The maverick of personal computing is looking for its next big thing in spaces like healthcare, AR, and autonomous cars, all while keeping its lead in consumer hardware. With an uphill battle in AI, slowing growth in smartphones, and its fingers in so many pies, can Apple reinvent itself for a third time?
In many ways, Apple remains a company made in the image of Steve Jobs: iconoclastic and fiercely product focused.
But today, Apple is at a crossroads. Under CEO Tim Cook, Apple’s ability to seize on emerging technology raises many new questions.
Primarily, what’s next for Apple?
Looking for the next wave, Apple is clearly expanding into augmented reality and wearables with the Apple Watch and AirPods wireless headphones. Apple’s HomePod speaker system is poised to expand Siri’s footprint into the home and serve as a competitor to Amazon’s blockbuster Echo device and accompanying virtual assistant Alexa.
But the next “big one” — a success and growth driver on the scale of the iPhone — has not yet been determined. Will it be augmented reality, auto, wearables? Or something else entirely?
Apple is famously secretive, and a cloud of hearsay and gossip surrounds the company’s every move.
Apple is believed to be working on augmented reality headsets, connected car software, transformative healthcare devices and apps, as well as smart home tech, and new machine learning applications.
We dug through Apple’s trove of patents, acquisitions, earnings calls, recent product releases, and organizational structure for concrete hints at how the company will approach its next self-reinvention.
Given Apple’s size and prominence, we won’t be covering every aspect of its business or rehashing old news. But some of our main areas of focus include:
Apple’s bold bet on a post-smartphone world through augmented reality and battery-efficient wearables, including AR glasses.
There’s strong evidence Apple is once again actively “cannibalizing itself,” putting massive resources behind consumer tech that will render its own iPhone obsolete. Augmented reality is the company’s biggest bet. New AR apps are on the way, and there is new evidence AR glasses are also in the works. Wearables such as the Apple Watch and in-ear computers like the AirPods already allow Apple’s customers to make and receive calls without an iPhone.
In the Q4’17 earnings call, Cook said Apple’s wearables business was large enough to rank as a Fortune 400 corporation. That means Apple Watch and AirPods were generating ~$27B or more in annual revenue.
Meanwhile the infrared camera tech behind the iPhone X can also underpin Apple’s future moves into augmented reality and more. Apple is even looking at holograms as a possible UI.
Autonomous vehicle efforts seem to have pivoted away from a car, and toward autonomous driving software and technologies like a light and ranging detection sensor (LiDAR).
We dig into what information is available on Apple’s auto project to see how Apple’s looking to salvage a project that once reportedly employed several hundred people. So far, reports indicate the so-called “Project Titan” is refocusing on autonomous driving software, expanding its vehicle testing, and continuing to snap up key hires from the auto industry.
AI is an Achilles’ heel for Apple.
Despite some sizable recent acquisitions of AI companies at a valuation of $200M or more and an initial lead with Apple’s 2011 launch of its virtual assistant Siri, Apple has ceded ground in the fields of machine learning, natural language processing, and more to Google, Amazon, and others. Apple also has a relatively weak patent portfolio in this area.
That said, Apple has made 12 AI-related acquisitions in the last 5 years, and has the capacity to design its own AI-optimized GPU chips, as it proved in the iPhone X. This is important for long term strategies for AR, AI, and strengthening its supply chain.
Apple faces another uphill battle in media and entertainment.
Even as services and media (including the app store, iCloud, and Apple Music) become the company’s fastest-growing business segment, Apple faces competition in one priority area: original content. Apple is late to the original content game in comparison to Netflix, Amazon, and even Hulu. And given Apple’s $1B content budget, barring a mega-acquisition, key hires may not be enough to catch up.
Perhaps surprisingly, Apple’s jobs focus still leans toward hardware engineering.
This throws a wrench into the theory that Apple is increasingly focused on services over hardware.
Even at 80,000 strong, Apple is continuing to shore up its hardware and software engineering. Despite the company’s increasing emphasis on AI, services, and software, it’s still hiring for more open jobs in hardware than software divisions
We also look at Apple’s strength in frequently overlooked areas like cybersecurity, battery tech, and healthcare.
Apple is clearly aiming to be at the center of consumer wellness and preventive health with its Watch product.
TABLE OF CONTENTS
- Organization & Priorities
- Org chart
- Analysis of open jobs listings
- Earnings calls trends
- Future-defining Initiatives
- Artificial intelligence
- AI M&A trends
- AI patent trends
- Augmented reality
- AR M&A trends
- AR patent trends
- AR earnings calls trends & future offerings
- Autonomous vehicles
- Battery technology
- Auto M&A activity
- Apple Watch
- Smart home
- Watch and ResearchKit
- Media & services
- $1B content budget
- New personnel
- Cybersecurity & biometrics
- Core business in multi-touch computing
- iPhone X
- Artificial intelligence
- Final Words
Organization & priorities
Apple remains a top-down organization with a great deal of CEO control
Apple used to be infamous for its top-down approach. A longtime trusted member of Steve Jobs’ team, now-CEO Tim Cook was originally hired out of Compaq to revamp Apple’s broken supply chain.
In contrast to Jobs’ showmanship, Tim Cook is “a ruthless systems guy” who rose to Jobs’ inner circle by managing the unglamorous parts of the business.
Today, it seems that Jonathan Ive has assumed control as Apple’s design lead, the role once held by Jobs, while Cook manages just about everything else.
According to Apple’s key people website, Tim Cook has over 16 direct reports, including Ive, CFO Luca Maestri, COO Jeff Williams, and various SVPs and VPs.
Apple’s secrecy extends inside the organization, with every project on a need-to-know basis. Teams often don’t know what other teams are working on, and are purposely kept apart. Former hardware executive Jon Rubinstein once told Businessweek, “We have cells, like a terrorist organization… Everything is on a need‑to‑know basis.”
Notably, Apple is a “functional organization,” meaning it doesn’t divide itself up by product line, with teams specialized according to iPhone or Mac, for example. Instead, Apple is organized by functions, so that Phil Schiller’s marketing organization handles the marketing for all products and geographies.
This is no doubt an unwieldy structure at times, given the company’s diverse business lines in software and services, phones, and computer hardware.
But at the same time, this structure allows Apple to retain what might be called a startup mentality. (In contrast, at a company with a more traditional organizational chart branching off into product divisions, product VPs might campaign to keep obsolete products on the shelf for the sake of their jobs.)
When it comes to M&A activity, Apple’s acquisition focus has centered on bolstering the dominant products of the day. For the last decade, that’s been iPhone and its iOS, and as analyst Neil Cybart of Above Avalon notes, it was once the same way for the Mac:
“For 10 years starting with the NeXT acquisition in 1997, all but one Apple acquisition were related to strengthening the Mac platform. While this may not come as a complete shock given Apple’s product line at the time, it is noteworthy that M&A was not used for the iPod or to expand into other product categories or industries. Apple then experienced five years of limited to no M&A activity from 2003 to 2007. While the outside world did not know it at the time, this ‘buffer’ zone ended up being pivotal years for iPhone development. Since acquiring P.A. Semi in 2008, every acquisition but one has been focused on strengthening the iPhone and broader iOS platform. This new iOS focus ushered in a significant increase in both the pace of M&A and the amount of cash spent buying companies.”
According to Inside Apple, a 2012 book by Dan Lashinsky, internally the industrial designers have always been “untouchable,” but as iPhone and iPad grew into the company’s premier product, “the coolest faction of the company [became] the software engineers working on Apple’s mobile operating system.” That said, 6 years later, hardware engineers are still more sought after by Apple than their software-focused counterparts.
Apple is still hiring more in hardware than in software
As of December 31, 2016, there were approximately 80,000 direct Apple employees. To see where Apple is looking to add more human capital, we collected data from its site and broke down the company’s 7,000+ open job listings.
Hardware Engineering leads by a significant margin, accounting for 34% of the open jobs.
The next largest slice was Software Engineering at 28%, followed by Sales (9%) and Operations (8%).
For a company that’s trumpeting its growing Services business and racing to beat others in fields like AI and AR, it’s somewhat surprising that Apple is focused on hiring for jobs in hardware.
Apple has made a few key hires in recent years. The company convinced former Burberry CEO Angela Ahrendts to head its retail stores (which it now has rebranded as “town halls,” to encourage the idea of stores as gathering places). In June 2017, the company poached two Hollywood veterans from Sony to spearhead its $1B push into original content, under Eddy Cue. And in April 2018, the company hired John Giannandrea to serve as Chief of Machine Learning and AI Strategy, a new position that reports directly to Tim Cook.
Additionally, Apple reportedly has 1,000 engineers in Israel working solely on ARKit.
Earnings calls reveal a focus on expansion markets like India and new products like Apple Watch and AirPods
Looking beyond job listings, we also mined Apple’s annual earnings calls to highlight recurring keywords from the transcripts, using a significance-weighting scheme to surface words and phrases. For the last 5 years, iPhone has dominated the conversation, as have other main products like iPad and Mac.
Over the years, geographies like China, Brazil, Russia, and the United States are frequently mentioned, but in 2017 India seemed to be a new focus. Apple is increasingly looking to new markets like India for growth, seeing slowing growth in more mature markets like China and the US.
AirPods, Apple Watch, and augmented reality have also seen increasing mentions.
Increasingly, Apple has been underscoring its strong performance in “Services” (i.e. software-enabled digital purchases and cloud services), including Apple Music. However, as we’ve seen in hiring and other areas, hardware is still a focus.
As mobile penetration becomes higher, explaining Apple’s strategy for dealing with the “upgrade rate,” which is slowing, and its play for the high-margin “high end” market has become another theme. Here, Apple is explaining slowing iPhone sales and its effort to wrest more lifetime revenue from its customers.
In contrast to Google, which has called itself an AI-first company and mentions AI frequently in earnings calls, Apple execs are not emphasizing artificial intelligence in earnings calls.
Artificial intelligence is Apple’s Achilles heel — and the company is turning to M&A to shore up its AI efforts
Pulling back the curtain on its AI effort, Apple appears to be behind.
Usage of Apple’s voice assistant Siri dropped in 2016, according to third-party data source Verto Analytics, whereas usage of Amazon’s Alexa grew.
Expanding Siri’s footprint with HomePod — Apple’s premium audio take on Amazon’s Echo product and Google Home — was meant to be a start to the fight against the Echo. After being dogged by delays and missing the crucial Christmas season, Apple started shipping HomePod in early 2018 (as opposed to late 2017 as intended).
More broadly, Apple seems to be consciously skirting the conventional wisdom on data and AI. For many companies today, every user interaction is thrown into cloud-based machine learning models to help tune products, such as for tagging photos in a photo app. Google Photos is considered to be a prime consumer-facing example of this.
But Apple has taken what might be called a “cloud-wary” approach, favoring a model where computation is largely done locally on its devices, without user data leaving the device.
This has worked in part because Apple is primarily in the business of selling devices, as opposed to selling advertising space like its rivals Facebook and Google, which seek to harness user data in the cloud whenever possible in order to increase consumer engagement on its platforms.
In 2015, Tim Cook acknowledged Apple’s unique stance on aggregating user data over privacy, stating:
“Some of the most prominent and successful companies have built their businesses by lulling their customers into complacency about their personal information. They’re gobbling up everything they can learn about you and trying to monetize it. We think that’s wrong. And it’s not the kind of company that Apple wants to be.”
Inevitably, strengthening Apple’s offerings has meant a shift toward AI. In mid-2017, Apple unveiled a new machine learning framework called Core ML, which will give its iOS developer community the ability to create apps that leverage more on-device computation using machine learning. Core ML also has computer vision and natural language processing frameworks that enable apps to label photos and objects and identify languages. The company also broadcast it’s making AI a dedicated effort by hiring John Giannandrea as Chief of Machine Learning and AI Strategy.
AI M&A TRENDS
The new AI focus has been echoed in its M&A moves, and Apple has ranked as the second most active corporate acquirer of AI startups, with a total of 12 AI-related acquisitions over the past 5 years. More recent deals include Apple’s acquisition of Init.ai, image platform REGAIND, as well as its notable acquisition of Lattice Data at a $200M valuation last May.
Even looking only at its largest acquisitions, there’s a recent trend of Apple spending big on startups employing machine learning.
With the company now designing its own machine learning GPU-based hardware for the iPhone X, we could see more acquisitions in this area.
Apple’s strength in designing purpose-built chips will come in handy as corporates like Intel, Qualcomm, and Google put billions behind machine learning-specific chips for data centers and devices.
Presently, the chip world is white hot, with incumbents and venture-backed startups looking to take on the preeminent GPU maker Nvidia. By adding an Apple-designed GPU to the 10th anniversary iPhone X, the company is clearly taking the hardware front of AI seriously.
But for Apple to mount a meaningful offense here, it needs success on the software and data fronts.
AI PATENT TRENDS
Apple is fairly active in seeking patent protection on its intellectual property. Most famously it has patented relatively mundane things like the iPhone’s packaging and Apple Store shopping bags.
Of course, an individual patent might only be an early sketch of a potential product. And many patents do not amount to products. But taken together, activity across hundreds of patents can reveal strategic direction and priorities.
Interestingly, Apple’s top patent segment is cybersecurity, which has seen 533 patents betwee 2009 and late 2017. The next most common patent focus was AR/VR (253 patents), followed by autonomous vehicles (72).
In comparison, only a small share of patents (22) have focused on artificial intelligence.
The fact that Apple has fallen behind on its AI patent portfolio is highlighted by a comparison of AI-related patents among the Big 5 global tech companies.
Apple’s big bet on augmented reality
Today, FaceID, which unlocks the iPhone X by spraying thousands of infrared light rays to recognize a user’s face, is the iPhone X’s hottest new feature.
But this direction was clear in retrospect when looking at patents. Apple has 5 patent grants and 2 outstanding applications for patents in facial recognition dating back to 2015. In addition, it acquired facial-tracking software maker Faceshift back in 2015.
Likewise, Apple obtained at least two patents in 2017 that in retrospect seem key for iPhone X screen innovations: one for reducing the border area of the device, and another one for embedding a fingerprint sensor in the display.
Below is a drawing from Apple’s patent for “Locking and unlocking a mobile device using facial recognition” (granted in October 2016) side-by-side with the final product at launch:
Clearly, Apple’s future direction is not divorced from patent and M&A bets. AR looks to be squarely in Apple’s cross-hairs given the data we looked at.
AR M&A TRENDS
AR has been a serious M&A target in recent years: Arguably, Apple’s most important recent acquisition was PrimeSense, whose infrared (IR) technology first made waves inside the Kinect, a body-sensing add-on for Microsoft’s Xbox. As tech outlets have pointed out, the “notch” in the iPhone X is basically a shrunk-down Kinect to enable FaceID.
While it’s primarily used for mapping faces now, the infrared camera in the iPhone X could be used by future augmented reality apps to enable front-facing AR applications. For example, you could point your phone at a vacant lot, and the phone would spray thousands of infrared dots into the area’s contours to render an image of how a custom home would look in that area.
Other AR/VR acquisitions, like the recent Sensomotoric Instruments deal, a computer vision company for AR headsets, indicate a serious hunger to expand here. Earlier AR acquisitions include Apple’s purchases of FlyBy Media and metaio. Meanwhile facial recognition acquisitions (Emotient, RealFace, and Faceshift) could certainly have applicable technology too.
Notably, the 2017 acquisition of Vrvana (for $30M) solidified the notion that Apple is pursuing AR headsets/glasses.
Vrvana’s headset technology, pictured below, offers both AR and VR capabilities. So far, it appears to be Apple’s first AR hardware (as opposed to AR software) acquisition, and its positional tracking could more immediately strengthen ARKit.
Even more recently, Apple made its second AR hardware acquisition by buying Akonia Holographics in August 2018. Akonia’s underlying technology originally attempted to create a data storage system using holograms. But after financial difficulties, the company reapplied it to AR and making high-performance visual displays.
Now with two serious AR hardware acquisitions, Apple has cemented its commitment to developing AR by any means necessary.
AR PATENT TRENDS
Apple is also looking beyond the physical iPhone screen for AR, and holograms are apparently on the table.
The below patent application, called “Interactive three-dimensional display system,” details a system that projects hologram-type images that can be manipulated by users in mid-air, without the need for special glasses to see them.
The application, which was filed in October 2012 and could be part of the larger AR initiative, mentions the fields of education, medical diagnostics, and biomedical engineering as possible application areas.
AR in the form of holograms is definitely a possible future direction that augmented reality could take. AR via hologram would mean that projectors could beam images into physical environments (much as robots do in movies like Star Wars).
In doing so, holograms could remove the need for clunky headsets which have been a barrier to consumer adoption of AR. Lightform, a San Francisco-based startup, has raised nearly $8M to pursue this vision. Additionally, the acquired IP from Akonia‘s hologram tech could bolster this effort.
AR EARNINGS CALLS TRENDS & THE FUTURE OFFERINGS
While often tight-lipped about its future products, Tim Cook has a tendency to foreshadow Apple initiatives in interviews and in quarterly earnings calls.
To get an idea of what’s to come, we looked at technologies and geographies mentioned during the company’s earnings calls and graphed them over time, using CB Insights’ earnings transcripts search engine. We found:
- Mentions of AI are a recent phenomenon, beginning only in Q3’16.
- Autonomous vehicles (AVs) were first mentioned in late 2017.
- By far, AR/VR is the most-mentioned sector we examined, tallying 33 mentions between Q1’16 and Q4’17.
- In the Q4’17 earnings call, AR/VR keywords were mentioned 15 times, lending credibility to it being a big bet.
Notably, Apple’s AR headset may be coming soon. Different pieces of evidence suggest Apple has been investigating virtual and augmented reality applications for more than a decade. And revelations suggest Apple is going to have a standalone AR headset by 2020. The AR project, dubbed “T288,” is reportedly led by Mike Rockwell, a key hire taken from Dolby Labs who is overseeing a team of several hundred.
The product will have its own rOS, or Reality Operating System, which will be the spiritual successor to Apple’s mobile platform.
At WWDC in June 2017, Apple went public with its first major effort and unveiled ARKit, which are tools for iPhone and iPad app developers, as well as opening up a machine learning library called Core ML.
In just a few short months, ARKit developers have released hit augmented reality apps that will reach any Apple customer with an iPhone 6S or above. Today, that figure amounts to over 380M iPhones and devices, but ARKit’s footprint is projected to boom up to 850M units by 2020.
The smash hit AR mobile app Pokemon Go was reported to be the most downloaded app in its first week in App Store history. Apple is also said to have 1,000 engineers working on ARKit in Israel.
And there’s already a growing ecosystem of AR apps, which are turning the iPhone into what is arguably the most-used device for experiencing augmented reality. Apps range from furniture retailers like Ikea allowing users to visualize furniture in their homes to educational games for kids that project puzzles onto their bedroom walls, and many more.
In an early 2017 interview, Cook said he sees AR as Apple’s next big thing:
“I regard it as a big idea like the smartphone …. I think AR is that big, it’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining. I view AR like I view the silicon here in my iPhone, it’s not a product per se, it’s a core technology. But there are things to discover before that technology is good enough for the mainstream.”
Cook has also reiterated that “AR is going to change everything.”
According to Apple’s Q1’18 earnings call, the App Store boasts over 2,000 apps that use ARKit.
But Apple faces some headwinds here as well. Serious gamers and visual developers overwhelmingly use non-Apple PCs for their graphics and VR experiences.
When released, Apple’s headset will surely compete with the Google and Hollywood studio-backed startup Magic Leap, which has been focused on pursuing an AR headset since 2011. (In 2018, Magic Leap released its One headset to the public, although the jury is still out on its reception.)
Additionally, Apple’s patent portfolio in AR/VR, while sizable, is modest compared to its competitors. Microsoft, Google, and Facebook have been aggressive in this space, and have outpaced Apple in pursuing patents.
Finally, while Tim Cook has spoken frequently about augmented reality, VR has mostly been neglected. Facebook’s Oculus, Google Daydream, and Microsoft, among many others, have kickstarted developer communities and built headsets and phones for the burgeoning VR space, while Apple has seemingly placed all its chips on AR.
Apple’s automotive project pivoting to software and batteries
Autonomy, electric vehicles (and batteries for cars), and car sharing are the pillars on which the future of cars is being built. Apple has dabbled in all three areas, but sputtered when it comes to actually building a car.
It’s a fairly open secret that Apple was working on an autonomous vehicle (AV), and Apple researchers recently published a paper about 3D detection of pedestrians and cyclists, based on only LiDAR.
But overall, details on the project, internally dubbed “Titan,” are scant.
CEO Tim Cook has said cryptically, “We are very focused on autonomous systems. We do have a large project going, and are making a big investment in this. From our point of view, autonomy is sort of the mother of all AI projects.”
Apple brought on new employees for a self-driving car years ago. But today, ambitions have been scaled back to just developing software for self-driving cars. According to the New York Times, internal disagreements and a lack of unifying vision derailed the project:
“The team also worked on a new light and ranging detection sensor, also known as LiDAR. LiDAR sensors normally protrude from the top of a car like a spinning cone and are essential in driverless cars. Apple, as always focused on clean designs, wanted to do away with the awkward cone.
“Apple even looked into reinventing the wheel. A team within Titan investigated the possibility of using spherical wheels … instead of the traditional, round ones, because spherical wheels could allow the car better lateral movement.
“But the car project ran into trouble … dogged by its size and by the lack of a clearly defined vision of what Apple wanted in a vehicle. Team members complained of shifting priorities and arbitrary or unrealistic deadlines.”
While it’s noteworthy that Apple would approach the car with zero assumptions, all the way down the to the wheel, the company may have been biting off more than it could chew. To head the car project going forward, Apple tapped the former SVP of Hardware Bob Mansfield as its new leader. And in its refocused effort, Apple seems to be making steady progress.
The company has reportedly expanded its number of test vehicles from 27 to 66. Additionally, Apple is now said to be working with Volkswagen on autonomous shuttles for Apple employees (many AV startups such as Zoox are starting with driverless shuttles on closed campuses). Finally, the company managed to poach high-level auto executives Jaime Waydo and Doug Field from Waymo and Tesla, respectively.
Auto is a crowded space (we’ve identified at least 46 companies working in AV), and Apple’s chief competitors like Google have had autonomous prototypes since 2009, putting them miles ahead in both real-world training data and even the software that operates the cars and hardware. OEMs have also seen opportunities in the space, as GM’s $1B acquisition of Cruise Automation showed. How Apple fares here will be a test of its mettle.
One area where Apple is seeing more success in the auto space is in its focus on battery technology. As new-age cars increasingly resemble iPhones on wheels, Apple’s investment in battery technology and a lithium supply chain may give it an advantage in the electric car market.
Already, the company has been reported to have partnered with CATL, China’s largest automotive battery maker, which could make a large-scale lithium-ion unit for Project Titan. In addition, Apple’s investment into Chinese ride-hailing unicorn Didi Chuxing could give the company a partnership that could potentially yield valuable driver data as it mounts its autonomous car project.
As of 2017, the company is also applying for patents related to battery technology. In fact, of the 20 most significant phrases in Apple’s 2017 patent applications, 6 were directly related to improving battery technology.
The second most significant phrase for 2017 was “active material”, which relates to the chemical compounds involved in the creation of compact energy-dense batteries.
While battery tech could be related to the holy grail of smartphones — a device that will last for days on a single charge — battery tech translates well from smaller devices to larger applications like homes and cars
Note: The patent filing process involves a significant time-lag before the publishing of patent applications. This delay can range from several months to over two years, meaning that records prior to 2013 are likely complete at the time of analysis, but there may be applications from 2014 on that have yet to be published.
AUTO Investment TRENDS
Unlike its peers, Apple doesn’t have a corporate venture arm, and instead buys companies outright. Apple’s $1B investment into Didi Chuxing in Q2’16 was the first of its kind in decades.
In 2017, Apple announced a $1B fund set aside for Advanced Manufacturing. The fund’s first investment was a $200M investment into the publicly-traded Corning, which makes Gorilla Glass on iPhones.
Where other OEMs like BMW have active venture arms, Apple has none. Relying on in-house efforts and M&A (with no known AV deals yet) is an undiversified approach, and Apple will need to divert vast resources if it plans to make a mark in auto.
Wearables for the post-iPhone world
Apple is building for a phoneless future, beginning with the Apple Watch.
Above all, the company is leveraging its sterling consumer brand and engineering chops to bring personal computing to smaller, more convenient, and effortless user experiences.
Moving into wearables also gives Apple new insights into biometrics data, and conceptually enables “continuous computing” when it’s worn 24/7.
At Apple’s Q4’17 earning call, Tim Cook said the entire wearables business was up 75% year-over-year in the fourth quarter and in fiscal 2017 and had “already generated the annual revenue of a Fortune 400 company,” which puts it in the range of a $6.7B+ revenue company.
Announced in late 2017, the Apple Watch 3 was the first to feature cellular reception, giving it the ability to make calls without an iPhone nearby.
In other words, the Watch already allows Apple users to leave the house with just a watch and perhaps in-ear AirPods to listen to music and take calls and not feel they need a smartphone to get through their day.
Meanwhile, the data derived from Watch is also enabling large-scale research with Stanford to aggregate users’ heart rates and identify anomalies. The fact that the Watch is worn continuously will provide new insights into health and wellness efforts.
Analyst Ben Thompson of Stratechery wrote that design, interaction/UX, and environmental awareness will be key for the Watch going forward:
“Apple and its competitors’ ability to deliver on each of these factors will determine whether the category ends up being a nice side business to phones, or the next step in the trend towards ever smaller and more convenient personal computers.”
Introduced in late 2016, the AirPods wireless headphones are the next obvious touchpoint for the human-computer interface.
Part of AirPods’ early success comes from Apple’s custom-built W1 chip for headphones, giving it a competitive edge in range and battery life.
And in a virtuous cycle, success in headphone hardware only feeds into the Apple Music brand, which has acquired users at a rapid clip.
AirPods underscores Apple’s ambition to design products for constant, ambient, passive use in the post-smartphone era.
Historically, it’s evident how Apple phases out obsolete technology like the iPod in favor of its next big thing. AirPods and Apple Watch, which represent only 6M and 13M units sold in 2017, are set to grow into a greater proportion of the iPhone’s units sold. In 2017, Watch and AirPods combined sold as many units as the Mac line.
HomePod and Apple’s foray into smart building design
The Homepod is Apple’s answer to the Alexa-style vocal computer and will be a proving ground for Siri and its smart home efforts. Among its peers, Apple is last to market for a home voice computer, with Amazon’s Echo device and Google’s Home device as prominent competitors.
To differentiate itself, Apple stresses HomePod’s premium, quality audio as a music playback device. Notably, Apple also offers HomeKit, a software platform for smart home devices.
So far, estimates say the units sold has doubled between March and June of 2018. But the 3M units sold only translates to about 6% of the smart speaker market share, versus Amazon’s 70% and Google’s 24%.
Whatever growth its first iteration sees, Apple’s HomePod could be the first signal of a wider move into the smart home market. Apple has a history of being a late but transformative entrant, as it was with the smart watch and the mobile phone. So success with HomePod and potential ancillary devices should not be ruled out.
More broadly, Apple analysts have theorized that the Steve Jobs Theater and Apple’s new $5B Cupertino Headquarters were the company’s first steps into building and home design. Some even argue that Apple’s theater, new headquarters, and retail stores are themselves Apple products.
Apple is a design company, after all, and it’s not unfathomable that it could get into selling smart homes, designed from the ground up. Smart Apple devices could be part of these homes’ tech core, engineered to be operated with Apple products like the Watch.
While the idea is just speculative for now, in the future Apple could quickly enter into modular home construction by buying a company like Kasita, offering rooms tailor-built in harmony with its tech ecosystem.
Healthcare could be the next big vertical
The late Steve Jobs’ daughter revealed that, in his final days, Jobs sketched out plans for an iPad-enabled hospital unit from his hospital bed, with ideas for fluid monitors, X-ray equipment, and a blueprint for a better room design.
Today, Apple has been edging into healthcare. With an iPhone footprint that’s approaching 1 billion users, it’s well-positioned to make a dent in research data and even care giving.
Apple began its foray into health with its Health app and fitness tracking via the Apple Watch. However, with its acquisition of Gliimpse and partnership with Health Gorilla, the company is slowly shifting to offer a full personal health record.
Apple is also increasing its attention on clinical-grade data capture, as indicated by its partnership with the FDA to detect cardiac anomalies, its foray into creating non-invasive glucose monitoring, and its patent to turn the iPhone into a diagnostic tool.
Moreover, Apple’s ResearchKit app allows researchers to use iPhones to conduct large-scale research studies.
Apple leaders have been explicit in talking about the company’s involvement in diabetes and heart disease-management, two of the largest cost drivers in healthcare in the US.
To improve outcomes, Apple is leveraging CareKit and its partnership with Health Gorilla, a platform for clinicians to coordinate patient care, to get all stakeholders in a patient’s medical care on the same page.
The company’s partnership with American Well and existing telemedicine patents suggest that Apple is also looking to be involved in connecting patients to care.
Apple also reportedly considered buying corporate clinic startup Crossover Health, which would have given it credibility for a push into physical health care delivery. Instead, it built its own clinics.
Relative to other tech giants, Apple has a sizable health-related patents portfolio, which could give it an edge.
Apple also has a strong consumer-focused brand: notably, iPhone had a Net Promoter Score of 60 in 2017, compared to an average score of 12 for the health insurance industry as a whole. Healthcare may be a huge opportunity for the company to leverage its massive platform to scale in a market where other tech giants have been shy.
Apple may be investing too little, too late into content
The “Services” arm has become a growing profit engine inside Apple. Centered on digital commerce platforms like iTunes, Apple Music, the App Store, iCloud, and Apple Pay, the business arm represented 13% of Apple’s revenue in 2017 and saw 23% growth year-over-year.
It’s an impressively sized business in its own right: Q1’17 services revenue was nearly 2X that of Amazon’s hyped AWS unit and 3X that of Netflix.
Similar to Amazon, Apple is looking to create scalable services that have low marginal costs, and seeking to use Apple Music, video, and other media to lock in people to its platform and devices and make them more valuable. The company’s 2018 acquisition of Texture, an app for digital magazine reading, indicated it’s serious about advancing print media. The company is reportedly seeking content deals from major newspapers to appear in its subscription service.
Apple Music has made streaming a major aim, and is already competitive with similar services despite launching years later. That said, Spotify still dominates the scene with over 80M paid subscribers.
Apple announced it will spend $1B in 2018 to develop original content and acquire rights for existing content. Meanwhile competitors like Netflix and Amazon spent at least $6B and $4.5B respectively in 2017, on original content alone.
Under SVP Eddy Cue, Apple’s content arm will need to develop content to rival shows like Game of Thrones, Stranger Things, or Amazon’s upcoming Lord of The Rings television series. Already, Apple has announced a show featuring Jennifer Aniston and Reese Witherspoon is being developed, based on Spielberg’s Amazing Stories sci-fi series from the 80s.
As mentioned above, Apple has made moves to get the right executives for this very personality-driven business.
First, it brought in Sony TV presidents Jamie Erlicht and Zack Van Amburg (the two oversaw Breaking Bad, among other shows) to head the entire effort. Apple has also poached Amazon Studios executive Morgan Wandell to oversee its international division and hired ex-BBC and Channel 4 executive Jay Hunt to oversee development in Europe.
Apple has experience in the media arena from licensing deals for Apple Music, iTunes, and more, but its relatively weak investment in original content does not position it well to catch up with dominant players.
Cybersecurity and biometrics may be overlooked strengths
Apple has quietly made great efforts in securing its platforms. As company after company gets battered by high-profile cybersecurity breaches, Apple has maintained an enviable track record.
In part, this may be because Apple’s OS and iOS represents less than 13% of devices worldwide, but Apple has also taken cybersecurity of its “closed system” very seriously, and its end-to-end control of hardware and software helps. The company’s user base updates software at a fast rate, increasing its cyber hygiene, while Apple’s tightly-controlled App Store makes every application go through malware vetting.
On other systems, the non-standard hardware components can have varying levels of security, creating more security holes.
Moreover, all of Apple’s devices have come standard with strong encryption since 2016. (This has made for an awkward relationship with law enforcement, when Apple said it wasn’t possible to help the FBI decrypt a shooter’s iCloud data).
In terms of patents, cybersecurity was the largest segment of Apple’s IP portfolio, and is sizable relative to Google’s activity.
With the next wave of smartphones incorporating facial recognition, Apple appears to have other biometric logins in the works. Its patent for “Using biometric verification to grant access to redacted content” was granted in July 2017, and mentions iris-reading as a potential unique identifier:
“The biometric reader reads a person’s uniquely identifying biometric data (e.g., thumbprint/fingerprint, iris scan, voice, etc. … When the biometric data matches the stored data, the person is verified.”
The patent’s images show how personal information in a text message could be blurred out until the user is verified by the eye reader.
Potentially, a seamless and totally passive means for identifying users with the Apple Watch could revolutionize services like payments with Apple Pay.
Finally, physical on-premise security could harness Apple devices as a kind of wristband-enabled ID. Biometrics are taking hold in industrial cybersecurity, with companies like Nymi using unique cardiac signals to ensure the right person has physical access to critical infrastructure.
Core business in multi-touch devices and computers
Apple’s core business remains the iPhone, which accounted for 62% of the company’s net sales in 2017.
With the iPhone X (pronounced “ten,” not “ex,” according to the company), Apple seemed to be moving toward more ambient computing, where the physicality of the phone is less of a focus.
Eventually, perhaps the screen itself will become obsolete. As we see in existing patents, Apple is researching holograms, or a “digital scroll” — perhaps beamed from an Apple Watch, glasses, or other wearable — as alternatives to the OLED screen of today.
The primary change on the iPhone X is the phone’s new “notch,” which houses a bar of sensors (including the infrared camera but with many other sensors as well).
Today, these sensors help with the new FaceID unlock feature. In the future, however, these sensors may enable SLAM (simultaneous location and mapping) for augmented reality, both on future iPhones or as part of a next-gen headset.
There could also be unknowable ripple effects at the application layer. Already, FaceID mapping is enabling vendors like Warby Parker to suggest pairs of glasses that fit certain head shapes, and we’ll likely see more applications built atop the technology.
Processing the 30,000 light dots on a human face takes a powerful processor, and Apple introduced house-designed GPUs for handling machine learning locally on the phone.
Apple’s history of building purpose-built chips, such as the “A” line for iPhone and the W1 chip for headphones, has paid dividends for bolstering devices’ onboard capacity.
Even with such leaps forward, the question remains: can Apple develop the future of personal computing while so deeply entrenched in supplying the dominant device of the day? Not to mention maintain and improve product lines like the iPad and Macs, which hundreds of millions of Apple users also depend on.
Apple’s push into wearables, watches, and more ambient computing shows how it’s trying to break the mold. But in both its existing business and on new frontiers it faces stiff competition: Facebook, Google, Amazon, and other giants are also pushing the limits of new AI- and voice-focused computing platforms.
As the first company to surpass a $1T market capitalization, in financial terms it’s never looked better for Apple.
Yet technology success is ephemeral. The future of Apple hinges on nailing yet another platform. The trouble is, nobody knows for certain what’s next.
Apple has allowed its lead to slip in hyped areas like AI and voice-led computing, and bided its time when it comes to spaces like smart home and cloud services. Meanwhile the company has doubled down on AR and wearables over VR and home devices (to date, at least, with HomePod still in infancy and Apple TV failing to buck its reputation as Apple’s “hobby”).
But Apple is a company that’s rejected conventional wisdom, critics, and naysayers again and again to great success, by betting on large macro trends and getting it right.
Apple bet on the smartphone market when many said it couldn’t be done by the “iPod company,” and it proved everyone wrong.
It bet late on smartwatches and wearables when many analysts were convinced these were DOA categories, and has now claimed an early dominance.
Currently, AR is the far-flung counterpart to the immersive VR championed by Facebook and Mark Zuckerberg, but Apple has nonetheless pushed forward in that arena over many others. It ditched and reorganized its car effort despite being publicly chided by Tesla CEO Elon Musk.
Apple is comfortable with product risk, but what about its organizational risk?
Another self-reinvention may require a new design philosophy that embraces failure. It may require a deeper appeal to fostering a developer community, and could even require a re-organization to better organize Apple’s sprawling (and sometimes converging) product lines.
Above all else, Apple must retain its revolutionary spirit while shedding its past. It’s a tall order for any company, let alone the world’s most valuable one.
But as Apple searches for its next platform technology, it should recall the words of its late founder: “If you haven’t found it yet, keep looking. Don’t settle.”
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