Apple’s relevance in the cloud-first world

People that have been following my writing across social media and other platforms know that I like to call Apple not a hardware, software or services company, but a user experience company. That’s what I believe is unique about Apple and what made them such a juggernaut as they are today — between five key global technological companies (Apple, Microsoft, Google, Amazon and Facebook), they are the only company that focuses on end user experience through both their business model of selling products to end users (as opposed to selling data to advertisers or software and services to enterprise) and their unique culture and philosophy. (Amazon is also the company that creates products for end users and directly benefits from it, but they have a radically different retail-based business model.)

That’s why I’m particularly concerned, and getting more concerned by a day, when I see that the very fundamentals of Apple’s success as a user experience company start to erode, and Apple’s management doesn’t show signs of acknowledging the shift of paradigms that the tech industry is going to face in the mid- to long-term period (I would say, within the next 10 years).

Part 1. The past in the devices

Apple has always been a unique tech company because it always tended to define and/or control user experience by being a tightly integrated* company. From silicon design to retail and customer support, all key elements of Apple products — and tech lives of their customers — have been under the company’s direct control. This trend particularly accelerated when Steve Jobs returned to Apple and invested into in-house chip design and Apple retail stores. As Apple’s empire grew, it encompassed more and more areas, which undoubtedly resulted in both Apple’s products getting even better, and the company’s business getting stronger.

I would list a few aspects that I consider to be the elements that all contribute to the experience of owning and using an Apple product:

  • Retail and Apple Stores (including digital stores)
  • Hardware (core tech and products layer)
  • Hardware (non-core tech and platform ecosystem)
  • Software (OS and core apps layer)
  • Software (non-core apps and platform ecosystem)
  • Services
  • Customer support and community

If I would want to concentrate on the elements that define the products themselves, I would exclude retail/store and customer support and community layers and focus on the rest. Now let’s take a look on why are the remaining layers have been historically important to Apple and were key to defining the user experience.

Hardware (core tech and products layer)

From core technologies, silicon and semiconductors to industrial design and the way the products work and behave on a physical level, hardware is key to every Apple’s product. No tech product is good unless it has great CPU and GPU to run all the demanding software, and then there should be awesome displays, ergonomically efficient keyboards and trackpads, and if a product is thin and light, even more people would love it and use it more. Problems with hardware are always apparent if all the other layers are doing great — even if macOS, all the apps in the ecosystem, and services were absolutely stellar for the Mac platform, pro users would’ve still been outraged by the lack of Mac Pro updates, and that’s a good example of how hardware is key to user experience.

Hardware (non-core tech and platform ecosystem)

This is the layer of products that are both made by Apple but not considered to be platform-defining, and third party accessories — think of displays, routers, printers, cases, external keyboards and such. During the heyday of Steve Jobs era, Apple has been very aware of the halo effect and the fact that once a user is an Apple convert, they would most likely pay for more Apple hardware accessories just because of the brand or seamless experience — hence Apple invested into Thunderbolt Displays, AirPort routers and Time Capsules and other peripherals. Under Tim Cook, Apple seems not to be bothered anymore with building its hardware ecosystem of accessories beyond products that don’t have decent third party alternatives within the ecosystem at the moment (such as Apple Pencil or AirPods). Thunderbolt Display is discontinued, and (flawed) LG monitor is officially endorsed by the company as the replacement, while there are rumors that AirPort routers’ days are numbered as well. This is an important issue (and, to my mind, deeply troubling another aspect of losing control over the user experience) of Apple eroding its own ecosystem of products and letting other brands, including competitors**, take the mind share of Apple’s own customers — but it’s beyond the focus of this piece.

Thankfully, through supporting standards or providing tools and rulesets (such as MFi) for third party hardware makers, Apple is enjoying a rich variety of accessories created for its products, which is the direct result of a very hard work towards building a great hardware ecosystem. Even if Apple doesn’t make standalone displays anymore, users can buy alternatives from other manufacturers, which greatly benefits the overall user experience.

Software (OS and core apps layer)

If hardware is the flesh and bone of a product, core software is its heart. For decades Apple’s unique strength has been the company designing their hardware and software in concert to provide features other competitors couldn’t, and create seamless and premium user experience. Today, it’s evident that Apple considers core software competency as its invaluable asset and is doubling down on it by expanding the number of OSes they develop with macOS, iOS, watchOS and tvOS. Core software not only defines the way the products work, but also tightly controls the user experience via user interface paradigms and guidelines. No matter how great hardware is, if the OS is not reliable, and the UI is not intuitive or unfriendly to user, user experience will be poor.

I would also include core apps into this layer, as sometimes these are indistinguishable from the OS itself. One might think of iOS as a great and easy to use system, whereas in fact the key contributors to such an opinion would be not the operating system itself, but apps designed by Apple — such as Mail, Notes or Safari. All preinstalled apps (or the apps one can’t delete from the device) are core apps that define user experience profoundly; if these are bad, user will hate the products and platform they work with.

(It is also worth mentioning within the context of this piece that for all key core apps for macOS and iOS, there are alternatives in the App Store which exceed core Apple apps in terms of features and functionality, and many of them are either made or acquired by Google and Microsoft.)

Software (non-core apps and platform ecosystem)

Like with hardware accessories, all non-core software for Apple platforms — made both by Apple and third-parties — goes into this layer. For any software platform company, the key to success is to have as many high quality apps as possible, and Apple has invested a lot into making sure they will succeed with App Stores across all their platforms (and with dev tools for Mac OS prior to that). Ecosystem of macOS third party apps is mature, and iOS App Store has been thriving for years (even though the growing pains with professional software, especially for iPad, are getting harder to ignore), whereas watchOS and tvOS third party apps are struggling — but not because the tools are not there or products are bad, but maybe because the paradigm of apps just doesn’t work well for these form factors. But that’s a story for another day (albeit directly connected to the point I’m driving at towards the end of this piece).

Apple’s own apps have been a major focus for the company during the second Steve Jobs era. Perceived as key differentiation factors first for the Mac, and then for iOS devices, non-core apps have been thriving. iWork was created as the alternative to Microsoft Office and became a powerful, and yet uniquely accessible and easy to use suite of productivity apps for both macOS and iOS. iLife was once a poster child for the Mac platform. A set of Apple’s pro apps for the Mac, across Aperture, Final Cut and Logic, has been industry leading software, used in powerhouses, design, music and video production studios across the world. Under Tim Cook, similar to the state of in-house hardware accessories, Apple is fine with retreating and ceding this area to third parties — Aperture was discontinued altogether, Logic Pro and Final Cut Pro have been forgotten (or developed in a way not welcomed by users) for years to a point where most switched to ProTools, Adobe Premiere or similar competing products, and with Apple actively endorsing MS Office for iPad Pro users, the writing is seemingly on the wall for iWork apps as well. Whether depending more and more on third parties for key software that defines user experience is good or bad for Apple is another topic, Apple’s platform is healthy due to efficient developers tools and App Store, so customers are happy at the end of the day.

Services

This is a relatively new layer that has emerged with the development and distribution of internet, and later, cloud technologies. Hardware is the flesh and bone of a product, software is its heart, and services is its soul. Services is a very broad term that could be split into many sub-categories, but in general, it includes system-level and cloud services (which are getting more intertwined as time goes on) such as iCloud and its numerous derivatives like iCloud Music or Photo Library, and content services such as Apple Music or Apple News. iTunes, iBooks and App Stores are services as well, such as Apple Pay and Siri.

Apple understands that services are key to defining user experience going forward, and very much likes to talk about them (as well as their great financial performance) during the analysts’ calls. Exactly like with hardware and software, it seems that in the future, services could be split into separate layers, such as core tech and ecosystem of non-core plug-ins. This is becoming more evident with iMessage, Siri and Maps becoming platforms with the help of separate APIs for third-party developers. Soon, we could talk about core back-end technologies run by iCloud, with the rest of the user experience controlled by third-parties via plug-ins for Maps and Siri on top of it. This is an exciting trend to pay close attention to going forward.

Part 2. The future in the cloud

Apple’s model of controlling user experience through all these layers I outlined above has worked for them well for decades. What’s the point with all concerns? Are they grounded at all? Well, it seems that there is a number of companies, particularly Google and Amazon, that have been hard at work for years on completely different computing paradigms that are fundamentally hostile to Apple’s entire device-centric world and their business model. And for now, it’s hard to see how Apple can counter it unless it wants to fundamentally reinvent and almost reboot itself (which is particularly challenging if you are the most valuable company in the world and on the surface, everything is going great).

One piece over at Techpinions, and particularly a follow-up by Ben Bajarin (behind paywall), caught my attention last week. The piece focuses on great success of Chromebooks at schools and basically conveys a simple message — as more and more young people live and die by the cloud, the less they depend on Apple products and associate computing with Apple. If you think about it, Google’s strategy with Pixel smartphones — as well as Amazon’s with Alexa and Echo — all follow the same route to the future in the cloud, not in the devices. Chromebooks, Pixels and Echos are just simple shells that are doors to the endless world of web and software that lives in the cloud, which are defined by and controlled with AI- and ML-enhanced algorithms based on data mining and analysis, voice-first interface and predictive paradigm of delivering data to users.

Some may say that for now, Google’s and Amazon’s products are niches, and there is no guarantee that platform-agnostic, cloud-centric approach is right. Who knows, maybe Apple’s way is going to be the right one? Well, I know anecdotes is not data, but I’ve been very closely watching how people are using their Apple devices, and I see that all of my co-workers who use iPhones and iPads for business replace Apple Mail with Microsoft Outlook and Safari with Chrome, because these are cross-platform solutions, unlike Apple’s software***. I see that all of my friends and family with iPhones use WhatsApp to have cross-platform chats. And I see that whenever someone from my circles needs to find an address, they search Google Maps, not Apple Maps (or some local alternatives such as Yandex Maps in Russia), because these services have more precise data and, more importantly, have better reputation than Apple’s services. And, again anecdotally, everyone inside and outside business uses Google Docs for collaboration and ease of sharing data. For many people, Apple’s (and other companies’) hardware has become the pipe for delivering someone else’s content and services. So I believe chances are high that platform-agnostic, cloud-centric computing paradigm will be gaining more and more steam going forward.

Now, for the sake of a thought excercise, let’s assume that 10 years from now, that paradigm has won, and everything (and everyone) lives in the cloud. How do the user experience layers change then and what Apple can do to keep its relevance in the brave new world? Let’s see.

Hardware (core tech and products layer)

In the cloud-centric world, hardware is commoditised and doesn’t affect user experience much — consumer hardware, at least. Sure, silicon and data centers will be more important than ever, but all of that will be obscured from the end user, as the only thing they will need is the access to their web-based services and apps such as Google Docs, Netflix or Spotify from whatever screen they could find. Sure, for now, there is no alternative to core pro native apps such as Adobe Premiere or AutoCAD running locally, as well as AAA videogames, but you would be surprised how quickly it will change with the rapid advancements of Internet, wireless technologies and networks. We are moving in the future where no or almost no end-user software would be running locally, and instead data will be broadcast to end devices from servers. In this world, nobody cares what type of GPU and CPU your PC or smartphone runs, as user experience will be defined by silicon in the data centers and the quality of wireless connection. Sure, good displays and keyboards will still be a necessity, but Apple is by far not the only company in the world that can do them.

Old-school consumer hardware, as both the key user experience element and one of the strongest Apple’s core competencies, will lose its relevance.

Hardware (non-core tech and platform ecosystem)

With old-school consumer hardware no longer a major point of importance for user experience, accessories will gain even more relevance in the world where the internet and cloud technologies will get to our eyes, ears, wrists and beyond via wearable devices. Arguably, Apple is well-positioned for this future as the maker of Apple Watch and AirPods — however, in the world where user experience is built upon the platforms from Google and Amazon, Apple’s wearable accessories will be just another third party products differentiated not strongly enough.

Unless in 10 years we live in the world where Apple is a dominant cloud services and platforms player (which is hard to imagine even for the most Apple die-hards), Apple’s wearables will need to work first and foremost with Google’s and Amazon’s cloud services such as Google Assistant, Alexa and others, and as soon as these services are not controlled by Apple, the hardware-software integration is no longer available to Apple as the differentiation, and Apple will not be able to provide seamless user experience it has always relied on. Good industrial design will help Apple to move healthy amount of units of future wearable products, but would Apple be satisfied with the role of speakers and screens maker for the content and data created and dominated by someone else?

Software (OS and core apps layer)

As much as hardware will be massively commoditised in the world of cloud-first computing, so will be the traditional operating systems. End user will not care much about which OS they will need to use to access Google Docs, Amazon Video or even Apple Music for that matter — on Windows, macOS, Android, iOS or even Linux, the experience will be the same as long as the browser (most probably Chrome) is decent. The only operating system that would matter would be the cloud OS that Google has spent so many years building — across Chrome OS and multi-platform Chrome as the runtime, and even Android (which I’m sure will merge with Chrome OS into a unified web- and cloud-based OS sooner rather than later).

Apple’s yet another core competency — this time creating core software for consumer hardware platforms — will be much less relevant in the future world.

Software (non-core apps and platform ecosystem)

If Apple no longer controls the relevant platform (Google or Amazon will be these ultimate platform holders in the future we are trying to imagine), there simply will be no ecosystem or third party Apple software anymore — as all the developers looking for attention will move to plug into the web and cloud platform of Apple’s competitors. (Remember my point about apps may not be the right paradigm for Apple Watch and TV? It may have something to do with this idea of developers embracing cloud, not devices going forward.) Pay attention to what Google is doing with both Chrome browser apps and app extensions and unifying the ecosystem of apps for both Android and Chrome OS, as well as Amazon’s focus on rapid growth of Alexa’s skills — they are building the foundation for exactly that shift of developers’ focus that they anticipate to happen in the future. There will be few reasons to build native apps in the long-term — as opposed to plugging via APIs to a cloud-based OS, Google Docs, Google Assistant or Amazon Alexa.

Apple’s past experience in creating non-core apps for its own platform may actually help the company to transform into the same third-party apps developer in the same way as it could become a third-party hardware accessories maker, as we discussed above. Imagine if there were great web and cloud-based versions of Final Cut, GarageBand, Music Memos or iWork that would be industry-leading web apps no business person or creative professional could live without in the cloud. However, chances or Apple taking this route are slim. First, Apple has always been mediocre at best at creating software for other platforms, let alone web platforms. Second, under Tim Cook, Apple has actually been moving away from creating or supporting non-core software for its platform, as was mentioned in the first part of this piece, so this core competency has probably been mostly downplayed, and talent is gone.

Services

Again, unless Apple is the dominant web and cloud platform holder in the bright future, I can hardly see how iCloud back-end (at least in its current device-centric form) can compete with Google’s and Amazon’s core web and cloud technologies going forward. That leaves us other Apple services efforts.

Apple Maps has made great progress over the last couple of years, but make no mistake — as soon as it stops being the default maps app for users and no longer forced to be the number one choice in the future’s platforms, its relevance and usage will experience major downshift, and the world will move on to keep embracing Google Maps. In the platform-agnostic world, iMessage has no relevance, as services such as WhatsApp or Facebook Messenger has long eclipsed it in terms of core technology (including sync capabilities) and features (iMessage App Store doesn’t seem to have picked much attention from developers). Siri leads the pack of voice assistants in terms of number of supported languages, but the core voice recognition technology lags behind Cortana, Google Assistant and Alexa, and in the world with no relevance for consumer hardware and all AI and ML processing happening in the cloud, the tides will probably not change.

Apple’s content services business is interesting, particularly if we take a look at Apple Music — which is already cross-platform and seems to be run as a separate business. There are talks of Apple negotiating with Hollywood and content providers, and the launch of Apple Video service seems inevitable. If Apple prioritises other parts of its content business again and greatly updates iBooks and Podcasts, it can then potentially monetise it via making all of these cross-platform premium services delivering great user experience on top of someone else’s cloud platforms. The problem, though, is that Apple is already behind many competing services that happen to be run by the future dominant platform holders such as Amazon (with Prime and Kindle services across music, video, books and audiobooks), and I doubt such platform holders would be fine with Apple taking their territory.

What Apple can do to stay relevant in the cloud future?

If the cloud future is upon us — and again, maybe I’m wrong and it is indeed not coming any time soon, — all above sounds pessimistic for Apple’s long-term control over the user experience. Some UX layers that were previously held tight by Cupertino will either become greatly commoditised, or will be build on top of someone else’s platform, which is fundamentally against Apple’s core values and principles.

What are Apple’s options in case such future indeed happens? I see two ways:

  1. Apple will stay true to its core and will try to control the next paradigm shift to fight Google and Amazon back
  2. Apple will concur that building the cloud future itself is way outside of its competencies and skills, and then will focus on providing the end-user experience on top of other platforms

The first way is incredibly challenging for Apple, and while I personally would love Apple to take it, I’m afraid a) the company has currently no competence, skills and talent to do it, and b) it is already very late to the game, and the point of no return has arguably been already left behind. It is clear to me that in the last 5 to 10 years, Apple has completely ignored (or didn’t want to acknowledge) the fundamental shift to cloud that Google, and then Amazon, has been embracing, and instead has doubled down on premium hardware and device-centric view on the technological progress. This ignorance will probably lead to similar consequences that Microsoft had to face after they slept over shift to mobile while blindingly focusing on Windows everywhere under Steve Ballmer as the ultimate paradigm.

If Apple wants to ride the next major tech wave and provide next generation of experience to its users, it needs to think of itself as a cloud-first, web-first platform of the future, a major competitor to Google and Amazon, and it needs to move all of its infrastructure, across core and non-core software and services, to the web sooner rather than later. It needs to become the next dominant web and cloud platform and fiercely compete with what Google and Amazon have been building for the last several years. The problem is, however, that for it to happen, Apple will probably need to reinvent itself, reset its business and fundamentally change its business model from monetizing user experience trough hardware sales to monetising it through software and services (subscription-based OS and services come to mind as just one possible model). Remember, in the cloud-first world, hardware is commoditised — hence any company will probably have hard time selling it at a premium.

I see no signs of that shift happening at Apple. Under Tim Cook, the company doubles down on hardware sales, ASPs and margins, and aggressively fights the cloud paradigm with prioritising native apps over web experience, even tighter integrating iCloud with devices and facilitating on-device processing, including AI and ML.

The second way is arguably the only option left for Apple — with platforms of the future living in the cloud and being controlling by other companies, Apple’s remaining choice would be to try to build the ecosystem of content and services on top of it. I mentioned how Apple is already playing with the idea of Apple Music and, hopefully, other Apple content services being platform-agnostic — Apple will need to fully embrace web and cloud for such services to become dominant players and standards, as iTunes once was for music sales and Netflix is now for video. I would be very closely looking at Apple’s content services branch, as developments on this front might signal the future of the entire company’s business and strategy.

However, for Apple’s services to become a viable business, Apple will need to monetise it via direct subscriptions and/or advertisement. While subscriptions is clearly the way Apple embraces now with Apple Music and iCloud, truly powerful cloud services are as good as the number of users they have and the amount of data they process — and neither paywall nor Apple’s hard political stance against mining user data will help with making services better, feature-wise. There are no signs Tim Cook’s management team acknowledges this — the privacy stance has never been stronger, while iAd business, launched by Steve Jobs in 2010, has recently been killed.

After 40 years of being the world’s most important user experience company in tech, Apple is facing the biggest challenges and risks of losing its relevance. Will the tech’s largest cash pile, currently used mostly for buybacks, help the company to overcome this challenge — or it only takes incredible vision and genius of someone like Steve Jobs to do it?

* Ben Thompson has several times argued that Apple is actually not a shining example of an integrated company many believe it is. In terms of hardware components, Samsung is actually a better example of an integrated company than Apple, whereas Google is undoubteldy tightly intgrating its software with its services in a better way.

** Unlike Apple, Google is heavily investing in the next generation of Wi-Fi systems and routers.

*** Remember when Apple decided to make iTunes cross-platform, and also invested into Safari for Windows? Today, Safari is dead on Windows (Google Chrome dominates browsers worldwide), and Apple no longer works on new cross-platform software and services, with the notable and curious exception of Apple Music.