Apple, Amazon, Products, and Services — Not Even Close
JG: I’m gonna read your words from today’s Daily Update, ’cause I think this is perfect. Here’s what you said: “I mean it when I say these companies are the complete opposite: Apple sells products it makes; Amazon sells products made by anyone and everyone. Apple brags about focus; Amazon calls itself ‘The Everything Store.’ Apple is a product company that struggles at services; Amazon is a services company that struggles at product. Apple has the highest margins and profits in the world; Amazon brags that other’s margin is their opportunity, and until recently, barely registered any profits at all. And, underlying all of this, Apple is an extreme example of a functional organization, and Amazon an extreme example of a divisional one.” That’s perfect. You’re never gonna come out with a better thing like that, speaking here extemporaneously on a podcast, so I’ve just gotta say it right there. That was my favorite paragraph I’ve read in a while.
BT: Well, thank you.
JG: ’Cause that is spot-on ...
—John Gruber & Ben Thompson on The Talk Show With John Gruber #221
AMAZON’S great; there’s no doubt about it. Every time I want flea medication for my cats, or a host of other random merchandise, I go straight to Amazon, without hesitation. Lately I don’t even look anywhere else. But when somebody wants me to agree that Amazon is strong where Apple is weak, and vice-versa, then I do pause.
Struggling
When we say that Amazon struggles at products, what does that mean? It means that the Fire phone was a severe and extremely costly failure, flopping so hard and so immediately that very soon after its release it had to be yanked from the market and permanently discontinued to prevent it from throwing the whole company even deeper into the deep red, for that quarter and fiscal year, than it already did. The Fire tablet didn’t fare much better. Echo, Echo Show, Echo Dot, etc. are talked about like they’re successful, but we don’t really know how successful they are, because Amazon won’t tell us how many they’re selling, even in aggregate. They also won’t tell us if those products are making money, or at least breaking even — but an independent study determined that Google and Amazon are both very likely losing money on every smart speaker sold. Another study found that 98% of Echo owners do not use it to order merchandise from Amazon, which is one of its touted killer features. The Kindle (not Fire) is still doing well, but again Amazon won’t tell us how well, and nobody thinks it will ever be a platform for anything but reading e-books. So that’s what it means to say that Amazon struggles at products.
What does it mean to say that Apple struggles at services? It means that Apple’s services business, if it were accounted as a separate company, would be not just in the Fortune 500, but in the Fortune 100, bigger than Facebook. And in the USA, the largest music subscription service, by subscriber count, is Apple Music. But — the last time you tried to have a casual, back-and-forth, human-like conversation with Siri, hoping it would be something like talking to HAL in 2001, you were quickly disappointed. Oh, and Apple Maps had some distorted 3D structures when it debuted six years ago. That’s what it means to say that Apple struggles at services.
To take these two wildly different concepts of what it is to “struggle at” something, mix them into the same paragraph, treating them as if they’re at least roughly equivalent, is beyond absurd. It can only sanely be interpreted as a very deliberate attempt to obfuscate the high probability that Apple has an incredibly bright future ahead of it that we’re only glimpsing today, a level of success that no other existing tech company — Amazon well-included — is even going to approach.
The only thing that makes these two companies look like they might be similarly powered is that they both achieved a trillion-dollar market cap in just the past couple months. But Amazon did it with a P/E in the hundreds, while Apple did it with a P/E in the teens. Why investors currently think the way they do about Apple is perhaps a subject for historical psychologists to ponder far into the future. But if investors treated Apple with similar P/E respect as they do Amazon, Apple would have been a trillion-dollar company many years ago, and today it would be a ten trillion-dollar company. Apple and Amazon aren’t even in the same league.
Most Likely Scenario
Suppose that for each of the past fifteen years or so, I had attempted to select the most likely near-future tech scenario that doesn’t have Apple continuing to grow and to slowly-but-surely dominate. In that case, I think I would have spent several years insisting that Microsoft and its partners are poised to cause big trouble for Apple. Then around 2010 I would have switched to saying that Google and its Android partners were showing us the inevitability of Apple’s near-term decline. Sometime in 2013 I might have briefly suggested that the Facebook phone was going to cut Apple’s knees out from under it. And starting a few years ago, I would have lined up behind the idea that we’re all heading to an “AI-first-not-device-first” future in which Amazon (and maybe Google) will somehow make everyone stop buying all those iPhones. And throughout all of those fifteen years, I might have also generically hyped the idea that some totally unknown startup was going to come along, any second now, and eat Apple for breakfast.
But throughout all those years, the actually most-likely scenario remained a constant: that Apple would continue to grow, thrive, and become steadily more-and-more powerful and influential relative to all other tech companies. My shifting, most-likely-non-Apple scenario might have been the second most likely scenario in any given year, but it was never a very close second.
On Exponent — Ben Thompson’s regular podcast that he does with James Allworth, the main protégé of Harvard’s Clay “Innovator’s Dilemma” Christensen — he and Allworth frequently disparage the idea that smartphone-in-your-pocket has much of a future, hyping instead the idea that AI voice assistants from Amazon and maybe Google (but not Siri from Apple) will render smartphones irrelevant, or at least passé. But there is no evidence that this scenario has any basis in reality: the idea’s already now a few years old, and iPhone shows no signs of slowing down, with lines-out-the-door for the latest incarnation. Probably the “AI first” meme is based on the wish to see the “next big thing” a short time before everyone else does (as if anyone will really care or even remember that you saw it first), combined with a specific aversion to predicting Apple victory.
Supplement, Not Supplant
At the dawn of the modern web browser (Netscape then), many pundits hyped the idea that the web and the web browser were going to cut out the “middle-man” OS, which at the time was almost universally Microsoft Windows. Bill Gates apparently took this threat very seriously, going to such extremes to ensure that the web browser future was controlled by Microsoft, that the government had to step in and stop him. But in 20/20 hindsight, we can see that the web and its browsers — though a very large part of our lives now — did not replace the OS, and it seems quite paranoid to have thought that they would.
Likewise with the would-be Facebook phone: the idea that iOS would be “cut out,” and everyone would buy a phone that just goes into Facebook, and they would do everything in Facebook, seems pretty silly today, even as Facebook enjoys more success than it did then.
I suspect we’ll see a similar adoption of voice assistants and smart speakers. iPhone is not threatened by this new phenomenon; indeed, voice assistants will be (already are) one of the many useful functions of iPhone.
The Talent You Want
I think Apple has this huge advantage in being a computer company. It’s what we saw with computational photography. It’s that famous Palm thing: “These PC guys aren’t just gonna walk in and figure it out.” But in an era where a phone has to be a computer, that’s exactly the talent you want. And when head-buds, like, become AirPods, and they need to be computers, that’s the talent you want. And when a speaker needs to become a computer, that’s the talent you want. —Rene Ritchie
By the Windows-dominated ’90s, Apple was just about the only remaining company that thought it’s important, not to mention central, to be designing whole new concepts of what a personal computer can be. All the other successful computer companies — Gateway, Compaq, Dell, HP, Acer, ASUS, etc. — had no interest in anything but figuring out how to make the “standard” Microsoft PC a little bit cheaper without its reliability totally falling off a cliff. Steve Jobs put it best when he said (I think) that Dell’s idea of innovation was figuring out a way to use a cheaper screw. When he returned to a near-bankrupt Apple in 1997, he made his intentions crystal clear:
The world doesn’t need another Dell or HP. It doesn’t need another manufacturer of plain, beige, boring PCs. If that’s all we’re going to do, then we should really pack up now. But we’re lucky, because Apple has a purpose. Unlike anyone in the industry, people want us to make products that they love. In fact, more than love. Our job is to make products that people lust for. That’s what Apple is meant to be.
Thompson informs us that “Amazon brags that other’s margin is their opportunity,” while polar-opposite Apple makes healthy profits on most everything it sells. But in the same breath he tries to portray one company as strong in products and the other strong in services. He neglects to mention that Apple’s profits are very useful for further development of both products and services — while Amazon’s lack of profits is good for nothing but keeping anyone from horning in on its core business of selling shoes, rubber dog bones, musical bottle openers, and paper towels, via efficient, few-day shipping.
In all probability, Amazon will still be doing that ten or twenty years from now. But Apple will be doing so, so much more.
Update 2021.12.22 — Bloomberg article: “Amazon’s Alexa Stalled With Users as Interest Faded, Documents Show”
Update 2022.11.04 — Apple reaches the market value of Amazon, Facebook, and Google combined.
Update 2022.11.09 — Amazon becomes the first company ever to lose $1 trillion in market value. (Two-month update: Apple becomes the second.)
Update 2022.11.21 — Amazon’s ten-year-old Alexa deemed a “colossal failure,” “on pace to lose $10 billion this year,” and the subject of big layoffs.
This month’s layoffs are the end result of years of trying to turn things around. Alexa was given a huge runway at the company, back when it was reportedly the “pet project” of former CEO Jeff Bezos. An all-hands crisis meeting took place in 2019 to try to turn the monetization problem around, but that was fruitless.
Update 2023.06.30 — After sliding down from $3 trillion to less than $2 trillion for a year-and-a-half, Apple’s market cap is now back up to $3 trillion — while Amazon’s currently sits at $1.3 trillion.
Update 2023.09.19 ⋅ Jeff Bezos’s Lab126, Amazon’s “once-storied hardware division — responsible for popular devices like the Kindle reader and Echo voice-assistant,” now suffering low morale “amid staff cutbacks and a pipeline of devices in development that [workers] fear are unlikely to prove hits.”
Update 2023.11.17 ⋅ Amazon cuts “‘several hundred’ Alexa jobs as it ends unspecified initiatives.”
Update 2024.04.11 ⋅ Alexa “Skills” apps — several years ago trumpeted by Thompson, Allworth, and the rest of the Harvard anti-Apple contingent as something that was surely ushering in the demise/decline of Siri, if not Apple more generally — now deemed “useless” and lacking any “killer app”; Amazon announces the end of its funding of third-party Skills.
Update 2024.07.23 ⋅ Alexa, despite selling over half a billion devices, lost $25 billion in just four years, and had “no profit timeline”; a “former senior employee” worried that “we’ve hired 10,000 people and we’ve built a smart timer.”
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