Two companies, Apple and Google, now straddle the IT industry, jointly forging a major part of its destiny from the consumer side. Taking these two behemoths in alphabetical order, I’ll cover Apple today and Google tomorrow.

Apple, A Late  Developer

Apple pretty much invented the PC, but never got to control the PC market or its evolution. You can debate the history of it, but you can blame IBM more than Microsoft for what transpired. Apple validated the PC market and IBM quickly stepped in to grab the lion’s share – introducing a standard machine (the once proud IBM PC) with a standard component architecture and a standard OS. Pretty soon the weight of applications favored the PC and the cost of the PC fell to a point where Apple’s products were expensive and became niche.

The fact that Microsoft had the ability to undermine IBM’s hold on the PC industry was, kudos to Bill Gates, the cleverest business move in decades and the biggest mistake IBM ever made. However, this created what I believe to have been a false market. The operating system became the controlling factor in the PC market. That seemed out of shape to me at the time. And it was, but few people queried it.

Since about 2000, Apple has been demonstrating what the PC market could have been, by parading an ever evolving Mac in front of PC users and winning business at a rate that now alarms HP, Dell and the other PC players. The problem for the PC vendors is that they don’t have the scope to innovate on the device because they have no control whatever over the OS. And the OS is the gateway to applications, which are the primary factor that sell the device.

Maybe it was even necessary for Steve Jobs to fail in first era as head of Apple in order for him to succeed in his second. But Steve has done the industry a wonderful service by demonstrating that the PC market should not be controlled by the OS. After all the OS is only there to serve up applications. In the end Apple differentiated the Mac with media applications, which led to iTunes – the most popular new application of the last decade.

Steve demonstrated that the right business model is to integrate together:

1. The overall product design, including usability.
2. The hardware.
3. The Operating System.
4. The customer relationship (show rooms, shops, buying and support).
5. Content and application provision and delivery.
6. The developer ecosystem.

Organizationally, this is a hard trick to pull off, but industrially, it makes sense. That’s how auto companies operate, for example. And no other vendor in the PC market has this end-to-end model.

Anyway, with that background, lets take a look at Apple and where it is heading.

The Mac Business.

The Mac business, including all peripheral sales and the AppleTV device is now less than 45% of Apple’s business. It’s not the part that is growing fastest either – and yet in Q3 of 2009 is was growing at 17%, which is robust health in a recessionary year. Q4 figures are likely to be similar. There is no reason to expect worse growth in 2010. In which case Apple is likely to garner revenues of around $18 to $20 billion from the Mac side of the business next year. That’s conservative, given the fact that the objection to using Macs within business has been eroding for some time. Business use of Macs could drive growth of the Mac market higher. It has a dramatic upside potential. Right now it has less than 6% of the world PC market and that is likely to double, at the very least.

The iPod and iPhone Business.

This is, of course, where the money is being minted. A recent falling off of iPod sales has been masked in revenue terms, to some degree, by the fact that iPod Touch sales are doubling. The iPod is currently about 18% of Apple’s business (if you don’t count the music sales) and about 29% if you do. It’s hard to predict the revenue growth of this part of Apple’s business. The iPod touch revenues are likely to rise as other iPod revenues fall.

The iPhone, by contrast, is over 20% of Apples revenues, and growing like bamboo in spring. There are three factors that are difficult to model in respect of iPhone growth.

1. People tend to switch handsets quite frequently – every 18 months or so. Many iPhone 3G users, for example, are previous iPhone users.
2. Apple’s exclusive iPhone deals are gradually coming to an end, improving its market potential. But making new deals with new carriers is inevitably a slow process.
3. The smartphone market is growing at a rate a little faster than 100% per annum. The carriers are pushing this strongly because they make more money from smartphones.
4. The iPhone currently has no immediate competition, aside from Google’s Android, in the area of apps. This makes it very desirable.

My expectation then is that Apple’s iPhone sales will more than double in 2010. In fact doubling is pretty much a given. It’s more a question of whether they will triple or do even better.

The Tablet/Slate (and the Cloud)

So now let’s consider the tablet/slate, which is now such a strong rumor that many established facts are doubtful by comparison. Apple will introduce a tablet and it will be successful in its first year, if only because of the avalanche of hype that will accompany its announcement. What is difficult to know is how many Apple will sell and what it will mean for Apple’s revenues. We do not yet know the price points or the possible related sales of ebooks, software, videos. etc.

However, we can be pretty certain that Apple intends to deliver this product in the way it delivered the iPhone, not so much as a product but as a business stream. (Usability & design, hardware, OS, retail outlets & ad campaign, content and application provision and developer ecosystem). We can also be sure that Apple means to build a cloud business, probably on the back of MobileMe – otherwise, why is it building a humungous data center in North Carolina?

The big rumor about the slate is that it will be an ebook reader, but it may well also be a mean video machine and overall, a better iPhone/iPod Touch than your wildest dreams could cook up. And if, as Amazon was boasting, it sold more ebooks on Xmas day than paper books, then maybe there’s a considerable potential revenue stream here for Apple, just in printed matter. And that’s before we consider what new touch applications may be possible on this tablet – . The tablet may prove to be Apple’s gateway to a meaningful cloud business.

Forging The Future

Apple has changed the IT industry several times. It did it by introducing the GUI and mouse. It did it by introducing iTunes and the iPod and it did it again by introducing the iPhone. These were hugely disruptive innovations. They didn’t just change the way a device worked, but changed whole industries. So the possibility – no guarantees – is that Apple’s tablet may do something similar by reshaping the publishing industry, and then some.

That still leaves video (home media) as an area that Apple has dabbled in, but not revolutionized. I doubt if Apple will do much in this area this year. It probably doesn’t have the bandwidth for that.

There’s also the little problem of Google that Apple must face and probably already is facing. The late breaking news is that Apple is acquiring the mobile ad company, Quattro Wireless. It would seem that Apple has no intention of letting Google walk away with all the advertising revenues of the mobile market.