Why Apple can’t Lose the Future Services Battle

Ben Bajarin / January 30th, 2017

I recently found myself in a conversation with some friends (thanks again to Dan M. (@OhMDee), @zcichy, and Eric (@mobile_reach) I made on Twitter (yes, you can make friends on Twitter). Our conversation was a frequently productive and sometimes frustrating back and forth on Apple’s privacy position and what risks it may have on their future competitiveness with services, namely AI/Siri.

While Apple is not going to be a pure play services company, there is no doubt services will play a much larger role in consumer experience in the coming years. It is reasonable to believe one’s ability to compete in features around machine learning and, eventually AI, will depend on the depth and quality of data acquired to train your networks and AI assistants. So let’s start by looking at Apple’s relationship with customer behavior data.

Is Apple Getting Enough Useful Data?
Apple’s relationship with customer data has always been clear. If you agree to share analytics/diagnostic information with Apple, you are opting-in to share some data with Apple. They are upfront about what this data is used for as they state very clearly they are collecting data on user behavior which will be used to help make products and services better in the future. Pointedly, a key difference here, as opposed to many other services, is even if you opt out of sharing data, you still get to use the full features of the service. With their advancement in tactics around privacy, including differential privacy, they are purposefully anonymizing that data so any information collected — things you say to Siri, what apps you install, what news you read in Apple News, etc. — can never be tied back to the individual. The technical term for this is Personally Identifiable Information. Apple’s goal is to make it so no information collected can ever be tied to personally identifiable information. While no one will dispute Apple’s attempts to go above and beyond to protect our privacy is admirable, there are a few concerning points I’d like to call out.

First, we have acknowledged Apple is using information about us to make their products and services better. But we simply have no idea how much information is being collected or analyzed. The rub is Apple’s services are progressing (or, at least, feel like it quite often) at a rate much slower than other companies who do collect and analyze more customer behavior data like Google, Facebook, and Amazon. There is no doubt Siri still has advantages in global language support and integration across all of Apple devices while the competition still has limitations. While Siri is certainly competitive with Google Assistant and Amazon’s Alexa (none of them are perfect yet or without faults) you have to admit both are pretty advanced and comparable to Siri in many ways. Both Google’s Assistant and Amazon’s Alexa have been on the market less than a year while Siri has been on the market in five years. Despite technical advancements in machine learning and natural language processing during that four year gap that benefited Amazon and Google, there is no doubt in my mind their massive data sets on behavior was useful in feeding their backend engine to reach near parity with Siri from a machine intelligence standpoint.

Look at my brief time on Android using Google Now compared to Apple’s Proactive and now Siri apps. Both are supposed to be learning about me and making intelligent and contextual recommendations that sometimes work but more often than not, don’t. I’ve been on iOS since 2007 yet, a few months on Android yielded better contextual and relevant recommendations on a more consistent basis than both Proactive and Siri. This observation leads me to believe competing services are learning and getting better, faster by using more of my behavior data to analyze than Apple. The only thing I can think of is it’s because of Apple’s desire to have a hands off approach to my data.

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. Based on some recent research we did, Apple customers overwhelmingly listed Apple as the top company they trusted with their privacy over companies like Microsoft, Google, Amazon, Samsung, Facebook, etc.

However, getting useful and good behavioral data is essential for Apple to make better products and services and, more importantly, compete with those services down the road. I’d almost prefer that, instead of Apple’s stance being not only to collect as little data as necessary and also to universally anonymize that data, they would simply say, “Trust us with your data. We will keep it safe and secure and we will deliver you superior products and services because of it.” I could also be satisfied with a hybrid approach where, for the most security conscious customers, Apple gives them the option to keep the existing privacy protocol as well as their differential privacy techniques, but also allow others to opt-in to giving them more data so that things like Siri, News, Apple Music, etc., benefit from that data and thus, deliver those customers a much more personalized and useful service. With some of the recent changes in iOS 10.3, I feel they are getting closer to exactly this scenario.

My genuine concern with Apple solely relying on an “above and beyond” approach to consumer privacy is we don’t know yet if this process will work and the existing evidence causes a great amount of speculation. My concern is they are mortgaging their future competitiveness around things like AI and better services holistically with this stance. Thus I view it as somewhat risky even if it seems like the right thing to do. If their approach does not work and their services truly not compete, some of their customers may use solutions from competitors whose business models open the door for them to be irresponsible with our data. If that happens, the customers lose because Apple — and I include Microsoft in this statement — have the least motivation to be irresponsible with our privacy. Their business models do not depend on directly monetizing that data. Say Google becomes the AI agent of the future and, all of a sudden, they fall on hard times and the only way to right the ship is to compromise or alter their privacy stance to keep making money. While it is only a hypothetical, it is still a valid concern if a free service monetized by ads becomes the majority services monopoly in the future.

I truly hope Apple is continuing to take a hard look at how their services compete in the market against comparable ones. Should there need to be some pivots on how data is collected and used to compete, I think the market would be OK with that. They are no doubt doing the right thing for their customers but, if going above and beyond with differential privacy yields non-competitive and thus less relevant services, then it will be all for nothing if their services aren’t used and can’t protect their customers.

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • The way I see it, this is the bet that Apple is willing to take, and the bet that they have taken multiple times in their history. Instead of doing something that works, they tend to bet on what barely works now, but is likely to be great in the future.

    The original 128k Mac hardly worked, but was the basis for all future PCs. The Mac OS X Quartz rendering engine was too much for the CPUs of the time and dog slow until Panther started to use GPU acceleration provided by the newer hardware (Quartz Extreme). Likewise, Apple’s AI will be barely usable for years, until smartphone silicon and AI algorithms dramatically improve.

    Apple bets on Moore’s law. They ship products that don’t yet work well, knowing that silicon will be 10x more powerful in a few years.

    The way I see it, Apple is betting that with the help of more powerful silicon and better AI algorithms, their approach will be more than satisfactory and in many ways vastly better in a few years.

    I suspect that users who endured the early years of Mac OS X will understand.

    • klahanas

      “They ship products that don’t yet work well, knowing that silicon will be 10x more powerful in a few years.”

      That’s something one would expect me to say! 🙂

      It’s often true, but more prevalent is that Apple is great at fixing other’s mistakes and acting like they invented it. (FaceTime, iMessage, Airdrop, etc…).

      Heck, they have even made removal of features into a marketing art form.
      -Blu-Ray.. Bag of hurt. Don’t offer it.
      -Upgradability? Makes supply chain harder and impacts new sales. Diminish or remove it.
      -Third party software not up to par? Disallow it.
      -Ports? Don’t make me laugh.

    • obarthelemy

      There are a few important differences between MacOS of yore and current Apple AI circumstances:
      1- At the early MacOS time, it targeted a few 10k expert users. Those had more patience and fortitude for v.1 issues than today’s iPhone users.
      2- Moore’s law is dead. There’ll be no 2x perf every 18 months. Actually, there hasn’t been for a while. https://arstechnica.com/information-technology/2016/02/moores-law-really-is-dead-this-time/ And the slower progress of battery and radio tech compounds the issue for Mobile.
      3- early MacOS had no competition and had time to find its footing. Also, the competition was a lot more fragmented. Siri, iOS, and iDevices have plenty of competition *today*, from well-established companies. And the competition’s AI is arguably already better.
      4- MacOS was “just code”. AI is code + data + cloud. An order of magnitude or two harder to get right, especially for a company with roots in design, not algorithms.
      5- MacOS was Invented Here, Siri is NIH. Speaks to culture, skills

      Also, beware of confirmation bias. Apple led briefly with WIMP and a strong API, but then got stuck for a long time with non-preemptive multitasking and no memory protection when everybody else had it. Apple’s organizational chart makes it very difficult for them to walk and chew gum at the same time, and I’m fairly sure Looks, basic UX, and financials will always be prioritized over everything else. Doesn’t leave much bandwidth for “everything else”.

      Users who have endured the early years of MacOS will probably understand indeed. That’s not even 1%. The rest ?

      • I am not saying that the way Apple is approaching AI today is guaranteed to succeed. I am not saying that what succeeded for the Mac 128K or Mac OS X will work for AI. That depends a lot on how AI evolves and how silicon evolves, and I do not necessarily know enough about either.

        What I am saying is that Apple is doing what it has successfully done multiple times in its history, and this is nothing new for them. Maybe it will fail this time, but it has worked spectacularly at least in some cases in the past.

        My understanding is that Apple has not yet implemented Differential Privacy, and this will start from iOS 10.3. Despite having years of Siri experience, Apple is actually just at the start line for the type of AI that requires large amounts of personal data. Whether or not Apple can catch up is yet to be seen.

        https://techcrunch.com/2017/01/27/apple-aims-to-up-its-ai-smarts-with-icloud-user-data-in-ios-10-3/

  • klahanas

    “But we simply have no idea how much information is being collected or analyzed.”

    Then you must assume that it’s all of it.

    And you must factor in it’s cost. Google offers products and services without monetary cost in exchange for information. They tell you that, and most things are opt-out.
    How do you opt-out of something you don’t know is happening and who’s existence is being kept from you?

  • obarthelemy

    I’m not sure data is the only area where Apple could be at a disadvantage. Even devoted iOS users quite often use 3rd-party apps and cloud services over Apple’ own, which drives home the point that Apple’s apps and services too are often lacking. I’m told Siri can only set one alarm at a time, which disqualifies it from even simple stuff like helping with cooking ^^

    I also find an amusing contradiction with saying both “Apple respects privacy more” and “we have no idea what data they collect”. Hint: you don’t have much of an idea how it is secured either.

    • benbajarin

      I do actually know how it is encrypted and tokenized. So that part I know. Also reading through the privacy policies on all their services they state some things they collect but they are only examples, so we don’t know how much. Apple has best in class on both privacy technique and security, and my overall point was the over and above with diff privacy could be a factor in why their services progres slowly.

      I’ve also done a deeper dive on what I mean by services, listing all of Apple’s services and where they stand. A good portion of their base uses a strong mix of their services and if they keep advancing these techniques, iOS is in the best position to deliver truly personalized services because it is perfectly positioned to know its user more intimately than any other piece of technology they use.

  • Glaurung-Quena

    “While I don’t believe Google and Facebook are the bad actors Apple portrays them as”

    You poor deluded fool.

    It’s not a matter of whether or not a particular company can be trusted with one’s data. In our brave new world of warrantless mass surveillance, it’s a matter of whether or not our data is being recorded and kept at all. Because all the government has to do is get a secret warrant from a secret court, and Apple will be forced not only to hand over all the data it has on you, but prohibited from ever telling anyone that it has done so.

    In the Orwellian reality we have been living in for the past decade-ish, Apple’s stance of gathering as little data about its users as possible and retaining as little of it as possible makes perfect sense.

    Also, it’s not a question of whether or not Facebook or Google is a bad actor (Facebook is evil, Google is more neutral) but whether or not the companies they turn around and sell your data to are bad actors.

    • obarthelemy

      Apple are not even pretending to gather as little data as possible – actually with Health and Pay they collect more than most-, they’re just saying they’re anonymizing it for 3rd parties… which obviously doesn’t include Apple itself, nor gov’t warrants.

      Another question is how good Apple’s anonymizing is. Precedent rises questions: http://readwrite.com/2013/02/28/android-apps-less-risky-to-privacy-than-ios-apps/ , https://www.theguardian.com/technology/2010/dec/29/apple-lawsuit-breach-of-privacy , http://www.forbes.com/sites/thomasbrewster/2015/06/17/big-flaws-in-apple-oses/ , ….

      • pk_de_cville

        “they’re just saying they’re anonymizing [personal data] for 3rd parties… which //obviously// doesn’t include Apple itself, nor gov’t warrants.”

        Not so fast. Apple has publicly declared that the data it collects /is/ anonymized for itself and, therefore, gov’t warrants. (Proving this untrue would provide a big payday for any class action suit on the basis of fraudulent corporate claims.)

        • obarthelemy

          1- it’s axiomatically untrue, they control the OS and ecosystem, they can push any anonymization-destroying update they want.
          2- http://motherboard.vice.com/blog/what-apple-does-and-doesnt-know-about-you for a recap. “To sum it up, Apple gathers up about as much personal information on users as any other big tech company. The main difference is, it says it doesn’t connect the dots. It may know everything about you, but it doesn’t know you’re you.” I’d add it says the dots are not connectable by others…; Same a MacOS doesn’t have malware, iPhones can’t be hacked, and the AppStore is safe, I guess ;-p

          • pk_de_cville

            TC has legal risk due to class action fraudulent claims. And TC has reputational/brand risk to consider.

            Yes. In some world, it’s possible that TC would just say, “Damned the torpedoes. Hell with my promised privacy/security; let’s just take a lookee at all that great data and let’s sell it to the highest bidder and let’s open it up to any and all government warrants.”

            But maybe not on this planet within the framework of the US class action legal system and Wall Street attention to Brand Value.

          • Kizedek

            Apparently there is some merit to saying Apple “(intentionally) can’t connect the dots”.

            Apple takes pains to (and gets ridiculed for) putting the power/capability to encrypt, etc. on the device instead of in their cloud service, a la Google.

            For example, apparently each device’s ID is randomized, and stored on the secure enclave, unknown to Apple; and apparently this device ID doesn’t get attached to a user’s iCloud account, because you can log into iCloud from any device or browser. As I understand it, that’s a step Apple has taken to “remove” itself from the equation.

            This device ID becomes part of the device’s encryption key. And encryption can be done on the device due to its genuine 64bit components and system (whereas encryption by Google services seems to be done in the cloud, using Google’s own keys).

    • benbajarin

      Ha, I’m a fool.. That’s funny.

      Firstly, Google doens’t go take my data and say here you go third party here is everythign I have on Ben. Google does still use privacy and security tactics. So yes while they say to an advertiser, “I have X% of consumers who are like this doing search, or X is a common search term so advertise around it, etc.) They are not giving out my phone number or address. So that is my point. Same with Facebook.

      Having looked through the privacy policies of all these companies you can see what they state about data that is collected. So I think you got hung up on that one phrase and completely missed my overall point which is a shame.

      Also, name calling will get you banned. FYI.

      • Vadim Dumin

        There is some merit in what Glaurung-Quena is saying based on my conversation with Privacy Commissioner in one of major telecommunication companies in Canada. He said they have no way of knowing if gov’t is spying on you and the government doesn’t have to tell them if they do. I am a bit of skeptical about that and think they just can’t refuse a gov’t search warrant and not telling you they received one. The reason for my call to them was that I began to receive some weird voice messages and ad banners in my feed.

  • Defendor

    It will be hard/impossible for Apple to compete in the Big Data game with Google/Facebook, where users are more the product, than the customer.

    Also Google tracks just about every user on the internet, whether they use Google product or not, through Google Analytics, tacked onto just about every web page (Including Techpinions). Facebook isn’t too far behind getting it’s tendrils into more and more pages as time goes by.

    The kind of big data Google/Facebook have when combined with deep learning could lead to unprecedented power.

    Think about any change in the world. Deep learning AI could detect early patterns for almost any human activity, and get in early on stock market moves. Detect confidential business moves by competitors. Find tax cheats. Estimate the movements of nearly everyone during any crime. Your imagination is the limit here.

    Does that data just get quietly used to benefit the company. Do they quietly sell the capability, or does it benefit the public.

    Judging by all of human history, I expect massive abuse of big data, wherever it presents points of advantage for someone.

    • Space Gorilla

      Ghostery blocks Google Analytics on the sites I visit, as well as other tracking. I wonder, as blocking becomes more common or even the default, how does that impact Google or Facebook tracking and gathering data? A client I work with is now seeing a huge difference between Google Analytics traffic data and the server logs on their website. GA is ‘seeing’ less than half the actual traffic now. I’m still a bit puzzled about the difference, I find it hard to believe that many users are now blocking GA. Something else may be going on, but what if that really is blocking causing the problem? It means more and more users are invisible to Google, or at least GA.

      • Defendor

        I really do think something else is going on there. Even among the tech savvy people I know, most don’t do much to block scripts.

        • Space Gorilla

          I would tend to agree, I don’t think there’s enough ad blockers being used yet. But many ad blockers do block Google Analytics by default, and I think there’s a lot more blocking happening on iOS devices (although I don’t know that for sure).

    • KirkBurgess

      Googles knowledge of web browsing is a small piece of the big data needed to train personal assistants. A users phone knows vastly more about its owner than google does from that users web browsing.

      • Defendor

        Google also has Android phones. Google has multiple sources that could easily let them track most people.

      • A users phone knows vastly more about its owner than google does from that users web browsing.

        Google makes a mobile OS that allows access to all that data.

  • The Pool Man

    Apple raises prices in a world where they are dropping. They’re a ticking time bomb.

    My latest favorite iRant from a former iFan —

    You can either buy yourself the only 15inch MacBook Apple offers —

    — or buy yourself a 13 inch ZenBook Flip. And an external 23 inch monitor when you need a big screen. And another Zenbook Flip for your spouse. And a OnePlus 3T instead of an iPhone. And another for your spouse. And buy extended warranties on the Flips.

    — and still have roughly $500 left to spend.

    This is what happens when you raise prices in a world where they’re dropping.

    • Space Gorilla

      It would appear you don’t need to worry since Apple will soon go out of business, what with all the raising of prices in a world where they’re dropping.

      Or I could just buy a MacBook Air for $1,199 (Canadian funds, only $199 more than the ZenBook Flip), get an entry level iPhone on a two year contract for free, and buy the same 23 inch monitor and hook it up to my MacBook Air.

      By the way, the OnePlus 3T is $599 Canadian (that price is from the OnePlus website).

      • art hackett

        I wonder if the shallow end of the (gene) pool man is relevant here.

    • KirkBurgess

      That comment has literally nothing to do with the content of the article.

      • The Pool Man

        The article suggets Apple better win the Future Services Battle. I’m saying there’s a bigger crisis afoot: Apple Greed

        • Space Gorilla

          “Apple Greed” has been the complaint re: Apple since the 1980s. What makes that same old complaint a serious crisis now? Your original comment about buying X, Y, Z for the price of one Apple product could have been lifted directly from a thread out of the 1990s.

          • klahanas

            So is it less true today?

          • Space Gorilla

            You’ve missed the point. Different people have different needs and find value in different products and experiences. Apple gear can provide me with a great deal of value for my money, and Apple gear can not be worth the money for you. Neither of us is wrong. We simply have different needs.

          • klahanas

            So it’s not a temporal thing. What was true then remains true now, and in line with what you say.

          • Space Gorilla

            You’ve missed the point again. Apple greed isn’t real, it’s just your perspective driven by your own needs and where you find value. You think Apple charges too much and I think Apple gives me plenty of value for the money. We’re both right. This situation is true in all markets, there are always products that some people find valuable and other people find those same products worthless. Your BMW is worthless to me, there’s no value at all in a vehicle like that for me. But it has (presumably) a lot of value for you. And that’s why I would never make blanket statements about BMW being greedy or too expensive or poorly designed and built for the money, etc. Clearly there is value there for many people, just not for me. I’m not sure how I can explain this in simpler terms, you continually seem unable to understand that what you need and what you find valuable isn’t an objective truth.

          • klahanas

            “you missed the point again”
            “We’re both right. ”
            Which is it?

            I was going with what you said. These various impressions (you and me) were true then and they’re true now. Thus it was not inappropriate for The Pool Man to say what he said. You’re comment came across as the position having an expiration date. It doesn’t.

            Oh, and BMW is greedy, I don’t have a problem with saying that. I hope they are pressured by their customers to offer improved vehicles at half the price. See how this works?

            At least they came around, arrogant and elitist as they are, to finally give us good cup holders!

          • Space Gorilla

            Interesting, either you really don’t understand, or you’re choosing not to.

          • klahanas

            You would do well as a Canadian envoy to our new administration, “Alternate Facts” and all.

            Even when I agree with you, I either don’t get it, or I’m wrong. I’m not trying to persuade you, but I can’t be both “missing the point” and “we’re both right”.

          • Space Gorilla

            Hmm, I suppose I can attempt to explain it again. The Pool Man wrote: “Apple raises prices in a world where they are dropping. They’re a ticking time bomb.”

            That is stating “Apple Greed” as an objective truth. That’s what you are missing. It is only your personal experience that is true for you, and that’s where it ends. Apple gear (or a BMW) can be great value for one person and terrible value for another person. Neither experience is more valid than the other. What you’re trying to do is enforce your experience on everyone else, because you find Apple to be poor value then Apple is poor value, objectively. That is not the case.

            You are indeed missing the point. What we’re both right about is our experience of value re: Apple. You don’t seem to grok that.

            We can see clearly from Apple’s latest financial results that many, many, many people found the new iPhones to be a great value. Those people aren’t wrong, they’re not sheep, they’re not fools. They just found value in Apple’s offerings. You can find Apple’s offerings lacking and not valuable, but that doesn’t mean Apple’s offerings are actually lacking and not valuable, that is simply your experience re: Apple. Others have a different experience and find Apple’s offerings chock full of value and benefit.

          • klahanas

            No I do grok both our perceptions on Apple. They are at conflict, and that has not changed (for either of us) since the 90s.

          • The Pool Man

            “That is stating “Apple Greed” as an objective truth. That’s what you are
            missing. It is only your personal experience that is true for you.”

            Nonsense. Apple prices ARE rising. Competitor prices (generally speaking) ARE dropping.

          • Space Gorilla

            It’s more accurate to say that Apple prices remain constant in a market where prices tend to decrease (as commodities do). But that’s a very different statement than “Apple raises prices in a world where they are dropping. They’re a ticking time bomb.”

          • The Pool Man

            They’re prices are going up.

          • Space Gorilla

            Horace Dediu at Asymco has written about Apple pricing strategies a number of times. All the data I’ve seen clearly shows that Apple keeps average selling prices of its various product lines remarkably consistent. Here’s one article, and while it is four years old it demonstrates what I’m talking about.

            http://www.asymco.com/2012/01/26/price-competition/

            Of course when Apple launches a new product or introduces new features there is always a price premium with that, so it can feel like Apple is raising prices, but what the data actually shows is that Apple keeps prices very consistent. The Mac for example has had a consistent average selling price for a decade.

            Here’s another more recent article that shows ASP and also does a good job explaining what Apple is actually selling.

            http://www.asymco.com/2015/09/14/apple-assurance/

            I’ll give you one more example. In 2010 iPhone ASP was around $600. This past quarter (holiday quarter of 2016) iPhone ASP was $695. Taking inflation into account that’s actually a slight decrease in pricing. But as I said before it’s more accurate to say that Apple keeps prices very consistent.

          • Space Gorilla

            There is no conflict, only your experience and my experience.

  • I’m sorry but I couldn’t disagree more. I am very happy that Apple runs face recognition locally on my iPhone or iPad for my photos, instead of uploading them to the cloud. I refuse to upload photos of my 5-year old daughter on Facebook et al, and only share them on password-protected sites I operate myself. Just because you don’t value your privacy doesn’t mean you get to ram your supine choices down the throats of people who do.

  • If their approach does not work and their services truly not compete, some of their customers may use solutions from competitors whose business models open the door for them to be irresponsible with our data

    This is already happening. I used to love Apple Photos but I moved to Google Photos because Apple wouldn’t sync my photos metadata across my devices, and because Apple has inferior photo search capabilities.

    It’s notable that both shortcomings are because Apple prioritized my mythical privacy over features I want. I made my choice, and despite what Apple says, I trust Google with my data.

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