Risk-Averse Apple

Posted: January 30th, 2019 | Author: | Filed under: apple | Tags: | No Comments »

Good Enough for Warren

Apple is a hell of a company. So much so, the greatest investor of all time, Warren Buffett, has nearly $40B worth of Apple stock through Berkshire Hathaway.

Apple has become the perfect Berkshire Hathaway investment. It has a solid brand that has lasted the test of time. It’s a profit machine, the most in the history of a public company. It’s sitting on a giant pile of cash ($130B) and it’s putting that cash to use the way Warren likes. Apple provides a healthy dividend, currently a 1.85% yield, and consistently buys shares back. Finally, Apple is giant, which means Warren can park a lot of cash in it.

That’s the good news, the bad news is Warren likes to invest in boring, risk-averse companies.

There are other signs that Apple isn’t pushing the envelope. Tim Cook has been beating the “Services” drum, indicating Apple is morphing into more of a services company. This is a nice safe bet for Apple. Leverage the massive success with devices as a way to push services and make easy money. Apple Music, which is a giant success, is exhibit A. Furthermore, Services are cheaper for Apple to create, easier to go to market, and less risky than hardware. If Apple has a flop with hardware, the critics will have a field day.

Apple seems hooked on “rent-seeking” activity. Taking an annual cut of Netflix subscriptions bought through the App Store, for example. This is the type of activity I expect from a more desperate company, not one that is focused on the long-term.

Watch and AirPods are huge successes. Each capitalized on Apple’s strengths, integration of hardware & software, and leveraged the success of the iPhone. Both were safe bets with relatively little friction.

Compare this to their original giant successes, the iPod and the iPhone. Those products also capitalized on Apple’s strength of integrating hardware & software but they were huge risks. They both required Apple to change the industries they entered. With the iPod, Apple was able to convince music labels to sell music via iTunes. With the iPhone, Apple convinced the carriers (only AT&T at first) to leave their bloatware off and to give Apple complete control of the user experience. These products had major friction to overcome, both were big risks, and both become massive successes.

R&D Spending

The good news is, as revenue has grown, so has Apple’s R&D spending, but they trail the Googles and Amazons of the world in this (with the percent of revenue)

“Speaking before this week’s results, he said Bernstein estimated that Apple spent 5.1 percent of its revenue on R&D which is less than its rivals. “Apple could double its R&D and be relatively inline with peers”.”

Amazon and Google

It’s not just the spending that makes me think Apple isn’t taking as many risks as their peers. Google has their “moonshots” and Amazon enters every business imaginable. Buying Whole Foods is an example of Amazon taking a large risk.

As much as I want Apple to take a larger risk, I don’t think they should follow Google or Amazon’s playbook. My beef with the risks that these companies take is many of them are not leveraging their core competencies. Google’s moonshots have so far fallen flat and have not born fruit, despite the heavy investment.

Amazon has surprisingly been successful in areas outside their core competency (i.e. Alexa) but have had flops in areas they had no business being in (i.e. Fire Phone)

Bigger Risks

So what type of risks would I like Apple to take? Apple should aim to develop a product with the following characteristics –

  • Requires the integration of software and hardware
  • Requires a significant change to an established industry
  • Requires a long R&D cycle to pull off
  • Is within a product category where Apple can make THE premium product
  • Has major profit potential ($5B+ / quarter)

Televisions, the only major screen people use that Apple doesn’t have a product in, is the first obvious choice, as many have written about before. Television is in the middle of a transformation, with cable subscribers shrinking (although slowly) and streaming services growing. Although streaming is growing their overall offerings fall far short of traditional cable.

Automobiles are the second obvious choice. Cars are becoming more and more reliant on software as automated driving becomes more mainstream. This may be a perfect time for Apple to pounce. Manufacturing a car, at scale, is no joke, as Elon Musk can tell you. This move would be orders of magnitude riskier than a TV but with higher profit potential.

Bottom Line

Apple is secretive with their R&D efforts. There is a good chance Apple looks risk-averse on the outside but is indeed working on products that are high-risk.

Apple’s current strategy is rock solid. It’s a little too safe for my taste, but growing services and making more peripherals to the iPhone can easily get Apple well above the height of their previous trillion dollar market cap.

We’re still a long ways away from peak apple, but as a consumer, I hope they swing for the fences.


The Simplicity of Spectacles and AirPods

Posted: March 29th, 2017 | Author: | Filed under: apple, Design, snapchat | Tags: , , | No Comments »

This isn’t 2007 or 2010 when the iPhone and iPad debuted but the Spectacles and AirPods have had a lot of hype. I had my doubts. I never liked Earpods, they’re uncomfortable and fall out of my ear. I didn’t immediately dig the style of the Spectacles. Despite those concerns, I had to buy both and try them for myself.

What Spectacles Do

Spectacles take up to 3 consecutive 10 second 720p videos. Click the button once to take a 10 second clip. Click again when the video is about to end to extend it twice, up to 30 seconds. Pairing Spectacles are a breeze – use the Spectacles to take a video of your Snapcode to pair. When not paired, Spectacles take snaps and sync later once paired.
 
Spectacles excel with physical activities. Riding a bike and beach volleyball are great examples. Times where a first-person point of view is compelling. Any two handed activity, like pouring a beer or driving a car, make great Spectacle snaps.

What AirPods Do

Like the Spectacles, pairing with AirPods is amazing. Take them out of the case near your phone and they immediately detect and pair. Going from phone to computer is seamless. The sound, microphone and fit are outstanding. I forget they are in my ear. They’ve lived up to the hype.

Cases

Both Spectacles and AirPods come with high quality cases that charge the devices. The Spectacles case is bulky and I find charging without easier. The AirPods case is excellent. Bye bye Wires! Carrying a small case is a subtle improvement that affects me every day.

Simplicity

Spectacles and AirPods are simple and limited. Unlike Google Glass before it, Spectacles do one thing and only one thing. Spectacles can not take photos. At first, this seems odd but Snap has learned from Google’s missteps. Snap may be limiting the ability to take photos to thwart the privacy concerns. The light allows someone to know when someone is recording but a photo would be harder to convey to others.
 
AirPods have only one gesture, a double tap, which you may set to contact Siri or play/pause. I miss not being able to adjust the volume with my headphones. This constraint has affected my behavior. After years of slow adoption, AirPods has increased my Siri usage.

Coolness

Both products have that X factor of coolness. Not very scientific but the products look and feel cool. People are curious about both and strangers will stop you to ask questions. In Venice the stops are more of an attack of how could I support Snap, who is “ruining” Venice. Spectacles, being smack dab on your face, get more questions than the AirPods. People express concern but are less freaked out about being recorded than I expected.
 
The Spectacles’ storefront on Venice is the epitome of cool. Facebook or Twitter isn’t pulling something off like this and wouldn’t think it’s worth it. Facebook once caught criticism for no longer being cool, as if that signaled doom. Companies don’t have to be cool to be successful but coolness can be a differentiator. Right now, Snap owns cool in the Mobile Entertainment space.

Bottom Line

Spectacles and AirPods are simple, cool and useful. I will use AirPods nearly every day making their $159 price tag cheap considering the value. Spectacles won’t get that amount of use, I prefer the aesthetics and feel of my New Wayfarer Ray Bans. Now that I live in Sunny LA, I’m sure I’ll wear them over 100 times this year. At $129, they’re worth it….as long as you don’t lose em!