Apple analysts Piper Jaffray’s Gene Munster and Asymco’s Horace Dediu have been discussing ‘Where Apple’s Going’ in a round table at Fortune’s annual Brainstorm Tech conference. Here we put some of their comments and observations under the spotlight.
Is Apple going to make a smaller iPad?
“The 7in iPad might be half motivated by competitive response,” Dediu
Munster thinks it’s “highly likely” that they are going to do a smaller version of the iPad and he thinks that it will be a win for them. “If you take their existing market share of tablets, it’s 75%. If you look at their market share in 10in tablets, it’s 90%, so they can really bump that up.”
Dediu wonders what the motivation behind the smaller iPad will be, if indeed it does launch: “The 7in iPad might be half motivated by competitive response, because we heard from Steve Jobs that it wasn’t an optimal experience. But they may have done some market research since then and found out that it really opens spots for them there.”
“Jobs really believed that it wasn’t a good experience, but if enough people had beat up on him…” Dediu says, suggesting this could be the first product example of Apple going against Jobs wishes.
Is Apple going to make a smaller/cheaper iPhone?
“Probably not,” Munster
Munster revealed: “The biggest question we get is ‘is Apple going to do a small iPhone, an iPhone mini’. The reality is, based on our discussions with Apple, that they are probably not. In Apple’s words they are going to do a ‘continuation of their existing strategy’,” he says. However, the phone does have room to grow, especially in “emerging markets”, he notes.
One area where Aplple could benefit from a smaller, cheaper phone is the emerging markets, like China. But Munster doesn't think Apple will make a low end phone, “I think they are going to take existing phones and make them cheaper and sell them to China.”
Will Apple make a television?
“I think we are going to see the appification of TV and that will unleash forces that we can't anticipate,” Dediu
Munster said: “The funny thing is everyone is talking about it, but there’s not enough substance there to believe that it is real,” except, Munster thinks that is very real: “I can tell you that it is real, and it’s just a function of time,” he said.
“The road map over the next two or three years, on the hardware side, is about that,” he said, referring to the Apple Television, sometimes referred to as iTV.
Why is Munster so confident that Apple will have a television? He claimed to have had many meetings over the past year with parts suppliers. “We’ve met with people who are working on parts for the TV. That's more on the hardware side.”
Munster admits that the area he has less certainty about is the content side: “The piece we haven’t been able to fill in is what’s going to happen in content. How they are going to be able to add something unique and new in content.”
Dediu has some ideas about content: “I think we are going to see the appification of TV and that will unleash forces that we can't anticipate.”
Referring back to the launch of the App Store and the market of apps that grew out of that, Dediu speculates: “What would happen if you unleashed new forces to create content for a television experience. We might also see interaction options that we just cannot fathom right now, like Instagram, and all the things that were born out of the appification of the phone, what’s that going to do to TV? What’s that going to do to entertainment? That to me is a fascinating area.”
What is the future of the iPhone?
“It’s all about integrated services. Which Google, by definition, can’t do,” Munster
Munster thinks that “integrated services” are the future of the iPhone, and crucially, integration is something Google can’t do: “The other big thing that’s important about the phone is this whole concept of integrated services. When the iPhone came out it was all about features, and Android quickly replicated that, and then it was about apps – there’s a lot of parody there. I think in the future we can talk more about this as integrated features. I think Apple’s really going to push this integrated services angle. Which Google, by definition, can’t do.”
Can Apple continue to be as successful post Steve Jobs?
“I’m not nervous about him passing. I think there is a DNA in the company that has been being developed for even more than a decade,” Dediu
Munster thinks Jobs legacy will live on at Apple, but he doesn't think that Apple will be lost without him, on the contrary, as Dediu also notes, Apple is a set of people: “I think that the road map is in place, but I think the definition around the road map is in the hands of someone like [head of marketing] Phil Schiller. He is thought of as an empty suit, but at the end of the day he is actually the filter for what product are. From my perspective I look at the fact that there is Phil Schiller there, there’s Scott Forstall, Jon Ive, those to me are the key. There’s no way to replace Steve Jobs, but in that sense Steve Jobs hasn’t been healthy for a long time and wasn’t healthy for a long time and they did a good job without that,” says Munster.
As for this roadmap, Munster pegs it at three years, one of which has already passed.
Dediu also shares the view that Jobs imparted his ‘DNA’ on his colleagues: “Is Apple Jobsian?” he asks, referring to the comments made by members of the Apple team after Jobs left, who said: ‘Jobs got us to think about not how would Steve solve this problem, but we should solve it’. Dediu notes: “They should have internalised his process of thinking. I’m not nervous about him passing. I think there is a DNA in the company that has been being developed for even more than a decade. And this DNA is about self-disruption. Being willing to let go of some of the most successful products.”
In response to those who think it’s “just a matter of time before the wheels come off because Jobs was so singular”, Dediu responds: “I can see both sides because even human nature can erode this DNA. Because it’s so altruistic in many ways. There is a possibility of entropy taking over, and politics taking over, and this is human nature, this is organisation behaviour issue.”
However, Dediu has hope in the form of Apple’s new head of HR, Joel Podolny (ex head of Apple University), who he seems confident will ensure Apple “tries to institutionalise these things and try to teach people these things, try to give these hires the religion.”
Can Apple continue to grow at the same rate?
“Only if they kill the iPhone”, Dediu
Apple is an enigma. It is the only company of this size that has ever been able to grow at this rate. Dediu explains: “We’re dealing with something that the business community has not been able to actually ever write a case about.”
Is this growth sustainable? Dediu notes: “We’re in uncharted territory. 20% would be great, but it’s actually been growing far more quickly than that. Between 50 and 80%. And maybe that’s not sustainable. But there are so many opportunities that we might be looking at beyond 20% sustainability question. That’s uncharted waters.”
Dediu defines Apple as disruptive, but in a good way, and demonstrates how that quality is the reason for its success. “I ask myself, is Apple really an engine for creating new categories of products? And how many categories could there possibly be? How many disruptions can one company create?” He goes on to speculate that it may have been a quality that Jobs bought to the company. He said: “Is it a thing to do with Jobs? Was it Jobs? Was he the engine of this disruptive power? I try to get deeper into what is the mechanism of which Apple creates things. And whether this is a repeatable disruptive engine.”
Can Apple continue to disrupt without Jobs? Dediu seems confident: “I see it as a process, a set of people, and a set of priorities really, and are those things consistent with the disruptive thesis.
He goes on to speculate as to which area Apple might disrupt next, noting entertainment, the telecom space, service revenue.”
It’s not only disruption of markets that makes Apple successful, it also disrupts its own products. Dediu explains: “It create new categories and self cannibalises in a way, the iPhone was about killing the iPod. Apple’s number one job today ought to be killing the iPhone. Even though it's its biggest product. They should be doing that, if they are not doing that they will really face a crisis in a few years.”
Should Apple really kill off its most successful products? Dediu expands on the idea: “I think on the product level, the question of can they actually kill off the most successful product in order to create new ones.”
Munster notes: “It doesn't seem that the Mac business is doing that great, and I think that they may be in the process of hurting the Mac business for the iPad”.
Dediu agreed: “Yes, I think the Mac has been on the back burner for a while”.
How can Apple kill, or rather reinvent and replace, the iPhone?
“A new input method, that could be voice,” Dediu
So, how might Apple go about killing the iPhone? Dediu explains: “The iPhone predicated on an input model, touch [following on from the mouse and click-wheel scrolling]. Touch enabled all the three major platforms that are really vibrant today, iOS, Android, and now Metro from Microsoft. The question is, how long will this new metaphor last, as far as an input method.” Dediu predicts that a new input method, “could be voice.” And Siri is a “hint that there is something coming”.
With artificially intelligent speech recognition software no screen will be required, proposes Dediu. “If it could be voice, with machine learning, then we don't need a screen at all, so what’s the point of an iPhone… And that will be an input method that will beget a whole new platform.”
Is Siri up to the job?
“It’s clearly not good enough, but that’s how disruptions always start. So it’ll get better,” Dediu
Even Apple co-founder Steve Wozniak has slammed Siri. Munster explains that his company has recently evaluated Siri and the results weren’t great: “We gave them a D,” he says. Piper Jaffray’s researchers asked 16,000 queries of Siri, “Bottom line, is it gets 62% of them right,” said Munster.
Dediu responds: “That’s clearly not good enough, but that’s how disruptions always start. So it’ll get better.”
Was Siri shipped too soon? Dediu doesn't think so: “The software in this case had to learn to get better, so they could have held it, but they wouldn’t have had the data to feed it. And maybe they prematurely launched it, because they needed the test base. Isn’t it still in beta, by the way?”
Munster jokes: “Siri is like a slot machine: they hate it, but they keep pulling the handle in the hope that it gets it right.”
That said, Siri isn’t all bad. Munster notes that his company found from the Siri survey that it actually understood what you were saying on the street as well as it did in the lab. “It’s the integrating that means it doesn’t give the right answer most of the time.”
Is there the potential for a monopolistic situation?
“It’s not a question that we have to be concerned about in the next couple of years,” Munster.
Both Dediu and Munster don’t think Apple is big enough yet: “It’s a function of time before it comes an issue. If you look at the individual verticals they are in, most of them are small, with the exception of tablets, so they’ve got that defence at least that we’re not Microsoft yet. Obviously as tablets become bigger that becomes a bigger issue. We’re looking at market share right now and thinking that it’s not a question that we have to be concerned about in the next couple of years.”
Dediu added: “The market share shouldn’t raise anything. iTunes did raise some regulatory concerns, especially in Europe, and they were forced to do some changes there, but I think this is something that they can role with.
What of the current ebook litigation? Munster askes: “Is it evidence of a corporate arrogance, ‘FU justice department’,” if it is he suggests: “That would give you some indication of what their response would be down the road.”
Dediu agrees about Apple’s arrogance: “I think they define corporate arrogance,” he says to laughter from the crowd. “Their arrogance in always saying we have the best product… maybe that rubs people the wrong way.”
What mistakes has Apple made, and has it learned from them?
“One mistake they made was not partnering with Verizon to start with, that gave Android oxygen,” Munster
Dediu notes The Cube, noting that it was “too boutique, too high-end,” but adding that “from that they learned enough to make the Mac mini, but also the minimalism of packaging and everything that they’ve targeted since with Apple TVs form factor”.
“MobileMe and other thing that failed in terms of execution, maybe made them stronger as well, makes the iCloud product better,” Dediu adds.
Munster notes that another mistake was only having one carrier in the US for the iPhone: “One mistake they made was not partnering with Verizon to start with, that gave Android oxygen.”
Dediu also notes that Apple isn’t going after the low-end, and he thinks that might be a mistake that has lead Android to take more control of the market: “Why aren’t they dipping into the $300 price point more aggressively? That’s where they had an opening for Android, because they didn’t address the low-end.”
Is Apple about to make a mistake in launching its own Maps app before it’s ready? Munster thinks it’s possible: “They want to get away form Google as fast as possible, so maybe they are jumping the gun on maps. If you look at the top three things that people use their phones for, Maps are the number three. [Text is number one, then search, maps, and phone calls]. So there is that risk, it’s just too big of an endeavour… I would expect that they could have some bumps in the road.”
Apple and Samsung
“A love hate relationship,” Munster
According to Munster, Samsung have a “love hate relationship” with Apple. “They feel that Apple created the smartphone market and that’s their most vibrant business right now, the fastest growing business, obviously they supply about 40% of the components for the iPhone, but on the TV they are trying to figure out if this is going to be friendly, because they are going to supply components, or more combative, because it’s competing with their TVs.”
What’s the biggest risk to Apple?
Munster: “I think the biggest risk is Android. [Dediu] mentioned that they need to be at a state where they are ready to kill the iPhone, I don’t think they are ready to do that yet. I think it really comes down to Android”.