For the second year in a row, Apple held a developers conference that should
frighten its competitors. Relying on a nearly maniacal obsession with the
user experience, Apple is removing oxygen from every market that it plays
in. At the same time, the tech landscape is riddled with increasingly bad
bets, indifference, and a lack of vision. Apple is pulling away from the
competition to a degree that we haven't ever seen before. Given how we are
just now entering the wearables era, implications of this shift will be
measured in the coming decades, not years.
It speaks volumes that Apple held its strongest WWDC in years during the
middle of a pandemic while two of its largest competitors, Google and
Facebook, decided to skip their annual developers conferences. Just a few
years ago, fortunes were reversed. Apple was coming under fire for WWDCs
that appeared to be more reactionary to Google, Facebook, and Samsung. Apple
was also struggling to contain growing unrest among its pro users who were
tempted by Microsoft Surface hardware.
What changed?
The last two WWDCs stood out for two reasons:
A revised Apple product strategy. A few years ago, Apple was most aggressive
with products capable of making technology more relevant and personal
(iPhone and Apple Watch)., in the pull strategy, the Apple Watch and iPhone
were Apple's clear priorities while the iPad, Mac portables, and Mac
desktops ended up facing a battle for management attention as if they were
located at the end of the rope that was Apple management was pulling.
<https://www.aboveavalon.com/notes/2019/6/19/apples-product-strategy-is-chan
ging> Apple changed from a "pull" strategy in which some products like the
iPad and Mac seemed to be having a hard time keeping up to a push strategy
characterized by every major product category moving forward simultaneously.
This shift appears to have been born in 2017, which would explain why we are
still seeing the initial fruit of the effort. The iPad and Mac product
categories have benefited the most from this revised "push" product strategy
with more frequent and noteworthy updates.
Changing Product Strategy
Apple has doubled down on its unique interpretation of innovation. During
his opening remarks at the iPhone and Apple Watch event last September,
<https://www.aboveavalon.com/dailypremiumupdate/2019/9/11/the-apple-event-ma
jor-takeaways> Tim Cook said that Apple sells tools containing
"[i]nnovations that enrich people's lives to help them learn, create, work,
play, share, and stay healthy." Instead of defining innovation as either
being first or doing something different, Apple looks at innovation as
something that improves customers' lives. A major consequence of this has
been software and hardware releases that have prioritized feature quality
over quantity. This year's WWDC came in a full 20% shorter than previous
keynotes. While having a digital format helped cut down on the timing due to
quicker transitions, no clapping etc., there were also fewer new features
announced. However, the features that were announced contained more
significance when it comes to pushing the user experience forward.
A Stronger Apple
Unfortunately for Apple competitors, the combination of a revised product
strategy and unique definition of innovation didn't just make for strong
WWDC keynotes. Consumers are noticing and wanting what Apple is selling.
Consider the following trends:
* Apple hasn't just held its own in the smartphone space but rather
is continuing to take share from Android. Of all the smartphone
manufacturers,
<https://www.aboveavalon.com/dailypremiumupdate/2020/6/3/iphone-sales-share-
rises-during-pandemic-its-all-about-smartphone-upgrading-a-5000-swiss-smartw
atch> Apple saw the largest sales share increase in the smartphone industry
last quarter, and that was during a pandemic.
* Apple is adding approximately 20 million new iPad users per year
despite the iPad being 10 years old and already having an installed base
exceeding 300 million users.
* Apple's oldest major product category, the Mac, is adding 10
million new users per year.
*
<https://www.aboveavalon.com/dailypremiumupdate/2019/12/11/4q19-apple-wearab
les-sales-4q19-apple-watch-installed-base-4q19-airpods-installed-base> Apple
Watch and AirPods are quickly approaching 100 million user bases each.
* Apple users are paying for 518 million subscriptions across
Apple's platforms,
<https://www.aboveavalon.com/dailypremiumupdate/2020/5/4/apple-2q20-earnings
-review-consolidated> which is up 126 million in just a year.
All of the preceding items amount to an Apple ecosystem gaining momentum. A
different way of highlighting Apple's growing ecosystem over the past 10
years is to look at the number of people using at least one Apple device.
Apple's installed base recently surpassed a billion users.
Apple Installed Base (Number of Users)
While new user growth rates have slowed, Apple is still bringing tens of
millions of users into the fold. Due to Apple's views regarding innovation
and its focus on the user experience, once someone enters the Apple
ecosystem, odds are good that customer will remain in the ecosystem.
This is why one subtheme from last week's WWDC keynote flew under the radar.
(My complete WWDC 2020 review is
<https://www.aboveavalon.com/dailypremiumupdate/2020/6/25/apple-wwdc-2020-re
view-consolidated> available here for Above Avalon members.) It's not just
about Apple pushing multiple product categories forward at the same time.
Instead, it's about adding cohesiveness and commonality between product
categories. Apple is making it easier for people to buy multiple Apple
devices. As users move deeper into the Apple ecosystem, satisfaction and
loyalty rates stand to go even higher. The end result is that Apple's
billion users aren't just any billion users. Instead, they are a billion
users less likely to use non-Apple devices and services going forward. For
the competition, this is a highly concerning development.
More worrying for competitors, Apple is still in the early stages of
bringing its users deeper into the ecosystem.
<https://www.aboveavalon.com/dailypremiumupdate/2019/12/12/more-on-apple-tax
-and-apples-pricing-strategy-homepod-sales-and-4q19-installed-base-estimatin
g-total-number-of-apple-devices-and-users> According to my estimate,
approximately 50% of Apple users still own just one Apple device: an iPhone.
This group serves as a prime market for products like the iPad, Apple Watch,
AirPods, and various Apple services. In a few years, that percentage may
decline to something more like 30%. Such a development will remove much of
the remaining oxygen from the markets Apple plays in.
Competition Is Weakening
While Apple sails forward with a strengthening ecosystem made possible by a
clear product vision and a functioning organizational structure that
prioritizes design (i.e. the user experience), the competition is
rudderless.
Apple competitors have been striking out with one bad product bet after
another. Few have long-term vision as to where computing is headed. Consider
the following events, developments, and observations. By no means is this an
inclusive list.
* Samsung remains rudderless from a product vision perspective. With
no clear direction as to where to go, the company aimlessly launches new
products and features for no other reason than to say they are first. The
strategy is no different than throwing things against the wall and hoping
something sticks. Even worse, the products and features that Samsung is
announcing aren't even ready for public usage.
* Google continues to prioritize technology over design. While new
software features may seem compelling on paper, the lack of attention given
to the user experience quickly becomes apparent. It has also become
difficult to miss the growing enthusiasm gap between Android and iOS. On the
hardware front, Google is struggling to match such efforts with
<https://www.aboveavalon.com/dailypremiumupdate/2019/10/16/more-on-apple-and
-china-the-google-hardware-event-googles-ambient-computing-vision> its
ambient computing future (which doesn't make much sense to me).
* Amazon's massive bet on voice with Alexa and Echo was the wrong
one.
<https://www.aboveavalon.com/notes/2017/11/30/a-stationary-smart-speaker-mir
age> The stationary smart speaker space was a mirage. Amazon should have
instead bet on wearables with voice as a user input. However, the company
doesn't have the corporate culture to excel with computers worn on the body.
*
<https://www.aboveavalon.com/dailypremiumupdate/2020/6/29/microsoft-stores-c
lose-permanently-a-canary-in-the-coal-mine-for-surface-apples-refreshed-back
-to-school-promotion> Microsoft appears to be running into growing trouble
with the consumer when it comes to Surface. What had been a genuine chance
to rip into the iPad and Mac stronghold due to growing user unrest looks to
have been successfully crushed by Apple. Microsoft Surface revenue is
increasingly being driven by commercial clients (i.e. Microsoft is taking
share from its OEMs rather than Apple).
*
<https://www.aboveavalon.com/notes/2019/5/16/techs-tectonic-plates-are-start
ing-to-shift> Facebook ended up placing the wrong social bet. Instead of
going after our closest social network, Facebook evolved to offer a curated
version of the web via the News Feed. The company's pivot back to a
privacy-focused social platform built around messaging emphasizes this wrong
bet. A message sent through Apple's Messages is a message not sent through a
Facebook property.
* Snap, the company considered to have the best odds of competing
with Apple on AR, botched its first major foray into AR hardware with
Spectacles. The company has backed itself in a corner by management's
refusal, and then failure, to appeal to older demographics. This will serve
as a headwind for mass market AR successes.
* Spotify was not able to prevent Apple Music from gaining critical
mass despite Apple Music not having a free tier. The same is now taking
place with Netflix, which is unable to stop new entrants into paid video
streaming from gaining traction. This ends up diffusing near universal
praise in the press for first movers.
For an industry that was expected to put Apple in its place, that sure is a
lot of fails, flops, and disappointments. When looking outside the U.S., the
overall picture isn't dramatically different. While some companies still
have pockets of strength where Apple is not a major player, in geographies
Apple is playing in, the company continues to see growing ecosystem momentum
while the competition flounders. The number of paid subscriptions being run
through Apple's platform points to increased services and app adoption
outside the U.S.
The never-ending tales of Apple being crushed by the local competition in
China have been met with Apple seeing existing users move deeper into the
ecosystem as measured by App Store, iPad, and wearables momentum. Huawei's
struggles in Europe appear to be benefiting Apple at the premium end of the
market.
Changing Narrative
If there was still doubt about Apple's momentum in the marketplace, one
doesn't need to look any further than the dramatic change in narrative
facing Apple in the press.
For years, Apple was positioned as one iPhone update away from implosion.
Low market and sales share were paraded around as signs of an incompetent
product strategy. Simply put, Apple was framed as being weak and vulnerable,
dependent on revenue sources that could disappear overnight due to consumers
fleeing to the competition.
The narrative has completely shifted. The press is now infatuated with
Apple's power, its ironclad grip over the App Store, and the idea that Apple
users are stuck or imprisoned in a massive walled garden where things like
iMessage, Apple Watches, and AirPods force people to remain within Apple's
walls. Government regulators are viewed as the only entity capable of
protecting Apple users from Apple.
If competitors actually believe this narrative, they are setting themselves
for more failure. Thinking that Apple users are somehow being forced against
their will to buy products like Apple Watches and AirPods is nothing more
than looking for someone to blame for market failures when the problem is
found internally with a bad vision, inadequate corporate culture, and lack
of understanding as to what makes Apple unique.
Risks
On a list of risk factors facing Apple, greater regulation is far from the
top. The same can be said about things like App Store policies and employee
retention. While these items make for juicy headlines capable of grabbing
people's attention, they won't play a major role in Apple's future. Instead,
Apple is where it is today by saying "no" more than "yes." By remaining
focused on making technology more personal, which is inherently about using
a design-led culture to push the user experience, Apple is able to develop a
dynamic, yet nimble, ecosystem of tools that people are willing to pay for.
If it were to lose focus, Apple would move that much closer to its
competitors.
Apple ends up being its toughest competitor as it releases products that
surpass the previous version. This is where betting on the user experience
and taking a unique stance on innovation is critical.
Next Ten Years
When the iPhone was unveiled in 2007, Steve Jobs claimed that Apple had a
five-year head start against the competition. He ended up being mostly
right. By 2012, Samsung and Google were shipping credible iPhone
alternatives, thanks partially to ruthless copying that led to time in the
courtroom.
With wearables, my thinking has been that Apple has a lead that is closer to
10 years. This estimate reflects not just software or hardware advantages,
but also the byproduct of Apple controlling both items and its resulting
achievements with custom silicon.
As time passes, Apple has been facing less competition in wearables. This is
remarkable considering how
<https://www.aboveavalon.com/notes/2020/2/5/apple-watch-and-a-paradigm-shift
-in-computing> Apple Watch has already ushered in the next paradigm shift in
computing. We are seeing the future today. Yet most companies either don't
see it or even worse, see it but are unable to respond.
Giving Apple a 10-year head start against the competition with wearables may
end up giving too much credit to the competition. Excelling in wearables
requires a corporate culture, product development process, and business
model that few companies other than Apple possess. In many ways, Apple was
built to excel in wearables. Apple should probably get used to being its own
toughest competitor.
Website:
https://www.aboveavalon.com/notes/2020/7/1/apple-is-pulling-away-from-the-co
mpetition
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