Apple, Big picture, Developer events, iMessage, Messaging, Whole company analysis, WWDC, WWDC 2014

What “winning” means for Apple

13 Comments

I posted a tweet yesterday that seemed to hit a nerve with people, and so I thought I’d expand on my thinking a bit here. What I actually posted was two related tweets, though it was the second that seemed to resonate – the first was merely context:

There were at least two articles that prompted my tweet, but the main one was this one from Ellis Hamburger at the Verge. Both took a tack that I felt fundamentally misunderstood what Apple does and how it does it, but there was one particular section of piece on the Verge that sums up the mentality here very well, so I’ll use that as the jumping off point:

But today, communications are a commodity, and it’s hard (if not impossible) to survive in the long-run as an app that only works on one platform. A dozen messaging apps are sweeping the globe, and all of them work whether you have an iPhone, Android, Mac, or PC. Apple’s Messages app, and the iMessage platform therein, only work if your friends and family use Apple products. In the United States, where iPhone market share is highest of almost any country, iMessage’s thin ice is harder to perceive. The United States is one of the only countries where no one messaging app reigns king, but elsewhere markets are dominated by one messaging app or another, all of which have similar features and work on all platforms.

A single-platform messaging app cannot win. Despite its tasteful new feature additions, however derivative they may be, Apple is playing on borrowed time. If Apple is determined to stay single-platform, it’s going to take more than new features to save its messaging ambitions.

To suggest that Apple is trying to “win” in the messaging wars is equivalent to suggesting that iTunes was an attempt to “win” in the music-playing software wars. Neither is the case. The first thing to understand about Apple is that it’s motivated first and foremost by creating the best possible experience on Apple devices. This imperative drove Steve Jobs to the extent that he made poor business decisions early on in his time at Apple, ultimately leading to his ouster. He was so fixated with this objective that he lost sight of others and ultimately of what it would take to keep Apple in business as a public company, a lesson he learned the hard way and ultimately brought back to Apple when he returned. But that has always been the fundamental motivation for Apple’s senior leaders above all else.

That motivation leads to one of the other defining characteristics of Apple as a company: the tight integration of hardware, software and services. Apple has never been about creating cross-platform services. To those of you who may wish to point out that Apple has long had iTunes on Windows, I direct you to this quote from Walter Isaacson’s 2011 book on Steve Jobs:

We put iTunes on Windows in order to sell more iPods. But I don’t see an advantage of putting our music app on Android, except to make Android users happy. And I don’t want to make Android users happy.

Apple’s only significant cross-platform move was still a move to make Apple devices more compelling – the simple fact is that an iPod was not a standalone device, and it needed iTunes to be at all useful. Given the Mac’s very low share of the global PC market, releasing iTunes for Windows was an obvious strategic imperative. But it was done with one objective in mind – making the iPod a compelling device for a larger number of users, and yes, selling more iPods as a result.

What both the pieces I linked to above ignore is that everything Apple does is part of an ecosystem, and that’s exactly why people buy its products. Ever since the iPod and iTunes launched, Apple has been in the business of connecting its devices together in a way that adds value to each of them. The iPod added value to the Mac by providing a portable music player for your iTunes music, and iTunes on the Mac added value to the iPod by providing the conduit through which you obtained music to put on your device. When Apple released iTunes, it wasn’t competing in the music-playing software market anymore than iMessage is Apple’s attempt to compete in the messaging market. Both products were software Apple developed to add more value to its hardware products, and should not be seen as products in their own right.

When the whole rationale for Apple’s software is to add value to its hardware products, the idea of providing cross-platform software or services becomes inimical. To the extent that Apple software or services are available on non-Apple devices, they cease to provide meaningful differentiation for Apple products. By contrast, making Apple-exclusive software and services available on various different Apple hardware products adds significant value, and providing tighter integration between those devices through software and services adds even more. Hence the focus on these things at WWDC on Monday. To suggest that Apple needs to make its Messages product (or any other product) cross-platform in order to succeed is to get things exactly backwards – Apple doesn’t make hardware to be successful in messaging; it makes a messaging product to be successful in hardware.

This makes its Beats acquisition particularly interesting, since the Beats music streaming service is cross-platform today. But I suspect that the product we eventually see from Apple which integrates Beats’ streaming and curation technology will go back to being Apple-only. If there’s any strategic rationale to Apple spending so much money to stay at the forefront of the music business, it’s to make the iPhone the best device for music, and not to create a broad-based music subscription service.

All of this is part of a broader trend in the consumer technology space, which is that the most successful companies are competing in a different way, by combining hardware, software, content, communications (and in some cases connectivity) in integrated ways which create compelling end-to-end experiences for consumers. I see the same flawed logic among people criticizing Amazon’s entry to the smartphone market on the basis that no-one makes money in smartphones. If Amazon is entering the smartphone market, it’s not to make money on smartphones, but to drive buyers to spend more money with Amazon as a whole, across digital content and e-commerce. Amazon and Apple each have a core business that makes the bulk of their money, and their entry into adjacent spaces is intended to reinforce the core business, often at break-even or even negative margins. Google is the archetype of this model, providing many services for free, all of them funded by advertising and especially search advertising. It provides those services not out of the kindness of its heart but in order to increase the appeal of the Google ecosystem and to gather data that helps with its other businesses.

Apple isn’t fighting the messaging war. To the extent it’s fighting a war at all, it’s fighting an ecosystem war, and so far it’s winning. Is Apple’s tightly-integrated model the only way to be successful in the consumer technology market? Not at all, though it certainly seems to be the way to generate the best margins. There’s always going to be room and demand for other models too, and both Microsoft and Google have benefited greatly in market share terms from taking a less integrated approach. But to imply that Apple’s approach is ultimately doomed is to ignore what’s made it so successful over the past several decades, and the model it needs to continue to pursue to remain successful.

  • Walt French

    These are useful analyses. But I’d like to see them go a step further.

    Apple has recently made iWork documents available in any browser (presumably, including Android phablets) and announced that iCloud would be accessible in Windows IE. Based on Apple continuing to operate in its own interest, when would it be likely to offer the iWork suite for download/install on Windows PCs? Presumably, there could come a time when enough users liked Keynote et al that it’d displace Office (no win there; it’d just hurt Microsoft) but also move enough people to use it that many (especially, smaller) businesses recognized they didn’t need to worry about staying in the Microsoft fold for its desktop users.

    Or when would an iCloud client be available for Android? Or a version of iMessage, maybe a $2 or $5 download?

    Apple showed a lot of confidence at WWDC; I’m curious when that manifests as spreading their umbrella farther, confident that enough more people would feel comfortable in using their products that they’d move even more strongly.

    • ChuckO

      I think iWork is a sales solution at Apple stores as much as anything.
      If you buy a Mac you get an Office suite free! Exporting to MS Office formats takes care of any other problems with the world outside of Os X.

    • matthewmaurice

      Did you not get this article? It’s not really in Apple’s “own interest” to put development resources in iWork for Windows, and Apple will NEVER release an Android client of anything! Simply because there’s NO UPSIDE for Apple. iWork is a loss-leader-it’s a reason to spend the money for a Mac rather than a PC. iCloud isn’t a “product” for Apple, it’s an iOS accessory service. It’s sole function is to add value to owners of iOS devices. Even in a case where someone had an iPad and an Android phone (surely there are no known cases where one has an iPhone and an Android tablet) Apple has no motivation to provide the Android device native access to iCloud, and Apple clearly believes that “if you want to use Android with your iPhone go use Dropbox.”

      You’re right that Apple showed a lot of confidence at WWDC. That confidence is reflected in their obvious belief that their ecosystem is so good they don’t have to make any effort to accomodate anyone who isn’t fully-vested in it.

      • Walt French

        Perhaps you failed to note that Apple DID add on Windows access to iWork, and they DID say that the Beats apps woud continue on Android.

        Or perhaps, you have an explanation for why they did so, despite your patronizing “did you not get this article” tone that suggests you aren’t even trying to understand the fine points of Apple’s competitive strategies.

        So, how do these insights describe what Apple chooses to reach out with, and what it locks up tightly?

        • matthewmaurice

          Of COURSE I didn’t fail to note that, I’m not stupid, but you are if you think “Windows access to iWork” equals iWork for Windows. That’s simply recognition that lots of otherwise Apple-only people are stuck on Windows machines at work, or hotel business centers. Which, to further reinforce my original point, is Apple making it clear that Apple customers don’t go outside the Apple ecosystem unless they have to. As for “they DID say that the Beats apps woud continue on Android.” Oh, that’s cute. For one thing that transaction is far from complete, and for another I once watched a guy state quite clearly that Apple wouldn’t put video on the iPod. Judge Apple by what it does, not what it says.

          And speaking of what Apple does, have you noted that Apple’s pretty much gotten out of the retail software market? It gives away Mac OS now, it’s always given away iOS, it gives away iLive, and it now gives away iWork too. The only applications Apple still charges for are the “pro apps” and I think that has a lot to do with accounting for the R&D costs.

          “[Y]ou aren’t even trying to understand the fine points of Apple’s competitive strategies.” Really? Funny, I was thinking the exact same thing about you. You probably still think Apple is a software company. Hell, you probably think Google is a software company. The fact is that in the same way that Google is an advertising sales company that uses free software as a means to accumulate user data to make the targeted ads it sells far more lucrative, Apple is a consumer electronics company that uses free software to improve the user expereince to make the integrated electronics it sells far more lucrative.

          “So, how do these insights describe what Apple chooses to reach out with, and what it locks up tightly?” Have I explained that thoroughly enough, or do I need to use smaller words?

          • Guys – I’ve approved all your comments so far because the substance of the debate you’re having is interesting, but try to keep it civil, please.

    • I don’t know that confidence necessarily translates into expanding beyond Apple devices. In fact, probably the reverse. But it seems to me that iCloud support in the browser (and the newly announced iCloud Drive on Windows) are concessions to the fact that work environments are still dominated by Windows machines, and that even if the creator of a document is using a Mac, they might well need to share it with people who use Windows instead.

    • Mark Jones

      “when would it be likely to offer the iWork suite for download/install on Windows PCs?” Most likely never. If Windows users like the iWork for iCloud capabilities and its integration with their iOS devices, then over time, they should replace their PCs with Macs to gain the additional native capabilities and seamless integration.

      “when would an iCloud client be available for Android?” Absolutely never. Since the Mac install base is 80M, the number of Mac users with Android devices is likely in the 20-30M range. Seamless handoff between devices for iWork is one of key inducements to get these Mac users to switch to an iOS device.

      “Or a version of iMessage, maybe a $2 or $5 download?” Absolutely absolutely never. There is no network effects issue here, as Android users can just send the green bubble. Or everyone can use a different messaging system. Or the Android user can buy an iPhone to get whatever advantages there are in the blue bubbles.

      Apple’s primary monetization is in device sales, not software sales. However, Apple’s software and the software ecosystem has equal footing with hardware devices, the accessories ecosystem, and the tight integration of all, in inducing non-Apple users to switch to Apple devices.

  • Proof that Apple isn’t trying to win messaging: When Craig Federighi made fun of “green bubble” friends, the solution wasn’t to make an iMessage Android app (which would be relatively trivial for Apple).

    Instead, Apple introduced a Continuity feature, letting you text from your Mac through your iPhone. Clearly, this is a platform-first solution to make iPhone and Mac users happy.

  • ChuckO

    The problem is sites like “The Verge” are themselves closed systems with their own motivations and rules and the advice contained in the articles is meaningless outside of that. “The Verge” reader wants a stream of new hardware articles and techno-utopianism, mostly young guys with limited incomes for whom free and cheap are the most important element. Apple is the hot girl at the bar they can’t get and whose existence mocks theirs.

    • benrees21

      What a load of twaddle! I read The Verge and I own an iPhone 5s and an iPad Mini retina! How can you label readers mostly young guys with limited incomes? If you actually visit the forums, you would see it’s mainly older guys!!

      • ChuckO

        I’m sure it’s all the old guys in the forums. Who else would waste there time on such twaddle.

        But I’ll say this after WWDC it’s clear “The Verge” doesn’t need a weather man to know which way the winds blowing (Dylan quote for the old guy’s in the forums) because the positive to negative Apple article ratio on the site has already started reversing.

  • matthewmaurice

    You have to wonder about the guys whining that Swift wasn’t cross-platform. Have they not been paying attention to Apple for the last 6 years? And why they think Apple is going to expend any effort whatsover to make it easier for them to put their apps on other platforms just confounds me.