Apple Takes a Page Out of Google's Playbook

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This week's iPad and MacBook updates left a lot of consumers and investors underwhelmed. Fellow Fool Eric Bleeker tweeted in part, "[M]y confidence in Apple has never been more shaken. I no longer believe in this company." Those are strong words from someone who has been an Apple bull for years, and he's not alone in being disappointed.

While I agree that Tim Cook isn't the visionary leader that Steve Jobs was, I also think it's important to understand what Apple is doing from a strategy standpoint and why it will keep investors happy for a long time to come. Apple is now targeting Microsoft's business dominance, much in the same way Google attacked Apple's smartphone dominance.

Taking a cue from Google
Apple has watched Google take a majority of the smartphone market by offering (nearly) free software to smartphone developers with the hope that if they use Android, Google will make more money through search and other offerings. More people on smartphones and more people online is good for Google, especially if it can push them toward Google Play.

For Apple, it makes money on hardware, not software, so the same type of strategy is playing out in different parts of the market. Instead of offering software for other device manufacturers to use, Apple is offering free services like iCloud, iRadio, Photo Stream, and now iWork to people who buy their hardware. The target in this case isn't Google: It's Microsoft.

The iPad is now the standard for corporate tablets, commanding a 90% market share according to Good Technology, with iOS devices commanding 72% of the mobile enterprise market. Apple sees this as a way to push the Mac into a market that's largely been shut off to Apple. The biggest step in that direction is offering iWork's productivity tools for free.

Eddy Cue made a not-so-subtle hint at this strategy during yesterday's event when he compared Office 365's $99 price tag to iWork being free for new iPhone, iPad, and Mac buyers. Apple sees iWork at a viable alternative to Microsoft Office for most corporate users, and a free price tag along with collaboration and cloud services may be enough to make the switch. From a financial perspective the opportunity is huge.

Apple's opportunity with Macs
Over the past 12 months, Apple has sold 71 million iPads and 143 million iPhones. But it's sold less than 17 million Macs over the same time frame, leaving a huge opportunity. If we assume that just one-third of iPad buyers buy a Mac for an average price of $1,300 each, that would increase Mac sales by 6.7 million units and $8.7 billion. If one-third of iPhone buyers are convinced to make the switch, the opportunity jumps to 31 million additional units and $39.9 billion. Suddenly the numbers are significant to Apple's $169.4 billion in revenue over the past year.

We know that Apple has a strong foothold in both the consumer market and corporate America with iPhones and iPads. What it's trying to do with free iWork is translate that success to a growing share of the PC market, especially the corporate PC market. That's the real opportunity, because the more Apple devices people have, the more they're sucked into the Apple ecosystem. 

If Apple is successful in growing its PC share, it could create a reinforcing loop that drives iPad and iPhone sales as well. Having an Android phone at home and a PC at work might be fine, but if you have a Mac in the office, an iPhone may become more attractive with free productivity tools. 

Slow and steady Tim Cook
Steve Jobs made rapid and transformational changes at Apple and was the driver of the company's success. Tim Cook is a different leader, but I think we're starting to see his strategy play out. He's offering more free services like iWork and Mavericks as rewards for spending on Apple's high margin hardware. We don't know if the strategy will work long term, but it's important to understand how the pieces are beginning to fit together now that Cook is putting his stamp on the company.

Apple still needs innovation to drive growth
Apple has a long history of cranking out revolutionary products... and then creatively destroying them with something better. Find out about potential future innovations in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

The article Apple Takes a Page Out of Google's Playbook originally appeared on

Fool contributor Travis Hoium manages an account that owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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