When we think of the world’s best CEOs, we usually think of Elon Musk, Jeff Bezos, Bill Gates and etc. Tim Cook is a name we all know, but most of us have never considered him as one of the best CEO. Yet he had have led Apple to become the largest company in the world with a market value of over $2 trillion USD. No one thought Apple would become this big and dominant after its mastermind Steve Jobs passed away in 2011 but Tim Cook proved everyone wrong.
Apple (AAPL) was already one of the most well-known companies when Tim Cook took over the reign for CEO, but it had always focused on the hardware side of things, especially from a financial perspective. They generate most of their profits from selling their flagship product such as iPhone, iMac, iPad and etc. Anyone who is familiar with the financial side of things will know that the margin from selling hardware is pretty low. Apple’s brand name allows them to mark up their price to increase margin but its profit margin is still relatively low compared to software companies like Google and Adobe.
This is where Tim Cook stepped in and decided to turn Apple into both a hardware and software company by expanding its ecosystem. On the hardware side, he introduced the widely popular Airpods and Apple watch which turned out to be a huge success. He brilliantly polished a lot of their older apps to make them competitive in today’s market. Apple Music is growing quickly and is rivaling the biggest company in the space, Spotify (SPOT). Apple TV is launching its own streaming service with unique content to compete with Netflix (NFLX), HBO (T), and Disney (DIS).
He is also expanding their footprint into the health and fintech space. Apple introduced Apple Healthkit which provides a central repository for health and fitness data on iPhone and Apple Watch. It also launched its own credit card with Goldman Sachs (GS) to complement Apple Pay which allows users to pay with their phones in-store. Apple Pay is rumored to start offering BNPL (buy now pay later) features which will rival competitors such as Affirm (AFRM) and Klarna. Tim Cook is smartly leveraging Apple’s hardware to launch these services which provide huge synergies as current iPhone users will likely be willing to try them out. These applications then assimilate into our everyday life and become really sticky. Apple is also reportedly working on a project called the Breakout which involves bringing tasks such as payment processing, risk assessment, fraud analysis, credit checks, etc in-house. This will further solidify Apple’s footprint in the fast-growing fintech space.
The rise of these software applications allow Apple to further grow their revenue and most importantly vastly improve their profit margin, which resulted in a large increase in income. Software now makes up a significant percentage of Apple’s total revenue. It is also a much more sustainable income stream as it usually runs on a subscription or fee based model. Hardware on the other side is much more unstable, as it is hard to forecast how many people are going to buy their new product. Apple is not planning to stop expanding its footprint anytime soon as it recently started making its own in-house chip to rival other semiconductor companies. Apple right now may not be as innovative as it is when Steve Jobs is CEO, but financially and tactically, Apple is doing better than ever.
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