Monday, June 25, 2007

Why AAPL Will be Higher in 5 Years

Disclosure: I'm almost always wrong 20% of the time. I use the 80-20 rule and strive to have 100 opinions a day. Usually at least 20 are wrong. It's an absolutely fantastic way to learn though. When it comes to the stock market, while my opinions are fewer, I'm probably only right 20% of the time. But I think this is the 1 out of 5.

Why I love Apple Computer

I'm sure my friend Bill G. and my old friend Mark Hurst will get a chuckle out of this. They'll ask me what took me so long. But this isn't about the reasons they love Apple. They actually love the computers Apple makes. Bill G., he couldn't care less about an iPod, bizarre as that may sound. I can go more bizarre. Hurst didn't even own a TV when I met him. I finally talked him into letting me dump an old 20" set on him before I moved to California. I played up the fact that he sometimes liked movies and he could hook a VCR up to it (these were still pre-DVD days). Much has transpired, and I'm pretty sure Hurst has a TV now, but…I wouldn't bet any money on it.

Bill and Mark have their reasons for loving Apple. I have my own.

Steve Jobs. He really does have that vision thing. there is much more in the 'read more..'

Real Steve Jobs. He's the only executive out there on a large scale that I see as really being ahead of the curve. His quest for total world domination is just beginning. The iPhone will have to be a huge flop which is possible, I suppose, but I'll be surprised. What I think will happen is the phone will have some issues, but they'll get addressed in V2 and the juggernaut that is Steve Jobs and Apple will just keep juggernauting.

Here's one way he's ahead of the curve. Nice handheld device that works with WiFi that (allegedly) has a relatively good battery life. This reason alone has me considering V1 very strongly. Because of Steve Jobs I will almost certainly be saying bye-bye to Verizon as my cell phone provider.

Verizon doesn't offer WiFi, though they do have a fairly fast network for accessing the Internet from your phone. The phone I have will absolutely stream windows media. Except that Verizon blocked that from regular Internet Web access. Verizon wants you to pay $14.95 a month for its VCast service with a very limited offering. Verizon will try to tell you that the offering is not limited, but quite robust. But it's not.

My basis of comparison is that if they would have just let me stream via the Windows Media Center, I could've had access to every channel of my cable box, everything stored on my DVR and everything in my media library (music and video). VCast is not robust compared to a scaled down cable or satellite offering, it's certainly not robust compared to what I have access to. It's really not robust compared to anything other than itself.

Verizon would have been better off selling freaks like me who are way, way ahead of this curve unlimited access to its network for $14.95 a month. I would've paid for it and probably wouldn't have wound up using it much at all. I can tell what a hit success VCast has been by looking at Verizon's last quarterly report (for the period ending 3/31/07). There is exactly ZERO mention of VCast in the earnings report. My guess is when the numbers come out for Q2, again, there will be ZERO mention of VCast. And that I would be willing to bet on. $100 anyway.

Now the iPhone comes along. I don't care about how fast AT&T's network is for data. I don't care that there's no 3G – because it has WiFi. In San Francisco WiFi isn't quite ubiquitous, just nearly so much so that usually I wouldn't notice the difference. The iPhone solves 2 problems: one it's a handheld multimedia device AND a hand held Internet appliance that will work pretty much wherever I am. If it works anywhere near as well as advertised (which is by no means a given), it will be a huge success.

There is the small problem where I switched from what was AT&T (Cingular) to Verizon because although I live in an urban area, when I had Cingular I rarely got any bars in my home. Hopefully they have corrected that by now.

The launch of the iPhone kills VCast off as far as I'm concerned and it was dead on arrival to begin with. This is no big deal. Verizon doesn't do "that vision thing", but what telco does? Verizon had a chance at the iPhone and initially I thought they were smart for passing. Jobs wants Apple calling all the shots. I wonder if Jobs talked AT&T into including the Apple logo on the monthly statement. That would make the transition more seamless when they get around to taking the AT&T logo off. Ok, I jest. Kind of.

Killing a deader than dead VCast is no big deal, but this is: Apple's iTunes Store is now the 3rd largest retailer of music, passing Amazon. That's right, someone selling DIGITAL music, is the 3rd largest retailer of music. Apple has about 10% of the market (9.8%) trailing only Wal-Mart (15.8%) and Best Buy (13.8%). All this really means right now is a few things:

  1. Digital music sales represent at least 10% of the whole pie
  2. Distribution is so fragmented that you can have 10% of the overall market and be in 3rd place.
  3. If you make it easy and make buying music a good experience, a lot of people will buy it digitally instead of steal it digitally.

The CD isn't dead , Amazon and Target (#'s 4 & 5) still combine for more sales than Apple, but that's the trend. And it's way, way early days for that trend as far as video, but that's going to be the trend with that as well. Everyone who likes more flexibility and control over their media and is not change resistant will want their media in digital format to begin with. There are always those resistant to change. But you wait them out and they either change or die. The world moves on either way.

It's going to be at least 5 years before Apple rips me off and launches the "Put your TV on your iPod/iPhone" campaign, but I still believe that's what Steve's Little Hobby™ is all about.

Microsoft didn't design for this kind of stuff, not even when it set out to compete with the iPod with the Zune. The Zune does have WiFi built into it, but it's old school 802.11b. Not only that, they didn't turn on real live Internet access (you can talk to another Zune apparently, if you could find…another Zune, but you can't browse the web).

The Zune would've made sense to me as a portable media device if it had enabled WiFi. It's got a nice screen and it works fairly seamless in terms of "synching" with a media center. But I am near a half terabyte in media storage, and growing. The Zune can't hold all that or do "live tv". But the iPhone can.

There are other portable media players that are missing the boat too. I saw a very nice one from Archos, but they want you to use their software. It does have WifI, and it's got a nice screen, but a few things. One thing the good old pre iPhone iPod has taught me. I don't need a bigger screen to enjoy video remotely. The Archos is slick, but it's not going to fit into my pocket any more comfortably than a PSP (and perhaps less comfortably) and that's not all that comfortable really. But the Archos doesn't want to hook into my media center, it wants to hook right up to my cable box and use its own DVR docking station to record programs. If I were starting from scratch today with portable media, I might give it a look.

With Apple, I won't have to. Apple is making the first handheld device I can use to stream video. I know, there are handhelds that do this now. I have one. It's an iPaq and it does a nice job but the battery life wasn't very good at all with WiFi enabled.

The battery life is key to me. But if I can get an hour of WiFi access to browse or stream and still have a couple of hours of talk time, I don't think the battery life is an issue. If I stream video for an hour and won't be able to use my phone afterwards, that's a problem. For those who have continuous access to chargers that might not be a big deal. The iPhone still beats the other handhelds though because of the form factor. From the looks of it, it has a much better form factor for my pocket than even the 80GB Video iPod, and that has a way better form factor than any other portable device I have (besides the Nano, of course).

I don't see 40 million people running out and buying an iPhone for $600. But if you ask me in 5 years if I think there will be 20 million iPods/iPhones out there that do WiFi in a nice form factor, the answer is yes. That assumes some non-phone version that has similar features (the bigger touch screen, internet access via wifi, etc).

And in 10 years? In 10 years you'll be reading about how iTunes is the #3 distributor of music and video (and of course #1 in digital distribution). And by then, Apple TV isn't going to be a hobby. It'll just be some box in your house that you hook up and never think about again. It will be the box that seamlessly gets all your media wherever you want it and wherever you are. And it won't be for gearheads like me. It'll all be as easy to use as the iPod.

My Media Center runs on Microsoft Vista. The portable streaming is powered by Orb Network's software. The first handheld device to truly unleash the power of all that when I'm outside the an Apple product.

Right now, I'm one of a relative handful of people who even cares. For that alone I love that Apple built this so I could take full advantage RIGHT NOW without having to wait 10 years. In ten years it will be so much better.

I'm sure there will be challengers, but like Google ten years ago, nobody knows who those challengers are. We've seen Microsoft's vision and if it's the Zune, well it's a vision, and for many people it's a very functional product.

It just doesn't liberate all my media and fit comfortably in my pocket. the iPhone looks like it will. I don't underestimate "liberating my media" and "fitting nicely and comfortably in my pocket". For now, I am sure I overestimate it, but I'm always ahead of the curve on this stuff.

Right now I think AAPL will be higher in 5 years. I could be wrong, and even if I'm right, it could go back down to $60 before shooting to $600. If your time horizon is 3 days, or 3 weeks or 3 months I don't have an opinion. But if it's 5 years, right now I would say buy APPL even with the huge run up of the last year.

all of this assumes only these three things:

  1. the iPhone works pretty much as advertised
  2. there will be iPods that have a lot of the functionality of the iPhone at much better prices
  3. AppleTV becomes a full fledged media center/server instead of merely a media extender for iTunes

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