The First Post-iPhone Keynote

This article was previously title ‘Apple’s Audacity’

It is the nature of hardware that a computer the vast majority of Apple’s customers will never own was the headline from the company’s keynote at its annual Worldwide Developer’s Conference (WWDC). The Mac Pro starts at $6,000, and will be configurable to a number many times that. If you think that is absurd, or would simply rather buy a new car, well, you’re not the target customer.

At the same time, here I am, leading with the Mac Pro, just like those headline writers, and I’m not incentivized by hardware driving clicks: it was fun seeing what Apple came up with in its attempt to build the most powerful Mac ever, in the same way it is fun to read about supercars. More importantly, I thought that sense of “going for it” that characterized the Mac Pro permeated the entire keynote: Apple seemed more sure of itself and, consequentially, more audacious than it has in several years.

The iPhone Plateau

In retrospect, the previous malaise around Apple should have been expected. When a product like the iPhone comes along — and make no mistake, there are very few products like the iPhone! — the goal is simply to hold on to a rocket ship. Growth was trivial: simply add a new country or a new carrier, and predict iPhone sales with eerie accuracy. That all culminated with the iPhone 6, when Apple’s forecasts were finally wrong — there was far more pent-up demand for larger screens than anyone anticipated.

It turned out that was the peak: Apple would again miss forecasts with the iPhone 6S, but this time their mistake was expecting growth that never materialized, eventually resulting in a $2 billion inventory draw-down. The forecasts did get better, but as I explained last year, unit growth never returned:

The 6S was the new normal: iPhone unit sales have been basically flat ever since:

iPhone unit sales over time

What has changed is Apple’s pricing: the iPhone 7 Plus cost $20 more than the iPhone 6S Plus. Then, last year, came the big jump: both the iPhones 8 and 8 Plus cost more than their predecessors ($50 and $30 respectively); more importantly, they were no longer the flagship. That appellation belonged to the $999 iPhone X, and given how many Apple fans will only buy the best, average selling price skyrocketed:

iPhone average selling price over time

From a financial perspective, it didn’t much matter where the growth came from — more units or more revenue per unit. The iPhone, though, was no longer a rocket ship scaling to new heights; it was an institution, something with roots, and something that could be exploited.

This changes a company: instead of looking outwards for opportunity, the gaze turns inwards. In 2018 I called it Apple’s Middle Age:

Apple’s growth is almost entirely inwardly-focused when it comes to its user-base: higher prices, more services, and more devices…The high-end smartphone market — that is, the iPhone market — is saturated. Apple still has the advantage in loyalty, which means switchers will on balance move from Android to iPhone, but that advantage is counter-weighted by clearly elongating upgrade cycles. To that end, if Apple wants growth, its existing customer base is by far the most obvious place to turn.

In short, it just doesn’t make much sense to act like a young person with nothing to lose: one gets older, one’s circumstances and priorities change, and one settles down. It’s all rather inevitable…The fact of the matter is that Apple under Cook is as strategically sound a company as there is; it makes sense to settle down. What that means for the long run — stability-driven growth, or stagnation — remains to be seen.

The long-run came quickly: one year later CEO Tim Cook had to issue a revenue warning thanks to slumping iPhone sales; after four years of accounting for between 68-70% of Apple’s revenue in the company’s fiscal first quarter, the iPhone suddenly only accounted for 62%.

It might have been the best thing that could have happened to Apple.

Three Announcements

There were three announcements in yesterday’s keynote that, particularly when taken together, spoke to a company moving forward.

The first was the end of iTunes, which will be split into separate Music, Podcasts, and TV apps; device syncing will be handed by the Finder. This is both straightforward and overdue, but still meaningful: while iTunes didn’t save Apple, the application is the connective thread of one of the greatest growth stories in business history. There is a direct line from the introduction of iTunes in January 2001 to the introduction of the iPod later that year, then the iTunes Music Store in 2003 (upon which the App Store was built), and ultimately the iPhone in 2007. iTunes provided the foundation for everything that followed, and it seems appropriate that the application is going away at the same time that growth story is coming to a close.

The second was the introduction of iPadOS. This is, to be clear, mostly a marketing move: iPadOS is very much the same iOS it was two days ago. Marketing moves can matter, though: in this case — much like the Mac Pro — it is a statement from Apple that the non-iPhone parts of its business still matter. While the company was on the iPhone plateau it wasn’t so clear that management cared about either — both the iPad and Mac languished, the former in terms of software, and the latter in terms of hardware — but now there is real evidence the company is fully back in. That management no longer had a choice is besides the point.

The third announcement was the App Store on Apple Watch. While there was not any news about the Apple Watch being completely untethered from the iPhone — non-cellular models have no choice — it is a clear step towards making the Watch independent.1 That, by extension, completely changes the Watch’s addressable market from iPhone users to everyone. This was likely Apple’s endgame all along, but there is more urgency than there may have been even six months ago, and that is a great thing: better urgency than complacency.

Privacy and Purpose

Last fall Cook gave a remarkable speech at the 40th International Conference of Data Protection and Privacy Commissioners in Europe. This was certainly not the first time Cook has spoken about privacy, but the clarity, purpose, and passion with which Cook spoke was striking. I wrote about the speech in a Daily Update, so I will not break it down in full here, but this portion is worth highlighting again:

Now there are many people who would prefer I never said all of that. Some oppose any form of privacy legislation; others will endorse reform in public and then resist and undermine it behind closed doors. They may say to you, “Our companies can never achieve technology’s true potential if they are constrained with privacy regulation.” But this notion isn’t just wrong: it is destructive. Technology’s potential is, and always must be, rooted in the faith people have in it, in the optimism and the creativity that it stirs in the hearts of individuals, and in its promise and capacity to make the world a better place. It’s time to face facts: we will never achieve technology’s true potential without the full faith and confidence of the people who use it.

It was only a month ago that Google made a very different pitch, making the case that the services it created with all of the data it collected was a tradeoff worth making. Unsurprisingly, the two different visions aligned with the company’s two different business models: data collection is obviously integral to advertising, and privacy a differentiating factor for Apple’s high-end hardware.

What I appreciated about both company’s events, though, was the commitment. Google did not try to obfuscate or hide how its products worked, but rather embraced and dwelled on the centrality of user data to its offerings. Apple, similarly, emphasized privacy at every turn, and did so with passion: it felt like the fight for privacy has given the entire company a new sense of purpose, and that is invaluable.

In short, it is clear that privacy has become more than a Strategy Credit for Apple. It is a driving force behind the company’s decisions, both in terms of product features and also strategy. This is particularly apparent in perhaps the most important announcement yesterday, Sign In with Apple.

Sign In with Apple

It’s important to note that the question of privacy goes far beyond Google and Facebook — it predates the Internet. Starting in the 1960s companies began collecting all of the personal information on individual consumers they could get; Lester Wunderman gave it the sanitized name of “direct marketing”. Everything from reward programs to store loyalty discounts to credit cards were created and mined to better understand and market to those individual consumers.

The Internet plugged into this existing infrastructure: it was that much easier to track what users were interested in, particularly on the desktop, and there were far more places to put advertisements in front of them. Mobile actually tamped this down, for a bit: there was no longer one browser that accepted cookies from anyone and everyone, which made it harder to track. That, though, was a boon for Facebook in particular: its walled-garden both collected data and displayed advertisements all in one place.

Over time Facebook extended its data collection far beyond the Facebook app: both it and Google have a presence on most websites, and offering login services for apps not only relieves developers from having to manage identities but also give both companies a view into what their users are doing. The alternative is for users to use their email address to create accounts, but that is hardly better: your email address is to data collectors as your house address was fifty years ago — a unique identifier that connects you to the all-encompassing profiles that have been built without your knowledge.

This is the context for Sign In with Apple: developers can now let Apple handle identity instead of Facebook or Google. Furthermore, users creating accounts with Sign In with Apple have the option of using a unique email address per service, breaking that key link to their data profiles, wherever they are housed.

This was certainly an interesting announcement in its own right: identity management is one of the single most powerful tools in technology. Owning identity was and is a critical part of Microsoft’s dominance in enterprise, and the same could be said of Facebook in particular in the consumer space. Apple making a similar push — or even simply weakening the position of others — is noteworthy.

Privacy and Power

Still, Sign In with Apple is a hard sell for most developers who have already aligned themselves with Facebook or Google or have rolled their own solution. And, given that developers want to make money, is it really worth adding on an identity manager that would likely interfere with that?

Then came the bombshell in Apple’s Updates to the App Store Guidelines:

Sign In with Apple will be available for beta testing this summer. It will be required as an option for users in apps that support third-party sign-in when it is commercially available later this year.

Apple is going to leverage its monopoly position as app provider on the iPhone to force developers (who use 3rd party solutions)2 to use Sign In with Apple. Keep in mind, that also means building Sign In with Apple into related websites, and even Android apps, at least if you want users to be able to login anywhere other than their iPhones. It was quite the announcement, particularly on a day where it became clear that Apple was a potential target of U.S. antitrust investigators.

It is also the starkest example yet of how the push for privacy and the push for competition are, as I wrote a year ago often at odds. Apple is without question proposing an identity solution that is better for privacy, and they are going to ensure that solution gets traction by leveraging their control of the App Store.

Note, though, that even this fits in the broader theme of Apple regaining its mojo: complaints about the App Store have been in part about data but mostly about Apple’s commission and refusal to allow alternative payment methods. It is a tactic that very much fits into the “get more revenue from existing customers” approach that characterized the last few years.

Sign In with Apple, though, is much more aggressive and strategic in nature: it is a new capability, that could both hurt competitors and attract new users. It is the move of a company looking outwards for opportunity, and motivated by something more intrinsic than revenue. It is very Apple-like, and while there will be a lot of debate about whether leveraging the App Store in this way is illegal or not, it is a lot more interesting for the industry to have Apple off the iPhone plateau.

I wrote a follow-up to this article in this Daily Update.

  1. The Watch will now be able to update itself as well []
  2. One unanswered question: what about enterprise single sign-on offerings like Okta? []