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Sorry Apple, But These 3 Products Might Be a Bust

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Despite Apple's vast resources, these high-profile products might not last.

In many ways, Apple (AAPL 1.62%) is arguably the most successful company on the planet. Last quarter, Apple managed to grow revenue 33% to $49.6 billion, including a 59% increase in iPhone sales despite the widely expected launch of new iPhone models this month. Earnings rose even faster at 45% to $10.7 billion, or $1.85 per share. Both figures easily exceeded analysts' expectations.

And with over $200 billion in cash on its balance sheet, it would seem Apple has ample resources to continue churning out one massive hit product after another. Unfortunately, all the cash in the world can't guarantee any given product will be a success. In fact, according to our contributors, several notable Apple products might already be considered failures.

Steve Symington (Apple Music): Tim Cook insisted during last quarter's conference call they were "thrilled by the response" of "millions and millions" of customers signing up for Apple Music following its June 30, 2015 launch. But I'm not convinced the thrill will last.

For me, the first hint of Apple Music's weakness came with Pandora's (P) second-quarter report in late July, after which Pandora CEO Brian McAndrews insisted his company had experienced no meaningful impact to listener growth at the time. What's more, McAndrews stated while some listeners might "experiment with the service, [...] we don't expect any long-term meaningful impact, either."

That bold prediction came despite the fact Apple senior VP Eddy Cue confirmed Apple Music had already attracted a whopping 11 million trial users a mere five weeks after its launch. At the same time, however, several reports in recent weeks say Apple Music has been plagued by a massive number of complaints regarding usability and performance. As it stands, it's too early to call Apple Music a true failure. But if those complaints aren't resolved in short order -- and keeping in mind many Apple Music users' three-month free trials expire at the end of this month -- few will opt to stick around for monthly plans starting at $9.99 when the time comes to actually pay.

Andres Cardenal (Apple Pay): Apple Pay is a sound service, and it can be a valuable trait to many users. However, it will hardly be a game changer in the digital payments industry.

Apple Pay allows consumers to make payments at contactless points of sale via devices such as the iPhone, iPad, and Apple Watch. It basically digitizes and replaces the information from your credit or debit card, allowing Apple devices to communicate with point of sale systems via Near Field Communications, or NFC, technology.

The service has many advantages in areas like privacy and security. Apple Pay uses a transaction-specific dynamic security code to process payments, so the actual credit or debit card numbers are never stored by Apple or shared with merchants. Users can also remotely halt the service on a lost or stolen device via the Find My iPhone service.

On the other hand, the digital payments business is all about the size of the network. Merchants and buyers attract each other to the platforms, which are widely accepted at both ends of the transaction, and this can be a major limitation for Apple in emerging markets.

Apple products are too expensive for many consumers in developing countries, and PayPal (PYPL 2.23%) has already reached massive scale with over 169 million accounts around the world. While Apple Pay will probably do well in the U.S., it has limited potential on a global scale.

Tim Green (Secret Apple Car): There's quite a bit of evidence to suggest that Apple is secretly working on an automobile, potentially an electric, self-driving car. Apple has been actively hiring away engineers from Tesla, in addition to hiring other engineers with experience in the automotive industry. It's also been reported that Apple hired a former deputy director of the Autonomous Systems Lab at the Swiss Federal Institute of Technology earlier this year.

It could be that Apple isn't developing a car at all, but instead technology that can be integrated into other cars, enabling self-driving features while working nicely with Apple devices. Investors should hope that's the case, because if Apple eventually starts making its own cars, the result is unlikely to be positive.

Apple's success with the iPhone is due in part to people upgrading frequently. If the average consumer kept their phone for five years before replacing it, Apple would be a fraction of its current size. The automobile market is the polar opposite of the smart phone market in many ways. People upgrade infrequently, as cars are major investments and advances generally happen slowly, and the high-end portion of the market is small. Only 11% of the cars sold in the U.S. cost above $40,000, compared to the iPhone accounting for more than 40% of smart phones sold in the United States.

Building cars is also capital intensive. Apple outsources the manufacturing of its phones, but it likely wouldn't be able to do that with a hypothetical Apple car. Manufacturing cars is well outside of Apple's area of expertise, and it would make much more sense for Apple to team up with an existing automaker in order to integrate its technology. If Apple were to attempt to actually manufacture its own car, I suspect that it would be a disaster.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.93 (1.62%) $2.21
Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
Tesla, Inc. Stock Quote
Tesla, Inc.
$681.79 (1.24%) $8.37
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$71.40 (2.23%) $1.56

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