It’s Not A Criticism, It’s A Fact

2016.09.10 prev next

THE Exponent podcast has been quiet for a while, but after the iPhone 7 event, James Allworth and Ben Thompson are ready to start talking about Apple again, in episode #87 “Meditations on Courage.” No longer with Medallia, Allworth took the opportunity to go on a ten-day meditation retreat. Could that be a great chance to rethink your position on Apple? Apparently not — what we get is just a whole lot more of the same stuff we’ve been hearing for a long time:

JA: I read into the bear side of things because the post-iPhone future is going to involve a lot more services and a lot less hardware, and that’s where Apple starts to lose its edge.

Thompson provides us with a fairly specific prediction:

BT: This is going to be a rough cycle for Apple, I think. Really, to the normal person, who doesn’t— like, why would you buy an iPhone 7? Especially if you have an iPhone 6 or 6S? It’s not really clear at all.

We’ll have to wait about four months to find out for sure if Thompson’s reasoning is right.* In the meantime, note that according to Statista, only 2% of iPhone users feel the need for every-year iPhone replacement, and almost half of iPhone users keep their iPhone until it either stops working or is no longer supported by Apple’s iOS updates. So comparing the upcoming iPhone 7 to the most current, in-use models may not be very useful.

What do Ben and James think of Apple getting rid of the analog headphone jack? Nothing good:

BT: The headphone jack is a big deal. Yes, not everyone uses them, and actually I don’t really use them anymore either; I’ve been using Bluetooth for a while, and it is great. But people plug [the analog jack] in at work, and then listen to music.

JA: I just, I have enough things in my life that I need to charge without having to worry about one more thing.

If he had watched the event, Allworth would know that iPhone 7 comes with both wired Lightning EarPods, and a Lightning-to-analog adapter for using anything that ends in an analog audio plug. No mention of these facts in the entire podcast — surprise, surprise.

BT: It’s not just that. Even if people don’t really use the headphone jack, but they think they do? — it’s friction. Like, it is a hurdle for a device that is already having a difficult time getting people down the funnel. ... Even if there was the headphone jack, the iPhone 7’s gonna have significant challenges. Even if it was a redesign it would have significant challenges, and it’s not really a redesign. ... I think it’s gonna be a tough year. I’ve been saying for many months now that it’s gonna be a tough year. ... There is no dazzle or bling to the iPhone 7; there isn’t.

JA: This is what happens when these products start maturing. Like, they run out of— it becomes harder and harder to impress people ... I think you’re absolutely right in terms of, like, this is gonna be a tough year.

We shall see. But back to the (somewhat) new, anti-Apple thesis that’s become the go-to diss:

BT: ... we’ve been talking about [for years] a future where your number-one interaction model is voice-to-the-cloud, basically. ... It’s a shift, and it’s a diminishing of the primary primality of the phone in your life. And there is no other way to spin that, except that that is problematic for Apple. ... Going past that [the phone-centric model], even, whatever degree it is, even if it’s one degree, or ten degrees, or fifteen degrees, is to be in a place that Apple is just not as suited for. And that’s not a criticism; it’s just a fact.

It’s not my opinion; it’s fact. Got it, Ben.

BT: (laughing) [Phil] Schiller was justifying why they took out the headphone jack. Like, it’s for three reasons, well actually it’s one word: courage. We are very courageous. (laughing) It was cringe-inducing.

JA: Yeah.

BT: And it came across as so hubristic.

JA: Yeah!

A couple hobbyist podcasters authoritatively declaring as “just fact” that the most successful company in history is ill-suited for the future, and joining in the popular chorus of pundits saying it shouldn’t have (barely) ditched a hundred-year-old analog jack? No hubris there. But that same-said company saying it takes courage to face down such a chorus of malcontent and do it anyway? Hubris!

BT: The reality is, it’s still very much an open question, and we are both well-known skeptics, I think, of Apple’s province to succeed in this future where the touch interface is not the central part of your experience.

...

JA: It will be harder, organizationally, for Apple to do that than it will be for someone else, and that’s why it, like, again, as we’ve talked about, as I’ve written about, it’s why it doesn’t surprise me that the [Amazon] Echo is one of the most successful, new, platform-like products since the iPhone. Because Amazon came at it with a blank slate; they weren’t tethered in the past.

Apple is tethered in the past. And whoa, did you say Echo is a big success?

BT: Right, exactly. And again, we don’t have numbers on the Echo, but by all accounts, it is very successful.

JA: Yeah.

Oh. By all accounts. Got it.

BT: [Google’s and Amazon’s service-based model is] just a way of thinking and building that’s just fundamentally opposed to [Apple-style] integration. Integration vs. modularity: It’s the very core of that debate. And to be good at one is to be bad at the other. And to be in the mushy middle is to be nowhere!

JA: Right.

BT: So it’s a compliment that Apple’s bad at services, ’cause that means they’re great at products. And it’s a compliment that Google’s bad at products because they’re great at services. ...

JA: It’s one of the quick fanboy tests, like, there is a belief that some folks have that these organizations are good at everything. And I’m yet to meet a person, or view an organization, that is good at everything. And the weaknesses typically are inherent to the strengths. Whatever you are strong at, there is an inverse weakness that is related to it. It’s like that other side of the coin. And again, it’s one of these things that’s come up again and again and again. And it’s not being said to criticize. It’s just— like, the way I’ve started to view these now, it almost feels just like a fact. Like, you have built a model that is really good at these things, but as a result of building that kind of model, it is going to be poorer at these other things. ... It’s not being said as, like, some criticism. It feels to me more just like a statement of fact, an observation around the way these things have structured themselves.

BT: Absolutely. And to the degree you try to do both is, you weaken— like, you make yourself non-competitive.

Gosh, umm, couldn’t Apple, like, hire people who are good at creating integrated devices, and also hire people who are good at creating voice-command cloud services? If there’s something about the structure of the company that makes that impossible, I’d sure like to hear about it. Maybe in episode #88, Allworth and Thompson could explain it? Or just reassert that it’s a fact. Whichever works for them.

Update 2016.10.02 — On episode #90 Thompson explains why it makes sense to be so down on Apple when the company’s doing so well:

BT: I would like to think I don’t have a reputation of being a blind cheerleader; I am critical of things. But I think that the criticism that matters, and the criticism that is valuable, is taking into account where this company is going, or where they might go, given that: what are the obstacles they are going to face, and where are the problems you can see in the company today. Right? We get this all the time with Apple— is the classic example. If you want us to talk about how awesome Apple is because of their financial statements, like, there’s plenty of reporters, in fact there are bots that write news reports based on financial statements. Go subscribe to a bot! The value we are hopefully providing is not looking at Apple today, but Apple in five to ten years. And what are the conditions today, what are the trends today, what is Apple doing today, what’s the culture of Apple today, that will impact where they are then? And the reason that’s actually valuable criticism is ’cause they can make changes.

At long last, I think I get it:

correctly predicting Apple success = blind cheerleading
incorrectly predicting Apple decline = valuable criticism
asserting that Apple will decline unless it does X, Y, and Z = valuable criticism — even if Apple subsequently succeeds without doing X, Y, and Z

Hey, Ben, how about you call out Horace Dediu by name as a “blind cheerleader?” That, I think, would get the valuable-criticism-train rolling for real.

Update 2016.11.04 — Installment #94: Ben & James discuss Apple yet again. And yet again, they pound the point that Apple’s just gotta be in some kind of long-term trouble:

BT: Most of the people who would buy iPhones have already bought iPhones. They’re on the vast majority of carriers now, they’re in the vast majority of countries, and a lot of their growth, kind-of the big question, if you’re measuring iPhone growth, is how often do people upgrade? Right? There’s very little sort-of green-field for the iPhone to grow. And you can quibble on the details — oh, they’re gonna slightly grow this year, or they’re gonna slightly contract — but from a big picture, the days of, like, big growth, and just, you know, record quarter after quarter: They’re gone! And that’s not Apple’s fault. It’s the natural endpoint of creating the best product in the history of business. Like, it’s so good that they basically reaped all the rewards in less than ten years.

JA: I’m absolutely with you so far.

BT: ... I don’t think Apple, or anyone, is ever going to create a product like the iPhone again, where your— All the things about the iPhone that made it great, the services that you can access on it, and all the things that you can do with it, but it’s still being a personal device that’s very expensive, that’s subsidized, that you buy and put in your pocket— It had the old business model of buying products that was— but the product itself was made fantastic by future business models. But the next step is the end of the sort-of old business model, and I don’t see— Apple’s doing great stuff, I think the AirPods are interesting despite the delay. And we’ve talked about they’re moving into this new world of different things. But AirPods and Apple Watches aren’t going to make up for the iPhone.

JA: Mmm-hmm.

BT: And the problem is — and I know people hate to hear this, but it’s absolutely, like ... a reality — is, when it comes to a company, and when it comes to the stock market, and when it comes to your employees, a company that’s not growing is— you don’t get a stay in a steady state. And again, Apple’s doing fine right now. This is looking out just a couple years in the future. Apple needs at least a growth story, a vision of the future that is more than “we’re gonna figure out how to sell slightly more iPhones.”

Maybe “people hate to hear this” because they’ve been hearing it, and things like it, for a really long time — and they haven’t been coming true.

Later in the show... The following is plausibly hedged in a what-if-Apple-needs-to-buy-Netflix conjecture — but still, it’s hard to listen to it and not feel that Allworth really believes it, or at least hopes his audience will:

JA: [Apple’s] had an incredible run, and the business model that it represents is actually, uh, like, it’s been fantastic, it represents the peak of the twentieth century, but in a twenty-first century, as everything shifts to a service, this idea of a company that sells you widgets is, is actually, I, it’s just, it’s gonna start to go away.

Imagine these guys announcing, “If iPhone makes more money in the next three years than it made in the last three, we vow to never again try to predict Apple’s future.” Wouldn’t that be refreshing?

Update 2017.01.09 — Exponent #99:

BT: Voice abstracts Google away. Right? Because Google made money by being the layer that everyone went through to get somewhere. And on the layer they could put ads. The problem is, the whole idea with voice and giving answers, is that layer becomes invisible. You get the answer directly, so where’s the— it’s too frictionless; there is too little friction. And Google’s prowess is creating the conditions for the demise of their business model. Again, the price of success. It’s like Apple making such a fantastic phone that you don’t feel the need to buy another phone, ’cause your phone’s already great.

JA: Right.

Not being able to get ads in front of people strikes me as a real problem for Google. But “how’re they gonna compete with their own products from last year?” That sounds like a severe stretch into just-gotta-be-down-on-Apple territory.

Update 2017.01.23 — After managing to avoid doing so for almost its entirety, in its last few minutes episode #101 plunges back into Exponent’s favorite, new anti-Apple-ism:

BT: Apple almost died in the PC era, right? But in part because they had nothing, sort-of, locking them in? They were more free to sort-of move to the next thing? You know what I mean? Whereas, like, Windows, they were so intertwined with the PC, and we talked about it a few weeks ago, it was an unbelievable business model. They had all— multiple pieces, all over the place, all tied together in this gnarly knot that was impenetrable. Right? But when the broader context changed around the PC, they were screwed! Because they were too— their business model was too good to change. Right? And now, today, like, Apple with the iPhone is an unbelievable business model, right? But that’s— the danger is, if we do come to a paradigm shift, can they change? Google with desktop search, and clicking on those links, is an unbelievable business model. But when we shift to a new paradigm, can they shift? The history of business is times undefeated, right? When things change, companies change, the leaders change. And this is why, it’s because the better you are in one paradigm, almost by definition, the worse you will be in the next. Not— and everyone says, oh it’s so obvious they have all these resources, right?

JA: Nooo.

BT: No! The resources are a detriment!

JA: And you get locked in. You view the lens, like the succe— I think you said it last week, like, you view the world through the lens of your success. And if you— and in the same way that there’s this curse of success, there’s a ... corollary ... it’s the blessing of failure. Like, the music industry, I mean Apple benefited from this with the PC to the iPhone, and now they’re suffering as a result. Amazon benefitted from—

BT: Well, they’re not suffering yet. You can—

JA: Well, it—

BT: —envision, theoretically.

JA: I mean, their financials aren’t. But it looks to be, they look to be in a similar position to what Microsoft was in, as the corner turned on the PC. And Amazon benefited from it as a result of the phone, and then looking at it, being able to view the house with like a clean slate, not necessarily needing to make the phone the center of everything, and it allowed them build the Echo.

Amazon must be the Apple slayer because... if not them, then who?

*Update 2017.01.31 — Apple’s fiscal-Q1 results are in, and they sold 5% more iPhones than any quarter ever.

Question for all who consider themselves serious business theoreticians, and who believe in the value of studying case histories: What example is there of a company that was incrementally improving its product year after year, selling steadily more-and-more of that product as the years went by, then experienced an abrupt collapse in annual sales, which was later determined to be caused by the phenomenon of “most everybody who wants one already has one?”

When you hear an analyst claim that Apple’s about to decline because everybody who wants an iPhone already has one, I think it’s pretty safe to assume that that analyst (a) wants to be negative about Apple, (b) can’t think of any way to do so that actually makes sense, (c) recognizes that the “already has one” argument sounds plausible, and (d) doesn’t give a rat’s ass whether he’s going to be completely wrong about this when the numbers come in.

Update 2017.04.07 — In installment #109, Ben & James have an absolute field day with Apple’s admission that the 2013 cylinder Mac Pro was a mistake. But nothing outrageous enough to be worth calling-out — until about 2/3 of the way through, and, like magic, they pull something new out of their butts that I’d never quite heard before:

BT: One of my very early articles on Stratechery was talking about this, why Apple doesn’t enable sustainable business models on the App Store. ... [in ’98] Jobs had to prostrate themselves in front of Microsoft ... Office mattered more than Apple did. Adobe Photoshop mattered more than an Apple did. And I strongly believe that Apple swore, we’ll never again be held hostage to applications that people care about more the device that they run on. And I think that’s always been a problem with the App Store. ...

JA: Yeah. ... The iPad is not the iPhone. ... the product [iPad] has failed to, like, break gravity and get out into orbit, because the applications that it’s crying out for, the ecosystem hasn’t been satisfactorily developed, sufficiently developed, in order for them to flourish, in order for people to find the right tool to draw on that blank canvas. Like, the tool manufacturers haven’t shown up because the guys making the canvas haven’t made it easy for them!

BT: I think something that is always been culturally very difficult for Apple is ever admitting or appreciating that they need external help. They wanna control everything; it’s in the “Cook doctrine,” we will own and create the core technology to our products. ... it tends to work against them whenever you get into anything that’s ecosystem related, and I think it’s fundamentally handicapped the iPad. ...

JA: The app ecosystem exploded on the iPhone, and that is part of, one of the biggest moats that the company had. Like, you had Microsoft trying to cross the moat by paying developers in order to come on to their own platform. ... Part of that [iOS app success] was due to these app developers building these incredible apps, and expressing themselves in these creative ways. And now, like, fast-forward ten, fifteen years, they’re neglecting this very thing that’s caused them to be successful.

Wow, let’s take a deep breath and try to swallow all that: Apple’s neglecting the App Store. The iPad never really successfully launched. Apple wants to do everything by itself; it doesn’t really like third-party apps. Apple feels threatened by high-quality, widely-used apps, and the solution is to purposely under-develop (how exactly?) its own iOS app ecosystem to the point that really great apps can’t exist.

Should we laugh, or cry?

Update 2017.05.05 — Episode #113:

JA: If you were starting from scratch today, would it actually make sense to roll out a grid given— the old, fundamental assumption was that power was essentially generated at a power station, and then it needed to be transmitted, and there was loss of transmission, and all that investment. If you’re in a remote part of the world, or you’re in an undeveloped part of the world, would you go to the effort of rolling out a grid? Or might you think, well, solar cells are actually coming down in price quite substantially. Why not just put solar cells on people’s houses, and use the money to invest in that, and skip the grid altogether?

Now, does it make sense to go back and rip up all the infrastructure, or to bypass all the infrastructure that’s already in existence for Western countries? Well, because of global warming, perhaps. But absent that, probably not. But in these countries that haven’t been developed, because the improvement that solar offers is so great compared to what is in existence, which is nothing, it’s like, this is fantastic, guys, let’s put this on our houses, and suddenly we’ve got electricity, and we haven’t had to deploy a grid.

Thompson didn’t spot any problem with this idea. Can you?

Update 2017.06.09 — Episode #117 features some astute, post-WWDC commentary:

JA: When it comes to pioneering something like AR, which is, by its very definition, like, touching both hardware and software, Apple’s gotta have the edge. Like, that’s much more valuable, having — at least for now, at least right at the start — having integration into hardware and software, and being able to play with those deep APIs versus the network. Now, might that always be the case? Probably not. As this gets figured out, those API calls are gonna get crystallized, there are things people can rely on across platforms, and the underlying hardware’s gonna become less important. But for now, Apple’s much better positioned to be building up a presence in this space.

Apple can be successful for a bit, but inevitably gets beaten out of its markets. Like, you know, by Windows thirty years ago. Therefore forever.

JA: You really are only gonna be successful if you play to your strengths. And that’s what came to mind when I watched the HomePod part. It’s like, OK, they know they’re not going to win in terms of AI. Siri’s not going to beat whatever Google is going to do from an AI perspective.

Siri can’t possibly succeed against Google. And Apple knows it! So there. Thbpbpthpt!

JA: It begs the interesting question: What do you [Apple] do? Do you, like, let go of it [Siri]? Because the rate at which everybody else is increasing far exceeds what Apple is, and if this continues, it’s almost gonna become a detractor from buying the product [HomePod]. Is it better to go and partner with somebody else? I don’t know what the answer is ...

More awesome advice for Apple. Think they’ll listen?

At the end of my original article (above), I pondered, “Gosh, umm, couldn’t Apple, like, hire people who are good at creating integrated devices, and also hire people who are good at creating voice-command cloud services? If there’s something about the structure of the company that makes that impossible, I’d sure like to hear about it. Maybe in episode #88, Allworth and Thompson could explain it? Or just reassert that it’s a fact. Whichever works for them.” Well — it only took thirty more episodes, but I think we might be about to get the answer! Drumroll, please:

BT: Everything that makes Apple so great, all the things that make them deliver the best hardware products, the things that make them deliver something like the HomePod, or the AirPods, or the iPhone itself, the sort-of thinking and developmental process and internal culture, all that sort of stuff, is so tuned to creating brilliant, integrated, hardware products, that it makes them uniquely unsuited to create effective, industry-leading sort of services.

It just is. Two smart guys said so. Then said so again.

Update 2017.11.10 — Apple hasn’t been disrupted all these years...but gosh, isn’t it about to be? (Episode #131):

JA: [Apple’s] ability to create a fantastic experience is part of the reason why they’ve been able to resist [low-end disruption] for so long, and resist it from the perspective of Android. And they’ve done a phenomenal job at it. But any time you start making more and more money out of your best customers, it still— I can’t help but feel that it leaves you exposed to something else coming along underneath, and that gap gets bigger and bigger for someone to move in underneath with something that’s less powerful, that maybe begins looking like a toy. And people are, like, you know what? I can’t afford to spend $1,200, $1,300 to get this amazing experience. What about this instead?

BT: Oh, and don’t forget $350 for an Apple Watch.

JA: Yeah, right?

Maybe you “can’t help but feel” that what Clay Christensen drilled into your head just can’t be wrong? Meanwhile, I can’t help but feel that dramatically cheaper alternatives to iPhone have been on the market for as long as iPhone has. Same with Apple Watch. And same with pretty much everything Apple has ever made.

Update 2018.02.09 — Haven’t lost their touch (#140):

JA: On one hand, I think the [Apple] strategy that you’re describing, of getting more money out of existing customers, is a solid one. But it’s also exactly the strategy that Microsoft was taking when Apple came along and launched up the stack with the next product. And they need to also be thinking about what comes next afterwards. Because it’s impossible just to defend the borders of your country by having the best product in the current generation, ’cause invariably in technology some new product comes along, and it enables someone else, particularly with this hardware-software integration. Like, the thing that’s at the top of the stack? It’s gonna be something else soon. And if it’s not Apple that figures it out, it’s gonna be someone else. And at that point, just like the PC industry started to decline? Like, the phone industry will start to decline. Unit sales will drop off, and ASPs will start to drop off too.

BT: Of course, I completely agree.

They’re finally getting it through my thick head; I think I understand now: If Microsoft was driven out of dominance by Apple — that’s a sign that Apple soon could be driven out of dominance too! Not a sign that Apple’s really, really strong and capable, and probably won’t be driven out of dominance for a very long time to come.

Update 2018.02.23 — Sometimes I think Thompson has at least one foot in reality, unlike Allworth and Christensen, but then he says something like this and I think he’s right there with them, all the way (#142):

BT: I don’t think that the dominant player in a current paradigm can even prevent the next paradigm. ... My argument has always been that “true disruption,” there’s nothing you can do about it. You’re just screwed, because everything about your business and company works against what you need to do. There’s no starting a little division off to the side that has no connection. No! If you are actually facing a disruptive business model with a fundamentally different incentive structure, a fundamentally different business model, fundamentally different product approach, fundamentally different value proposition? You’re screwed! There’s nothing you can do about it. Microsoft was screwed in mobile, and they were screwed in search, and it was inevitable. Just as IBM was screwed when the PC came along. They were so married to the business model, and to the selling motion, and everything around mainframes, that they tried to apply the same thinking to the PC. And, oh, as long as we control the PC, the BIOS chip, whatever, software, who cares. Like on the mainframe we still control hardware, we open up software, and we still have control. And they totally missed the boat. Utterly missed the boat. And everyone looked back and, oh that was so stupid. It wasn’t— it was stupid, but it was 100% predictable. This is exactly what happens.

100% predictable? That’s absurd. If IBM had copyrighted and/or obtained exclusive rights to the crucial details of its IBM PC (as Apple has with the Mac, iPod, iTunes, iPhone, iPad etc.), then the PC clone phenomenon wouldn’t have been possible, and IBM would have ruled the PC era at least as soundly as they ruled the mainframe era. That they failed to do that was just a bone-headed error — not a disruptive inevitability.

Can team-disruption ever admit this? Can they ever bring themselves to say, such-and-such major, market-destiny-determining event was simply random, and was not predictable by business theory? Or would such an admission be too damaging to their own enterprise of theorizing about business?

Update 2018.05.08 — Thompson on The Talk Show With John Gruber #221:

JG: If they [Apple] had been on top of it, once they started making everything into iOS computers, boy, something like making [Amazon] Echos and Echo Dots-type devices would’ve been obvious, if they hadn’t been — and I think you’re spot-on — blinded by the fact that they saw the iPhone as a computer that you would have everywhere.

BT: It’s a perfect example, that you see in company after company after company after company, where it’s impossible to not get blinded by your success.

JG: Right.

BT: You see this again and again, like Microsoft could not imagine a world that did not have the PC at the center, right?

JG: Right.

BT: ... iPhone has become ever more, for practical purposes, the center of your life. And it’s the center of your life in the way Apple thinks about their business, where they’re gonna get you to buy a [better] iPhone, they’re gonna get you to do more things on the iPhone, more and more services, they’re gonna sell you AirPods, they’re gonna sell you a Watch — all of which sync with the iPhone. On one hand I fault them, because they got this wrong. On the other hand, that’s the way it works. Even Apple, as well-run as they have traditionally been, are not immune to the mistakes that befall every single successful company. And I think this is an example of that.

iPhone’s stupefying success is wrong. It’s a fault. A mistake. Because, you know, some other company (Amazon!) is just supposed to eat Apple’s lunch, like IBM and Microsoft did in the ’80s.

BT: The real reason Apple beat so big this quarter is ’cause their services revenue was through the roof. And at the end the day, Apple’s services revenue — while they deserve it — it’s kinda bullshit, right? ’Cause it’s all app developers, and Apple’s just taking a skim off of it!

Apple’s fantastic earnings are a bullshit skim.

prev next

It’s Not A Criticism, It’s A Fact

Hear, hear

Best recent articles

Fanboy Features (regularly updated)

My books

Links

Previous articles