check”, they won’t need to spend months building up the financing package — they could decide to do this and get the deal closed in 180 days. maybe 90. So fast no other carrier could even issue a press release complaining about it much less try to shift its business to compete against it.
But if Apple were to just walk into this business and act like another carrier? It won’t bother. It doesn’t just want to be “Sprint as Apple”, it’d be “Sprint as leverage to take over the industry” because that’s what Apple does best. So it won’t just buy a carrier to act like a carrier, will it?
Imagine this scenario. Apple announces a deal to buy Sprint (and for the hell of it, Clearwire). It announces that you will be able to buy iPhones with an Apple custom SIM in them, either on contract/subsidized, or off contract and unlocked. If you want to just buy a sim and put it in some other phone, Apple will sell you service, happily, month to month, pre-paid. whatever works. They add provisioning and account management for this to iCloud. Going to Europe? log in, buy a block of minutes in the countries you’ll be visiting, and Apple acts as the wholesaler for it. (goodbye, evil overseas roaming rates). Make buying minutes as easy as buying the new Coldplay album. if you want subsidized phones and bundles, cool. If you want to pay by the minute or pre-pay. cool. Lots of data? really cool.
Sprint would give them the spectrum to prevent carriers from freezing them out by refusing to let them buy minutes off of the other networks, making them a player in the business. There’s no need for Apple to use that spectrum the way sprint did, they can reshape the business away from the “locked in phone long contract” model endemic in the US in favor the european model. They don’t even care if it’s an iPhone or another model – just plug in the SIM and they’ll sell you network (of course, if you buy an iPhone, they make even more money).
Apple could walk in, buy sprint, disrupt the entire wireless industry and if they do it right, grab a huge chunk before any other carrier could react to the changes. And do it for $30 billion or so, leaving them another $50billion in the bank for investment in the infrastructure or to buy other toys.
If this is such a good idea, why hasn’t Apple done it already? First, they’ve needed to build out the iCloud infrastructure, and that’s still ongoing. That North Carolina datacenter has plenty of cycles, but they need to get the software in place and get it ready for the provisioning. Lion/IO5/iCloud are the first pieces that make this possible. They’d have to get all of the infrastructure pieces ready, though.
Second reason they haven’t? It makes no sense to make a move into being a carrier now, at the tail end of the “3G era”. The real 4G (not the faux-G being marketed right now) is just rolling out. My guess would be Apple would do this when it could make a national 4G presence and not worry about a 3G legacy customer base, and put all of its investment in building out and upgrading the 4G network. Even though the first true 4G phones are hitting the market, 4G networking is still not quite ready for prime time in enough cities; but in six months? 9 months? it’s coming. If I were Apple, I’d wait until 4G was reasonably well rolled out and then make a move like this. Not before. but definitely, 2012 is a sweet spot for being rolled out without allowing the other carriers to get entrenched in 4G.
If Apple were to do this right, there’s a huge opportunity to disrupt another industry and make a huge amount of money out of the disruption. Even if Apple maintains most of the existing carrier model — simply having a company with working web sites and billing that’s not byzantine and networks that work would be a huge competitive advantage (and Apple, if nothing else, would not tolerate mediocre networks with its name on it).
But there’s one other opportunity for disruption this would create. Remember I keep mentioning Clearwire? they’re a big piece of Sprint’s 4G buildout strategy, but this is also a “last mile” wireless broadband network strategy as well. Think about one of Apple’s big risks in it’s shift to the cloud — it’s ISPs and the growing shift towards data caps and “managing” network traffic.
So what if Apple not only went into the carrier business, but leveraged that to go into the wireless ISP business? Offered you 4 megabits down for half the price of Comcast, using 4G wireless and with no data caps? You think that might put a dent or two in the copper ISP plans to go to tiered (and increasingly expensive) usage based pricing plans?
Hmm.
do I think this is likely? Absolutely not. This isn’t rumor, this is just raw speculation, based on a few nights talking with friends over some really nice bottles of wine, and a few random intersting rumorlets about Mama Fruit. And, frankly, a wish for a wireless carrier that didn’t make me feel like an enemy, or at best a number. If you look at the wireless carrier industry, it’s ripe for a disruption — but doing so would be exceptionally difficult and expensive. Not many companies could do it, because not many companies have both the technology background, consumer experience, and capital available to make the investments to walk in and deal with the roadblocks in the way.
Apple, and it’s $80 billion dollar war chest, iCloud infrastructure and consumer savvy, seems to be the one company that could do it. If it chose to. And even if it took a $50 billion dollar total investment (more than twice what sprint is currently worth) — it still have a huge cash hoard to do things with.
So, no, I don’t think this is likely. But it’d be fun to watch the screaming if they try it, and I wouldn’t bet against them succeeding. And if nothing else, it’s a fun speculation to try to work out the details and see if it still makes sense when there isn’t a Barolo involved.
(have fun, don’t think too hard…)
