Ap­ple v Ama­zon: Bat­tle of the ti­tans

The Malta Business Weekly - - INTERNATIONAL -

In early Septem­ber, Ama­zon's mar­ket value briefly went over $1tn, just over a month af­ter Ap­ple be­came the first pub­lic com­pany in the world to achieve such a feat. Both tech com­pa­nies have grown over the last few years, but will this con­tinue?

Ap­ple and Ama­zon are as dif­fer­ent from each other as apples and or­anges.

Ap­ple is a tech com­pany that is also a trendy con­sumer brand. Its com­put­ers and de­vices have of­ten been must-have gad­gets, and cus­tomers are will­ing to pay far more for their prod­ucts than cheaper al­ter­na­tives.

On the other hand, Ama­zon is where people go when they want to get a prod­uct more cheaply, more eas­ily, or more quickly.

Since the iPhone first went on sale in 2007, Ap­ple shares have soared by 1,100% and have jumped al­most a third in the past year.

As for Ama­zon, the in­ter­net re­tail gi­ant has seen a steady, yet speedy rise in its share price, with its mar­ket value jump­ing from $600bn to $700bn in just 16 days.

In con­trast, the same feat took Ap­ple 622 days.

Al­though Ap­ple and Ama­zon of­fer dif­fer­ent prod­ucts and ser­vices, they are both tech­nol­ogy firms and make up two of the five best per­form­ing tech­nol­ogy stocks on the mar­ket - typ­i­cally known as FAANG, which stands for Face­book, Ap­ple, Ama­zon, Net­flix and Google.

Which com­pany has a bet­ter out­look on long term growth? Here's a look at some of the key ar­eas for each firm, and how they are per­form­ing.

De­vice sales

Tra­di­tion­ally, most of Ap­ple's rev­enues have come from its de­vice sales - par­tic­u­larly the iPhone, iPad, iMac and iPod.

Ap­ple only has a 14% share of the global smart­phone mar­ket, yet its rev­enues con­sis­tently dwarf its near­est com­peti­tor.

Ac­cord­ing to Strat­egy An­a­lyt­ics, in the first quar­ter of 2018, Ap­ple cap­tured $61bn in rev­enues, whereas Samsung only achieved $19bn, fol­lowed by Huawei in third po­si­tion with $8bn in rev­enues.

"Ap­ple's de­pen­dence on iOS de­vices has been its strength, but mov­ing for­ward presents its great­est chal­lenge, in that op­por­tu­ni­ties to grow its user base will be lim­ited," Ju­niper Re­search's head of fore­cast­ing and con­sul­tancy Wind­sor Holden said.

"We don't be­lieve rev­enues will de­cline, but the op­por­tu­nity to gen­er­ate sig­nif­i­cant new rev­enues will di­min­ish over time, as in­creas­ingly Ap­ple re­lies on cre­at­ing ad­di­tional value from ex­ist­ing cus­tomers."

Ama­zon has per­formed below ex­pec­ta­tions over the last five years with its de­vices, which include Kin­dle e-read­ers, Kin­dle Fire tablets and Echo voice-con­trolled speak­ers, but an­a­lysts say it can af­ford to do so.

"Ama­zon can sus­tain a model where they can sac­ri­fice mar­gins on de­vices, be­cause they gen­er­ate rev­enue from ser­vices and con­tent," ex­plains Gart­ner prin­ci­pal an­a­lyst Roberta Cozza.

In 2017, there were 1.5 bil­lion smart­phone ship­ments world­wide, ac­cord­ing to Ju­niper Re­search.

How­ever ship­ment growth will con­tinue to slow down over the next five years, since most con­sumers in west­ern mar­kets now al­ready own smart­phones.

Ap­ple also faces huge com­pe­ti­tion in all re­gions from Chi­nese An­droid smart­phone mak­ers, who are re­leas­ing fea­ture-rich pre­mium de­vices which are cheaper than Ap­ple and Samsung's de­vices.

"In a com­pet­i­tive land­scape where you have this level of com­modi­ti­sa­tion and low cost, it be­comes risky for Ap­ple to heav­ily rely on hard­ware sales," adds Ms Cozza.

Con­nected home

One key area of busi­ness growth po­ten­tial is the con­nected home.

Both Ap­ple and Ama­zon have de­vel­oped ar­ti­fi­cially in­tel­li­gent vir­tual per­sonal as­sis­tants and wire­less smart speak­ers, but in this space Ama­zon has a clear ad­van­tage.

Ap­ple's vir­tual as­sis­tant is Siri, and it re­cently re­leased the Home Pod wire­less speaker. Ama­zon's vir­tual as­sis­tant is Alexa, and it has a line of Echo smart speak­ers.ome space

The Home Pod is fo­cused on pro­vid­ing a mu­sic experience, while Ama­zon wants you to use the Echo to con­trol the lights in your home and to man­age your daily life.

And Ama­zon's Echo al­ready has a much higher house­hold pen­e­tra­tion than Ap­ple's Home Pod.

"If you speak to people in the in­dus­try, they say it's a lot eas­ier to work with Ama­zon, be­cause you're deal­ing with a much more open ecosys­tem," says Mr Holden.

"It's be­come very easy for third par­ties to cre­ate apps for Alexa, [whereas] Ap­ple has al­ways tended to be al­most de­fen­sive of its con­trol of the iOS ecosys­tem."

Ms Cozza agrees. She says that Ama­zon has been very ac­tive in push­ing Echo's use­ful­ness in the home, in en­ter­prise and in cars, whereas Ap­ple has not, and has far fewer part­ners.

Ser­vices

When it comes to ser­vices, Ap­ple and Ama­zon's of­fer­ings dif­fer con­sid­er­ably.

Ama­zon is pri­mar­ily fo­cused on ecom­merce, but apart from de­vices, it also sells apps, has a cloud com­put­ing busi­ness Ama­zon Web Ser­vices, of­fers video con­tent stream­ing with ex­clu­sive TV con­tent, and is also in the on­line pay­ments space.

AWS has proved to be par­tic­u­larly lu­cra­tive - it has seen sales jump by 49% to $6.1bn in the sec­ond quar­ter of 2018, and its op­er­at­ing profit has risen to $1.64bn, from $916m in the same pe­riod in the pre­vi­ous year.

Ju­niper es­ti­mates that the cloud com­put­ing mar­ket for soft­ware, plat­form and in­fra­struc­ture-as-aser­vice will be worth over $145bn in 2020.

Ama­zon is the largest player in this mar­ket, with a third of the mar­ket share.

"Ama­zon's strength in the cloud his­tor­i­cally has been the abil­ity to at­tract an enor­mous va­ri­ety of cus­tomers; from large cor­po­rates such as Net­flix, to in­di­vid­u­als," says Mr Holden.

"Mov­ing for­ward, it will be a key player in the In­ter­net of Things move­ment, par­tic­u­larly given its wide-rang­ing AWS tools and abil­ity to pro­vide edge com­put­ing ser­vices."

Apart from de­vices, Ap­ple is mostly fo­cused on its Ap­ple Mu­sic stream­ing ser­vice; Ap­ple Pay con­tact­less pay­ments; and sell­ing mu­sic tracks and mo­bile apps on the iTunes Store.

But it could po­ten­tially de­velop other ser­vices.

"Ap­ple has other av­enues - im­mer­sive tech­nol­ogy in ed­u­ca­tion; and think about wear­ables and health­care," says Ms Cozza.

"I think still there are a lot of ser­vices and op­por­tu­ni­ties where Ap­ple can grow."

Long-term growth

Both Ama­zon and Ap­ple are hugely suc­cess­ful busi­nesses, and in fact their joint to­tal worth could en­cap­su­late 25 of the big­gest com­pa­nies in the US.

But which one has the great­est po­ten­tial for long term growth?

Neil Saun­ders, man­ag­ing di­rec­tor of Glob­alData Re­tail, feels that both com­pa­nies will con­tinue to grow, but at a dif­fer­ent pace.

"They're still re­ally ad­mired, but there are con­cerns that Ap­ple won't be able to keep push­ing their iPhone as heav­ily as it has done in an era where there's much more com­pe­ti­tion," he said.

Ap­ple's share price growth has seen a lot of stops and starts, he says. It needs an­other "break­through" prod­uct and a new mass mar­ket to sell to, or its growth will stag­nate.

As for Ama­zon, be­cause it is a younger com­pany than Ap­ple, it still doesn't have an es­tab­lished pres­ence in many coun­tries, so it has more room to grow than Ap­ple, which al­ready has a global cus­tomer base.

"Ama­zon is much more of a mass mar­ket player than Ap­ple - with some in­stances you could use Ama­zon ev­ery day," he said.

"With Ap­ple you would only buy one prod­uct a year. Ama­zon has a much big­ger po­ten­tial to scale up than Ap­ple."

On the down­side, both com­pa­nies have grown so large that they now face the threat of reg­u­la­tion from a num­ber of gov­ern­ments, to say noth­ing of ad­di­tional tax­a­tion.

Still, the con­sen­sus is that Ap­ple and Ama­zon's for­tunes are un­likely to be dented any­time soon.

"Both com­pa­nies are fac­ing is­sues around reg­u­la­tions. There are is­sues about tax­a­tion, but if it comes down to a straight fight be­tween Ama­zon and Ap­ple, then given that Ama­zon has these var­i­ous strong strings to its bow, then ul­ti­mately my be­lief is that Ama­zon will win out," says Mr Saun­ders.

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