Tag: featured

I have had a range of conversations with colleagues in the tech industry, and it has been interesting to hear the same observation brought up. There seems to be a broad sense the narrative around Apple is particularly negative at the moment.

Now, longtime Apple watchers will know this is nothing new. The past decade, in particular, has led to a flurry of narrative swings around Apple from overly bullish to dramatically negative. We are indeed in a negative cycle right now and understand why it is helpful. Beyond the why, I do think there are some questions around services we don’t have enough information on that until answered, are likely to continue to drive a negative cycle.

What’s Driving Negative Sentiment
The easiest part to understand is why sentiment is negative at the moment. It rests squarely on the bias that Apple is a hardware company and not much else. The slowing of iPhone sales and the clear impact that is having to Apple’s bottom line only fuels this view, and we already see the doomsayers emerge from the shadows to point out how they have been right all along.

It’s been no secret that the vast majority of Apple’s revenues come from hardware. However, I’ve long argued that viewing Apple as hardware the only lens is the incorrect way to understand the company. Apple makes great hardware, yes, but if Apple ran the same operating system as the competition (Android) the iPhone business would not be the size, it is today. Meaning, iOS is a lot more valuable than most people realize to the whole Apple picture.

When people ask me what kind of a company Apple is I explain they aren’t really a tech company, nor are they hardware or a software company. At its core, Apple is a customer experience company. Apple’s focus is the customer and providing the best experience possible no matter the category of product. This point cannot be missed because it has been true with how they approach hardware and software. But, for me, there are still questions about Apple’s execution on being a customer experience focused company when it comes to services.

On stage at Apple’s March 25th media event, CEO Tim Cook made an effort to point out that Apple makes world-class hardware, world-class software (both true) and a growing collection of world-class services. It is the point about world-class services that I think is the big question mark.

The Services Risk
While it is true many of Apple’s exclusive apps, like iMessage, have a foundation of a service attached to it, most people don’t recognize or perceive it as a service. Apple’s App Store, iTunes Store, etc., are services but whether or not anyone attaches their broader understanding of a service is a question.

The risk, in my opinion, of Apple’s evolving emphasis as a company on services, is the potential to not live up to the bar the company has when it comes to hardware, and software. From many research studies, we have done around services it is clear to me there are different expectations in the mind of a consumer when they pay a monthly or annual fee for a service than the expectations they have when they buy hardware or software.

In Apple’s case, and around their hardware, in particular, customers can easily justify the cost in their case and feel it is ‘worth it.’ The big question I have is whether or not Apple can convince customers their services are ‘worth it’ in light of a much more competitive services environment Apple will face than the competition they face in hardware.

Consumers are used to a certain bar of quality with Apple hardware, and I do wonder what will happen if that bar is not met in services. Highlighting the disparity between hardware and services takes shape when we look at the research we did on HomePod owners. Note the visual below on overall customer satisfaction of HomePod (largely hardware related) vs. Siri satisfaction which is services related.

Apple’s unique approach to hardware engineering means they will likely always score high customer satisfaction on hardware, but I want to see satisfaction with their services go up. One of the main things that get critiqued about Apple’s services at large is consistency. This is true of Siri, even iMessages, etc., that the service consistently does what you expect it to do. With Siri, HomePod owners, ranked inconsistency of Siri to accurately fulfill a request as the biggest frustration they have with Siri on HomePod. My iMessage point is made clear by anyone, and there are many, who have consistent issues keeping iMessages in sync between their devices. I have a Mac, iPhone, and iPad and not a week goes by that I don’t have some issue with iMessage keeping messages in sync across devices. I know I’m not alone based on this exact complaint by many on Twitter I see in my timeline.

Even as Apple News+ rolls out, I find myself having consistency problems. Magazines I’ve downloaded are not synced across different devices meaning I have to go re-download them on a new device. Inconsistencies and inconsistent experiences with core services will not be things consumers tolerate when they shell out money on a monthly or annual device. Apple’s strength has never been in more cloud-based service-based solutions, and it is the area I see them most at risk when it comes to integrating a core services business as the third leg of Apple’s total solution.

I’ve mentioned this before, but sometimes I wonder how much more vertical they will have to go in the cloud in order to control more of their services destiny. As Bob O’Donnell and I mentioned on the Tech.pinions podcast last week, Apple’s services run entirely on someone else’s cloud platform, which is a bit of an oddity for how Apple usually does things. Perhaps a more vertical approach to cloud is in Apple’s future.

The other could be a few acquisitions of solid backbone cloud companies. I’ve seen investors mention Box or DropBox as options and bringing on the team from those companies who tend to be very good at a cloud services/synchronization approach. Ultimately, this is an important area to watch for Apple because the next innovation cycle, be it AR glasses, or something else is going to be hardware and services driven much more so than smartphones ever were.

The services narrative is a hot one right now for a variety of reasons. But one thing worth pointing out, that piggybacks on my analysis from yesterday is how innovations in the data center and the underlying technologies powering them, are making a cloud-first world much more of a reality than ever before. These innovations make it possible for software’s evolution to services.

All Software Evolves to a Service?
Will all software evolve to a service? In many conversations I’ve been having around the industry, the idea that services will eat the world has been a major theme. This point is designed to take Marc Andreessen’s famous software is eating the world article and point out that software is becoming a service. Whether all software becomes, a service is an interesting debate. I think you can argue most software will become a service, but the business model behind that service may vary.

One interesting observation we have seen through the years is how trends seem to take shape in the enterprise first, then find their way to consumer markets. Sometimes it is the other way around, but generally, the enterprise is where certain trends work their kinks out then find their way into consumers hands. This evolution of software into a services model is one area where I see this happening.

SaaS, or software as a service, has been a defining trend in enterprises for years now. Not only is it a huge market, but more and more enterprises are being run on software which is actually a service. The high demands of the business world, and the speed at which business happens demands more agile software platforms. This makes cloud-based software/services a more attractive proposition when it comes to workflows but is also more easily manageable by the corporations IT department. This model is win-win for all involved.

While the type of services that are delivered to an enterprise will differ from those consumers adopt, I’ve always liked the line of thinking that families are not that different from enterprises. Things like financial management, collaboration, communication, organization, schedule management, etc., are all commonalities families have with enterprises. Yet the way enterprises do things, is largely much more efficient than a family which begs the question about how more of these services can find their way into consumers lives.

One could argue this is an opportunity for platform providers like Apple, Google, and Microsoft but even in that scenario, the solution would still be a services-focused approach delivered through software.

Native vs. Cloud
So here we are again in a native app vs. cloud software discussion. From where the conversation started many years ago, I think we have a lot more clarity on how this will play out. The ideal solution is a hybrid where what runs natively is the shell software and UI, but much of the backend part of the service is run in the cloud. Think Netflix, or Amazon, where the native software is just the interface, and that interface is dynamic and therefore can be changed, customized, personalized, etc., because of all the work happening on the backend.

This is becoming more common in the enterprise and seems like the way forward for consumer software/services as well. Where this debate starts to get interesting now is the role of hardware in a services-driven world.

It’s worth asking the question if companies will prioritize certain hardware platforms going forward. Historically, there has been more of this hardware prioritization, but in the future, I’m not so sure how common it will be. Much of this depends on the platforms, but I have a feeling only Apple will prioritize certain hardware over others with their services approach. For the rest, including Google, and Microsoft, they will leverage more of their cloud platform backend for computing and thus can minimize the need to optimize their services for the variety of hardware in the market.

While it has historically not been uncommon for Apple to be unique in their approach from others with their strategy, it seems even more clear now that Apple’s services are designed to deepen loyalty and lock-in of the Apple experience around Apple’s hardware where other companies are going to focus more on deepening lock-in around the services themselves which can run on any hardware.

Different approaches will yield different results. However, in an extremely competitive services environment, Apple’s services strategy which in part is to preserve future hardware loyalty is going to have been genuinely competitive, or Apple may see competition chip away at the dependencies around their ecosystem they have built up over time. A cloud first/services first world does not necessarily fit in Apple’s sweet spot, but if they can deliver with their services, then they remain well positioned for the long-term.

Ultimately, the pace in which the world is becoming cloud first, even though consumers don’t think about it this way, is fascinating and is already changing the nature of competition in consumer markets.

I know the data center is not the sexiest of topics. But what I’m finding most interesting about the state the industry is in at the moment, which specifically is a lull of innovation in consumer hardware, is the rapid pace of innovation happening in the data center.

One of the tricks of being an analyst is to cast a wide net and look for patterns. As many of our readers know, some of the patterns I like to focus on are ones I see happening in semiconductors. My saying goes “it is much easier to predict the future when you understand the semiconductor industry roadmap.” Right now, nearly every semiconductor company has shifted resources and focus to the data center.

I appreciated this analysis by my friend and fellow industry analyst Kevin Krewell, who dug into NVIDIA’s announcements from their recent event and outlined how NVIDIA is now a data center company. While this does not mean NVIDIA is not going to keep competing in consumer graphics, the reality is the upside for NVIDIA, as well as a significant focus of their research and development dollars, is going toward technology designed for the data center. What’s more, is to look at NVIDIA’s stock price as they transitioned from consumer graphics to a data center standard.

NVIDIA reached all-time highs, and will likely get back there once investors mentally grasp what is happening in crypto, and with so much innovation still ahead in the data center, you can bet there is still upside growth.

Another storyline is AMD. In fact, perhaps the single biggest point to showcase how bullish investors and the broader market are on data center technologies is to look at AMD’s stock. In case you have never seen it’s a long-term arc, here it is.

For most of its life, AMD traded below $5 a share. But as the upside in cloud technology and the huge need for more data center technology expanded, AMD benefitted. Even though they still have a small share of the data center market and only a small double-digit share of the PC market, AMD’s PE ratio roughly six times Intel’s. Cloud platform providers like Amazon, Microsoft, and Google like having supplier diversity and are even segregating product offerings, or instances, based on specific beneficial technologies provided by these silicon companies. The data center TAM is a big one from a dollar standpoint looking to grow beyond 300 billion dollars sooner than most forecasts. AMD still likely has some data center specific announcements to come this year, but yesterday was Intel’s time in the spotlight.

Competing with Intel’s Monolithic Integration
At Intel’s analyst day last December, I recall then interim CEO, now permanent CEO, Bob Swan use state Intel’s doubling down on monolithic integration as a core company strategy to succeed. Yesterday’s data center product lunch of the Cascade Lake architecture was monolithic integration on full display. Intel showcased an architecture that includes CPU, Accelerators/FPGA, Memory, Ethernet/networking silicon and the software stack to tie it all together. The only thing missing was a GPU, and we all know that is coming.

Adding the GPU will be filling the most significant gap for Intel once they do it. Some are skeptical, but if any team can do it, the team they have built is the one. However, it was interesting during Intel’s keynote that 50% of machine learning inferencing will take place at the edge. If this holds, then it is good for Intel and forecasts for inference alone is a 10 billion dollar TAM in 2021. Intel’s integrating of the hardware and software stack to take on the inference market will alleviate concerns of their lack of GPU for now.

When it comes to Intel’s integration, monolithic at that, which is the bread and butter of the company, I do wonder what pressure that will put on a competition to follow a similar path. NVIDIA buying Mellanox is perhaps a step in the direction as NVIDIA adds a networking dimension to their portfolio. NVIDIA also has architectural benefits to their GPU solution and software stack which can absorb more tasks from the CPU should the market want that. I strongly doubt NVIDIA will make a move to CPUs, but nothing is impossible.

At a high level, the fascinating part of how the data center is evolving is true whether heterogeneous solutions are what cloud platforms want, or if we can imagine Amazon, Google, and Microsoft simply offering products and instances based solely on Intel, NVIDIA, and AMD solutions separately.

Going back to the pattern that I think is most interesting here, and that is the clarity that almost all the major investment and innovation from silicon companies is moving to the data center assures us that much of the world is now finally moving to cloud first. Even roping Apple into this conversations, their major push with services is a cloud-first strategy and has implications on how the company thinks about their own vertical strategy when it comes to their data center and their services.

We have long talked about what the world would look like when most the computing is down in the cloud, and it seems we are now able to see a timeframe where that future becomes a reality.

Over the weekend, Facebook CEO Mark Zuckerberg, wrote an OpEd piece in the Washington Post that calls for new standard bodies, government oversight and potential regulation over the Internet to deal with privacy, security, hate speech, and fake news.

Zuckerberg has faced serious criticism for allowing Facebook to become a vehicle for more than just social media and a place where people can post almost everything from conspiracy theories, hate speech, fake news and opinionated and often bigoted content. While it has, it’s own rules and regulations, and its business model had kept them from being as restrictive in blocking objectionable content and, in my opinion, allowed Facebook to become something that I don’t believe Zuckerberg could have imagined when he created Facebook.

All of the things Zuckerberg listed should be looked at closely by governments around the world. As he points out:

“Internet companies should be accountable for enforcing standards on harmful content. It’s impossible to remove all harmful content from the Internet, but when people use dozens of different sharing services — all with their policies and processes — we need a more standardized approach.”

He also lists legislation to help protect elections, privacy and security and data portability.

Although there are a lot of reasons he felt compelled to suggest more government oversight over the Internet, I see two key dynamics in place in Zuckerberg’s OpEd that is very specific to Facebook and his role as its CEO.

The first is that this is an admission that he and their team have failed miserably in managing Facebook’s content controls and that the type of material that gets through their filters has gotten out of control. He and his team have been backed into a corner due to this mismanagement of their site’s content. By themselves, they no longer can protect their users from bad content without any help from either a broad standards body, working with government regulators, or direct government regulation that helps keep fake news, threats, conspiracy theories, etc. from ever getting posted on Facebook.

Second, Zuckerberg and team need cover, or someone else to blame, for better policing of the content that is allowed to be posted on Facebook. In a sense, he is asking for help to manage the future of Facebook. If Zuckerberg tried blocking sites or specific content that is harmful beyond their current rules and regulations, he would be caught in a First Amendment battle that he can’t win. While he has the right to block certain sites based on their content that does not comply with their guidelines, there are too many gray areas that would rile up folks of many political and ideological spectrums that he needs help in determining what ultimately is OK to be posted on Facebook.

This is a smart move by Zuckerberg and his team. Many politicians are already on their case who want to either add more controls than Facebook would like or even break them up, as Senator Warren has suggested in her quest to take on many tech companies and their real or perceived power. By enlisting governments to help them deal with their own content problems, he can potentially head off even greater government regulations that could cripple their business model.

He also gains the cover to be more aggressive in blocking sites and objectionable content that is extreme and are used for propaganda, fake news, privacy intrusions, etc. Having standard bodies or direct government regulation can go along way, especially in the US, to holding off First Amendment battles that are impossible to win.

Investors will also likely view regulation as a good sign at this point. Should Facebook become regulated, there is a good chance. Their stock rises as the street will understand that regulation will secure Facebook’s dominance. An underlying theme around regulation protecting incumbents has been notably observed throughout business history. Whether or not protecting their dominance is a reason for Zuckerberg to request regulation is unknown, however, it is clear regulation for Facebook could potentially hurt competition and make force regulation on smaller new social media services even before they have a chance to grow and challenge Facebook’s position.

As I mentioned Tuesday, there is still a lot to say, but I wanted to write one more piece that adds some context before digging into the services products themselves.

I’ve always been fond of using the “only Apple” philosophy in much of my analysis of the company. Even Apple’s management likes to throw this phrase out from time to time to highlight things that are in Apple’s sweet spot and something only Apple can do. Apple is the single most integrated consumer tech company in the world, and that integration allows them to do things others can not. That integration starts with the hardware and extends to software and now services.

The “only Apple” philosophy must now be applied to services, and this adds an interesting new factor into the analysis. As of now, what is clear is that only Apple can deeply integrate these media-rich services like games, news, TV, and music, into Apple hardware. This is, and will always be Apple’s advantage over its competitors. In the same way that all of Apple’s products are designed to work together and get better the more devices you have, we should expect Apple’s services to work best on Apple hardware and work better the more services you consume.

That being said, integration alone is not necessarily a slam dunk for Apple when it comes to the success of their services. Firstly, Apple will have to avoid antitrust situations and likely can’t pre-install apps with services onto iOS but must let users download them of their own choosing. But, once downloaded, Apple can bake in integrated experiences to the overall device and OS that surface more value for their services vs. competition. From this perspective, I want to make a few points that will be an interesting watch and learn from, with Apple and services.

Competition and Cross Platform
From a business perspective, Apple has brought many new observations to the industry and business knowledge. In some cases, they have broken the templates used by business schools and challenged conventional wisdom. But, as often is the case, their integrated strategy provides more lessons to the industry and anything else. This entrance of their integrated services strategy will yield many lessons. Most of them being from a services competition viewpoint.

Apple having to straddle a blurry line of anti-trust with their services will be good overall for everyone. First, because they can’t pre-install things like Apple Music, or Apple News, or Apple TV without getting into anti-trust issues, they will have to genuinely compete with the likes of Spotify, HBO or Showtime, and other news services if they want consumers to download their apps and use these services. Apple has no inherent competitive advantage for premium/paid services in the way they do with hardware and software. While integration is the advantage of an Apple service after you choose it, it is not there by default and consumers will likely weigh all their options including competition.

This is why growth in the user base of Apple’s paid services will impressive because they aren’t starting with an integrated advantage like they are used to. But this also raises a question of cross-platform that I’ve been wrestling with for some time now.

Nearly all services are cross-platform. When it comes to web/digital services, being cross-platform seems like a checkmark to compete but companies developing these services usually only have a subscription revenue model, so they have to achieve scale. This is the fork in the road Apple will come to very soon. Is their services strategy about selling more hardware, or about growing the services business? That is the question.

While I could be wrong, given we don’t have much historical precedent to go off here, I’d argue that if growing the services business is the sole goal then Apple needs to bring certain services cross-platform. Apple News+ and AppleTV+ specifically. Services business require scale and while Apple has that in roughly a billion customers, they are up against the competition in services that are first and foremost cross-platform. Here is why I think that matters.

I’ve mentioned before that our research has shown us that when consumers are presented with a mostly subscription, they heavily weigh the benefits and more deeply scrutinize the investment. Services are not commodities or quick decision purchases. This is why free trials are almost entirely necessary for services. It is very hard to extract monthly money for a service unless the consumer has vetted it is worth it to them. When it comes to my cross-platform point, most consumers do not own 100% Apple hardware. Most of Apple’s user base has an iPhone and a Windows PC and a smart TV brand like Samsung, LG, or Vizio. That combination is the most common combination of the three main screens of the vast majority of Apple’s customer base.

Competitively speaking, I believe having access to content you subscribe to on all the devices you want to access them is important for a subscription service. So for example, Apple News+ becomes more interesting to an iPhone owner with a Windows PC when they can access that content on both. The evidence for this lies in Apple cutting deals to bring the TV app to third-party smart TVs. This strategy is solely for the purpose of consuming the AppleTV+ content one subscribes to on the TV of your choice. I’m convinced Apple needs to treat all their services this way, much like Apple Music on Android, if they want their services business to scale.

Another strong point here is the family plan. Most services don’t have family plans, at least not good or personalized ones for different family members. Which means Apple’s family plan concept is a point of differentiation. However, while it is unlikely to assume an Apple customer has 100% Apple hardware, it is even less likely an entire household has all Apple hardware. So for a family plan to hold its value and differentiation, a potential subscriber would want to know their family has access to the content they pay for on the hardware or platform of their choice.

If Apple does not check these boxes, then it seems likely they are up against tougher competition who is not going to create walls around their services. One quick point, is that certain services make sense to remain exclusive. Apple Arcade for example has no need to go cross platform and adds much depth to Apple’s customer value.

I’m fascinated by all this because we are in the somewhat new ground from a business standpoint, but Apple is also in new territory. Many important business lessons will emerge, and that is one part of many that make all this exciting.

I have been going to Apple launch events for 38 years. Until this week, all have either been hardware or software related with a few service program announcements sprinkled in here and there.

Apple’s Showtime event last Monday was the first one that strictly focused on services by themselves and was designed to clarify how four new service products would aggregate content and allow them to get a piece of the action from the various subscriptions or financial transactions tied to these advanced service offerings. While the event focused on services, the underlining message was an economic growth that bodes well for Apple’s future.

One of the big issues PC vendors struggled with from the beginning of the PC industry, especially those who sell hardware, is that once they sell a PC or peripheral to a user, that is the end of the sale. The exception to this rule was in the printer industry which had a razor/razor blade model where the hardware became a vehicle to sell more ink as long as a person owned that printer. PC vendors tried various ways to provide add-on, recurring revenue models, but never hit on a true recipe for extending their sale beyond the initial purchase of a PC.

Apple perfected the recurring revenue model when it introduced iTunes. When the iPod first came out, you had to actually rip CD’s into the iPod to get your digital music. But once they got the music industry to back their music downloads, Apple delivered the first solid model for gaining additional revenue from a piece of hardware. This eventually begat streaming music subscriptions, and Apple has now added streaming music as a significant leg of their broader services offering.

When the iPhone came out, Apple launched its App Store, and with it, the iPhone revolutionized the smartphone world. The App Store gave Apple another leg in its services offering and delivered another service for aggregated content.

A few years back, Apple introduced Apple Pay. On Monday they added Apple Card, their first credit card, backed by Goldman Sachs. It is tied to Apple Pay, and they did away with late fees and penalties and added Daily Cash benefits that are real cash given to users when purchasing products via Apple Card.

Last year Apple bought Texture, the magazine aggregator that has now become the backbone of their News+ News service that combines magazines and newspaper subscriptions into a single $9.99 bundle. While they only announced a few big name newspapers like the WSJ and LA Times for now, if this service takes off, many other mainstream newspapers who have their own subscriptions services could eventually join Apple News+ some day.

The reason they will be watching this is that even with the success of the New York Times and Washington Posts current subscription program to date, should Apple gain a hundreds millions of News+ subscribers over the next two-three years, they would give these and other holdouts millions of new eyeballs to view their content. Even if Apple got 30-50% of the speculated fees the newspapers give up to be on Apple’s News+ platform, the additional revenue would be more than incremental and make them solid new revenue from people who would never subscribe to their papers alone. Also, it would allow them to drive up ad rates. The New York Times has 4 million paid subscribers today, and their ad rates are tied to these numbers. But let’s say that over the next two-to-three years, Apple gets 50-60 million subscribers to Apple News+ and could deliver that many new eyeballs to the New York Times. Would they not want to join this new service? You can bet that a lot of newspapers are going to be watching this space closely.

Apple also launched a new gaming service called Apple Arcade. They have not priced it yet, but when it comes out this fall, it will have 100 games made exclusively for Apple’s Arcade gaming subscription.

The Showtime focus of the event was the new Apple TV+ offering. Apple brought A-Listers from Hollywood to the event to talk about Apple’s new platform for creative storytelling and is clearly going to invest billions of dollars into creating original content. However, Apple TV and Apple TV+, which will have the original content, is also an aggregator of TV and movie content. While Apple did not announce pricing, which is the billion dollar question, the reality is that whatever they price it at it will be another subscription service that can deliver revenues to their bottom line.

Apple now has six unique offerings under services that have one common economic theme. Each gives Apple a cut of the revenue brought through these transactions or subscriptions. Apple’s services business was $37 billion in 2018 and on pace to be more than $40 billion in 2019. Apple’s hope is to make services a $50 billion a year business in 2020 and that goal seems on track. If anything, these services could help accelerate their business ambitions.

While a lot of people were critical of these announcements in that Apple did not spell out the price of their Apple Arcade and TV+ service, and left a lot of questions about their services open, you can expect them to be priced competitively. While not everyone one will subscribe to all of these six recurring revenue services, Apple is now giving users new choices of aggregated content that is economical and can meet the various needs of their overall customer base.

One other theme that is equally important about Monday’s event was Apple’s emphasis on the privacy that comes with each of Apple’s services. This is a major differentiator between Apple and some competitors. Yes, with Apple you pay for services and this iron clad privacy.

Apple also has another thing going for them, and Oprah Winfrey nailed it when she said: “Apple has a billion pockets y’all”. All Told Apple has over one billion active users of IOS and Mac OS devices to target for these new services. And Apple’s marketing programs are legendary. While these new services most likely will start with small audiences at first, they have the potential to grow and become a powerful engine to fuel Apple’s bottom line growth. The Mac, iPhone, and iPad will also be important products, and Apple will continue to innovate around these hardware devices. And I believe that Apple will have the next major industry disruptor once they bring out their AR glasses and build a base of AR apps to drive its usefulness and growth.

I think we will look back on Apple’s Showtime event as a very important milestone in Apple’s history. I believe it launched the era of services being a more powerful force in Apple’s revenue model and with these new services it brings to Apple’s customer’s many new choices to keep them in the Apple family.

Before digging into the actual products, or product news themselves, I think it is important to take a step back and look at the forest within the trees from Apple’s Showtime Event yesterday. I think a theme was clear, and how that theme ties into Apple’s broader media services.

Golden Age of Stories
In a theme report released by the MPAA (Motion Picture Association of America), the opening letter from their CEO contained this interesting first paragraph.

We live in a golden age of stories. In communities of all sizes, in all sports of the world, stories bring us together, challenge our assumptions, and inspire us in so many ways. — MPAA CEO and Chairman, Charles H. Rivken.

This is the thing that drives a service like HBO, Showtime, and even Netflix. This is the idea behind motion pictures, good journalism, much literature, and even video games. Those who tell the best stories tend to have the most successful hits in media. This is why I personally think Netflix is extremely interesting and why I have positioned them as a company creating stories as a service. Out of all the content destinations I watch, which is most of them, I feel Netflix consistently puts out the best stories. It is part of their content strategy which focuses on a narrative with a whole season or show having to be followed from the start. Most cable TV network shows have a little narrative but are largely produced so you can miss an episode or several and not miss much. Nearly every series on Netflix, and Amazon to a degree are more like a 10 episode movie.

This is why I think Charles H. Rivken is correct when he says we are in the golden age of storytelling. The Internet and the billions of screens in people’s pockets make it possible for great stories to see the light of day. So how does Apple fit into this?

The Story Telling Platform
While Apple is embarking on its own journey of proprietary storytelling with AppleTV+, the broader perhaps more interesting theme is Apple trying to create a platform for storytelling. If you look at the focus of the games, they are bringing to Apple Arcade, and they are mostly indie game developers who create immersive and cinematic gameplay that also tell a story. Perhaps not all the games included in Apple Arcade will be this way, but Apple went out to their way to showcase developers who do and highlight the storytelling potential of many iOS games.

Second, we have magazines. While I’m not a huge magazine fan, I do recognize they often tell stories in a much different way than news publications for example. Magazines often have more depth in their articles, more production, and a more narrative style of writing. Perhaps that is because their articles can be longer than most news articles, but overall, it is a different type of storytelling but storytelling none-the-less.

Lastly, we have AppleTV+. This was perhaps the most obvious push toward stories of all the announcements. Mostly because many writers, producers, and actors/actresses, were there to promote the stories they wanted to tell. Apple happens to be the platform they choose, mostly because Apple gave them the most money, but I think part of Apple’s pitch was the overall engagement and type of customer that Apple acquires. While Apple can and will keep paying for this content, I do think part of them hopes that the impact or the results of these stories being told on Apple’s platform has great impact and perhaps brings more storytellers to their doorstep.

Why Now?
If we look at all of this news in context, I think the why now to announce this becomes a bit more clear. Many were disappointed the details of availability and pricing were not immediately made clear and question why to have this event now. The reason is more platform-centric in my opinion and not that different than what gets announced at WWDC from a strategic viewpoint. Apple wants storytellers to know what they are doing and to hopefully buy into their vision and sign on to have content ready by launch. Apple wants to go out with a bang, and they have to really, and in order to do that they need to start seeding their vision sooner than later.

That’s essentially what yesterday was about. Seeding the vision to content producers about the storytelling platform and storytelling services they want to emphasize. With the added benefit of Oprah’s highlight quote as to why she has committed “because they are in a billion pockets y’all.”

Apple customer base is unique, and its platform is unique. This uniqueness has worked for third-party developers, and Apple wants it to work for third party storytellers in gaming, journalism, and movies/tv.

There are still a lot of questions, and details yet to emerge. We can and will form an opinion on the services themselves as they come out, but I think it’s important to understand the platform play Apple is pushing because in the end that is more in their wheelhouse.

This has been a fascinating week for Apple, and one that may signal a bit of a change in how Apple releases products and holds media events. What we saw transpire this week for Apple is noteworthy, and I think very smartly, should this be the new normal. In case you missed it, Apple made headlines almost every day this week. During the past week, Apple made meaningful updates to the iMac line, iPad line, and AirPods. In years past, Apple would have held a media event just to make these announcements. Instead, they were updated via press releases and some clever Twitter posts from Apple CEO Tim Cook.

When Apple announced its March 25th media event a few weeks ago, I made the point that this would be the first event where the focus would not be on hardware. I acknowledged there would likely be some hardware announcements but they would not where the event’s emphasis would be. Little did I know how right I was! With Apple making their hardware announcements, before the media event, the entirety of Monday’s show looks to be on Apple’s newest services initiatives. The only holdout that could show up now is AirPower and perhaps an Apple TV, but I wouldn’t be surprised if it is still released at a later date.

If this does represent a new shift in strategy for Apple product announcements, then I think it is worth looking at the upside of this new strategy.

Apple Controls a Longer News Cycle
It has long been true of Apple that they drive headlines. Whenever Apple makes news, it generally controls the news cycle. No company dares try to make news anywhere near an Apple event or anticipated event or news cycle. This is also why Apple does some clever news bits around big conference shows, sometime CES, sometimes MWC, even around other competitors product launch events. Because they know their news will get some attention and take some attention away from others. I’ve been in this industry for more than 20 years now, 18 as an analyst, and as an outside observer, I’ve never seen any other company be able to control a news cycle like Apple.

With that context, now imagine if the norm for Apple is a product release storm like we saw this week. Contrast that with just one media event to launch these products and Apple gets a day, maybe two, of controlling the news cycle. By rolling out almost a weeks worth of announcements spread out over the whole week, Apple is in a position to control the news cycle for weeks now instead of days. I find this fascinating from a marketing and PR strategy. We have never seen Apple do anything like this before, and now looking back at the week it is easy to see how Apple controlled the broader media narrative and was a constant part of the media conversation all week.

Which, if more and more product updates from Apple are iterative in nature, they can get a lot of life from a weeks burst of announcements than they could from an event where nothing eye-popping is announced. Which leads to my next observation about a more iterative Apple going forward.

Apple and Iteration
It’s first worth mentioning that iteration can be innovative. I think too many people, including many execs and VCs I spend time with, confuse innovation with invention. Something doesn’t have to be a brand new creation to be innovative. Products get new features, functions and in general, become better and more usable. It’s the entire experience that sums up innovation not one whiz-bang feature.

In thinking about Apple’s hardware iterations, I’m reminded of a tweet from my friend Benedict Evans who is a partner at Andreessen Horowitz. He made this point last week well before Apple’s hardware announcements, and while the point is about software, I feel it also applies to hardware.

For lot of Apple software, they don’t touch it for years, then do a big update, then ignore it for years. It seems frustrating for a power user (and very alien to the web) but I wonder if this is actually better for the non-technical billions than continuous small improvements.

— Benedict Evans (@benedictevans) March 13, 2019

Just swap, the word hardware for software and the point remains, and I think is critically important. Consider this, ~85% of Apple’s customer base is not the hard-core elite techie who lives and breaths tech. They are school teachers, construction workers, stay at home mom’s or dad’s, grandmas and grandpas, students, farmers, chefs, police, firemen or women, doctors, pilots, you see my point. These are people whose lives do not revolve around the latest and greatest tech gadgets but who simply want technology that works and gets out of the way. For this, the mainstream consumer, iteration is what the Dr. ordered. Sure they like new functionality but only when it makes their lives less complicated not more complicated. Generally, iteration is exactly the continued journey toward eliminating complexity.

So while a more iterative Apple, which is exactly what we should expect for the next few years at least, is not the sexiest or interesting to the 10%. It is much more interesting and more useful to the 85-90% of Apple’s customer base who will appreciate and value consistent iterative improvements over the invention of the next big thing.

This is Apple in postmaturity, and this is what post mature hardware cycles look like. Services fit into this model nicely, and we will tackle how next week after we see what Apple has up its sleeve on Monday.

The gaming market is one of, if not the market segment that is seeing some of the biggest overall changes. From a segment viewpoint, gaming is one of the hottest categories around in both software and hardware. It is easily the biggest bright spot from a hardware standpoint with gaming hardware and accessory companies seeing continued strong growth and retailers continuing to be happy with the gaming segment performance compared to all other categories. Interestingly, we are still only in the early stages of major changes to the category as the market is continuing to grow and bring in new consumers, innovative new software, and business model changes.

Shift to the Clouds
The idea of streaming a video game has been an industry promise for many years. Some early pioneers, like OnLive, came and went but showcased the promise of cloud gaming, or Gaming as a Service (Gaas), but also highlighted the limits of the technology at the time. The single biggest challenge with streaming visually intense games from the cloud is latency. Which is not a significant issue for a casual, single-player focused game, but it is a problem with multiplayer games. Any latency whatsoever can be the difference between life and death in a competitive multiplayer game.

That was then, and the backend datacenter hardware, as well as household broadband speeds and wireless network speeds, have all increased. Cloud gaming is now more feasible than ever, and many companies are jumping on the opportunity. Just looking at the western markets the short list of cloud gaming offerings is as follows: NVIDIA, Sony, Microsoft, EA, Valve, and now Google. The list in China is even longer. Prices of these services range from $4.99 a month to $19.99 a month, but the value of having access to a large catalog of games to play without the need of dedicated gaming hardware has significant value.

The biggest challenge facing Gaming as a Service is publisher support with the newest and most critical game titles. As of now, many publishers are “windowing” availability of their biggest titles and either not bringing them to a streaming service or doing so more than a year later. Currently, PlayStation Now has the largest category of games at 500 total but also has the highest price of $19.99 a month.

A key thing enabled by cloud gaming is the elimination of dedicated gaming hardware and in particular an embrace of cross-platform. Many gaming services like PlayStation Now, NVIDIA’s GeForce Now, let consumers play games on PC and Mac and sometimes iOS and Android as well. This, to me, is perhaps one of the most significant signals of what is to come in the future.

Play Anywhere, Any Time, With Anyone
I’ve written about how the shift to the cloud will break down walls which have formerly existed in the gaming industry. To be clear, the walls are starting to crack, but there is still a lot of work to do to break them down completely. For example, Google’s latest cloud offering released this week, only works on their Chrome browser. I’m less optimistic about gaming as service solutions that have walls than ones like Sony’s and NVIDIA’s offerings which understand the cross-platform reality that exist for most consumers. I’m hoping Microsoft’s upcoming solution also embraces cross-platform and a world without walls because it’s better for consumers and the gaming industry.

I keep using Fortnite as the example because the behaviors we have seen in the market make it clear Fortnite’s model is the future. The biggest change that Fortnite brought was the ability to play with anyone regardless of what hardware or platform they were playing on. For the first time, a global audience could play on any hardware and play together. This is the future, and there is no going back. Cloud plays a role in this because Fortnite is truly a cloud platform, but it leverages the local hardware resources and provides better gameplay when on better hardware. The choice is up to the player. If they want to be hyper-competitive, then they can invest in better hardware. If they just want to play casually and have fun, then a browser or mobile device is sufficient.

There is significant value for consumers but also to publishers to every go back from this model. With the Game Developer Conference this week I had a chance to talk with some of my contacts at big game publishers of AAA titles, and they all agree this is where things are heading. They also acknowledge it will take time. The key here is publishers can now truly look at the entire connected world as their addressable market with a much easier engineering process. To date, publishers go through a lot of work to develop titles that work only on specific platforms. They have to pour engineering into making a game for XBOX, Playstation, Nintendo, PC, etc. Each has unique benefits and costs massive resources to try and cover the whole market. As gaming moves to the cloud, we get closer to a write-once work anywhere solution for publishers. Economically, there is more upside with the benefit of being better for consumers as well.

As I said, we are early days but I’m convinced a combination of Gaming as a Service solution, with true cross-platform multi-player will open up the floodgates for the gaming market and expand the category to new heights.

I grew up in the age of Walter Cronkite and other very trusted news broadcasters. My family turned into Cronkite, affectionally known as “Uncle Walter” to many of us, every night, to hear CBS’ nightly news at 6:00 PM.

As a nation, these news broadcasts were critical to keeping us informed of world and national news. In my case, it conditioned me from an early age to trust these news reporters to dispense accurate and impartial news reports. The concept that they would even consider reporting on something that was not vetted and checked out in detail never even entered my mind. In fact, until the last 15-20 years or so, these national broadcasts were gospel to many of us “boomers” as CBS, ABC and NBC news were pragmatic and mostly on the money.

But since social media entered the scene and became a free platform for anything goes information, they have become mediums to dispense fake or false news stories as well as legitimate ones.

In a recent column I co-authored with Mark Sullivan at Fast Company, we asked the question if people can detect real from false news today and focused on a key program like the News Literacy Project that teaches our kids to tell the difference between true and fake news.

Here is an excerpt of what we wrote about the News Literacy Project:

TEACHING KIDS TO THINK LIKE GOOD REPORTERS

The News Literacy Project was founded in 2008 by Pulitzer Prize-winning Los Angeles Times reporter Alan Miller as a middle and high school classroom project in Washington, D.C.; New York City; and Chicago. Its lessons and materials are apolitical, created with input from real journalists. It teaches students how to recognize the earmarks of quality journalism and credible information, and how to know if articles are accurate and appropriately sourced. It teaches kids to categorize information, make and critique news judgments, detect and dissect viral rumors, interpret and apply the First Amendment, and recognize confirmation bias.

In one exercise, students are placed into the shoes of a young news reporter covering a breaking story. They’re asked to interview experts and eyewitnesses and review other material, then build a story piece-by-piece through multiple choice questions. They’re asked, in a sense, to think like a good journalist.

This era of social media and fake news has caused great confusion to many and has impacted how our younger generation views news. I consider the News Literacy Project and other programs that teach kids the fundamentals of how to discern real news from fake news a critical, foundational skill needed to navigate their future.

The News Literacy Project got quite a boost this week when Apple announced that they were backing this great program. This is a big deal and one that will make it possible for this educational program to reach many more young people.

Highly Respected retired journalist, Walt Mossberg, who sits on their board, tweeted this response to Apple’s investment in the News Literacy Project.

Grateful that @Apple has announced support for the @newslitproject as part of its new initiative to aid news literacy among students. Apple's grant is the biggest corporate gift in our 11-year history and will enable us to reach more students and teachers. https://t.co/KmKXo0stxH

— Walt Mossberg (@waltmossberg) March 19, 2019

I recently spent some time with a group of young people and asked them where they got their news. Not surprisingly, most did not get it in the more traditional way via the TV or radio. Many got news if they were even looking for it, on Facebook and Twitter or other social media sites.

When I asked about how they determined if the news they were reading was real or fake, their answers were fuzzy and all over the place. A lot of them read the news without even questioning it. Some said that even if they did question what they read, they did not do much to find out how accurate it was.

The role of educating our youth and helping them understand how to read news with a critical eye is a critical mission. Apple’s investment is a significant step in helping the News Literacy Project and the two other programs Apple will also invest in to achieve this goal.

There are some semiconductor companies that I feel are more susceptible to disruption. NVIDIA isn’t one of them. There are numerous reasons why I say this, but the main one is focus and R&D. NVIDIA has been the use case I use when talking with the industry when I give a counterexample to first party semiconductor initiatives of companies like Google and Amazon. While I fully believe it makes sense for some companies to make some of their semiconductor/data center hardware there are many cases where this isn’t a good idea.

NVIDIA and specifically their efforts and investment focus have generally been my counterpoint to the trend to verticalize. The reality is, Google and Amazon, as examples, will never beat NVIDIA in specific semiconductor applications and supporting software. NVIDIA invests massive amounts R&D on hardware and software innovation focused on AI. Companies looking to build some of their own data center hardware focused on AI/deep learning are only investing a fraction of the R&D NVIDIA is which begs the question of whether those companies can do as good of a job in these core applications. More specifically, is it worth the many millions of dollars in investment–which may or may not pay off–when it may be easier and wiser to buy the superior tech from NVIDIA and call it a day.

This is going to be an interesting story to watch when it comes to the data center specifically. Both Intel and NVIDIA are market share leaders in the data center but the biggest cloud platform providers like Amazon, Microsoft, and Google, want to create some of their own silicon to differentiate their platforms and create some lock-in for customers. But, I maintain, NVIDIA may still out-innovate them in core applications, and if those big firms who want to verticalize to a degree can’t offer competing solutions with a competitor who is all in with NVIDIA, then they risk losing sales. It is a fascinating dynamic and one that will be interesting to watch.

AI and Autonomy
Besides the companies I mentioned above, the other example I think is interesting is Tesla. Perhaps using Tesla as an example here will bring the points above I made into more clarity. Tesla was using NVIDIA technology in their vehicles for a variety of things including many of the autonomous features. Tesla has since decided they want to start making their own silicon for autonomous solutions. While I remain extremely skeptical about Tesla’s solution is better than NVIDIA’s, from an end-to-end standpoint, the risk for Tesla is if they can’t compete with other car companies who do go all in with NVIDIA.

Case in point, at their annual GTC conference, NVIDIA announced a partnership with Toyota Research to accelerate the use of self-driving cars. As NVIDIA gets closer with automotive companies, it becomes more likely those companies will use core NVIDIA IP. Moreover, I still have not seen a more complete self-driving solution than the NVIDIA Drive AGX. NVIDIA’s continued investments in total end-to-end self-driving systems continue to put them ahead of others and make me think NVIDIA is well positioned to capture share in the ~1,000 dollars of estimated semiconductor content in each autonomous vehicle. Another way to look at the economic upside of autonomy are the forecasts which estimate the semiconductor opportunity for autonomous vehicles to be ~$60 billion in 2025.

From talks I have had with both automotive industry insiders and component providers, it seems all the major automotive companies are making decisions on where to place some bets and what to own vs. what to buy. Their concern is as the car becomes a computer they risk losing the control of the customer experience they feel they need. This is the one area where I feel their approach the future like old companies not like new ones and a primary reason Tesla could be so disruptive.

When it comes to autonomous solutions, my hope is the car companies make wise decisions and partner with the tech companies who are making massive investments to turn cars into computing platforms. I have little doubt these companies can do it themselves, and the safety concerns alone, which NVIDIA is also addressing, are areas where a wrong decision or the wrong bet on technology can mean life or death for a car company.

There is more to say on this, and I have a number of private research reports on the future of autonomous cars that I’ll summarize in a sector report for subscribers in the coming months.