
Apple's Middle Age - lukateake
https://stratechery.com/2018/apples-middle-age/
======
jballanc
Any article that speculates on Apple's future viability in the market would be
remiss not to mention Apple's unprecedented cash hoard. Currently, Apple is
sitting on $126B in net tangible assets.

With 100,000 full-time equivalent employees, that means that Apple could pay
every one of their full-time equivalent employees (which, as a reminder,
includes a large number of retail employees) an average yearly salary of $100K
for 12 years while making $0 in revenue and still not deplete their cash
reserves!

Or, to put it all in perspective, based on Wikipedia's cited estimate
([https://en.wikipedia.org/wiki/International_Space_Station#Co...](https://en.wikipedia.org/wiki/International_Space_Station#Cost))
the International Space Station cost $150B to construct. Personally, I'm
looking forward to visiting the iSS at some point in the future.

~~~
adventured
That's not actually how things unfold when a company gets into trouble. Your
scenario is the perfect, idealized, never-happens outcome. We have dozens of
historical examples at this point, from elite, massive corporations
unraveling: what they basically never do, is the strictly rational idealized
scenario.

What actually happens is closer to chaos loaded with self-interest and
stupidity by management and the board.

The board gets attacked aggressively by large investors. Existing management
and the board goes into bunker war bribery mode.

The board bribes shareholders, further depleting its cash position. See: IBM's
most recent idiocy as their revenue melted for 23 straight quarters, while
they continued to buy back stock aggressively.

The cost of their staggering $100+ billion in debt climbs over time as their
financial and earnings situation erodes. By the time a serious problem erupts,
they'll probably have $200+ billion in debt (they'll have that in just four or
five years now), continuing their existing mistake.

They intentionally avoid paying off all of their debt while they can, to hold
onto the cash (because hey, debt is cheap today, forget about tomorrow,
tomorrow is valhalla and rainbows), which they then make the mistake of
expending to bribe shareholders as the stock plunges. Because, you know,
things are going to turn around any day now.

Then they end up with less cash than they have debt, and down it all goes from
there, in a spiral they can't pull out of.

If we're talking about what happens in a bad scenario, that's more like what
commonly happens in reality. That net cash position will not be preciously
saved to protect employees, the employees are the first ones to go. That net
cash will be used as a bribery slush fund.

Their earnings haven't increased in years. They're facing a zero growth
future, if only because of their immense size. The smartphone market
contracted by ~9% in 2017 (-16% in China). They're facing a PC market
scenario, where consumers start replacing devices a lot less often (while
simultaneously smartphones face increased competition from all sorts of
cheaper AI-focused devices). Their cash accumulation is far slower now than it
was in the past, because it's all going to shareholder bribery. Meanwhile,
they've added $50 billion in debt in about two years, with that pace
continuing in the latest quarter. Their income to debt ratio has been eroding
for five straight years.

Consider: right now Apple is making the incredibly foolish mistake of
aggressively buying back stock with their capital, while its AI efforts are an
embarrasment and they get their ass kicked by Amazon. Spend $50 billion
catching up in AI etc? Or buy back stock? Apple has made its choice, and it
shows.

~~~
makecheck
If you look back just a few years, Apple has responded multiple times to
saturated markets by introducing new product classes. We don’t have iPods
anymore for instance, now we have watches (even though at one point you could
have argued that the music player market was full too). If phones really do
start to lose steam, Apple should have plenty of opportunity to create a new
interesting product.

~~~
TheOtherHobbes
And yet Amazon introduced Alexa before Apple did.

Alexa (Applexa?) could have been a natural Apple product. HomePod is clearly a
catch-up, and not a particularly interesting one given that Alexa has already
moved to built-in screens, and creating an AI home-hub in a variety of form
factors, both big and small, is a trivial update now.

Alexa gives consumers utility/service computing without all the tragic time-
wasting updater/installer/management nonsense forced on them by desktops,
laptops, and (to a smaller extent) tablets and apps.

Cook's Apple has missed the point of this, which is the subtle but huge
difference between consumer utility computing and content and hardware
consumption computing.

Jobs was a genius at making everything fit together, and I suspect he was
reaching for a utility strategy. The iPhone and iPad were the first generation
of utility devices, while Siri was a first gen utility service. They were
wildly impressive for their time, but still limited by elements of desktop
legacy thinking - which is why we have to wait while apps launch and close,
instead of just being able to do whatever we want to do.

Cook sells SKUs, not synergies or utility. I see no evidence that Apple is
able to think of the future with a unified vision that doesn't involve selling
_things_ \- even if those things are music and video content units - enhanced
by some very constrained AI.

Right now Amazon is more of a synergy company than Apple. The aim seems to be
total domination of retail, but there's going to be some overlap in services
and in hardware too, and Amazon seem better placed culturally to innovate in
ways that win that race.

~~~
makecheck
The iPod was a catch-up product in a crowded music player market. The iPhone
was a phone in a world of massive, dominating phone makers. Heck, the Apple II
was a computer in an IBM-dominated world.

Apple is not “first” that often so who cares if they didn’t make an Alexa
before anyone else?

Instead, Apple tries to get it “right” (and sometimes they still don’t but
that is their strategy nonetheless).

Alexa has plenty of flaws. It is functional but not intelligent.

------
everdev
My Windows devices since 97 were consistent top of the line and rarely lasted
more than 2 years before they slowed to an unbearable speed.

In 2012 I switched to Mac and still use the same MacBook Pro which still runs
as quick as it did 6 years ago. It was a huge investment at the time but
turned out to be cheaper than the 4+ Windows machine I likely would have
cycled through not to mention the boot time and performance gains.

~~~
maxsilver
That was true in the late 90s. It's not really true anymore.

I built a Windows PC using parts from MicroCenter back in 2014. Core i5-4690K,
16GB RAM, 512GB SSD, GTX 970 running Windows 8. It was around $1400 USD at
that time, if I remember correctly.

It's now 2018. That same PC with all it's original hardware, is now running
Windows 10 just as quickly as always. Not only is the performance still great,
but my 4-year-old mid-range PC still _outperforms_ many brand new PCs today.
(It's still slightly faster than the current 21in 4K i5 iMac, for example).

If you had bought a Windows machine in 2012, it would not have "slowed down"
the way your 90's computers did, and could still use it at it's full original
performance today (just like your Mac).

~~~
fhood
I don't know if I can agree with you on this. In ~2016 I built a PC (i7, 24GB
RAM, 1.5TB ssd, gtx 1080) and my 2014 17 inch mbp has slowly been closing the
gap. This is probably more due to software optimizations than hardware, but
things just open and close more smoothly and quickly these days on the laptop.

I think the real issue is that Windows hasn't been effectively utilizing the
RAM I've given it.

~~~
winkeltripel
I've found that windows benefits from being reinstalled every once in a while.
Try a fresh install of Windows 10, and see where that gets you?

~~~
fhood
I suspect you are right, but I really, really, don't want to take the time to
do that.

~~~
Shikadi
Windows 10 has a nice feature to "refresh" which supposedly re-installs
Windows while keeping programs and settings. I haven't tried it, so no idea
how well it works, but it might be worth your time

------
jasonsync
_Apple’s growth is almost entirely inwardly-focused when it comes to its user-
base: higher prices, more services, and more devices_

I find myself increasingly stuck in an Apple 2011 - 2013 universe.

For starters Apple has not yet provided a viable upgrade for my primary
desktop machine: a 2011 Mac Mini (2.7GHz dual-core Intel Core i7 with 8 GB ram
and SSD). The specs on the current 2018 Mac Mini lineup are considerable lower
than yesteryears Mac Mini. No idea why? I'd love to upgrade to a faster Mac
Mini, but there's really no options, even 6 years later. So nope.

Then there's my 2013 MacBook Air (1.7GHz dual-core Intel Core i7 with 8 GB ram
and SSD). This thing has been a workhorse. That said I'd love to get a similar
form factor with Retina, however, the only somewhat viable upgrade option
seems to be the 12" MacBook. Too small, so nope.

Finally, there's my iPhone 5S (2013 as well). It's showing it's age (sluggish
at times), however, I've replaced the battery and to be honest, it's still got
some life left in it. Admittedly, the iPhone is the only Apple product I own
that actually does have a viable upgrade path.

Unfortunately, with the lack of upgrade options for my primary Apple devices,
and issues I've had with iTunes and Apple TV, I'm hesitant to buy in again ...

Most other Apple devices and products I own simply collect dust:

Various iPods and thousands of purchased iTunes songs collecting dust - as I
switched to Spotify. I switched to Spotify when iTunes + iCloud (perhaps user
error, not sure) somehow deleted all of my ripped MP3s from along time ago.
Generally speaking the iTunes app itself got to the point where it was
unusably bloated and convoluted. Not sure why.

Apple TV collecting dust. Replaced by an Android TV due to not making it easy
to play all file formats.

AirPort Extreme collecting dust - had multiple issues and it eventually
stopped working (bricked).

Finally, MacOS itself has been lacklustre the past couple of releases. I
hesitate to upgrade now, due to various bugs and lack of quality control. Apps
I previously purchased on the Mac App store have stopped working as well.

So while Apple embarks on a new chapter in it's "middle age", it seems like
the previous generation has been left to rot ... with not much in the way of
upgrade options. How is this an inwardly-focused strategy?

~~~
eastWestMath
I just looked on the Apple store app and you can get a Mac mini with a 3.0ghz
dual core i7 and 16 gb of ram.

~~~
techdragon
The Mac mini at one point had a quad core option. It actually had the maximum
spec option reduced some time ago. The current Mac mini is less powerful than
one you could buy several years ago.

------
sounds
As Apple moves into its middle age, the rational move is to become more like
the established vertically-integrated companies.

* Intel

* Samsung

* The British East India Company

If Apple leadership decides to accept this, they will begin to act like their
peers:

* Recognize that the smartphone market will not grow like it has in the past. Create and then dominate standards using IP - barrier to competitors that simultaneously blocks a lot of regulatory burden.

* Recognize that Apple will not be the "innovator" that it was in the past. (Apple will still innovate, but not home runs every time.) Nurture the ecosystem around their product - allow small companies to find exciting new products, then acquire them.

* Recognize that their financials will need to adapt. Diversify their revenue stream beyond just one or two plays.

Apple still has the baggage of its own proprietary reinventions that they try
to tightly control. iCloud. Lightning port. AirPlay. MacOS. The net negative
impact comes as they gradually end up falling behind nimbler companies, like
Amazon.

And yes, this will lead to the ultimate death of Apple as all behemoth
conglomerates eventually choke on their own red tape and drown in their own
largess. But Apple's days of youth are gone; no amount of dieting or exercise
will bring them back.

I don't actually think Apple for the next 5 years will make the dramatic
changes needed to realize these ideas. But perhaps a more interesting question
is:

Is there any other avenue for a company who has reached middle age?

~~~
snowwrestler
> Recognize that Apple will not be the "innovator" that it was in the past.
> (Apple will still innovate, but not home runs every time.)

I don't know where Apple gets this reputation, but they have hardly hit home
runs every time. I mean, does no one remember the Newton? Final Cut X? The
original Apple TV? The trash can PowerMac? Does anyone think the Touch Bar is
a home run?

Which is good, because innovation necessarily means _not_ hitting home runs
every time, and Apple knows that. That's why they hoard so much cash, so they
can afford to miss sometimes.

I question whether you understand Apple's core business. They can't vertically
integrate like old school conglomerates because they don't have anything to
integrate. They own very few assets apart from their IP. Intel and Samsung own
factories; Apple does not. The East India Company owned land and ships; Apple
does not. Amazon owns warehouses and many $billions of inventory... Apple does
not.

From an IP perspective they are already vertically integrated, from chip
design to UI to services to retail. But then you ding them for that...

~~~
specialist
Apple Watch Series 3 is roughly equivalent to the original iPhone. It's a
weird blindspot for all the Apple critics.

Best as I can tell, Apple is 2 - 3 years ahead of everyone else.

\--

My singular and persistent disappointment remains iCloud. I still want
seamless sync and handoff and backup and unlimited storage... That _just
works_. That doesn't require me to do tech supp for my family members.

It's getting incrementally better, but isn't quite the whole enchilada yet.

No one has cracked the ubiquitous computing nut, so maybe it's just a hard
problem.

~~~
lasgsf
I am on the same page as you...I think the Apple Watch is going to be the
replacement for the iPhone. In fact this will be the largest segment as we
slowly see most functions move from the phone to the Watch (yes I realize that
there are some limitations due to screen size) but in general you will see
much move over while the Apple Glass will take over the other function that
you need a image of.

------
pi-err
Tl,dr: “it makes sense to settle down”. Tells how much this is pure projection
from the author (he’s open about it).

Apple has amazing bricks to build on (Watch especially) so to not settle down.
Even iPhone X shows they can still bet big with their flagship.

~~~
gergles
> Even iPhone X shows they can still bet big with their flagship.

Does it? The iPhone X (which is a great phone and one that I own) is a Galaxy
S8 with a Face ID scanner. They didn't "bet big" on it, it was the only
logical place to take their market.

~~~
awinder
Also doesn't have that Bixby shovelware or exploding battery feature. I get
that a lot of Samsung phones are shipped and sold, but there's a difference in
shipping shit at scale and shipping quality engineering at scale, and it's a
tale told in decades, not single years.

~~~
ekianjo
> exploding battery feature

Stop spreading misinformation. That did not occur with the S8 at all since its
release. [http://bgr.com/2017/06/12/galaxy-s8-battery-
explosions/](http://bgr.com/2017/06/12/galaxy-s8-battery-explosions/)

------
oflannabhra
The most interesting points of the article were this:

1) iPhone unit sales growth has essentially stagnated, because the overall
market has reached saturation. 2) Apple has successfully managed to maintain
growth in the face of 1) by increasing revenue per device (ASP).

I think the question of "What does Apple do, now?" is a hugely important one.
However, I disagree with the author that the only reasonable approach Apple
has is to "settle down" in its middle age position.

That question is important, because it implicitly asks, "What is next?" I
don't see Apple deciding to not create a product that attempts to answer that
question. We will have to wait and see what that product looks like (AR?),
whether it is successful, and when it will come. Apple is definitely not going
to rest on the iPhones success forever, though.

~~~
oflannabhra
I'd add to this that Apple's current approach to AR and wearables is not one
that necessitates the cannibalization of the iPhone. They are taking a
constellation approach (as noted in the article), with the iPhone in the
center.

I think that approach is not one based in defense, but one that actually plays
to their strengths: personal products with an excellent experience, vertically
integrated. Because of AR's computational requirements, it will be a long time
until we have an AR experience that is untethered to a mobile computing
device. A vertically integrated, constellation-based system will offer a
better user experience, at least initially. Intel's recent Vaunt glasses [1]
could be much more powerful if Intel also controlled the entire device the
glasses co-ordinated with.

[1] - [https://www.theverge.com/2018/2/5/16966530/intel-vaunt-
smart...](https://www.theverge.com/2018/2/5/16966530/intel-vaunt-smart-
glasses-announced-ar-video)

~~~
lasgsf
I actually think it is a deliberate cannibalization being done with here. But
they are doing it slowly as not to be a shock to the system. Look at the Apple
Watch...my gut you will start to see every year more and more of the functions
on the iPhone move over. The beauty of this is ppl will not bark at this as
the Watch becomes the yearly replacement cycle vs. the phone which will be
every 5 years.

------
baxtr
I really like stratechery, but I don’t get this post. Example

 _Instead, I think the order goes like this:

Customer owns an iPhone Customer subscribes to Apple Music because it is
installed by default on their iPhone As an Apple Music subscriber, customer
only has one choice in smart speakers: HomePod (and to make the decision to
spend more money palatable, Apple pushes sound quality), from which Apple
makes a profit_

Well, I don’t know. Maybe it’s just:

 _Let’s make exceptionally good products that people love_

~~~
majewsky
How do you decide which product to make?

~~~
baxtr
I have read somewhere, that Apple has a prioritized list of products to build,
which they update yearly at their top 100 (?) leaders’ workshop. Maybe someone
from Apple reading this could comment :-)

------
lukateake

      [A]s a general rule, challengers pursue interoperability while incumbents strive for incompatibility. 
      This is Strategy 101: seek to fight battles where you have the greatest advantage.
    

Should Apple buy a wireless carrier?

~~~
scarface74
No.

If Apple bought a mobile carrier it would be competing with its customers.
Most phones are sold through carriers - meaning the carriers are buying
iPhones not the end user.

Besides, Apple sells phones worldwide. What would be the benefit of just
buying a carrier in the US?

Netflix made a similar calculation years ago. Netflix actually created what is
now the Roku, but decided to spin it off to a separate company so it could
more easily make deals to have Netflix installed everywhere without being seen
as a competitor.

In a completely separate market, another example is that PepsiCo use to own
KFC, Taco Bell, and Pizza Hut. But that made it harder for them to do deals
with other fast food companies because they didn't want to make deals with a
competitor.

~~~
username223
> What would be the benefit of just buying a carrier in the US?

Buying a carrier would indeed be a bad move, both for competing with customers
and maintaining a lot of infrastructure, but I could see Apple becoming an
MVNO. Wireless companies are right down there with Comcast and the airlines in
terms of customer satisfaction, so I would guess there are plenty of people
willing to pay a bit more for a less hostile carrier.

~~~
ascagnel_
Isn't that what Apple kind of did with its Virgin Mobile deal?

------
s14ve
With the "features" of new macbooks, it doesn't really seem like they would
like to settle down, even though it would probably make sense there...

------
Cknight70
Seems to me that when you boil it down Apple's primary strategy now is to
focus on convenience and simplicity in a purposely anti competitive way. What
advantage does Apple music have over a service like Spotify besides being pre-
installed? What about iMessage? What about Facetime? What about the MacBook
with a single port?

Apple is not worried about competition or more importantly innovation, it
instead focuses on creating a walled garden that can keep its users happy. The
HomePod is not trying to be innovative it is trying to keep Apple users in
their ecosystem.

------
symlinkk
The author seems to praise the vendor lock-in that Apple imposes upon its
customers as being a good business move and a sign that Apple has "matured",
without really offering any hard facts to back it up.

I'm going to offer an opinion of my own without any facts to back it up.
Vendor lock-in may be successful in the short term, but interoperability is
successful in the long-term. The internet would have never took off if it
wasn't for the fact that every website author had access to the same APIs as
every other one.

It's bullshit that I can't tell Siri to play music with Spotify instead of
Apple Music. It's bullshit that I can't change my browser from Safari, and
therefore can't use any Progressive Web App features like push notifications
because Apple is afraid of web apps cannibalizing App Store sales. It's anti-
competitive and a scummy business move. Android is weak in a lot of areas but
at least they got this part right.

~~~
scarface74
How much of a "longer term" view is needed than 40+ years? Apple has used this
strategy since day one.

~~~
cmrdporcupine
That is not at all true. That was certainly not the philosophy on the very
successful Apple II series. And it was not how Apple operated in the non-Jobs
Mac years in the late 80s and early 90s.

And it's not how they operated for the early part of the 2000s when Apple went
on a major open source / standards binge: adopting the standard Intel/PCI
architecture, using Unix as the foundation of their OS, open sourcing their
kernel, using open source WebKit, etc. etc. Hell, the first version of the
iPod even did it right and was basically an external USB hard drive.

But there's been a major turn to the proprietary as the iPhone business has
eaten Apple. They've locked that platform down in a big way, and they've
failed to embrace the web and cloud in a functional way. There's less and less
open standards embrace there, and more lock-in style in both hardware and
software.

In a way Apple has always had two hearts -- a Wozniak (the open Apple II) vs
Jobs (the closed Mac), long after those two have left the company.

~~~
scarface74
Apple announced support for PCI in 1993 with their original PPC road map. The
first gen of PPC Macs were Nubus for backwards compatibility but the second
gen in 1995 were PCI. Apple allowed third party Mac clone makers to make
hybrid Nubus/PPC Macs.

The first generation iPod was FireWire not USB and always had a proprietary
file system for actually adding music and forced you to use either iTunes or
MusicMatch (Windows) to add music.

Apple is no different than Googke or Microsoft. They use open source when it
suits them but none of the major companies outsource their Crown Jewels.

But even if you go back to 1984, all of the other computer makers that made
non generic clones are out of business except for Apple. So that's still 35+
years of Apple going thier own way.

------
jlebrech
People have a soft touch for companies that are on death's door, proof in
point is when a startup is closing door. it's their biggest boost in marketing
they ever had. and people complain they didn't already know about it.

~~~
simonh
s/touch/spot/

