Twenty Questions from Catalin Stelian Andrei

Catalin Stelian Andrei, Editor of The Day, INTERNET PROTV asked me twenty questions:

1. What phone do you have in your pocket right now? Why that model?

I carry the iPhone 5. The last iPhone I bought was an iPhone 5C which I gave to a family member.

2. Apple is going to launch, form all we know, an iPhone with a bigger screen, long after their market rivals. Is Apple one step behind, being forced to take this road in the fight with Android and Windows Phone devices? Because many smartphone users were hoping that an big screen iPhone, a redesigned model, will be lauched long time ago, and that didn’t happen.

Making bigger phones is easier than making smaller phones. First because miniaturization has always been the most difficult engineering challenge, and second, because a smaller phone has a smaller battery making efficiency much more important. The larger the phone, the simpler it is. The third reason smaller is more valuable is that it’s easier to carry and use. The largest phones cannot be put in pockets and cannot be used with one hand. In the history of consumer, electronics size reduction has been the most consistent measure of performance, and the most rewarding. Usually the most exceptional reductions in dimensions create the highest price and profit bands. There have been niches for larger portable devices but they are consistently a small part of the overall market. If Apple were to introduce a larger device I hope they will be able to solve usability problems and make the category attractive to a larger audience.

3. What do you expect from the new iPhone 6?

I expect it to run the latest version of iOS and, with the new apps developers will ship, that should make the most impact in people’s lives. I imagine health maintenance and home automation will become valuable new franchises. Of course iOS 8 will also run on older iPhones, but I suspect the newest iPhone will somehow run the new software better and have smoother integration with services.

4. What’s the “not to do” lesson that Apple needs to learn for the now iPhone from it’s own past experience or their competitors?

The biggest challenge is to move rapidly with scale. The company has managed to grow from zero phones a year to hundreds of millions. That’s great but it’s still frustrating to wait one year for major improvements. The “cycle time” of innovation for Apple remains one year. I wish it could be faster but perhaps this is also too fast for some. In some services like maps and iCloud and iWork, which are independent of hardware (mostly,) speed is of the essence.

5. The iPhone is the most expensive smartphone on the market right now. In Romania, it certainly is. But where does Apple gains it’s most money from, selling products to users or selling services, like iTunes, App Store? And having that in mind, what will be their next step: better – breakthrough products or bigger, more complete services?

The answer to where a company “gets its profits” is best answered by asking where a buyer “gets his value” from the product. For instance you might answer the question of where a car company gets its value by saying that it’s from making people be in more than one place in a day. So the “differentiation” of a car is in answering the question slightly differently. If it’s hard to see a difference to this answer between cars then it’s hard for any one company to make a profit. For a company like Apple, we need to ask what its users value about the experience and why they are willing to pay for that. My hypothesis is that the brand’s value is in making life a little bit easier. That’s what Apple competes on. Of course, some people are not willing to pay to have an easier life and some even want to make their lives more complicated so Apple’s proposal to make life easier, for a price, is not accepted by everybody—which is ok by them. But for many, paying for comfort, productivity and ease of mind is worth quite a bit. The reason Apple is able to gain a premium over the competition is that this value proposal (of paying for simplification) is either weak or non-existent for competitors. Indeed, many competitors compete on the basis of making life more complicated.

6. What does innovation means for Apple right now? What are their options for assuring a next decade of success? A new Steve Jobs person or a Steve Jobs tipe of group thinking. How hard is that to achieve?

Innovation is meaningful invention—bringing useful creations to a large number of people who then make use of that creation. The interesting aspect of making money from innovation is that it’s a rare phenomenon, requiring many disciplines to work together. It’s like a big movie that somehow works and becomes widely popular but costs little to make. Many movies are made, few are successful and very few of those which are successful are built at low cost. What we know about technology innovation is that it’s a combination that comes together under strong leadership but that leadership alone is not sufficient. The myth of Steve Jobs is that he was both necessary and sufficient to success. The truth is that he was necessary but not sufficient. To make successful innovations requires strong leadership and teamwork and a process of incentives and passion that is hard to create a formula for. How this works at Apple is its biggest secret.

7. Who are the key Apple employees right now? Do they need another Jobs or do they already have him?

All Apple employees are key. I would say that’s the magic formula. There is no chief magical officer (and there never was.)

8. What will be the next best thing for Apple? […]

I don’t know. It’s probably not knowable.

… Are they capable of another breakthrough in the market?

Yes. This is almost certainly knowable.

9. Is the smart-home project something that will really happen in the next, let’s say, two decades?

If the project requires replacement of existing infrastructure, it will not happen. If the project allows adding new items to existing infrastructure, it will almost certainly happen.

10. Growth comes from the middle and low-end smartphones, according to IDC. Would or would not be a good idea for Apple to release a handset cheaper than the 5c?

If Apple were concerned with growth then they should. But we have to ask why they avoided doing this six years ago. Not only was it obvious to do so but a portfolio strategy was the modus operandi for every competitor and had been for decades. The question isn’t why Apple does not broaden its line-up but why do the others diffuse their efforts and have such poor focus.

11. What feature or software you think would be the main battleground in the future, in the smartphone market? Apps? Battery? Camera?

Integration of all the above. When new experiences and services emerge those who are able to make them usable succeed. Usability requires integration.

12. Who puts more pressure on Apple: Apple itself, Samsung, LG, HTC, Microsoft and Nokia? And how.

I suspect competition is part of motivation but it’s not the entire story. Let’s not forget that Apple is considered to suffer from competitor pressure from software companies, services companies, media companies, hardware companies and everything in between. For instance, Apple is in competition with Microsoft, Amazon, Google and Samsung but the competition is not transitive. In other words Amazon is not perceived as being in competition with Samsung and neither is Google competing with Nokia. So somehow Apple should be sensitive to every perceived alternative to every aspect of its products. This quickly becomes an absurd idea. Apple is a system of things and systems can’t be compared with components.

13. What is Apple’s sensitive spot today. What do you believe Apple fears the most?

Losing people. The problem of retaining talented people is the most difficult challenge, especially when they become very wealthy due to the success of the firm.

14. In 2012, you described the fall of Nokia in competition with Samsung at the Guardian Mobile Business Summit due to the disruption theory: the launch of the smartphone. Is Apple in danger of becoming a victim of the same story in the near future? What technology could replace the smartphone and when?

Yes, every company is vulnerable to disruption. The defense is not to protect against it but to self-disrupt or enable self-destruction. Self-preservation is an instinct in humans so this is psychologically very difficult. The crisis comes not from a technology change but a business model change and that implies a cultural change. Companies embrace any and all technologies which sustain their business models and reject, resist and ignore any and all technologies which disrupt their business models. Changing business models is like a brain transplant; it happens so rarely that we can count it on one hand. By the way, because it’s so rare is why companies who attempt it are discounted by the market.

15. You’ve been a Nokia executive. From this perspective, how do you see the deal with Microsoft and the future of Windows Phone and the Lumia brand?

This is a long story. I can’t really do it justice now but I will say that it seems that Microsoft understands that they need to become an integrated systems company and not a component supplier. The same became evident to Nokia so they needed to merge.

16. You’ve also worked with people from RIM. Do the have the capacity to innovate?

Perhaps but scale also matters. RIM and HTC may not have the time to grow.

17. Let’s imagine that no big company owns my personal information. If I wanted to sell that to someone, what would be the right price to ask? How valuable are individuals in the war for gaining personal information?

The price of your personal information will be set by auction. It’s up to you to decide if you want to create a reserve price or to let the highest bidder win. As of today most people would trade all their personal information for almost zero price. This will not last and consumers will find out their value over time. I can’t predict how it will change but it will be a combination of offers being made and personal data catastrophes which will act as warnings.

18. Do you believe in phoneblocks project from Motorola?

Only people who want more complicated lives will want to build their own products. There are some such people (for example children) but they are not willing to spend a lot for that complication so the overall market for increasing complexity is small.

19. The last question. What could trigger an Apple fall and when?

The most common trigger for failure is success. To continue succeeding is very hard because motivation disappears. What can cause a crisis of motivation would be that there is a loss of belief that there are problems left to solve.

  • Luis Alejandro Masanti

    Only if I count question 8.5 as a question I got the 20 from the title! (A very strange misstep in calculation for Horace.)

    But… the most wonderful set of answers in a long time (not only from Asymco).

    My best shot? “Apple is a system of things and systems can’t be compared with components.”

    When will Android’s pundits learn that?

    Thanks once again.

    • There are 20 questions. 19 are enumerated.

      • Luis Alejandro Masanti

        I did realize that! I was teasing you.
        Really, I appreciated the deep of your answers. Thanks a lot.

  • Gary Brockie

    Any company can fall. In the case of today’s Apple I fear the Carl Icahn investor far more than a Androids Marketshare. If a group of Icahn type investors ever packed Apple’s Board then Apple is lost. If Apple were stripped of every dollar needed to invest in future products and innovation then Apples future would be short.

    I think that so many pundits are hoping Apple will fail because Apple’s success flies in the face of Marketshare Uber All. Lazy unthinking “journalists” got used to the Microsoft paradigm. Another point, when you have 90 to 95% Marketshare there is no where new to go but down.

    • Ncgo4

      How many ways can a person be wrong? Pack the Apple Board? Easy, all you need is about $250 billion in Apple stock, a totally silly thing to worry about. 95% marketshare and there is no where to go but down? True, unless you expand the market or create a new one. That’s why Apple didn’t collapse when it gained 90% of the music player market. If Apple never creates a new market it might be a real worry

      • Gary Brockie

        I did not say that I was very worried about it. It is possible that Hedge fund and retirement fund managers could conspire to get Apple into a more penny pinching mode.

      • Walt French

        Icahn is widely labeled a “corporate raider” for a reason: his MO is quite different from most investors.

        Those big pension & hedge funds generally have to subscribe to the idea that they’re in it for the long haul; otherwise they’re just hired speculators.

        Certainly shareholders have different perspective than management, but if you look at other large firms, great deference is generally given to management’s much better understanding of the business. Try to imagine a shareholder uprising against XOM, for example; it doesn’t make any more sense. Even in the case of Microsoft, where it was widely perceived that management was not focused effectively enough on the next 10 years, and that the company was being disrupted, the board sought not to sell the company’s pieces, but to re-focus on the long term.

        There *IS* a story going around about IBM falling to over-emphasis on shareholder return; but the culture of innovation has been a small part of IBM’s story for decades.

      • Davel

        The vast majority of institutional ‘investors’ are traders. Look at their behavior and what they value.

        Do they value growth of the company and a deeper connection with their customer or do they value efficiency and ‘return of shareholder value’ or more precisely giving them money so they can report that month’s numbers that quarters number or that days compensation?

        Almost exclusively they value sucking a company dry like a leach. All companies are just tickers. Here today gone tomorrow.

        I believe Horace wrote about this in the past few months.

        Even the bond holders who should have a longer term view as they want their money returned are short term. Bonds are traded all the time. Mortgages are sliced and diced and ‘securitized’ ie made into a ticker to be bought and sold in easy McBites.

      • Walt French

        @Davel wrote, “The vast majority of institutional ‘investors’ are traders. Look at their behavior and what they value”

        There are certainly a lot of speculators out there, but my Bloomberg shows the top shareholders of Apple are Vanguard, Blackrock, State Street, Fidelity, Capital Group, the Northern Trust, BoNY/Mellon and Invesco, before UBS and the Giant Squid round out the top 10. Vanguard, while it does have some active strategies, is of course best known for its near-zero-turnover indexing, and the same is true for others, to greater and lesser extent. (BlackRock and State Street positions would seem largely the result of passive, index fund “SPDR” and iShares positions.)

        Collectively, those 8 funds hold almost a quarter of all the shares, and of course there are many other smaller holders down the list (e.g., Cal PERS) who are famous for low-turnover, but targeted work with management to serve their long-term goals. (A pension fund has something like a 13-year duration of its liabilities; over-emphasis on short-term results is one of the greatest threats to their solvency, and they know it.)

        There certainly ARE many bloviators trying to drum up attention based on constantly-changing price targets, pretending to have an inside track on future plans, or carefully-stretched performance claims. But those are generally NOT the sources of information for institutional investors.

        Just one more data point: of reported holdings (13F’s and the like), hedge funds are less than 5% of institutional shareholders, up from 4% a year ago. But even this high-turnover group doesn’t act with one mind; some firms are adding to their positions while others are leaving.

        Don’t mistake the carnival sideshow for the bulk of investments.

  • Walt French

    Loved to read “For a company like Apple, we need to ask what its users value about the experience and why they are willing to pay for that. My hypothesis is that the brand’s value is in making life a little bit easier” after being reminded by your RT about your “why doesn’t anybody try to copy Apple’s process?” post from last year.

    Making experiences easier, integrating them effectively, is a LOT harder than, even the opposite of, adding a bunch of features. Lots of times, though, even very imperfect features bolted onto an existing product, while ungainly, make a user’s life much easier.

    When Android started, its chief feature was that Verizon had no iPhone-class smartphone. Many iterations later, the brand is more complex, harder to define, and very variable in implementation. But it continues to evolve in a way that responds to user expectations.

    • Sacto_Joe

      “But [Android] continues to evolve in a way that responds to user expectations.”
      Yep. And Apple is largely at the forefront of creating those user expectations!

    • neutrino23

      This points to the possibility of Apple’s next big thing. Journalists tend to focus on widgets. They want to see a new iPod, iPad, iPhone, etc. They want to document the size, weight, cost and so on. Apple’s next big thing might be right in front of us in the form of Continuity and Airdrop and being able to make/receive phone calls from OS X. These blur the lines between hardware products. Your information now exists somewhere in iCloud and you access it with whichever device is handiest. This could be very interesting as Apple focuses on helping you do what needs to be done. It changes how the devices overlap. It is less important now if a large iPhone takes share from a small iPad. Who cares? You select the group of iDevices that suit your needs. The particular mix that is most popular will change depending on the country and demographics of the user. I suspect we’ll see more of this next summer at WWDC15.

      • art hackett

        WWDC14 appears to have been the next big thing(s). So many things presented and not enough time to cover them in detail. Wait, what was that?

  • art hackett

    Great answers to the generic questions. Were they deliberately asking those questions for their perceived audience or is that the best they could come up with? Were the answers even comprehended or did they think you were being cryptic?
    I don’t understand why Apple’s motivations seem so difficult to understand when it is essentially what any consumer company should be trying to achieve, whether they make hardware or services. It’s like they are all simply greedy and/or have Asperger’s.

  • stefnagel

    “The most common trigger for failure is success. To continue succeeding is very hard because motivation disappears.” Success narcotizes.

  • Sacto_Joe

    Hugely enjoyable! It’s like a compendium of all the really dumb Apple questions being asked of someone who actually knows the answers.

    My personal favorite: ” Is Apple one step behind, being forced to take this road [a bigger iPhone] in the fight with Android and Windows Phone devices?” Your answer: “In the history of consumer, electronics size reduction has been the most consistent measure of performance, and the most rewarding.”

    Personally, my bet is that the upcoming “iWatch” is going to be an absolute marvel of miniaturization. That is, after all, one of Apple’s very strongest suits.

  • Brenden

    Rather than just trying to make life easier, I think Apple is trying to make life better in a more general sense, and a big part of that is making it easier, but I think their aesthetic contributions are important too (and there may be other factors that I’m forgetting about). I don’t want to stare at ugly hardware or an ugly interface for many hours each day, but that’s something that until very recently only Apple seemed to be able to address, or maybe they were the only ones who even recognized this as a significant consideration. I recognize that there is a subjective element to this, but I think this is definitely part of the value that Apple delivers for many of its customers.