Now that Tim Cook is getting comfortable as the new CEO of Apple (Nasdaq: AAPL), analysts and writers have begun to offer their advice. I don't want to be left out, so here's my suggestion for Cook: Don't listen.
A road map for killing the company
Consider the suggestions that MobileTrax analyst Gerry Purdy offered to help Apple remain "insanely great" in his "Open Letter to Tim Cook." At best, his advice is benign, but pointless. At worst, it shows a fundamental misunderstanding of Apple's strategy.
Purdy's first suggestion is to change iTunes' name to iMedia. He argues that the iTunes store has grown beyond its humble beginnings as music store into a fully fledged media outlet, so its name should reflect that change. However, this is simply unnecessary. Consumers know that iTunes offers a rich selection of media and flock to it. During the first half of the year, iTunes held 65.8% of the online movie store market. The second most popular store, Microsoft's (Nasdaq: MSFT) Zune Video Marketplace, held only 16.2 %.
Also in the benign-but-pointless category, Purdy would like to see Apple release a 7-inch iPad. A recent Bernstein Research survey found that fewer than 15% of consumers prefer the 7-inch screen size, while more than half want a 10-incher. Yes, Apple could try to grab that 15%, but I'm not sure it would be worth the time and investment required to launch a new tablet, especially when the original continues to dominate the market.
Moving toward the slightly more destructive end of Purdy's advice, he suggests that Apple make a couple of "holy cow" acquisitions. He specifically recommends that the company purchase TiVo (Nasdaq: TIVO) and SanDisk (Nasdaq: SNDK). Neither of these companies would offer Apple something it couldn't develop in-house or find cheaper through a partnership.
What's more, "holy cow" acquisitions often mature into disappointments. Cisco (Nasdaq: CSCO) is still recovering from its misguided acquisition spree, and Hewlett-Packard's (NYSE: HPQ) acquisition of Palm certainly failed to generate any real value for shareholders. I'd rather Apple continue to wow us with new product announcements and let less capable companies fall into the acquisition trap.
Perhaps the single worst piece of advice Purdy offered was to open iCloud up to all mobile devices. In terms of Apple's strategy, iCloud is meant to help lock costumers into iOS devices. Users who have gotten used to having all of their data synced through the service are more likely to buy another iOS device when the time comes. To win over those users, competing products have to be so good that shoppers don't mind giving up iCloud.
Foolish takeaway
In short, if Apple were to follow Purdy's advice, it would waste time and money rebranding iTunes and releasing a product the market has no interest in while destroying shareholder value and giving up a key competitive advantage. Somehow, I don't think any of that would be good for Apple in the long run.
If you would like to keep an eye on Apple as it enters the post-Steve Jobs era, then add it to your watchlist and stay up to date on all the latest news and analysis.
- Add TiVo to My Watchlist.
- Add SanDisk to My Watchlist.
- Add Microsoft to My Watchlist.
- Add Hewlett-Packard to My Watchlist.
- Add Cisco Systems to My Watchlist.
