Apple Inc. (NASDAQ:AAPL) is now widely rumored to be partnering with Nike Inc. (NYSE:NKE) on its wearable, the iWatch. The two companies have worked closely in the past, and Apple CEO Tim Cook sits on Nike’s board, but closeness does not mean partnership is a good idea. There are many reasons why Apple doesn’t want to jump into bed with Nike, and it’s unlikely the company has ignored them.
Nike has image problems
Apple Inc. (NASDAQ:AAPL) has done a great job managing its image. The company has consistently taken on the points of view of its detractors and changed the way it appears. This has helped the company to avoid the long term criticism that has been leveled at companies like Nike Inc. (NYSE:NKE). That company has not been as successful at mitigating the effects of such campaigns.
Nike has been working on improving conditions at its facilities, but that doesn’t leave the company untarnished, or completely protect it from future accusations. Apple Inc. (NASDAQ:AAPL) can little afford a boycott because of accusations of child-labor.
Apple’s image is wholly different to that of Nike Inc. (NYSE:NKE), and though the company would be helped by the inclusion of a Nike Fuelband application on the iWatch, the improvement would likely mean little to the company. Every incremental benefit adds to the bottom line, but there might be a way to turn this partnership into a real financial benefit for both companies.
Here’s how a Nike iWatch could make sense
Apple Inc. (NASDAQ:AAPL) needs to maintain its 30% gross margin, while Nike Inc (NYSE:NKE) needs to maintain its 45% gross margin in order to keep their investors happy. Nike cannot do that if it is to design a mass market wearable – it simply doesn’t have the experience, while Apple can’t do that if it has to share profits with a branding partner.
The Nike iWatch, or “iRun” should be a separate product from the normal iWatch. Its branding should be clearly different, and its aim should be clear. A Nike product is for the sports-minded, and Apple Inc. (NASDAQ:AAPL) products are not. Apple doesn’t want its fans thinking that the iWatch is a fitness gadget. The company needs it to have the wide appeal of the iPhone or the iPad.
Aftermath of the deal on Nike and Apple
Apple Inc. (NASDAQ:AAPL), in the ideal partnership, gets all of the proceeds from hardware sales of the “iRun” wearable. Nike gets to use the device as an advertisement for its other equipment, or as a basis for a subscription fitness tracking service. Both companies maintain margins and, hopefully, increase revenue.
Half measures do not take full advantage of a situation, and they open an agent up to risk they could have avoided. Apple Inc. (NASDAQ:AAPL) should probably avoid any substantial use of Nike Inc (NYSE:NKE) as a wearable partner. The “iRun” is, at the very least, an attempt to take full advantage of the situation. A half baked exclusivity deal opens up too much risk for both companies.