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Apple WWDC may be a letdown for investors

Aaron Pressman
Apple CEO Tim Cook stands in front of a screen displaying the IPhone 6 during a presentation at Apple headquarters in Cupertino, California October 16, 2014. REUTERS/Robert Galbraith

Apple (AAPL) opens its annual developer conference on Monday with a keynote address headlined by CEO Tim Cook. For people who love Apple gadgets or write apps for Apple software, it's an important occasion. For people who invest in Apple shares, not so much -- at least in the short-term.

That's in part because the announcements expected at this year's Worldwide Developer Conference, or WWDC, have been widely leaked. Reporter Mark Gurman at 9to5Mac.com has been in the lead with assists from various other Apple beat reporters. The past two WWDC keynotes have barely budged Apple's shares -- the stock lost 0.7% on the day of the address in both 2014 and 2013. And over the past three months, Apple shares have done little, gaining just 1.6%. Barring any Steve Jobs-style "one more thing," that won't change on Monday. Here is a summary of the major announcements expected:

Music

Apple has long known to be interested in offering a subscription music service similar to Spotify, especially after it paid $3 billion for Beats last year. At WWDC, the company is expected to unveil the long-awaited service, though with few original features. For $10 a month, the industry-standard price, subscribers will be able to access a vast library of music, just like on Spotify.





Apple already has a free Internet music service called iTunes Radio, but the new service will likely have access to a wider range of music. And by curtailing free access to top songs, Apple may be able to offer some of the popular artists like Taylor Swift who have been avoiding Spotify of late. Unlike most recent Apple services, the new music product is expected to also be available on Android smartphones, helping access a much wider audience. The music service rumor has become an all-but-certainty after Sony Music Entertainment head Doug Morris blabbed on Sunday in Cannes at the Midem Music Industry Festival. “It’s happening tomorrow,” he said in an on-stage interview, according to a report in VentureBeat.

But from a direct financial standpoint, investors probably shouldn't get too excited about Apple's musical efforts. Spotify was valued at about $8.4 billion during a recent fundraising effort while Internet radio leader Pandora (P) has a market capitalization of under $4 billion. Combined the two biggest players in digital music are worth slightly less than 2% of Apple's market value.

The entire market for global music sales, including everything from digital downloads to subscriptions to sales of, you know, albums, totaled less than $15 billion last year, or roughly 7% of Apple's most recent 12 months of sales. A report in the Associated Press said Apple wanted to sign up 100 million people for its new service, or about 7 times as many subscribers as Spotify has now. Even that lofty and almost laughably high figure would bring in only $12 billion.

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Over the long-term, the music service should help Apple maintain the popularity of its devices, of course. "A music platform might not be financially material but underscores Apple's approach to bolstering the ecosystem and monetizing services," UBS analyst Steven Milunovich noted in a report about the service last month.

Internet of Things

Perhaps the greater long term opportunity is not in Tin Pan Alley but the less sexy domain of interconnected hardware known as the Internet of Things. Some day, everything from door locks to automobiles to washing machines and light bulbs may be connected and controlled by smartphones. Apple has previously announced a software toolkit, called HomeKit, for letting various kinds of devices interact with iPhones and iPads. Google (GOOGL) unveiled its own software for things this year, dubbed Brillo, at its developer conference. Apple will take the next step this year to maintain its lead, with an app for consumers, expected to be called Home. That will let iPhone users tap into the Internet of Things from their side and control compatible devices.

Apple Watch

After a massive shortage of Apple watches, Apple seems to be getting close to reaching a balance of supply and demand. Many entry-level models are now available for delivery within five to seven days, way down from the four- to six-week wait some early buyers faced.

At WWDC, Apple is expected to unveil a new software toolkit for developers that will allow them to write apps that run right on the watch and have access to the watch's various sensors. That's a big change from the initial batch of third-party apps for the watch, which all must run back on an iPhone, dramatically slowing performance, as many reviewers noted.

Other software

Apple will also show previews of its yearly upgrades to its two main software operating systems. A new version of Mac OS X, for Mac computers, is expected to focus on bug fixes and stability improvements. The iOS system for iPhones and iPads will also get an upgrade, with big improvements planned for the Maps app. Apple may also be planning to give its virtual digital assistant more power to help users in context, offering information on a timely basis without being asked, similar to Google's Google Now. And expect Apple to extend its Apple Pay service to more countries and possibly add that much-anticipated loyalty rewards feature. Again, the short-term financial impact of all of these moves is pretty modest.

What not to expect

Apple isn't planning to release its Internet television service on Monday, or even an update to its Apple TV set-top box. And new iPhones and other hardware are usually announced much later in  the year. If it did, no doubt the shock would prompt a big stock move. But it's not in the cards, at least for 2015.