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Interview With Horace Dediu: What To Expect When Apple’s Expecting

My thanks to Eric Jackson for his thought-out questions on Apple. As published in Forbes, here is his Interview With Horace Dediu: What To Expect When Apples Expecting.

A few excerpts:

Q: Do you expect to see a sapphire cover on the new iPhone(s)? Is that material significant?

I expect Sapphire will become a signature feature across many products. I don’t know if they will have capacity to deploy on iPhone this year but on a watch it’s essential. Here’s a clue: if the screen has any curvature, especially around edges, it needs to be sapphire as glass can’t take strain in that shape. The scope of the plant they are building with GT implies that they will have massive volume potential with at least one major iPhone model using the material. It’s a significant material because it allows design freedom in new directions, especially curved (concave) touch surfaces that retain a jewel-like feel. This has Jony Ive all over it.

Q: Is it fair to conclude now based on the 5C and 5S that Apple will never launch a “cheap iPhone”?

Oscar Wilde said a cynic is someone who knows the price of everything and the value of nothing. When I see the word “cheap” I never know if it refers to price or value. And even when we talk about price, an iPhone is cheaper than buying all the things it replaces so it’s always been a low end disruptor in my mind. (I saw a tweet with an image of a Radio Shack ad from the 1980s and every single item available on that page is now a part of the iPhone. It would have cost thousands to buy all those things back then–and dollars were worth a lot more.) Furthermore, I think Apple holds a black belt in pricing. They seem to define their position in the market by anchoring certain prices and “owning” them. Given all that I would say that Apple is not going to move their price points much. They will expand the portfolio and offer some iPhones at $300 but they will be older models. The average selling price (ASP) I expect to remain constant on a year-long average.

Q: In the past, Apple critics were quick to dismiss the new iPad and 5C iPhone as failures upon their introduction.  You never judge. You just report the facts and data.  That said, is there anything about past new Apple products launches that we should look at as a predictor of how a new iWatch might be received by customers?

When the iPad was imminent the great debate was over whether it would run iOS or OS X. Many imagined a touch-based Mac rather than the “big screen iPod touch”. It was a tough call and one which Microsoft could not and still does not make. Therefore, the interesting question for me with respect to iWatch is: What OS it will run? I will be shocked to the core if it does not run iOS. It is my opinion that making iOS work on it is the entire reason Apple is sweating this segment. They are in it because they are trying to make a platform product with a novel user experience and all the power of an ecosystem run on a wrist. It’s as big a problem as getting a phone-sized device to run a touch UI was in 2007. That is the crucial contribution that Apple is making to this next generation of computing. Now you might ask what users are asking for in this segment. The answer is nothing. Nobody is asking for this. As nobody asked for the iPhone (or the Mac or the iPad). It’s a new computer form factor and how it will be used will be determined by the apps written for it. But it will work and be magical out of the box in version 1. This is in contrast to the single purpose or accessory model of wearables we see to date.

Q: As a student of disruption, where is Apple most vulnerable to being disrupted?

Apple is a new market disruptor but much of what is put forward as a threat to it is low-end disruption. I think Apple knows enough about how that happens that it can manage its way around it. The strategy they employ is one of attrition. If you wait long enough a low-end threat tends to wear itself out as it starves of profit and is constantly gnawed-at by alternatives. (You see, if the disruptor cannot manage a profit then they cannot climb up the trajectory to get on top of the incumbent. Being profitable is a key requirement for successful disruption in the long term.) The attrition strategy works as long as you have the fortitude to hold out and the deep pockets to keep improving your product as alternatives flame out. It is my belief that Jobs made sure that thinking is inculcated in the company. So if not low-end is the company vulnerable to new-market disruptors? This is more subtle and the threat here is what Google/FaceBook/Amazon and the other ecosystems are all about. It’s creating new usage models and shifting where consumers place brand value. I think this is more what keeps Apple’s management awake at night. They are not standing still however. iTunes and Software and Services (now with Beats on board) is the way they are staying on top of that threat.

Lots more here.

  • iObserver

    Great interview Horace.

    Do you really suppose the new sapphire plant is big enough for a new iPhone model? Or just an accessory like a watch? It is certainly a massive facility, but each batch of sapphire takes several weeks and it is not all usable sapphire (some flaws in the gemstone occur in areas which are cut out).

    • http://www.asymco.com Horace Dediu

      As I said in the interview, I don’t know. On a podcast I said to look for Sapphire first on a watch and later on a phone, but it’s all about scale.

      • iObserver

        Thanks for the quick response! I was thinking the same thing. It’s going to be an exciting product season!

  • http://sumocat.blogspot.com Sumocat

    Not that I want you to be shocked, but I would point out that Apple’s past and present wearables have been iPods running Apple’s “other” OS. The iPod OS supports most features expected from an iWatch, including motion tracking and Bluetooth connectivity. I don’t know that Apple would go this route, but I believe it is a credible option.

    • Kári Emil

      Personally, I think it’s very possible the “iWatch” is in fact a reimagining of the iPod and that it will retain the iPod product name.

      • Shameer Mulji

        The iPod is synonymous with music. I’d be very surprised if Apple retains the iPod for whatever wearable it has up its sleeve.

    • Sammy

      While an interesting theory, the “classic” (not ipod touch) can’t transfer data via wifi or even interact with iCloud or iOS.

      Wasn’t the iPod OS bought from another company? In the pre iOS days?

      I can’t seen an extension of the iPod OS being in an iwatch, since it didn’t have an Darwin/OSX/IOS foundation which was all developed with cloud in mind. Even Mac OS 9 had cloud services.

      I think any iwatch will have a stripped down version of iOS like iOS is a stripped down version of OS X.

      • http://sumocat.blogspot.com Sumocat

        Depends on what you expect an iWatch to do. You’re thinking Wi-Fi connectivity and iCloud, but that burns a lot more energy than Bluetooth LE, as does iOS vs. iPod OS. I’m thinking Apple wants to successfully replace a simple device that typically never needs charging. Can’t do that with a complicated gadget that needs regular charging. The other vendors don’t seem to recognize this. That said, Apple could strip down iOS to serve this purpose, but it’s not the only option.

  • stefnagel

    1. “I consider talent far harder to obtain than capital.” Nice.

    2. Struck me that Apple has relegated IBM to just another app developer. Little Blue.

    3. Apple’s wearables may be computers, with screens, processors, and OS. But its wearables will also also dumber; that’s new. And iBeacon “nearables” are dumber yet. All sensor; no processor. All ears, no brains.

    Won’t Apple’s introduction of wearables and nearables mark a giant pivot? from adding new millions to its iOS user group, to serving the billion iOS users? And maintaining their interest if not allegiance?

    • Sacto_Joe

      “Sticky hardware”: Great term! And actually, you could say that, relative to the Mac, iOS devices ARE sticky hardware, thus proving your point.

  • vincent_rice

    I think Apple will be taking its own sweet time with the ‘iWatch’ – when it comes, the ‘jobs to be done’ it addresses will be a surprise. There’s a fundamental problem with the Watch/Computer concept as it has been manifested up to this point; people wear watches as subtle (or not so subtle) statement jewellery. I wear a watch not to tell the time (a useful side benefit) but to display an appreciation for mechanical craftsmanship – which hopefully reflects well on me – a complex set of signals.

    Perhaps it’s generational and ‘the kids’ will be all over the concept but an iWatch will not replace my existing timepieces – and of course it’s not meant to. The ‘watch’ part is completely misleading and probably shouldn’t be part of its title. Will we be wearing items on each wrist? Quite possibly.

    • Sacto_Joe

      I agree that the “watch” term is going to be misleading, in the sense that “mobile phone” was misleading prior to the introduction of the iPhone. My guess, as I’ve been saying for a while now, is that there will be not one but two new devices unveiled. One will be an Apple device similar to but far more advanced than the old iPod Nano that many, including myself, wore as a watch. The second device will be a “smart bracelet”, or “iLet” if you will. The iWatch will be able to attach to the iLet, but so will, for example, a Rolex. In that way, Apple will integrate high tech and jewelry in a highly functional yet beautiful way. Charging and up/downloading will be done strictly wirelessly, permitting both the iWatch and the iLet to be completely waterproof, which, I can assure you from personal experience, is an absolute necessity.

  • http://ValuingDisruption.com/ Bill Esbenshade

    Fantastic post Horace! Your comments re Apple’s attrition strategy and the need for profits to move up the improvement trajectory were excellent. A low end entrant needs profits to improve its product enough to disrupt incumbents. It seems like disruption theory fans routinely ignore the need for profits. I’ve always thought this is one of the fundamental problem with subsidized or breakeven products like the Kindle Fire, the breakeven Nexus, and the almost breakeven Xiaomi products.

    I also think Apple offers mid-market products (after skimming the high end) in order to accelerate the demise of low end entrants. Unlike Samsung or other companies reliant on Android, Apple can operate in the middle of the market because they’re differentiated through OS and iOS. This differentiation allows Apple to put a mid-market price ceiling on undifferentiated low end entrants and watch them put each other out of business through price-based competition.

    • http://www.asymco.com Horace Dediu

      I would not say disruption theory “fans” miss the point of profitability as a requirement. It’s perhaps due to a certain interpretation of the theory as it relates to low-end disruptions which is less than complete.
      It’s like saying that fans of “gravity theory” insist that “what goes up must come down.” True except in cases where an object reaches escape velocity and never comes down. You can’t say gravity is at fault because some generalize it for a subset of cases where it might apply.

      • http://ValuingDisruption.com/ Bill Esbenshade

        Thanks for reply Horace! I’m not sure I follow, but I appreciate the response! I guess my main point is that profits are needed for a low end disruptor to fund the product improvements needed to move upmarket (and to validate the market appeal of the product).

        When a vendor doesn’t insist on profits at the front end (selling the product at breakeven), it never gains the early market insight needed to know whether spending on additional improvements — subsidized by the company’s profitable businesses — even makes sense. I guess it can track the profitable indirect sales the breakeven product generates.

        So take the Kindle Fire. I guess Amazon thinks it can sell a capital intensive product at breakeven, in sufficient volume, to generate lots of low margin e-commerce sales, and that profits from these sales will be sufficient to subsidize the Kindle Fire improvements needed to compete with hardware makers that rely on hardware profits to survive (like Apple). And that after these subsidies/monies are extracted from Amazon’s profitable e-commerce business, and spent on hardware-related CapEx needed to improve the Kindle Fire, Amazon will have enough money/return left over to justify all the money they’ve poured into Kindle Fire hardware. Sounds like a winning strategy.

      • charly

        Kindle, create a monopoly position in the (e)book market but hide it so it doesn’t look like profiteering. Kindle fire, try to take over the position of netflix, and/or Stream and/or Nintendo. The Kindle ebook-reader or tablet are not products which will exist in the future (ebook readers is probably a product that is dying right now and tablets, at least the consumer owned, will be killed by the 5″smartphone

  • Grouch4460

    I believe will not be an iWatch unless it is tied to the Apple TV (watch a “screen.”)

    I believe Apple will continue the iP naming series by calling it the iPulse and marketing it as the center (pulse) of your “connectedness”. The pulse name will fit in with all the obvious health applications but also can be thought of being core to “the pulse (beat or Beats) of your daily life.” Many very moving commercials showing that theme will immediately follow its announcement.

    • http://twitter.com/matthewwanderer Matthew

      Yes. I’ve long thought an Apple product for the wrist would be called the iBand, not the iWatch.

  • berult

    “The iPad plateau is my biggest surprise in the last year. I still don’t understand what is happening…”

    The keyboard conundrum.

    Figuratively speaking. A UI/UX creative inconsistency within a hugely novel and creativity-inducing space-time continuum. It slows engagement down to the speed of one’s overt fingers, …instead of the warp-speed of covert enlightenment. As the medium itself allegorically proposes it would.

    I’m nonetheless all into it, figuratively speaking. So I’m no easy prey for keyboard-bearers and rearguard-artisans, namely Google and Microsoft. But institutions, à la LA Board of Education, are. A parent may ‘get’ the iPad. Voice-over parenthood may not. A teacher may ‘get’ the iPad. A teachers Union may not. Benevolence, more so than greed, threatens compacts.

    In a multi-course feast of touchable delicacies, for many a surreptitious agenda, the keyboard, on command…almost preternaturally so, and courtesy of miscellaneous boards of prey, springs eternal as the ‘pièce de résistance’. Better eaten, may I digress, either crypt-cold or cryptic-warm.

    The keyboard metaphor spoil-alerts cut-short ambitions.

  • handleym

    “I will be shocked to the core if it does not run iOS. It is my opinion that making iOS work on it is the entire reason Apple is sweating this segment.”

    I don’t understand your reasoning here, Horace. Insisting that the watch run iOS is very much like MS insisting that its mobile OS be Windows (with all that implies) or Intel that Atom be an x86 CPU. It’s the sort of crazy move that gets made by companies that are totally deluded as to where their value lies.

    What people want from an iWatch, more than anything else, is long battery life. They don’t want the ability to run existing iOS apps (an ability that makes no sense, firstly because of the screen size; secondly because they all already own a phone). And what developers want (when developers get their chance to code for this device, which may not be the case for the first iteration) is APIs and a UI that match the job to be done, not the force-fitting of existing frameworks.

    It goes without saying that an iWearable will COMMUNICATE with existing iOS devices. It goes without saying that it will adopt an Apple aesthetic (which will probably be much like the iOS aesthetic, though we may be surprised).
    But nothing beyond these ideas strikes me as certain. It’s not clear to me that the OS they will use (at least at first) will even be a stripped down version of the Darwin kernel they use for iOS. Battery life is SO important — and the complexity of apps that will be running is SO limited (compared to even iOS 1) that a heavy duty OS strikes me as far more than is needed.

    • http://www.asymco.com Horace Dediu

      What people want from an iPhone, more than anything else, is long battery life. They don’t want the ability to run existing Java apps (an ability that makes no sense, firstly because of the screen size; secondly because they all already own a phone). And what developers want (when developers get their chance to code for this device, which may not be the case for the first iteration) is APIs and a UI that match the job to be done, not the force-fitting of existing frameworks. It goes without saying that an iPhone will COMMUNICATE with existing Macs. It goes without saying that it will adopt an Apple aesthetic (which will probably be much like the OS X aesthetic, though we may be surprised).
      But nothing beyond these ideas strikes me as certain. It’s not clear to me that the OS they will use (at least at first) will even be a stripped down version of the Darwin kernel they use for OS X. Battery life is SO important — and the complexity of apps that will be running is SO limited (compared to even OS X 1) that a heavy duty OS strikes me as far more than is needed.

      With apologies.

    • http://www.jlist.com Peter Payne

      I’m sure it will be a flavor of iOS, using the same dev tools, but it obviously won’t have everything that’s in a true iOS device. Even the iPod shuffle a few years ago sort of ran iOS, though it was a weird version and never got jailbroken or made useful in new ways, by Apple or haxx0rs.

  • RD

    Horace – here’s a question. You say, “Here’s a clue: if the screen has any curvature, especially around edges, it needs to be sapphire as glass can’t take strain in that shape.” Yet today, Samsung released the Edge which i’d assume is not sapphire. This got me thinking about the Nexus 4 that has similar rounded edges to the leaked iP6 screen which was GG. What do you think?

    • http://www.asymco.com Horace Dediu

      The edges are vulnerable because they are likely to be struck. Corners even more so. Was this your question?