AAPL's Enterprise Penetration – the Unspoken Pillar of Growth
Image Source: ZDNet
On its FY15 earnings’ call in October 2015, AAPL CEO, Tim Cook, unexpectedly revealed an estimate of just how big the Enterprise segment is for AAPL:
“We estimate that enterprise markets accounted for about $25 billion in annual Apple revenue in the last 12 months, up 40% over the prior year and they represent a major growth vector for the future.”
AAPL’s Enterprise Initiatives:
To understand that growth, it is important to understand the various programs that AAPL is using to penetrate the enterprise:
- Mobility Partner Program (MPP): An effort to boost sales of iPhones and iPads in the enterprise through collaboration with software developers and integrators.
- IBM MobileFirst for iOS: “IBM MobileFirst for iOS solutions combine the power of enterprise data, analytics and cognitive with an elegant user experience, to fundamentally redefine how professionals interact, learn, connect, and perform.” (Source)
- Other Strategic Partnerships: Collaborative go-to-market partnerships with enterprise service providers to optimize services and technology hardware for businesses.
- Enterprise Device Sales: Sales of iOS devices (specifically iPhones and iPads) to enterprise customers for use within their respective businesses.
AAPL has provided various commentary around these programs for the past two years:
Source: Various quarterly earnings' call transcripts for AAPL obtained through Seeking Alpha
Additionally, AAPL’s management has provided additional color around its enterprise efforts on its quarterly earnings’ calls:
- FY17 Q1: ”…the total number of joint customer opportunities has grown over 70% since last quarter…Corporate buyers reported a 96% satisfaction rate and a purchase intent of 66% for the March quarter”
- FY17 Q2: “All our products continue to be extremely popular and drive more buying transformation in the enterprise market. We set a new enterprise revenue record for the March quarter, and we expect this momentum to continue for the remainder of the year….Corporate buyers reported a 96% satisfaction rate and a purchase intent of 68% for the June quarter.”
Why AAPL is Seeing Increasing Success in Enterprise:
The dynamics of enterprise have drastically changed as mobile has become an increasing part of the daily workflow and AAPL has proven itself capable of leveraging its unique strengths and alliance partners to penetrate a space that was once an after-thought for the consumer-focused company:
- AAPL is bridging its Gaps with Partnerships: AAPL is continually focused on selling more devices both in consumer and enterprise markets. However, AAPL understands that its enterprise strategy needs to be much more reliant on integrating those devices into the workflow of the companies it sells to. Much like it is retaining customers in the consumer markets with an integrated offering of hardware, software, and services, it realized that it needed deep breadth in industry verticals to create the same effect in Enterprise.
The once outlandish idea of AAPL actually partnering with IBM not only came to fruition, but has enabled AAPL to combine its deep breadth in industry verticals and enterprise-wide service / support with AAPL’s devices. This has inevitably enabled companies to dedicate resources to build native iOS apps that address specific pain-points in their businesses and deploy them at-scale. Additionally, AAPL has been aggressive in forming more partnerships with other enterprise service providers and consultants to further its standing as the leader in mobile – an area that is capturing increasing CIO wallet share every year.
- Employee Choice Creates a ‘Double-Down’ Effect: The ‘consumerization of IT’ is now in full swing. In its 2016 annual survey, Jamf reported that 44% of the companies it surveyed offered a choice to their employees between a Mac or PC, but a significantly higher 71% of the companies offered choice between different mobile devices.
With AAPL reaching all-time highs in U.S. smartphone adoption, and its disproportionate share within the demographics that represent the enterprise segment, employee choice for corporate-issued smartphones is creating a “double-down” effect. Employees want the same experience and familiarity on their corporate smartphone as they do on their personal smartphones, not to mention the desire to access the same content through their Apple ID. This culminates in the all-too-common scenario where an employee has two iPhones – one for personal use and one issued by his / her company – both with upgrade cycles. This type of demographic also reaffirms Cook’s point about likely strong penetration in the Bring Your Own Device (BYOD) segment, which some companies have migrated to.
- Corporate IT Buyers want Higher Residual Values: There are many articles out there that discuss the very high residual values that iPhones retain over their competitors. No matter how enterprise customers buy or lease smartphones either through AAPL directly or through wireless carriers, higher residual values on iPhones will always be a differentiating factor in what smartphones are available to choose by employees. For example, some large consulting firms that still provide employees with a smartphone offer all versions of the iPhone, but only a few choices that run on the Android OS. Residual values play a large part into that disproportionate representation - the unit cost of these phones is all within the same ballpark (AAPL iPhone 7 Plus vs. Samsung Galaxy), but the residual values over a two-year period favors the AAPL phones, creating cost efficiencies for the business.
- Overwhelming Demand and the Desire for a Consistent Mobile App Experience Favors AAPL: A report by Gartner indicated that by the end of 2017, the demand for mobile apps will outstrip available development capacity by 5 to 1. This lack of development capacity favors AAPL due to the lack of fragmentation afforded by the iOS ecosystem. Companies are, and will continue to have to prioritize development of mobile apps to ensure that applications have access to similar hardware to perform the desired task(s), are all running on the same version of software, and have the ability to deliver a consistent user experience (UX) for the tens-of-thousands of employees that these applications support. The same frustrations about fragmentation that have led commercial developers to develop first, and sometimes only for the iPhone will drive enterprise mobile app developer focus.
- Security Matters More: AAPL’s continued focus and unrelenting principles regarding security and privacy will only give it an advantage with corporate IT managers – executives who are keenly aware of both the powers of mobile, but also the related threats to their businesses. With its walled-garden approach of integrated hardware, software, and services, AAPL’s mobile device management platform provides a distinct advantage over other choices that continue to run on fragmented hardware and software, which only decrease the lack of control that corporate IT managers need in a sensitive environment.
As Enterprise Mobile Adoption Expands, AAPL Will be a Big Beneficiary
We are now past the area where mobile in enterprise meant having a company-issued smartphone, which is still a big piece of the spend. However, we are rapidly moving into the next phase where these mobile devices become a vital piece of the workflow for employees and engagement with customers. It is a convergence where the understanding of business needs meet proprietary app development and mass deployment to employees on cost-efficient devices in a secure environment. It is a huge area of opportunity that AAPL continues to highlight on its earnings calls, yet analysts continue to either tip-toe around it, or ignore it completely. And that is just the way AAPL wants it.