Apple and Amazon, the first casualties of 2016

They may own the present, but they should beware the ghost of Christmas future

Who owns the present?

There are two firms who stand out as owning our world today, and you don't have to look very far down the alphabet to find them. One is the giant of Cupertino, who brought us the iPhone, iPad and lots of other things beginning with ‘i', and the other is an organisation who started selling books, and now sells just about everything short of land mines (though who knows what new product lines 2016 will bring).

Both firms have enjoyed apocalyptic growth (and apocalyptic is the only word if you're one of their rivals) in recent years, Apple rising to become the world's most valuable company, and Amazon the globe's biggest online retailer.

But how long will this dominance last? What will the ghost of Christmas future have to show Tim Cook and Jeff Bezos on Christmas Eve, and will it leave them dancing for joy or hurriedly selling their personal stock?

Apple's death knell has been sounded pretty much monthly ever since its visionary co-founder Steve Jobs was first announced as terminally ill, but the reasoning is more compelling now than ever. Whilst the firm has released an array of stellar new product lines in the recent past, it has noticeably failed to innovate since the release of the iPad, instead preferring to iterate.

Instead of a shiny new device we didn't know we wanted, we've got steadily upticking version numbers of, still shiny, but otherwise unremarkable products from yesteryear. And 2016 seems certain to see the launch of the doubtlessly unnecessary but yet inevitable iPhone 7 and iPad Air 3.

This year's new products - Apple Music, the Apple Watch and Apple News - have largely failed to capture the imagination on anything like the level of the original iPhone or iPad, and appear to offer nothing we can't live without (Apple Watch), or nothing we can't get equally well elsewhere (Apple Music and Apple News).

This, coupled with the fact that the firm is overly reliant on a single product line, puts it on shaky territory going forward. Just under two thirds of Apple's revenue in the final quarter of 2015 came from iPhone sales - and that's a hefty slice of its future staked on an increasingly uninspired product range (full disclosure - I'm an iPhone user myself. I think it's a decent product, but no better than its rivals). This risk is exacerbated by the fact that smartphone sales growth is slowing globally - with the biggest market, China, actually seeing reduced demand in some quarters in 2015 compared with the previous year.

So unless Tim Cook can better diversify his firm's revenue, ideally with a new product on a par with the iPod, iPhone or iPad, I'd start to think about shifting that previously golden Apple stock about now.

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Apple and Amazon, the first casualties of 2016

They may own the present, but they should beware the ghost of Christmas future

But what about Amazon?

Surely the titan of internet retail isn't going away any time soon? You could be forgiven for thinking that the world will one day belong to Jeff Bezos and his bloated bookshop, but even a cursory examination of the reasons behind its success, and who its rivals are, reveals that its dominance could be very short-lived.

Amazon is successful for two principle reasons: scale and cost. That applies as much to its retail operation as its cloud computing arm Amazon Web Services. Because of its scale it can offer you a vast array of physical products (including inflatable toast, unicorn meat, and pants for your hands. Yes really), and for the same reason AWS sells endless volumes of storage and enormous processing power.

And because it pays its staff very little, enforces productivity with a not so much iron as titanium fist, and pays almost no tax at all, its costs are very low. It also, if my visit to its Slough HQ is anything to go by, pays absolutely nothing to maintain a half-decent working environment for people too, but that's another story. Its low costs translate directly to low prices, driving competition away and ensuring thin margins but high sales volumes.

But so what? It reported Q3 revenues in 2015 of over $25bn, almost all firms that have ever existed could only dream of that number. So it's doing well enough now, but what about the ghost of Christmas future, standing in the corner, rattling his chains? He's saying: "Beware of Alibaba. Oh, and pay your bloody taxes."

Amazon is special because of its size and scale. That's it. It doesn't innovate, it doesn't do anything that anyone else couldn't do. It hasn't invented anything of note and it doesn't hold a fabulous and lucrative range of Intellectual Property. In short, it's vulnerable to anyone leaner and hungrier than itself. Anyone prepared to slice those margins even thinner, exploit even dodgier tax loopholes, or make its staff work in tea-stained cesspits for minimum wage.

And Alibaba, the most likely organisation to step up and claim Amazon's cardboard crown, may not even need to do any of that, instead setting up data centres in all the right places (across the Middle East and Asia, where the growth is), and existing relationships with all the right people. Aliyun, its cloud computing arm, has already announced that it's training its guns on Amazon.

"The cloud business will be a very important sector for Alibaba," said Aliyun president Simon Hu in July. "We hope to match or even surpass Amazon in three to four years."

Of course hoping to do something isn't the same as doing it, but the point is that it could be Alibaba, or it could be anyone else. Sooner or later, someone else will come along who can do what Amazon does better, and more cheaply.

Of course all this could change in January when Apple surprises us all with the iBrain, and Amazon replaces all of its staff with robots. Until then, I'd advise Cook and Bezos to read some Dickens.