When Apple announced financial results for its fiscal 2007 first quarter recently with a record revenue of $7.1bn and record net quarterly profit of $1bn, some of us long-term Apple fans had to rub our eyes. We’ve persisted in thinking that Apple always had an edge on fantastic products and market vision, but could it be that Apple would have strong financials as well?  Too much almost.   

Apple always been full of itself. “We’re going to make history here today,”  Steve Jobs said as he opened MacWorld in San Francisco in early January with the launch of the iPhone. Some of this brazenness has led the company to adopt a combative approach with The Beatles’ music publisher over the name, but also with the iPhone as well; very confrontational to adopt a name already used by Cisco – even if the world expected Apple to do it. The firm has had its share of original names for products, and could have surprised us with a new, imaginative, iconic name.

The iPhone signals even more the consumerisation of technology. It is resolutely not a device for business, any more than Apple computers are computers for business. This does not compete with BlackBerry at all. It is a consumer toy, and probably a lot more usable than any phone out there. The price is high, granted, but not higher than an iPod AND a Motorola Razr. People pay a hefty premium for the iPod versus other MP3 players. They might  well do the same for the iPhone.

The success will very much depend on usability. Will the screen smear or break too easily? Will touch screen buttons be pushed by mistake while you have it against your ear? Apple’s past history shows they are excellent at this sort of thing so it will probably be good. The fact that it does not support 3G is not a major problem so far. Probably most of the data transfer in terms of photos, videos and so on, will be through a computer/iTunes. In fact, when a newer model comes up with 3G, this might encourage some people to upgrade – more revenue. Not all is perfect: it is a bit silly to make the battery not changeable, especially when Apple already had quite a bit of problems with batteries on early iPods.   

The iPhone is likely to start a whole industry of mobile applications and partnerships. Some companies will want to share the limelight with the iPhone, some will see the large touch screen as an opportunity to develop sophisticated services, and some already have products which are perfect partners for this new device. SpinVox, an Ariadne client, the leader in voice to screen, would make a strong partner to complete and extend their Visual Voicemail feature.

Fast on the heals of announcing 1.6 million Macintosh sales and 21 million iPod sales in the last quarter, Apple also announced its new TV streaming device: Apple TV. This could be an excellent product. With more and more content available on the web (including downloaded or streamed films) and no (easy) way to get it to your home theatre (either for lack of technical knowledge or simply physical constraints of laying cables) this solves a real need, and people will want it. There are some devices on the market but quality and usability are poor. Apple will probably do it easy and right.

Apple is king of revolutionary steps forward and big-picture thinking brought home in amazing products. Leave it to the rest of the poor folks in the technology world to take baby steps and evolve from one product release to another. Jobs’ team will do the step changes, the order of magnitude shifts.

What is also clear is that Apple intends to build a monopoly in digital content across iTunes, Apple TV, QuickTime (Apple’s standards-based technology) and the iPhone. By releasing new devices, and facilitating the transfer of content amongst the devices, Apple is creating a great user experience, but arguably, if it is done well, also a more restrictive monopoly than Windows has ever been in PC operating systems. This will hit Apple at one point through either consumer backslash or anti-competitive government forces, or both. You don’t have to have your own philosophical view about these restrictions to know that they will have trouble. What is different about the world in 2007 than when the Macintosh first came out is that interoperability is taken for granted. Consumers want to use content on any device, not just Apple devices. Restrictions are annoying.

What is clear is that Apple is a company to watch, and a company much-loved. The technology industry provides few case studies of companies who were ‘down and out’, being reinvented and emerging like a Phoenix. In the world of 2007 where people are using technology as much for personal entertainment as for work, and with the abundance of new devices, Apple is in the good position of doing well while continuing to deliver breakthroughs in user experience.

By Julie Meyer and Jem Eskenazi, Ariadne Capital