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Apple, give us something to talk about

The sky's the limit, so predicting what Apple CEO Steve Jobs will disclose at Macworld — a Hollywood partnership? New iPhone? Music-label launch? — is a tough call.
Image: Apple CEO Steve Jobs shows off the new iPhone at the MacWorld Conference & Expo in San Francisco
Apple CEO Steve Jobs shows off the new iPhone at MacWorld in 2007.Paul Sakuma / AP
/ Source: Business Week

Ask any 10 people who pay attention to Apple what the company will do next and you'll probably get 10 different predictions, some that seem to come completely from left field.

Making these predictions has become a bit of an industry unto itself, as Apple develops its computers and consumer electronics with the sort of need-to-know secrecy usually reserved for the CIA. Sometimes Apple employees tapped to work on one aspect of a project are kept in the dark about what the final product will be.

This secrecy is part of Apple's allure, and the allure goes straight to the heart of the brand. Without secrecy, there would be much less reason to talk about Apple in the first place. But when people come to expect good-gosh surprises with every product launch by CEO and ringmaster Steve Jobs, it gets harder and harder to please. And so once again, on the eve of the annual Macworld Conference & Expo, the pressure is on.

Big-screen news
The emphasis of this year's announcements seem obvious, even if the specifics remain a mystery. Despite the relative ease with which Jobs forged a music industry alliance that helped Apple define and dominate the music download business, the company has been stymied so far in getting the digital-averse motion picture industry to follow suit.

So prognosticators are betting this year's big news will be a breakthrough with Hollywood for online film rentals and sales through iTunes. Along the same lines, Apple's not-yet-successful AppleTV, an Internet-connected set-top box, is expected to get a serious revamp through a software upgrade, allowing direct access to the new iTunes movie offerings. Media companies including Disney, Viacom, and Fox are among those expected to play along. But competitors are gathering: Netflix, Blockbuster, and others are developing online movie download services.

Maintaining its pace of growth
But assume for a moment that Apple does wrestle the movie industry to the ground as it has the music business. What then? What is the next strategic imperative that will fuel Apple's long-term growth? What new products are left to invent? What industries are left for Apple to try to conquer?

It's not only a question for the gadget-loving hordes, but one of maintaining the pace of growth that investors demand from a beloved stock like Apple's. Consider this sobering fact about the iPod: Sales are up, but growth is slowing at a disturbing rate. In Apple's 2007 fiscal year, iPod unit sales broke 55 million, representing 20% growth over 2006. But in the same period, declining average selling prices slowed iPod revenue growth to only 9%, down from a 28% improvement in 2006. It seems reasonable to expect this same pattern to afflict the smash-hit iPhone before long.

Once the iPod was launched in 2001, it wasn't long before the rumors began to circulate that Apple would develop a phone that would play music. "Conceptually the iPhone was obvious," says Charles Wolf, an analyst at Needham & Co. "The long-term threat to the iPod was that the wireless phone companies would build music into their phones, so Apple had to respond." Surprisingly, it took six years for Apple to respond, but the delay seems to have caused little harm. Seven months after its release, Apple is well on its way to hitting its goal of selling 10 million iPhones by the end of 2008. Wolf expects Apple to sell 14 million by then.

Able to cash in on crazy dreams
Eventually there will be several iPhone models, and annual unit sales will number in the tens of millions. But then what? There isn't a clear road ahead, though some possibilities are enticing. Armed with a hoard of cash—$15.4 billion at last count—and a trove of cultural currency, Apple can afford to take chances more than ever. And so crazy ideas can't be easily dismissed.

Take a recent rumor that Apple might launch a music label in partnership with rap entrepreneur Jay-Z, who recently left his role as an executive at Def Jam Recordings. If Starbucks, the world's biggest seller of coffee, can have its own music label, why can't Apple, the third-largest music vendor? And if not a record label, then why not a TV or movie studio, one created with digital production and distribution values in mind instead of the last century's sacred cows? Far-fetched? Perhaps. But with the cash and reputation to attract the right kind of talent, Apple might even be able to partner with existing media companies, starting with Disney, where Jobs happens to be the biggest individual shareholder.

Apple's next frontier
Alternatively, Apple could simply explore more opportunities in consumer electronics, once again exploiting the versatile Mac computer operating system. Just as it helped make the iPhone so easy to use, the Mac OS could be adapted to almost any type of device. Imagine a smart television that connects not only to a traditional cable TV feed, but to the Internet, and features a built-in DVR and "place-shifting" capabilities to access all that content remotely. Like the iMac, the TV could be equipped with an embedded iSight video camera and Apple's iChat for video-chat sessions in the living room.

How about reimagining another popular consumer device? Digital picture frames are popular, but not all that smart. Apple could add the iPhone's wireless connectivity and touch screen to create a simple communications hub, an alternative to the PC for playing video and music, displaying e-mail, and surfing Web pages, all on a slightly bigger display with a larger on-screen keyboard than the iPhone's. The device might also provide access to any file stored on your computer from anywhere around the house. "I can see these portable screens going anywhere," says Tim Bajarin, head of research firm Creative Strategies.

Or how about the car as Apple's next frontier? In-car entertainment and navigation systems could certainly benefit from Apple's touch. They're hard to use, buggy, and because of the automotive industry's manufacturing cycle, their features tend to lag behind what consumers have come to expect from the consumer electronics industry. Already partnered with most automakers to provide iPod integration with car stereo systems, Apple could also try to adapt its elegant Mac OS to a car's other systems. Microsoft has been after the automotive market for nearly a decade, and is making inroads with Ford and Fiat.

( is a Microsoft-NBC Universal joint venture.)

Learning from retail
While all these ideas may sound far-fetched, it's instructive to look back. In 2002, when Apple first announced it was launching a retail arm, the idea was widely dismissed as too costly and unlikely to appeal to enough people to be profitable. Last year, Apple's retail operation generated more than $4 billion in sales.

At $4,500 per square foot of retail space, Apple's sales are more robust than those of any other electronics store and even luxury retailers such as Tiffany & Co. and Neiman Marcus, says Toni Sacconaghi of Bernstein Research. Some crazy idea.