It’s Getting Harder for Apple To Change the World
The last time I felt that an Apple product announcement would fundamentally change the tech landscape was in early 2010 when Steve Jobs unveiled the iPad, a dramatic new product class at a an unexpectedly low price. The products announced since then, the upgrades to iPads, iPhones, and Macs, the new versions of iOS and OS X, have been very, very good and very, very successful. But unlike the original iPhone and iPad, they have not been revolutionary, nor are they likely to be again in the foreseeable future.
This is not a forecast of doom or even gloom for Apple. Continual improvement of already excellent products is a very sound business model. The new iPhone to be announced today and the smaller iPad expected later this fall are as close as new products can get to guaranteed hits. After an expected surge in the current quarter, Apple’s growth is likely to slow from the ferocious recent pace of, but should continue to outpace the industry and the profits will keep rolling in.
But a near- and perhaps medium-term future of incrementalism seems inevitable for several reasons. Apple has already disrupted the music and phone businesses and invented the tablet market; it’s not about to disrupt them again. There is a lack of any buzz about dramatically new products. In other markets Apple’s entry into the phone market was preceded by at least two years of increasingly convincing speculation. The same was true for the iPad. If Apple is working on a new product in that league, it is keeping it a much better secret than its usual very high standard of silence.
Then there’s TV. Of course, the new world that Apple does want to conquer is television. For almost a year, we have been wondering just what Steve Jobs’s deathbed statement to biographer Walter Isaacson that Apple had “cracked” the problem of TV meant. Whatever that breakthrough was, it has yet to reveal itself in a product.
The challenge of TV is vastly different from anything Apple has faced before, and one where success may very well elude the company. In the TV market, as the sports writers like to say, Apple does not control its own destiny. Winning in TV will require the cooperation of some extremely reluctant partners.
This is a new world for Apple. Its success in iPods and the iPhone required partnerships, but of a much simpler sort. Apple launched the iPod with no cooperation from the music industry—the iTunes store didn’t come along until a year or so later. The record companies had no desire to play with Apple and went along only when it became clear to them that the alternative was death at the hands of millions of file sharers.
Wireless carriers also had no desire to let Apple disrupt their industry. But all Apple had to do was strike a deal with one wireless carrier in the U.S. Apple persuaded AT&T to accept the iPhone on its terms and the phone’s runaway popularity soon drove other carriers around the world to sign on (though they did force Apple to drop the innovative subsidy-free revenue sharing AT&T deal in favor of a more conventional arrangement.)
For an Apple television venture to go beyond the relatively insignificant Roku and Xbox competitor that is the current Apple TV and become a dominant force in the industry, the company needs to do deals with a good percentage of the players that control television content and distribution.
What It Would Take. For an Apple TV product to change the world, it needs to offer a user interface that combines the linear content delivered today by cable and satellite with the wealth of over-the-top content available over the internet (the means of delivery is irrelevant unless you happen to be in the video infrastructure business.) Google tried to accomplish this without cutting deals with either carriers or distributors. Google TV was a hideous kludge that no one would buy.
Content owners have been slowly moving their products to the internet, but they have been doing it in a way that protects their lucrative arrangements with distributors. Time-Warner’s HBO Go and Disney’s ESPN 3 offer prime content, but these services are only available to subscribers who already have access to the channels through the likes of Comcast or Verizon FiOS. They have no particular incentive to change those arrangements.
The cable and satellite operators, some of whom have reportedly been talking to Apple, have a strong incentive to resist. They have seen how Apple tends to suck the lion’s share of profits out of any business it enters. Perhaps more significant, they have watched while Apple turned AT&T and Verizon and Vodafone phone customers into Apple customers.
I have absolutely no doubt that Apple could supply a viewing experience vastly better than what I am getting from my Motorola FiOS DVR box. (I had hoped that when Google acquired the set top box operation as part of its purchase of Motorola Mobility that it actually do something with it. But it has made no moves and now reportedly is seeking a buyer for the operation.)
The problem is that it is very hard to see why they would open the door to Apple disruption. Cord-cutters, people who get all their video over the top or over the air, do not yet pose a very significant threat to the cable operators’ business model. And to the extent that cord cutters are moved by economic considerations, it’s not clear they would be lured back by an Apple service that is almost certain to be more expensive (otherwise, no one will make money from it.) They will talk to Apple because they have no reason not to, but the chances of a deal any time soon look grim. (One possibility: Apple strikes a deal with a satellite provider and the service is so good and so popular that the cable operators are forced to go along or face mass defections. There are a number of reasons why this is unlikely.)
I suspect Jobs may well have found a way to crack the TV user interface problem. But Apple’s lack of progress with both content owners and distributors suggest that he didn’t come close to cutting the Gordian knot of business challenges. Apple continues to make its existing products enough better to stay on top of the markets it dominates. But without a TV breakthrough, Apple at the moment seems a bit short of new worlds to conquer.