Apple’s Software as a Service Strategy

Ben Bajarin / October 24th, 2013

We have had one focus since the beginning. To build the best personal computers in the world that people love to use. –Tim Cook

It is easy to look at Tuesday’s event from a hardware only viewpoint and miss the significance. However, if you view Tuesday’s event through the lens of personal computing more clarity emerges. Hardware is the beautifully designed tangible object. But it is the software that turns that beautifully designed tangible object into an empowering tool called a personal computer.

Apple is a hardware company that is true. They are also a software company. However, they don’t want to just sell you hardware or software. They want to sell you an experience. That experience is fueled by their ecosystem.

There were a number of things hardware-wise to be excited about. The new Mac Pro and all its innovations are best in class. The new iPad Air is the thinnest and lightest full size tablet on the market. The iPad Mini now with Retina display and A7 processor is a ton of amazing tablet for only $399. As important as the hardware is the software is the compelling part of the narrative and Apple’s vision for advancing personal computing.

Consistency and Ecosystems

When we look at Apple’s hardware across different segments we notice very distinct design themes. The iPad Air and iPad Mini follow the same design language. The MacBook Air lineup follows the same design language. The MacBook Pro lineup follows the same design language. What I saw today with iLife and iWork is that now apps across iOS and OS X follow the same design language.

Many of the new iLife and iWork apps look like desktop class applications. GarageBand for iOS supports up to 32 tracks of audio. iMovie can create and implement many more desktop class transitions and effects as well as run picture-in-picture video during editing. The new iLife and iWork apps for iOS take creativity and productivity on tablets to new levels. They are not only powerful but also similar in look and feel to their OS X counterparts. This makes for a seamless jump over to OS X should consumers use multiple devices in their digital life. This also strengthens the case for a potential new Mac owner should this consumer also be in the market for a new PC.

The story to me was a consistent experience around personal computing. Apple is bringing a consistent software experience across the screens in their hardware portfolio. In the post-PC era consistency matters. Consistency will be valued.

Software as a Service For Personal Computing

Apple has put pressure on Microsoft by bringing iWork to consumers for free. For most mainstream consumers iWork is more than sufficient. iLife has always come pre-installed on Macs but is now free as well and nothing like the iLife suite exists in the Windows ecosystem at any price point. However, Apple has raised the bar by making OS X free. That one will be tough to compete with.

What is amazing is that a company who is strengthening the power of their ecosystem through software is able to do so by offering this software experience for free. Apple’s hardware may cost more but you are also getting more from a software standpoint. Consistency in OS updates, app updates, and more is now free. Not to mention best in class customer support. This can not be overlooked or underestimated. This is the vertical advantage.

Consumers now know that an investment in Apple’s hardware is an investment in future software upgrades at no additional cost. The value of the software is now built into the value of the hardware. Apple is telling customers that they are committed to bringing them quality software as a service to their quality hardware. This is Apple’s vision for personal computing.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • AhmadZainiChia

    On the consistency part, while watching the keynote, something struck me: Apple is pushing hard to unify the underlying hardware between iPhone, iPad, and Macs: all their latest iOS devices to 64-bit, and now their ENTIRE laptop lineup runs on flash storage. However, the user interface that is presented on each device (iPhone, iPad, Mac) presents a different user interface for different contexts.

    Microsoft is doing the exact opposite: unifying the user interface from devices as small as 8-inches to desktops with 27-inch displays, while underneath is all vastly varying hardware. Some 64 bit,some 32 bit some hard drives, some flash drives.

    Just something which struck me haha. I’m particularly impressed by the fact that they’ve eliminated hard disks from their entire laptop lineup; that’s a gutsy move. It’s much easier to market a 1TB hard drive than a 256GB flash drive, but the latter is ultimately much better for the consumer.

    • Glaurung-Quena

      “particularly impressed by the fact that they’ve eliminated hard disks from their entire laptop lineup; that’s a gutsy move.”

      Apple is still offering a non-retina 13″ MacBook with 500gb hard drive and DVD burner in their online store. It’s not headlined, but it’s there. Obviously some significant fraction of their customers need a laptop with gobs of storage but can’t afford to pay for a huge ssd. They’ll probably phase it out as the price premium for 512gb of ssd storage comes down.

  • Les_S

    Apple’s value proposition is we give you the razor-blades for free and charge you for the razor. The other guys charge you for the blades and give you the razor for next to nothing. There’s only one question. Which model is the more profitable and sustainable?

    • Defendor

      Actually:

      Microsoft looks like they are trying to make money on both HW and SW right now, so no freebies from them. I am not sure what their endgame model looks like.

      While the Google model is to give you blades for free, the razor for next to nothing and put ads on your bathroom mirror while you are shaving.

      Apple has been fairly clear on their model for a while, their services (like iTunes) are intended not to be a profit center, but as a benefit to buyers of their hardware, so dropping cost for their software just seems like a logical extension of that.

      As far as sustainability. Execution plays a big role, but I think:

      Microsoft will have the toughest time trying to get premiums on both SW and HW in the face of Google/Apple giving some of it away.

      Google model is sound, there will be many people happy to be the product, instead of the customer, just to save a few bucks.

      Apple model is sound as well (especially backed by superb execution), here you are the customer, and you pay a small HW premium for an excellent service environment/ecosystem.

    • Mark Jones

      Apple is betting that it can convince you to upgrade/replace your razor on a regular basis. And it aims to do so by providing new versions of software that work better on a newer, more powerful razor. If there are still many more new highly-valued jobs to be done by these mobile razors, which drive the need for much better hardware and added components (like fingerprint scanner), then the Apple model will be more profitable.

      Apple is also betting that the cost of razor blades (software, content) will continue to decrease, partly due to the inability to stop piracy without ruining the non-pirate’s experience, and partly because the incremental cost of producing another copy of the razor blade is very close to zero.

  • stefnagel

    Please refer to a corporation or company as “it” and “that,” not “who.” Corporations, the Supreme Court notwithstanding, are not people, even if they are bigger than us, more politically powerful, live forever, and will soon replace people with machines cus’ machines are cheaper. Resistance is futile, but let’s fight the good fight.

    • Shameer Mulji

      First of Apple has stated that the Mac Pro will be made by 2000 workers in 20 states. And if you have a problem with Apple using robots to do jobs then maybe you should read this first;

      http://www.engadget.com/2013/10/24/amazon-touts-millions-of-new-prime-members/

      Basically it states that Amazon is deploying 1,382 robot “workers.”

      • stefnagel

        As I said in the most elaborate and comprehensive terms; all corporations are Frankensteins. And as I also said, the Apple video simply struck the bell for me. I am one of Apple’s longest and biggest fans, going back to the Mac SE30. Let’s just say a little of something hit this fan.

        Two thousand workers in twenty states. Impressive?

        • Shameer Mulji

          Impressive? Depends on your point of view. In the grand scheme of Apple’s business probably not. but it’s better than zero, at least for now. Maybe Apple is experimenting small and will scale to more of its product line as it learn more. And yes, that does mean more robots, for better or for worse.

    • steve_wildstrom

      Manufacturing work of all sorts is overwhelmingly done by robots. This is the culmination of a trend that has been developing for more than 50 years and it is not going to be reversed.

      Modern electronics manufacturing has reached the point where human beings no longer can do it. 25 years ago PCBs could be soldered by hand; today the components are so small and the pins so closely placed that the only physical way to make them is to have components placed precisely by robots and soldered in an induction furnace. There is no way Apple could machine the new Mac Pro enclosures to the required tolerance using human operators (at least not without hiring insanely expensive master machinists. In many cases, machines are used not because they are cheaper, but because they are better.

      • stefnagel

        So corporations are better than us and robots are better than us …

        • steve_wildstrom

          Robots are robots, people are people, and corporations are corporations. There’s no moral judgment here.

          Yes, robots are better than people at doing high-precision assembly work. People are better at, sat, teaching school or waiting tables. Corporations are a necessary form of economic organization for a modern economy.

          • stefnagel

            It all sounds like famous last words …

    • Kizedek

      It is common (certainly in Britain), and quite correct, to refer to a corporation as “who”, when the context makes it appropriate.

      For example, two statements:

      Apple (it) has a large share of the tablet market.

      Apple (as a proxy for its team of [executives]) are very closed-mouthed about their future products; they will not comment when asked.

      A corporation can’t be “closed-mouthed”. If you want to get technical, a corporation doesn’t have a mouth. See how this works?

      If you make a group singular, then you are depersonalizing the individual members of that group, and there needs to be a reason for that. A group of executives/employees is not necessarily one mass of borg-group think with a machine mind of its own (however, in the case of MS and Google, one never knows). So, if not “who”, then “which” might be better than “that”.

      So, both forms are equally correct, but the who/which/plural actually lends more detail and can be seen to be more correct where it is warranted and depending on the context.

      • stefnagel

        Yep, it’s a riff on our Supreme Court’s giving corporations personhood and citizenship here. Supercitizenship really; corporations have no spending limits in politics.

        I think we would say “Apple’s execs are closed-mouth,” which seems a bit clearer than giving pronouns too much work.

        • Kizedek

          Sure, “Apple’s execs are closed-mouth” would definitely be the preferred in that case.

          However, I would venture that if a reader saw

          “Apple are very concerned about design and usability.”

          rather than

          Everyone at Apple from Tim Cook and Jonathan Ive down to the mail room clerk are very concerned about design and usability.”

          then the reader would “know” that’s what the writer meant, and he/she wouldn’t go around wondering if the corporation suddenly gained consciousness — whatever the US govt. may be up to.

  • Shameer Mulji

    I’m all for Apple’s Software as a Service strategy since I strongly believe that that’s where the competitive advantage will be a few years down the road. But to succeed with that strategy, you need quality software and services. Right now, MS Office is a much better productivity suite compared to Apple’s iWork and used by the vast majority of businesses. Nevermind the fact that people are complaining about the new iWork for being “dumbed down.”

    On the services front, Google has Apple beat there as well with Gmail, Calendar, Maps, Search, Youtube, Google Hangouts. One can even make the argument that MS’ online services are better than Apple’s services as well.

    Now I realize that Apple is the process of building out its datacenter infrastructure, it needs to make its Software & Services division a much bigger priority if it wants to remain competitive longer term. Personally, I’m not sure if Cue is the right man for the job. Why not buy Yahoo. You get datacenter infrastructure, talent that has datacenter expertise, and some decent online service properties. Make Marissa Mayer the SVP of the Software & Services division.

    If Apple can convince the CEO of Burberry to “step down” to SVP, they sure as hell can get Mayer to do the same. She knows services.

    • AhmadZainiChia

      It doesn’t have to be that drastic, I don’t think. A deep partnership with Yahoo would be great: it would help both Apple and Yahoo if they helped each other out. Plus, I don’t like it that Google is becoming the internet: too much power in one company. If Yahoo succeeds as a viable alternative to Google, everyone would be better off. Plus, Yahoo’s vision of services seems to be more ‘human’ and less creepy than Google’s.

      • Shameer Mulji

        “A deep partnership with Yahoo would be great: ”
        This would work so long as Yahoo doesn’t get into the hardware business, in the same manner Google decided to compete with Apple. If Apple purchased Yahoo, that worry goes away. Yahoo has some really good services and they are getting better at design as well.

        • AhmadZainiChia

          True. In 2007, when Apple announced the iPhone, Steve Jobs brought out Yahoo and Google CEO’s on stage to talk about internet services; clearly indicating that they’d rather partner with companies to put great services on iOS. And well..that didn’t turn out very well. So yeah, buying Yahoo might be safer. But there’s a lot of substantial other issues that form barriers to that happening though…

          • Shameer Mulji

            “But there’s a lot of substantial other issues that form barriers to that happening though…”
            Absolutely, with most of those issues being corporate culture.

          • AhmadZainiChia

            Yeap exactly. A services company wants to be on as many platforms as possible; a platform company has very different goals. That said though, both Yahoo and Apple have the same “intersection of technology and liberal arts/humanities” in their culture though. So, who knows right.

          • Shameer Mulji

            Yep. My thoughts exactly.

  • AhmadZainiChia

    On the third point about software as services (the main point of this article, i guess), I think there is too much brouhaha about MSFT vs Apple, free vs paid, etc. I see articles about where each company is getting their money from, etc2. Too much focus on all the wrong things.

    We should be analysing how free iWork/iLife and OS upgrades will look like FROM THE CONSUMERS point of view. And here’s the thing; most consumers don’t give a friggin rat’s ass about Apple’s or Microsoft’s profits, business, or whatever. I think that from consumers’ point of view, they will (perhaps slowly) realize that when they buy an Apple product, they (almost literally) don’t have to WORRY anymore. Apple has given consumers a (again, ALMOST) complete solution whenever a customer buys ANY of their products. Contrast this with Windows PC’s; not all Windows PC’s come free with Office (if they did, why would Office 365 exist?). Let’s not even talk about lifestyle/creativity apps.

    So, when a consumer wants to buy a windows device, he still has to wonder: how about Office? And i want to do some light photo/video management too; where can i get the software? Windows PC’s are far from being complete solutions, and hence a customer has to think, has to worry about quite a few things before buying a windows pc. But from now on, they will have an alternative that provides them an (almost) complete, and worry free solution.

    I think that Apple’s new proposition of complete, high quality, easy to use, devices will cause quite a huge change, but perhaps slowly. Because this value proposition will take some time to permeate the consumer mindset. But once it does, and if Microsoft doesn’t do something about it, then Microsoft is really in for a lot of trouble.

    Oh, and PC users don’t even have to look at Macs to start seeing Apple’s new ‘complete’ solution. They’ll see it on their iPads and iPhones. “Wow this is neat. My iPad comes with all the things that i really want and need. Wait; Macs comes with all this too?!”

  • skrilex

    Some people are complaining about removed features and “Apple Script”. This is completely reprehensible. I never heard of it and never use it. The complainers don’t deserve an Apple computer. Ingrates should be silenced.

  • Ian Waring

    I’d doubt the credibility of anyone giving plaudits for iWork. Love my Apple products as I do, but I find Pages and Numbers have more than their fair share of UI strait jackets getting in the way of useful work. Neither will be a threat to anything soon. KeyNote is much better.

    Google Drive, in comparison, is a delight to use for words and spreadsheets. I Don’t miss Word or Excel at all. However, Google have their own strait jackets when you try to download or share photos or words from within your Google+ Feed to anywhere outside it.

    Your mileage may vary. Outside of Pages and Numbers, other Apple software is first rate.

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