The crux of this post is the first section.  The rest is my thoughts on Apple’s future direction.

Apple’s share price is ticking back up towards its high, and every time this happens I try to think deeply about whether I should sell my modest holding and what the future prospects are. The thinking below has come from long flights, extended toilet pondering and soaks in the bath. It doesn’t really follow a path to a single conclusion - possibly because it’s incomplete, and also because I don’t think a company the size of Apple has a single direction.

Apple must build a console

Apple have got to get into the living room. They’ve got to be at the centre of the home, as they are at the heart of your jacket pocket. I believe this is where growth over the next five years will be found, and I’m waiting for signs of it before making a decision.

Apple TV needs to evolve into an iOS based home entertainment system. Audio (stored/streamed from iCloud), video, games and web-widgets. Apple TV must become an the iOS equivalent of an Xbox with XBMC installed. That’s what I’m saying. The ecosystem is there, the technology is there. All of Apple’s competencies are here. Sony and Microsoft (Xbox) have failed to move from a games console to an entertainment hub - they lack the marketplace that Apple has built. Boxee hasn’t worked, partly for the same reason.

Console games bought and downloaded in iTunes. Seamless integration with the iPhone, iPad and iPod for some controls. Airplay to stream media around the home. It will get people genuinely excited. The rumour of an Apple console will be as intoxicating as the rumour of an Apple tablet.

The time is right - both the Xbox 360 and PS3 are nearing the ends of their lifespans. The Wii has been and gone.

One of the first steps I’d like to see in this direction is building live streaming of TV into iOS devices. I see no reason why this can’t be done, and TV networks would love it.

– END CRUX

iPod

The iPod range still has a place, and just because it isn’t growing it shouldn’t be scorned. iPods are a vital stepping stone into the Apple eco-system for kids and old people - two markets where there’s huge range for growth among more profitable products. My friends buy their parents iPods. My friends who are parents buy their kids iPods. I also believe there may be growth to be had in emerging markets on this one - it’s easy to forget that CDs have only just supplanted cassettes in third world cars and taxis.

The iPod Touch may have to become an iPhone - there may come a time when it actually costs more to have a whole product line that is identical, save for the lack of a GSM unit. People more knowledgeable about patents and licensing will be able to answer this.

Phones

The iPhone is almost at the limit of its evolution. It is constrained physically by the form it must take, and externally by the bandwidth of mobile phone networks. The screen cannot be improved in resolution or size. The camera is good enough, and leading the pack. Signal strength, battery life, speed and storage are the only hardware improvements that I see in the near-term (less than two years).

Software improvements (Siri and notifications) will still be forthcoming. I can’t judge Siri as a) I don’t have a 4S, and b) I won’t get one because a lot of its features don’t work in the UK. These software improvements are less sexy, less visible (releasing a white iPhone probably attracted more people than a 4S), and, arguably, easier to imitate.

I believe Apple may be at risk of its phone range ending up where the Mac range languished from 1995 - 2005. That is to say, preferred for aesthetics, integration and ease-of-use but expensive and constraining. I don’t think it’s controversial to say Android is the equivalent of PCs - more fiddly, less tightly designed, but cheaper, more powerful at the cutting-edge and cheaper. Combine this reality with an acceptance that mobile networks, the internet (Google, Facebook) and every other consumer electronics company are gunning for Apple - I’m concerned this may be a mature product line, just as iPods are.

Tablets

Apple is the only player in the tablet arena. This is largely the result of hardware and pricing - the initial $500 pricetag has effectively proven unassailable for would-be competitors. Compared with the iPhone, the tablet is less about apps, or other iTunes media. (Books and magazines are nowhere near as dominant as apps. They are also more easily ported between eco-systems than apps). The iPad isn’t protected by the moat of the iOS / iTunes ecosystem - it’s essentially nice hardware wrapped around a webkit browser. Apple is reliant on patents and supply agreements to retain this space - hence its hard fight against the Galaxy Tab. I see strong competition from Amazon - tablets are the future of all non-fiction books and textbooks. This is still a massively growing space.

Desktops

If not dead, then so niche as to barely think about.

Laptops

This is the area I am most positive on. Macs are becoming the tool of choice for developers. They are largely immune to the sort of PC annoyances that plague novice computer users (my mum).

Look around any upmarket coffee shop / student area and Macbooks are verging on, if not already, dominant. They are expensive, no doubt, but I don’t think this matters in a world (the West) where most work (and the most economically valuable work) is done using computers. Generally, a good guide to what the future holds is probably to look at what people with a choice are buying. People with the choice bought iPhones instead of Blackberries. RIM is now basically over. People with the choice are now buying Macbooks instead of PC laptops.

I’m not suggesting that Macbooks will replace PCs. But that they will take a greater share of the market, and the most profitable share at that.

iTunes

I am disappointed that Apple has failed to capitalise on the success of its music store. It is being beaten out of the video market by Hulu and Netflix - there is a HUGE market to be had from visual entertainment. People spend far longer watching TV than listening to music. Now I know that this isn’t Apple’s fault, but it has to be accepted - iTunes has lost its competitive advantage in the video space. Conclusion

Apple is going to do well. But there’s nothing stellar that I can see currently around the corner. I expect quite a few more record-breaking quarters of reporting, and a share price that ticks up to reflect this, albeit buffeted by economic woes. I worry that we’ve seen the high-watermark of apps, and that 2012 may be the year when there really wasn’t much difference between a $300 Android handset and a $500 iPhone. I am looking for signs of creative life.