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A SHIFT IN DIRECTION: CHANGING APPLE’S OFFERINGS

Gleaning the Future from the Past

In my last article, I looked at Apple’s move away from the digital hub toward cloud-connected devices, taking that opportunity to read into Tim Cooks closing words, not just for 2012, but for the next decade. We have fifteen years of history to see what that might look like for the future of the current lineup.

In 2008, Sony won the format wars. Blu-ray would be the next step in high-density physical media. That same year, Apple unveiled the first MacBook Air, a laptop with no optical drive. One of these companies was fighting for the present. The other was gearing for the future. From that point on, no Apple computer ever received more than the DVD-writing SuperDrive. And no generational redesign has included it since the 2010 Mac mini. (It was dropped from the device the next year.) Of course, the reason given for the lack of inclusion of Blu-ray — it was Sony’s proprietary format, and Apple didn’t want to pay for the more expensive part (because they are cheap and rip people off). That notion couldn’t be further from the truth. Adding expense and complexity just because something is new is not the way Apple innovates. The moment they unveiled the Air should have been a clue. They’ve done stuff like this before.

Ten years earlier, Apple did something crazy, they shipped the new iMac without a dedicated keyboard and mouse port (ADB) or any other legacy serial and parallel ports. What did it have in its place? USB, a port created by the likes of hated Microsoft, hated Intel, and hated IBM, popularized by Apple. What else didn’t the first iMac ship with? A 1.44 megabyte “high-density” floppy disk drive — remember those? They make a point only to include those technologies that don’t increase the complexity of the system for marginal gain, adding costs in manufacture and support, especially when it’s clear that the technology is on the way out.

Apple always seeks to manage complexity, whether that means hiding the file system or getting rid of ethernet ports or not adopting USB3 until Intel integrated it into the logic board or ditching removable batteries. It’s why we love Apple. It’s why we hate Apple. So as they shift from a hardware company that makes its own software to hardware/software company that connects them through services, it’s worth asking how can they keep the proliferation of devices and services from fracturing their focus and turning into Sony? The answer lies in Apple’s penchant for secrecy and patience not to release products and technologies that just aren’t quite there. Yes, Siri was released as a beta, iCloud hasn’t been the best, Maps had significant issues, even that original MacBook Air was released before Intel’s low-voltage chips were up to snuff. But the point is, Apple works like mad behind the scenes so that it doesn’t have to test these things on the market. And with the one glaring exception of Maps, those are all examples of Apple’s relentless pursuit of their vision of the future.

Chasing the Future

This vision would be null and void if Apple didn’t cull some things from it’s line up, pruning those otherwise healthy shoots that do not push the company forward. Last year, they did just that, discontinuing these fine products:

• iPhone 3GS
• Watch-shaped iPod Nano
• 720p AppleTV
• 17” MacBook Pro
• iMac with built in DVD drives

That wasn’t too drastic. A phone that debuted in 2009. A two-year old device that wasn’t particularly suited as a watch. An underpowered AppleTV that couldn’t even do 1080p. A high-end laptop with a big footprint obsolesced by the new retina MacBook Pro. A computer with an optical disk drive, never mind that it sits on a desk. It seems rather obvious, in retrospect.

So let’s take that retina-caliber hindsight to peer over the horizon and beyond the veil of secrecy, using Apple’s aforementioned hyper-conservatism about adopting new technologies and hyper-aggressiveness about deprecating old ones as a lens. I see a lineup with devices thinner, lighter, and faster, with better connectivity, higher resolution and/or at lower cost without sacrificing quality. Maybe I should go out on a limb and be a bit more specific — what follows is purely speculative, based on current information, but I hope has enough reasoning behind it to make some sense of the din rather than add to it.

The Mac

I don’t expect too much to change regarding the Mac mini or the iMac, and I think the retina Airs are a ways off. But there is one thing I’m pretty certain of — these Macs are set to ride into the sunset:

• The Mac Pro — last year’s non-update update hit the nerdiest of Mac nerds hard. It wasn’t as if they left it alone — it was actually updated with a marginally better processor released around the same. People harangue Apple for all sorts of issues, but this was the one where it really felt Apple was trying to pull the wool over our eyes. And they knew it. The update tag disappeared from the website and Tim Cook spoke directly to pro users everywhere, via one man’s email, “Although we didn’t have a chance to talk about a new Mac Pro at today’s event, don’t worry as we’re working on something really great for later next year.” Translation: the gigantic Mac Pro née PowerMac G5 cheese grater, having already been sidled to the edge of the platform, is soon to exit, stage left. Entering, stage right, something really great.

• The 15” MacBook Pro — does it have a hard disk drive? Does it have an optical drive? Does it have a Retina Display? Is the RAM soldered to the logicboard? If the answers are YES YES NO NO, the end is nigh.

• The 13” MacBook Pro — this one, despite its inclusion of both an optical disk drive and a hard disk drive I think may escape the hatchet much the way the iPod Classic has, which is to say it will not be updated but still be sold. It may just be too popular. Then again, so was the iPod mini.

While the MacBook Pros already have their replacements, the successor to the Mac Pro is a bit more fun to imagine. My best guess: The new “Mac Pro” will be an aluminum cube, anodized in a natural or slate color. At about the size of the NeXTcube with the vents recessed in ridges along the top like an Airport Extreme and the bottom raised off the ground like a G4 Cube, it’ll be a great homage to the man who built and rebuilt the company without gushing with sentimentality. The case will raise up without needing to be removed exposing the interior, and if you do remove it, etched all along the inside with be the signatures of everyone who worked on the design and engineering. Those insides will have Apple’s answer to the seemingly intractable problem of integration and user-upgradeability — an explanation of which the margins of this post are too narrow to contain — all with plenty of ThunderBolt ports on the outside for that extra bit of flexibility. Sure, a cube has the worst heat dissipation of any six-sided, three-dimensional object, but at least it’d be aluminum and not insulative polycarbonate like the G4 Cube — with the added bonus that exhaust vent can’t be covered up easily by a book. To top it off, it’ll have the option of a 4k retina ThunderBolt Display. Sounds plausible to me. Completely fabricated homage to Steve Jobs: ETA Fall 2013.

The Devices

This is where most of the really fascinating stuff is happening, though I don’t think that Apple will do much with the AppleTV, the iPod nano, or the fifth-generation iPod Touch — I do expect software updates that may make for some interesting improvements. The current iPhone will drop down a tier and a new one of similar design will take its place. The rest of the lineup, however, can use a little pruning. So here are those fine iOS devices set for the secateurs — a.k.a. anything with a 30-pin dock connector:

• The iPod Classic — the perennial favorite to be forgotten, yet it remains available. It has the inimitable click-wheel and 1.8-inch Hard Disk Drive, no wireless connectivity and no access to the App Store. It’s astonishing to me that it’s stuck around for so long, but then again, it is a great device.

• The iPod Touch (4th generation) — it’ll be about three years old before it finally disappears. I expect it to get a limited update to iOS 7 and still be serviceable.

• The iPad 2 — though iPad 2,4 with its die-shrunk A5 now has the greatest battery life of any iOS device, I think this has been completely replaced by the iPad mini. 2011 was the year of the iPad 2, not 2013.

• The iPhone 4 — this one will go down in history as one of the greatest devices of all time, and one of the most controversial — from the prototype lost in a bar to the ridiculously named Antennagate and Glassgate fiascos. It is hard to believe that this was the last iPhone Steve unveiled. But Apple is the last company prone to sentimentality. It’ll get iOS 7 in some capacity — fitting for one of Jony’s greatest designs to get his first revision of the interface.

• The iPhone 4S — as great a leap as the iPhone 4 was on the outside, the iPhone 4S was on the inside, though it was controversial for its lack of change. This phone was released with iOS 5 and iCloud and Siri — Apple’s strategy to transition from the Mac as the digital hub to the truth hiding in those nebulous servers in North Carolina and elsewhere.

OK, so I had you nodding along with the others, but the iPhone 4S? It’ll only be two years old by the time October rolls around. Consider this, the original iPhone was discontinued after one year, replaced by the iPhone 3G, a phone with better connectivity. Some of that was from it being a first generation product like the original iPad, but the achingly slow cellular technology didn’t help. While HSPA+ is hardly achingly slow, LTE has long been crowned the future of cellular technology.

Still, the 4S has many more things conspiring against it beyond its lack of LTE. Like all of the devices listed above, it uses the old 30-pin dock connector. Like the 4th generation iPod Touch and the iPhone 4, it has the smaller 3:2 display. Like the iPhone 4, it remains rather expensive to make because of the high quality materials used in its construction, which means that it is not really fit for unsubsidized markets. Before the iPhone 5 was launched, there was speculation that the 3GS would stick around too as the low-cost, unsubsidized iPhone, especially since it was going to get iOS 6. Whether they gave the update to the 3GS just because it could handle it or there was a change in strategy between WWDC and September is functionally irrelevant. What matters is that the lowest cost iPhone jumped $75 — from $375 to $450. And with that, Apple has some rather gaping holes to be filled.

Mind the Gaps

We know that Apple doesn’t make cheap products — it’s against their religion. We know that Apple is conservative about making new product lineups. We know that Apple makes new form factors to reach those lower price points. Suddenly, all those rumors of a cheaper iPhone start to make sense, though plastic poses the same set of problems — cracking, discoloration, flexing, gouging, thickness, the need for reinforcement — that led to Apple abandoning it in the first place. With the possible exception of case material, I am confident that the 4S will be replaced by something exactly like the newest iPod Touches — same screen, same chip — but with LTE and GPS and enough thickness for the proximity and ambient light sensors. Apple has made their bed with the 4-inch widescreen display — I don’t see the squatter, 3:2 aspect ratio continuing beyond this year. Cheaper but not cheap iPhone: ETA Fall 2013.

Another spot that is missing in the iPhone lineup is a larger screen. No matter the argument, a larger screen makes at least as much sense as the smaller iPad did, and I expect Apple would do it the exact same way as the mini but in reverse, including not giving developers the ability to target the different sizes directly. Near-five-inch iPhone Plus: ETA Spring 2014.

Moving to the iPad, the lineup seems decently fleshed out. The only questions are the iPad mini with retina display and the current iPad 4. My conservative guess is the 4 moves to the spot the 2 holds and the mini sticks for another year. My more aggressive guess, the 4 disappears and in its place is an iPad mini with retina display $399. New iPads and existing ones: ETA Fall 2013.

Now for the elephant in the room, the TV that saves us from our cable boxes — could this be the year!? Flip a coin. The problem has always been the go-to-market strategy. But there is a good bellwether to keep an eye on — the ability for the AppleTV box to run apps. My understanding is that the current, so-called apps are coded into the windowing system that is the AppleTV equivalent of Springboard — what most would call the home screen. The Netflix app isn’t really an app in the same sense as the beloved Stocks app on the iPhone, it’s more like a hardcoded widget. It’s all still Springboard. If we see Apple develop an SDK for the AppleTV box, then we’re getting somewhere. If that is the case, I expect a good 1080p display no larger than 40 inches with an upgradeable AppleTV box for less than a grand and a retina branded 4k TV with upgradeable box for less than 3 grand. The revolutionary product people are calling iTV but I hope is called iTube because it’s better on too many levels to go into here: ETA Fall 2010 2011 2012 2013 — anybody’s guess is better than Gene Munster’s.

As for the mouse in the room, the iWatch. Let’s just call it iTime, shall we? This is interesting. I don’t think it’s the new iPod nano (though maybe Apple will offer bluetooth EarPods). This is the one new device that really gets to the heart of where I believe Apple is going — more connectivity, except this device would not be connecting to the cloud directly — I see it more as a device that connects to and has the ability to control multiple devices via bluetooth and maybe wifi, providing relevant and glanceable information. Think of it as widgets for the wrist. But that creates as many problems as it solves. How do you make the jump from siloed and dumb — like the sixth-gen iPod nano as a watch — to connected and smart without sacrificing battery life or usability? This device requires new display technology, preferably flexible, a cleverly hidden battery (like in the wrist strap) and a slew of sensors including a microphone for Siri. If it works like I think it can, it will be a very innovative and exciting product, which means it will universally panned at unveiling and praised by the people who actually use it. The reveal of this is tricky. Apple doesn’t currently offer a watch or watch-like accessory, so there is no risk of cannibalizing current devices. But I’ll take a stab at it — the thoroughly iterative product called iTime: ETA Summer/Fall 2013.

All speculation and wishcasting aside, there is one thing I’m dead certain of — Apple will have an incredible year as they continue to lay the groundwork for the next decade, wth their main focus on the software and services that tie it all together. Thus Apple’s market cap will fall to $100B because the perceived level of innovation — not profit — is all that matters now. Then, and only then, will Tim Cook execute the plan to double-down on secrecy by taking the company private…with Michael Dell.

A SHIFT IN DIRECTION: APPLE’S STRATEGY FOR THE NEXT DECADE

Just Getting Started

At the end of the keynote unveiling the iPad with Retina Display, the first after Steve Jobs passed away, Tim Cook had some very curious parting words:

Only Apple could deliver this kind of innovation in such a beautiful, integrated, and easy to use way. It’s what we stand for. And across the year, you’re going to see a lot more of this kind of innovation. We are just getting started.

That last line is significant. Yet few seem to appreciate its meaning. Consider, Apple has more devices and operating systems and first-party apps and stores and services than at any time in its near forty year history. Just getting started? One of the largest and most profitable companies in history? It’s a bit like the Williams sisters saying they are just breaking into tennis. At best, it seems like a rallying cry, at worst, corporate marketing dishonesty — either way, it’s enough to raise a few eyebrows. Yet with no inside knowledge and a little imagination, I believe any fool can confidently say it’s neither. There is a point to this narrative, and we’ve just been introduced to the main characters. To put it in Shakespearian terms, not only hasn’t Hamlet soliloquized about the deepest and most pressing issue facing humanity, he has barely met the ghost of his departed father.

Despite Apple’s monstrous size, it remains a rather simple company, one that moves with purpose. Unlike the era before Jobs returned, they don’t make a surfeit of marginally differentiated computers, they make devices at a broad range of prices, sizes, and capabilities that point toward something bigger. That something bigger is not some grand and unchanging idea cast in stone. Off the cuff, I’d say it’s a process in three steps:

• Envision the future
• Create the future
• Get rid of what isn’t the future

Sounds simple, right? Notice, however, that these steps are in an unordered list. They are not a serial process — they are executed in parallel, backward and forward and upward and always twirling, twirling, twirling towards freedom — or in this instance, the future. It’s a system that relies on feedback loops, with the vision molding the process and the process altering the vision. Recursion. Iteration. Evolution. And when enough of those changes accumulate, their combined weight collapsing the edifice of older ideas, we call that a revolution.

The revolution that became the iPhone started behind closed doors as the beginnings of the iPad. Only later did it morph into the trio of an iPod, a phone, and an internet communicator we have come to know. And it was derided as derivative, a.k.a. iterative, a.k.a. evolutionary. What such unimaginative people fail to realize is that all revolutions are the product of evolutionary change. Revolution is a subset of evolution, an emergent process of seeming inevitability, at least in retrospect.

While the iPhone took us by surprise, the iPad took us aback — so thin with such great battery life, but it was basically just a blown-up phone, it even had the option of a cellular connection. We should have seen it coming. But we didn’t. We wanted OS X; what we got in January was iPhone OS 3.2 and thousands of pixel-doubled phone apps plus a hope that developers would be quick to adopt and adapt to the larger screen (turns out they were). The panning typically took the dismissive form of “it’s just a big iPod touch” — and the criticism was more widespread (according to my rigorously casual observations). Everybody underestimated the iPad, including those who thought that it would be great. Three years and over a hundred million iPads later, some still question whether this is the future, and when they do, they tend to make the fallacious leap to this is the only future. But the fact is, futures change. This is why iteration is so important.

Back when NeXT took over the company in 1997, Apple’s continued existence was very much in question. But there were little cues to follow, should they have enough capital to keep going. These pointing arrows giving Apple a path away from bankruptcy also shaped and directed their vision of what the future could be. That future evolved into the digital hub, the Mac at the center of all of your devices, the holder of the canonical truth, and an opening for the iPod to draw in the blue ocean of non-Apple users — a combination that has served Apple better than anyone could have expected last decade, even if the hub was a machine inelegant enough to be prone to the Blue Screen of Death.

Successful or not, the hub strategy always had an expiration date. The new strategy — likely hatched and iterated upon in tandem with the iPad some eight to ten years ago — got its unveiling with Steve Jobs’ final keynote at WWDC. “The truth is in the cloud” began Apple’s public transition from a series of siloed devices tethered to a PC to a hardware and software ecosystem connected by a series of services. Steve Jobs’ death marks not just the passing of an era in leadership, but also the passing of arguably the most profitable strategy in history. This, along with the fact that trees do not grow to the sky, should explain why myopic pundits are calling for Tim Cook’s head. A change in CEOs has little to do with their recent stumblings and everything to do with how difficult it is to expand the services that integrate these disparate devices — no matter the quality of the hardware.

Weighing Words by Action

Endowed with the wisdom of hindsight, and given what is outlined above re Apple’s vision, we can take a look at those parting remarks again and see whether they were vapid business speak for the benefit of shareholders or honest and measured thoughts that Tim actually believes:

Only Apple could deliver this kind of innovation in such a beautiful, integrated, and easy to use way. It’s what we stand for. And across the year, you’re going to see a lot more of this kind of innovation…

While the much rumored and anticipated iLookingGlass didn’t make an appearance after that event, what did was nothing less than impressive to anyone who bothers to understand the scope and the lead times involved: Updating (nearly) the entire Mac line including the introduction of the 15-inch then 13-inch MacBook Pros with Retina Display and the chipsets that allowed for (nearly) every Mac to get both ThunderBolt and USB3; releasing OS X Mountain Lion on time despite the accelerated schedule and the curse of Mythical Man Month; overhauling (nearly) all iPods and accessories including the whimsically if not oddly dubbed EarPods, their completely rethought earbuds; new, super-thin aluminum unibody construction of (nearly) every iOS device and the inclusion of the cleverly if not confusingly named Lightning connector, a dock connector for the next decade; a further integrated chip design with their custom Swift cores in the A6 and A6X processors; and releasing the next version of iOS, which didn’t exactly go as planned.

(Take a breath.)

Indeed, many things didn’t go according to plan. On the hardware side, given the scale Apple needs to operate at, a burden borne of their unprecedented popularity, the year brought pretty major leaks and shortages. Those iPad mini rumors that surfaced were undoubtedly planned leaks, but those iPhone 5 cases that ended up being dead on, were surely not. Trying to ramp up the supply necessary with literally millions of new parts without leaks and without pre-announcement is an impossible task when humans are involved. Gross margins fell because new products — especially supply constrained products based on supply constrained parts that have to meet a high minimum standard of quality — cost more to produce than devices that have been around for half a year or more. Many scoffed at the new dock connector and the exclusion of optical disk drives where space, weight and battery life are not a constraint.

On the software front, the accelerated release cycle thrust Apple’s platforms firmly into the region of pain. Some of that software was released before being fully baked on the front end (iTunes) or fully fleshed out on the back end (Google-free Maps). The headline features of iOS 5, iCloud and Siri — those services on which the future hangs — gained marginal functionality but still lack the feedback and reliability for people to trust them to just work. To top it off, the additions to iOS didn’t match the pace of Android, which has come into it’s own as a solid and mature operating system — with a head start on many of the services that Apple needs to fulfill its own vision.

But that vision is the point — all of these problems stem from Apple’s internal vision of what’s to come — a good sign, if not for the health of the organization, then at least for fact that they are still pushing themselves. Overreaching? Possibly. They have made a few course corrections in recent months, like the ouster of Scott Forstall, that should alleviate fears of a Microsoftian malaise due to internal politicking among the various fiefdoms (exacerbated by Jack Welch’s stack-ranking meritocracy that invites all forms of spiteful subterfuge). The notion that they have lost it, are doomed, and the sky is falling is definitely an overreach.

They are just getting started. And getting everything right will take a while. My guess, they are half way there, which is to say that in about five years, the current problems will have given way to a new set of problems to solve and the current goal will have have transformed into something a little more sci-fi and a lot more mundane. To get there, Apple will likely do a bit of spring cleaning, and that is what we’ll look at next.