Apple’s Key Weaknesses

Apple, Inc. (AAPL) is one of the largest technology companies in the world, measured by market capitalization, and it continues to dominate the categories it invented or popularized, such as smartphones and tablets. While Apple may appear to be at the top of its game, it still has key weaknesses.

Closed ecosystem

Many loyal Apple customers consider the company’s tightly controlled software and services to be its primary strength, as they allow Apple to control every aspect of the devices it produces. But overall, this places additional strain on Apple’s development cycle, as software, security, and many other details become internal responsibilities.

Additionally, Apple is involved in licensing agreements to sell its content, including on Apple TV, Apple Music and the App Store. From a management perspective, this muddies the picture of what Apple should focus on.

Its biggest revenues come from hardware, but the closed nature of Apple’s ecosystem forces it to be present in all other industries as well. Compare that to Samsung: By merging with Android and the rest of Google Inc.’s (GOOG) ecosystem, Samsung can focus on hardware iteration and design innovation for its devices, rather than policing third-party apps or rolling out OS updates.

The pace of innovation

The high expectations for each new version or model that Apple creates can ultimately prove to be the company’s greatest weakness. Apple has developed an incredible brand that is associated with products that work perfectly and are designed to feel advanced and natural at the same time. These high expectations mean that Apple cannot throw experimental products or services at the market without damaging its brand.

This inability to experiment makes it difficult for Apple to innovate as quickly as Google in services or as quickly as Samsung in hardware. Apple must rely on its management and employees who are so far ahead of the curve that a slower release schedule still results in Apple being the market leader.

So far, Apple has managed to maintain its lead in most of its major product lines, but the size of its lead has remained fairly stagnant. At the same time, other technology manufacturers have noticed this and are also regularly introducing improvements and new models. For example, Samsung’s Galaxy S line of mobile phones sees a new version released every year or so.

Other concerns

Some other issues include Apple’s expensive products and entering areas with greater competition. While Apple’s more expensive products have proven to be less of a problem in a growing economy, they could become a problem if the economy regresses. It also relied on its brand image rather than spending large amounts on advertising, which could change in the future.

As Apple grows larger and looks for new ways to expand its product line, it will likely enter more competitive markets — such as Apple TV, where it competes with content-only players like Netflix (NFLX). Additionally, its entry into the payments market puts it in competition with the likes of Chase (JPM) and PayPal (PYPL).

Summary

There are hundreds of tech companies that would happily have Apple’s weaknesses, as long as they also had its strengths to exploit. These include a huge war chest, a strong brand, and a lot of infrastructure that’s still intact from a string of hit products. Still, Apple needs to maintain a high level of innovation. Apple’s competitors will continue to close the gap between their products and Apple’s and eliminate the premium Apple charges for its products and services.