How Apple Scaled Back Its Titanic Plan to Take on Detroit
bloomberg.com
bloomberg.com
Apple's strength in automatic driving should be the development of better, and better-looking, sensors. Apple does electronics and small hardware well. Those Velodyne LIDAR things are rotating kludges, look awful, and cost way too much. There are better approaches known. (I'm a fan of the Advanced Scientific Concepts LIDAR, which works great but costs too much because it's made by PhD physicists in Santa Barbara.) Existing automotive radars are dumber than they could be. Those are straightforward engineering problems that Apple could solve.
Building cars is a low-margin business. If Apple became a successful car company, their stock would decline.
So is building phones.
All the major manufacturers have announced programs for self-driving cars except Fiat/Chrysler. They mention Ford which has stated they will be in production by 2019.
Now I would suppose if Ford, GM, Mercedes, Toyoto or any of the Chinese car makers were to have their software fail Apple might be an awfully nice fallback.
FYI Ford learned massively from its problems with Microsoft's Sync technology. All the engineers knew it would be a complete disaster but that news wasn't passed up to the execs. Now engineers have been brought into the process.
http://www.detroitnews.com/story/business/autos/ford/2016/10...
So yeah, Apple's smart to see if they can even make an autonomous system before trying to make their own car. Make sure all the problems are solvable before trying to solve them.
This is in stark contrast to the compartmentalization of new projects that Apple under Steve Jobs was able to accomplish with the development of the Macintosh and the iPhone. Is this evidence that Apple is unable to do that now?
Thus, we get Mansfield in to say "no, we're focusing on this first; we don't have a car without it." This would be like Jobs (or Forstall) coming in to say "we're focusing on a multi-touch OS X first; we don't have a phone without it."
So, to answer your question: maybe. :)
Since he was also in the Korean Marines, I trust his judgement.
Cyclical is also great -- that's exactly what the laptop and especially the phone market are.
Macs have always historically been high-end and Apple's marketshare has historically hovered around 10%. Apple has come to dominate the high-end computer in recent years ― specifically the high-end laptop segment; at one point attaining 90% marketshare of laptops priced over $1,000 ― but that peak has receded and Apple never did penetrate the desktop market as much (which is another important segment foe high-end computers)
On the other hand, Apple's first mobile device (the iPod) was decidedly mass market and mass produced as Apple offered products for every price and segment ending up with over 70% marketshare for ALL mp3 players.
The iPhone is an interesting inflection point. Like the iPod it started out priced at the high end but Apple didn't quickly followup with cheaper products for all segments. Why not? The reason instead is that Apple went the mobile carrier subsidy route. The iPhone is mass market, mass produced and has ~50% marketshare in USA. However in markets where carrier subsidies aren't the norm e.g Europe, Apple has less than 20% marketshare.
Guess which other major technology purchase receives subsidies/payment plans? Cars. Apple could feasibly sell 'high-end' cars on mass market contracts and still retain their margins. However car manufacturing is very hard and Apple doesn't have any leverage from their existing products to force an advantage from the car parts factories...
My first Apple laptop, a Titanium Powerbook was almost 3 times that. Hard drive, keyboard, ram, battery were all user serviceable.
My point was the company isn't what it once was, it's not a high end tech company for the few but a disposable tech company for the many.
In that sense maybe, but not in the "low quality" sense (which disposable also implies, e.g. disposable razors etc). Besides modern cars are not "user serviceable" like 70s cars for the most part either, but they are not "disposable".
>My first Apple laptop, a Titanium Powerbook was almost 3 times that.
The overall price for the high end laptops on the market dropped since the Titanium powerbook though, and modern MBPrs are still priced at the high end segment of today's prices.
You can't expect 1999 prices for a 2016 computer when the tech innovations make both low and high end products more affordable all the time.
>My point was the company isn't what it once was, it's not a high end tech company for the few but a disposable tech company for the many.
"High end tech company" does not necessitate "user serviceable".
The tech in the Mac, compared to the average laptop, is way higher, and the engineering process to build a new MacBook Pro Retina model (from the machining to the logic board, batteries, etc) is far more advanced. Hence, high end of the market.
Nor was the Mac ever "for the few" -- it was always intended as a mass market PC, for those with the money to spare, not just some tinkering propellerhead elite ("the computer for the rest of us"). Heck, they even sold cheaper models back in the day (the Mac Classic, the original iMac, etc).
They are obviously mass produced, as they are consumer electronics, not boutique items.
They still cater to the high end of the laptop/desktop market (which is not the same as the "gamer laptop" or the "high end 20-core rendering workstation" niche market).
What competition do you think they have at that?
They are if not the most, some of the most well designed, well thought out, and innovative custom solutions (from heat dissipation to machining and assembly). The parts they use are the cream of the crop of the respective yields too -- when they mass order Samsung SSDs or AMD cards or memory, they get the best production runs. They don't use the most screaming, 1000 watt, 2-fans greatest speed AMD/Nvidia cards, but for the ones they do use, and that fit the energy/power profile they want to have in their boxes, they use their mass purchasing power to get the best units.
Margins is super complicated. iPhones don't cost more than Samsung flagships -- Apple's margins seem to come mostly from controlling manufacturing costs. Could Apple assert similar control over manufacturing costs for cars? Maybe! But maybe not. Cars are more complicated than phones.
If a margin inflation gets passed along to consumers, well, there are more people willing to pay an extra $200 (compared to a lower-cost competitor) every few years to have an iPhone than there are people willing to pay an extra $20,000 every few more years to buy an iCar -- just because it's a lot more money. And to be clear, $20,000 is an equivalent margin to the $200, scaled up for costs.
One of the nice things about the electric car business is the the part count is a lot lower, they are basically much simpler devices, and thus should be able to be made much more cheaply.
We may see a Yugo level electric car for $10,000 in a few years.
This would allow for margin expansion, especially if Apple can innovate in the manufacturing side (eg: go one better on automating the factory)
Plus since currently a Toyota RAV4 level vehicle goes for $30k-$40k, if Tesla gets down to the low $30k, Apple could produce a car for the $40k price point and be making $10k-$15k profit on each one.
Lower gross margin than the phone business, but offers the opportunity of significant revenue upside.
Plus with Apple there would be follow on revenue as well.
Since people are in the habit of paying mid $30k for a car right now, while there will be cheaper electric cars at the lower end of the market, Apple wouldn't require people to change behavior to be able to afford a car that gives Apple the kind of margins it wants.
Plus I expect there will be several innovations that are things "only apple can do" that add value-- the interiors of cars and especially the electronics and instrumentation of modern cars are terrible. Even the Tesla which tried a new approach, I think has bad usability. There's a lot of opportunity there.
One of the things that has made me never really believe in Apple's competitive advantage with cars is that beyond an ultra-high talking points level ("design!"), I don't see any reason to believe that Apple has relevant expertise.
Now buying Ford is probably not the way to go. But, Apple can skip a lot of the 'ramp up' if they ever wanted to get into the car business.
There are two things that I hear people say Apple is notably good at:
1. "Design."
2. Controlling a complicated end-to-end extremely high-quality manufacturing process.
For 1, I'm not sure I believe that there is a transferable organizational expertise between designing phones and designing cars.
For 2, I'm not sure I believe that there is a transferable organizational expertise between manufacturing phones and manufacturing cars, and I'm definitely sure that I don't believe that they can transfer organizational expertise to manufacturing cars if they purchase an extant manufacturing process/organization.
I recently drove a car with lane following and adaptive curse control and it kind of sucked. Lane following needed great road conditions so it failed miserably. But, while adaptive cruse control was nice in heavy traffic, it was also clearly tacked on. The acceleration and deceleration was felt jerky.
People can generally drive really smoothly in traffic so why suffer a machines erratic behavior when you need to focus in case it fails. Sure, do the same thing but better seems obvious but iPhone was more a response to poor completion than a truly innovative product.
Seriously, what does that look like? What are the attributes of a person who is good at integrating hardware and software on a phone, and who also is good at integrating hardware and software on a self-driving car? Your example was jerkiness in acceleration and deceleration. The people who are good at mitigating jerkiness in acceleration and deceleration are presumably mechanical engineers and roboticists/AI guys. I don't think that any of those people have been involved in Apple's flagship, reputation-making products so far.
As you allude to, it's easy to say "do the same thing but better." If all you needed was a product guy who was like, "Hey, we should make this better," then it would already be solved.
The best example I can give is stuttering when you drag stuff around. Android phones had issues for years with this because it's not really a hardware or software issue it's both. Eventually you can throw enough processing power to make this go away, but being a few years ahead of that curve is the kind of thing people will pay a premium for. Ed: It's the kind of issue you can't just point at one group and say fix this.
PS: That said, I don't think an iCar is a good idea right now. We seem to be in the Palm pilot stage of self driving cars, give it 15 years and apple could make a killing, but it's still a little early.
The barriers to entry are insanely high, of course, and that places Apple amongst a handful of companies with the resources to clear those barriers.
Autonomous vehicle pioneers have recently amended their expectations for when autonomous car will be fully realized, claiming it will now be more than 20 years. This is a far cry from conventional expectations in the self driving car world 3 years ago, when it was assumed that one or several big industry players would be mass producing robotaxis by the mid-2020s.
lol
Roads are tough. Sometimes they're covered in snow, ice, rain with poor visibility. Sometimes they're well constructed, other times they're in disrepair. That's just the technical side of the issue.
The social side (at least in the US) is much more difficult. In the foreseeable future, any AV will have to share the road with "classic" cars, driven by humans of modest computing power. Trying to anticipate how they will interact should be interesting to say the least. And in our hyper-litigious and hyper-protective society, the clash between AVs and traditional cars will be difficult to resolve.
Uber may arguably have a first mover and scale network advantage. I personally doubt that will hold.
Maybe they can get back to making some new laptops, and some desktops (Mac Pro, Mac Mini), that don't suck!
We shall see what October brings.
Also, if you look at all the big tech companies (American ones at least) over the past 30 years, there's a recurring pattern of a company becoming preposterously successful, then spending a decade or more reaping the benefits of that success while repeatedly throwing money at the wall for different new projects to try and find something else that sticks. Meanwhile core businesses can lose focus and wither on the vine while huge piles of money and engineering talent get wasted on things that either go nowhere, or break even and fade away years later.
Until the last few years, post-1995 Microsoft was a perfect example of this. If there was a product category that was significant enough to be the basis of some other company's entire business (dialup Internet access or search engines or personal finance software, for example), they would spend many years and billions of dollars creating a Microsoft version of that product, based on the idea that they could siphon growth from a known and already-proven segment of the industry. I don't think this was due to a lack of vision or incompetence, I think that that just appeared to be the most effective way to meet investors' demand for growth and new revenue sources.
Google is in a similar bind. Think of how long it's been since they have effectively attained a search monopoly. They created a perpetual money machine (ads) that to this day provide the vast majority of their revenues. For 15+ years they have been expending titanic resources on trying to find a way to transition from a company that gets >= 90% of its revenue from ads, to a much larger company with many more revenue streams. They've had some great successes, but they have yet to break out of the trap of fundamentally being a company driven by ad revenue.
First of all, I'm not sure there's any evidence to support your claim that public companies are under pressure to diversify over iterate.
Second, public companies have chosen to go public. It doesn't just happen. So, blame them.
>lso, if you look at all the big tech companies (American ones at least) over the past 30 years, there's a recurring pattern of a company becoming preposterously successful, then spending a decade or more reaping the benefits of that success while repeatedly throwing money at the wall for different new projects to try and find something else that sticks.
In other words, luck is a substantial portion of success.
This is the real reason legacy car makers don't want fully autonomous vehicles.
Tldr: It should be a wash.
The systems have suffered many failures and crashes over the years, due mostly to poor maintenance and gross mismanagement.
Now the agency is under pressure from government regulators to retire old cars because they are not crash worthy. I find it alarming that we would talk about rail cars being crash worthy. Why not improve the system so cars don't crash? Nonetheless, new cars are much stronger and more crash worthy.
Since there are many more possible points of failure with autonomous cars (bad roads, non-autonomous cars being out there too, objects in the road, bad programming like that involved in the Tesla crash, etc) autonomous cars are going to have to be at least as crash worthy as Metro cars for the foreseeable future.
Cars that do 400 miles a day will reach 200'000 miles within ~1.3 years. Usually most cars are fairly low value by then. They would reach 400 miles by being on a highway for ~6.5 hours/day, which is fairly reasonable to assume.
Partnership means smaller profit margin in a very tight market. The Big 3 for example barely make any money when selling cars (as opposed to pickups) these days, so to get a reasonable margin the price would need to be jacked up...
Making your own - the barrier to entry in that industry is VERY high which the article kind of alludes to talking about how it's hard to find suppliers willing to sell small batches of parts etc. There's a reason there aren't that many auto manufacturers around, and the ones that are out there aren't exactly the kinds of revenue generating machines as apples and googles of the world.
Heck there were even EXTERNAL projects with no direction, like the Apple TV (still flailing around), the Apple Cloud offerings (only got robust in the last 2 years or so, and the most touted part back then, the "office"-like iCloud apps are universally ignored), the Apple boom box, and other things besides.
Supposedly the iPod launched with a idiosyncratic equalizer, apparently tuned to Jobs tastes.
I think idiosyncratic also describes Jony Ive -- but as a pundit (possibly John Gruber?) put it on a podcast recently, Jobs was a better editor. He was good at zeroing on what made designs work rather than merely beautiful. If I have any major criticism of the post-Jobs Apple, it's that they seem to prioritize aesthetics over functionality. I know that's a knock that critics made against them long before the Tim Cook era, but I don't think it was really true until post-Forstall.
(And no, I don't mean losing the headphone jack. I mean more things like the entire UX of the new Apple TV, from the beautiful user interface which makes navigating through multiple seasons of a TV show an endlessly scrolling nightmare compared to the previous model's design to the thin, elegant, ergonomically disastrous remote control. Ive seems particularly drawn to the notion that thinness and symmetry are more important than usability.)
A lot of apps let you select the season from some sort of "drop down" or display a list of seasons vertically and let you scroll through individual episodes horizontally within that season...
[1] http://appleinsider.com/articles/16/01/25/apples-project-tit...
I believe that a creative type like him has trouble operating under the demands of a corporation like Apple at that level, and that he did so for so long because his collaboration with Jobs was very intense and personal, and that this is not something he can have with Cook. Under Cook he is supposed to be the one who replaces Jobs in that role (while Cook is an execution guy.)
I believe he is participating and staying around only so long as necessary to get things ready for him to leave.
He's earned a retirement and some time to follow interesting design work that is not relevant to Apple's business.
Apple has a problem with leadership. When managers aren't buying into a vision, mostly because it's murky at best, that is a big problem.
SV hubris believing you can go into any industry and disrupt the incompetent incumbents is laughable. FB found this out with phones and it sounds like Apple and Google are now figuring it out with cars.
The Netflix idea works here too: Apple and Google have to become more like GM and BMW before GM and BMW become more like Apple and Google. GM will have an awesome electric with a better range than a Tesla Model 3 this year! If they ever figure out aesthetics and software they will win.
Finally this article highlights what Musk has done at Tesla. They are the closest SV company to actually figure out manufacturing. It still remains to be seen but if they do it Tesla will be the market leader in cars.
I see no reason to think that Apple could do with cars what they did with the iPhone, but that particular example doesn't make any sense.
Phones were ready for a natural complete upgrade from brick phones to smartphones. The mobile environment was there, all the network components were coming online to make it a really useful device, processors were getting to a good stage for mobile usage where it made sense to make the jump and the jump was right into what Apple already knew pretty well. The phone part of smart phones is pretty minor, quite honestly. Smartphones weren't so much an evolution of dumb phones, they were a complete redesign and replacement thereof. The technology that puts an OS in your hand just did the job of being a phone better than a brick phone did[1], and it came with a bunch of extra features that people didn't know they wanted.
Cars are a little different. Fundamentally, a self-driving car is still a car with an OS attached. It's not so much just figuring out the OS part of it, it's also getting the engineering on a vehicle right, and I'm guessing with autonomous cars there's a lot you have to take into consideration when it comes to the mechanical aspects. It's not quite like the phone situation where you just replace brick phone with smart phone - a smart car is fundamentally the same as a dumb car except that you don't drive the smart car (and in some models, you do). There's a lot more to take into consideration, a much larger spectrum of rules and regulations, and honestly the car part of smart cars is pretty involved. It's not that Apple doesn't have the money to throw at car R&D, it's just it doesn't seem to make a lot of sense to do it.
Again, I don't doubt they could do it, but the barrier of entry just seems higher here, and it's not as natural of a segue for Apple either. They're not just building a tiny computer with an iCar, they'd be building a car with an Apple computer.
[1]I realize that many prefer the brick phones to smart phones and that smart phones are pretty bad at the phone part of being a phone, but ultimately between the myriad of communication apps available, you have more communication options available in your hand than you do with a brick phone, and more ways to do the communication thing.
Now, just because they were wrong to say it then doesn't mean you're wrong to say it now. I think you're right. I'm just saying that phones are a terrible example to bring up if one is arguing that SV companies can't take over industries with entrenched incumbents.
I appreciate that a lot since I was one of the naysayers. Admittedly I was a bitter PPC Mac user upset that we weren't getting attention on the desktop side but I was still worried.
However, even if hindsight is 20/20, I do feel that a lot of the infrastructure and resources necessary for an iPhone were just there already and apple seized an emerging market. With cars I feel that the regulatory, technical, and physical infrastructure for smart cars isn't there yet for anything disruptive. Driverless cars still appear to need a lot of hand holding, and while there will be an investment payout eventually for folks in the game at the moment, I'm not sure it's as great as they are hoping it as soon as they are hoping. In my mind it makes more sense to have an apple iOS port for cars than an iCar. Or set up the infrastructure that driverless car folk are going to want. Siri taxi for example. Siri pizza delivery. Siri breathalyzer and/or drunk talk analyzer and safe delivery to home.
Basically whereas I feel that in the mobile space controlling the hardware 100% make sense, with the cars maybe it makes more sense to just get the software right. Maybe Apple sees the writing on the wall and figures very tightly controlled hardware so not much testing needed/similar performance.
I do this the differences are great enough Between the car and phone research to warrant the move. But maybe once again I'm just bitter Apple isn't paying attention to their desktop line. :p
The biggest challenges were being extremely energy efficient to get acceptable battery life out of a tiny battery, and being extremely data efficient to get acceptable costs from expensive cellular carriers. People pointed out, and rightfully so, that Apple wasn't good at either.
They didn't anticipate that Apple would build a phone that was basically a thin shell around a (relatively) huge battery, or that they'd manage to convince a major carrier to offer an "unlimited" data plan. Suddenly, the stuff that the incumbents were good at didn't matter that much.
I don't see any way to do an equivalent move in the automobile industry. I don't think there are any areas that everybody is failing to fundamentally rethink, the way they were with energy and data usage a decade ago, where Apple could jump in and change the whole game. But I wouldn't bet money on it....
I'd reword your first challenge as moving what had been theretofore a desktop OS onto a handheld device with acceptable performance/power consumption. Once that was done, it provided massive leverage for Apple over any of their competitors due to the maturity and flexibility of their toolchain, as well as a wealth of developers both inside and outside the company who could exploit it.
http://www.edibleapple.com/2010/12/28/rim-was-in-disbelief-f...
Limited/no cross-sale synergies with other products
Massive up-front costs to establish a manufacturing network
Massive up-front costs to establish a dealer and maintenance network
Strong existing competition which will only get stronger with time
No clear USP ("Made by Apple" is not a USP)
The only way to crush the market would be to make a car that flies and to set up the infrastructure to make flying cars usable for domestic and work commuting.
Since that's not going to happen, the absolute best anyone expects from Apple Car is a me-too car that looks a bit nicer and rounder than the rest. And is available in white, black, pink, and gold. And it absolutely has to self-drive, because that's where the competition will be.
Me-too isn't enough to win in that market.
If you imagine that people will buy, own, and sell cars the same way they do today, forever, then sure--an Apple car makes no sense. But it's pretty likely that the relationship between cars and people will change at some point, and that is the point at which Apple wants to be ready.
Or rather, just beyond that point--when the new direction is clear, but the early products still suck. That's when Apple likes to get into new markets.
Given that the range of possible ideas you're talking about extends from better software to power autonomous cars, through to an entirely autonomous electric car which Apple manufactures in its entirety, and also incorporates potential partnership with another brand such as BMW, it seems hard to believe that someone could dismiss Apple car as "a fundamentally bad idea".
> Limited/no cross-sale synergies with other products.
CarPlay is a fairly good example of this not being true. And if cars become fully autonomous, there's unending cross-sale opportunity for Apple (since people will be doing in cars what they do with Apple products outside of cars).
> Massive up-front costs
Apple has not incurred, as far as any of us know, any costs related to manufacturing, dealer, or maintenance networks.
> Strong existing competition
Strong by what measure? AI? UX for in-car systems? Industrial design?
> No clear USP ("made by Apple" is not a USP)
It is when for many people that's a byword for simplicity, smart features, and elegant design. In any event, it's hilarious that someone's arguing that a car the company has never acknowledged existing "has no USP".
> The only way to crush the market would be to make a car that flies and to set up the infrastructure to make flying cars usable for domestic and work commuting.
Apple has never sought to crush a market. They seek to have the highest share of profit in a market.
> the absolute best anyone expects from Apple Car is a me-too car that looks a bit nicer and rounder than the rest. And is available in white, black, pink, and gold. And it absolutely has to self-drive, because that's where the competition will be.
Yeah, if you arbitrarily cut out user experience and the integration of hardware and software as a competitive advantage, then Apple's car will just get people from A-B in the same way as any other car.
> Me-too isn't enough to win in that market.
Nobody except you is arguing that the Apple car would be "me-too" and completely devoid of any unique advantages which other car manufacturers would seek to emulate.
This will change the auto landscape drastically. This is a product of the Chevrolet Division of General Motors. They're good at making and selling large numbers of cars. It may not be as cool as Tesla, but there will be millions of these things soon.
[1] http://gas2.org/2016/10/14/chevy-bolt-pre-ordering-begins-ca...
That's the inverse of what would actually be a big problem: managers BUYING into a "murky at best" vision.
>SV hubris believing you can go into any industry and disrupt the incompetent incumbents is laughable.
Isn't that what people said about music players and then about phones? Heck, they are already the #2 watchmaker in the world in profits too...
>FB found this out with phones and it sounds like Apple and Google are now figuring it out with cars.
Neither Google nor Apple have ever released in car. If anything, their setbacks are related to the advanced self-driving stuff they aspire to make, not some issue competing with existing car tech or distribution or anything.
Besides, tons of companies have entered the car market and gave established car companies a run for their money already. The Japanese obliterated the established Detroit order for example, and new Chinese cars are as good as anybody's for general use. Tesla also come out of nowhere and cornered a niche of the market. Heck, traditional car companies are so complacent and derivative that if anything it's the inverse of hubris to believe one can do better.
Nowadays, when most of the manufacturing the expertise is in assembly lines in China and the like, creating a new car to compete with existing models is laughably easy -- especially if you have $500 billion lying around.
Chinese cars are barely being imported in the U.S. (Three models so far). It has taken many years to get this far, and will take longer for them to have a similar reputation as, say, Korea.
Tesla has done well in the luxury car market, but they've been late and had quality issues. The Tesla 3 is not out yet and there is still a big risk they'll fail.
So, "laughably easy" is a major exaggeration. It's possible to launch a new car company but nobody finds it easy.
Yes, but the US is a mere 5% of the global population and about 20% of global GDP (down from decades ago). You can be a huge player and not even play in the US market. The Chinese are already selling their cars in many global markets.
>Tesla has done well in the luxury car market, but they've been late and had quality issues. The Tesla 3 is not out yet and there is still a big risk they'll fail.
Tesla doesn't have Apple's half a trillion in the bank though. And which established car maker didn't have quality issues at various times (and still today)?
No.
Palm CEO in 2006 Ed Colligan, about the upcoming Apple iPhone: “We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”
Dell CEO Kevin Rollins, after Dell had released the Dell DJ Ditty (lol) mp3 player: "So this [the iPod] might be an interesting new product but I’m not really believing this is going to turn the industry upside down." (...) ""Apple's created a niche. If you look at the grand scheme of things, this quarter we are supposed to achieve something like $13.5 billion in revenue. Apple's in the $2.4 billion (region), so the size and scale is not even in the same league."
Creative's CEO about Apple's iPod new model circa 2005: "I think the whole industry will just laugh at it, because the flash people — it’s worse than the cheapest Chinese player. Even the cheap, cheap Chinese brand today has display and has FM. They don’t have this kind of thing, and they expect to come out with a fight; I think it’s a non-starter to begin with."