Apple’s R&D Budget Soars
July 28th, 2016In past years, Apple has been criticized for spending far too little on R&D, especially when you compare it to the competition. Indeed, some companies just pour loads of money into projects that have very little potential, or just hope to throw money at insoluble problems in search of the fantasy of success. Google, for example, spends in the range of 15% of its revenue on R&D, and very little of it delivers a return as a retail product or service. Certainly there’s not a lot of revenue from Android, since it’s given away free to handset makers. I realize you can count the revenue from the Google Play app store as an indirect benefit.
Google’s main product, however, remains targeted advertising. So even Google Glass hardly seemed an appropriate venture to deliver ad revenue, or much revenue from the sale of the hardware, which was discontinued last year. In the past, Google tried to enter the mobile handset business with its boneheaded decision to squander $12.5 billion to buy Motorola Mobility. It was sold off at a fire sale price to Lenovo for $2.91 billion. What a waste!
In the past, Apple has been frugal about R&D, experiencing tremendous success with the Mac, the iPod, the iPhone and the iPad. The Apple Watch is still a work-in-progress and it may be several years before its ultimate success is known.
As people wonder what Apple is coming up with next, the R&D budget has soared. In the past nine months alone, it has spent nearly $7.5 billion on R&D. Obviously few outside of Apple or its suppliers knows where that money is going, but it’s certainly not to fund expensive vacations in the Bahamas or to buy fleets of corporate jets. It’s about creating possible successors to current products, or major new versions. It’s also about entering new product categories.
Now one rumor that appears credible is that an Apple Car is under development. This week, it was reported that veteran hardware executive Bob Mansfield has taken control of Project Titan, where hundreds of people are reportedly working on some sort of electric car. I would assume that it will sport an advanced self-driving capability as well should it come to pass.
A few artist renderings of what form it might take have been posted in the last year or two. But the ones I’ve seen aren’t terribly attractive. Compare that to the Tesla, which has Jaguar-style looks and state-of-the-art performance. So would an Apple Car be a high performance luxury vehicle in the same vein, or something more affordable and practical?
Obviously the fact that a car is being developed doesn’t guarantee it will ever see production. It might also serve as a platform or test bed for future iterations of CarPlay or other Apple inventions for existing motor vehicles.
The question not being considered when an Apple Car is mentioned is what sort of difference Apple might make when compared to existing cars. The Tesla has to be a huge factor, and its teething pains will no doubt serve as a lesson on what not to do. If Apple continues with what’s clearly a multi-billion dollar investment, there has to be an immediate payoff, and there’s not going to be much time to make mistakes. It’s one thing if the first version of a gadget costing a few hundred dollars isn’t fully formed. But a product that will cost tens of thousands of dollars has to be perfect on Day One, or close enough that minor ongoing updates will address software glitches and minor hardware oddities. Obviously it would have to meet safety standards around the world.
In addition to an autonomous driving system that actually works — and the existing ones are obviously buggy — Apple might consider ways to advance battery technology. While today’s Tesla vehicles have driving ranges in the 200-300 mile range, more or less, company CEO Elon Musk promises to double that range, to more than 600 miles, by 2017. In an interview last year, Musk also claimed that a range of over 750 miles could be achieved by 2020.
Tesla is notorious for being late, and for the initial versions of new vehicles to be raft with production problems and product defects. So it’s quite possible the extended range vehicles will be postponed.
Now the Apple Car has reportedly been postponed from an expected 2020 release date to 2021. If Tesla Motors succeeds in more than doubling driving range, no doubt with more efficient parts and superior battery technology, Apple will have to raise the bar somehow.
But that’s just one thing. What else might Apple be using that growing R&D budget to fund? What about building out a subscription TV service with a rich roster of original programming, to compete head-on with Amazon Instant Video and Netflix? It would take commitments of hundreds of millions of dollars and more to fund programming and an online streaming infrastructure beyond what iTunes can manage today.
Clearly Apple has more than enough money to build cars and produce TV shows, and cloud services are reportedly undergoing major expansion as we speak. There are no doubt other projects, such as augmented reality, are under development that even the best rumor sites, with their ears glued to the ground, have yet to discover. If Apple gets full value from all those investment dollars, the next few years are going to be mighty interesting.
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Since an ever-increasing percentage of Apple’s devices rely on batteries of one sort or another, it would make excellent sense for the company to invest heavily in battery technology r. & d. I bet that the overwhelming majority of Apple’s user base would agree that extended battery life is the single improvement they’d most like to see. Given its huge cash reserves, it would hardly hurt Apple to take a page from Elon Musk’s playbook and invest a couple of billion in this area (it certainly seems to be paying off handsomely for Musk).