According the Recording Industry Association of America (RIAA), sales of recording music in the US was cut in half over the past decade (from some $14B in 2001 to $7B in 2010). Over this same period, Apple's market capitalization multipled some 30 times. Apple's valuation explosion during this period certainly did not solely derive from its use of the music to sell iPods, but it was music that kick started Apple's value capture momentum. And while Apple flourished, its recording company partners floundered.
Earlier this month, the Wall Street Journal highlighted the leverage that Apple has over telecom providers eager to sell its iPhone. Sprint has apparently committed to buy a staggering $20 billion of iPhones, whether or not the company can sell the devices. Great for Apple to lock in such high-volume orders and then be able to negotiate down its component prices. But is Sprint putting a gun to its head by agreeing to Apple's aggressive terms in the highly competitive smart phone market with Android devices (now) and Windows Mobile phones (soon-to-be) challenging iPhone leadership.
Has Apple been too aggressive, too greedy in dealing with its partners? Has it sucked so much out of key ecosystems (such as music and telecom) that key elements are threatened? Has its valuation gains led to the emaciation of venture relationships? Will Apple's brand continue to be highly valued by consumers, but increasingly loathed by deal partners? Will there be a rising crescendo of push-back by value chain companies who feel that Apple has taken too much off the table for itself?
Not a problem, you say. Apple has $76 billion in cash/cash equivalents on its balance sheet and is on pace to soon be the first company ever to squirrel away over $100 billion given an annual inflow of $15-20 billion of free cash. That means Apple could make numerous major acquisitions, integrating more and more elements of its key market value chains within its own control thereby reducing the need for business development partners. Right?
Hardly. Few companies will now receive more antitrust scrutiny than Apple is likely to face over the next decade. So much currency, but so few choices on what to buy with it. Share buybacks or large dividends, yes. But these latter options while good for shareholders will not support company growth.
Squeezed between potential partner pushback and anticipated antitrust attention, Apple will find its abundance of riches a mixed blessing. Aggressive deal making has paid off, but not without challenging side-effects.