A Blog by Jonathan Low


Jun 24, 2018

How Apple Is Figuring Out What's Next

The question is not whether Apple is looking ahead - it would be foolish to assume the company is quaking in fear of smartphone market saturation - but to what degree it is willing and able to change. JL

Neil Cybart reports in Above Avalon:

The company has been thinking and looking beyond iPhone for years. Apple's silicon efforts and broader ambition to control the core technologies powering its devices are giving the company a head start that will likely be measured in decades. The only way for Apple to remain relevant in the future is to disrupt itself by coming up with new tools consisting of a combination of hardware, software, and services
If you do something and it turns out pretty good, then you should go do something else wonderful, not dwell on it for too long. Just figure out what's next." - Steve Jobs
Apple used this year's WWDC to demonstrate a number of areas in which it is playing offense. This isn't a company content with letting others control the user experience found with its devices. However, one of the major takeaways from the WWDC keynote was found with something not announced on stage. Apple finds itself announcing new technologies that make more sense on form factors that don't yet exist. Management is increasingly focused on what comes next, and the answer is smart glasses.
WWDC 2018
The features and software unveiled at WWDC 2018 could be split into two categories. The first group included items targeting the way we use and consume content on Apple devices. This included everything from empowering users with information regarding how devices are used to improving the way we consume content via:
  • An updated Apple News app.
  • Apple Podcasts on Apple Watch.
  • A completely redesigned Stocks app.
  • A revamped (and rebranded) Apple Books.
Apple knows it holds a lot of power when it comes to content distribution given a user base of a billion people and 1.4 billion devices.
The other group of announcements was related to new technologies designed to make the cameras and screens in our life smarter.
  • ARKit 2 introduces new ways of transforming smartphone and tablet cameras into smart eyes.
  • Siri Shortcuts continue Apple's efforts to customize Siri to better suit a user's lifestyle.
  • New machine learning (ML) capabilities are powering Memoji and various other applications made possible by smarter cameras. 
There is a drawback found with most of the cameras and screens that stand to benefit from these new technologies: We still have to hold them. While AR makes for a cool on-stage demo, having to hold an iPhone or iPad up as an AR viewfinder for long periods of time isn't ideal. Items like Siri Shortcuts and Siri Suggestions are interesting on iPhone and iPad although they are incredibly more appealing on mobile displays worn on our bodies. ML applications on iPhone and iPad are useful, but the predictive and proactive nature of the technology can work wonders when combined with mobile cameras and screens that we don't have to hold. Apple is announcing new technologies that make more sense on form factors that currently don't exist.
My full WWDC 2018 review is available for subscribers here (major themes) and here (full notes). 
What's Next? 
While Apple management will never admit it, the company has been thinking and looking beyond iPhone for years. The Apple Watch's ongoing march to iPhone independency is clear evidence of this post-iPhone thinking. This isn't to say that the iPhone will lose its spot as the most valuable computer in hundreds of millions of lives anytime soon. In addition, the iPhone will likely remain Apple's top revenue-generating product for some time. However, those realities don't determine Apple's post-iPhone product strategy. Management isn't driven by the goal to come up with something that is more profitable than iPhone. Instead, the focus is on coming up with something that makes technology more personal and handling new workflows that were never able to be handled by iPhone.
Last month, Mary Meeker presented the latest edition of her Internet Trends presentation. Narrowing 294 slides into one major takeaway isn't easy, but such a task was possible this year - the smartphone industry is mature, and it's time to figure out what's next. Smartphone sales are flat as the average consumer is OK with holding on to his or her smartphone for longer before upgrading.
As seen in the chart below, Apple hasn't been immune to this trend as iPhone sales have plateaued. Apple is currently selling approximately 215 million iPhones per year, and sales are likely to remain in that ballpark in the near term. When thinking about what comes next, it's difficult to miss the rising yellow line in the preceding chart. Apple is seeing significant sales momentum in its battle for our wrists with Apple Watch and our ears with AirPods. These new form factors are successful in making technology more personal for tens of millions of people. When combining Apple Watch and AirPods sales, Apple's wearables segment will soon outsell iPad in terms of unit sales.
The next wearables battle will be for our eyes. This battle will revolve around a product that benefits from technologies currently found with ARKit, Siri, and Apple's ML efforts. Apple is setting the stage for smart glasses. A pair of smart glasses will essentially boil down to an ML playground cool looking and light enough to wear throughout the day. There's one problem for Apple: The world isn't quite ready for such a product. As Jony Ive put it a few months ago, "there are certain ideas that we have, and we're waiting for the technology to catch up."
Biding Time?
It's easy to think that Apple may simply be biding its time until the world is ready for AR glasses. However, WWDC gave us a glimpse of how Apple is busy behind the scenes, preparing for what comes next. With ARKit, Apple is using hundreds of millions of iPhone and iPads to inspire 20 million developers with the potentials found with AR. A similar dynamic is at play in getting customers comfortable with items like Animoji and Memoji - items that will likely one day be available via a pair of smart glasses.
In many ways, Apple is doing more than any other company to prepare the world for AR. Startups like Magic Leap have positioned themselves as being ambitious for wanting to control everything needed to develop a pair of mass-market AR glasses. However, Magic Leap is missing a few crucial ingredients needed for success. Unlike Apple, Magic Leap doesn't have a few hundred million devices for seeding early technologies that will eventually power a pair of smart glasses. Instead, Magic Leap is forced to conduct a portion of its R&D in public, releasing early prototype versions of AR goggles in an attempt to capture AR mind share that is increasingly flowing to Apple.
Another item that Magic Leap doesn't have, but which will prove to be incredibly useful for AR glasses, is Apple Watch. Apple has learned a significant amount about how personal technology can be worn on the body by having nearly 40 million people wear an Apple Watch on any given day. In addition, Apple Watch serves as a test bed for learning about proactive digital assistants. However, the most important aspect of Apple Watch is how the device will likely end up playing a key role in serving as a place to put tech on the body that will help power smart glasses. In fact, an argument can be made that Apple Watch will become more instrumental to Apple Glasses' success than any other Apple product.
Apple's Game to Lose
We see Apple pulling away from the competition when it comes to grabbing real estate on our wrists and ears. The company has a good shot at doing the same in the battle for our eyes. Consider the various ways Apple is well-positioned for AR glasses:
  1. Hardware and software integration. Apple has a few decades worth of experience while competitors have only recently realized that hardware/software integration is essential when it comes wearables. 
  2. Controlling core technology. Apple's silicon efforts and broader ambition to control the core technologies powering its devices are giving the company a head start that will likely be measured in decades. 
  3. Wearables manufacturing. Apple is learning a great deal about miniaturization with Apple Watch and AirPods. No other company is close to Apple in this area.
  4. AR technology. In just over a year, Apple has announced two major versions of its AR platform with hundreds of millions of supported devices. Years of extensive M&A activity in the AR arena is beginning to pay dividends.  
  5. Developers. Apple has 20 million iOS developers focused on coming up with new experiences for a billion people. Companies like Magic Leap and Microsoft lack this critical piece of the equation. 
  6. Fashion and luxury. Apple has learned a great deal about selling fashion with Apple Watch. 
  7. Health/Medical. What may have started as an interest for Apple is turning into a strategic mission. A pair of smart glasses stand to improve the well-being of hundreds of millions of people as one of the key use cases for such a device is enhanced vision.
  8. Retail demoes. Apple has 502 retail stores around the world with plenty of space for glasses demoes. 
There's an elephant in the AR room. This is Apple's game to lose.
Creating Tools
Five years ago, Apple management was facing growing pressure to announce something new. Wall Street and Silicon Valley were eager to see Apple unveil a new product category in the post-Steve Jobs era. To this group, the lack of a new product category from Apple meant that management was either struggling with innovation, or worse, suffering from a lack of imagination. The intense pressure to come up with something new likely played a role in Apple giving Apple Watch a huge product unveiling in September 2014.
Fast forward a few years, and Apple faces a dramatically different environment. There aren't as many calls for Apple to come up with something new following Apple Watch. Instead, Apple's ability to monetize the iPhone experience beyond hardware sales has made people think Apple is a different kind of company - one that is more focused on monetizing existing users instead of dreaming about what's next. In a way, many market observers are the ones now suffering from a lack of imagination when it comes to Apple.
Apple is a design company focused on creating tools for people. While some of those new tools may be positioned as accessories to existing products, other tools will be capable of ushering in paradigm shifts. The only way for Apple to remain relevant in the future is to disrupt itself by coming up with new tools consisting of a combination of hardware, software, and services. Such groundbreaking tools won't likely be released every two or three years. In fact, Apple may go more like five, six, or even seven years between announcing major new product categories. The point is that such paradigm shifts are needed. Steve Jobs' quote calling for figuring out what's next and not dwelling on current success for too long was from a 2006 interview in which Jobs was asked where he sees himself within history's famous thinkers and inventors. Jobs was describing where the motivation for coming up with so many new products originated. For Apple, Jobs' quote serves as inspiration for not resting on its laurels and instead coming up with the next "pretty good" thing. 


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