Category: Apple

One of the first articles/analyses I ever published on Tech.pinions was aptly titled Why Apple Has a Strong Competitive Advantage. I’m linking to this article, but I encourage you not to read it as my writing skills have greatly improved, and when I go back and read it..it is a little painful. Nevertheless, that article remains the most read article on Tech.pinions to this day and still generates significant monthly views because of people searching the term “Apple’s competitive advantage” via search engines. Meaning, this is clearly still a topic many are interested in.

I’m not going to go back through my points, but I will list the core pillars because I still believe they apply to Apple’s competitive advantage today. The core pillars of Apple’s advantage I outlined in my essay were:

• Apple’s Hardware + Software
• iTunes & Digital Asset Management (what turned into the services businesses)
• Apple’s Retail Strategy

This piece was written in 2011, and Apple as a company has matured greatly. What I outlined for iTunes/digital was the early seeds planted for Apple’s services business, which is absolutely a key part of their differentiation and advantage. Other things I would include today are things like Apple being a functional organization (one PNL instead of competing business units) and their hyper-focus on customer experience as a culture and philosophy. One could argue these are ingredients of their advantage more than pillars, like their integration of hardware and software is or retail, and I could agree with that. But if I were writing that article today, I would add two new areas that I feel are undoubtedly pillars of Apple’s competitive advantage.

Apple Silicon
My belief that Apple’s investment in custom silicon is a pillar of differentiation won’t shock many of you since I cover this subject extensively. However, in today’s computing economy, I would argue that Apple’s efforts in Silicon are the underlying foundation on which ALL of Apple’s differentiation is built. Meaning, every other pillar of differentiation and competitive advantage is made possible because of Apple Silicon.

I’m not saying Apple would not be as successful if they never started making their own silicon, although I am quite confident the lead they have over multiple competitors would not be nearly as significant if Apple shipped the same silicon components their competition does. In essence, their differentiation and advantage would likely still exist, and it would just not be as strong.

Apple’s investment in silicon brings them many advantages but first and foremost is the custom tuning of components to hardware, software, and services vision. Apple has the luxury of roadmap planning in lockstep with hardware, software, and silicon engineering, and this is a luxury they have that none of their competitors do.

It could be easy to say their efforts in silicon are just part of their integration strategy. And that is true, however, I contend it is the core of their integration strategy. I’ve long said the famous quote from Alan Kay that “people who are really serious about software should make their own hardware” should be revised to say “people who are really serious about software, and hardware, should make their own silicon.” I think if Steve Jobs were around today, he would be ok with that revision as an orientating way that Apple thinks about integration.

Privacy
In looking at structural competitive advantages, we look for things that the company we are analyzing is uniquely equipped to do that competitors are not, or at least not in the same way. This is why I would add Apple’s efforts in privacy as a pillar of their competitive advantage.

Apple’s business model is a key reason they aren’t able to harvest user data for economic gain. I know this has become a topic of debate lately since Apple has been clear they do collect some data to improve their products and services for their users. However, there is a difference between observing some of your habits for other people vs. observing some of your habits to make your experience better, and Apple falls more into the latter than the prior. I’m still on the fence on a few areas with Apple’s advertising pushes, but that’s for a different analysis.

Ultimately, the point I want to make here is people trust Apple, and it is becoming clear their trust Apple with their data and their sensitive data. I’m not saying people don’t trust other companies, but I am saying that if you asked a random person on the street what technology companies they trust their most sensitive and private information to, it would be an extremely short list.

People have proven to trust Apple with their credit cards, location data, family location data and information, medical records, health information, and more. Of course, Apple didn’t get there overnight, and its efforts to protect consumer privacy have been around for a while. But making this a point of marketing and doubling down on privacy will award them some advantages that other companies will not have.

The main one that comes to my mind is around Apple Watch. Apple is by far the leader in wearable consumer devices, and the advancements made to Apple Watch every year only go deeper into a consumer’s health and well-being. However, they could not do this if they didn’t have a base of trust, and in some cases, are still working to earn the trust of their customer base.

Leveraging the Advantage
With those two additions to the pillars of Apple’s competitive advantage, I want to look forward to future products and industries Apple can move into. When we think about going deeper into health/healthcare, more personal and intimate wearables, computers like glasses and beyond, and even automotive where our lives are at stake, Apple Silicon and Apple’s privacy stance become fundamental advantages that will allow them to go into markets competitors can’t.

It is easy to see the whole picture now, but seeing how far back Apple has clearly been planning and deepening their advantage with the pillars of silicon and privacy as competitive advantages, shows us just how far down the road Apple thinks strategically.

Apple’s automotive project, codenamed Titan, is one of those rare private yet public internal projects we are not accustomed to with Apple. With the latest news about a small round of layoffs in the division, I thought it was worth touch on Apple’s automotive initiatives and adding some food for thought around what may or may not be going on with Apple in automotive.

Is Apple Making A Car?
The biggest question I’ve always had around this project is whether or not an end consumer vehicle was ever the goal of Project Titan. I have my doubts, and Apple’s CEO Tim Cook has said that autonomy, in general, is something Apple is interested in. What is clear, for the moment, is autonomous vehicles and the monumental challenges surrounding building autonomous vehicles, it is likely any ambitious project around autonomy should start in cars.

True to Apple’s exploratory engineering strategy, they start with tasking a team to try and solve a problem the Apple way and see if it leads to something management feels is worth productizing. While any perspective on Apple’s ambition in autonomy should be viewed with an extremely long timeline, it seems that the turbulence publicly reported on still suggests Project Titan is early days as an engineering project and has not yielded any harvestable fruit at this moment.

The question of the end goal still remains. For one, I’m not sure any company has a well-articulated vision for the future of individual or family transportation. Will individual vehicle ownership be a thing in 30 years? No one knows. There are many theories around ridesharing, (still something less than 20% of Americans do with any regularity), micro mobility which is the concept of very small personal transportation machines, and thoughts around mass transit that all need to be factored into a vision for the future of transportation. Without such vision, any ambition around autonomous vehicles would seem like a rudderless ship.

While automotive sales are not trivial with ~6 million being sold annually in the US and ~75 million sold worldwide, it is a richly segmented market. For Apple, selling a car at the prices Apple demands and the margins required, they would enter a category with a product only a small percentage of their customer base could afford. This is unlike any other category they have entered today where their range of prices is available to everyone one of their customers. The nature of a car and Apple’s economic structure would be highly likely to exclude the vast majority of their customer base.

We can certainly argue Apple could offer a value priced vehicle, but anyone who studies the current automotive markets knows the wisest strategy is to focus on the higher-end of the market and that seems in line with Apple business initiatives.

If I had to bet today, I’d bet we never see an Apple car see the light of day. I know that will disappoint many, in the same way, many wish we would see an Apple TV set, and that is similarly not something I’d bet on. If Apple is looking at the next 100 years of their company and believes autonomy is worth exploration, my gut is that it would have more to do with personal robotics than it does with automotive. But that is just my hunch.

Apple Watch and Market Share
News was generated with Strategy Analytics released their market share for smartwatch report. Here is the bulk of their data bits:

According to the data, Apple shipped 9.2 million Apple Watch units during the fourth quarter of 2018. That’s up from 7.8 million in Q4 2017. In total, Strategy Analytics suggests Apple shipped 22.5 million Apple Watch units during 2018. For comparison’s sake, that’s up from 17.7 million in 2017. In total, 45 million smartwatches were shipped in 2018, with Apple accounting for half.

Those shipment numbers put Apple at the top of the smartwatch industry, with Fitbit in a distant second at 5.5 million units shipped in all of 2018. Samsung is in third with 5.3 million units shipped, followed by Garmin at 3.2 million.

As is generally the case, the data is a bit misleading. I’ll remind everyone these trackers from analyst firms are only looking at sell in, not sell out data. Meaning the numbers do not represent sales to end customers but sales to retailers. We can generally take Apple’s sales numbers as sell-through because Apple consistently has the highest sell-through of any technology brand, and there is some transparency in how they manage their channel inventory levels. Other brands sell to channel and get stuck with a load of unsold products with a fair bit of regularity.

Apple easily, sold through more than the Strategy Analytics market share number of 51%. Based on our smartwatch sales model, SA is also a bit low in Q4 shipments but relatively close in annual sales of 22m for Apple Watch. No matter whose numbers you use, Apple Watch had its strongest year in 2018, and I expect 2019 sales to be even better.

According to several research reports I’ve read, the leading smartwatch brands in consumers minds is only Apple and Samsung. Both Fitbit and Garmin, while having products that qualify as a smartwatch, do not have smartwatch mindshare in consumers minds according to multiple survey studies. Our firm is doing a wearable study later this year, and we will have a lot of our own data to fill out this analysis. But from the recent surveys I’ve seen, and the few we have done over the last few years, not much has changed in the market.

Overall, the smartwatch category seems to be growing. And notably Samsung within it, who I think had the second highest sell-through after Apple. Thanks to Qualcomm’s latest 3100 product line, it already seems more fashion and luxury brands are entering the smartwatch market in 2019, and it seems reasonable to assume the market will grow even more this year.

The smartwatch market may not be a hyper-growth segment, yet, but it does remain one of the more steady and consistent growth markets on an annual basis. I liken it to a slow-moving snowball. But, the work being done in wearables will be valuable in the next phase of mobile computing. So keeping an eye on the market and the brands leading the charge is relevant for the future.

I’ve been doing investor calls on Apple the past few weeks. Mostly post-earnings as most investors are trying to form a new, better, narrative on Apple. I’ve been loosely theming my comments to investors around Apple’s next five years. While I go into much greater detail in the course of a 90 min call, I’ll briefly highlight some key points. There are three technology fundamentals Apple will bring to market which will be the foundation for hardware, software, and services innovation over the next five years which will set the foundation for a much longer timeframe.

5G
It’s funny the pushback I get when I talk about 5G. But, Apple can downplay its value for the moment and disingenuously come off as if it’s not a big deal but the reality is 5G is essential to Apple’s long-term strategy in wearables in particularly, but it also is a central element of Apple growing their services business. Basically, if Apple is bullish on their services business then they must also be bullish on 5G.

Today, some news emerged that Apple is organizing its in-house modem team (the worst kept Apple secret) under Johny Srouji’s group. I’ve known for many years that Apple has been working to see how far they can get on their own with a modem. This effort stems not just from their desire to have multiple options open to them when it comes to a modem supplier but, more critically, because it is essential for Apple to integrate a modem onto their A-Series SoCs. Doing so is not only more efficient, from a battery life perspective, but also necessary when it comes to Apple’s miniaturization strategies which are key for their wearable strategy.

Things like Apple Watch, AirPods, and any future AR glasses, will all require an integrated modem onto the core SoC Apple designs for these products. The 5G part of this will be interesting since Apple will need some IP/licensing assistance and my bet is still that Apple buys Intel’s modem business from them.

Foldable iPhone
There is a lot of talk about Apple and a rumored AR glasses product in the 2020 time frame. I’m personally more skeptical on this timeline and if I had to bet I’d wager Apple will bring a foldable iPhone to market in the 2020 time frame and not AR glasses.

I say this for a few reasons. Firstly, a pocketable iPad (which is what a foldable iPhone would be) is a much more attractive consumer proposition on the short term horizon than AR glasses. Consumers and specifically Apple’s customer base would gravitate to a foldable iPhone in mass and a hurry much faster than an AR headset. In a time when Apple’s annual iPhone sales are declining and slowing, the single biggest thing that could inject new life and potential growth to that business is a foldable design.

Having seen many foldable concepts, and lab designs of different folding/bending screens, I’m quite bullish on this concept. As I mentioned, a product that can be both an iPhone and an iPad and fit in your pocket seems like a no brainer for Apple. Apple would see an enormous ecosystem benefit if they can get all of their ~850-900 million customers onto big screen hardware. We know from our research that consumers that own an iPad, or a Plus size phone are more engaged in Apple’s ecosystem, consume more services, and more satisfied customers. I’ve long argued Apple needs to keep trying to get their base into bigger screen devices because of the whole of their business benefits when they do. This is why a foldable iPhone could bring an entirely new growth opportunity for Apple.

AR Glasses
Of course, AR Glasses are on the horizon. Just how close on the horizon is the question. I remain convinced, having tried every best of breed AR experience that exists both publicly and non-publicly, that AR is still a ten year or longer mass consumer adoption cycle. I do not foresee, nor are we predicting, mass adoption on the five-year timeline. How it plays out in the five to ten-year timeframe is a much more realistic conversation.

That does not mean Apple won’t release some kind of glasses experience in the next five years. However, if they do, it would be wise to think of what they would bring to market in that time horizon as an accessory to the iPhone rather than an iPhone replacement. And, when Apple starts rolling out foldable iPhones and the base starts adopting them in masse, an AR glasses accessory to a foldable iPhone would make for a pretty complete personal computing experience. Bring in Apple Watch, and AirPod’s and almost all aspects of computing are covered at a personal level.

The three things I mention here, in each of their ways, set the groundwork for hardware, software, and services in new ways than anything Apple has today. They can each, respectively, represent core parts of Apple’s growth strategy and if executed properly, Apple could ride another wave of computing just as large as the iPhone wave. This is, of course, never a guarantee but we have to imagine Apple is looking to the next big wave in a post iPhone world.

Apple’s Fiscal Q1 2019 was one of the better calls I’ve listened to in a long time. Partly, because CEO Tim Cook gave an elaborate and well structured roughly 18-minute commentary that should help get investors thinking more structurally about Apple’s business and less about metrics that don’t matter. But one highly elusive number, one many of us have always wanted was given on the call. That number was 900 million.

900 million iPhones are out there in the wild as a part of Apple’s 1.4 billion active devices installed base. I say this number has always been desired because that number approximately represents the true unique user base of Apple customers. It’s safe to assume that the iPhone is the one device the majority of their 1.4 billion user base has and therefore represents the true unique customer number. This is significant because this is the number of humans Apple has for developers, and service providers to reach. Essentially, 900 million people make up the foundation of what makes the Apple ecosystem so attractive and so fundamentally strong.

Managing For The Long Term
I appreciated Tim Cook’s repeated commentary that they manage Apple for the long-term. Similarly, I analyze Apple in the long-term! Taking a long view on Apple is the wisest way to understand the company. That being said, it seems pretty easy to think about Apple’s long-term business prospects on the back of several fundamental points Apple management keeps reminding everyone.

• The installed base is growing. Apple’s installed base continues to grow, and that creates the foundation of their upside. Interestingly, the effort to make devices last longer, by doing things like better software support on legacy hardware, custom silicon, battery replacement, etc., doesn’t just keep customers happy but lets that device is turned in and sold at a discount to another customer. The brilliance here is how those devices can live so long and thus have multiple owners and in return grow Apple’s installed base. I don’t know of another tech company for whom this same dynamic exists for at scale.
• Customer Satisfaction and Loyalty Remain at All-Time Highs. The continued reminder that Apple customer satisfaction and user loyalty not only lead the industry but remain at all-time highs is relevant to the installed base number. Apple is stating their large and growing customer base is not going anywhere. They will continue to buy Apple hardware, even if not as frequently, and they will continue to spend money in the Apple ecosystem.
• Engaged in the Ecosystem. Lastly, and these points all build on each other for the narrative, is Apple repeatedly shares statistics that demonstrate how engaged their customers are in the software and services ecosystem. Apple Music as 50m subscribers. Apple is actively facilitating 360m subscriptions between third and first party subscription options. Apple News has 85m monthly active readers. Apple Pay drove 1.8 billion transactions 2x the volume of a year ago.

Those are the points Apple is trying to drive and all their disclosures, both old and new, are focused on shaping this narrative with the metrics that tell the story the best.

A Few Other Key Points to Note

• China may surprise in March Quarter. Some quick feedback from investors I saw was the feeling that Apple is guiding intentionally cautious for the March quarter. Which is smart because China is a big variable right now. However, singles day in November set new records, so there is some hope Chinese New Year keeps with that trend, and the pent up demand there for iPhones helps Apple in China around this generally very strong holiday season in China. This is something I’ll be watching for with friendlies I talk to looking at the China market.
• End of subsidies and the rise of new purchase plans. Apple’s management emphasized the subsidies ending in many developed markets did impact sales. This has been going on in the US for some time, but US carriers also offer payment plans where many other countries do not. This is a reason why Apple is moving aggressively to bring their iPhone trade-in program and payment plans to as many countries possible as fast as possible is critical for them to stabilize annual iPhone sales.
• ~900 million iPhones. I wanted to emphasize this number again because additional Apple commentary highlights of that 900 million installed base, 75 million came in the last 12 months alone. Doing some rough math on this given new customer rates I’ve seen by quarter suggests that Apple is adding around ~36-40 million new iPhone customers every year.
• Apple’s base seems hungry for new services. With the consistent growth in Apple first-party services, it seems their bullishness for the services business is driven by a hunger for new services by their customer base. This bodes well for a video service, news service, and any other kind of service Apple is looking to release over the next few years. Apple’s services business will likely pass Facebook’s at some point in the next few years.
• Non iPhone business growth ALMOST off-set the iPhone decline. Apple’s revenue decline was only 5%. Which given all that is happening and the challenge of China (Apple’s second largest market) being responsible for all the iPhone decline is quite remarkable. The growth of other businesses nearly off-set the decline in the iPhone business. Which means, once the iPhone business stabilizes, we should see an overall return to growth of Apple’s business as a whole. I’ve been a big advocate to pay attention to top line revenue growth not just the growth of decline of a single business. Looking at top-line revenue growth and growth potential is the more important metric.

I remain convinced stability will come to the iPhone business by the end of 2019. Given the business fundamentals and dynamics of Apple’s other businesses where there is still a long road to growth, like services and wearables, it seems logical Apple’s steady business growth is likely. Apple may not be the hyper-growth company they once were, perhaps they are a value stock, but either way, I don’t think Apple has peaked, even though iPhone has peaked.

I’ve written many times before, and Apple is now on new ground. The cash machine they rode for over a decade to become one of the most profitable companies in business history is no longer the growth machine for their future. Apple may still have some tricks up their sleeve, as their culture of innovation are the roots the Apple Tree is sustained upon, and they run deep. We may still see the next iPhone like growth lever for Apple, or we may not. Regardless, Apple remains a very healthy company with a healthy and vibrant user base to continue to fuel their future.

Apple surprised everyone when they announced last week that they would no longer be disclosing iPhone unit sales. There is a lot to unpack with this new revelation, and to the chagrin of many of the short view traders, their Apple investing game got a bit more challenging.

What stood out to me the most was Apple’s commentary on their earnings call where they explained their justification of this reporting change and emphasized that THEY don’t believe the reporting of a unit sale of iPhone is the most relevant way to understand the whole Apple story. I completely agree with this point. I do, however, disagree that it is not a pertinent metric as Apple wants to paint it.

The Story Apple Wants to Tell
Throughout the last few years, Apple has worked on getting their investor’s minds wrapped around new stories. Apple has long been battling the short investor mindset vs. the long. Much of their strategy has been to bring more long (value) investors into the picture and try to minimize the number of short investors in volume. Whether that was to chase them away (intentionally take a stock hit), join the DOW, split the stock, etc., Apple seems to take the long view of itself and is ok with some short-term market turmoil. Looking back historically, Apple’s stock always seems to recover.

It seems Apple is in the same place now, as they look to get investors to buy into a new growth story. One that is not as entirely dependent on iPhone sales as it has been the past 7-8 years. The typical investor sentiment has always been Apple is an iPhone company. While short sided, the financials many investors use to make decisions made this sentiment right. But Apple now wants investors to fully understand the big picture that Apple is not an iPhone company but an ecosystem company. This is a story not about iPhone sales, but about iPad, Mac, iPhone, AirPods, Apple Watch, HomePod, services, third-party developers, enterprise software partners, retail, and so much more.

I expect all of Apple’s commentary around earnings to continually highlight the ecosystem story, not just the iPhone story. Apple wants investors to focus on Apple’s ability to grow revenue, not just iPhone sales. I’ve long affirmed this view, and even in talks with investors, I have encouraged a view that looks at Apple’s total revenue growth on an annual basis. Below is that cart since 2007.

In my mind, this chart is one of the more important. Followed by tracking the growth of other categories as a part of Apple’s total revenue mix. For Apple’s story, about not being an iPhone company to work out, then the percentage of revenue iPhone brings in as a part of the revenue mix needs to decrease a bit more, and other categories need to rise. Here is revenue mix, and in particular tracking, the services category will be the most interesting. It is now the second biggest contributor to revenue.

Apple desires to shift focus from iPhone has the most focused on metric and move that to things that tell the ecosystem story. Things like active installed base, growth in subscriptions, services growth holistically, customer loyalty, new customers gained in the quarter for a particular category, and more. These are the things that demonstrate Apple’s ability to hold onto customers, and those customers ability to grow the value of the ecosystem for all the stakeholders.

Ballpark Figures
While Apple won’t release exact unit sales, many folks already have built out models and will easily be able to stay in the ballpark of unit sales. It may be exact, but I strongly doubt they will be horribly off either. What will become a bit more important statistically is to focus on the mix of iPhone model sales. Apple has never disclosed this, and when it comes to iPhone sales going forward, this will be important to get a handle on.

The reason I say mix, is not because of the need to calculate an ASP, but more to understand what percentage of Apple’s installed base is on latest generation technology. This is one of the most relevant things to understand because users who upgrade to Apple’s latest technology platform tend to increase their value to the ecosystem. This is because latest generation hardware allows consumers to take advantage of the latest and greatest the full Apple ecosystem has to offer. And services will remain the single greatest benefactor for growth as Apple customers adopt the most recent technological platform.

With that in mind, many data points I have come across lately, suggest it takes about four years for the bulk of Apple’s customer base to move to the latest platform. Meaning, the step change from the iPhone 5 design, to the iPhone 6/6 Plus design took about four years for ~80% of the iPhone base to be on a model that was iPhone 6 or higher. Using this formula, that means around 2021 ~80% of Apple’s iPhone base will be on the iPhone X technology platform.

For the foreseeable future, iPhone sales will still be a highly relevant part of the story. The iPhone is and will be some time, the center of Apple’s ecosystem story. Essentially, the big grand ecosystem narrative Apple wants to tell does revolve around the iPhone.

Ok, there may be more than two charts to dive into, but all the charts are on the same theme. Thanks to Philip Elmer-DeWitt, for helping me get my hands on this data. Merrill Lynch/BofA ran a large global survey that is packed with some fantastic survey data. This study spanned key countries including US, UK, China, and India and ~49,000 respondents. A few data points stood out to me when thinking about the Apple growth story.

Switchers
In our own research at Creative Strategies, we have continually seen strong switching rates from Android to iPhone. Now that most markets are saturated with smartphones, and we know Apple’s share in all the major markets, most of the growth in iPhone units need to come from smartphone owners currently on Android. Apple has been steadily gaining share from Android in the US over the past two years seeing switching rates that vary from 15%-30% depending on the quarter. This new global survey from Merrill Lynch/BofA gives us a new view of this statistic. One that shows the steady flow from Android to iOS.

The chart on the left shows the overall results, isolated by current iPhone owners, who indicated they owned a smartphone other than an iPhone in the last two years. Nearly half (47%), of iPhone owning respondents, stated they owned a smartphone that was not an iPhone in the last two years. The chart on the right shows you by country the same statistic. The UK and US numbers are in line with our research from the areas when you look at the steady percentage of switchers we see in our survey. However, the extremely high numbers in India and China are fascinating. For these markets, I’d like to offer a clarifying point.

The first point I’d make is I would have like to have seen the words “owned and used as primary smartphone” in this question. Just so there is no confusion that the question is specific to the device the consumer owns and used as a primary device. There is often some overlap in China specifically by a segment of users who do own and use both an iPhone and an Android phone. Often these, more affluent consumers, may also switch back and forth between different device platforms just based on what they want in a device more often than other consumers. This may not be a significant factor in the data, but I would have like to make sure.

The second point, which is what I think highlights this growth opportunity, is that both China and India have the shortest upgrade cycles than any other major market tracked. Each market shows a less than two-year upgrade cycle with 48% of consumers in India saying they upgrade every year! The general low-cost of smartphones in India is a factor, but the main point is as consumers in these markets upgrade more frequently, Apple is right there to compete for their business more often than in markets where smartphone upgrade cycles are lengthening.

Apple’s Long Thesis in Emerging Markets Quantified
I believe my thesis for Apple’s long-term strategy for emerging markets is very similar to Apple’s. It stems from what Apple saw in China as the emerging middle class grew, rapidly, and Apple is starting seeing the rise of more affluent consumers start to gravitate to their products. I’ve written at length why India is very different from China, and how Apple needs to play a slightly different game there, but the underlying thesis should still apply.

This survey data seemed to confirm, which should be obvious, that willingness to spend more on a smartphone is closely tied to income. Note this chart and the underlying paragraph from the study.

One has to imagine that time is on Apple’s side and as a market rises in economic strength and generates more affluent consumers that those consumers see less loyalty to Android and Android brands and start considering an iPhone. On this point, Apple’s two-part strategy of selling previous models at competitive prices, and supporting legacy devices longer helps Apple offer products that are closer to the budgets of cost-sensitive consumers in many markets. What is also helping position them well is their efforts in custom silicon that allows a two-year-old iPhone to still be competitive on specs with current generation Android devices at sub ~$500 prices, and sometimes higher.

While these are just a few data points that create a strong bull case growth story for Apple, they are two crucial foundations that we don’t often see quantified this way. That’s why out of all the data points they stuck out to me as some of the most interesting.

Last week, Carolina Milanesi wrote a nice summary of some recent research we did on Apple Watch owners. Many extremely interesting behavioral insights emerged from that study that I will dive into next week, but I wanted to share this one chart that led to some interesting conversations on Twitter.

I tweeted this and, somewhat surprisingly, I got some responses saying “where is check the time?” Yes indeed, it could be perceived that I left to check the time off as an error. The reality is I did not include it for a variety of reasons, but this observation from the crowd brings up a more interesting point in my mind.

In previous studies, we did include check the time. Note my question was “what do you do on a weekly basis.” When we included checking the time before in studies, it always came back as 100%. Of course, people check the time on their Apple Watch every day, but that is not the most interesting Apple Watch behavior. Yet this feedback from the crowd, I think, may show why Apple Watch may still be misunderstood and why its potential is still nowhere near to being reached.

People still think about Apple Watch, as a Watch. This became very clear as I interacted with many of these folks on Twitter asking why I did not include checking the time as a usage option. I’m not saying check the time is not an important use case, only that it is the most obvious and familiar one to a consumer. The timekeeping experience is the most familiar use case Apple has for Apple Watch customers, but I think Apple wants to fundamentally re-invent the Watch concept altogether.

We have danced around this idea, and many will say that it seemed obvious Apple is trying to re-invent the Watch experience, but that became crystal clear to me with a number of the new Watch faces on Series 4 like Fire, Water, Liquid Metal, and Vapor. As much as I like the utility of the new Infographic faces, I default back to Vapor (my favorite) whenever I am going to meetings or going out. I find myself mesmerized by this watch face and get a simple delight every time I check my Apple Watch and watch the Vapor emerge from the dark to cover the entire face. This is what is interesting to me about that observation.

Apple could have very easily designed a crystal clear and high-resolution “traditional” watch face design. Look at all the new Android Wear watches, and you see their brands showing off watch faces that look very similar, if not nearly identical to analog watch faces. This more traditional watch face look is one many Android Wear brands lead with because it seems their efforts are focused on attracting Watch buyers. I remember a range of debates I had after Apple Watch was first released about whether Apple was going after watch buyers or people who did not previously wear something on their wrist. While both may be true, I think it is clear now Apple is looking to bring a wrist experience to the bigger part of the market that did not previously wear a watch, and they are looking to provide an entirely new experience. While subtle, I think Apple’s Watch face strategy is the clearest evidence of this point.

Our chart on key behaviors shows the utility of Apple Watch as a wrist-worn companion to iPhone, for now, but also how important health and fitness applications have been to the platform. Note, that health and fitness applications were not the top on the list but rather communication-related utility was. I think this is telling about why Apple’s focus on communication and health and fitness as the new fundamental pillars of Apple Watch.

By utilizing something familiar, but trying to re-imagine that experience and then add layers of utility, Apple is attracting masses of customers that would not have been attracted to a wristwatch before. In the digital age, re-imagining and re-inventing this experience lays the groundwork for the next phase of personal computing (that goes beyond just the smartphone) we are heading into.

Despite no longer being a hyper-growth category, smartphones are still a fascinating category to study. Not only because of the unprecedented impact they have on enabling humans of all shapes and sizes, races, and economic circumstances to engage in personal computing but also because of the global competitive strategies.

In what was an entirely predictable set of events, nearly every smartphone manufacturer has embraced Apple’s iPhone X Notch design. In just a year, we went from a single phone with a notch in the screen to know an estimated over 60.

What was once criticized as a fundamental flaw in design, has created a surplus of Notch designs including the rumored Google Pixel 3? Now, while many of those Notch-based designs are questionable implementations of the technology and most don’t use the space to add any real value. It is worth pointing out that the few that are implementing a sophisticated camera system in that area demonstrate that the notch based design is, at the moment, the only way to implement a sophisticated front-facing camera system and still offer as much screen real-estate as possible.

Apple’s design was highly criticized, with many saying keep the bezel and spread the camera system out. The problem with that logic is given the complexity of some of the logic and image sensors to be in close proximity to function correctly, and this was not feasible. Essentially, the point I made when I first analyzed Apple’s implementation still rings true. The notch is the trade-off for the use case and camera system functionality. It’s either get a sophisticated camera system and a notch or don’t get it and have a small bezel. I think the tradeoff is worth it until the technology can be miniaturized further and fit into a much smaller space.

There is another part of the Notch design wars equation worth mentioning. Diving deeper on the point that some designs are blatant design copies simply for the sake of having a notch and not adding any value. The copying of the Notch in emerging markets is the observation to note. This is a broad point about companies that copy Apple’s designs almost perfectly as it is more relevant in emerging markets.

Everyone can’t afford an iPhone. Realistically, the iPhone will be out of reach pricing wise for much of the world’s population. However, Apple’s brand remains strong, and while consumers can’t afford Apple’s premium innovations, many smartphone vendors can offer the perception of those premium innovations and design at lower prices. Of course, the materials, build quality, and underlying technology will not be as good as Apple’s, but for consumers for whom $100 or even $300 is the max, they can spend they will consider them good enough.

In emerging markets, using a known brands design language is a proven strategy to generate sales. Whether it is sustainable is another question. However, for the time being, “looking like Apple” is an emerging market strategy the competition will keep using. The other is trying to be first, and that leads us to foldable displays.

The Claim to First
Many competitors are going to race to foldable and bendable displays so they can lay their claim to being first. There has been a great deal of smoke around Samsung looking to lead the market with a foldable display and management seems to have now confirmed this as well.

The good thing for Samsung is showing a foldable will have many benefits. It will generate a significant amount of media. It will also cement their position as being first with a market plan to come to market with a foldable device. No matter who comes out with a foldable after Samsung shows it, and people will always remember Samsung as being first. Sadly, in the long run being first is irrelevant but for Samsung, this is also a showcase of their display division which is becoming one of the most significant drivers of revenue for their components division.

I do have a hunch that the Chinese OEMs will look to bring foldable displays to the market as fast as possible and at extremely low prices. It is likely there will be a slew of foldable displays (some not great) at a variety of prices on the market before Apple ever releases one (or if they do).

The market has demonstrated a desire for as large of a smartphone screen as possible that still fits in a pocket or purse. This is why I’m convinced there is a market for foldable/bendable screens because having a smartphone in your pocket that can expand out to a 10″ screen seems like a winning value proposition when it is done correctly. The technology is rapidly approaching to make this scenario a reality, and it is unlikely Apple does it any time soon which means competitors will move as fast as they can to be there first.

Being first is the other way competition tries to gain mindshare over Apple, and as Phablets proved it works for a while but runs, it’s course if and when Apple decides to enter the market with a similar solution.

Copying and trying to be first will remain the Apple’s competitors main tactics because they work, at least for a little while. Moreover, in an era where Android brands are fighting tooth and nail for every bit of market share they can, you can bet they will do everything they can to fight this battle.

An important debate is brewing. Along with this debate, an interestingly strategic arc for brands may be emerging. The discussion of how much a marketplace holder should receive is not new. It has become more heated as of late as reports that Netflix is looking at ways to avoid Apple’s cut of subscriptions generated from within the Netflix App. This move is not surprising as Amazon has been doing this year with digital content (only place Apple’s cut is applicable). I’m reminded of this every time I purchase a Kindle book on Amazon, which is about twice a quarter, and I have to leave the Amazon app, go to Amazon.com on Safari, buy my book for Kindle, then go back to iOS app to download and start reading my book. There is much friction in this process, and it is annoying, but I do not blame Amazon one bit.

I remember having discussions with executives about this early on in Apple App Store’s life. Most remarked that they wished Amazon and Apple would work out their differences. Ideas were thrown around that if a company already had a large and functioning marketplace, they should not be subject to the same cut that a new or upstart company should about digital sales. The logic was, Amazon already had tens of millions of customers, an established marketplace, and brand, and didn’t need Apple’s help as an arbiter of connecting buyers to sellers of digital content.

I resonate with this argument because it observes that Amazon does not, and never have needed Apple’s marketplace. Because there is no other way for a consumer to download an iOS App than through Apple’s App Store and to do so requires meeting Apple’s guidelines. For this reason, Amazon created a, and while it is annoying, I seriously doubt it has impacted their sales of digital goods in any way. Amazon has that strong of a brand and marketplace and avoiding Apple’s cut on digital products has not and will not create any issues for Amazon.

With the rumors around Netflix doing the same thing, I have a strong suspicion that if they do, they similarly will not be impacted. Consumers are not going to find having to go outside the Netflix app to sign up a barrier to getting the service. Netflix has too strong a brand and product offering for this to be an issue and if consumers want it, they will sign up.

In the small business services world, it is not uncommon for companies to follow a similar strategy of offering a subscription but requiring customers to purchase it online via their website and then log-in with an active account from the app. I fully expect this trend to continue for small to midsize businesses offering services to the business world. These companies often have their marketing and sales channels, and since that is the main value of Apple’s store and the reason for their fees, it is unnecessary for them.

This is where the central part of the debate lies. What is the value of a marketplace and what should be a fair cut by the marketplace provider.

Marketplace = Retail
In the case of Apple and Google’s App stores, their marketplaces are a form of digital retail. For millions of developers, this is the only avenue of hope they have to get connected to potential buyers. Amazon, Netflix, even Fortnite, are the exception due to the strength of their brand and product. Companies who can successfully bypass Apple or Google’s marketplace fees will be few and far between.

Acknowledging that the type of company who can successfully avoid Apple and Google’s fees are the exception to the rule the question must then center on what is fair for a marketplace provider to charge for those businesses who depend on the marketplace to survive.

I tend to agree the 30% fee is quite steep, but both Apple and Google have made changes to these fees, with subscriptions in particular where the initial charge for the subscription is 30% but then following recurring fees bring the percentage down to 15%. Interestingly, I conducted a Twitter poll (so take it with a grain of salt), but the vast majority of respondents believed that something less than 20% was a fair cut. To be exact, 35% said 10-20% was fair, and 36% said 0-10% was reasonable. In doing some reading on different forums on Reddit, and a few others where developers spend time, it seems that 5-10% was the most common expectation that developers thought was fair.

These numbers are subjective, and no one selling something wants to share their money with someone else, but the value of a marketplace should still be established. In the case of Apple and Google, the size of their marketplace is truly unprecedented with both providing commerce opportunities to a billion plus potential customers. They also provide curation, features, and editorials, improving technology like search/recommendations, all in an attempt to connect buyers with sellers.

The fees collected by Apple and Google and the debate of what is fair will always be subjective. Someone will always be unhappy. Having a few powerful brands and services get around sharing revenue with Apple makes for interesting proof cases, but as I noted, these examples are few and far between. That being said, in many cases I do believe 30% is steep and would like to see some further alterations made to how developers share revenue with Apple, and both have a win-win situation.

Potential Paths Forward
A few things may end up happening if this continues to be an issue. The first is more developers, once they reach size and scale can follow Netflix and Amazon’s lead and look for workarounds to avoid sharing revenue with Apple.

The other, and one I think more companies may try is to pass those fees onto consumers. Not too long ago, when a music streaming service called Rdio existed, they had two pricing options. One was $10 if you signed up directly from their website and if you decided to sign up through the app, it was $13. They essentially passed Apple’s 30% fee onto customers. This is an interesting tactic and one that I think strikes a decent compromise if Apple’s charges remain the same. For the consumer for who price is an issue, they will be more willing to jump through the hoops to save money even if they are a bit inconvenient. For the customer who prefers the convenience and is willing to pay a little more for it, the seamlessness of in-app purchase could be worth the extra cost.

This debate is not ending anytime soon, but it is a worthwhile conversation since these platforms, and their economies are going to be around for a long time, and it is worth working all of this out now for the good of the industry.

I’ve been studying the Indian smartphone market for many years now, watching it closely as it grew into the worlds fastest smartphone market. It was only a matter of time until India became the second largest smartphone market since the size of the country is second only to China. However, these two markets could not be any more different.

Even before Apple started their rocket ship run in China, any behavioral researcher worth their salt knew Apple was remarkably well positioned for China. While I don’t like positioning Apple as a luxury brand, because they aren’t, they do experience luxury like psychology buying when it comes to the Chinese market. In case you have not dug into this dynamic, Ben Thompson wrote a foundational post on the topic a few years ago where he explains the iPhone as a Veblen good in China. In the case of China, understanding why it has always been a strong market for luxury goods informs us why China was always and will still be well positioned there.

India, at least right now, is the polar opposite. The Indian market is not as attracted to lavish luxury. Where the Chinese look for lavish luxury goods and brands to help them appear of status Indian culture centers more on value. In studying the Indian market, it was eye-opening as locals explained to me the difference in mindset by making it clear their culture views you more highly if you get a deal not if you willingly overpay for something you could have received at a better price. This is the root of Apple’s challenge.

Even in China, the iPhone is not viewed as the best product for value for the money. Many brand research studies I’ve seen on this dynamic in China have the iPhone near the bottom of smartphone brands for the best value for the money category. Again, this is not surprising if you only look at specs on paper as the equation of value. However, we know in China there is value placed on brand, having the “best,” and status, and those more invisible equations are why Apple succeeds in the market even if on paper it looks like they shouldn’t.

However, in India, there is value placed on getting a deal and an even higher value placed on getting the most bang for your buck. A dynamic that Apple is not well positioned for with Indian consumers. Many of those invisible equations that factor into the buying decision don’t exist in India and more of the on-paper things like specs, overall features, and price factor more to Indian consumers.

Samsung vs. Apple. vs. Xiaomi
Samsung has long been the king in India. Well, I take that back, Nokia was the king, then Samsung and now Samsung is in a dogfight with Xiaomi.

A research partner of ours, GWI, does a quarterly survey asking consumers which devices they currently own and have been tracking model ownership since 2009. Below is the chart, showing the mix of ownership trends since 2009.

As the chart shows, the shift from feature phones to smartphones benefitted Samsung the most. While they still have the dominant stare of brand installed base in India they are in a quarterly flip-flop with Xiaomi. Some quarters Samsung sells more smartphones in India than Xiaomi, and other quarters Xiaomi is on top. Also looking at the chart, for most of 2016 and 2017 Apple was the second most owned brand in India. Micromax, a local Indian manufacturer, had a brief rise and challenged Samsung in a few quarters for the top sales spot by quarter but faded the past few years.

The real story in India has been Xiaomi. With fading sales in China, and not being able to break into the premium tier there, Xiaomi set their sights on India and has found a near perfect market fit. Xiaomi was always the value play in China. However, as discussed, China is less a value market and moving more toward a premium market which did not play well for Xiaomi. In looking at how Xiaomi has positioned itself through the years, they are much better positioned for India than they ever were from China.

As the tracking data is showing, Xiaomi is growing their installed base and has overtaken Apple as the second most owned smartphone brand in China, and I expect their lead over Apple to grow for the next several years due to their alignment with India’s desire for products that are considered value for the money.

Can Apple Grow?
This is the real question, and one very hard to answer. Apple’s thesis for India is as more Indian consumers increase in economic status that at some point they will see the value in Apple’s offering and be willing to pay a bit more for Apple’s innovations. While this is a fine thesis, it is the extremely long view. Moreover, when I say long, I mean looonnnnggggg. My worry is by the time the Indian market starts to move in a direction that is positive for Apple that we will be passed the smartphone era and already onto what is next.

Apple’s ecosystem is not as strong in India, which means the decision process is more on specs and features than the total package. Apple also has to deal with Indian government politics and a steep 20% import fee which makes they cost of iPhones seem even more out of reach for Indian consumers.

Apple’s goal is to work to make iPhones locally in India to help bring down the tariff and open more stores in the hopes they can better sell the value of their products. However, the real challenge for Apple’s business in India is to cater to the value for the money mindset. Somehow, Apple must crack this and figure out how to position the iPhone’s innovations as value propositions worth paying a bit of a premium for. This is the challenge and the opportunity, but it indeed suggests Apple may need to continue to do unique and exclusive things for the Indian market. This is not usually a part of Apple’s playbook. Apple, generally, likes to keep their product and services offering consistent from country to country but increasingly I feel they are learning for markets like China and India they need to adapt and localize their offering if they want to compete.

I know Apple is long for India and they can be patient. However, if their strategy takes too long, I’m worried the market will be so entrenched and deep in Google’s ecosystem it will make it very hard, and not desirable for the customer to switch platforms. So while I advocate Apple being patient, it would be a mistake to get too comfortable being patient.

Tim Bajarin wrote a great article last week, that makes an interesting and subtle point he did not dive into. Last year, I wrote an article on why Apple needs to win the services battle. In that article, I made what I felt was the strongest argument for Apple and winning the services battle.

All of the above points lead me to my final observation. I believe it is essential that Apple is competitive with services like Siri, and many others, against those whose business models depend on more on data collection than Apple’s. While I don’t believe Google and Facebook are the bad actors Apple portrays them as (and neither do consumers via evidence from our surveys), the bottom line is their business model, the financial lifeblood of their company, depends on their ability to sell advertising with the data they collect on customers using their service. Where Apple’s business model does not depend on using customer data collection to sell advertising, it is necessary for their model to make products and services that delight their customers. Within this viewpoint, Apple is already a trusted entity with our privacy since their business model does not necessitate mining that personal information.

My argument is that if Apple is not competitive with some core services, and companies like Google are, then they are pushing their customers to companies whose business model differs from Apple’s. My broad point was how Apple is a trusted entity and if collecting more personal data will lead to competitive services then I’m all for it. Apple’s use of personal data will differ from the likes of Google, Facebook, and even Amazon to a degree. One can argue that if Apple lets people opt-in to freely let Apple use personal data that the level of personalized services Apple can give us will be greatly superior to the competition.

While I appreciate Apple’s privacy policy, I think even Apple themselves underestimate the position of trust they are in with their customers. Interestingly, I think their efforts in health have opened their eyes to this matter.

Apple’s initial push with ResearchKit was to anonymize user data to protect people’s privacy as they participate in health-related studies. As the program evolved the number of information consumers are willing to share on an opt-in basis has expanded. And I believe Apple themselves is surprised how much information consumers are willing to offer because they see the value in these studies, but also because they trust Apple to play a role in keeping their data private.

My grand hope is that Apple sees their value, not just as a mediator of data in the case of ResearchKit and HealthKit, but also their position as a trusted entity by consumers. I still firmly believe, that if Apple allowed consumers to opt-in and willingly share a bit more personal information with Apple, many of their customers would willingly share more information in exchange for better and more personalized services.

Health is the most likely area I think for Apple to start. Consider the position they are in with Apple Watch as a health management and preventative health tool. Who would not share more information willingly if it meant a more healthy life and the possibility of avoiding a serious health problem?

In fact, the way Apple clearly states how you manage your privacy as a part of ResearchKit is the way they should evolve their overall policy of how consumers can share information with Apple directly. Here is Apple’s statement on privacy with ResearchKit:

Share your data, keep your privacy.
We know how much you value the privacy of your information, and both ResearchKit and CareKit have been designed with that in mind. You choose which research studies you want to join, you control what information you provide to which apps, and you can always see the data you’re sharing.

This may not sound that different than how Apple handles privacy information today, and that is true with very small amounts of “necessary” data like name or address, etc. for credit card transactions. But Apple has never used a blanket term like share your data. It has been share *some data but not all, or choose what you share.

I’m optimistic that Apple is beginning to understand both the value of seeing more customer data so they can create better services, but also just how strong of a trusted position they are in. And in the big picture, Apple having the best services (especially those that compete with Google) means their customers don’t have to sacrifice their privacy for a better service from a competitor or company with an advertising-based business model. Basically, consumers can have the best of both worlds. For Apple to get there, however, I’m convinced they need to let consumers share more personal data with them. We will see if Apple can make a subtle pivot in this delicate area.

As I articulated earlier in the week, Apple’s focus on features that help us be more productive and efficient may not have been the most exciting when it comes to future and brand new things, however, there were some signals Apple gave us worth pondering about what the future may hold.

Where is Apple Taking Siri?
This was a question I was frequently asked by people on Twitter in the days following Apple’s keynote, as well as many in the media. Many of us hoped Siri would take a big leap forward and get closer to the smarts and reliability of Amazon’s Alexa or Google Assistant. While Apple highlighted a few key statistics like Siri is the most used assistant, and how their assistant processes 10 billion requests a month, the reality is Siri may be the most used, but it is not the most liked assistant. That statement may sound harsh, but several different research studies we have done on all the AI agents continually confirms Siri leaves users more frustrated than satisfied.

Now, I don’t necessarily view that as the nail in the coffin for Siri. In fact, I’ve long argued, that the value of voice is so high that the fact they want Siri to do more is a good sign. Users of Siri see the value and immediately start trying to use it for more things, which is when they end up being frustrated when it doesn’t work the way THEY want, and THEY need. This last observation is the broader point that needs to be examined.

My colleague Carolina wrote a great post yesterday looking more deeply at this nuance. Her broad point is there is no single technology Apple makes where they can’t make decisions for the customer on how to use something than with Siri. Apple likes to make products where they make editorial decisions about what is good and what is bad. More often than not these decisions lead to quality and simplified experience where technology does not get in the way of what the user wants. Siri and digital assistants overall are very different beasts and the one area where Apple can’t define what should or should not be done by and for the customer.

This is where Siri shortcuts come in. As Carolina explained, this is where Apple will learn what Siri based shortcuts (workflows) power users develop and use those learnings to advance Siri’s capabilities. As simple as it looks to make a Siri shortcut, the cold hard fact, is most mainstream consumers will never use text or widget based editor to create a workflow. They will, however, use their voice.

Siri shortcuts build on the Workflow acquisition from a few years ago. Some of my favorite workflows, which I built using the Workflow app were quick launch buttons that send my wife my current location, tweet a specific link with a hashtag. Post a photo, with filter, onto Facebook. The premise here is automation. I spent the time to link common tasks together which would take me several apps and many steps into one simple button than when I press it, it runs the action and completes the sequence of events. Extremely useful, but not that easy to make.

I am 100% certain these automation events will be created and initiated entirely by our voices in the future. We won’t need a software UI to create these automated workflows, but rather just rattle off commands to Siri and it will execute. For example, I could say “Hey Siri, set a timer for 30 minutes and when that timer goes off remind me water the garden, and pick the tomatoes, I need for dinner.” Or, “Hey Siri, text Jen my ETA and ask her if she needs me to pick anything up from the store on my way home.” Hopefully, you get the picture, but the broad point is how we will be able to use our voices, and Siri, to string together a set of automated tasks in ways we never could before. This not only saves us time, and adds to our efficiency and productivity, but this vision also speaks to Apple’s clearest concept for Siri as a true digital helper that works on your behalf to help you get things done.

Where is the Mac and iPad Headed?
Tim Bajarin dove into why enabling developers to easily bring their iOS apps to the Mac is a big deal for the Mac platform. In the days since, I’ve noticed the continued heated debate on whether Apple will bring iOS and macOS together (some don’t believe Apple’s blanket No statement) or that Apple will eventually make a touch-screen Mac. My conviction remains that Apple won’t merge iOS and macOS and won’t make a touch-screen Mac. Each of these devices plays a distinct role. The Mac focuses on power users and creators while the iPad is still largely used for entertainment and content consumption. As I articulated in The iPad’s Fate, we continually see no evidence the masses are doing more Mac-like productivity on iPad. Despite Apple’s best efforts to encourage more productivity use cases, consumers are just not shifting behavior.

When Steve Jobs introduced the first iPad, he made several statements which framed the iPad quite nicely. The first was he stated the iPad was the answer to the question on if a there is room for a device that sits between Mac and iPhone. Apple’s answer was yes, and it was iPad. A new question has arisen on if there is an opportunity for a new category that sits between iPad and Mac. Apple’s iPad Pro is a subtle shift in this direction, but I believe a brand new type of device may be up Apple’s sleeve.

It won’t be a touchscreen Mac, and it won’t be an iPad but something new entirely. Something fully capable of more content creation and productivity. And something that has all of the iPad’s benefits as well. I know what I’m suggesting is Apple’s version of the Windows OEMs 2-1 form factors, and I am sort of but not really. The promise of 2-1s was they were the best of both worlds. But in reality, the device is still a PC, but not the best PC nor was it the best tablet.

The iPad is also not the true promise of a 2-1 delivering the best of both worlds. This idea is what I think Apple is thinking about and, in my opinion, it could be a huge idea if executed well. My reading of the tea leaves, which includes Apple’s continued emphasis on their own custom chipsets (since this product would run an Apple, ARM processor) and Apple’s potential to bring iOS apps and powerful Mac apps together on one new device that supports touch, mouse, has a keyboard and detachable screen, and can fill the mainstream consumers needs for both entertainment and content consumption, and entry level Mac like productivity could be a huge idea and a gigantic new category for Apple. After all, ~250 million PCs (including Macs (20m)) are sold every year leaving an enormous upside hardware opportunity for Apple that the iPad has not capitalized on.

As is so often in the world, the technology industry is cyclical. Looking back at the past two decades of developer conferences, and precisely what each platform company releases as new features to their platforms, we can divide the ebbs and flows of platform feature into two buckets. The first bucket contains elements that are truly new, and enable new use cases and behaviors. The second bucket contains features that build on existing features and make them better and more useful for users of the platform. In one cycle, a platform has an opportunity to show us the future, and in other cycles, a platform has an opportunity to help us be more productive and efficient.

We are currently in the second phase where platforms are focusing on productivity and efficiency and not whiz-bang new features. In all honesty, as interesting and exciting whiz-bang new features are, it is the phase we are in that I find more exciting, and I think normal consumers will also. Interestingly, this headline from the WSJ sums it up nicely.

Personally, I’m more excited about features that help me get things done faster and more efficient, and ultimately use my devices less. Luckily, it seems that is a top focus of Apple, Google, and Microsoft as they advance their platforms.

Getting Things Done vs. Getting Things Done
Every platform helps you get things done. In fact, this idea, a platform that helps you be more efficient and productive and get the most out of your hardware, software, and services, will become a competitive differentiator. I think consumers recognize pain points they have in their existing workflows and new functionality and focus on helping them get things done easier and faster will be appreciated.

This idea was a big theme at all the big platforms developer events. From Microsoft to Google, and recently Apple, each platform company highlighted features that focused on more efficient workflows and wove the “help you get things done faster/more efficient” into the main narratives from each presenter.

I found this fascinating, because in no other year prior had all three major platforms focused so heavily on functionality. Each platform had done so at different times but never in the same year was efficiency and better productivity the core focus. My interpretation of why boils down to several things.

• Device Fatigue. I do think consumers are facing device fatigue. In all of the consumer research we do, it has become clear that consumers can only tolerate new whiz-bang features for a short time before it all becomes too much and get overstimulated. Understanding this point is why I had continuously cautioned pundits and media to expect world-changing features every year. Consumers simply can’t handle it.
• Machine Learning Tech is Maturing: Machine learning is the enabling technology of so much prior vision shared by tech visionaries and luminaries. Even things written about in science fiction are possible now, and machine learning is the answer to “how do we create that future.” While buzzwords like AI and ML were abundant at each developer conference when you observed closely you could see how each company is deeply integrated machine learning into the core of their platforms.

These two trends converging are reasons I believe we see this focus from platform companies and the result is competition around features and functions that help us get things done more quickly and efficiently instead of focusing on whiz-bang new features are the main differentiators. Again, I think this is a more exciting time for consumers.

Less About Managing Time
While I do want to write specifically on new features from Apple and Google to help us understand our device usage and give us tools to manage, the point I’m making is not about managing our time to put the device down but to get the most out of the time when we are using it. This is a point specifically about increasing efficiency of the most common workflows consumers engage in every day.

This is ultimately where digital assistants like Siri, Cortana, Google Assistant, and possibly Alexa come into play. Apple, Google, and Microsoft all referred to their assistants within the get more done narrative. Their emphasis is that these assistants are there to help you, serve you, and ultimately try to know what you want to do before you do it and assist in that task. Machine learning, again, is central here but it is also still an uphill battle.

Each platform and the respective assistants are focusing on the individual user and trying to understand and predict their needs, tasks, and intent. This is an incredibly difficult task, but one each company understands is worth focusing on.

My big takeaway and an interesting shift in thinking are how these features that focus on helping us do the things we do every day more efficiently and quickly will become things that attract users to these platforms. Common wisdom was to create new whiz-bang features to get consumers attention. Now, it seems, consumers are more interested in features around efficiency and making their lives easier, better, not necessarily things that suck them into using the device more but rather using it less. If this sentiment shift is indeed taking place, it again places us in uncharted territory.

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Spotify intrigues me in many ways. It’s easy to be bearish on Spotify. That is at least the most common narrative I see from Wall. St and pundits. Spotify makes a great product, but they are also up against dynamics that are hard to overcome.

The Apple and Google Challenge
The biggest challenge for Spotify is they are up against Apple and Google, who are both what I like to call super integrators. Microsoft was a super integrator back in the day. That dominant position they held with Windows and their ability to create new apps and services that were essential defaults in Windows, like Internet Explorer in the browser wars, is what lead to regulation that attempted to limit Microsft’s ability to stifle competition. Spotify, behind the scenes in investor conversations, has suggested a similar concern. Specifically, that Apple and Google can bundle and more tightly integrate their respective streaming music services into the core experience of iOS and Android. This is no doubt a valid concern, and the reason why super integrators like Apple and Google will always have an advantage when it comes to specific services.

Apple pre-loads the Music app on all iPhones sold, and in many Android partner cases, they also pre-load Google Play Music onto the device. With Android OEMs, they largely can pre-load other apps so technically some of them can bundle Spotify as well if they so choose. It’s worth discussing whether or not Apple or Android is in similar monopoly power to Microsoft during the browser wars. Music is a top 5 use case with smartphones, so it’s arguably a core experience, and thus the integrators like Apple and Google can continue to push their services harder, thanks to their control of the operating system than Spotify will ever be able to. While I think it is hard to make this case in today’s age, it is an interesting discussion point, and one Spotify has mentioned as a major concern.

Google does some interesting and aggressive pushing of their services, YouTube Red in particular. I open the YouTube app many times during the day and constantly see a YouTube Red advertisement as the first main screen regularly. Apple, has similarly, pushed a notification from time to time to promote Apple Music. These are things the platform owners can do that Spotify will never be able to do competitively and it gives Apple and Google a significant advantage.

The Business and Scale Challenge
Spotify will be heavily pressured to grow, and grow fast, or Wall St. will turn on them very quickly. To do this, they will inevitably have to focus on the free part of their service. Today at an event in New York, they did just that.

Spotify will continue to add more value to their free tier, and the concern will be that it comes at the expense of their paid service. Which, would then put them squarely in a primarily advertising-focused business model. Which, we all know, creates another set of challenges. Spotify’s best bet is to invest deeper in the paid service, where margins will be better, but that business won’t get them the scale they need.

To that end, Spotify likely takes customers from Pandora. Which is reflected in this chart I shared a few weeks back when I looked at Spotify more in the context of Pandora than Netflix as a comparison.

The question in this scenario is whether the overall business is better for Spotify than it is turning out to be for Pandora. They are different services after all, but the underlying economics are still hard especially when ads are the primary revenue driver.

If in the coming month’s Spotify continues to add new customers to the free tier, and doesn’t seem to convert those customers to the paid tier, then I expect some stronger negativity in their Wall St. story. That being said, I do think Spotify’s biggest upside growth potential is on Android and not on iOS.

A Bold Prediction
Ok, maybe this prediction is not so bold. I think Sonos and Spotify will become much tighter partners. And possibly all three may get much close to Amazon. Post Spotify IPO, if it continues to go well, I can see them making a bid for Sonos. We know Sonos wants to IPO, but I don’t expect that one to go very well should it happen. An acquisition, or merger, may make the most sense since Sonos needs a music service that is proprietary for additional revenue and Spotify can use a hardware play. Even if this happens, it is not a guarantee of success, but I do think it would help each company greatly toward their overall ambitions.

The narrative both companies need to navigate around is that they are one trick ponies from a business standpoint. The proven businesses that Wall St. likes are ones with a diverse set of revenue streams. This is a primary reason both GoPro and Fitbit have struggled. This same dynamic will make it hard for Sonos in particular as a stand-alone company. And for Sonos, if they can’t become more like Netflix by driving more paid subscribers, it will be hard for them as well in the long run. I’m looking for who either company deepens a partnership with to see the big upside from a scale perspective. But now that Spotify is public we will see much more clarity around their business when they release earnings over the next year.

I’m sure by now most have you have seen the iPhone X survey I published went viral. Many thanks to John Gruber who linked to the article and made it the second most read article in Tech.pinions history. As of now, over 75,000 people have read that article, and at this rate, it will be 100,000 by the end of the day. On the back of that article, I intended to add some follow up commentary given there is plenty of data from that study I have not shared yet. But, the public reaction to my article brought up some new thoughts as well worth sharing.

Siri’s Low Score Was No Surprise
I want to start by sharing some of the pubic’s reaction to the data. In particular, the chart with a customer satisfaction breakdown by feature. Here is the chart again for reference.

I received dozens of emails and many dozens of Twitter mentions and direct messages over this chart. The fascinating consensus was the low score for Siri was no surprise. In fact, the general sentiment was total agreement the iPhone X is great overall and “yep” Siri sucks. I can’t say this part surprised me, but I did expect some Siri defenders to come at me. There were zero people defending Siri. This strikes me as a critical observation.

Now, I’d like to remind everyone that these were mostly tech-savvy people taking our survey and the ones who took the time to email or send me a message on Twitter. But, I maintain, this audiences approval of a product or service carries a great deal of gravitas with the mainstream consumer market. Something I will share more data on shortly. When we did our Voice Assistant 2.0 study last year (3.0 will be done in May), Siri did not rank quite as low in customer satisfaction. Customer satisfaction of Siri by a mainstream representative consumer sample was 70%. Quite it higher than the 10% rank early adopters gave it in our iPhone X study. That being said, only 20% of mainstream consumers in our sample said they were very satisfied with Siri. If you recall, I said the number of very satisfied answers is the key stat to look at in customer satisfaction. Most, and I mean the vast majority, of Apple products (mostly hardware) have a customer satisfaction of very satisfied consumers north of 80%.

I consider Siri a product, not a feature, and I’m sure people may want to debate that, but this is how we need to look at and evaluate Siri. In my opinion, Siri as a software product is as important as any hardware product Apple makes. Let’s hope Apple’s recent hires and continued investment in Siri pay off and can convince their customers it is an invaluable part of the Apple experience.

The Secret about Net Promoter Score
If you are not familiar with Net Promoter Score, it is a measurement technique to quantify if people are happy enough with your product or service to recommend it to someone else. There is a lot of controversy with this measurement, mostly because people don’t do it well or don’t understand how best to get actionable results. I have been involved in many net promoter score studies in the past, and generally, when you look at the early adopter cohort, you never see a high net promoter score. This is particularly true when a product is very new, or unproven. Case in point, Apple Watch.

When we did the first Apple Watch study with Wristly, we all watched in amazement as the customer satisfaction results trickled in. We knew we had an early adopter cohort for that first study and were surprised they were so satisfied with a brand new product in a brand new category. Then we watched in bewilderment as we saw the net promoter results trickle in at a staggeringly low number of low 30s. If consumers taking our study were highly satisfied with the product, it would stand to reason they would be willing to recommend it to other. The vast majority of these highly satisfied Apple Watch owners were not going to recommend it to friends or family? Why did we wonder?

Then through follow up conversations we uncovered a critical insight. This cohort knew they were early adopters and were self-aware of the fact that they often like to get technology early to try it and are tolerant if it all the kinks aren’t worked out. In the case of Apple Watch, they felt Apple nailed a 1.0 experience but also knew it still had kinks, it wasn’t perfect, and therefore weren’t comfortable recommending it to friends and family yet. This was fascinating but also incredibly insightful and important.

Now fast forward to two new products from Apple, and the early adopter cohort net promoter score (NPS). The first is Apple Airpods. In our study, Airpods had a 98% customer satisfaction. That paired with a surprising net promoter score of 75. From what we learned with Apple Watch, when the early adopter cohort is highly likely to recommend a product to friends and family then you know it’s ready for the mainstream market. Apple accomplished this with Airpods on their first try.

Now, looking at iPhone X. Early adopters in our panel gave the iPhone X a net promoter score of 69. Just for reference here is how that ranks against the industry benchmark from SurveyMonkey out of an average NPS score of over 200,000 organizations who tested their products or services net promoter score.

Anything above 50 is a pretty solid NPS number. Apple’s products typically are in the 80s and are a part of a rare few consumer products with that high of NPS. For iPhone X, a radical redesign with some significant new features and software design paradigms to score a high NPS from early adopters is really remarkable.

Assuming Apple plans to build upon the iPhone X and trickle many of its features down the lown, even to lower-priced products, I think we can safely assume that even with mainstream non-techies get their hands on this technology there won’t be any frustrations or resistance to the user interface changes. This is a good sign and impressive hardware and software work from all at Apple who worked on it.

I recently got my hands on Google’s Pixel 2 Chromebook. I have wanted to use the Pixel 2 for some time and test it in my everyday computing workflows. There is so much to like about the Chromebook platform. It’s fast, fresh, and feels extremely modern. Much more modern than Windows or macOS/OS X. But it is the speed, lack of clutter, and overall fresh feeling of the OS that I like best. After a few weeks with the device I can see how you can make a strong case an operating system like this has more legs for the future of notebooks, and maybe desktops than Windows or macOS/OS X. Except apps.

I wanted to love the Pixel 2, but the Android app ecosystem is not built for the larger notebook size screens. Apps like Office, or Slack were sufficient, not ideal nor perfect, but sufficient. Apps like Twitter, or Facebook, were all pretty terrible. The more apps I tried to do things like edit photos, or make movies, and many of the things I do on my Mac regularly, I found apps galore which were all made for the smartphone, not a notebook screen. The lack of developer optimization of Android apps is the thing that hurt Android tablets and the thing that still hurts the Chromebook. But as I said, I wanted to love it.

The reason I wanted to love it was because it was free of all the legacy crust that sits on Windows and macOS. No consistent pop-up windows or annoying alerts and system notifications. None of the junk that gets loaded at boot up that makes your computer take seconds to minutes to start up. It was fast, crisp, and refreshing to use from an operating system standpoint. The active Google Assistant as a chat window is fantastic as well. Similar features exist in Windows with Cortana, and Siri is deployed only as a voice assistant, not one you can type to or chat with.

The overall feeling, and experience, I could not get past was just how fast and clean/fresh Chrome OS feels. It did make Windows and macOS feel like legacy operating systems. That being said, have the same feeling when I use iPad to a degree. The lure of iPad as my primary computer has always been based on the fresh, fast, and non-legacy feel of iOS. Add to that, a large number of apps which have been optimized have the larger screen and iPad gives the feeling of a fresh new computer (not just smartphone) operating system.

New vs. Old
There is a divide coming that I can only describe of new vs. old computing paradigms. So many people who have spent years, and often decades, using legacy computing environments like Windows and macOS (OS X) have developed behavioral debt. These entrenched behaviors and trusted workflows which have been established through years of repetition do not flow well into the more modern and new environments that iPad and Chromebooks present. However, when you look at younger millennials and the entire cohort of Gen Z, you see very different workflows being developed which all translate very well to Chromebooks and iPad.

At this point, I do not believe Microsoft can make Windows fit with the modern era that young people are gravitating to, and I don’t believe Apple can make macOS fit this need either. Both Windows and macOS will still exist and remain for the many millions of people who will always be more comfortable working with a legacy operating system on their notebook or desktop. But I’m not as convinced the next generations will settle on Windows or macOS but rather will seek out solutions running operating systems that are more suited for their workflows, which I believe are Chromebooks and iPads.

App Based Workflows
The big change, at least from my experience and behavioral observations with Chromebooks is how much the workflow moves to apps primarily. Certainly, apps are used in Windows and macOS, but the browser is also heavily used. I’ve noticed that Chrome OS and iPad move most the workflows to apps primarily, with much less browser involved. Personally, I love this, but many of the core workflows I live on have not translated yet to a Chromebook or iPad only world, so I still find myself using my Mac more than either.

I, like many others, did try and move to iPad entirely as my notebook but sadly returned to the Mac because I still needed it for so many tasks in my day-to-day. My kids are different stories. They never built up workflows that required a legacy operating system like Windows or macOS and therefore are entirely comfortable living only in Chromebooks and iPads. Both my daughters will be in a 1:1 iPad school next year so both will use iPad full time as their notebook.

In the long run, I maintain that iPad, and to a degree Chromebooks, success depends entirely on developers embracing the new things it allows them to create and not just trying to recreate old computing paradigms or workflows and make them work on iPad or Chromebooks. The potential for both these devices rests solely with developers, and while good strides have been made, on iPad specifically, there is still a long way to go.

I don’t think either of these devices will replace Windows PCs or Macs anytime soon in the workplace. I do, however, believe there is that distinct possibility but it will take five years or longer before we see any real traction. And that traction, or pull by the employee to the employer, may come largely from college kids and younger today as they enter the workforce. This may create a fascinating computing divide between millions of young people using modern workflows and the legacy computing generations using legacy workflows.

I’m not sure anyone could have predicted the predicament we have with the subject of news, and fake news to be exact. A fascinating report, which quantified something any observant person would have realized, validates that fake news spreads faster and wider than the truth. Here is a key excerpt from the study:

Lies spread faster than the truth
There is worldwide concern over false news and the possibility that it can influence political, economic, and social well-being. To understand how false news spreads, Vosoughi et al. used a data set of rumor cascades on Twitter from 2006 to 2017. About 126,000 rumors were spread by ∼3 million people. False news reached more people than the truth; the top 1% of false news cascades diffused to between 1000 and 100,000 people, whereas the truth rarely diffused to more than 1000 people. Falsehood also diffused faster than the truth. The degree of novelty and the emotional reactions of recipients may be responsible for the differences observed.

Humans are entirely predictable. There has been much study in behavioral psychology around the many different types of biases humans have. One of the more commonly understood is confirmation bias and it is the root reason fake news spreads faster than truth. In case you aren’t familiar with confirmation bias:

Confirmation bias, also called confirmatory bias or myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses. It is a type of cognitive bias and a systematic error of inductive reasoning. People display this bias when they gather or remember information selectively, or when they interpret it in a biased way. The effect is stronger for emotionally charged issues and for deeply entrenched beliefs. Confirmation bias is a variation of the more general tendency of apophenia.

It is not entirely understood the typical path one takes to arrive at some core conclusions but the reality is that once they have made up their mind it is nearly impossible to get them to change it. Interestingly, there is a heavy theme in modern behavioral psychology going on at the moment to study and understand these dynamics, and in particular, what leads a person to change their mind and in the end alter behavior. But in some more recent landmark studies, it is being found that even when being bombarded with counterfactuals, humans alter their views less than 30% of the time. And that is when they are confronted with a host of counter information. If they live in a bubble or only seek out and read information that confirms their bias then it is obviously well less than 30%. Sadly, this is exactly what social media allows and enforces.

Going deeper on the psychology behind this issue, there is an additional dynamic called the Backfire Effect. In a highly recommended read on this matter by David McRaney You are Now Less Dumb:

Once something is added to your collection of beliefs, you protect it from harm. You do this instinctively and unconsciously when confronted with attitude-inconsistent information. Just as confirmation bias shields you when you actively seek information, the backfire effect defends you when the information seeks you, when it blindsides you. Coming or going, you stick to your beliefs instead of questioning them. When someone tries to correct you, tries to dilute your misconceptions, it backfires and strengthens those misconceptions instead. Over time, the backfire effect makes you less skeptical of those things that allow you to continue seeing your beliefs and attitudes as true and proper

So now we encounter a problem most of us likely ran into with something like Facebook. Someone shares a story, which fits their belief but is not accepted as truth, or has been proven wrong already (like climate change), and you add a comment then a link to an article or two that show hard data and sound reasoning that is counter to their position. They then double down and reply with several more articles that validate their conviction (most coming from sources you have never heard of and sound entirely sketchy). This goes on and on, and no progress is made. When it comes to news on Facebook, it is the living embodiment of confirmation bias and the backfire effect on display on a nearly daily basis. In fact, if anything Facebook, and social media in general, serves as an amplification of confirmation bias.

Where From Here?
Sadly, fake news is never going away. As long as the underlying business of media is ads, and the main way to make money is to drive clicks, people will exploit these predictable parts of human behavior to make money. There is also the underlying problem looming where a nation, wanting to impact public sentiment of another country, can teach machines to generate fake news and spread them via bots (fake humans pretending to be real humans). It is and will be a continual battle and a vicious cycle. But here is a key realization from this problem, it will simply now take longer and more effort to distill fact from fiction.

So what is the solution? This is a hard problem and one that will likely not go away entirely. It is within this framework, I found this experiment by New York Times columnist, Farhad Manjoo quite interesting. Farhad took it upon himself to only get his news from printed newspapers. He recognized the Internet tends to spread falsehoods quickly, and by exhibiting self-control and patience by waiting to get the whole story, more accurately reported on the next day in printed form, he found he was much more informed. The whole article is a great read, and I recommend reading if you haven’t.

What Farhad’s experiment shows us is that we are better off with curation of news related content than the wild-wild West of fake news sharing of social media. Again, business models of both social media and the rewarding of click-bait articles by way of advertising are in large part to blame. It is within this framework that Apple News has come into a new perspective.

There were some reasons Farhad’s experiment drew him to the conclusions he made, trust being a big factor. He trusted the sources because they have a history of being credible and fact-checking is standard practice. This is where a new type of trusted destination can come into play and perhaps where Apple News has a role to play.

Yesterday, news came out that Apple purchased Texture, a service that gives users access to magazines, and other publications, for a set monthly rate. With this move, Apple deepens access to quality, and trusted content, within Apple News.

Apple seems like they are well positioned to help deal with this and also give their users a better experience when it comes to consuming news. Over the last year, my usage of Apple News has increased greatly to the point where it is my main morning source of news and an increasing percentage of my morning reading routine.

Providing a more customer-centered experience around news content is something Apple is incentivized to do with their business model. While it seems Google should do something similar with Android, however, given their ads business they are not as incentivized as Apple in this area.

What Farhad’s experiment proves, and what Apple News provides, is a curated experience with news and content in general. My sense of trust of the information I read from Apple News, in some cases, transcends the source as I often encounter great content from places I was not familiar with. Where with Facebook, I have to approach all articles shared by friends or family from sources I’ve never heard of with a dose of skepticism. Reading content from Apple News doesn’t give me that same anxiety when it comes to content and its source.

We are in uncharted territory. This is going to take a lot of time and work to undo the damage, and if anything it won’t go away but will be a constant battle. The Internet has done a great deal of good for humanity but this issue certainly highlights some of the web’s ugly side.

It is no secret that I’ve been very bullish on Apple Watch since day one. I’ve held my ground against the naysayers and defended this product because I believed in it and the broader role it can and will play in the future of computing. After a rough second year, when many of the naysayers thought they were right, Apple Watch is truly gaining steam.

I love this headline even though it is wrong: “Apple and Android are destroying the Swiss Watch Industry.”

Notice the trend line of Swiss Watches. It’s not dropping off dramatically but rather has stayed consistent. That being said, that market is not getting bigger and it does run the risk of being disrupted by smartwatches. So it is relevant that one of Apple Watch’s firsts is that it outsold the entirety of the luxury Swiss brand’s volume. That being said, any impact to the Swiss market is coming from Apple not Apple and Android as the headline suggests. Android smartwatches were a tiny sliver of the overall smartwatch sales likely SHIPPING much more than a million units in my estimates. I’ve seen a few go as high as 1.5 million but I believe that to be a generous estimate.

Another key first for Apple Watch in the wearable market narrative is that Apple overtook Fitbit in annual sales of wrist-worn technology for the first time.

While we don’t have data yet to fully validate this, my original theory was that Fitbit would serve as a feeder to Apple Watch. Meaning a consumer who just wanted to get a low-cost health/fitness tracker would start with a Fitbit because of brand, cost, etc. Over time that consumer would realize they found value in getting health/fitness data and would then graduate to an Apple Watch. In some very early survey work I did with Wristly, we did find pockets of data suggesting consumers were replacing their Fitbit’s with Apple Watch, but I hope to quantify this on a larger level when we do our next wearable study.

Regardless of how Apple Watch got here, after three years, it is finding its place in the market. The challenge Apple Watch faced in its first years were people expecting it to launch out of the gate and grow with a steep S-Curve sort of like iPad did. I knew that would not be the case and to all those who called it a failure because its sales didn’t ramp like expected I tried to caution the adoption cycle of a product like Apple Watch would be a slow ramp and that is exactly what we see happening.

When it comes to the future for Apple, and the industry holistically, wearables are the path to what’s next. Which I continue to maintain is where Apple’s work in miniaturization remains cutting edge and critically important. People want to talk about AR glasses but, honestly, we will wear computers on wrists and ears way before we wear them on our face in mass.

But as I pointed out yesterday, voice assistants will become one of the primary ways we interact with these computers on your wrists, ears, and eventually our faces. This is why the further development of miniaturized computers coupled with the integration of smart, personalized, and contexturally aware voice assistant/AI systems are critical innovations to keep our eyes on.

While the health benefits of Apple Watch will continue to be a major draw, it is encouraging that consumers are grasping the wider value after their initial purchase. Communication features both in notifications and responding to texts calls are all things we see growing in value with Apple Watch owners. Many of the same leading indicators of data points we tracked very early on that gave me hope in the Apple Watch as a product are still true today and in some cases stronger than they were in 2015. For that reason, I’m still convinced in the upside for Apple Watch to grow and evolve and move the broader industry forward. Apple is likely to remain the biggest beneficiary here and we will see if the rest of the industry can catch up at some point.

I encourage you to read my public thoughts on HomePod from spending about a week with Apple’s newest addition to the product family. I think a caveat needs to be made with my take on HomePod. I’m not the normal consumer who will get their hands on this product and form an opinion. Due to the nature of my job, I use more technology, and try a vast array of products and integrate them all into my life in ways most consumers will never do. So the comparisons I can make of products against each other are not things normal people will ever experience.

Which is the main reason why the things I believe Apple could/should/and will eventually add to HomePod are not the things a normal consumer, getting their very first smart speaker will want or even think about. I like to say that as a part of my job I have to try to live in the future in the present day. All that to say, the things I want, are not the things most people want—yet. But my belief is at some point in time; consumers will want many of the same things I do but not until they have used these products for some time. So, not to say my take is not valid, only that I’m coming from the viewpoint of a mature user in a very immature market.

For that reason, I think Apple made the right decisions with HomePod to meet the market where it is at just as it is getting started in every area but the price. Normally, I never worry about Apple’s pricing, but in this case, I do think the price tag is going to be hard for many consumers to swallow.

I made the point in today’s article that if you really care, and are picky about the sound quality of your music, then no doubt spend the money on HomePod. But that is not most consumers. Most consumers aren’t sitting in their living room appreciating a great song/artist/album in solitude and a glass of wine. For most consumers, and specifically those of smart speakers we observed, music is simply background noise or simple ambiance. For most use cases, when music is background noise quality is irrelevant. For this use case, any smart speaker will do in reality. Now, there is an area where HomePod could speak to a broader base, and that is when it supports Apple TV and can be used to not just control Apple TV but play back audio from movies and TV. I do believe that is an area consumers care a bit more about audio than just ambient background noise.

All of that to say, HomePod is going to be an evolving story in an increasingly competitive market. I’ll be fascinated to see how Apple continues to develop HomePod from a functionality standpoint as they straddle a difficult line of making Siri useful from both a personal and communal standpoint.

HomePod’s Engineering

One of the parts of the HomePod experience that was quite interesting to me was a tour we received of Apple’s audio labs. During this tour, Apple took us through where they develop and test, audio experiences related to their products. In these labs, and the subsequent work that derived from these labs, the audio experiences on iPad, iPhone, Mac, and more were created. Anyone who has used a product like a new Mac, or iPad Pro, even the latest iPhones, knows the speakers on this product are quite impressive. This audio lab is where the quality sound of the speakers in Apple products are created and tested. And from these labs came HomePod.

This whole experience reinforced a theme around Apple I’ve written about before on their attention to detail. What Apple does with audio in their products is nothing short of incredible when it comes to their attention to detail, and it shows with HomePod. While it seems years of audio engineering expertise led to the amazing sound of HomePod, I’m curious if those learnings now manifested in HomePod may make their way to other devices like AirPods for example. I fully understand the engineering differences between these two products but HomePod sounded so good, I got addicted to how good it sounded and wanted that sound on all my devices. Maybe this is me dreaming but so be it.

Apple Music/HomePod Exclusives
Given the quality of the sound, the other thing I got to thinking about was what if artists starting creating HomePod specific mixes of their albums as Apple Music exclusives. While HomePod already sounds amazing, it could sound even more amazing if artists starting mixing tracks specific to HomePod’s unique audio experience. Thus giving consumers a unique and authentic listening experience to a track that is truly aligned with how the artist wanted the music to sound.

Strategically, this kind of effort on behalf of artists can only help both HomePod and Apple Music. I’m intrigued by this idea of HomePod/Apple Music exclusives and what artists could do to take advantage of this. For example, what if John Mayer decided to do a live/acoustic set for his fans via HomePod? You could argue that he could do this without HomePod. However, HomePod sounded so amazing that when I played some of John Mayer’s live acoustic sets, it sounded like he was in my living room giving me a private concert.

Whether this happens or not, this line of thinking is interesting as we think about products like this coupled with Apple’s efforts in exclusive content. It isn’t too outside the lines to think some of these scenarios are possible once the installed base of HomePod became large enough.

Playing the Long Game
Apple is taking the marathon approach here, compared to Amazon’s sprint approach, and both are viable given each companies desires to compete in this space. Apple’s positioning with HomePod is clear as music is the focus. Over time, I expect the assistant story to grow for Apple and begin to catch on with consumers as well.

The biggest question is how much time does Apple have? We don’t know the answer but it is an important question surrounding Apple strategy for getting Siri more involved in the home.

Last point, for now, the real challenge facing HomePod is how it will convince consumers (broader market not audiophiles) to care about sound again. In my opinion, this happens when you compare HomePod to competition. My fear is Apple will not set up this type of demo like we received in their retail stores which will make it hard to truly hear the difference. When you hear a product like Sonos One, and even Google Max to a degree, all by itself it sounds great. It isn’t until you hear them compared to the HomePod that you can truly grasp and appreciate how much better it sounds. This will be Apple’s challenge to give consumers this experience.

I’m very curious how they handle this product at retail and we will get a chance to see that this weekend.

Each year, virtual reality has become a bigger story. The last few years have brought more questions than answers to the VR category, but I believe the story around virtual realities value is starting to become clear.

At CES this years, I saw positive momentum for VR in both technology and use cases. HTC Vive showed off their Vive Pro headset that includes a wired an wireless solution as well as a dramatic increase in resolution for VR experiences. We have known for quite some time gaming was going to be a driver for virtual reality and that has certianly been the case today. Including Gear VR, most estimates peg the installed base of VR headsets (not including cheap solutions like cardboard) at ~10 million units. Forecasts for 2018 are ~13m units growing to 27m sold in 2020. Definitely a slow burn, however, the next few years adoption of VR headsets will be large enough to be taken seriously by developers and applications/solutions providers.

That being said, we still expect gaming to be a big part of VR but the technology is now mature enough for industrial applications. At the show HTC was showing off a few interesting use cases that I think are perfect for virtual reality. One was for training of dangerous or complicated equipment. One of the demonstrations was from a company who was using VR to train drivers and operators of heavy machinery before letting them operate the machinery in person. The experience is so real it counts as actual hours logged to gain valuable experience in the virtual world before operating potentially dangerous machinery in the real world.

It is also widely reported many professional sports teams have been using VR for similar mental preparation techniques where athletes simulate on field experiences and it counts as their repetitions for the mental part of the drill without taxing their bodies. Along these lines, I tried an actual Indy 500 training rig which is used to train professional race car drivers on actual race tracks to prepare them to race and compete. What was particularly interesting about this was how the seat I was in was built to move, slide, lean, and even put pressure on the seat belt to simulate as close as possible the actual driving experience of racing an Indy car.

I know in military use cases, and even aviation, simulators have been used for years to train pilots for a range of situations. That was before VR and integrating VR into that experience will only enhance and better prepare the individual for whatever they are training.

Another interesting use case I was shown was for therapy. People with mental illness or even those who suffer from traumatic experiences were using virtual reality to help them better deal with their trauma and in many ways help rehabilitate the mental parts of their struggle.

The key takeaway from many of these new use cases emerging is how they are now possible, in ways they were not before, because the experience of VR is now getting remarkably close to the real world. And that is just with the technology in 2017. Over the next few years, the overall experience will get even more realistic which will open the doors to many more applications.

In Today’s Daily Tech.pinions column, I outlined why Apple’s presence, although indirect, was glaringly missing from CES the past few years. As I point out, HomeKit is garnering much better support in years past, but there is a higher level point that became clear this year.

One noticeable trend at CES this year was how many consumer electronics vendors were integrating Amazon’s Alexa into their products ONLY for the voice UI or natural language processing engine. A great example of this was Kohler who launched a line of home appliances called Kohler Konnect. This ranged from toilets to faucets and showerheads. The showerhead, and smart mirror, both had Alexa integrated but not to be a speaker to help you play music or set alarms, or ask questions, just to provide the voice UI. Voice commands like “Alexa turn on the shower.” or “Alexa turns on the shower and set the water too hot.”

iDevices similarly released a light switch with Alexa integration built-in with similar intentions. Their premise was simply that Alexa offered the natural language processing engine so you can control your lights using voice hands-free.

Both of these products raise an interesting question as to whether these companies need to fully integrate Alexa and the natural language processing UI into their products vs. just making a skill so they can be controlled from an Alexa enabled smart speaker. An interesting question for sure, but one that may not have an obvious answer yet.

Take, for example, the Kohler shower head. Of course, it makes sense for them to make a skill so I can tell any Alexa speaker in the home to turn on the shower. Say I get home from working out and want to jump right in the shower. Using any Alexa speaker to get my shower going in advance makes sense. However, what about when I’m in the bathroom? What if during the shower I want to change a setting on the shower while I’m taking a shower? I likely have no Alexa speaker in the bathroom so having a hands free control option that is not an Alexa speaker is necessary.

Now, I am sensitive to the argument about why a human wouldn’t just use the manual knobs and dials to control the shower head. This is a philosophical conversation about the voice UI and the value of hands-free control of appliances. Anyone with an Apple Watch will understand immediately the value of removing friction wherever friction can be removed. Having an option to control your appliances via your voice is simply a matter of significant convenience for voice first controls. You may not always use it, but it is a nice to have the option.

The root of the points I’m making above is truly philosophical at this point in time. Should the voice control interface be integrated into as many things as possible, or should they just work or support a voice speaker, smartphone, wearable, etc., so you talk to a secondary object rather than the appliance directly. To go deeper on this point, the question is also one about microphones. How many appliances or objects in your house need a microphone and is the answer many, or just a few? This is what is being worked out as we speak, but one thing is clear. The value of the voice first UI for hands-free control and use of appliances is going to require a microphone present in nearly every room of your house in some capacity.

This may be in the form of a speaker, or on your wrist via a watch, or in your phone, tablet, PC, TV, etc., or all of the above as to cover all the bases. What I do know for sure is there is significant value in being able to control many, if not all of your home appliances or consumer electronics goods at some level. This is why the voice UI as a whole has legs. The assistant part of this is just the smarts that layers on top of the platform. The question for Apple will be squarely on if their current strategy of focusing on a limited number of microphone placements for Siri (i.e., iPhone, iPad, Apple Watch, HomePod, Airpods) is sufficient enough to cover all the bases and contexts for how and what I want to control. Another larger question arises as well as to how much of the Apple installed base will own all of the products which is necessary to make sure a Siri microphone (I’ll call it that now) can hear its owner at all times. If all I have is an iPhone, but I don’t always have my iPhone with me around the house, then Apple’s strategy is problematic. For Apple’s current strategy to work in the home, car, office, etc., you have to believe that an Apple customer will have at least one Siri speaker with them or able to hear them at all times.

The Apple customer base, having a Siri speaker on them at all times is the larger risk in my opinion. Which is why one could argue it would have been smarter of Apple strategically to allow third parties, who make the hardware like ovens and dishwashers and shower heads and thermostats, etc., that Apple has no intention of making and allow those partners to integrate Siri microphones for control. This strategy, the one Amazon, and Google are employing, guarantees an Apple customer has a Siri microphone in earshot (voice shot?) of them at all times.

I know Apple is never first to market, and often they like to enter the market when they are ready with a customer-centric experience. I applaud this strategy, and generally, it has worked out well for them. I’m never going to count Apple out, but I am concerned the market is moving faster than they anticipated.

I was discussing the potential impact of Apple’s iPhone battery situation with investors, as many are trying to understand the potential financial impact, and came to what I believe is a potential silver lining.

While I agree, in general, there could be some financial impact as a percentage of iPhone owners choose to replace their batteries rather than get a new iPhone. Personally, I do not believe our data, or third party data I’ve seen suggest this is a huge portion of the market. However, in a time when we are the top of an S-curve with a growth cycle every few million units count measurably to Apple’s bottom line. So even if 5% of Apple’s base chooses to replace their battery rather than get a new iPhone you are still talking about tens of millions of iPhone’s off the table.

But let’s get to the potential silver lining. I believe Apple taking a pragmatic approach to helping people understand the health of their phone battery, combined with a continued program to make battery replacement easy and affordable, will only help to grow Apple’s installed base. And the growth of Apple’s installed base is the most important metric I watch. I say it is the most important because of what we know about the fundamentals of an iPhone owner/Apple customer. They remain extremely loyal, continue to increase their annual spend on apps and services, and in general remain an extremely attractive audience and a driving factor in the strength of Apple’s ecosystem. Any thing that grows this base is a positive.

By Apple taking a pragmatic approach to managing and replacing the battery of your iPhone, Apple extends the life of an iPhone significantly. This is in part, due to the elegant design of their CPU/GPU architecture which is a key reason iPhones can get software updates well into their 4th and 5th year of life and with the quality of Apple’s SoCs continuing to be industry leading, I expect this to only continue. Meaning the potential life of an iPhone can go from 4-5 years to 6-7 perhaps. Nearly the same length of life of your average consumer PC.

By effectively adding to the life of an iPhone this accomplishes a few things. Firstly, it will up the resale value of iPhones making owing an iPhone in general even more attractive. Apple’s resale value is already 30-40% higher than any high-end Andriod phone, extending the life could make this even higher. This means the secondary market could get even stronger for iPhones, as well as the value for older models even at discounted prices. Consider India for a moment. India is what we refer to as a “value for the money” market. This is the single reason Apple has struggled so greatly in India. Having your phone serviced, and parts replaced, by third parties is a huge market in India and many Indian consumers will replace key parts of their fairly inexpensive Android phones just to make it live longer. If owning an iPhone becomes a stronger value of the money sell to Indian consumers, and I believe battery replacement is a part of this story, it will help Apple in India and in many other parts of the world.

The second area extending the life of iPhones benefits Apple is with a highly common behavior of giving old iPhones to friends and family members. If you plan to give a child, friend, or other loved one your device when you buy a new one, knowing that replacing the battery will give this person a new iPhone, basically, then it makes owning an iPhone a more attractive proposition in general.

Interestingly, what Apple decides to do with software, or perhaps at battery app, that helps you monitor and understand the health of your batter has much to do with this silver lining. I would argue we are at a stage where consumers are very savvy and interested in keeping their iPhones healthy. After all, they are the primary computing device for many people. Therefore caring for it is a priority. Letting consumers understand how to better care for their battery and know when it has reached a state where replacement makes sense is something I think the market is ready for. This could, in turn, lead to another important differentiator for iPhones in the big picture.

All of this to say, I do believe there is a silver lining AND that it would be wise for Apple to embrace this program long-term and take a pragmatic approach through their retail stores, to give consumers affordable options to prolong the life of their iPhones. Even though this could impact annual sales of iPhones somewhat, it will do greater good for the overall ecosystem and Apple’s services business in the long run.

In several recent notes I’ve written I have mentioned in passing this term personalized machine learning. It is impossible to talk about artificial intelligence in a broad sense without talking about, and understanding, machine learning.

At a high-level, we are still many years away from a true artificial intelligence, meaning a computerized simulation of human intelligence which is capable of engaging with a human just like another human would. I say “years away” because of several factors. Firstly, computer scientists are still developing and modifying the underlying math/algorithms which make the foundation of machine learning. We have decent natural language processing as well today but we still can’t have a generic and normal conversation with a computer. Devices we speak with today are still capable of taking our words, turning them to text, then running them as a query on the backend trained network to deliver a response. What computers can not do, is understand us. More deeply, they don’t know us, understand our context, or pick up on nuances in our tone or voice. These are all things necessary to develop and also some of the most difficult problems computer scientists are trying to solve.

The second challenge facing machine learning is raw processing power. We simply don’t have enough processing power in our devices, or in the cloud, to take massive quantities of data in real-time and process, train, or learn from that data nearly instantaneously. We are literally at least five to eight years away from that kind of processing power and in reality more like ten.

However, while the biggest companies in the world will spend most, if not all, or their efforts in machine learning around general data/information, the area I’m watching the most is personalized machine learning. We will no doubt achieve a more generic or general AI well before we have a personalized one. A general AI will be one that is capable of understanding things in a general sense, or with general type data like news, sports, and other types of communal data where massive public data sets are freely available. To a degree, some of these AIs will feel personal as companies like Amazon or Google attempt to add elements of personalization to their version of these services none of them will truly be personal or understand me in intimate ways like a close friend or family member would. This type of true personalized machine learning is the hardest one to accomplish, the one with the highest payoff in terms of consumer value, and also one only a few companies are in any kind of position to execute.

I argued in this article called personal vs. communal AI that Apple and Google are the two companies closest to the consumer in terms of seeing intimate details of their lives. Google may or may not be attacking this the same way Apple is because of their business model, but Google has been clear their mission is to organize the world’s data (not necessarily your data) where Apple may be better positioned to focus on the concept of personalized machine learning that Google is given their market strategy. I saw this for a few reasons.

Out of both companies only Apple has personalized their assistant. If we are going to let a machine become our true assistant it will need to be anthropomorphized so we develop somewhat of a relationship with it. Google has not done this which is telling of their strategy. Amazon, Microsoft, and Apple are closer to where I think the market will respond to assistants by giving them names. But, only Apple out of all these companies is closest to the consumer. Which is why I think Apple is more likely to focus on personalized machine learning than any of the main platform companies of today.

You can actually see Apple’s first attempts at this in some small, yet significant examples not so hidden in iOS. For example, when someone texts you “where are you” you see a share location auto-response option show up in the text field. iMessage understood the context of the text message and a useful response would be a way to instantly share your location with whoever just asked. Or if you start typing “my cell is” in any text field you will see your cell phone number show up in an auto-response making it very easy and quick to share your number. Another one of my favorites is when using Yelp to find a restaurant or coffee shop, when I go to iMessage and tell someone to “meet me at” the last place I looked at on Yelp shows up as an auto-response. There are countless numbers of examples from iOS that I’ve observed that are trying to get at a more personalized experience which is why I feel Apple will try to focus their machine learning efforts on a personalized experience than one that excels on a more generic/general data like Google will.

This theme of personalized machine learning will be extremely difficult due to the more small and limited data sets of data unique to me which will exist. Machine learning needs large data sets of common data and that is completely different than what is needed for personalized machine learning which is massive quantities of random and unique data. That being said, this concept is one I’m watching very closely in 2018 to see how all these companies provided machine learning as a service attempt to personalize the experience to the individual.

I know my title insinuates I’m going to cover some ground in this article, and I hope to do that just. Yesterday, Magic Leap unveiled their long-awaited product called the Magic Leap One Creator Edition. Here is what it looks like in case you hadn’t seen it yet.

Now, right off the bat. We can all acknowledge those are some ugly glasses. Zero people on the planet want to wear those. But given the state of the technology, we have to get past how they look and onto what lessons can be learned from this product.

Magic Leap has positioned this product as a developer kit. Basically, they acknowledge it is a prototype and we can be confident they have a roadmap which leads to glasses that are much more consumer friendly in design and aesthetic. But the reality is we need to understand where we are with technology today and why strongly criticizing Magic Leap’s design because it is ugly is not helpful in the grand scheme of things.

Saying it is ugly and no one will wear it is obvious. When I was criticizing the criticizers on Twitter yesterday, people were responding that if it was truly a prototype (which it is) then they should never show it in public or release to the market. This is an excellent idea in concept but also extremely impractical.

Folks were also commenting to me that Apple would never release a product this ugly even if only for developers. This is absolutely true, however, Magic Leap is not Apple and most companies don’t have a number of luxuries Apple has—specifically developers.

Magic Leap wants to be a platform company, not a hardware company. The billions of dollars they raised was done so under the strategy that Magic Leap was building a platform and this hardware was a means to that end. Everyone knows you don’t build a platform with developers of content and this is the one area Apple has the advantage and why they can keep their prototypes private until they are ready for the mass market.

Magic Leap has to go out and try and get content developers today, and they have to have a hardware product to do that. This product exists so developers and creators can get their hands on it and start thinking about the possibilities of media they can create on this platform. This strategy is not that dissimilar to Microsoft’s HoloLens approach where the current design is only for developers to wrap their heads around the concept and experiment developing.

Apple doesn’t have this problem. They already have a large and loyal developer base who generally tends to write compelling software for Apple’s newest hardware. This gives Apple the luxury of being patient. I can guarantee you the glasses Apple is working on right now look no better than Magic Leap’s, but Apple knows they don’t have to release something not fully ready for the market yet because when they do their developer base will embrace it.

Magic Leap also needs to start making progress building consumer trust and a brand. If they can’t do that their product will fail, assuming they want to sell hardware to consumers not just license their technology and platform to other brands. Here again is where Apple does not have a problem. I love this question we asked in a VR/AR consumer study we did. We asked consumers what brand not in the market with an AR/VR head-mounted solution they would trust to deliver a quality solution. This is the results from all consumers including those who aren’t Apple customers.

As you can see, Apple is a trusted brand by the market not just by their customers. That trust shows in a question like this when we ask about a hypothetical product and see consumers show their trust in a brand. This again is more evidence why Apple has the luxury of being patient and we never get to see all the ugly and awkward prototypes they make because they are in a dramatically different position.

Everyone else, needs to take the strategy Magic Leap is doing, for good and bad, this is simply the process everyone else needs to take. So while it is easy to knock the design, that is obvoius, it is harder to think about the ways Magic Leap can succeed as a true platform and compete in this space.

So let’s look at it this way as a thought exercise. No doubt Apple will come into this space and do well with a product. Yet, not everyone owns Apple products and never will. So there is an opportunity for a second or third player/platform. So will it be Microsoft, Google/Android, or potentially Magic Leap? That is the better thought exercise to engage in not taking the intellectally lazy route of critisizing that design. That’s obvoius, let’s go beyond the obvious.