Apple’s Errors
stratechery.com
stratechery.com
It will be very interesting to see if Apple even supports the iPhone 6 generation of hardware on the next version of iOS. If not, or if the software performance regresses significantly, I would expect the hardware upgrade pressure to really ratchet up again in the fall.
[1] https://bgr.com/2018/09/20/ios-12-speed-test-vs-ios-11-on-ip... [2] https://techcrunch.com/2018/09/17/ios-12-makes-your-phone-fa... [3] https://www.engadget.com/2018/09/18/apple-ios12-older-iphone...
> It’s a bit of a hodgepodge with one primary takeaway: convincing customers to upgrade “good enough” phones is both challenging and unpredictable, and Apple can’t simply assume it will happen at the rate it has previously.
Ultimately he claims that users will eventually upgrade to the latest flagship iOS device. I think you (and I) disagree with his claim, though!
(I also might be falling prey to confirmation bias myself, specifically on the topic of phone pricing...)
I know I fall into that group of users. I own a 7 currently, it's a few years old, but works well enough. I see no reason to upgrade to an XS today. If the 7 fails tomorrow, I'll buy an XS.
I hope Apple will use it's hoard of cash to become like Toyota - long-term reliability promoting trust and in turn promoting long-term cash flow.
Ditto. Loved my 7. Walked into a pool with it in my pocket. Now have an XS. Typing this on a 2015 MacBook Air I only have because I traded my 2013 Air $500 to a neighbor for it. Plan on keeping it another 2 to 3 years; same, at the very least, for the iPhone.
They're well-built products that tend to work, and have warranties that show for it.
I'm surprised your phone died, given that iPhone 7 is relatively water resistant.
I usually upgrade every year, but the new phones just aren't enough of an upgrade from the original X to warrant it, especially given the much higher cost.
Meh, I don't know about that. Sure, iOS 12 is great and all, but the iPhone 5S and 6 have just 1GB of RAM. With essentially all mobile devices not using swap at all (due to the highly dubious endurance of the low-grade, Chinese-installed eMMC storage), that's just barely enough for the modern Web these days - and newer iOS apps can't be that much lighter, either! So, I fear that the iPhone 5S and 6 are practically on borrowed time, no matter what Apple does. The Nexus 5 is in far better shape, seeing as it came out with 2GB and will be able to run pmOS (on a mainline kernel, no less)...
A friend of mine had a 5X replaced under warranty and immediately dumped it on eBay and bought something else because there was no sign of an official fix coming for this.
EDIT: I wasn't sure if this is still up to date, but after some research it looks like "custom ROM to disable the fast cores" is still the state-of-the-art solution https://www.reddit.com/r/nexus5x/comments/8pbg5n/my_guide_to...
I do have an old 6, but its not my main phone. I thought it was faster, but haven't used it enough to say.
I would check your battery health under battery settings. If it's under 80% that could be causing the issue.
The 6s has 2 gb of ram, which is a big part of the difference.
You might be surprised. Desktop safari is significantly more resource (including memory) efficient than Chrome and Firefox. And iOS apps are written in objective-c and swift, which are also a lot more memory efficient than say Java or JavaScript.
Of course, 1GB of RAM is still pretty small. But if the idevices can last 5 years instead of 2, that would be pretty significant. I don't think anyone expects them to last forever.
Stuck on iOS 9 with that so it might not be a good idea from a security perspective, but I'm impressed with the hardware. At least one of them I know had a screen replacement, but still.
Another other side of this is that they've given people good reasons not to upgrade: I've been surprised by the number of people who commented that the new phones are uncomfortably large to hold and, of course, a fair number of people don't like losing the headphone jack. None of those are complete showstoppers but since costs have also gone up around 20% beyond the rate of inflation[1], you don't need to give people much of a reason to delay a purchase which isn't necessary since everyone knows the phone you buy next year will be even better.
1. A quick spot-check comparing the iPhone 6S & 6S Plus we bought in 2015 vs. the XS / XS Max now has it at 24% with no improvement in storage capacity.
If someone was happy enough with their iPhone 5s, 6, or 6s running iOS 11 when the X was released (Fall 2017) then I suspect they didn't feel much more pressure to upgrade when they were running iOS 12 and the Xs was released (Fall 2018).
I won’t buy anything newer than an 8, until such time as they give me fingerprint ID back in some form.
Hard stop.
I'm pretty sure that if you like Finger print sensors, you'll have to switch to Android at some point.
What about a reader that is not only arms length away, but oriented in a very inconvenient position?
I don’t want any device that could potentially unlock itself just by someone holding it up and asking if this is my phone. Or that could lock itself up tightly and possibly even wipe itself, because it had seen too many strange faces.
Now, I don’t use biometrics to unlock my phone. But the inconvenience of having to look at the phone and have it scan my face when I want to use ApplePay, that’s plenty enough reason for me to never use a device where face scanning is the only biometric method available.
I don’t care how much they claim that the data never leaves the phone. That’s just table stakes for me.
also software that causes such "harm" is typically written by someone else. it is funny seeing apple themselves write and distribute the harmful piece.
I don't think that any of this has surprised Apple. I think they have long seen that peak iPhone (and a mature market) is coming, or even already arrived.
Apple is focusing on their install base, which is enormous (over 1.5 billion devices [2]), and is figuring out ways to leverage that advantage. They know that the upgrades will come, albeit more slowly, but in the meantime, they can provide services, accessories, and eventually new products that customers will be fully willing to pay for. I think it is obvious that there is a pretty big transition that the company is in the middle of, but I think they are clearly best positioned to take advantage of that position.
It would, frankly, be baffling for Apple to suddenly change course direction over a single quarter. I think they are setting this course (ie, longevity of devices) because they think it is the right thing to do for their customers, similar to how they uniquely ran the battery replacement program. [3]
[0] - http://live.arstechnica.com/apples-september-12-2018-gather-...
[1] - http://live.arstechnica.com/wwdc-2018/#post-1319367
[2] - http://www.asymco.com/2018/02/27/the-number/
[3] - “We did not consider in any way, shape, or form, what it would do to upgrade rates. We did it because we thought it was the right thing to do for our customers. And sitting here today, I don’t know what effect it will have. And again, it’s not and was not in our thought process of deciding to do what we’ve done.” - Tim Cook
I believe the answer is that Apple doesn't really believe that service revenue will grow fast enough to compensate for longer hardware replacement cycles.
And that belief is probably justified because their service offering doesn't seem very robust at this point.
Lots of people on HN, as well as elsewhere, will take issue with that philosophy. But that is what Apple thinks, and why they have the roadmap they do.
Inevitably, there is a limit to that price elasticity, but I don't think this quarter indicates that the devices are too expensive. Also, I think you are right about services. It is the only current growth story, but 1.5 billion devices is a lot, and they will upgrade at some point in the future, most likely to another iPhone. But you are correct that there is nothing that will replace the rocket ship that was iPhone.
[0] Tim Cook - "And I think that iPhone X shows that when you deliver a great, innovative product there's enough people there that would would like that and it can be a really good business." https://www.imore.com/apple-earnings-q3-2018
I don't claim that it does. My point is that there is a trade-off between increasing the average selling price of hardware and broadening the user base so you can sell more services to more people.
Apple's market share is now dangerously low in some parts of the world, including some rich European countries. It makes features and services that are restricted to Apple devices completely useless or far less valuable.
https://deviceatlas.com/blog/android-v-ios-market-share
Definitely not a status symbol.
Every phone that Apple has introduced since 2013 is still getting updates. The 2015 iPhone 6s still runs circles around midrange Android phones and is even faster than flagship Android phones in single core performance.
A premium strategy is fine. A luxury strategy could be a disaster, especially if they intend to make money on services that require broad adoption.
It’s a tired trope to imagine what Jobs would have done, but when he returned to Apple he saw a myriad of macs and decided that Apple would kill them all and sell 4: a laptop and a desktop in pro and consumer models.
Apple started grabbing more market share by providing all these different form factors, but in the process they’ve lost the simplicity that has always been their hallmark: walk into a store, pick the pro device or the consumer device. No choice paralysis.
It also muddles the consumer signaling that has always driven Apple — there’s a new high-end device, it’s obviously different than last year’s, and people know you bought the newest, hottest device.
Part of that is a mature market. But part of it feels like the company of “a thousand no’s for every yes” is saying “yes” a lot.
Jobs talked often about creative destruction and how making great things involves being bold and killing some of your favorite things; that seems to have been replaced with a certain amount of timidity.
I'm ready to buy another (my 5th) laptop and I can't figure out which one I want, delaying my purchase.
Do I want a bigger iPhone or a smaller iPad? Now that I'm finally buying more ebooks than printed books, I'm paralyzed by indecision.
Even as a dedicated Apple fan, I simply was too confused as to whether I should have gotten an XR, XS or Max.
I honestly don't understand how anyone can suggest this is a smart thing to do. The reason Apple did that in the late 90s is because the product line had too many SKUs, but also because Apple was close to bankruptcy. Focusing all your marketing and product development on a few products is a good way to make sure you aren't holding the bag on unsold inventory (part of why Tim Cook is now CEO). Today's Apple is in a fundamentally stronger position and can manage the supply chains for multiple products (and multiple SKUs of them).
Indeed, Steve Jobs later eschewed that consumer/pro grid with the iPod, which had a SKU for every price point.
> Secondly, thanks in part to the lack of information, this miss is catnip for confirmation bias: everyone has their pet theory about what Apple is doing wrong or how they will ultimately fail, and it has been striking the degree to which this revenue warning has been breezily adapted to show that said critics were right all along (never mind that many of those critics trotted out the exact same explanations in 2013 and 2016).
HN, in its comments on Ben's article:
- Apple downgraded its forecast because it needs to refresh the iPhone SE
- Apple downgraded its forecast because its phone prices are too damn high
- Apple downgraded its forecast because its phone lineup is too confusing
- Apple downgraded its forecast because iOS 12 has improved performance and postponed upgrades for another year
These confirmed biases all have a "developed market" vibe. I believe they're also meaningless in the context of last year's iPhone X launch. Apple killed their estimates last year. Everyone is forgetting this!
None of these theories address Ben's point about the lack of smartphone differentiation in China (arguably Apple's most important market), which is (IMO) a more interesting discussion and a stronger headwind to Apple's financial prospects.
I agree with Ben that the "S" designation is probably hurting the company, as it introduces 8-quarter "seasonality" into their financial projections because Chinese consumers are only buying heavily-differentiated form factors.
I disagree that consumers will always buy the flagship iOS device. Then again, this earnings report just confirms my own bias for phone pricing. :)
I would love to purchase a new iPhone (or Android) if they were to make a new device with a comparable form factor to the SE. Instead, everything has progressed to these two-handed monstrosities that have resulted in fanny packs [1] becoming fashionable again simply to hold the damn things.
[1] https://www.today.com/style/fanny-packs-are-so-popular-they-...
At this rate it seems like the smartphone market has abandoned small form factor phones.
I think you might be confusing it with the non-Compact edition?
https://www.phonearena.com/phones/size#/phones/size/Google-P...
Apple either isn’t making enough money on the SE, not listening to their survey group, or an executive doesn’t care. They need to fix this.
As mentioned in one of the other comments, SE was using the production lines of the 5/5s. It probably isn’t worth it to keep those going for an older phone and the R&D for a new smaller phone is a huge cost. I’m sure it’s been proven that most people want larger screens at this point.
I mean, even the newer cheaper phone they have, XR, is larger than their standard XS.
Given that around 70% of the iPhones in use are the 4.7" and under sized phones, I would say it is questionable. People like that form factor.
I do agree that in this case their market research about the SE is probably solid, but I think it's a mistake to assume that their market research is always correct.
The 6S feels comically small now. But, the Plus is too big. I think taking the bezels off the top and bottom would be the perfect size phone. Maybe a little smaller.
I upgrade in the fall, so I'm interested to see what comes out. I'm looking forward to going back to a smaller phone, but the SE and 6S are too small IMO.
But the X size phone is tempting. But I don’t see myself buying another phone for 3 years.
https://www.reddit.com/r/apple/comments/a68a1v/we_get_it_you...
[0] https://www.wsj.com/articles/apple-banks-on-bigger-screens-t...
Not a wide range? What about the iPad and iPad Pro? iOS apps need a responsive interface anyway.
But then I fired up my old iPhone 5 and quickly appreciated the larger screen of the iPhone 8. Although I still like holding the smaller one better.
I really like iOS, but one think I really envy about the Android ecosystem is that there are multiple vendors, so users aren't locked to just the most-popular size phone.
Basically I think the ideal is a screen that's as large as possible while still being usable with one hand. The iPhone 8 is just over the edge for my hand size, but it's close.
I mean, the Apple Watch is seriously good for most cases, it reliably sends messages using siri, I can answer calls on it, I can read my messages and do basically anything the phone can do, albeit much slower.
However, they'll have to brick my SE before I give it up. I bought an SE just before they got discontinued last year with apple care. I "downgraded" from a 7, this phone is definitely the best iPhone that exists for me and my slightly smaller than giants hands.. Even if a lot of apps are obviously not tested on the SE's size anymore. :(
This is pretty much all about pockets though - I typically wear a 3XL glove so it's not being driven by reach. I can accept needing to carry a bag if I need a laptop. For a phone it's insane.
I am in complete agreement with your attitude. However, it looks like the SE isn't coming back, and I wanted an Apple Watch anyway (after wearing smartwatches since the first Pebble...or SPOT if that counts). So I gave in, bought an iPhone XS and a watch. Previous smartwatch usage told me that the phone could probably remain safely in the bag most of the day. An Apple Watch makes it stay in that bag even more, I found out. If I'm out and about without the messenger bag/man purse, the cellular keeps me in contact. So for me, at least, carrying the monstrosity is reasonably solved.
Every use case is different, so this might not be a solution for everyone. And, yes, it is ridiculous that the solution is "go spend more money" because there isn't a reasonably-sized phone available. OTOH, most of my phone looking is "who's calling? What does the wife want on SMS? What's that reminder?" which is easily taken care of on the watch. When I do need a bigger screen, it's nice to have...well, a bigger bigger screen. :-)
But now that things are getting more different, such as prices becoming much higher, a possible economic downturn around the corner, mid-range phones becoming "good enough" for most people, the loss of subsidies from carriers, and so on, Tim Cook is getting a little "lost" in all of this, and doesn't know the best way forward. Worse, he may have already chosen a way forward (Apple becoming more "fashion-focus" for instance) and it may be the wrong way.
As a high end product, the mac is likely not gonna make them much more profits than it already does. However, additional market share would further strengthen their customer base for the areas which will make them money. iPhones, iPads, and services.
If Apple were to release a 5-600$ laptop it likely wouldn't make them much money, but it would create more mac users, and I suspect mac users are significantly more likely to own iPhones and pay for services like iCloud and Apple Music than Windows and Linux users.
And TBH, Apple has a massive market in the enterprise just waiting for some competition. You can see this in the rapid and popular uptake of Google @ Work services, and Chrome OS in the enterprise and education services. People were looking for a simpler alternative to the entire MS Exchange ecosystem, and once again, while these may not have been massive money spinners on their own (though they definitely could have been that as well), they would form a strong solid base to sell iPhones to.
This would kill Apple. It's a profit share company. It's a profit share culture. Customer and culture are tightly knit; you don't change one without altering the other.
The bottom line is that phones are commoditized at this point. There's nothing (statistically nothing, that is -- obviously everyone has preferences) that people want them to do that they don't, and there's nothing that a premium product can offer that the cheap ones don't have too.
That's not something Apple or Stratechery or posters here can fix. It's just the way technology works. It's the same thing (almost exactly the same thing) that happened to Apple in the early 90's. Sure, macs were still better. But they were better and more expensive and for 95% of what the median purchaser (which at the time meant "desk worker at a US business") wanted to do a PC clone running windows was perfectly fine. So Apple got trapped in a slowly shrinking prestige niche.
Now, eventually they broke out with exciting new products and new markets that drive new success. But that's not a "business decision".
This article uses all the data that is publicly available and yet claims that somehow Apple executives missed all that.
Stratechery isn't some random site, but you're comparing it to a guy on twitter.
A precise estimate isn't necessary. His claim was that they would shrink measureably in the first S year after a redesign.
Edit: The guy I follow on twitter is not some random dude. He is an analyst and makes some great points.
Every company is suffering right now. AMZN, MSFT, FB, NFLX, and GOOG are all down 20-40% from their respective peaks 3 months ago, yet nobody seems to see reason to write articles saying that, say, Amazon's latest offerings are strategic errors.
But it strikes me as no different from any other divination. If it's true that "these errors really were predictable", why are they writing only after the fact, and why only about Apple?
Every time a stock goes up, down, or stays level, journalists and bloggers come up with some justification for it, and say that it was obvious in hindsight. It's usually plausible, but if it's so obvious, why can't they ever predict it?
If in Apple's case it's all because of product/market issues with the iPhone line, then why does it happen to correlate almost exactly with the Dow losses? Is this really an Apple error at all? Is Apple failing because they can't weather the same storm as everyone else without even getting wet?
Whatever flaws the author's argument may or may not have, all the 3 points he presents were points he had made in the past, and not after the fact.
Not to mention Apple, compared to others had a very low market P/E, and it still fall. Stocks Market buys into Companies future, not present. And that is the problem, they have never seen much headroom for Apple, but lots of downsides.
I wrote this in another thread, but when my iPhone 6 or 6s seemed to be failing a couple months ago, I just bought an iPhone 7 instead of the Xs or whatever the new hotness is. I can afford it but find it too expensive and the improvements marginal. Seemingly a lot of people are doing what I'm doing.
> [...] phones, thanks to their centrality in people’s lives as well as the greater likelihood of harm, will always have a faster replacement cycle than PCs.
Also funny: parent is committing a form of confirmation bias responding to an author concerned about confirmation bias.
I think people should be honest. Instead of suggesting that Chinese consumers have this or that idiosyncratic (implied stupid) preference, for which they have only broad market evidence, commentators should just say what they actually know from personal experience: that Android phones really, truly suck. That WeChat is an ecosystem of jank. That most Chinese consumers are actually smart people and agree with that premise, to the tune of the billions they spent on iOS devices every year anyhow.
I think the problem is there aren't that many different distinctive shapes you can make a phone. Apple has done extremely well in this regard. The jewel case design and the X design with notch are both outstanding examples. The 6 sold so well because it was, for an Apple phone, huge. But the jewel case lasted 4 years (more including the CS). Dramatically increasing the screen size works once. If they stick with the X form factor another few years they will lose the distinctiveness factor. However major form factor updates aren't something you can pull off every year indefinitely, for technical reasons sure, but especially when you have a huge accessories market.
It's really amazing how successfully Apple has maintained their design lead and distinctiveness, but there's no way they can pull the most unique, most amazing new rabbits out of the hat every single year.
This (performance focus) seemed like a capitulation to market saturation and longer device ownership cycles.
Either way, I think device makers are going to get hammered as tech plateaus. Focusing on longevity and usability will be huge differentiators. Apple's iOS12 seemed like a good move to prepare for this change.
Android has gotten pretty good. I broke my iPhone 7 earlier this year and am using a Pixel 2-- I thought I'd switch back, trade it for an X or an XS as they became available, but to my surprise I actually like it quite a bit.
Many of the complaints I used to have about Android have been worked out, and there's some cool features (like Night Sight) that I think I'd miss if I switched back.
Moreover, a lot of cool Android phones were released this year-- I'm sure the next iPhone, since it wont be an S, will be cooler and bring about a more radical change.
This past year in Android saw the release of many cool Chinese phones. I'd say the most exciting phones of the year came from Chinese manufacturers and featured creative ways to try to get rid of bezels and the notch-- finger-print sensor behind the srceen, two screens, notch-less with automatic mechanical parts, I recently even saw a slider-phone [1]! There's the promise of foldable phones too, which has me intrigued.
My cousin got a mid-tier Xiaomi phone-- it wasn't very expensive but it's pretty neat. If you do the side-by side comparison, it's not as great as an iPhone, but at the price, and for his use-cases, the big screen and fast chip are enough of a fit. I don't know how much iPhones cost in China, but I wouldn't rule out the fact that tariffs and macro-economics aside, Chinese phones have just gotten good enough, are probably more widely available, and honestly also just seem more exciting and creative.
Never thought I'd say this, but I hope Apple (and other manufacturers too) take some clues and inspiration from Chinese phone manufacturers ¯\_(ツ)_/¯.
I had often thought when these phones enter EU / US Market they will be subject to higher patents fees and will be $100 to $150 more expensive than Chinese Home Prices. But that didn't happen at all.
One of the major points of the article is that potentially, the XR just like the 5C, did not perform as well as Apple expected, because consumers want to buy the "best."
Sorry, what?
That sounds an awful lot like the wishful thinking that was around Apple in the early 90's when Apple was going bankrupt and almost got bought by Sun.
Like iPhone 6, then iPhone 6s, then iPhone 7 all being the same phone and then introducing a new design with the X.
So with this past year being the XS, this year will be the whatever XS 2 is, but with the same design, then we can expect a new design next year.
Meaning that their China not upgrading problem, as per the article, will continue for at least another year.
Sooner or later Apple's growth was going to slow down. If it wasn't this quarter, it would be another quarter.
Apple can settle down and be a nice, profitable phone manufacturer. If Apple is going to grow a lot more it is going to have to get into a new and radically larger business line and that seems awfully hard.
A new iPhone xr with a storage bump and a good charger is over $1k with tax. A MacBook air is similarly $1600 plus with 256g and a warranty and tax.
There are perfectly serviceable 500 Androids and $750 windows laptops. Apple's software isn't good enough to double the price.
A secondary reason is that I still think Apple has a pretty big advantage when it comes to security and privacy. When you see Google starting to push RCS messaging with no default encryption you realize how little they really care about their user's privacy.
That said, the only Apple hardware I own is an iPad.
They seem to be doing that - Microsoft has a large retail store in Sydney, Australia, and Samsung has retail stores in several Australian cities of varying sizes (the Sydney one is huge). The one in my city (Perth) is just a tiny pop-up stand, but they still do simple on the spot repairs of my Galaxy S8. Perhaps worth noting, some of the Samsung employees there were ex Apple Geniuses who had switched.
Some things iOS users still can't do:
1. Develop applications for their own phone without paying a yearly tax or re-building and re-installing weekly.
2. Have a driving mode that works well when used in a phone mount.
3. Automatically route phone calls and texts through Google Voice or a secure phone app.
4. Multi-user support for sharing a device with family or temporarily sharing it with a stranger.
These are not niche features like playing games in emulators or using offline maps by default for privacy (both of which are also not possible on iOS). These are software deficiencies that affect normal daily use cases. The Chinese market has even more features that users need that are simply not supported on iOS.
Android is a privacy nightmare. I cannot in good conscience recommend it.
At the same time, Apple's walled garden increasingly feels like an uncomfortable jail I want to break out of.
° My current phone works fine. ° VOIP is very poor on iOS, especially compared to Android. ° Price. ° Apple trying to push platform lock-in and therefore crippling features on devices. ° Lack of headphone jack. ° Lightning connector.
Otherwise, I'd be on board in a heartbeat. Here are things I like:
° I love that Apple focused on speeding up iOS. ° I feel that I can trust Apple a bit more than Google and the others. ° I am also not a huge fan of Android. ° Apple's hardware is predictable and of good quality.
I wish Apple would put more sensors like SDR and such into their devices. Also wish they would put GPS in the wifi only iPads.