Here we go again. Analysts and investors
worked themselves into a frenzy leading up to Apple’s WorldWide Developers
Conference (WWDC) yesterday with visions of iWatches, large screen iPhone 6’s
and new AppleTV’s dancing in their heads.
When none of those materialized, they
expressed disappointment. Despite the fact that those were very unrealistic
expectations for a Developer’s Conference, and Apple hasn’t talked hardware at
WWDC in years (since they switched to a September launch cycle for iPhone). At
WWDC, the focus is understandably on software, not hardware.
But this leads to the need to debunk a common
myth – that Apple’s success hinges on dramatically superior hardware design.
Yes, Apple remains a leader in design, and
certainly has not lost its Mojo there.
But even the most avid Apple fan-boy cannot look at any Apple IOS
device, compare it to its direct Android competitors and conclude that the
Apple’s device looks so much better that the price
premium is justified. The same is true for hardware specs. Android phones are
comparably stylish and the specs are often superior on many dimensions.
What truly differentiates the Apple customer’s
experience are the software and services
embedded in the Apple ecosystem, tied together with a far superior UI and user
experience all the way from purchase through support and finally in resale
value.
User experience: 97% customer satisfaction is unheard of in
any business, yet that is what Apple is achieving. The User Experience remains
the glue that both retains existing customers and attracts new ones from Android
and Windows.
Switchers:
In the last year Apple added 130 million new IOS users who had never
purchased anything from Apple before. Half of iPhone purchasers in Apple Stores
owned an Android device before. That’s stunning because there are still out
there 16 times as many Windows users (1.3 billion) as Mac OSX users (80
million), and 5 times as many Android users (1 billion users with 78.9% OS
share in 2013) as IOS users (15.5% OS share in 2013), so there is plenty of
growth potential left from future switchers. Apple has outgrown the PC industry
now in in all quarters since 2005 but one, and in the most recent year-on-year,
grew 12% when the PC industry declined 5%.
Under-the-hood improvements:
Innovations such as the announced switch from Open GL to Metal are unlikely to
get much mention in the press or in analyst reports, but with a benefit of 10x
improvement in speed that will allow an iPad to compete now with console games,
it is hugely important. This order of magnitude improvement will drive expanded
sales of devices (and games) as well as future customer satisfaction. Imagine
what will happen when Apple finally opens up a new supercharged AppleTV (with
faster A8 (?) processor and Metal instead of Open GL) to third party apps and
gaming in the home. Another example is the switch from Objective-C to Swift Programming
Language, as well as the biggest improvement yet for Apple’s SDK, open beta
testing program, extensions/widgets and inter-App communication, and other such
innovations. When you consider the Apple Store carries 1.2 million app titles and
has delivered 75 billion app downloads, nurturing the 9 million registered third
party developers in its ecosystem with the tools to make even better apps is
hugely important in maintaining Apple’s edge in the tasks their devices can
perform.
New Integrated Ecosystems: While not
unexpected, the HomeKit and HealthKit unifying development tools and
corresponding Home and Health apps for IOS and OSX solve real unmet needs and
give further reason for more people to switch to Apple devices and retain the
current users. These both have far reaching benefits, although IMHO the Health
initiative has more potential to “change the world” as it evolves beyond a neat
collection of info across apps into a dashboard -- to adding real value through
integration with health care providers such as the Mayo Clinic that can notice
a problem before you do. HealthKit is far more important than iWatch in
accomplishing this. So this new software is a very big deal for Apple.
Payment processing: As I
mentioned in this blog in September 2013 (before much was being said on the
subject), Apple has the potential to create one of the biggest businesses in
the world (rivaling iPhone) by combining TouchID, 800 million accounts with
credit cards attached, iBeacon, and 800 million IOS devices in the wild to
quickly create a convenient payment processing system that can revolutionize
retailing and solve a $190 billion per year problem of credit card fraud. For
more on this, see my blog archive. None of this was mentioned at WWDC, but
that’s because Apple does not need the Developer Community to implement this. But
in January 2014, Tim Cook said they were very interested in payment processing
and my prediction is we will see an announcement of something emerging in this
area either later this year or in 2015. Unlike many of the improvements that
are free “glue” to cement the ecosystem (but do not contribute revenue
directly), this initiative can be a major source of revenue and profit – so
analysts and investors should be paying close attention to it as it develops.
Continuity Integration across devices: The Continuity Features such as Handoff syncing work across
devices, Airdrop between IOS and Mac, Instant Hotspot and SMS/phone calls on
all your devices were described that further give users reasons to own both IOS
devices and Macs to get the full benefit are crucial for exploiting the halo
effect and switch (or stay) in the Mac OSX environment as well as own iPhones
and/or iPads. Family sharing is another feature that will help push the
non-Apple devices out of your family’s life.
So bottom line, there was much to celebrate
in the announcements at WWDC, and Apple planted many seeds that will bear fruit in terms of improvements that lead
to future device sales -- both attracting new converts and well as delighting
and retaining those who already have Apple devices. The future looks bright for
Apple.
Disclosure: I've owned Apple
shares since 1985
