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WWDC 2019 included a vast list of releases and it’s quite difficult to summarize. The focus is always on software updates but this year the list seems more exhaustive than usual.
The highlights for me are:
If there is one thing I took away as most significant it would be the iPadOS spin-off. I don’t quite know how this will change the fortunes of the iPad but in declaring itself a platform distinct from iOS it signals that iPad can evolve rapidly in a new direction. The promise and problem with the iPad has always been that it was great hardware held back by software that was not able to take advantage of it.
The core apps, interfaces and connectivity were all constrained, which is not necessarily a bad thing. Constraints make a system and the constraints of the iPhone made it great. Not having a stylus, not having a menu system and not having windowing meant the UX had to be drastically simplified.
But apparently the iPad could not evolve without a re-evaluation of these constraints. The last iPad Pro release hinted at what was coming: it had a full-size keyboard and an immensely capable processor and screen.
So we saw new features such as split view for the same app, Files folder, doc sharing, USB and SD drives support, Zip/Unzip, Desktop class Safari optimized for touch. Download manager, custom fonts, new text editing gestures (copy/paste/floating keyboard). Pencil latency improvement. All these changes are geared toward “productivity” or Pro use.
And yet, the iPad is not Mac. It will remain separate and target Mac non-consumers. Indeed there are three times more iPad users than Mac users and it’s quite possible that the iPad base can expand further with enhancement into productivity.
The iPad has not proven to be either an iPhone or a PC killer. It’s just in between. It’s not a bowl and it’s not a swimming pool. It’s a bathtub. And yes, bathtubs are never going to be as common as bowls but they have their uses and are not obsoleted by better water containers.
The Operating System idea here is a bit of a conceit. In terms of the kernel and the core APIs there are vast common grounds between all Apple’s OSs. But what Apple calls an OS is not just the core code but also the positioning of the idea _to developers_. By branding iPadOS the company is signaling to developers that they should think about the iPad differently.
To a large extent they already do. Coding for iPad has always required a different design approach. But now perhaps Apple is drawing an explicit line enforcing the distinction.
Going back to the list of highlights above, none of them is a “home run”, re-enforcing the idea that the company has run out of big ideas. But hitting 8 base hits yields the same result as two home runs. There is a consistent delivery of improvements here that can’t be ignored. There’s something to be said for polishing rocks until they turn into gems.
Standup meetings seems like an easy and effective practice. But, they can really suck in a remote team. If your standups suck, there’s a good chance you are not using the right tools.
Standuply, a Digital Scrum Master for Slack, helps remote teams automate standups, retros, backlog grooming, planning poker via Slack-based asynchronous surveys.
To make it work, you pick a schedule, people and setup questions to ask. Then Standuply surveys a team via Slack and aggregates their answers. Once Standuply is configured, processes are up and running so that you can focus on the bigger picture.
The iPhone is the most successful product of all time.
Over 1.6 billion have been sold. Including the iOS products it spun off, the total is over 2.2 billion. Of those 2.2 billion sold, 1.5 billion are still in use.
There are about 1 billion iPhone users.
Economically speaking, iPhone sales have reached one trillion dollars.1
Since the iPhone launched, Apple’s sales have totaled $1.918 trillion. Of those trillions about one half a trillion was accumulated in the form of income.
Of that half trillion in income, $360 billion was paid out to shareholders2. and $131 billion was paid in taxes.
This sounds like a good business, but no business is good if it is static. What makes a business great is dynamism. The idea is to constantly maneuver for a new or enhanced way of doing business as technologies enable entrepreneurs to fundamentally change how value is captured or allocated.
The iPhone story isn’t static, the “pivots” or change in direction are several:
Each of these initiatives contributed to the iPhone growth story but the biggest change in business model was the addition of services. Apple Services grew out of the iTunes business that pre-dates the iPhone and was established to provide content for the iPod.
In 2006, the year before the iPhone launched, Apple customers spent $3.3 billion on iTunes, Software and Services. By 2018 the spending rate was $80.5 billion/yr. It’s very possible that this year’s spending rate will reach $100 billion/yr. This new division is simply called Services today and consists mainly of third-party apps and third-party content sales as well as licensing.
Recently Apple launched a set of new services that it will offer itself. This includes television, films, financial services and news. Apple already has a music service of its own and file storage (iCloud) both of which are offered as subscriptions.
Apps are also allowed to offer paid subscriptions, and that total has reached 390 million, growing at 30 million a quarter with an expected total of 500 million by 2020. That amounts to one subscription for every other iPhone in use.
Some would argue that even with a $43 billion revenue rate, ($80 billion billing rate)3 Apple’s business is still a hardware business and that comes with low margins, potential for disruption, non-recurring revenues and cyclicality.
This is not the case. Apples’s business has high margins (64% gross margin for services, 34% for products), has been resilient over 12 years while attracting hundreds of imitators at lower price points, and has loyalty and satisfaction which results in more than 90% re-purchase rates. Cyclicality is driven by seasonality and product lifespans, not competition.
This common misconception of Apple is why it continues to be valued at a deep discount to not only peer companies who are services oriented (Google, Facebook, Microsoft and Amazon) but also at a discount to the overall market (the S&P 500).
Apple, since its inception, has always been oriented around its customers, not its products. The questions asked by management are “what can the company do to deliver experiences and satisfaction” rather than “what products can the company build”.
Every company is bound by its capabilities but the best companies re-shape these bounds because they are defined by priorities.
A priorities-driven company habitually re-designs its processes and its resources. A resources- or process-driven company re-designs its priorities as its capabilities change.
Moving as it does between computers, devices, software, services, retail, logistics and manufacturing means that it’s not classifiable as an “x” company where “x” is an industry sector. Rather, the company should be classified by the set of problems it seeks to solve (e.g. communications, community, productivity, creativity, wellbeing).
This disconnect between what people think Apple sells and what Apple builds is as perplexing as the cognitive disconnect between what companies sell and what customers buy.
Companies sell objects or activities that they can make or engage in but customers buy solutions to problems. It’s easy to be fooled that these are interchangeable.4
Conversely Apple offers solutions to problems that are viewed, classified, weighed and measured as objects or activities by external observers. Again, it’s easy to be fooled that these are the same.
This analysis is, of course, applicable to any company. Here I’m using Apple as a lens. This is because it’s just so much easier to tell this story with the narratives and anti-narratives that are so widely disseminated.
The iMac launched May 6 1998, exactly 20 years ago. It is not the most significant computer to ever exist. It was a clear descendant of the original Mac which established the “all-in-one” desktop computer category. That category, to which it still belongs, is a modest segment. The last time Apple reported portable sales separately was in late 2012 when the desktops/servers and pro systems combined made up only 20% of all Mac sales by units. If iMac were 10% of Mac sales, it would represent about 2 million units in 2017.
Desktops evolved into laptops and personal computing evolved into pocket computing. Becoming more personal means more intimacy and this is leading to wearable computing. There is more beyond that to be sure.
But the iMac is a historically significant machine. It allowed Apple to start on a new trajectory. It did this by first offering a financial lifeline. Sales of Macs, which were at the time the only source of revenues for Apple, increased from 2.7 million to 3.8 million a year. This at a time when Windows PCs were shipping about 100 million units. That was enough to ensure survival. Today Mac units are five times higher while Windows PCs are about 2.5 times higher. The following graph shows the impact of iMac on the Mac’s trajectory. Continue reading “Just in Time”
The last time Apple reported iPod unit and revenues was for the third quarter of 2014. Thereafter the product segment called “Other Products” was used to include what was formerly the iPod segment and the “Accessories” segment. Exactly two quarters later Apple began to sell the Apple Watch. Apple Watch was not broken out as a separate product segment and remained a part of Other Products along with iPod touch, Beats, Apple TV, and Apple-branded and third-party accessories. Soon the HomePod will also join the Other products.
The combined iPod, Accessories and “Other” product sales are shown in the following graph.1
Note that an attempt is made to estimate the contribution of Apple Watch to the mix. The method is simple: if you can estimate the non-Watch sales trajectory then the Watch is the difference between Other total and this trajectory.
If we discount the iPod, the non-Watch revenues come down to Apple TV and Beats, mainly. Note that the data shows the contribution of Beats (Q4 2010) but it’s hard to parse specifically the growth of Beats. Since the Watch launched we also saw the introduction of AirPods and new Apple TVs, both of which probably contributed to some growth to “Other excluding Watch.”
We can take a stab at the first 6 quarters of Watch by projecting Other with some nominal growth. Thereafter Watch can be modeled using growth assumptions. Apple stated that growth was above 50% during the past three quarters. There are a few quarters where we must make guesses but overall the picture that emerges, shown below, is fairly robust. Note that I’ve included estimates for the fourth quarter of 2017 assuming continuing 50% growth. This is driven primarily by the launch of the LTE-enabled Series 3.
The result is a cumulative sales value of $14.3 billion and a volume of 40 million units (based on average pricing assumptions).
But what most catches the eye is the transition from iPod to Watch. Watch entered nearly at the same time as iPod bowed out. Its contribution to sales seems to mirror the iPod as well. The interesting question then becomes if the Watch will eventually match and indeed exceed the revenues from iPod.
I’d say the better question is _when_ Watch will overtake iPod. From a revenue point of view, I believe next year’s fourth quarter will see the Watch generating higher revenues than the highest quarter for the iPod.2
In terms of yearly unit sales it may take longer. The biggest year for iPod units was 2008 when about 55 million iPods shipped. Watch is now running at about 16million. If it could sustain 30% growth then it would take until 2022. 40% growth would mean 2021 and 50% 2020.
It’s not easy to predict growth but my bet remains that Watch will get there eventually becoming the third most popular Apple product. Perhaps even second.
Overtaking the iPod is quite an achievement considering that the iPod was once synonymous with Apple itself. Although Watch may overcome iPod, Apple may never be known as the Watch company. That’s perhaps for the best. I’ve noted before that Apple was once seen as the Apple II company, became the Mac company then the iPod company. Now of course it is thought of as the iPhone company though it’s no more that than it ever was any of the other things.
Microsoft has announced that by the end of the year the Groove music service will be phased out. Users are being offered the option to move their music libraries into Spotify.
This brings to an end a long story of Microsoft in the music distribution business. It started nearly 15 years ago with technologies in Windows that allowed for purchase and playback of various media formats. Microsoft sought to enable a large number of music retailers to market music through its formats and DRM and transaction clearing.
Services such as AOL MusicNow, Yahoo! Music Unlimited, Spiralfrog, MTV URGE, MSN Music, Musicmatch Jukebox, Wal-Mart Music Downloads, Ruckus, PassAlong, Rhapsody, iMesh and BearShare and dozens of hardware players licensed Windows formats. Almost all of these services have shut down and the devices disappeared.
The next stage was to offer an integrated experience through the Microsoft Zune player and Zune Marketplace music service. This too failed and was replaced by the Xbox Music brand in 2012. On July 6, 2015, Microsoft announced the re-branding of Xbox Music as Groove to tie in with the release of Windows 10.
There was a time when Microsoft was thought of as the certain winner in media distribution. Inserting media into the Windows hegemony was classic “control point” strategy: owning the access points was a sure way to collect a tax on what transacted through the network.
Instead we are facing a market where media is consumed through new access points: phones, tablets and TV boxes. Netflix, Spotify, Roku, Google, Amazon and Apple are all offering distribution and some are investing in original programming.
It’s perhaps worthwhile to recall that Microsoft and Apple both started their media efforts around the same time. Apple’s iTunes is 16 years old and the iTunes Music Store opened in 2003, almost 15 years ago. Today Apple is transitioning to streaming with 30 million subscribers. The graph below shows the history of subscription growth to Apple Music and Spotify.
Apple Music is a small part of Apple Services (part of the orange area below).
On a yearly basis Apple Services are this year crossing the $50 billion gross revenue run rate. This year Apple released a new Apple TV 4K and is releasing a new smart speaker called HomePod.
The contrast between Microsoft and Apple is most visibly between the Mac and PC. But the story of how media paralleled mobility and how Microsoft struggled with both is perhaps a cautionary tale.
Microsoft saw the limits of modularity when new product categories emerged and when new user behaviors were created. They attempted to pivot into being more integrated but those efforts also failed. The efforts continue today with Surface devices; looking forward they will continue with AR/VR and perhaps a pivot of Xbox..
But the long arc of history shows how hard it is to succeed in vertical integration after you build on horizontal foundations. Generations of managers graduated from the modular school of thought, specializing rather than generalizing. Now they are facing an integrated experiential world where progress depends on wrapping the mind around very broad systems problems.
Entire industries are facing this orthogonal pivot: media, computing and transportation come to mind. Huge blind spots exist as we see only what we’ve been trained to see.
On July 3rd, Elon Musk handed over the first 30 Model 3s and tweeted
“Production grows exponentially, so Aug should be 100 cars and Sept above 1500.”
“Looks like we can reach 20,000 Model 3 cars per month in Dec”.
In 2016 he stated
“So as a rough guess, I would say we would aim to produce 100,000 to 200,000 Model 3s in the second half of . That’s my expectation right now.”
He confirmed this estimate early in 2017
“Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018.”
Overall 2018 production guidance has been 500,000 units and 1,000,000 units in 2020.
The company shipped 220 Model 3s in the July, August and September months. This is well below the expectation of 75,000 that the 2016 guidance would suggest1 or the 1,630 that might be suggested by the “production grows exponentially” July proclamation.
I entered the Q3 production data and kept the previous run rate predictions for Q4 and 2018 and 2020 in the following graph.
You’ve probably heard of Jony at Apple but probably don’t know about Johny.
Jony is a celebrity executive known as the face of Apple Design. Johny is the executive in charge of custom silicon and hardware technologies across Apple’s entire product line.
Under Johny’s leadership, Apple has shipped 1.7 billion processors in more than 20 models and 11 generations. Currently Apple ships more microprocessors than Intel.1
The Apple A11 Bionic processor has 4.3 billion transistors, six cores and an Apple custom GPU using a 10nm FinFET technology. Its performance appears to be almost double that of competitors and in some benchmarks exceeds the performance of current laptop PCs.
A decade after making the commitment to control its critical subsystems in its (mobile) products, Apple has come to the point where is dominates the processor space. But they have not stopped at processors. The effort now spans all manners of silicon including controllers for displays, storage, sensors and batteries. The S series in the Apple Watch the haptic T series in the MacBook, the wireless W series in AirPods are ongoing efforts. The GPU was conquered in the past year. Litigation with Qualcomm suggests the communications stack is next.
This across-the-board approach to silicon is not easy or fast or cheap. This multi-year, multi-billion dollar commitment is rooted in the Jobsian observation that the existing supplier network is not good enough for what you’re driving at. Tiny EarPods, Smart Watches, Augmented Reality, Adaptive Acoustics require wrapping your arms around all parts of the problem. The integration and control it demands are in contrast to the modular approach of assembling off-the-shelf components into a good-enough configuration.
There are times and places where modules are adequate and times and places where they aren’t. The decision depends on whether you are creating new experiences or new “measures of performance” vs. optimizing for cost within existing experiences or measures of performance.
The very notion of a microprocessor is a rejection of the discrete component designs that preceded it. Earlier computers had central processors made up of many discrete components. VLSI stands for Very Large Scale Integration with emphasis on Integration. As computing has progressed toward ambience and ubiquity the idea of using discrete components became normative again but that was not considered sufficient by Apple.
So while the “Silicon” in Silicon Valley has come to be seen as an anachronism, silicon development today means competitive advantage. The only problem is that it takes years, decades even to establish competence. The same duration that it took for the building of Apple as a design-centric business fronted by Jony Ive.
Apple also now needs to be understood along the dimension of silicon-centric engineering as led by Johny Srouji.
It was a pleasure to spend a day with Henrik, the leading tech journalist in Denmark, and the Micromobility Summit at the Techfestival in Copenhagen.
We did the recording live in front of a large audience the evening after the event and it is already causing a stir in Denmark. I think it’s worth a listen (about 30 min.)
Here is a link:
Podcast with Henrik Føhns
There is a short Danish intro, which Henrik did while riding his bike.