The Inevitability of Apple's Current Predicament
alexstern.me
alexstern.me
IMHO the Apple ecosystem was always about getting people hooked on one of their products and then up-selling them other products and services and thus set them up for a lifetime of buying the latest and greatest from Apple at regular intervals.
In the past few years, I've seen many long time Apple users opt for alternative brands. And not just because of the price points. I have friends that now have Android phones and windows/linux laptops where just a few years ago they would have been de-facto iphone and macbook owners as well as own a whole range of misc apple branded products. Apple had a really nice business tapping into these people's disposable income and it has been evaporating for a while now.
By squeezing their iphone and mac book user base too hard, they have started to bleed users. This is bad news because it means the upselling business is going to dry up as well. People with an Android phone are not going to want an iWatch or iCloud subscription. They are also not going to order anything in the Apple store or sign up for Apple Music. And raising prices there is going to shrink the user base even harder.
Apple has neglected some of their core product lines and especially their recent desktops have not gone down well with users. The pattern is the same across their product lines: sales revenue is up but volumes are down for the last few years and not just because of the price. They make more money with fewer users. Except, now they are making not as much money as they hoped with even less users than they expected. They squeezed too hard and the numbers no longer add up.
The fix is simple: they need to change course and get volumes up again by making sure that they have attractive premium products that people can afford. You don't get service revenues up if your user base keeps shrinking. A few well positioned products at the right price point could easily bring back lots of users that have dropped out of the ecosystem. More of the same is not what is going to make that happen.
these sentences (among others) contradict each other. you first seem to imply that apple understands the price elasticity (the marginal measure of price vs. quantity) of their products, and then you claim the opposite.
i also don't like the rising prices of apple products, but you've made no rational argument for why they should lower prices. you're just saying that sales volume is down, so that means they should changes things to restore that volume. it's also not obvious that services revenue needs more sales volume to be successful. none of these are obvious proxies for net income.
apple is a profit-driven company (vs. a revenue or market-share driven one), and among the most successful in history. you may not agree with their strategy, but give them a little credit/benefit of the doubt here that they might understand what's going on enough to not ignore price elasticity.
How do you know they have fewer users? Not selling as many phones and earning less revenue than anticipated =/= fewer users. The bulk of their issue is their users are not upgrading to newer models at the rate Apple would like, not that users are exiting the ecosystem entirely.
One of the directions that Apple has taken iPhones in recent years is making them more durable and in iOS 12 they have sought to ensure the continued viability of some of their older models. It is more likely today than it was when the first iPhone came out that your phone will last you up to a good 5 years or so. It’s possible that it might take you even longer if there isn’t anything specifically driving you to upgrade, such as a better enough camera that convinces you to upgrade sooner.
Apple’s strategy has served them very well for a very long time, but that doesn’t mean it might not be time for a strategic shift. What are the reasons people buy Android phones? What can Apple do to entice them to switch that they have never done, or been willing to do?
Maybe it’s time to build market-specific SKUs for India or China or even Europe or Africa?
You're totally right. But economists, policymakers and journalists have raised the alarm on stagnant wages for a decade. That's the real problem.
Every consumer products company is facing the same macroeconomic headwind.
If anyone is culpable, it's most of all investors and management-owners. They gave us the bean-counting world where people aren't paid enough to afford the products, despite constantly increasing productivity.
Their wages and standards of living have risen fantastically over the last 30 years. But the flip side of that is depressed wages for workers in the US, who have been paid much better than most other workers, historically.
Another thing would be to offer entry-level products that get people into the ecosystem. Like the iPhone SE - smaller and less capable, but profitable at lower prices than newer models. Basically, keep a lower step on the ladder - it makes it easier to get aboard.
a decent new PC 2012 has a quad core ivy bridge CPU, a 600 series Nvidia Geforce card and quite possible an SSD drive. What latest OS won't run well on that hardware?
https://appleinsider.com/articles/18/12/24/apple-boycott-by-...
I haven't seen much talk about it in the news, but there are boycotts of apple in China over Huawei, and apple is increasingly seen as a 'US product', which is bad because China has never liked outsiders. To make matters worse, many Americans see Apple as made in China. Apple may end up in a position where they have to choose a market.
My current phone is getting old but it has dual-SIM slots AND microSD. Today's dual-SIM phones force you to give up the 2nd SIM if you want to use microSD.
As far as headphones, 2 pairs of bluetooth earbuds, fully charged, won't last a complete trans-Pacific flight. And now you've got 2 additional devices to charge while on the road with limited chargers/wires/plugs.
https://www.gsmarena.com/samsung_galaxy_s9-8966.php#g960f-ds
I never wanted these things.
> As far as headphones, 2 pairs of bluetooth earbuds, fully charged, won't last a complete trans-Pacific flight
Airpods work out ok for me here, just stick them in the case while going to the bathroom and you're good again for a while.
China has weird rules on this: nothing above 100 Wh, and you aren't allowed to use them during flight. If your power bank doesn't have a rating sticker on it, it will be confiscated by security. See:
http://www.goforeign.net/home/chinese-aviation-law-restricte...
Frankly, I'm not going to risk it for a transpacific going through countries with weird regulations.
https://i01.appmifile.com/webfile/globalimg/products/pc/D1S/...
Steve Job's focus on a small number of products executed perfectly made sense for his time.
But to continue to grow using this strategy borders on impossible. They would need to enter and dominate a market bigger than smartphones. Self-driving cars, for example. But that's really hard, as they found out.
The knowledge and experience that must have accumulated inside Apple must be incredible. There must be dozens of proteges of Jobs, Ives & Cook. The CEO does not need to micromanage every project, as Jobs did. Give that responsibility to many of these proteges!
If they diversify, some projects will fail and tarnish their brand. But some won't, and will burnish it. You cannot grow without taking risks.
They may never find "the next iPhone", 500 billion dollar markets are few and far between. But there are lots of billion+ dollar markets, Apple could enter and dominate many of them.
People consider the watch or appleTV to be failures, and perhaps they are, compared to the iPhone. But if they had a lot more of these types of products it would add up revenue that's more than a blip compared against the iPhone.
A company with > 100,000 employees can focus on more than one thing successfully.
I quit.
It's usually a compromise for organizations who don't really want to do housekeeping, sort of managing without hard decisions. It's not a good thing to be in.
Incorrect. There is a third way: reinvent the smart phone.
Back in 1899 the Commissioner of US patent office stated that "everything that can be invented has been invented." No doubt there are plenty of people thinking the same thing about the smart phones we have today. i.e., every feature that can be added has already been added. They are wrong.
Keep in mind that right before Steve Jobs unveiled the iPhone people thought the same thing about the mobile phones we had then. Then Jobs reinvented the phone. Can Apple do it again?
The name "phone" is mostly an accident of history at this point. Its primary use for most people is not as a telephone. Starting from a classic telephone, via incremental improvements, you would never have gotten to the iPhone.
(It's also a compass, a pedometer, a camera, and a dictionary, and you never would have arrived at iPhone by incrementally improving any of those objects, either.)
It's a handheld computer. Telephony just happens to be one of its dozens of features. So what you're really saying is "reinvent computing". Apple has several products in other areas (Watch, AirPods, HomePod, etc) which may or may not be successful in the long run but they're definitely trying to take their computing platforms beyond "Mac" and "iPhone".
The "smart phone" is done. I've seen people trying to "reinvent" that since 2007, and I haven't seen anything promising. We're already at a local maximum.
A computer on my wrist that ran something like Linux and gave the user control and had peripherals would be geeky but nice. You can do a lot of this with various droids, but it is a bit of a shallow experience and not too many enhancements can be made.
I think the main problem is that hacker news is an echo chamber and few others could even use such devices. Smart phones are simply made for the least common denominator.
I doubt someone at the patent office would say that given they'd be witness to all the applications coming in. Google seems to agree that this attribution was made up and has no prior record before 1981. The rest of what you say seems appropriate.
Emphasis mine. In 1899 an iPhone could not have been invented. Technological progress allowed the iPhone to be invented. So the question is, has technology progressed enough to allow a reinvention?
It's not just Apple. It's consumer electronics generally. There's no Next Big Thing. 3D TV? Flopped. VR goggles? Niche market. There's nothing in the pipeline on the scale of the smartphone, the cell phone, the video game console, the DVD player, the VCR, or the iPod. No "must have" product.
Voice assistants are growing very fast although they probably won't become high margin devices.
I would like to see the gap between the iPad and the Kindle bridged. There is e-ink research towards that but there is nothing productionized so far.
Or, you know, maybe it is. But it's not necessarily the case. The Apple Watch was made because it was within Apple's domain of competence, and it has not taken off because it wasn't also in the users' domain of need/want. It is possible that the two don't overlap.
Compare that to iPad. When it came out, it was an instant hit. It wasn't replacing an analog iPad. The competitors just didn't match up.
Here are two smart watches from almost 4 years ago: https://m.imgur.com/V9YZ5Kz
The Moto 360 looks beautiful and classy while the Apple watch looks like a cheap casio from the 80s
2) Durable version of the MacBook. Like you can pour sand over the keyboard, swap a cracked display by hand. Comes with a backup hard drive appliance.
3) Apple cloud. Wordpress/Shopify product, AWS S3 clone, AWS Lambda clone, AWS SQS clone, AWS RDS clone, Siri API. Make it all run on localhost too for edge and testing. Cross compile out of the box to Apple hosted GCP/Azure/AWS instances. Extend and embrace :)
I think you'd be surprised how repairable MacBooks are. The screens aren't hand replaceable but you basically need a couple of small Torx screwdrivers, maybe some tweezers, and about an hour if you're doing it for the first time. Not sure what you meant by backup HD appliance but Time Machine is hands down the best UX for any backup software I've used.
People buy new iPhones when they offer something new and meaningful they they are going to appreciate.
The iPhone XS simply doesn’t offer a significantly better experience than the iPhone X.
It is better, for sure, but not in any way that the iPhone X doesn’t already excel.
In previous years, even S models had significant new features. And speed used to really matter to how the device felt.
Both of these seem like rectifiable conditions.
It's really hard to fault a company for not innovating when nobody else is innovating either. It's a mature product category which means all the low-hanging fruit is gone.
For Apple to really innovate their way back into massive growth they're going to need to find another new product category. I have a really hard time seeing what that may be, as do most observers, I would imagine.
CES 2019 starts in few days, and rumor is that we'll see foldable smartphones there, so there are still some companies innovating, Apple just isn't one of them.
I agree and it’s been true for some time. I was an early adopter of iPhone but went one upgrade cycle with a Windows Phone. It gave me several benefits that iPhone either didn’t have at the time (like wireless charging) or that they still don’t have (easy “child” mode that limits access to specific apps and disables ability to send or read messages).
Wait...
what?
You think making a smart phone fold is innovative?
I don't know man?
I think maybe I'm just crazy or something. I still use my iphone 5, it seems to work fine. I don't really understand why I need to upgrade to the latest and greatest thing every year. But for me, asking me to pay hundreds of dollars for a new phone, when my old phone works perfectly fine, seems a bit silly. And then to say, "But this one will FOLD!!!" just makes me think you're insulting my intelligence.
Even just straight up copying the folding tablets from Westworld, it would change how I interact with technology to have a device that spans pocket sized and tablet sized.
A tri-fold phone could be a really big deal for me.
To be clear, the screen itself folds.
I'd say that is a pretty nifty innovation (assuming the quality of the image is still comparable to non-foldable screens). Not sure it'll work as for the UX, but technically it is quite an advancement.
Hard time seeing what’s next indeed!
So, if they manage to make the watch a ‘necessity’ in the health market, it can become very, very big.
https://www.google.com/search?hl=en&q=apple%20watch%20growth
It is growing the smartwatch market exponentially. Not as fast as the iPhone for sure, but that’s to be expected.
More to the point, I get the impression that Apple expected more growth than occurred already by the initial effort and marketing they put into watch. All of the hoped for growth hasn’t come yet, though it could still come in the future.
I think what they are looking for is a wearable (Apple or otherwise) being seen as a must have device, which isn’t the case in 2019.
Also - why do you keep saying Apple ‘expected more’?
It’s a multi billion dollar business and a growing hit.
You talk about hopes for growth that hasn’t come, but is that just an impression?
The area displaying watches was at least twice the size of the previous version, and more central. They also had a much more deluxe area in accessory section displaying watch bands much more visibly.
I see all kinds of people with Apple watches around here. The entry level black sport band model seems to be the default men’s watch.
We can see this with for example laptops (and PCs though that's an older example). The laptops of this decade are all still useful unless you're a hardcore gamer. And even for gamers (a specific market and niche) the need to upgrade their gaming laptop is lowering if they're OK with not the latest of the latest settings.
We should also take price into the comparison. A phone costing between 1000 and 1500 EUR is a lot of money for people.
Finally, we should take into account Apple's biggest competitor: the second hand market of iOS devices. Everything older than 5S still works with the latest iOS.
People who had ultrabooks, often try Atom based notebooks and sufraces. The key deciding factor for such people, I think, is having a good screen and bearable ergonomics (no microscopic keyboards, or batteries.) The data I have access to tell that the "big screen, small CPU," is the category with the biggest year on year growth. Atom based 14 and 15 inchers are selling like hot cookies.
As a person working in the industry, I can say that's a very visible trend. People switch their devices more due to battery and physical wear than actual need for more features.
In that respect, things got very "Japanised" in respect that Japanese cellphone makers are often making new models every season with no real changes other than cosmetic.
Japan is also the only developed market where "dumbphones" ever saw few upwards trends in last 5 years.
Software too. The kids have stopped using MS Office. They do all of their schoolwork in the cloud.
I also wonder if the downgrade is influenced by optimism about technology being replaced by a dread of being manipulated and harmed by it.
The product segmentation is confusion here. Pentium Silver (N5000) actually has more performance than Core based ULV Pentium Gold.
People who buy "big screen, small CPU" are not your usual refurbished hardware buyers, I think they really are "socially antipodal" to them.
Some bling and, "freshness" is definitely a deciding factor for them, unlike to people who buy "refurbished ABS plastic slabs" office class hardware.
Asus has a 15 incher that they sold close to $600 just half a year ago that was Atom powered. It was a very basic machine, with a surprising pricetag.
No wonder, every OEM is already on the trend.
And that's exactly the issue. Watch movies and web browse, oh come on... put a high-quality distro on it and 4GB is plenty enough for a snappy, solid, general purpose machine. Put another 4GB in it and you've basically hit workstation class, while Windows 10 needs as much just to be barely usable! Like, this makes no sense to me actually. It's so far out of a sensible perspective.
Look at Electron apps. A chat app takes more resources than my entire computer used to have and doesn’t do significantly more.
The neural engine on the A12, for instance. Tiny power consumption and massive performance could be a game changer. But it isn't because there is nothing in the user space that needs it, yet.
And really Apple's game isn't to usurp last year's phone in some massive way -- it's to compel the year before to upgrade. e.g. an iPhone XR or XS for the iPhone 7 user. Even that is getting tough because the devices were already so good that outside of battery decay many users are 100% pleased.
It was an inevitable outcome that the market would mature, and there is very close to nothing that Apple could do but push to additional markets. They foolishly tried to make up the difference through extra premium pricing and that was just folly.
I don’t define innovation as improving things for the sake of it. I think of it as delivering meaningful improvements to the end user.
To me, Apple has been the master of this kind of innovation.
Your point about the A12 neural engine proves what I’m saying.
I’m not saying Apple is resting on it’s laurels - that’s something of a straw man. I think what Apple is achieving technically is outstanding.
I also don’t accept the inevitability of the ‘outcome’ that Apple has fully satisfied people’s needs or that the market would ‘mature’. Most of the ‘needs’ that the iPhone X serves didn’t even exist when the first iPhone came out.
The idea that the iPhone X represents the pinnacle of what a pocket computer can do for a human being seems almost absurd to me.
If you think about it as a bicycle for the mind, as Jobs famously did, almost every dimension of the system has room for more depth.
I’d like to assume Apple knows this, and that there is a lot more to come.
However I still think that in terms of the pipeline of delivering innovation to end users, it’s fair to say that the iPhone is in a patch of friction.
Didn't they? It takes pictures. It sends emails and messages. It watches media. It listens to music. It plays games. It's a web terminal. It's an alarm clock. All of these needs most certainly existed, and the iPhone has sold billions of units by fulfilling those needs beautifully in a more convenient, portable fashion.
Of course the market matures. Beyond some hand-wavy nebulous conjecture, there is a limit to what the device can do without getting into science fiction, especially when your basis of comparison is one year over the next. If the complaint is that Apple hasn't completely upset everything in a single year, that's a completely unreasonable, irrational expectation.
At one point, the iPhone itself was science fiction. The iPhone X was science fiction when the iPhone came out.
Even after the iPhone came out people continued to be dismissive of its potential.
By all means be like them and believe that pocket computers are now done.
My point is twofold - one is that I think there is a huge room for continued progress in this field.
And the other is that the path of progress of the iPhone has involved delivering significant capabilities that enabled people to interact with it in new ways, and this has driven demand.
The rate of delivering those new ways of interacting has slowed.
We both agree on that.
But you think that’s because there is no more progress to be made and that pocket computers will not gain meaningful new features.
I don’t believe that.
Which is of course absurd. But you are jumping between "not enough change over a year" and "over an infinite timeline imagine what is possible". Try to rationalize your thoughts.
“Beyond some hand-wavy nebulous conjecture, there is a limit to what the device can do.”
And you are the only person taking about infinite timelines.
I’m simply saying that year over year, Apple has typically had significant features to drive adoption, and that has slowed. But it doesn’t need to have, since there is much more to be done.
I don’t know why you’re talking about infinite timelines, but you are saying the market is matured and the job of the smartphone is done.
We just disagree about how much innovation is still possible in the space.
Their own "innovation" was raising the prices, and saying ", the only viable strategy it was left with was to raise prices to extract higher rents from its existing user base" is just ignoring elasticity and demand.
"Sure, just make your customers pay more, that will work out fine" yeah, right
Depends on your definition of “significantly better experience”. For example, you can adjust the depth effect on iPhone XS/XS Max while framing/shooting a photo, whereas on iPhone X this is possible only in post. And that’s just one of the differences.
Except that it hasn't - if anything, it has widened with Windows 10 being such a massive dumpster fire. And most computer users have no idea that you can wipe Windows 10 completely if you want, and run a free Linux distro on your PC.
I run macOS, Windows and Linux on a daily basis, and find macOS and Windows very much equivalent in use. (Linux less so for my particular use, I find Linux desktop environments ugly, so I'm CLI only.)
Anecdotally stores near me were heavily advertising the iphone 6 still during the christmas/new years period as it seems to be the only model with a sane price.
Not to mention he would be smart enough to form his own company....
Definitely the biggest most recent disappointment was the HomePod which has the technical potential to be a pillar of their home and business market.
It’s a nice speaker. It’s a nice speakerphone. It has most of the hardware necessary to serve as a WiFi router. It could replace Apple TV, or serve as a higher end version of the Apple TV.
What it is lacking is good I/O options and the ability to integrate into, even become the centerpiece of peoples’ existing A.V. systems. Not to mention there’s entire classes of Apps that don’t entirely need a GUI front end to be operated and used (podcasts, music, VoIP, meditation, metronomes, et cetera).
With just a bit more vision and a voice lock, you could have a nice speaker/mesh router/home automation hub/conference speaker/personal assistant and hell, game console. If they played their cards right, you’re potentially talking several HomePod products (higher end and lower end models) per customer.
The Apple TV, which has all the requisite hardware and software to be an excellent game console, and upgrade path, but a blindingly stupid set of policies which inhibit its appeal as a game console to both developers and gamers. This is a big market of potential customers that Apple could get a nice slice of, but intentionally choose not to target. They don’t bundle a game controller, they don’t have a SKU which bundles a game controller, they don’t market it towards gamers, they actually require developers to support the Siri remote which is anemic even by remote standards, let alone game controller standards. There’s no Apple Game Studio, there’s no attempt to build relationships with large game studios and publishers beyond just being appealing enough of a platform to have a few games ported to iOS, and maybe a few free to play spinoffs of some IP.
In short, the only reason the Apple TV isn’t a powerhouse gaming platform is because Apple has no interest in owning a segment of a lucrative market.
The whole deal with their desktop Mac lineup, and their professional Mac lineup has been a shit sandwich. The fact they eventually had something to show isn’t an excuse for the years of not communicating to a set of customers willing to pay a lot of money for professional Apple hardware and professional Apple software. Now we know a Mac Pro is coming. Now we have the iMac Pro. Now we have an updated Mac Mini. Now, where is the roadmap? The sign of commitment to maintaining an up to date lineup so professionals, the ones that didn’t leave for greener pastures, might have a sense that there is some commitment from Apple to keep their Pro line going?