The Talk Show

240: ‘Drastically Shakier’ With Ben Thompson


00:00:00   - We don't have anything to talk about.

00:00:01   - We don't, nothing to talk about.

00:00:02   I am on here slowly for self-promotion

00:00:04   'cause I wanna tell people that Exponent started again.

00:00:07   (laughing)

00:00:09   - What's the URL, Exponent.fm?

00:00:11   - Yeah, but I, you know, we do a hiatus

00:00:13   and I'm like, why not just leave it in your podcast?

00:00:15   But no, people like to lead it,

00:00:16   so now I have to tell people.

00:00:18   (laughing)

00:00:21   - Oh my God, where do we start?

00:00:23   We can't screw around, I don't think, can we?

00:00:25   - There's always room for screwing around.

00:00:28   It's been eight months because the last time,

00:00:30   you can tell on Skype because it says the last time

00:00:32   you called someone on Skype and it was eight months ago.

00:00:35   - Wow, that is a long time.

00:00:37   That's unusually long, especially for someone

00:00:40   who tends to have the same people over and over again.

00:00:43   - I've lost my title to Moltz pretty significantly

00:00:46   at this point.

00:00:47   - Well, Moltz had the back-to-backer.

00:00:49   - It's tough to come back with that.

00:00:51   - It was the multiest.

00:00:52   I talked about that on the show, right?

00:00:55   - I don't remember.

00:00:58   It was like, I was like, I haven't had Moltan forever.

00:01:00   I'll have Moltan.

00:01:01   And then the next week it was like an emergency,

00:01:02   like needed to do a show.

00:01:05   And like one, two, three, four people after another

00:01:08   couldn't do it when I could do it.

00:01:09   And then I had to go to, had to hit the Moltz button,

00:01:12   even though he had just been on.

00:01:14   Made for a good show.

00:01:16   Good old Moltz.

00:01:17   Who you liking in the NFL?

00:01:21   - I don't know.

00:01:22   I don't, I'm probably the chief, I guess,

00:01:24   just because I think Andy Reid is a great coach

00:01:27   I'd love to see him sort of win. But it's hard to follow the NFL in general because

00:01:33   the time zone issue and then also the general feelings of guilt. But also the Packers were

00:01:40   bad this year, so that makes it a lot easier to not pay attention.

00:01:44   What the hell happened there? Now, they fired their coach halfway through the season, which

00:01:47   is unusual in the NFL and particularly unusual for a well-run organization. And the Packers,

00:01:54   success shows that they've widely considered a well-run organization. If the Jets fired

00:02:00   a coach halfway through the year, who the hell would be surprised?

00:02:03   Yeah, I think in part that was being a well-run organization. If you know he's not coming

00:02:08   back, why leave him dangling out on a vine? It was pretty apparent to everyone that it

00:02:13   was time for that era to end. I think some of us probably felt that era should have ended

00:02:16   several years ago. If management has come that decision, then why not let him go, get

00:02:22   a head start on the coaching search and don't leave him dangling out of line. Actually,

00:02:26   if anything, give him an opportunity to look for a new job as well. I don't see any problem

00:02:31   with the fire in the middle of the season. If you're going to move on, move on.

00:02:35   Especially if you know your season's over in the NFL. Who the hell would have thought

00:02:39   two years ago, I think it was two years ago, it seems like yesterday, two years ago when

00:02:45   my beloved Dallas Cowboys were playing your Packers in a playoff game. And the Cowboys

00:02:52   lost through coaching mismanagement. There's no other way to describe it. I mean, managing

00:02:58   the clock is the most important game time thing that a coach can do, I think. A combination

00:03:04   of coach and quarterback, but the coach, it's on the coach.

00:03:07   Speaking of Andy Reid. Right, exactly. Clearly, a coaching error. I'm not going to say that

00:03:14   Cowboys would have won, but I think it was extraordinarily likely that just by managing

00:03:19   the clock properly, they would have won. Everybody expected, I mean, who the hell didn't expect

00:03:25   Carrot to be fired immediately? I really thought that, you know, his goose was cooked. And

00:03:30   here we are two years later and Jason Garrett's still coaching the Dallas Cowboys and Mike

00:03:35   Murphy's out.

00:03:36   - I know Mike Murphy is the president of the Packers. So I was, you know, Packers famously

00:03:41   don't have an owner. Well, they do have an owner. I am one of the owners, along with

00:03:46   half the state of Wisconsin. So there's a team present that makes these decisions, which

00:03:51   is good and bad. I mean, the good thing is obviously there's lots of downsides that come

00:03:54   to an owner. The Packers will never move. If the team were ever not in Green Bay, it

00:04:01   would have to be disbanded and the proceeds would go to the local American Legion or something

00:04:04   like that. So that's all very cool. But kind of the problem is that you don't have an

00:04:11   owner sort of banging on the door saying why are we don't we have when the all-time great

00:04:15   quarterbacks why are we not winning more Super Bowls and I think that's been a bit to the

00:04:18   Packers detriment over the last few years so it Mark Murphy has been in that role so

00:04:23   he's the one that's hiring the new coach they hired a guy named Matt LeFoure who was previously

00:04:28   the offensive corner of the Tennessee Titans which doesn't seem like much they out of but

00:04:32   they had a lot of injuries and I think they're there there's a stat like they're expected

00:04:37   yardage on past plays was super high. They just didn't have very good players. And then

00:04:41   he was previously the offensive coordinator with Sean McVay in LA and Kyle Shanahan before

00:04:47   that. So he's got a really, really great background. I'm pretty excited about the

00:04:51   hire. I really wanted them to go with a young guy, but everyone wants to do the young guy

00:04:55   thing after how successful McVay's been. And I think of the options there, I think

00:05:01   I really like the pick personally. So I'm pretty excited about it.

00:05:04   All right, that's enough football talk

00:05:06   We don't wanna

00:05:08   Yeah, especially these footballs definitely moved into like a solid number three for me

00:05:12   Yeah, I am all-in on basketball as you know and the Bucks are amazing and absolutely have a title shot this year

00:05:18   and then last year's bruise run was awesome, which I think we ever talked about but

00:05:23   Great great run. They added they added

00:05:27   The names now escaping me the the Dodgers catcher. Oh, yeah, I'm all them

00:05:32   Which is a great signing. So yeah, I think things are Milwaukee sports are looking pretty solid. Yeah, Milwaukee Bucks

00:05:39   That's a good example of power of coaching really. I mean, it's oh man talent wise is fundamentally not that not a different team

00:05:46   but with a completely different strategy and

00:05:49   a tremendous

00:05:51   unbelievably different result

00:05:53   It's been such a tremendously delightful season in part

00:05:57   You know the first and foremost because the team is good and it's fun to cheer for a good team and particularly last year

00:06:02   It was so miserable because you you wanted to cheer for the team to win

00:06:05   But every win felt like that would make the coach stay longer with that. You clearly needed a change

00:06:10   That's a very miserable place to be as a sports fan

00:06:12   But the other great thing about this year then is they're super successful and also just tremendous heaps of I told you so

00:06:19   which is which is a you know of definitely a

00:06:23   Probably evil pleasure but an enjoyable and I know that the sports stuff often, you know

00:06:28   There's a lot of you out there who are rolling your eyes because you're not into sports

00:06:31   But I do think that for the talk show's audience of, you know, let's face it, nerds, I do think

00:06:36   that there's a fascinating trend in your and my lifetime in pro sports, which is the rise of

00:06:42   analytics. And sort of the downfall of old school, go with your gut sports man, you know, man, you

00:06:52   know, picking players, you know, there used to be like, you know, people actually pick baseball

00:06:57   players based on how they look. Swing looks good. Let's sign them. That's how they'd sign

00:07:01   kids out of high school. Everything is so driven by data and analytics in sports now,

00:07:08   if you want to be successful, because it works. The Bucks are just proof of that.

00:07:14   You introduced me to NBA Twitter. NBA Twitter is truly Twitter at its best. All the problems

00:07:20   that Twitter has is, if you're a sports fanatic, getting involved in the Twitter circle of

00:07:26   your favorite sport or team, it is truly a great way to feed an obsession. And Buck's

00:07:32   Twitter was 100% convinced that with a coaching change and a shift in strategy, the Bucks

00:07:38   would be a terrific team. And it's exactly what happened.

00:07:43   It's delightful. Here's a really interesting point, though. This definitely, if you want

00:07:49   to do a real tie-in to this discussion and the rise of nerds and whatnot, back to the

00:07:54   stuff we talk about. I think that a mistake a lot of, you know, it's weird because if

00:08:00   you're in the world where you're like, you're just the blind leading the blind, it's like

00:08:03   we've always done it this way. Obviously having a data driven approach is much better. And

00:08:09   so there's been a big sort of return to having that sort of approach to having been very

00:08:15   good at using data. But now the problem with sort of using data in your decision making

00:08:19   is everyone generally speaking has access to the same data. Now there's folks that have,

00:08:23   different and more advanced analytics departments

00:08:25   and it's a real sort of arms race to get better at that.

00:08:28   But they're sort of diminishing returns.

00:08:30   And I think there's an analogy here to the business world

00:08:32   where once people figured out you should focus

00:08:35   on operational efficiency and using data better

00:08:37   along those lines, this is part of the whole revolution

00:08:41   in part driven by competition with Japan

00:08:42   and supply chain efficiency and all those sorts of things,

00:08:45   that there was a huge amount of returns to it

00:08:48   but there's not necessarily

00:08:49   sustainable differentiation there.

00:08:51   And one thing that I think a lot of analytics people get wrong, and I get, you know, lumped

00:08:58   in as an analytics person on Twitter, even though, like, I'm not, I am certainly analytics

00:09:05   adjacent to use the exact low term, but I'm not, you know, I don't have my own like massive

00:09:09   spreadsheets of players or anything on those lines.

00:09:11   But you know, if you look at tech, for example, the analytics movement is in many senses the

00:09:17   the speeds and feeds movement, which is the, you know, let's look at how fast something

00:09:21   is, let's look at the processor speed, the amount of memory, et cetera, et cetera.

00:09:25   It's very sort of number driven.

00:09:27   And I think the great thing about sports, and I think more and more folks are maybe

00:09:32   sort of becoming vaguely aware of this, is that there's still lots of pieces that go

00:09:36   into building a winning team, particularly in basketball, I think more than any other

00:09:39   sport, that are very, very hard to measure, that are very, very hard to sort of put on

00:09:43   a spreadsheet.

00:09:45   And there are advantages in understanding and pursuing those sorts of things.

00:09:51   To use an Apple strategy, just to use the obvious analogy.

00:09:55   And that, I think, is particularly interesting.

00:09:57   And so moving towards-- I don't think analytics is the end all, be all, by any means.

00:10:02   And it's very interesting and exciting as a sports fan to see that part of the game

00:10:08   become more and more important.

00:10:10   Yeah.

00:10:11   - To name one example, I think the Dodgers have a reputation

00:10:15   of being incredibly analytics-driven

00:10:17   in terms of who's in the lineup.

00:10:18   And I think they lost the postseason this year by doing it.

00:10:23   That they had guys, they had a bunch of outfielders,

00:10:26   like way more than three outfielders who were ready to play.

00:10:28   And they would pick who was playing based on

00:10:31   who was pitching and based on analytics models and stuff,

00:10:34   rather than just do what was smart and say like,

00:10:37   hey, how about the guy who had three hits last night?

00:10:39   Let him play again.

00:10:41   Well, I mean, that's, I mean, that, in baseball, that's particularly a huge sort of debate.

00:10:46   And, you know, I'm mixed on that because the Brewers certainly took that approach to the

00:10:51   extreme. But then again, we, you know, we basically had no pitching staff and we made

00:10:55   it to the NLTS. So, so it, you know, but yeah, we didn't make it all the way. But it's great

00:11:00   though. I mean, this is why sports is, is, sports is so fun. I think, you know, just

00:11:04   to, I know there's lots of people that don't care about sports, but it's fun because there's

00:11:08   so many angles into conversations about it and there's all in there and all the conversations

00:11:14   reach a resolution right like we can debate left and right like Bucks fans like complain

00:11:18   that the Bucks aren't getting any attention even though they're statistically speaking

00:11:22   they're by far the best team in the league like it's not even close and as far as like

00:11:26   net rating and offense efficiency, defense efficiency all those sorts of like numbers

00:11:29   things but you know what it doesn't matter if they get respect because at the end of

00:11:33   the day there's going to be a playoffs there's going to be a Eastern Conference Finals championship

00:11:37   there's gonna be an NBA championship,

00:11:38   and we're gonna know if they were good or not.

00:11:40   And that's very sort of satisfying in a way that,

00:11:43   well, lots of areas are not.

00:11:45   - Yeah, that's so true.

00:11:47   That we know who won the Super Bowl last year.

00:11:50   You can argue about who should've, but we know who did.

00:11:54   All right, we got a big agenda.

00:11:58   We really can't screw around too much.

00:12:00   I don't know, did you see my note?

00:12:03   I don't know what order you wanna talk about these things on.

00:12:04   could go most timely would be probably talking about Apple's quarterly earnings warning

00:12:14   that sort of shook the market.

00:12:17   I think that makes sense because I do want to talk about the App Store stuff, but I think

00:12:20   that that's actually an interesting thing to talk about as sort of part two because

00:12:24   it's very much in the context of what Apple does now sort of going forward.

00:12:28   Yeah, because the App Store stuff is more evergreen and I feel like it's less—I

00:12:33   I feel like the timely stuff always works better first.

00:12:35   - Yep.

00:12:37   - So let's talk about it.

00:12:39   Boy, the market had a fit.

00:12:41   - Well, justifiably so.

00:12:45   I think the thing to appreciate is there's two things,

00:12:49   there's multiple things that are going on here.

00:12:51   I mean, Apple was flying out.

00:12:53   It was only last summer that they passed a trillion dollars

00:12:54   and I think they got up to like 1.2 trillion

00:12:57   or something like that.

00:12:58   And there were two big red flags on the last earnings call.

00:13:03   The first thing is that their projection, their forecast, was already pretty low.

00:13:09   I mean, it was lower than the consensus, so that was sort of red flag number one.

00:13:14   And then red flag number two was they said, "Oh, we're not going to report unit sales

00:13:17   anymore," which is like, well, if you don't report unit sales, if unit sales were going

00:13:22   up, would you say that?

00:13:24   Well, maybe not.

00:13:25   I think also the reaction was maybe a little bit out of whack.

00:13:29   People were like, "Oh, iPhone growth is saturated," blah, blah.

00:13:32   unit sales have been flat for like two or three years now. So like the, the, the, if

00:13:38   you actually understood what's going on, it wasn't that iPhone stopped growing. The kind

00:13:42   of obvious conclusion was that the iPhone sales were going to start to decline. And

00:13:46   so that was the, there was already lots of sort of bad news in the air and the stock

00:13:51   was already sort of plummeting. I mean, the most of the stocks loss has happened even

00:13:55   before this, but then this has two parts, which is part one is the revenue is actually

00:14:00   way worse than we said. And two, we didn't know. The fact that you're way better off

00:14:07   giving a bad forecast that is accurate than having to restate your revenue. That's way

00:14:13   worse than … That's the worst possible thing you can do as far as your reporting

00:14:16   goes.

00:14:17   Mad Fientist Yeah, but then a couple other companies had

00:14:20   to too. Samsung, I think LG, a few others, a week later issued similar warnings based

00:14:27   on similar explanations, you know, slow economy in China, etc., etc.

00:14:35   Yeah, I mean, it's a little—it's interesting to say, and I think if I were to rewrite my

00:14:42   article that I wrote this past week, even after a few days, because some of this news

00:14:48   came out, and also things like car sales are down in China, there's definitely a lot

00:14:55   news out of China that the economy is slowing. We knew that even the government reported figures

00:14:59   were down and those are all generally thought to be fake anyway. And so if they're down a little

00:15:03   bit it's probably way worse. And also just on the ground I've heard a lot of scuttlebutt that

00:15:08   the trade war is definitely hurting China much more at this point than it is the US. It's hitting

00:15:16   pretty hard. And so there's definitely the... There's no denying that the economy is a big

00:15:23   That said, Apple is also down much more,

00:15:27   the reports that we have on our smartphone share,

00:15:30   they're down much more than the market.

00:15:33   So there is, it's not just in line with everyone else.

00:15:36   They're worse, I think, in some respects.

00:15:39   But at the same time, it's definitely a China thing.

00:15:41   I mean, it was amazing when that news came out

00:15:44   and you had so many people coming out with,

00:15:47   this is Apple's problem.

00:15:48   And if you back up, actually,

00:15:50   I started Chit Chakra in 2013,

00:15:53   which was very fortuitous for me

00:15:54   because that was the iPhone 5 cycle.

00:15:56   And that was when there was a ton of panic.

00:15:59   Apple's, for the first time, Apple wasn't growing

00:16:01   like plus 50%, they only grew like 15%.

00:16:04   And the stock was way down

00:16:06   and people were like, "Samsung's ascendant."

00:16:08   And it was a great opportunity for me to say,

00:16:09   "No, this is ridiculous.

00:16:10   "Actually, Samsung is the one that is more

00:16:13   "sort of in a tough spot."

00:16:15   But you notice all those same people

00:16:17   that wrote all those articles in 2013

00:16:19   were back this year writing all the same articles in 2019.

00:16:22   and barely mentioning China. - Except instead of Samsung,

00:16:26   yeah, well, the articles I saw where instead of Samsung's

00:16:29   gonna eat their lunch, it was the cheap Chinese phones

00:16:33   are gonna eat Apple's lunch, you know?

00:16:37   And not just in China, where it is different.

00:16:39   - Well, not just, and it's, again,

00:16:43   it's kind of frustrating, but I can understand why,

00:16:47   I think we've talked about that.

00:16:49   I think Apple's management does not listen enough

00:16:52   to sort of criticism, in part because so much of the criticism of Apple is just kind of

00:16:57   unhinged. And even in this case, the problem for Apple in China is less cheap Chinese phones.

00:17:04   It's things like the Huawei Mate, which by the way, costs $800 or the large one costs

00:17:10   like $1,000. The issue is not people buying cheap phones instead of buying iPhones. It's

00:17:17   people buying other very expensive phones.

00:17:22   Yeah. Well, one of the things I didn't really think about with the trade war, but it's

00:17:27   very obvious in hindsight with the US, is the—basically, I don't know how else to

00:17:33   describe it—the patriotism issue, where the Trump administration is poking a stick

00:17:42   at China and people in China are naturally, it's driving a bit more of a, hey, let's buy Chinese

00:17:49   phones, you know, let's, you know, and Apple is obviously unique in that very almost unique in

00:17:56   that regard, because what other American company sells large amounts of consumer products in China,

00:18:02   maybe luxury brands, but a lot of the luxury brands are not US companies, right? Are people

00:18:06   buying Fords over there? I doubt it. Yeah, it is a super hard question to answer,

00:18:13   like how much that mattered. But I also think it's, I agree with you, it's silly to not think

00:18:18   that it didn't matter. And I've been sort of in the daily update, not in weekly articles,

00:18:22   so the only subscribers who know this, but I've been banging the drum that Apple is,

00:18:27   from the moment the trade war began, that Apple, this is bad for Apple, this is bad for Apple,

00:18:32   this is bad for Apple. And it's because they're exposed on both sides. They're exposed on the

00:18:35   on the production side and they're exposed

00:18:37   on the consumption side.

00:18:38   And given how large the market is,

00:18:41   relatively speaking for Apple,

00:18:42   and this is the other thing with Samsung, right?

00:18:43   Samsung's kind of not in the Chinese market anymore.

00:18:46   Like their number seven or eight or something like that,

00:18:49   like their share is so small now.

00:18:52   Like if you wanna talk about being obliterated

00:18:53   by Chinese brands, I mean,

00:18:55   Samsung was obliterated by Chinese brands.

00:18:57   The fact that Apple still has 12% share

00:19:00   is a testament to the fact

00:19:01   that they are still differentiated.

00:19:04   - I don't have the link handy,

00:19:05   but I just remember reading a couple days ago,

00:19:08   reading about Samsung's projected warning for this quarter,

00:19:13   the upcoming quarter they're about to report.

00:19:17   It actually have those numbers in my head

00:19:20   that at one point Samsung had 18% market share in China

00:19:24   and last time that was measured it was 0.9%,

00:19:30   like under 1%.

00:19:31   That is, that's staggering.

00:19:34   - Yeah, so Samsung's like profit warning was--

00:19:37   Right, their profit warning was mostly

00:19:39   about their component sales, right?

00:19:41   Which matters as far as the smartphone market being down,

00:19:44   but it was a related warning to Apple,

00:19:47   but it was like a different type of warning in that

00:19:50   it's not that their smartphone sales are getting slaughtered,

00:19:52   it's that if less smartphones are being sold in general,

00:19:55   they're gonna make a lot less money.

00:19:57   - Yeah, and I think that the hit a point

00:20:00   that you mentioned a minute or two ago,

00:20:04   I think that Apple's exposure in China

00:20:08   is obviously the single biggest threat facing the company.

00:20:11   I think it's, I don't think there's any doubt about it.

00:20:16   I don't think they could lose any,

00:20:20   Johnny Ive or Tim Cook or,

00:20:24   Phil Schiller could leave.

00:20:27   It's not going to,

00:20:28   nothing is as big a risk as China.

00:20:33   kind of calamity, calamitous escalation of this trade war because like you said,

00:20:37   Apple's exposed on both sides. They mostly, I mean, most importantly on the production side,

00:20:42   like Apple can't make its phone, it can't make the phones for sure anywhere else in the world.

00:20:48   And so something that would make it more difficult to make to produce their products in China could

00:20:54   be devastating to Apple in the short run. Yeah, I completely agree. And honestly,

00:20:58   If you want to get into criticism of Apple's executives, and there does deserve to be criticism

00:21:04   for a miss of this magnitude, even if the market changed dramatically.

00:21:08   And I think they, we can get into what I wrote a little bit.

00:21:12   I think they've generally underestimated their risk in China for reasons we can get into.

00:21:17   But just in general, I think Apple, they're a little too cheery on these earnings calls.

00:21:23   I think it's been a little bit of a problem for a while, frankly.

00:21:27   The fact that China is a huge risk factor, I think they should be upfront about that.

00:21:32   It so obviously is.

00:21:34   And instead, Tim Cook has spent the last several years, which have included quite a few quarters

00:21:40   with very bad results in China, saying, "Oh, we believe in the Chinese market.

00:21:43   The Chinese market is super important to us," blah, blah, blah.

00:21:46   There hasn't been enough, in my estimation, sort of honesty about the fact that, look,

00:21:52   we're very optimistic about the Chinese market.

00:21:54   It's a huge opportunity, but there's a lot of risks there.

00:21:57   And we've, as you know, our results have been very up and down.

00:22:00   And I feel like a little honesty about the China situation over not just this quarter,

00:22:06   but the last few years, would have bought them, would have been very beneficial this

00:22:10   quarter and would have come as much less a sort of surprise.

00:22:14   I mean, you remember back with the 6S cycle, like the Chinese market got clobbered.

00:22:20   They were not selling anything there.

00:22:22   And instead of sort of being straightforward about why that was, they're just like, "Oh,

00:22:26   it's a great market.

00:22:27   confidence is going to come back. And they spent the whole cycle saying, "We have a

00:22:29   lot of people that are upgraded yet. We feel very confident." And then they had to do

00:22:33   a $2 billion inventory write down. It's like, "Well, maybe you should have been a

00:22:36   little clearer about what was going on all along instead of suddenly changing your tune."

00:22:40   Which I was very critical of it at the time and couldn't help but think about it now.

00:22:44   I just feel like there's a little bit too much excessive optimism at times with Cook

00:22:48   in particular on some of these earnings calls.

00:22:52   I think the fear is, my fear is that it's not,

00:22:57   you know, that the reason behind that isn't dishonesty.

00:23:01   It is not rah-rah-ing China knowing that it's wrong.

00:23:06   It's that he honestly doesn't understand

00:23:09   their problems in China, you know,

00:23:11   that he really is wrong, right?

00:23:16   That's more worrisome to me than if he's being

00:23:19   overly optimistic on earnings calls

00:23:22   with knowing in the back of his head

00:23:24   that he's BSing a little.

00:23:26   To me, it's more worrisome if he's actually wrong.

00:23:28   And I think that's actually more likely

00:23:30   'cause I think Tim Cook is fundamentally

00:23:32   a very honest person, almost remarkably so

00:23:36   for somebody who's the CEO of a large company.

00:23:39   I mean, and that's certainly not something

00:23:41   anybody ever said to Steve Jobs.

00:23:42   - Yeah, I completely-- - Steve Jobs wasn't--

00:23:46   - Yeah.

00:23:48   He wasn't a liar per se, but he was a bullshit extraordinaire.

00:23:51   And Tim Cook is not.

00:23:52   It is just the antithesis of his personality.

00:23:58   I completely agree.

00:23:59   To me, and this is sort of my third--

00:24:01   I put like there's three errors Apple made.

00:24:03   And one, like I said, I think they've always

00:24:05   been more vulnerable in China with S models.

00:24:08   And I think that they probably overestimated the XR model

00:24:12   again.

00:24:12   But the third error was exactly this.

00:24:15   I would much rather have a liar than someone

00:24:18   that's not fully in touch with reality.

00:24:20   I think that that's exactly right.

00:24:22   - Or as is the case here in the US,

00:24:26   we've got someone in charge who's both.

00:24:30   - You've got both, all of the above?

00:24:32   - Yeah, all of the above.

00:24:34   But yeah, me too, me too.

00:24:35   I would rather have somebody at the wheel

00:24:37   who at least, you know, if they're lost

00:24:41   but telling you they're not lost,

00:24:42   I'd at least have them know that,

00:24:44   at least themselves that they're lost.

00:24:46   You know what I mean?

00:24:47   - Yeah, no, but the six-- - Rather than honestly believe

00:24:48   they're on the right way.

00:24:50   - No, this is exactly it.

00:24:51   This is really the thing that concerns me the most

00:24:53   about this entire episode.

00:24:55   And again, just because it's a bit of a pattern.

00:24:58   I remember I wrote about this in the 6S cycle.

00:25:00   Every single earnings call,

00:25:02   the results were not what anyone expected,

00:25:05   and every earnings cycle, Tim Cook would cite,

00:25:07   and I literally, I went through and I tracked all of them,

00:25:09   and I quoted all of them in a daily update,

00:25:11   where every cycle, Tim Cook was like,

00:25:12   we have a lot of upgrades coming along.

00:25:14   we feel very confident. Only 30% of the base is upgraded. Because every call he'd be asked,

00:25:20   do you think that the 6, the large phone, pulled forward people, that made them upgrade

00:25:25   faster than they would have otherwise? And that's why the 6s is going to be hurt. And

00:25:28   every time he's like, no, no, no, no, no. And then at the end of the year, he's like,

00:25:32   you know, what we think happened was all the upgrades got pulled forward. And so that is

00:25:35   why the 6s was down. It's like, well, why did, you know, that's been clear to everyone

00:25:39   for a while. You've been denying it over and over again. Why didn't you just admit that

00:25:44   was the case all along. And I think that he actually thought that there was a new reality

00:25:49   and that the sixth growth would continue going forward. And actually there wasn't necessarily

00:25:53   a new reality. And so that just reflecting on that and it makes me concerned that there's

00:26:01   a tendency in Apple's management to always see sort of the sunny side of the egg as it

00:26:05   were. And that's, it's good to be optimistic. It's good to pump up the troops, but it's

00:26:11   It's really important to have a sort of clear-eyed view about exactly what the state of your

00:26:16   business is.

00:26:18   And if you don't, that's a really good way to get yourself in trouble.

00:26:22   Yeah.

00:26:23   Now, in my family, we have a long-standing tradition where we call them "being right

00:26:29   points," and they're just like invisible coins that you pantomime giving to somebody

00:26:32   if there was any kind of argument over, you know, it could be anything, small or large,

00:26:36   but it's something that says—

00:26:37   No, you and your wife, this is the most unsurprising news ever, but continue.

00:26:40   - Jonas is, we invented him in,

00:26:43   we didn't have him before Jonas.

00:26:44   It was something we invented with Jonas,

00:26:46   but we call him being right points.

00:26:47   And the way you admit somebody was right

00:26:49   and you were wrong is you award them a being right point.

00:26:52   And I'm awarding you a being right point

00:26:56   for your overall thesis on S model iPhones

00:27:01   and the Chinese market.

00:27:04   Which, why don't I let you paraphrase

00:27:10   or explain it for those who aren't familiar with it.

00:27:12   Because I think it's really, really interesting.

00:27:16   And I think it's-- I can't prove that it's what's happening

00:27:20   this year, but it's certainly-- their bad years in China

00:27:23   certainly line up with S-years for the iPhone.

00:27:27   Yeah, so it is a subtle point.

00:27:29   Because it's not to say that the-- so a podcast is actually

00:27:33   a good way to explain it.

00:27:35   My thesis is that Apple's differentiation in China is different and fundamentally weaker

00:27:43   than it is elsewhere in the world.

00:27:46   And that is due, I focus primarily on WeChat, but it's not just WeChat, it's sort of the

00:27:49   broad array of services in China.

00:27:52   And keeping in mind that Android in China is a very different experience than Android

00:27:57   here, because here Android is, it's Google Android, whereas Android in China, it's all

00:28:01   homegrown Android.

00:28:03   It's based on the open source project.

00:28:04   It's not in front of Google at all.

00:28:06   It's heavily tuned to sort of the local market.

00:28:08   And the long and short of it is that the sort of step down in the user experience, if you

00:28:15   believe there is a step down between iOS and Android, is much fainter in China, in part

00:28:20   because the most important things to your life are going with you.

00:28:24   And again, WeChat is not just chat.

00:28:26   It's not just messaging.

00:28:28   It's payments, like all aspects of life.

00:28:31   There's always stories in China about how old people go out and they can't buy anything

00:28:35   because they're not used to buying with their phone and they feel very put out because no

00:28:38   one will accept cash anymore.

00:28:40   The degree to which the WeChat wallet and Alibaba wallet are dominant is hard to overstate.

00:28:45   There's many apps.

00:28:46   There's the fact you pay your bills using WeChat.

00:28:49   You contact government agencies with WeChat.

00:28:51   WeChat is LinkedIn.

00:28:52   All your business contacts are there.

00:28:54   The degree in which it is interwoven in all aspects of life are hard to overstate.

00:29:01   What that means is, one, you switch to Android, obviously it also has WeChat.

00:29:04   Not just that, things like WeChat and other Chinese services are arguably better because

00:29:09   they're not locked down the way that Apple locks down iOS, where yes, there's the affordances

00:29:15   to share between the apps along those lines, but you can't get the deep level of integration

00:29:20   that you can if you're sort of architecting the OS from scratch for the local market in

00:29:26   the way that those local phones are.

00:29:28   The reason you buy an iPhone in China is not necessarily because your day-to-day experience

00:29:33   of using the device is better.

00:29:35   In some respects, it's arguably worse.

00:29:38   But you buy it because China is a very sort of ... You want to show off that you have

00:29:46   the new iPhone.

00:29:47   The way that wealth is sort of flaunted in China, it's pretty crazy if you haven't been

00:29:52   there.

00:29:53   It's very jarring.

00:29:54   Especially, I grew up in the Midwest,

00:29:55   and the idea of showing off your fancy handbag

00:29:59   or being very visible about your wealth

00:30:02   is so foreign to me, so strange to me.

00:30:06   And it's just so, it's very, very different.

00:30:09   And so you have an iPhone,

00:30:11   and iPhone has always been the top of the line.

00:30:14   It's very clearly the best thing, the best model.

00:30:16   The fact that it's expensive is a good thing,

00:30:19   not a bad thing.

00:30:21   This is something that people miss

00:30:22   when the 5C were out.

00:30:23   The 5C is like, "Oh, one month salary in China."

00:30:27   People who are earning that much in China are not buying iPhones, right?

00:30:32   You can't look at a billion person market and look at averages.

00:30:36   You have to look at the different segments in the market.

00:30:38   And there's a very large segment that absolutely has the income to buy an iPhone and would.

00:30:43   And the flip side of that, though, is that if an iPhone isn't new, then what's sort of

00:30:50   the allure?

00:30:51   out and I buy a XS, yes, there are some degree of iPhone fans and people that generally prefer

00:30:58   iOS that want the newest model, but I think that that segment is much smaller than people

00:31:05   that care very about the visibility of the phone that they're carrying.

00:31:09   And so if you're someone that buys every year, well, better off to buy, like I said, the

00:31:13   new Huawei Mate or the Mate 10, because that's clearly the new phone.

00:31:17   It's the new hotness, and you can show off that you have it.

00:31:19   And if you want to stick with iOS, well, just stick with the iPhone X.

00:31:24   No one knows it's not the iPhone XS.

00:31:27   You might as well have the newest phone.

00:31:29   And this, again, I'm not saying this is a "the" factor, but what it results in is a market

00:31:37   where Apple's moat, in my estimation, is far shallower than it is almost anywhere else

00:31:42   in the world.

00:31:43   And what that means is when other things come along.

00:31:46   So I think they would be weak regardless because I predicted that the S models are going to

00:31:50   always be weak in China.

00:31:51   But you add on economic troubles, you add on a slowing economy, you add on the nationalistic

00:31:57   sentiment because of the trade war, you add on the Huawei CFO being arrested and people

00:32:01   maybe wanted to react against that.

00:32:03   And Apple doesn't really have anything propping it up the way it might in a different market.

00:32:09   And so I wouldn't say I appreciate the right point.

00:32:12   I don't think that is the only factor,

00:32:14   but I think it's a factor that is a factor,

00:32:17   and it's a factor that interacts with all the other factors

00:32:21   to make those other factors even worse,

00:32:23   if that makes sense.

00:32:24   - Well, and I think it might be a factor

00:32:26   that Apple's senior management either is in denial about

00:32:30   or doesn't grasp as fully as they should, perhaps.

00:32:34   - And I do tend to think that's the case,

00:32:36   and that ties into sort of the excessive optimism case.

00:32:39   Like the, there's, I mean, I wrote this in, you know,

00:32:44   a year and a half ago in the middle of sort of the S cycle

00:32:48   or the seven cycle and really looking at the China numbers,

00:32:51   'cause what was so striking was Apple was flat,

00:32:55   but if you, and I did this in that article,

00:32:57   the, you know, Apple's China problem.

00:32:59   If you took out China, the entire business was up

00:33:02   like 10% or 10, 15%.

00:33:04   Like the iPhone was doing great

00:33:06   and the iPhone was doing great everywhere

00:33:09   except for China.

00:33:09   Once you put in China, then the overall numbers were flat.

00:33:13   But once you took out China, it was up.

00:33:15   And there was clearly the China market

00:33:17   was behaving differently.

00:33:19   And it was behaving differently, again,

00:33:21   in a sort of predictable way.

00:33:23   And so the prediction that I made at the time

00:33:24   was that actually, I said Apple has a China problem,

00:33:28   but the implication of that China problem

00:33:30   is that the next iPhone is going to return Apple

00:33:33   to growth in China, because it's going to be a new form factor.

00:33:36   And that's exactly what happened.

00:33:38   The iPhone X was a great success in China.

00:33:39   Apple started growing in China again.

00:33:41   And then you had Apple's management on their own call

00:33:44   saying, oh yeah, everything's great.

00:33:45   See, he told you, China's great.

00:33:46   But there was a part two to that prediction,

00:33:49   which was the next S model,

00:33:51   they're gonna be in big trouble.

00:33:52   And that's, again, exactly what happened.

00:33:54   Now, I can't, again, it's all tied into the economic factors

00:33:58   and I'm not denying those factors at all,

00:33:59   but I think that it is a factor,

00:34:02   and I agree with you that I don't think

00:34:03   it's one that Apple's management

00:34:04   has taken completely seriously.

00:34:07   - Yeah, and you know, predicting these things is hard.

00:34:12   I've spoken to people at Apple.

00:34:14   And I remember we had a conversation when the 5C came out.

00:34:19   And one of the things that made the 5C very different

00:34:23   than any previous phone until the XR really

00:34:26   is the variety of colors.

00:34:29   You know, that there were five colors to choose from.

00:34:31   And one of my questions was, you know,

00:34:33   how do you, you know, what do you do?

00:34:35   just make them all in the same quantities

00:34:37   and adjust after you see which ones are popular?

00:34:41   I mean, how do you gauge something like that?

00:34:44   And they're like, you know, as usual,

00:34:47   they didn't explain exactly what number.

00:34:50   I was trying to get them to say,

00:34:51   "Yeah, we made a lot of the blue one."

00:34:53   - Right. - But they, of course,

00:34:54   revealed nothing of the sort,

00:34:55   but did say that they're always surprised every year,

00:34:59   and with the iPhone in particular,

00:35:01   because it is the most popular,

00:35:04   and therefore it reaches the most people.

00:35:07   They're surprised every year with differences

00:35:11   that they never anticipated.

00:35:12   There's two colors of the iPhone 4S

00:35:18   and they open up a new carrier in country X.

00:35:21   Doesn't even matter what country it is.

00:35:23   And in that country, everybody buys the white one

00:35:26   and they had no idea.

00:35:27   They had no idea that black wouldn't be popular there.

00:35:30   And they said, "We adjust on the fly."

00:35:32   That's what we do.

00:35:34   But so it's really, even Apple,

00:35:37   they don't think that they can foresee everything.

00:35:40   But boy, their estimates for years have been close.

00:35:45   - Well, so one of the issue points, though,

00:35:47   'cause this is something that I tracked for a while,

00:35:49   is Apple's estimates used to be eerily accurate, right?

00:35:52   Even if you, even when they were sort of sandbagging,

00:35:55   they were sandbagging very predictably.

00:35:57   - Yes, very predictably, right.

00:35:59   - But here's what's interesting.

00:36:00   they were way off on the iPhone 6, right, on the downside.

00:36:04   Like they missed the upside.

00:36:06   Then they were way off on the 6S,

00:36:08   where they over predicted.

00:36:10   They were a little better on the 7 and the 10,

00:36:13   but actually they were under on the 10 too.

00:36:15   And I think what's interesting is they,

00:36:18   so basically since the iPhone 6,

00:36:20   their estimates have been significantly less accurate.

00:36:23   And I think that's actually not surprising,

00:36:27   'cause there's another thing that's going on here,

00:36:29   which is for the first 10 years of the iPhone

00:36:32   or eight, nine years of the iPhone,

00:36:33   Apple was still rolling out availability, right?

00:36:37   They were adding countries, they were adding carriers.

00:36:40   And when Apple would add a carrier,

00:36:41   particularly once they were very powerful,

00:36:43   after sort of the first four or five years,

00:36:45   they would add carriers and they would,

00:36:47   the carriers had to agree to guaranteed sales.

00:36:50   So they had to say, we will absolutely sell

00:36:52   this many iPhones in the next year

00:36:55   or something along those lines.

00:36:56   and if we don't make it, we're gonna pay for them anyway.

00:36:59   And I think what might have been going on here

00:37:02   was Apple's estimates were so accurate

00:37:05   because a lot of their growth was driven

00:37:07   by the expansion of these deals,

00:37:09   which had numbers written into them.

00:37:11   So they kinda knew exactly how much was going on.

00:37:13   And whereas, the other thing with the iPhone 6

00:37:17   that made it so huge was that was the first iPhone to launch

00:37:19   with China Mobile on board,

00:37:20   'cause China Mobile came on during the 5S cycle.

00:37:24   and that was the first one to launch China Mobile.

00:37:26   And since then, they haven't really,

00:37:29   that was the last kind of the great white whale

00:37:31   for Apple as far as carrier availability.

00:37:34   Since then, they've added them here and there,

00:37:36   but that aspect of iPhone growth is kind of over.

00:37:40   And now the prediction is actually real predictions,

00:37:42   like how many people are gonna buy them,

00:37:44   as opposed to how many carriers

00:37:45   are we gonna force to buy them contractually.

00:37:46   And I think it's not a surprise that ever since then,

00:37:49   their predictions, their forecasts have been

00:37:52   significantly less accurate than they were before then.

00:37:55   - I linked to it this week.

00:37:58   Matt Richmond had a blog post years ago.

00:38:01   It was while it was still going on.

00:38:02   But the way he, I think this was obvious

00:38:04   if you looked at the charts.

00:38:05   You know, you can look at the,

00:38:06   see the slope of iPhone sales growth in the early years,

00:38:09   and you could see what an unbelievable slope it was.

00:38:13   But when you word it the way he did,

00:38:14   it's truly extraordinary that the iPhone 3G

00:38:18   sold more than the original iPhone.

00:38:20   the 3GS sold more than the 3G and the original iPhone combined. The iPhone 4 sold more than

00:38:27   the previous three. Or I guess we're going by calendar years. But that iPhone 4 year,

00:38:32   they sold more iPhone than the previous three years combined. And then the iPhone 4S, they

00:38:35   sold more than the previous four years combined. Every year wasn't just bigger than the previous

00:38:40   year. It was bigger than all previous years combined. That type of growth, it's hard to

00:38:48   imagine how that could happen in any other market than phones because the way that that

00:38:51   can happen is the way that you roll out to additional markets around the world, new carriers.

00:39:00   It's truly remarkable. And even within the US, it's not even just countries. Other

00:39:05   countries I think have always made it a little bit easier. There was less lock-in to carriers,

00:39:09   but opening, going from AT&T exclusive to adding Verizon in 2011 was like adding another

00:39:17   United States. You just can't keep that up. I mean, and I know that there are two versions

00:39:25   of the "law of large numbers" and the people who only know about the—I forget what the

00:39:30   first one is. The one is more mathematically rigorous. But the sort of business-y one is

00:39:39   sort of basically explaining why Ponzi schemes can't work, right? Because you run out of

00:39:43   people. You can't keep a Ponzi scheme going because eventually you run out of people.

00:39:47   It only works by bringing new people into the scheme

00:39:50   and eventually you run out of new people to bring in.

00:39:52   I'm not saying that the iPhone is a Ponzi scheme,

00:39:55   it's the opposite.

00:39:57   It was a totally legitimate product,

00:39:59   but the growth was driven by bringing in new markets.

00:40:02   And new markets had new people who'd never been able

00:40:04   to buy a new iPhone before.

00:40:06   And eventually you run out of new markets.

00:40:08   - Yep, and there's kind of like,

00:40:09   there's three ways to grow a business, right?

00:40:11   Like you can serve a market, you can grow,

00:40:14   which is, you know, there's an empty pie pan

00:40:16   and you want to fill the pie pan.

00:40:17   You can grow the market, which is you get a bigger pie,

00:40:20   or you can still share from other people

00:40:22   sort of in that market, which means you take a bigger slice.

00:40:25   And Apple, for what you're talking about,

00:40:29   they were all in the sort of filling the market stage

00:40:32   to start, where people that already had phones,

00:40:34   now they're getting smartphones.

00:40:35   And then they grew the market,

00:40:37   which is a lot of people that never had phones

00:40:38   now had a smartphone.

00:40:39   But now that all those are sort of tapped out,

00:40:42   and to the extent that you can grow the market,

00:40:44   It's definitely in markets where the iPhone is way too expensive.

00:40:47   And one, I think, under-discussed market

00:40:51   is India, where Apple is just a total mess.

00:40:53   I mean, they've actually completely flat-lined in sales

00:40:56   there, too.

00:40:59   So they're basically stuck with stealing share, which, again,

00:41:03   I think is not the worst place to be.

00:41:05   It's still the case that, again, outside of China,

00:41:09   that more people go from Android to iOS

00:41:12   than the other direction.

00:41:13   So they're in strong shape in the long run, but it's a much harder and slower path to

00:41:20   growth than the other ones.

00:41:22   I think one of the great ironies of Apple's situation in China, and I think it's permanent,

00:41:26   I think it's exactly what you've been describing, what your beam rate point was awarded for,

00:41:32   is that it goes back to what you said a half an hour ago, though, that Apple has long been

00:41:38   misunderstood by financial pundits and tech pundits for basically the same reason, which

00:41:43   is that I think most financial and tech pundits want to treat Apple as just another company

00:41:50   that makes X, Y, and Z. They're just another laptop maker. They're just another phone

00:41:55   handset maker and that they're competing on an equal basis. The advice to the company

00:42:03   over the years has been so fundamentally wrong based on that misunderstanding. And I think

00:42:10   it leads to people who do understand Apple rolling their eyes, including Apple management.

00:42:16   But I think the irony here is that—I think the truth is around the world, Apple's strength

00:42:22   is this fundamental integration between hardware and software and the overall experience that

00:42:28   it can provide and that you can't separate it. You can't just review a MacBook next

00:42:32   to a ThinkPad without reviewing macOS versus Windows or whatever else you can run on a

00:42:37   ThinkPad.

00:42:41   I think fundamentally in China, Apple is a lot more like the Apple that's been wrongly

00:42:48   assumed by the pundits over the years.

00:42:49   They really are just another handset maker or a lot closer to being just another handset

00:42:54   maker, just another company that sells laptops.

00:42:58   and that they're buying it, people are buying it for the superficial reasons that these

00:43:03   pundits have said that everybody who buys Apple products has been buying Apple products

00:43:06   for over the years.

00:43:07   Yeah, I think that's right, in broad strokes. It's not totally the case that they're

00:43:13   completely commoditized. If you are used to using an iPhone, you're used to using an

00:43:17   iPhone. It's worth keeping in mind that Apple's install base in China still grew,

00:43:22   which suggests that it's more people have the iPhone X aren't necessarily upgrading,

00:43:27   example, whereas I think they might have if it was a new form factor. So it's not like

00:43:31   they're completely commoditized, but they are to a much greater extent, I think, than

00:43:38   anywhere else, if that makes sense.

00:43:40   Right. None of these are extremes. I mean, to some extent, Apple is commoditized in the

00:43:48   United States, and to some extent, they are not in China. But it certainly is a bigger

00:43:53   factor there.

00:43:54   - You could actually go by market.

00:43:55   I think they're probably the least commoditized

00:43:57   in the United States, in part because iMessage

00:43:59   is the biggest in the United States,

00:44:00   and that's a huge differentiator.

00:44:03   You know, Europe, for example,

00:44:04   and this is where it's important to discuss

00:44:06   the fact that WeChat is more than chat,

00:44:08   and that the importance of Chinese services being different

00:44:12   are much broader than I think people appreciate.

00:44:15   Like in Europe, for example,

00:44:17   iMessage is much less of a lock-in,

00:44:19   but the general sort of, the way you use an Android phone,

00:44:22   the way you use an iPhone are different

00:44:25   in sort of predictable ways.

00:44:27   Like there's less, it's not like you're advantaged

00:44:30   by using an Android phone in Europe relative to an iPhone.

00:44:33   Like you are in China given the fact

00:44:35   that it's so heavily customized to the local market.

00:44:37   Like that dynamic really only exists in China.

00:44:40   - All right, let me take a break here

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00:48:24   talk show.

00:48:28   Before we get off of China, I wanted to just talk briefly about this situation with the

00:48:32   Huawei CFO, who was arrested, detained in Canada. And she's still detained there. I

00:48:40   think she's out on bail or something. But the US is trying to extradite her to the United

00:48:45   States. I don't want to get into too much in the details of it, but what they're accusing

00:48:52   her of is more or less laundering money to Iran. I forget where else, but Iran obviously

00:48:59   has international sanctions against it, and the charges from the United States are pretty

00:49:06   serious.

00:49:07   Yeah, so I mean the limitation is Huawei's not supposed to be selling this advanced stuff

00:49:14   to Iran.

00:49:15   And the reason why the U.S. has leverage over that is because it involves a lot of U.S.

00:49:20   components.

00:49:21   So those components are not supposed to be sold on into Iran because of the sanctions.

00:49:25   And the accusation is that they set up basically a shell company to do that and then she told

00:49:32   the banks that no, we're not associated with that shell company any longer or something

00:49:37   along those lines, and then they still were.

00:49:39   So I think the accusation is wire fraud,

00:49:41   where basically lying to the banks

00:49:43   and forcing the banks to break sanctions unwittingly.

00:49:48   And so obviously there could be more charges,

00:49:52   but that's sort of the nut of it.

00:49:54   And so yeah, sorry, that was the sort of 30 second

00:49:57   overview of the case.

00:49:59   - But it's, you know, and it's unseemly.

00:50:05   I mean, even if the charges are accurate,

00:50:06   It's politically difficult because Huawei is tied,

00:50:11   like everything in China, tied to the state to some degree.

00:50:17   - Yeah, well not only that,

00:50:18   but she's the daughter of the founder.

00:50:20   - Right.

00:50:21   And so my thought on that was,

00:50:26   boy, I sure wouldn't wanna be the next senior executive

00:50:29   from Apple to go to China.

00:50:30   And I don't think that that's likely

00:50:35   they would trump up charges against somebody from Apple or some other major American corporation

00:50:41   and detain them similarly. But also, if they did it, I wouldn't be shocked, right? It's not

00:50:48   out of character for a regime like China's. Yeah, it's very complicated, because I would say that

00:50:56   without speaking about this case specifically, I would say the likelihood that Huawei is engaged in

00:51:04   sanction avoiding behavior in a way that is problematic is pretty close to 100%. I think

00:51:14   what makes this particularly challenging on all sides is I think everyone's kind of known

00:51:20   it's 100% for a long time and no one's done anything about it. And obviously, this isn't

00:51:26   the first time this has happened either in the last few years. ZTE got the basically

00:51:31   the US companies were forbidden to export to ZTE,

00:51:36   the number two Chinese telecom manufacturer.

00:51:39   And there's basically a death sentence.

00:51:42   Like Chinese, US technology is still at the core of,

00:51:46   it's not just phones, it's the,

00:51:48   Hawaii and ZTE are all in the sort of the base stations,

00:51:50   like the things that sit on the cell phone towers,

00:51:53   and actually do all that.

00:51:56   And there's lots of ZTE and Huawei,

00:51:59   The connection to the Chinese military is strongly suspected publicly.

00:52:04   There is lots of sort of redacted classified questions about this where I think the understanding

00:52:11   is the US has a lot of evidence that that's the case.

00:52:15   And that's why, for example, Huawei base stations and whatnot are not allowed in the US.

00:52:19   You have to buy from Nokia or from Ericsson.

00:52:23   And that's actually spreading.

00:52:24   I think Japan recently moved against Huawei.

00:52:27   I think there's a discussion at least in the UK about that happening.

00:52:34   But then you tie in the fact that you weren't enforcing this or you're letting them get

00:52:39   away with it for a long time.

00:52:40   And then there's also the trade discussion going on and it's a senior executive.

00:52:44   And it's a situation where you can choose almost any frame to look at it and decide

00:52:51   that what the US is doing is right or wrong and you could be correct.

00:52:55   In a broad global scope, is it a good thing?

00:52:58   In the context of bilateral relations is a good thing.

00:53:01   As far as the rule of law, is it a good thing?

00:53:04   And you have a different answer in perhaps every case.

00:53:07   But the fact that it's a...

00:53:12   Once you get to the level of nation states, it's not really like a contractual engagement

00:53:17   that's going to be educated in a court of law.

00:53:19   You're dealing with nation state politics and they're the ones that make the laws with

00:53:22   guns behind them.

00:53:24   Which means that the calculus is very, very different as to what is going on and whether

00:53:29   it's the right thing to do.

00:53:31   Yeah, it's less of a judicial issue than an executive issue, really.

00:53:35   Right.

00:53:36   And it's politics.

00:53:39   It's international relations at the absolute highest level.

00:53:42   And the reality of—I think you're about Apple—I mean, the reality is that Apple

00:53:49   is when you're the size of Apple and you're synonymous with the US as Apple is and when

00:53:56   you're exposed to multiple countries the way Apple is, yeah, the risk is extremely high.

00:54:01   I think for now, what I've heard from people on the ground in general is it's a lot more

00:54:07   dodgy right now to be a Canadian, in part because Canada is the one that arrested her

00:54:13   And also Canada kind of like can't like, China may be bad at the US, but the US has a lot

00:54:20   of leverage and power over China.

00:54:24   Whereas you know, it's I think they're kind of taking it out on Canadians.

00:54:27   Like there's been a few Canadian executives arrested or Canadian nationals for very dubious

00:54:31   reasons.

00:54:32   But yeah, it's a mess.

00:54:34   It is absolutely a mess.

00:54:35   But it's a mess.

00:54:36   It's like if they're actually, you know, if they are quite clearly violating the law,

00:54:42   well, maybe it isn't a, you know, like I said, there's no sort of right answer here.

00:54:46   Yeah. Here's another one. Here's a new topic. I thought this was an interesting,

00:54:55   Steven Sinofsky, former Microsoft executive now, sort of a pundit at large, had a couple of threads

00:55:03   in recent weeks on Apple, but he closed one with a post PPPs. And I thought this tweet was pretty

00:55:11   interesting. Just this tweet in and of itself. Let me read it. "The idea that Apple is

00:55:16   on some countdown clock to a 'next big thing' is completely the opposite of what to worry

00:55:21   about. That is the mistake analysts are making. Just as with Adobe, nothing is bigger than

00:55:26   Photoshop or Microsoft with Office. Yet. But so what? Focus on execution." There is sort

00:55:37   of an obsession, especially with Apple, with what's the next big thing. It's so obvious.

00:55:45   There will be a next thing eventually. The watch is certainly a new thing, but nothing's

00:55:50   ever going to be the iPhone again. It's almost impossible. It may not be possible for any

00:55:55   company to come up with something as great of a consumer product, as profitable as the

00:56:00   iPhone again, let alone the odds that it would be the same company.

00:56:08   And I've seen it—there's a lot of Tim Cook haters out there. There always have been.

00:56:12   I mean, there were Steve Jobs haters, too, but there's a certain contingent of people

00:56:16   who really, really don't like Tim Cook. And boy, did I hear from them in the last week

00:56:21   or two. I mean, people who really, really are—and it ultimately is his decision, but

00:56:29   the basic idea—and they love to trot out that Steve Jobs quote about Steve Ballmer

00:56:34   and that they turned it over—who do you turn it over to? You turn it over to the numbers

00:56:38   guy and then what do you get? You run the company by the numbers. And you know, Tim

00:56:42   Cook was obviously—he wasn't a product person, never claimed to be. But they blame

00:56:48   Tim Cook for the rising price of Apple products. And it's undeniable that the prices have

00:56:58   gone up a lot recently. But this idea that Tim Cook is obviously a failure because if

00:57:09   the right person had gotten the job after Jobs had died, Apple would have come out with the next

00:57:15   big thing or two by now. And I think that's completely wrong. I really do. And I think

00:57:21   that an obsession with that would be a disaster for Apple's leadership and would lead them to

00:57:25   to change that thousand no's for every yes mentality,

00:57:30   which I think is, maybe the numbers are exaggerated,

00:57:35   but I think it's mostly true.

00:57:37   - I completely agree.

00:57:40   I think it's not just a matter of,

00:57:43   you can look at this, I think,

00:57:45   from a very sort of analytical lens

00:57:49   that can come to no other conclusion

00:57:52   and the fact that the iPhone will never be matched.

00:57:55   And I wrote this article back in 2016,

00:57:58   it's called Everything as a Service.

00:58:00   And one of the points is that the most valuable sort

00:58:05   of manifestation of a particular technology

00:58:11   is at the very end of its sort of viability.

00:58:15   And what I mean is the best possible carriage

00:58:19   was the last carriage that was made

00:58:21   before cars came along.

00:58:22   And like the most valuable car was one that came along,

00:58:25   will be the most valuable gas car,

00:58:27   or the best performing gas car is gonna be the last one

00:58:29   before sort of electric takes over.

00:58:31   Like that's just sort of the way,

00:58:32   you know if you think about it,

00:58:33   that's quite obviously the case.

00:58:35   And-- - I think it's from Horace,

00:58:36   I think it's from Horace Dedue,

00:58:37   but one of my favorite examples of that

00:58:39   was that when jet aircraft carriers came out,

00:58:42   the propeller planes at the time were way better,

00:58:45   way more comfortable, they flew faster,

00:58:47   they were, you know, but they were doomed.

00:58:51   for many reasons, like the jets overtook them.

00:58:53   But it took years after the introduction of the jet engine

00:58:57   for them to overtake the propeller planes in the market.

00:59:00   - Yeah, that's exactly right.

00:59:02   And so, if you think, so that's just the overall

00:59:07   sort of concept.

00:59:08   You think about the iPhone specifically,

00:59:10   and what makes the iPhone so insanely valuable

00:59:14   is that first, it's a physical object.

00:59:17   And you think about how the challenge

00:59:20   with digital goods, how do you monetize digital goods?

00:59:23   Because a digital good is by definition,

00:59:26   sort of there's no scarcity, it can be duplicated endlessly,

00:59:29   and which means that the sort of inherent value

00:59:32   of a digital item is zero.

00:59:33   And you see this in things like the music industry,

00:59:35   for example, right?

00:59:36   The longer they try to hold onto selling songs,

00:59:38   the more they were doomed.

00:59:39   Now, music companies, they don't sell songs anymore.

00:59:44   They sell convenience, right?

00:59:45   The point of Apple Music and Spotify

00:59:47   is you can conveniently get access

00:59:49   to any song that you want to.

00:59:50   And the music is kind of a byproduct of,

00:59:53   when the actual selling proposition is convenience.

00:59:55   And that's a business model that makes sense

00:59:57   with digital goods.

00:59:59   The thing with the phone though, it's a physical good,

01:00:01   which means there is scarcity, which means you can,

01:00:04   like there is inherent economic value to a physical good

01:00:07   in a way that there isn't with a digital good.

01:00:10   But it is a physical good that is differentiated

01:00:14   by software, by that sort of ineffable component

01:00:17   that is endlessly duplicable, endlessly sort of iterable.

01:00:21   You can constantly be improving it, making it better.

01:00:23   You can build any sort of differentiation.

01:00:25   So the iPhone has all the benefits

01:00:28   of being a hardware product as far as monetization goes,

01:00:31   and has all the benefits of software

01:00:34   as far as differentiation goes.

01:00:35   It's really the absolute perfect marriage of these two models,

01:00:40   such that you can drive high differentiation

01:00:42   through software, and you can reap and capture

01:00:44   differentiation by charging money for a physical device. And a physical device that, by the way,

01:00:49   wears out, breaks, needs replacements, so on and so forth. It is the absolute perfect possible

01:00:56   sort of business that you could ever be in because it has all the benefits of digital and all the

01:01:00   benefits of being a hardware good. And I don't think we'll ever be in that state again. The

01:01:05   future of physical goods differentiated by software is they are going to rent them, right? You think

01:01:10   about self-driving cars, it just makes intuitive sense in the long run that Uber and self-driving

01:01:17   cars are a natural marriage, right? Or an Uber type service where you call it up on your phone

01:01:22   and it drives around, it picks you up and you go. The reasons why we would buy a car were because

01:01:30   we didn't have the sort of technology to make an always available car that made sense. And you

01:01:36   You think going forward, this is going to make sense for so many things that because

01:01:40   we have a device with us all the time that we can access the internet and access anything

01:01:45   we want to, this rental model of very high cost physical goods is going to, I think,

01:01:52   be more and more predominant, which means really, what's next?

01:01:57   I mean, yes, I guess maybe AR glasses or something, but if you think about it, there's always

01:02:02   the phone is it's so it's perfect in so many ways it's big enough that you can

01:02:08   information do things on it it's small enough you can carry it with you it is

01:02:11   it is really the perfect product in a way that it's very hard to imagine you

01:02:16   can imagine lots of other good businesses but the perfection of the

01:02:20   business model combined with the form factor and the perfection of the product

01:02:24   itself it like it seems if you think about it it's obvious there will never

01:02:28   be anything to match it yeah and the way that it's it's actually eaten the

01:02:32   a bunch of sub-markets.

01:02:36   Cameras, for one thing, right?

01:02:37   Consumer cameras still exist,

01:02:39   but they've been decimated by phones.

01:02:41   I mean, when you go on vacation,

01:02:44   go anywhere touristy these days,

01:02:45   when you actually pay attention

01:02:47   and look for people using cameras as cameras,

01:02:50   not phones as cameras, it's hard.

01:02:52   It's hard to go to Disney World

01:02:54   and find people using a real camera.

01:02:55   Or if you do, it's very, very obvious

01:02:58   because it's actually like an SLR-sized camera

01:03:01   with a big black lens.

01:03:03   It's somebody who's buying, truly expert,

01:03:06   or at least a consumer, what's the word,

01:03:09   prosumer level camera.

01:03:11   But for the point and shoots, it's gone,

01:03:14   eaten by cell phones.

01:03:15   Voice recorders, right?

01:03:19   I don't know that that was a huge market,

01:03:21   selling little personal tape recorders,

01:03:24   but who buys them anymore?

01:03:25   Everybody just uses the voice recorder on their phone.

01:03:30   Like last year when there were like five or six of us

01:03:32   who got invited to Apple to talk about the Mac Pro,

01:03:36   and we were allowed to record it.

01:03:40   We weren't supposed to publish the recording,

01:03:44   but we could record it for our own notes.

01:03:46   All of us, every single person used their iPhone

01:03:49   as their recorder.

01:03:50   It's, you know, that's just not something

01:03:53   people buy anymore.

01:03:55   There's so many things like that.

01:03:57   - Yeah. - And they're all

01:03:58   in the phone.

01:03:59   Alarm clocks. Who buys an alarm clock anymore?

01:04:04   We should talk about the Google Home Help, by the way. That reminded me because we're

01:04:09   going to get back to it a little bit. I wrote about this idea of there being—I think some

01:04:16   people really misunderstood about the iPhone way back when. This is back when I started.

01:04:20   People were talking about the iPhone disruption and et cetera, et cetera, whatever. The iPhone

01:04:26   is a unique product in that it's not really a, it's not a disruptive product. It's a product

01:04:31   that has come in on top that is more expensive, that does more than what is in the market.

01:04:35   That's the opposite of what a sort of disruptive product is supposed to be. And the, yes, it's

01:04:41   disruptive, the laptop's the wrong one, I get that. But relative to other cell phones,

01:04:44   it was what I turned being obsolete of or in that it made so many things that were cheaper,

01:04:52   obsolete. It made your camera obsolete. It made a calculator obsolete. It made all sorts

01:04:57   of things that you would otherwise buy individually, and it just sort of subsued them into one

01:05:03   device, or maybe obviate is maybe a better term. And the PC did that back in the day.

01:05:10   Like there's always pictures of like this desk with all these tools on it, and then

01:05:14   there's only a PC, and the phone did the exact same thing. And it's a sort of, it's

01:05:18   It's a different dynamic where it sort of comes in over the top, but it's very hard.

01:05:26   Continue to do that over time.

01:05:28   Yeah. Somebody has a similar picture. I remember it went super viral on Twitter where they

01:05:32   had literally had the cover, either the cover of a Radio Shack catalog or just, I think

01:05:37   it might've been an advertisement, but like a mid 1980s Radio Shack ad and it had like

01:05:44   20 different products and every single one of them is on your cell phone now. It was

01:05:48   like they had video cameras, they had still cameras, calculators, all these things and

01:05:54   every single thing. It was like uncanny. It was almost like you can't believe that this

01:05:57   wasn't ginned up and it's fake, but it was actually like a real Radio Shack ad and everything

01:06:02   that they were advertising was all on your cell phone now.

01:06:04   Yep. Basically, the form factor rules, anything that was sort of portable and carable was

01:06:10   going to end up on the phone and that's what's happened and that's why it's such a great

01:06:14   your product, but then it follows then,

01:06:16   like what's gonna actually replace that?

01:06:19   'Cause you have to replace not just a phone,

01:06:21   you have to replace all that functionality

01:06:23   with something else, right?

01:06:24   Yeah, sure, maybe you can go out for a run

01:06:26   with just your Apple Watch and your AirPods,

01:06:28   but then you still need a camera sometimes.

01:06:30   Then you still need a screen to watch video.

01:06:33   Like that's why I think the phone is,

01:06:35   and this is why, I thought my article this week

01:06:37   was actually relatively optimistic.

01:06:39   I think this is a bit of an overreaction

01:06:41   because yes, Apple, people might be holding

01:06:45   on their phones longer, yes, China is an issue,

01:06:48   but the fact of the matter is phones aren't going anywhere

01:06:50   and within the phone market, everywhere except for China,

01:06:54   Apple is not going anywhere either.

01:06:55   And frankly, in China, their install base still grew,

01:06:58   so it's not like they were necessarily

01:06:59   like bleeding customers either.

01:07:01   I mean, the company, I think there's been

01:07:03   a bit of a reaction.

01:07:04   Like I think they're, yes, the days of growth are over,

01:07:08   but that's, I think, been clear for a while

01:07:10   for people that are paying attention.

01:07:12   But that doesn't mean, it doesn't follow from that,

01:07:15   that the decline has now arrived.

01:07:18   - Yeah, and the other thing that plays into your point

01:07:22   from a few minutes ago about the difference

01:07:25   between a physical good and a digital good

01:07:26   is there's a resale market for physical goods, right?

01:07:30   And you mentioned music.

01:07:31   I still think back, there was a time in college,

01:07:34   you know, I went to college in the mid-90s,

01:07:36   there was a time in college when I got to thinking

01:07:38   about my net worth, just as an abstract idea.

01:07:43   And often, as a typical college student,

01:07:46   I might have under $100 in my bank account,

01:07:49   maybe if I was lucky.

01:07:50   I mean, I always say, I knew the one,

01:07:52   that there was a particular ATM that aid

01:07:56   I could get without a fee,

01:07:57   'cause it was on my ATM network.

01:07:59   - That's right, yeah, you told that story,

01:08:01   yeah, I remember now.

01:08:02   - And it gave out, it was a machine that gave out 10s,

01:08:05   and most of the machines only gave out 20s.

01:08:07   And so like when I was under $20,

01:08:10   if I had somewhere between 10 and $20,

01:08:12   I could still get a $10 bill out of that

01:08:14   and then figure out how to get my parents

01:08:17   to give me some more money.

01:08:19   I figured out the only things I had of any value,

01:08:22   I had a Macintosh, which I couldn't part with,

01:08:25   or I wouldn't want to part with, and CDs.

01:08:29   I had like, I didn't have a massive CD collection,

01:08:33   And I had a little hi-fi system to play CDs

01:08:37   that was maybe worth, I don't know, 150 bucks.

01:08:40   But I had, I would, let me think about this,

01:08:43   if I had 200 CD, yeah, I had thousands of dollars

01:08:46   worth of CDs, I don't know if I had 200 CDs.

01:08:49   That sounds about right.

01:08:51   Not a big collection, but it took up a couple of rows

01:08:54   on one of those CD holders that was four or five feet high.

01:08:57   And you could sell them.

01:09:01   There was a very vibrant market in used CDs,

01:09:04   you know, college campus, typical, you know.

01:09:07   There was one on Penn's campus right next to Drexel's

01:09:09   and you could go there and get a fair amount

01:09:11   of your money for a CD, you know.

01:09:14   You could get, you know, a CD that maybe you bought

01:09:16   for $16, you could sell it for, I don't know, like eight,

01:09:21   and then you could buy the used CDs there

01:09:22   for like 10 or 11 or something like that.

01:09:25   Like the idea that I had my significant portion

01:09:28   of my liquid wealth in music makes no sense today.

01:09:33   Like how in the world would a college student

01:09:36   sell their music?

01:09:38   It doesn't make any, it's almost laughable

01:09:42   how different the world has gotten in those 25 years.

01:09:46   - Half our listeners don't even know what a CD is.

01:09:48   (laughing)

01:09:50   - And it's fascinating to me that the one way

01:09:52   you still can buy and sell music is with vinyl.

01:09:57   vinyl right that there's because vinyl is sufficiently differentiated from digital music that it sounds different works different and

01:10:04   Looks different has a different tactile sense to it has left it as the I mean who the hell would have predicted that in the 90s

01:10:11   That vinyl would would be the last

01:10:13   Last physical medium for music but it is and there still are music stores that sell but they all sell vinyl to my knowledge

01:10:21   Yeah, I mean, I don't know for those of you who are young. It's just crazy. It's crazy how common

01:10:27   record stores were in the 80s and 90s. Like my typical my hometown shopping mall was not

01:10:34   even that particularly large. I think it had three record stores. They were record stores

01:10:39   that were they were more record stores than drugstore.

01:10:41   I remember then what was the what was the like Columbia house or whatever you would

01:10:45   get like the six CDs for for. Oh yeah. Remember to cancel every month. They would also send

01:10:51   you some crappy CD they didn't want like $25. It was a whole racket.

01:10:57   - Yeah, Columbia House had the thing

01:10:59   where their advertisement would literally have

01:11:01   like a outline of a penny,

01:11:03   and they wanted you to scotch tape a penny,

01:11:06   fill out your name and your address,

01:11:08   and name the six albums you want,

01:11:11   send them one penny, and they'll send you six albums,

01:11:13   but then you were on the hook for like,

01:11:16   like the album of the month.

01:11:17   - Yep.

01:11:18   - You didn't even get to pick what they sent you.

01:11:21   - No, you could decline it,

01:11:23   but to decline it was like a big pain in the ass.

01:11:25   So the way the business model worked is

01:11:27   people would forget to decline it

01:11:29   and then they'd get just these terrible CDs in the mail

01:11:32   that they paid like $22 for or something like that.

01:11:35   - Yeah.

01:11:36   - It was very devious.

01:11:39   - But anyway, in today's world,

01:11:40   the iPhone absolutely plays into that.

01:11:42   And the way that Apple's,

01:11:44   how is their user base for the iPhone growing

01:11:49   when their sales are down year over year?

01:11:51   And it's because people,

01:11:53   there's this second hand market for iPhones

01:11:56   that is significant.

01:11:57   Whether it's actually selling them and buying a used one

01:12:00   or getting a refurbished phone,

01:12:01   or I think it's probably super, super common in families

01:12:05   handing down older phones from parents to kids

01:12:08   and keeping them in use for years to come.

01:12:12   So in terms of Apple's services narrative,

01:12:16   which I definitely want to talk to you about significantly,

01:12:19   you know, on the upside for Apple,

01:12:22   You know, the iPhone user base is still growing

01:12:26   in a way that handset sales aren't.

01:12:28   - That's exactly right.

01:12:30   But you should do an ad,

01:12:30   and then we can gripe about services.

01:12:33   - All right, I will do an ad.

01:12:35   This is gonna be a great ad.

01:12:36   (upbeat music)

01:12:39   He sponsored the show before, do you hear this?

01:12:40   You can't hear it, Ben,

01:12:41   but the people out in the real world,

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01:12:44   they're gonna hear music right now,

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01:12:47   'cause there's usually not music on this show.

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01:13:28   often guest on the show, Adam Lisagor, and Sandwich Video.

01:13:32   He's worked with them on a lot of projects.

01:13:34   If you recall the occasionally used theme song

01:13:37   for the talk show, Picking Boogers with John,

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01:13:43   It's all handmade and organic,

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01:15:00   for more information. Seriously, great, great work. I love Alex Weinstein and his work.

01:15:06   My thanks to Alex for sponsoring the show. What's next on our list?

01:15:11   - Well, I think the services one is the obvious segue

01:15:14   because your point, the payoff for Apple is,

01:15:18   as long as Apple is only making money from selling devices,

01:15:21   the fact that people are buying secondhand devices

01:15:24   or using hand-me-down devices is a bad thing, right?

01:15:27   Because they are using those devices

01:15:29   instead of buying something new.

01:15:32   And they're basically competing with themselves.

01:15:35   And so the great lure of a quote-unquote

01:15:40   services narrative is that actually that's good news.

01:15:45   People buying second-hand phones is a good thing for Apple.

01:15:47   People using hand-me-down phones is a good thing for Apple.

01:15:49   People holding onto their phones,

01:15:51   yeah, it'd be great if they bought a new one,

01:15:52   but as long as they're still using an iPhone

01:15:54   and not buying something else,

01:15:56   then it's all to the benefit of Apple.

01:15:58   And I think that's a very sort of

01:16:02   legitimate argument to make.

01:16:03   - Yeah, before we move on to services, actually,

01:16:07   that reminds me that I wanted to mention a theory of mine,

01:16:10   And again, I think if it's true,

01:16:12   if there's any truth to it, I think it's a tweak.

01:16:16   It's not like this explains everything.

01:16:18   It is one factor among many.

01:16:20   But I wrote back in November that if there's any truth

01:16:24   to this, hey, iPhone XR is selling less than expected

01:16:27   and maybe not doing as well as iPhone 8 did

01:16:30   versus iPhone X a year ago.

01:16:33   And I wrote that I suspected it might,

01:16:36   at least to a few percentage points,

01:16:39   be that people are resistant to the fundamental change

01:16:44   in the interaction model of the iPhone

01:16:47   that the X introduced.

01:16:49   No home button, no touch ID,

01:16:51   which is actually one and the same.

01:16:53   Even the no headphone jack, I think,

01:16:57   which didn't start with the iPhone X.

01:16:59   But I don't know.

01:17:01   And boy, oh boy, after this Apple news came out,

01:17:04   I heard from an awful lot of people

01:17:06   who swear up and down that they're not getting rid

01:17:08   their iPhone 6s or their iPhone 7.

01:17:11   I guess the 6s was very common,

01:17:13   but until Apple brings back Touch ID and the home button.

01:17:16   There are certain cases where Face ID is not as good.

01:17:23   I've noticed more and more, like in the morning,

01:17:26   I don't know what I look like when I wake up,

01:17:28   but it must be awful because most of the time

01:17:30   my phone doesn't recognize me.

01:17:33   - Well, you have to hold it away from your face.

01:17:35   That's the issue that I found,

01:17:36   'cause in the morning I don't have my glasses on,

01:17:37   and so I want to put it around my face.

01:17:39   But now I'm in the habit of hold it out like 10 digits.

01:17:42   - Yeah, but I often, when I still read on the phone,

01:17:46   when I go to bed and I have my glasses off,

01:17:48   my contacts out, and I have to hold it close to my face,

01:17:50   and I don't seem to have nearly as much problem

01:17:53   right before I go to bed without my glasses on

01:17:55   holding the phone closer to my face.

01:17:58   I don't know.

01:17:59   But I mean, and somebody, people often bring up

01:18:02   like when you have the phone mounted

01:18:04   on the dashboard of your car,

01:18:06   You can't unlock it with Face ID because it's not pointed right at you.

01:18:11   If you're driving, you probably shouldn't be unlocking it, period.

01:18:13   But I know that there's cases where you might be completely stopped or somewhere it

01:18:17   might actually—even if you are actually being a responsible person driving a car using

01:18:23   a phone.

01:18:26   But I think it's mostly psychological, though.

01:18:29   I think it's largely the fact that most people aren't early adopter types and they

01:18:35   don't like fundamental changes like this or they're resistant to them before they

01:18:39   try them. And I think that moving all of the new phones for this year to the new model

01:18:46   I think has hurt them to some degree and maybe more than they predicted. And boy, I just

01:18:51   heard so much in the last two weeks of people who are, you know, or last week mostly, I

01:18:57   guess. It seems like two weeks ago, but it's been a long week. But so many people who think

01:19:02   that's part of the problem that Apple's made a huge blunder by getting rid of Touch ID and

01:19:07   the home button.

01:19:08   It's at least a reason to hold on to your phone longer and you combine it with the higher

01:19:13   prices and all the things that are going on.

01:19:15   And you know, this can be very interesting to see.

01:19:17   I'm glad you brought that up.

01:19:19   I agree that that point is very interesting and I think there might be something there.

01:19:24   And there's two other points.

01:19:25   One is Apple's, you know, doesn't release unit sales anymore, but they do still release

01:19:30   by geography and it's gonna be very very interesting to see because if you read carefully what

01:19:35   Cook wrote all the problem is iPhone and most of the iPhone problem is China but that means

01:19:41   there is a bit of an iPhone problem somewhere other than China so it's be very interesting

01:19:46   to see where that is I think the battery placement thing is also very interesting you know did

01:19:52   that like if the US ends up being lower than other places that I think that would suggest

01:19:57   there might be something there. I'm looking forward to that in the earnings to see what

01:20:02   that says.

01:20:03   Dave Asprey Yeah, that was an interesting thing that Cook

01:20:05   called out both in his open letter to the public and reiterated in TV interviews with

01:20:12   CNBC afterwards that the iPhone discount battery replacement program, which turned what I think

01:20:17   was usually like a $79 battery replacement into a $29 battery replacement.

01:20:22   - Something like that.

01:20:23   - It played a factor in the slower sales.

01:20:27   - Right, and people are trying to make the argument

01:20:31   that they lost revenue on batteries.

01:20:33   No, I think it's pretty clear that some people

01:20:35   replaced their battery instead of getting a new phone.

01:20:37   I think that's, and they almost,

01:20:40   I wouldn't be surprised if there was some aspect

01:20:41   that people didn't even know they could replace

01:20:43   their battery until it became such a huge sort of news cycle.

01:20:47   - Well, and I think that it clearly,

01:20:49   when it became a news cycle, it broke through

01:20:51   more people that that is the explanation for the slowness that they were actually seeing.

01:21:00   That's actually common sense to me that people would never—they wouldn't guess—a normal

01:21:04   person would not ever guess that the reason their three-year-old iPhone feels so much

01:21:10   slower than it used to is because it needs a new battery.

01:21:15   It makes sense when you really understand how they work and what was going on and that

01:21:20   The CPU has to be throttled and it needs the full speed of the CPU with a healthy battery

01:21:25   to run the user interface the way it's supposed to be run.

01:21:30   But the way most products that people know that are battery run work, that's not how

01:21:37   a battery that needs to be replaced works.

01:21:40   Right.

01:21:41   That's how it manifests itself.

01:21:42   Right.

01:21:43   It just feels broken.

01:21:44   And I think that people's experience with computers, which is largely based on using

01:21:50   Windows PCs, there is—what do they call it?

01:21:53   Link rot.

01:21:54   You keep using Windows for a couple of years and the computer gets slower just because

01:21:58   that's how Windows works.

01:22:02   I think that they sort of chalked it up to that's how old—that's what happens.

01:22:05   Your phone gets old and it gets slow and then you have to get a new one.

01:22:08   And I think whatever number of people that that news broke through to that, "Hey, you

01:22:13   actually you might be able to check this in iOS and if it says you could get a battery

01:22:18   replacement, bring it to Apple and for 29 bucks they'll replace it.

01:22:22   You know, I'm reminded of, remember when SSDs were first coming out and if you put

01:22:26   an SSD in your computer, it felt like a completely new computer. It's like, "I don't need

01:22:31   to get a new computer at all. This is amazing." It's almost like a similar sort of dynamic.

01:22:36   No, I had that exact thing back in the early days of the talk show, probably like 10 years

01:22:42   years ago, I had a PowerBook. The idea of replacing hard drives in an Apple notebook

01:22:50   is—

01:22:51   Well, not just that, but I did the—with the MacBook, they had a—one of the companies

01:22:55   had a kit where you could take out the CD drive and you could put in a second hard drive.

01:23:01   So I actually would have dual hard drives in—so I think I had the—I had a spinning

01:23:06   drive to be very large, and then I had a boot drive with the SSD because these were super

01:23:12   So you would buy like a 64 gigabyte boot drive,

01:23:15   install OS 10 on that,

01:23:17   and then you would also have the large drive.

01:23:19   And yeah, you did it all yourself.

01:23:20   Like you would unscrew the back of your computer,

01:23:22   you would literally take out the CD drive,

01:23:24   put in this kit, reconnect it all up.

01:23:26   It's amazing.

01:23:28   It's wild to think about it.

01:23:30   - I think it was like a three or four year old power book

01:23:32   and I upgraded, I took, I think I replied,

01:23:34   I don't think I did that.

01:23:34   I remember that though,

01:23:35   that you could take out the CD drive and replace it.

01:23:38   I think I just replaced the hard drive with an SSD

01:23:41   and it was uncanny how it felt like a brand new

01:23:46   four year, year over year improvement PowerBook.

01:23:52   Although it probably cost half as much

01:23:54   'cause SSDs were so expensive at the time.

01:23:56   - But you were probably getting a better deal

01:23:58   with your old computer with an SSD

01:24:00   than buying a new computer with a spinning drive.

01:24:02   - Yeah, it made sense to me.

01:24:03   It made sense to me and it turned out

01:24:06   even better than I expected.

01:24:08   So the other point to bring up with this is I'm very,

01:24:12   I'm obviously not looking forward to a recession,

01:24:15   but it's gonna be very interesting to see

01:24:17   what happens to Apple's business

01:24:19   the next time there is a recession in the West

01:24:21   or in the United States.

01:24:23   Because the last time there was a recession,

01:24:25   the iPhone was such an nascent business

01:24:28   that it was still selling to people

01:24:30   at the very sort of high end of the adoption curve.

01:24:32   So they weren't really impacted by the Great Recession

01:24:36   in a way that now when you're at market saturation,

01:24:40   the macroeconomic factors impact your business much more.

01:24:44   And so as far as, I might still be wrong,

01:24:47   I'm actually gonna give you back my being right point,

01:24:49   in that if their sales in the US

01:24:52   end up being impacted dramatically to a similar degree

01:24:55   that they appear to be being in China,

01:24:58   then maybe it really was just sort of

01:25:00   the macroeconomic factors as opposed to my conjunction,

01:25:03   my thought, which is it's a combination of them.

01:25:08   - Conjecture.

01:25:09   - Conjecture, thank you, yes.

01:25:10   - All right, let's talk about Apple's services narrative.

01:25:15   - I have a bit of mea culpa.

01:25:19   I have to give back a being right chip.

01:25:22   I've written this in the Daily Update,

01:25:26   I've already recorded this week for Exponent,

01:25:29   so I'm kind of repeating myself.

01:25:31   But when Apple first came out with the services narrative,

01:25:33   The timing's very interesting because it was the first quarter of the 6S, which was really,

01:25:39   again, that's the quarter where China plummeted.

01:25:42   And they tried to say, "Oh, everything's great and everything's good."

01:25:45   And then actually they ended up having to take like a $2 billion inventory right down

01:25:48   the layer that year.

01:25:49   Everything was not good.

01:25:50   Everything was not great.

01:25:51   But I don't think it's necessarily an accident that that's when the services narrative came

01:25:56   out.

01:25:57   They did a supplementary document saying, "Oh, this is actually how much money we make."

01:26:00   and that document was kind of funny because they took credit for all app sales, including

01:26:04   the developer share. That was the point of it to say, "Well, yes, we only report this

01:26:08   much, but the actual number to think about is this much," which was the developer share.

01:26:14   But that was when the narrative started. And at the time, I wrote that, "Oh, wait, this

01:26:17   is ridiculous. Apple's not a services company." And that was right. Their services business

01:26:25   was a result of their hardware business.

01:26:28   Like they were still a hardware company

01:26:30   that were developing hardware products,

01:26:32   software-differentiated hardware products,

01:26:34   and the services business was sort of like

01:26:35   frosting on that cake.

01:26:37   And so that's my opinion for a while.

01:26:40   A couple years later, I had to come back and say,

01:26:43   I was a little unfair in their characterization.

01:26:46   Apple is still not a services company

01:26:49   in that they make decisions as,

01:26:51   their strategic decisions are made as a hardware company.

01:26:54   But from a financial perspective,

01:26:56   it is fair to make this argument

01:26:58   because the money is real, it's meaningful, it's growing.

01:27:01   It's important to understand that Apple

01:27:03   does monetize consumers over time.

01:27:05   It is the case that people on secondhand iPhones

01:27:07   are valuable to the company in a way that's not captured

01:27:10   if you only think about a hardware thing.

01:27:11   And so I had to sort of adjust there.

01:27:14   And I think I need to adjust again in that

01:27:17   not only is that the case that services revenue

01:27:20   is a real thing for Apple that should be considered

01:27:23   when analyzing them financially,

01:27:25   but I think you could make the case

01:27:26   that Apple's starting to make strategic decisions

01:27:29   like a services company,

01:27:31   which means they actually are starting

01:27:32   to really be a services company.

01:27:34   So there was a lot packed in there,

01:27:35   but you gave me so much credit before,

01:27:37   I needed to put my cards on the table

01:27:39   and say I wasn't completely right there.

01:27:42   Or if anything, our Apple's changed over time.

01:27:45   - Yeah, well, we can tie that in

01:27:49   and mix the pot here and talk about Apple's TV strategy

01:27:53   because I think there's no better case of that

01:27:56   than the news out of CES this week

01:27:58   that Apple is working with,

01:28:01   I would say the four major TV set makers,

01:28:05   Samsung, LG, Sony, and Vizio

01:28:08   to get Apple stuff built into their TVs.

01:28:12   And particularly interesting is Samsung,

01:28:15   who I think Samsung is getting iTunes movies and TV shows.

01:28:20   And presumably, I could not believe

01:28:24   that it wouldn't automatically include,

01:28:26   but obviously couldn't be announced,

01:28:28   Apple's upcoming subscription streaming service.

01:28:32   However, they're going to charge for that.

01:28:36   So Samsung TVs are gonna have that built in.

01:28:40   So you just buy a new Samsung TV, turn it on,

01:28:43   and as quote unquote input zero,

01:28:46   what does the TV show you before you switch

01:28:49   to like an HDMI thing and have like a box

01:28:52   put something on TV?

01:28:53   Nowadays they're all computers

01:28:56   and they show you some sort of interface.

01:28:57   Well iTunes is going to be part of that now

01:29:00   from Samsung of all companies.

01:29:03   But they're also supporting AirPlay 2 built in.

01:29:07   So your Samsung TV will be able to be an AirPlay 2 target.

01:29:12   And then the other three, Sony, LG, and Vizio

01:29:15   are getting AirPlay 2 and HomeKit support.

01:29:19   So Samsung is different in that they're the only ones

01:29:22   with iTunes, at least so far.

01:29:24   And the other ones are different because they have

01:29:28   HomeKit support in addition to AirPlay 2.

01:29:31   And that to me is fascinating and it certainly seems

01:29:35   like the move of a services company, not a product company.

01:29:38   - Absolutely, 'cause they may continue

01:29:41   to sell the Apple TV, but this is like,

01:29:43   they are no longer using services

01:29:47   to differentiate the Apple TV.

01:29:48   Like you buy it because you wanna buy

01:29:50   another Apple product, you don't buy it

01:29:51   because it has anything particularly unique to it.

01:29:53   At least for your Samsung.

01:29:54   And the fact that it's only Samsung,

01:29:57   I don't know this for a fact,

01:29:58   I've kind of heard scuttlebutt that Samsung processors

01:30:02   in their TVs are significantly more powerful

01:30:05   than everyone else, so it might just be

01:30:06   a technical limitation where Apple couldn't get

01:30:09   or software to work acceptably on the other TVs?

01:30:12   I don't know that this is the case.

01:30:13   This is just sort of what I've heard.

01:30:16   But I highly doubt it's like a,

01:30:17   I think if they're gonna be on Samsung,

01:30:21   they'd just as soon be everywhere.

01:30:22   I don't think it's necessarily like something

01:30:23   that's particularly unique in that case.

01:30:26   But yeah, why buy an Apple TV?

01:30:28   If you have one of these things, why buy an Apple TV?

01:30:30   And yes, you can say, well, I like the experience better

01:30:32   and et cetera, et cetera,

01:30:33   but the Apple TV is very much having to compete

01:30:37   on its own merits.

01:30:38   And frankly, those merits are not particularly strong,

01:30:43   particularly especially when you consider the price.

01:30:45   I mean, it's so much more expensive than the alternatives.

01:30:49   It's kinda crazy.

01:30:52   - Yeah, and they didn't do the iPhone type thing, I guess,

01:30:57   or did they, can you still buy an older Apple TV,

01:31:00   a non-4K Apple TV?

01:31:02   Maybe you can, but whatever, if you can,

01:31:05   it's not as much cheaper as it should be.

01:31:07   It's not like, oh, the expensive one is Apple TV 4K,

01:31:10   but you can get the other one for 50 bucks.

01:31:12   It's like you still have to pay like $130 to get one.

01:31:16   And it's ridiculous compared to all the other things

01:31:18   you stick into HDMI.

01:31:20   I'm not saying it's unjustified.

01:31:21   I'm a big Apple TV fan.

01:31:23   Almost everything I personally watch on TV,

01:31:25   I watch through Apple TV.

01:31:26   And there are things I would like to see improved about it.

01:31:31   And I'm, you know, lately.

01:31:33   I've never heard anybody defend the remote.

01:31:36   I have never, it doesn't even seem like there's--

01:31:39   - It's awful.

01:31:39   It's not like it's, oh, they could do better.

01:31:43   It is awful.

01:31:45   Everything about it, it's just bad.

01:31:46   The number of times, it bothers my mind

01:31:49   they could ship this, just for accidental input alone.

01:31:53   Like it's, oh, you would be in the middle of something

01:31:56   or whatever, and then someone gets set down on the couch

01:32:00   or whatever, and someone's butt hits it,

01:32:02   and then suddenly it stops the movie, or fast forward,

01:32:05   It's unbelievable how bad it is.

01:32:07   - Yeah, the accidental input is, anyway,

01:32:11   we don't wanna spend too much time on the remote.

01:32:13   - No, but yeah, the non-4K is $150.

01:32:16   The 4K is 180.

01:32:19   - Well, there you go.

01:32:19   I mean, that's even more expensive than I thought.

01:32:21   Whereas a Fire TV is, I don't know, 20 bucks, 30 bucks,

01:32:25   I don't know, and Roku's is similarly cheap,

01:32:29   and they're trying to make money, but they put ads up,

01:32:33   and it's a very different experience.

01:32:35   And part of what I like about Apple TV

01:32:37   is knowing that I'm nothing I do through my Apple TV

01:32:40   and iTunes is getting sold.

01:32:42   I'm not seeing any extra ads.

01:32:44   No, my image isn't being captured by the TV

01:32:47   and used for marketing purposes.

01:32:49   But that's where the industry's gone.

01:32:53   And Neil Patel had an interesting interview

01:32:57   with the CEO or CTO of Vizio at CES this week

01:33:02   asking about it. They call it post-purchase monetization. The TV business is so low margin

01:33:10   and so cut rate and costs are going—they really are going remarkably down. You can

01:33:16   get a bigger, better TV for less money every year. It's truly a remarkable market.

01:33:25   He basically admitted, "Yeah, part of our business model is based on the assumption

01:33:29   that we can make money on TVs after we've sold them.

01:33:33   And that's, you know,

01:33:34   and not by people subscribing to things,

01:33:36   it's by reselling the information

01:33:38   they glean from what's on the screen.

01:33:40   And it's weird to see Apple getting involved with that

01:33:44   in some ways.

01:33:45   - Yeah, I would strongly suspect that

01:33:48   the iTunes content will not be trackable.

01:33:52   I mean, I would be pretty shocked

01:33:55   if Apple did anything along those lines.

01:33:57   But yeah, we'll see.

01:34:00   - But on the other hand, I got the feeling,

01:34:02   I don't even know how that works.

01:34:03   Like I still have, by this point, ancient,

01:34:06   I guess it's like 12 years old, geez, plasma.

01:34:10   You know, totally non-smart TV.

01:34:12   My TV is just a dumb terminal, you know.

01:34:15   But it's old enough and now small enough

01:34:21   by today's standards that I'm definitely

01:34:22   in the market for a new TV.

01:34:24   But it really offends me deeply

01:34:27   what are they called, ACR?

01:34:28   Whatever they do when they, but it's--

01:34:30   - Yeah, automatic content recognition.

01:34:31   - I said basically, yeah.

01:34:32   - And Visio's the worst, by the way.

01:34:34   Like they are, as far as this stuff goes,

01:34:37   they've been busted for all kinds of shady stuff.

01:34:40   - Well, and Eli even had a tweet recently,

01:34:42   I guess parents had a Visio TV,

01:34:43   and he looked like at their,

01:34:44   I don't know if they're Euro or what,

01:34:45   but you know, whatever it is to track

01:34:48   which devices on the network he had a screenshot in,

01:34:50   it was like, their most active device in the house

01:34:53   by a factor of like 20 was their new Vizio TV,

01:34:57   which was contacting Vizio servers

01:34:59   like thousands of times a day.

01:35:01   And they'd never like signed up for anything with it.

01:35:04   All they did was put the TV on their wifi

01:35:06   and the thing just started phoning home

01:35:07   like a ridiculous amount of times.

01:35:09   But I think if you plug an Apple TV into like that TV,

01:35:14   it's going to do, you know, your Apple TV box is going to,

01:35:18   you know, it's more or less what the TV sees they see.

01:35:22   If it's on the screen, they can see it.

01:35:25   - Interesting, I don't know.

01:35:26   I don't know how that works.

01:35:29   - Yeah, I don't know either,

01:35:30   but it is a little bit surprising.

01:35:32   And you know, it's just TV is a totally different market.

01:35:35   And you know, poor Gene Munster, you know,

01:35:37   was looking for an Apple branded television set

01:35:40   for years and years and years.

01:35:42   And you know, he was obsessive, which was funny,

01:35:46   but he wasn't fundamentally wrong,

01:35:48   which is that that sort of seemed to be the Apple way

01:35:51   to do something, right?

01:35:52   That the Apple way to do it is to make the hardware,

01:35:55   make it the best, integrate it with the software,

01:35:59   and sell it at a premium.

01:36:00   You know, and that the way to, you know,

01:36:02   so that the Apple, the seemingly natural way

01:36:06   for Apple to enter the TV world would be

01:36:08   to make an Apple branded TV set with everything built,

01:36:10   you know, the Apple TV computer part built in.

01:36:14   They've obviously never done that.

01:36:20   And even before these announcements at CES this week, I think most of us had thought,

01:36:25   you know, well, that ship has sailed, and they're never going to do that. But now it

01:36:28   certainly looks at least less likely than ever that they will.

01:36:31   Yeah, it's interesting, especially in light of this tracking stuff, you would think that

01:36:37   there would be there would be more of an opportunity that you would think but I mean,

01:36:42   Apple can even make a computer monitor. So I guess asking for a TV was was would definitely

01:36:46   have been a bridge too far.

01:36:49   Well, they never said they couldn't make a TV monitor or computer monitor.

01:36:52   They just chose not to.

01:36:54   Um, and then, you know, well, the other one is the, um,

01:37:00   the Apple music beyond Alexa. I mean the, the, I mean that,

01:37:04   to me, that's a clear shift in strategy. I mean the, and frankly,

01:37:10   to my mind suggests that home pod sales are way worse than they expected. Um,

01:37:14   and that, that, you know,

01:37:16   That was a real differentiator for Spotify,

01:37:18   is that if you have a Spotify subscription,

01:37:20   it will work on the smart speaker that you already have,

01:37:22   and Apple Music didn't.

01:37:23   Strategy is about making trade-offs,

01:37:27   and they were, at first, trading off Apple Music

01:37:31   to favor HomePod, and now it's the exact opposite.

01:37:34   - But you brought up a thing in a recent piece

01:37:38   that's in the show notes.

01:37:40   It was mostly about Apple and antitrust,

01:37:43   which is a whole segment of the show I wanna get to,

01:37:44   So don't go into the antitrust stuff yet.

01:37:50   But the last third of it was basically sort of raising a flag about Apple's services

01:37:56   that in some ways one of the reasons that Apple has been such a consistently great company

01:38:01   is that their interests have always been aligned with their customers and that Apple makes

01:38:07   nice products and customers want to buy them and they do and Apple gets the money from

01:38:14   from them and they charge very healthy margins

01:38:17   and the people get a product they're happy with

01:38:20   and Apple gets the money and the circle continues.

01:38:25   Services is, the impetus of a services-driven company

01:38:32   is very different and it leads to things like,

01:38:36   you know, ad tracking and privacy invasive stuff.

01:38:40   And I'm not saying Apple's gonna go down that route.

01:38:42   I really, I hope not.

01:38:43   But the motivation is suddenly there

01:38:46   when it wasn't before, right?

01:38:48   It was sort of like it was easy for Tim Cook

01:38:51   to rail against privacy when Apple didn't have

01:38:53   any reason financially to not hold people's privacy.

01:38:58   - Yeah, it's hard to say because I think there's an aspect

01:39:04   of it depends how you monetize the service, right?

01:39:07   If you're ad driven, by definition you're going to have,

01:39:11   You need to collect data, your business depends on it.

01:39:15   And I've long ago noted that Apple, talking about privacy,

01:39:20   I labeled it as strategy credit,

01:39:24   which is the opposite of a strategy tax.

01:39:26   A strategy tax is where you sort of hurt one business

01:39:29   to prop up another business.

01:39:30   Apple Music being a classic example, right?

01:39:33   Apple Music not being on the Echo previously

01:39:37   was a strategy tax that was paid to support the HomePod.

01:39:40   And inherent in any business is, particularly if you have

01:39:44   a hardware business and a service business,

01:39:46   there's inherent tension there.

01:39:48   And they're gonna be sort of working across concerns.

01:39:52   A strategy credit on the other hand is where,

01:39:54   because of your business model, you get something for free.

01:39:56   Like as long as Apple was making all their money

01:39:58   by selling devices, they could criticize Google for privacy.

01:40:03   And it's not that their criticism was wrong,

01:40:06   and it's not that they weren't right that their devices

01:40:10   were better for privacy than Google's,

01:40:12   but it didn't hurt them either, right?

01:40:14   There was no injury to their business,

01:40:17   there was no trade-off being made.

01:40:18   And again, that's not to say it doesn't matter

01:40:20   or it's not important, but it's worth noting

01:40:23   when you're looking at it strategically.

01:40:25   I think it gets a little trickier when you get into,

01:40:28   so Apple's not gonna be an ad business,

01:40:30   so they have ads in the app store,

01:40:31   but by and large, they're not necessarily being

01:40:34   an ad business, in part because they won't

01:40:36   cross these lines, which is fine, which is great.

01:40:40   I think there's definitely a place in the market for that.

01:40:44   The challenge is when he gets to things like iterative services, like to what extent does

01:40:49   having a large corpus of data matter in developing some of these different machine learning based

01:40:54   things, for example.

01:40:57   There's disputes about it.

01:40:58   Do you need a lot?

01:40:59   Do you only need some?

01:41:02   You can come down at different sides, but now it's getting a little bit closer to being

01:41:06   a tax as opposed to being a credit, where you might actually be hurting your business

01:41:11   in order to maintain this sort of stance on things. And that's a more—again, it's

01:41:16   not saying one way is right or wrong, but it's a more challenging sort of managerial

01:41:22   decision than it was a few years ago.

01:41:26   Yeah, I think so. You know, one question I've had, and I still think it's unclear, is

01:41:32   the hell is Apple? I mean, Apple is undeniably working on streaming original content, as they say,

01:41:38   TV shows and movies. They've announced it. They had to. This is something they can't keep secret

01:41:48   because they make these deals and they get published. So that's coming. But nobody knows yet

01:41:54   how the hell they're going to charge for it or are they going to charge for it. And I know there was

01:41:58   was one, I forget who published it, but there was one piece at some point last year where

01:42:02   somebody said that it would just be free, but it would just be like, but you could only

01:42:07   watch it on Apple devices. That if you have an iPhone, an iPad, a Mac, or Apple TV, you

01:42:13   could watch Apple's original content, and if you didn't, tough noogies. This deal at

01:42:20   CES makes me think that's hard to believe. Because it's obviously going to be on the

01:42:26   Samsung TVs now. I mean, and I guess they could make it so that you have to have an

01:42:32   iPhone or something to get started, you know, like to get signed in, you know, and so that's

01:42:37   only, you know, some way they could somehow more or less make it so that just because

01:42:41   you have the Samsung TV, you can't watch Apple's original content without owning some other

01:42:46   Apple product. But it seems unlikely to me. I've always thought that they, you know, to

01:42:52   the three main ways they could do it. They could just give it away free, which I think is unlikely.

01:42:59   They could just make it part of Apple Music and either change the name or keep it called

01:43:06   Apple Music even though you're getting TV shows on it. That's sort of what they're doing now,

01:43:10   because the carpool karaoke thing, I think you only get if you have Apple Music.

01:43:14   Or they could just start a separate service and you'd have to get Apple Music and Apple TV the

01:43:21   the service, you'd have to pay two subscriptions a month,

01:43:25   or maybe, you know, obviously the natural thing to do

01:43:27   would be if they're both $10 a month,

01:43:29   for 15 you can get both.

01:43:30   It seems a lot more likely to me that they're gonna do

01:43:34   something like that at this point.

01:43:35   I think this idea that they'd give it away free

01:43:37   is not nutty, but it certainly isn't the strategy.

01:43:42   It's a strategy of a device company,

01:43:44   not a services company.

01:43:45   - That's exactly right, and I agree with you,

01:43:47   that it seems pretty clear that it's gonna be

01:43:50   a broadly available sort of content, which, you know,

01:43:54   I mean, I wrote an article a few years ago

01:43:57   that they say they should buy Netflix,

01:43:59   and this is when Netflix was worth like $40 billion

01:44:02   or something, so it was a much different proposition.

01:44:04   But yeah, I'm not sure, like, basically effectively

01:44:09   competing with Netflix doesn't seem like

01:44:11   a particularly fruitful strategy, but we'll see.

01:44:16   We'll see what happens.

01:44:17   It's gonna be very interesting to watch.

01:44:18   I mean, yeah, I'm, I'm skeptical about the video stuff.

01:44:22   I mean, with the caveat, I've been very skeptical all along.

01:44:25   So, you know, there's probably a degree of confirmation bias here, but especially

01:44:30   now to your point that it's very hard to see how it connects to their core

01:44:34   business, it's yeah, it's going to be very interesting to see what it looks like,

01:44:39   what the business model is, how they rolled out, uh, because it kind of feels

01:44:44   like, well, let's do this thing that everyone else is doing and making some

01:44:46   money at.

01:44:47   Yeah.

01:44:48   And there's only so many, I don't know what,

01:44:52   I think the phrase would be subscription fatigue.

01:44:55   There's only so many things a month

01:44:56   that you're gonna get people to sign up for.

01:44:58   And Netflix, to their credit,

01:45:05   I think they have a pretty clear strategy on that,

01:45:07   which is that if you're gonna get one,

01:45:10   it's gonna be Netflix.

01:45:11   I mean, I think if you looked at all the people

01:45:13   who pay for some kind of original content subscription,

01:45:16   If you took all the people who only pay for one,

01:45:21   I'll bet the overwhelming majority is Netflix.

01:45:24   - We'll see though.

01:45:25   I think the one thing that I've always believed

01:45:29   very strongly is that the shift,

01:45:32   I think what's happening with entertainment, with video,

01:45:35   it's a, like there's a reorganization of the value chain,

01:45:39   but I don't think that, it's not gonna get cheaper, right?

01:45:43   Like I think that people were paying, you know,

01:45:45   between $100 and $200 for their entertainment needs 10 years ago, and they're going to

01:45:50   be paying that equivalent amount 10 years from now, adjusted for inflation or whatever,

01:45:55   and the money's going to be going to different people.

01:45:59   I hear the point about subscription fatigue, but if you maybe stop paying for cable or

01:46:05   you get a skinny package and then you spend that money elsewhere, I just don't see a

01:46:09   world where suddenly people were paying $200 a month for their entertainment previously

01:46:15   and now they're only paying $50 a month. I think that's very unlikely.

01:46:19   Yeah, and another sign of this from a few years ago is Apple Music for Android. It was

01:46:27   easy to justify because it's not free. Everybody has to pay $10 a month for Apple Music. Whatever

01:46:35   the small percentage of Android users who do subscribe to Apple Music, it's all icing

01:46:43   on the cake because they are at least paying $10 a month for Apple Music.

01:46:47   Yeah, I think they had to do that too. Especially when Apple Music started, they were doing

01:46:53   like an exclusive strategy where there'd be stuff that's only on Apple Music. But

01:46:57   I think that'd be a hard strategy. They've kind of abandoned that for now, but I think

01:47:00   that'd be a hard strategy to do if you only had 15% of the market or in the US, 45% of

01:47:06   the market or wherever it is. Yeah, I was taken by surprise by this Apple

01:47:10   stuff with the TV set makers. And now that it's settled in after a couple of days, I'm

01:47:14   less surprised. I still don't have a coherent, total explanation of it. So I haven't written

01:47:20   much about it.

01:47:23   You know, I think it's where growth is. Like, I think they need growth and the iPhone is

01:47:29   what it is. It's not going anywhere. Again, I think to bet on it, you know, on Apple losing

01:47:33   share or losing their position in the market is mistaken. But I think as far as revenue

01:47:39   growth, it is probably mostly tapped out.

01:47:42   And so I think that's probably underlying most of this,

01:47:46   is making more money from services is by far the,

01:47:50   it's kinda like we need to make more money everywhere

01:47:56   because the iPhone's not gonna happen.

01:47:58   'Cause the wearables division is doing great,

01:48:01   but that's not gonna be the size of market of an iPhone.

01:48:05   - No, well, and the thing that popped into my head

01:48:08   only days later, but it should've popped in right away,

01:48:10   is the comparison to putting iTunes on Windows.

01:48:15   Now that was not about iTunes, the music store,

01:48:20   it was fundamentally about the iPod, which was a device.

01:48:23   Most of the money Apple made from that decision

01:48:27   to put iTunes on Windows was made from selling iPods,

01:48:30   not from selling music and TV shows, I think.

01:48:35   It certainly was at first, but it was about growth,

01:48:40   even if it was at the expense of the whatever,

01:48:46   let's keep it all in the Apple family advantage

01:48:50   there was to keeping the iPod Mac exclusive.

01:48:54   And I think there was sort of a similar,

01:48:56   whoa, Apple's doing it for Windows?

01:48:59   Clearly the explanation was all about growth,

01:49:05   and it worked, it made iPod sales skyrocketed

01:49:08   because there were all sorts of people

01:49:09   who had no interest in switching from Windows to the Mac

01:49:12   who definitely wanted an iPod.

01:49:15   - Yeah, it's probably one of the,

01:49:17   I think there was a lot of dispute within Apple with this.

01:49:21   Isn't it right that Steve Jobs was opposed to it originally?

01:49:24   - I forget which book that comes from, unfortunately,

01:49:28   so I wish I could give credit,

01:49:29   but it might have been Steven Levy's book on the iPod,

01:49:33   but there was this story somewhere,

01:49:35   but it was like Phil Schiller and I forget who else

01:49:39   were on the side of, look, we should do this.

01:49:41   We should put this on Windows

01:49:42   'cause we could sell a ton of iPods

01:49:45   and we can get new customers, you know?

01:49:47   And Jobs was reluctant.

01:49:50   - No, that is the all-time greatest

01:49:55   I think Apple strategic decision.

01:49:56   People talk about like making a phone

01:50:00   that obsoleted the iPod, that's easy business, right?

01:50:04   It's a more expensive device,

01:50:05   you're making more money, right?

01:50:06   That's not disrupting yourself.

01:50:08   The real one was going to Windows.

01:50:10   And what's so interesting, a lot of decisions are like this.

01:50:14   In retrospect, it's so painfully obvious

01:50:16   that was the right thing to do.

01:50:17   But it really entailed sort of giving up

01:50:20   on the heart of the company, right?

01:50:22   I mean, Apple was the Mac.

01:50:24   Apple and the Mac were synonymous.

01:50:25   That's what they were.

01:50:27   And you had to basically say, we have the first time we have something that could actually

01:50:34   switch people from Windows to the Mac because we have this device.

01:50:37   We can actually grow the Mac.

01:50:39   And it's like, nope, you know what?

01:50:41   Mac you're going to have to do it on your own.

01:50:43   Because there's something bigger here that we need to reach towards something larger.

01:50:47   And that was the decision that weighed the groundwork for the iPhone.

01:50:50   Because people forget the iPhone was a computer dependent device when it launched.

01:50:56   And you had, so one, it had to work with Windows to reach the market it did.

01:51:00   But two, you already had people acclimated to Apple, used to using iTunes.

01:51:05   Like, they had all the pieces in place for the iPhone to happen, and the decision that

01:51:10   mattered most of all for that was putting iTunes on Windows.

01:51:14   Yeah, and I think the reason they deserve credit as a great decision is that it wasn't

01:51:20   about a bad strategy versus a good strategy,

01:51:23   which in hindsight is easy to say,

01:51:26   well, yeah, they made the right decision.

01:51:27   It was a good strategy versus a bad strategy.

01:51:30   It was a strategy that was good for certain reasons

01:51:32   on the one side that was diametrically opposed

01:51:35   to the opposing strategy that was good for other reasons.

01:51:38   It was good for the Mac that the iPod and iTunes

01:51:41   were exclusive to the Mac.

01:51:42   It was great for the Mac,

01:51:43   and being great for the Mac was good for Apple,

01:51:46   but it was just better for Apple overall

01:51:50   to put it on Windows.

01:51:52   Yeah, I mean, Apple famously, when they launched the iPhone,

01:51:57   they changed the name of the company from Apple Computer

01:52:00   to Apple Incorporated, which I think is--

01:52:04   honestly, when you think about the iPhone,

01:52:06   it's still a personal computer.

01:52:07   It's actually way more personal than any computer

01:52:09   we've ever had.

01:52:10   But there's a degree of symbolism there.

01:52:13   But the moment that change actually happened

01:52:16   was when it went to Windows.

01:52:17   That's when Apple sort of ceased being a computer company

01:52:22   and became something larger than that.

01:52:25   And the name change was a trailing indicator in that regard.

01:52:30   - Yeah. (laughs)

01:52:31   All right, let me take a break

01:52:32   and thank our third and final sponsor.

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01:54:14   branding. I think that there's so many people who are writing great stuff, but putting it on medium

01:54:20   or something like that, where they don't own it. And they're not building any personal brand equity

01:54:25   in it, whether it's a company or whether it's a person. I think having your own blog is such a

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01:55:17   of the talk show.

01:55:18   All right, we were talking about services,

01:55:20   but I think that parlays into the last big ticket thing,

01:55:25   at least I think it's the last big ticket thing on my list,

01:55:27   which is Apple, the App Store, and antitrust.

01:55:31   Why don't you give the background on this,

01:55:35   'cause I think you're way more informed than I am.

01:55:38   Well, the context to write about it is the Supreme Court case that involves Apple, which

01:55:44   is kind of a sidebar to, I think, the bigger issue.

01:55:49   So the Supreme Court case is, can consumers sue Apple for antitrust with regards to the

01:55:56   App Store?

01:55:57   And the argument that Apple makes is, there's a doctrine in US antitrust law called the

01:56:04   the Illinois brick doctrine coming from a Supreme Court decision called Illinois Brick

01:56:08   Company versus Illinois in 1977, that the only parties that can sue for antitrust violations

01:56:15   are the ones that are directly injured.

01:56:17   So in that particular case, concrete brick makers were conspiring to raise prices, and

01:56:25   they would pass that price on to masonry contractors.

01:56:28   Masonry contractors were hired by general contractors, and general contractors were

01:56:32   hired by the state of Illinois to build schools or whatever it might be. And so the Supreme

01:56:36   Court ruled that Illinois could not sue, only the masonry contractors could sue because

01:56:40   they are the ones that were directly injured. And part of this was sort of just administrative

01:56:44   reason like how do you decide where the damage is distributed? You know, you don't want to

01:56:48   have double jeopardy where you get multiple things. It was actually a relatively closely

01:56:54   decided case. I think there's a fair bit of controversy about it. But it's sort of been

01:56:57   the law of the land for, you know, 40 some years, and Congress has had plenty of opportunity

01:57:02   to change the law and they have declined to.

01:57:04   So it's kind of like set.

01:57:06   And so the question now is who is actually

01:57:08   harmed by the App Store?

01:57:11   And neither party is asking the Supreme Court

01:57:14   to repeal Illinois Brick.

01:57:15   It's just a question of who is harmed.

01:57:18   So Apple is saying that developers are harmed.

01:57:20   They enter a contract with us.

01:57:21   We take money from them.

01:57:23   And we're just a facilitator.

01:57:25   We're providing a service for them to sell to consumers.

01:57:28   The actual relationship is between developers

01:57:31   and consumers, which means consumers can't sue us,

01:57:34   they can only sue the developers.

01:57:36   And the--

01:57:38   And it's important to note that the lawsuit was brought

01:57:40   by users.

01:57:40   It's people who--

01:57:41   That's right.

01:57:41   --somebody who owns iPhones who's-- they're suing Apple,

01:57:44   saying that we want to be able to get apps from other stores.

01:57:47   Well, no, no, they're just saying that we shouldn't

01:57:50   have to pay that 30% premium.

01:57:51   We're being overcharged.

01:57:52   And so the reason-- so they haven't even

01:57:56   talked about the antitrust issue yet.

01:57:58   The only issue is can the lawsuit even go forward?

01:58:01   So it's still like a preliminary sort of matter.

01:58:05   Do the people suing have standing is the legal term.

01:58:08   Are they the ones that can sue for this?

01:58:11   And they're saying, no, we pay Apple.

01:58:14   And so we are the ones that are harmed

01:58:16   'cause we're paying Apple a 30% premium

01:58:18   that makes things more expensive

01:58:19   than they would be otherwise.

01:58:21   - Yeah, so I think this is fascinating.

01:58:24   And I like to, I hold it up.

01:58:28   And this is one of the reasons

01:58:29   I really enjoy your writing and love having you on the show. As I often say, the only

01:58:35   way to be right all the time is to actually be correct most of the time and be looking

01:58:40   for where you're wrong. Figure out why you're wrong and change your mind. Changing your

01:58:45   mind, a lot of people don't change their mind on anything. There's a lot of people

01:58:48   who if you say, "What was the last thing, big thing that you changed your mind on?"

01:58:52   They might have a hard time coming up with it. You've changed my mind on whether Apple

01:58:56   has an antitrust problem with the App Store. We could talk about that in detail.

01:59:02   I don't know if irony is the right word, but I think the fact that it's coming ahead with

01:59:08   this lawsuit is kind of ironic in a way because I think the lawsuit is totally wrongheaded.

01:59:14   I think if Apple tomorrow said, "Okay, no more 30%. We'll charge 2.5% because that's the credit

01:59:21   card transaction fee. So if you buy a $1 app, it will take two cents. That's not going

01:59:31   to lower the cost of apps by 30%. There might be an argument for how you can say that users

01:59:41   are harmed by the app store's exclusivity, but it's not pricing. You hang out on Slack

01:59:51   with me with a bunch of independent developers. I mean, India developers, especially Mac developers,

01:59:55   you know, the idea that the price of apps has been driven up by the iOS App Store is ludicrous,

02:00:04   because they're all free and 99 cents if you have to pay anything, right? Like when it until recently,

02:00:09   when when apps were paid, they you know, the price was quickly driven down to 99 cents, which is

02:00:15   unsustainably low. It's a different type of monopoly if it's a monopoly. Whereas the brick

02:00:22   case is classic antitrust where the prices were going up. They conspired to raise the price of the

02:00:28   bricks at the manufacturer's level. Then, like you said, the Masons had to pay more,

02:00:35   which then the general contractors had to pay for more. And then the state of Illinois had to

02:00:39   pay more to build the school because the bricks were—it was all about raising prices.

02:00:43   You know, protecting against high prices—you and I have had this conversation online and

02:00:53   offline. You know, if anything, US antitrust law is almost fundamentally based now, at

02:01:00   least, on the entire point of it is about protecting customers from higher prices. And

02:01:06   there definitely are not higher prices in the app store. The app store prices are ridiculously

02:01:11   low.

02:01:12   Yeah, I agree. And I think to me that's sort of the quenching factor where I think that

02:01:17   Apple should, will and should win this case. There is definitely skepticism from the judges

02:01:24   in the oral hearings, but it seems to my eye that it's pretty clear that that's the case.

02:01:30   But at the same time, if you back up and think about it, Apple's point that developers

02:01:37   have the relationship or developers sell to users and Apple is just sort of like a payment

02:01:41   processor or facilitates it. Why don't developers, why aren't they able to get their users sort

02:01:47   of account information? Why can't they give them refunds easily? There's actually very

02:01:53   little about this relationship that suggests it's any sort of a direct relationship between

02:01:58   developers and users. And Apple certainly sits in the middle in every sense except for

02:02:04   maybe the way the finances move. Yes, Apple doesn't stock apps in their store. They're

02:02:12   not a wholesaler, but that's the nature of digital goods is there is no stocking to be

02:02:17   had, right? I mean, so it's a challenging case because it'd be, again, if this were

02:02:23   physical goods, it'd be very straightforward. Either Apple buys the goods from developers

02:02:27   and sort of holds inventory and then sells them on or they don't. And they facilitate

02:02:32   transaction where the developer delivers it straight to the end user.

02:02:35   But given that it's a digital good, there is no inventory to hold.

02:02:40   So it's not really clear who's in the middle.

02:02:42   And again, I agree with you about the way this will probably play out and probably should

02:02:49   play out.

02:02:50   But I think Apple is...

02:02:54   They are very happy to stick themselves in the middle of the developer-end user relationship

02:03:00   in every single factor that actually matters but for this particular legal case. Like,

02:03:05   "Oh no, we're just standing to the side facilitating a transaction," which that

02:03:09   doesn't reflect the way that those relationships actually play out at all.

02:03:14   Yeah, it really is—it seems like Sophie Street argued that their relationship is not

02:03:22   with the customer. I mean, like you said, I mean, I think people—I don't even know—I

02:03:26   know from talking to developers that typical users are shocked almost when they find out.

02:03:31   If they do want a refund for reasons X, Y, or Z and they contact the developer, the developer

02:03:37   literally has no mechanism to give somebody a refund. People find this surprising because

02:03:42   it seems like they should, but they don't. What do you do? It's frustrating when you're

02:03:49   a developer who's trying to give good customer support to users and you want to say, "Hey,

02:03:54   If for whatever reason you're not happy,

02:03:57   I would give you a refund, but they can't.

02:03:59   They don't have much more relationship with the customer

02:04:02   or any knowledge of who they are than,

02:04:04   like when you walk into a Target, a brick and mortar store,

02:04:07   and I buy a Sony TV, and I give Target the money,

02:04:10   and I walk out the door with the TV,

02:04:12   do I have a relationship with Sony or with Target?

02:04:14   Clearly it was with Target.

02:04:16   I mean, Sony's gonna get the money,

02:04:17   or already got the money from when Target stocked the TV

02:04:21   and paid the wholesale cost.

02:04:24   but my relationship isn't with Sony.

02:04:26   That's what the App Store relationship is more like

02:04:30   than anything.

02:04:31   - Yeah, and not only that, but Apple forces you into,

02:04:35   you have to offer your goods in a way

02:04:37   that you don't necessarily know who the end user is.

02:04:40   There's a curtain there that you can't break through.

02:04:44   And even if you want to have an account system,

02:04:47   that account system has to be after the purchase.

02:04:50   You can't force someone to create an account

02:04:52   and then do a purchase.

02:04:54   You have to allow them to do the purchase

02:04:56   and never create an account such that

02:04:57   they're always anonymous to you.

02:04:59   I mean, pseudonymous, I guess, is the right word

02:05:01   'cause you can track who they are,

02:05:03   but you can't know who they are.

02:05:05   And in what respect then does the developer

02:05:08   have a relationship with the end user?

02:05:09   I mean, the reality is that the,

02:05:12   according to the very narrow sort of reading,

02:05:16   I think, of Illinois Brick,

02:05:17   Apple's probably in the right here.

02:05:19   But I think it's more a testament that Illinois Brick

02:05:21   is woefully insufficient for dealing with digital goods.

02:05:24   Because we're dealing with a sort of relationship

02:05:28   that's like, Illinois Brick envisioned

02:05:30   a very sort of linear value chain

02:05:32   where money went from A to B to C to D to E.

02:05:35   When the reality of a digital relationship,

02:05:37   it's not just money, it's also the consumer relationship.

02:05:40   It's data, it's all this sort of stuff

02:05:42   where it's much more of a 3D or quantum sort of connection

02:05:47   that to try to distill it to a series of boxes and arrows is woefully insufficient.

02:05:57   But that is all to say that Apple doesn't have a—I had too many double negatives there—but

02:06:06   Apple has an antitrust problem perhaps with the App Store. And I think the term that applies

02:06:11   is rent-seeking? Yeah, well, rent-seeking is a—it's not

02:06:15   It's not necessarily an antitrust term per se.

02:06:17   It's just the idea that a company or entity is collecting money based not on the provision

02:06:25   of a service, but because the parties have no choice.

02:06:35   You think about it in terms of rent.

02:06:36   If you own a piece of property and someone wants to do something on that property, you

02:06:40   can extract money not by doing the activity that is generating money, but because you

02:06:44   own the property on which it's happening, right?

02:06:47   And that's legitimate in the case of real estate because you need the real estate.

02:06:52   It's a little less legitimate, I think, particularly in terms of digital content.

02:06:57   And there's a discussion we had about buying apps and to what extent does Apple provide

02:07:02   the APIs and the platform and all those sorts of things that they're justified in taking

02:07:07   that.

02:07:08   I think that argument gets drastically shakier when it comes to digital content.

02:07:13   If you want to buy, to take the classic example, and this was the last app where you could

02:07:18   buy digital goods in the App Store was the Kindle app in 2011.

02:07:22   And Apple said, "If you want to sell a book, Amazon, if you want to sell a Kindle book,

02:07:29   you have to pay us 30%.

02:07:30   You have to use our purchasing system."

02:07:32   Because it used to be, when the App Store first launched, the Kindle app, you could

02:07:37   go to a web view.

02:07:39   Again, you weren't using Amazon's payment system with like in-app purchase APIs.

02:07:43   You would click on a button, you would go to a web view, and you could click a button

02:07:48   to buy it.

02:07:49   And this is how it works on Android, by the way.

02:07:50   If you use Kindle on an Android phone, there's a tab on the bottom which is store.

02:07:55   That page is not like an app page.

02:07:57   It's not like using APIs or whatever.

02:07:59   It is actually a web page.

02:08:01   I think it actually, I do think that they did shoot you over to Safari.

02:08:06   I don't think it was a web view in the app.

02:08:08   I think that was part of the--

02:08:10   That might be the case back in 2011.

02:08:12   Yeah, were there even web views back in 2011?

02:08:14   I'm not even sure if there were.

02:08:16   There always was a web view, but it was limited at the time.

02:08:20   If I was a developer, I'd probably remember.

02:08:22   But there was a time a few years later

02:08:25   where Apple significantly improved the web view

02:08:28   and made it sort of like a mini version of Safari

02:08:31   that had access to the same cookies and et cetera.

02:08:34   But instead, they shot you off a Safari.

02:08:35   And in some ways, that might have been better,

02:08:37   just because if you were already logged into amazon.com on Safari, you were already logged

02:08:42   in when they shot you over. And they knew it. There was like a callback so that when

02:08:46   you did buy the book, you could from Safari hit a button that would jump you back to the

02:08:51   Kindle app to the book that was already downloading, you know, because they sent a push notification

02:08:57   to the Kindle app on your phone, you know, so

02:08:59   it's the one half dozen the other. The long and short of it is, is that until 2011, you

02:09:05   you could buy Kindle books easily.

02:09:07   - In an obvious way, all on the phone,

02:09:10   with maybe at the most arguably one extra step

02:09:14   compared to if the purchase had literally been in the app.

02:09:18   - That's right, and whereas now today,

02:09:20   you can download the Kindle app,

02:09:22   and there is no web view, there is no link,

02:09:25   you can't even say that if you wanna buy books,

02:09:28   go to Kindle.com.

02:09:29   Like you would have to know magically

02:09:31   that I'm going to go open the browser,

02:09:34   Go to Amazon.com, buy a book, then switch back to the app and do it.

02:09:38   For Amazon, that works because everyone knows Amazon, everyone knows Kindle.

02:09:41   For Netflix, it works.

02:09:42   Everyone knows who they are.

02:09:44   If you're a small business, a content business, it doesn't work very well.

02:09:49   The problem I have is I don't see in any respect the case in which an e-book is the smartphone

02:09:56   market.

02:09:58   This has nothing to do with the smartphone market.

02:10:02   It is a book.

02:10:03   It is a digital content.

02:10:05   The phone is simply a device on which you view something.

02:10:10   And I find it extremely problematic and objectionable and not just from a moral reason, but from

02:10:17   an innovation reason that Apple is going to take 30% because they can.

02:10:25   It is rent-seeking.

02:10:26   They are taking 30%, not through anything that they do, but simply because they can.

02:10:31   They made the rules.

02:10:32   There's only one App Store.

02:10:33   You have to follow this rule if you want to be in the App Store.

02:10:36   Because phones are—we just talked about how incredible the phone is as a market.

02:10:41   It is something everyone needs, right?

02:10:43   They are leveraging the fact that they control one of the two platforms for the device that

02:10:47   everyone needs to basically take 30% on stuff they have nothing to do with.

02:10:52   I find it problematic morally, and I think it's problematic legally.

02:10:56   Yeah.

02:10:57   So, the news on that front is that Netflix—for those of you who haven't been paying attention—Netflix

02:11:02   has changed their iOS app to no longer do in-app signups.

02:11:06   So if you're new to Netflix,

02:11:08   or if you've stopped your Netflix and are coming back,

02:11:10   if you start in an Apple app, iOS, iPad,

02:11:15   or I guess Apple TV,

02:11:17   I don't know if they've updated the Apple TV,

02:11:19   but you can't create a new Netflix account.

02:11:21   You used to be able to until like a week or two ago.

02:11:24   You could just sign in and use an in-app purchase,

02:11:28   and they charge the same price,

02:11:30   I think, whatever, 10 bucks a month,

02:11:32   except that for people who signed up in the apps, 30% of that went to Apple every month,

02:11:39   and 70% went to Netflix. Whereas if you signed up in your web browser with a credit card,

02:11:45   the user would still pay $10 a month, and all of the money would go to Netflix, minus

02:11:50   Visa or Amex is 2% to 3%. So Netflix has made the obvious strategic change to go all in

02:11:59   on that, but it is I'm with you. I don't care if Apple takes things that the third, you

02:12:06   know, and now they're for subscriptions, Apple, I don't know, a year or two ago announced

02:12:11   that once a subscription is a year old, that 70 30 split changes to 85 15. So somebody

02:12:18   who, you know, signs up for HBO now in the app, you know, 70 30 split for a year and

02:12:27   and after that it's 8515. If Apple thinks those numbers are good, that's fine. I think

02:12:31   it's their prerogative. The part that I find objectionable, and to borrow your description,

02:12:36   both morally and perhaps legally, but certainly morally, is the refusal to allow the app to

02:12:43   tell you what's going on. One of the rules of complying with Apple's App Store guidelines

02:12:50   is that if you're not going to do in-app purchases and you have to sign up outside to get them,

02:12:56   One of the rules is you can't tell the user the rules.

02:13:00   That you have to go to amazon.com to buy the Kindle book,

02:13:04   or you have to go to the Comixology website

02:13:07   to buy the comic book, or you have to go to Netflix.com

02:13:11   to sign up for Netflix.

02:13:14   And when you really look at it,

02:13:17   you look at the new Netflix, like I signed out,

02:13:19   or signed in on an older iPad that I didn't use anymore.

02:13:24   It is, it's ridiculous that they don't tell you.

02:13:28   And so I really tried to put myself in the mindset

02:13:30   of like, let's say, somebody who,

02:13:33   it's hard to imagine not having Netflix,

02:13:35   but somebody who's like,

02:13:37   "All right, I've heard enough about this Netflix.

02:13:38   "I wanna watch this Bird Box thing everybody's talking about

02:13:41   "or sign up," and you go to your iPad.

02:13:43   It really looks like a bug almost that you can't,

02:13:47   that the only option is sign in, right?

02:13:50   If you've just downloaded this app for the first time,

02:13:52   Everybody you've heard about Netflix,

02:13:54   and most things you do on your iPad,

02:13:58   you do everything on the iPad.

02:14:00   And with Netflix now you don't.

02:14:02   But they have a button up in the corner, help,

02:14:05   which lets you make a phone call to Netflix.

02:14:07   And I called it, which I'm glad I did.

02:14:10   And if you ask them on the phone,

02:14:13   they will tell you, oh, you need to go to your web browser

02:14:17   and go to Netflix.com and you can sign up there.

02:14:22   - Which, the challenge then is even that,

02:14:25   like it's ridiculous, but that, can a startup

02:14:28   or can a new small company have like a call center?

02:14:31   - No.

02:14:32   - And not only that, but the insistence

02:14:36   that you have to use the in-app purchase,

02:14:38   again, even if the percentages were much lower,

02:14:40   the level of burden and complexity that puts on a new app,

02:14:44   because now you have to support Apple

02:14:46   and you also have to support something for the web,

02:14:49   and you have to support something different,

02:14:49   Like you can't just have like one payment system.

02:14:52   Like you're forced into supporting multiple ones

02:14:55   as if the world were only iOS, but that's not the case.

02:15:00   - Yeah, I really think that Apple should be able to,

02:15:04   whatever they decide the split should be,

02:15:05   70/30, 85/15, whatever they decide it should be,

02:15:09   it should be able to compete on its own,

02:15:11   and that developers should choose,

02:15:12   well, it's so convenient and so easy for the user

02:15:15   to sign up right there in the app

02:15:18   and just put their thumb on the touch ID button

02:15:21   or use face ID and confirm, and now they're subscribed.

02:15:25   It's so much, I'm gonna get so many more signups

02:15:27   because of this, I'll agree to this 8515 or 7030, whatever.

02:15:31   That's their choice, right?

02:15:34   And if those numbers are too high, if 7030 is too much,

02:15:38   then it would naturally come down and they would adjust it.

02:15:41   There is no market effect at work

02:15:43   if they can unilaterally disallow developers

02:15:47   from even choosing it while explaining to users

02:15:50   how to go about it.

02:15:51   - Yeah, and they would still be very successful.

02:15:54   I mean, take like in-app, take games for example.

02:15:57   Like, you don't, if you're a game developer

02:15:59   and you're getting someone to buy a bunch of virtual coins

02:16:01   or whatever it might be, you probably don't wanna

02:16:04   kick them out to a web browser because you're breaking

02:16:07   the spell, you're getting out of it and you're like,

02:16:09   do I really wanna spend this money?

02:16:11   - Yeah, exactly. - You want the convenience

02:16:13   and the speed of that transaction.

02:16:15   It's a huge benefit and Apple, you know,

02:16:17   I'm not saying that Apple has to open up their in-app purchases to other payment processors.

02:16:22   They innovated that.

02:16:23   They built that.

02:16:24   By all means, you should be able to compete on those grounds.

02:16:28   I have no objection to that.

02:16:29   And frankly, there's a huge benefit to being tied in with Apple.

02:16:34   The number one thing that drives churn for Chitakri, for example, is credit cards expiring.

02:16:40   And people, they expire and they don't notice for a while, or maybe they're going to sign

02:16:44   up, whatever it might be.

02:16:45   Well guess what, guess which credit card is the first credit card to get changed if your

02:16:49   card expires or if your card gets stolen.

02:16:52   You go and you change your iTunes card right away because you're more likely to realize

02:16:56   it's expired fast, right?

02:16:58   That's a huge benefit for a developer to have someone else basically policing the "remember

02:17:04   to update your credit card" problem.

02:17:05   That's by far one of the biggest drivers of churn for anyone that relies on credit cards.

02:17:10   So like there's real benefits to going with Apple and where I think they could absolutely

02:17:14   charge a premium and rightly so. This idea though that Apple deserves 30% of a Kindle

02:17:21   book, which by the way would never happen in books because you're paying like there

02:17:25   are, I've, I heard a lot from people running ebook stores or ebook things that were not

02:17:31   Amazon that this is devastating for them because they're paying out 80% of, of, of, of a book

02:17:38   price. Like they, it's literally impossible for them to use in app purchases because they'd

02:17:43   be eating 10% on every purchase.

02:17:45   And what did Apple have to do with the publishing

02:17:48   of that book?

02:17:49   What did they have to do with anything?

02:17:51   All they did was make a device with a screen that

02:17:53   is integral to daily life.

02:17:56   And to think that entitles them to book revenue,

02:18:00   or to music revenue, or to whatever revenue might be,

02:18:03   I think is preposterous.

02:18:06   And it's hostile to users.

02:18:07   I really do think so.

02:18:08   Because it leaves-- when the developer like Netflix

02:18:12   chooses not to participate or all of Amazon's properties that have consumable content or

02:18:18   subscription content, it is confusing. It is really, really confusing. That is the antithesis

02:18:25   of the Apple experience, to leave users in a confused state. It really does not look

02:18:30   like—and the fact that you can't link or have a button that jumps you over to Safari

02:18:35   to do it, I really do think that should be allowed, and I don't even think there should

02:18:40   should be a question about it.

02:18:41   But the fact that, all right, even if you say

02:18:43   you can't have a link, but you can't even tell them,

02:18:46   like you can't even say go to Netflix.com

02:18:48   and not have it be, not even have it be at link,

02:18:51   but that's just, again, that's absurd,

02:18:53   but it's even more absurd to say that you can't

02:18:55   even tell them that that's what you have to do.

02:18:57   - Yeah, and I just think there's no defense for Apple here.

02:18:59   I mean, believe me, I've heard all the objections

02:19:02   from the Apple supporters that like, well,

02:19:06   it would be better for the user if everything

02:19:08   was in that purchase.

02:19:09   It's like, well, we're not in that world, one.

02:19:12   And two, again, it's to understate, I think,

02:19:17   the importance of a phone, right?

02:19:20   The phones are, we live, look at how the world

02:19:25   is transformed by this device.

02:19:27   That's the reason why Apple makes so much money

02:19:29   on the devices, because they're so integral and important.

02:19:32   And by definition, if they're so integral and important,

02:19:35   they are essential to the economy,

02:19:37   they're essential to innovation,

02:19:39   are essential to new things coming forward. And it's a

02:19:42   society, I think it's problematic that that one

02:19:47   company can basically, again, rent seek on an entire new world

02:19:53   of digital content. And let me be clear, I'm super biased on

02:19:55   this, because I am in the digital content business, right?

02:19:58   And, you know, I, I don't have an app. And if I had an app, I

02:20:04   would be forced to, you know, deal with this conundrum. So I'm

02:20:07   certainly biased, but I'm also a huge believer in the potential of there being all kinds

02:20:12   of new businesses, all kinds of new opportunities to do things online, to do things that weren't

02:20:16   possible previously.

02:20:19   I don't see in any respect in which these sort of rules and limitations are making that

02:20:25   future more likely to happen.

02:20:26   They're making it less likely to happen.

02:20:28   Dave Asprey Yeah, and it gets back to the services narrative,

02:20:31   where Apple's drive to increase the revenue it makes from the App Store is in some ways

02:20:35   at odds with the user experience.

02:20:37   I mean, and one of the ways it would be better if everything was an in-app purchase is the

02:20:42   fact that Apple has, in my opinion, a very good interface for seeing, "Hey, what subscriptions

02:20:48   am I paying for through iTunes?"

02:20:50   And then you can see them and you can unsubscribe from them right there, and there's nothing

02:20:55   the company can do about it.

02:20:56   That's the way it is.

02:20:58   So from a user experience perspective, it would be great if more subscriptions went

02:21:01   like that because they're in one central place where you can see them all, get a better

02:21:06   sense of like what you're spending per month overall on these subscription stuff. And you

02:21:11   can unsubscribe easily. I mean, I always bring it up because to me, it's it's like the best,

02:21:15   the most amazing counter example. Like if you want to unsubscribe from the New York

02:21:19   Times, you have to call them on the phone.

02:21:21   Jared Ranere: That's ridiculous. It's so interesting. And the other thing is that it

02:21:24   irritates me so much about is that when they won't tell you the price, they're like, it's

02:21:29   $1 for eight weeks. It's like, well, how much is it after it? Yeah,

02:21:32   - Yeah, it's ridiculous, right.

02:21:35   Apple's rules make it, yeah,

02:21:37   Apple A makes it easy to unsubscribe

02:21:39   and they also make it impossible to obfuscate

02:21:42   what you'll be paying on what basis.

02:21:45   It's all great, but in the user's interest,

02:21:49   it would therefore be in Apple,

02:21:51   it would therefore, it would be better for the users

02:21:54   than if Apple priced its cut for these in-app subscriptions

02:21:59   such that companies like Netflix and Amazon and booksellers could agree to them.

02:22:04   Well, that's also why that's a vector Apple can compete on, right? If people asking for digital

02:22:12   subscriptions are being scammy about it, then the solution is a market-based solution where

02:22:17   consumers decide not to subscribe to them. Or they are forced to offer an in-app purchase

02:22:24   solution that a consumer can say, "Look, I'm not going to subscribe to you unless you offer

02:22:29   in-app purchases because I trust Apple to handle this better than you." That's the mechanism for

02:22:36   Apple to compete on by we're better and more trustworthy and consumers trust us. It's not to

02:22:42   decree by fiat that this is the way it's going to be and we're going to justify it. It's not that

02:22:49   what you're saying is not true, but that's a reason to compete or a way to compete.

02:22:54   It's not a justification for basically taking 30 percent because we can, which is the reality now.

02:23:02   right? Yeah, there's no market pressure really on Apple to adjust or lower its price. I mean,

02:23:09   they have in some sense with the thing I mentioned before where year-plus-old subscriptions are 85.15

02:23:19   instead of 70.30, but for the most part, the rate has stayed unchanged since the app store opened

02:23:26   up. And that's a little ridiculous because the difference in convenience between paying

02:23:31   in app in 2008 versus now and 10 years later, it's not as big a difference, right? It was

02:23:40   a lot more convenient back then compared to paying manually than it is now.

02:23:46   - Well, and again-- - You know, in a web view

02:23:49   or whatever. - Yeah, well, but not just that,

02:23:51   but there will always be advantages to it.

02:23:54   But it's also the, yes, people will say

02:23:57   the market pressure is Netflix taking it out, right?

02:24:00   But the problem is that the only companies

02:24:03   that can do that, that can exert that pressure,

02:24:05   are other very large and powerful companies

02:24:08   that are very well known.

02:24:09   And by the way, Netflix had a favorable rate

02:24:11   for a lot longer than Apple doing that.

02:24:13   Like, that was more Apple giving the Netflix rate

02:24:15   everyone else, 'cause Netflix previously threatened

02:24:18   to leave the store, right?

02:24:19   But here's the problem, that's not market pressure,

02:24:22   that's big company fighting.

02:24:24   If you're a little guy, you don't get to exert

02:24:27   that sort of pressure on Apple.

02:24:28   Apple doesn't give, doesn't care if you're not

02:24:31   in the app store. - Yeah, you don't get it,

02:24:32   you don't get a meeting with that EQ.

02:24:33   - Right, and Apple, this is why it bothers me,

02:24:37   just, I think it's bad for society,

02:24:38   because it's the little guys that are getting hurt here.

02:24:42   It's the gal that doesn't even create an app,

02:24:45   It doesn't even create a service because it's too much,

02:24:50   or it's too much of a hassle.

02:24:53   Again, this idea that the other thing

02:24:56   that people don't consider is because you have to use

02:24:59   Apple's in-app purchases, that means you have to build

02:25:02   at least two payment systems for a new app or service,

02:25:05   'cause you need one for Android and the web.

02:25:08   You can use the same one for Android and the web,

02:25:09   'cause Google allows it, but you still have to have

02:25:11   a different one for Apple, and now you have two different

02:25:14   revenue streams, you have to figure out how to mix them together, your bookkeeping is

02:25:17   way more complicated.

02:25:18   It is increasing the entry for innovation and for creating something new and that's

02:25:26   a bad thing and Apple will go on and on about all these new jobs they created and the new

02:25:29   things they created in the App Store and that's all true, I'm not denying any of that.

02:25:33   But now we're no longer in the world where the iPhone's coming along, we're in the world

02:25:37   where the iPhone exists, where smartphones exist and they are inescapable.

02:25:41   You can't build a business and not be on a phone.

02:25:44   like it is the most important computing platform there's ever been. And for digital platforms,

02:25:49   it's the only platform that matters. And that makes it even more important that there not be

02:25:55   anti-competitive policies like this, given its importance to society broadly.

02:26:01   Yeah. And it's, you know, like if you buy, I mean, people don't buy apps anymore. I mean,

02:26:08   I know it's all going subscription, but you buy an app and Apple gets their cut one time,

02:26:15   and then if you keep using the app, you keep using the app or not.

02:26:19   One of the things that makes Netflix is pulling out of this remarkable is that Netflix is

02:26:23   the top grossing app in the store.

02:26:28   Obviously enough people were signing up, did their signups through the app store that it's

02:26:33   the top grossing app in the store.

02:26:35   I guess it's not surprising if you think that Apple is making 15% off of all these Netflix

02:26:40   subscribers. And Netflix, of course, is super popular, that there'd be enough of them that

02:26:44   would make Netflix the top grossing app in the store. But it's really hard to argue that Apple

02:26:48   deserves 15% of those those numbers for forever, forever in perpetuity for years to come. And

02:26:55   obviously, it will be years to come because Netflix isn't going anywhere. And, you know,

02:26:59   part of the whole Netflix point is it's just new new subscribers, they haven't like canceled the

02:27:04   subscriptions of everybody who signed up in iOS. So Netflix may well remain the top grossing

02:27:10   app in the store for years to come, even though they no longer allow people to sign up. That's

02:27:14   kind of crazy. The fact that Netflix, a year from now, might still be, and I wouldn't bet

02:27:21   against it, might still be the top grossing app in the App Store. I don't think people

02:27:26   cancel their Netflix very frequently. I think there's enough, so I think it'll keep going.

02:27:32   just shows how it's ridiculous to argue that Apple quote deserves that money when Netflix can stop

02:27:37   taking it and just on the basis of years old signups still be paying all that money.

02:27:43   Yep. And you know, it's concerning because this isn't going to change because we just went through

02:27:51   the entire thing where hardware revenue is in a hard place, which means the services narrative

02:27:56   is super important. And you saw that in Cook's letter. He really emphasized the services aspect.

02:28:01   and emphasize the fact the install base is growing.

02:28:04   And as I noted a little bit ago, the install base growing,

02:28:08   the reason that matters is because it means

02:28:09   more services revenue, which means Apple's

02:28:12   not going to back down here.

02:28:13   And that is understandable strategically.

02:28:17   It worries me tremendously as an observer of the company.

02:28:21   Like, if this is how you're going to make money is by,

02:28:26   again, it's rent-seeking, by taking money from activities

02:28:30   that you had nothing to do with just because you can.

02:28:34   That is a, I worry that can have a corrosive effect.

02:28:39   - Well, and the flip side of it,

02:28:42   and I wanted to make this point before we stopped,

02:28:44   and I'm glad I thought of it,

02:28:45   but the flip side of it is on the other side,

02:28:47   I'm in agreement with you that, for example,

02:28:49   in-app purchasing in a game to buy boxes of coins

02:28:53   or whatever the hell you buy, I do think that Apple,

02:28:56   I think it makes sense that even if it were only an option,

02:28:59   that the game developers would still use Apple's system and still pay Apple's 30 percent because

02:29:04   of the, you know, like you said, if you leave and go to Safari, all of a sudden it's a moment

02:29:08   to think, "Wait, do I really want to spend 10 bucks on this, or why don't I just stay in Safari

02:29:13   and see what the hell's going on during Fireball?" But that means that Apple is in a position where

02:29:20   they benefit tremendously from this whole in-app purchasing of games and consumables

02:29:29   You know like you what do you call it pay to win right yep?

02:29:33   That you have to pay to win the game or to keep going you know whether you you know

02:29:38   It I don't think that's a good I

02:29:40   Think it's very morally questionable

02:29:45   Business model and apples in a position of benefiting

02:29:49   Quite a bit on this on particularly in the area where they're directing

02:29:56   Analysts to look like look at our services. Look at our services

02:29:58   that's the one that they're telling everybody to look at and they services to some degree benefits from the

02:30:04   unhealthy

02:30:07   World of pay to win games, you know, so on the one hand they're taking money from like Netflix

02:30:13   That they you know arguably don't deserve and then where they do deserve it. It's it's not a very

02:30:20   It's questionably

02:30:22   immoral

02:30:24   - Yeah, well, and then I think the other piece is stuff

02:30:28   like, I quote, I call it storage being five gigabytes,

02:30:30   right, that's a terrible user experience.

02:30:33   And you see Google leveraging that against them, right?

02:30:36   They run ads for Google Photos that has the pop-up

02:30:38   of you're out of storage, right?

02:30:40   And, but, you know, getting that every month

02:30:44   is apparently hard to give up.

02:30:47   - Yeah, yeah, I know, it's funny,

02:30:50   'cause I never saw that dialogue, 'cause I'm an idiot,

02:30:52   and I buy the biggest iPhone every time,

02:30:53   and so I've got plenty of space on all my iPhones.

02:30:56   But once they started showing it,

02:30:57   and it is definitely an iOS dialogue,

02:31:02   it makes me realize that it surely is a common experience

02:31:05   for a lot of people.

02:31:08   - Yeah, absolutely.

02:31:10   And all this stuff is making it hard for people to,

02:31:15   I think this is a policy that kills innovation.

02:31:19   I think to the extent that big companies go outside,

02:31:23   to your point, it makes the user experience ridiculous and confusing. It hurts the performance

02:31:30   as far as the storage thing goes, that you don't have everything backed up, you don't

02:31:33   have everything restored. I mean, remember Apple was all about backup, they needed a

02:31:36   time machine. Like, wouldn't it be a shame if your computer crashed and you lost all

02:31:39   your photos, right? Well, wouldn't it be a shame if you lost your phone and you lost

02:31:42   your photos because you didn't pay for enough storage or whatever it might be? I mean, what

02:31:50   What happened to the user?

02:31:51   What happened to this, "You go with Apple and everything's taken care of."

02:31:55   Well, you go with Apple and everything's taken care of if you pay a lot extra or some

02:32:01   amount extra per month.

02:32:02   And, oh, by the way, there's things that aren't going to happen you're not going

02:32:05   to get because we made entry too difficult.

02:32:09   Yeah.

02:32:10   And I wonder, too, how much that even plays into backfiring even on iPhone sales.

02:32:16   How many people are reluctant, people who, let's say, are on the free tier so they

02:32:20   don't have their whole photo library backed up and they know that they've got tons of

02:32:25   photos and videos that they care about on the phone that aren't backed up anywhere.

02:32:29   I know you can go buy a new iPhone and go to the Genius Bar and if you explain it to

02:32:33   them, you know, "I don't have iCloud backups because they don't fit," that they'll

02:32:40   do the backup on a Mac right there at the bar for you and help you.

02:32:44   I don't know if people know that that's even possible.

02:32:47   Like how many people just vaguely in the back of their mind

02:32:49   are like, I don't wanna get a new phone

02:32:50   'cause I don't feel like, I don't know,

02:32:51   I'm worried that I might lose my photos.

02:32:53   - Yeah.

02:32:56   - I mean, it has to be some number of people.

02:32:58   And then therefore it's affecting the upgrade cycle.

02:33:01   I mean, I honestly don't think that that's,

02:33:03   I don't think I'm jumping through contortions

02:33:04   to imagine that there are people like that.

02:33:06   As somebody who cares about digital data

02:33:10   and knows how important backups are,

02:33:11   It terrifies me how many people's iPhones aren't backed up.

02:33:14   - Yeah, and just to be clear,

02:33:16   people are gonna bring this up,

02:33:17   photo stream does not count against your data,

02:33:20   but you're limited on the number of photos

02:33:22   that are in the photo stream.

02:33:23   If you want all your photos backed up,

02:33:26   that is gonna count against your data.

02:33:28   - Yeah, yeah.

02:33:30   And it's otherwise tricky,

02:33:32   or people don't know how to move everything

02:33:34   that you've got on your old phone to your new phone.

02:33:37   And the fact that people lose phones,

02:33:39   people destroy phones. There's all sorts of, you know, go on and on and on about the

02:33:46   importance of backups. But it's tragic that more iPhone users don't have their phones

02:33:51   backed up in iCloud, which is the easiest and old and in my opinion, for the typical

02:33:55   user by far the most reliable way to back up your phone because it's not up to you

02:33:59   to make sure your iTunes is working and your computer's in good working order. It's,

02:34:03   you know, it's all on Apple's part. You don't have to do anything on a regular basis.

02:34:08   And I don't know to the extent to which, I mean, there's lots of talk about Silicon

02:34:13   Valley companies in general and being large and should there be antitrust and should companies

02:34:16   be broken up, etc., etc.

02:34:18   And to my mind, the clearest single bit of anti-competitive behavior in the Valley is

02:34:25   Apple and it's not close.

02:34:27   Can you imagine back in the day if Microsoft had insisted on taking 30% of every app on

02:34:33   Windows?

02:34:34   I mean, this is far more egregious than anything that Microsoft tried to pull off.

02:34:37   And people will point to other examples, like what about Google?

02:34:40   Well Google, you can kick out to a webpage.

02:34:43   What about Steam?

02:34:44   Steam takes 30%.

02:34:45   Well you can install games outside of Steam.

02:34:48   There are competitors to Steam.

02:34:50   That's the equivalent of having multiple app stores, right?

02:34:54   There's really nothing like this in tech that is just so egregious.

02:35:01   When you back up and think about it and you realize that the digital goods market is different

02:35:05   than the smartphone market. This is quite blatantly leveraging their position in the

02:35:10   smartphone market into taking money out of the digital goods market. And it's, I don't

02:35:16   know, it bothers me. And I think it hurts innovation just as much as Facebook and Google

02:35:22   being large and dominant, taking all the advertising money hurts innovation. Like it's not good

02:35:26   for anyone. The general consumer tech right now is so stagnant in my mind, in large part

02:35:32   because of how dominant these companies are and these sorts of policies.

02:35:36   Yeah. That's a good closing thought. I appreciate it. This is a great episode.

02:35:43   We mentioned it at the outset, but anybody who forgot because it was quite a bit ago,

02:35:50   your podcast, Exponent. Yes. Stretchickery, my writing in One Article is free a week,

02:35:57   and then there's 4Pay and then Exponent. My podcast is back. It was gone. I just needed

02:36:03   a little bit of a break, but it is back, so you can check that out as well.

02:36:07   And that's at Exponent.fm. You've been on a roll on Stratechery. I mean, you've been good

02:36:14   ever since it started, but I feel like the last couple of months have been really good. A couple

02:36:19   of really good pieces, including your take on the Apple, which we've kind of rehashed here, but

02:36:24   the Apple earnings thing.

02:36:25   And your year in review is a good one too.

02:36:28   - Well thank you, I appreciate it.

02:36:29   - Was that a free one?

02:36:30   That's the one thing, sometimes I get confused

02:36:31   is what was a paid, what I got as a paid daily update

02:36:34   and what was a column.

02:36:36   But the year in review was a column, right?

02:36:38   - Yeah, yeah, yeah, it was free.

02:36:40   Yeah, everything's a trade off, right?

02:36:41   And that's one of the trade offs that comes from

02:36:44   having some stuff be free and some stuff not,

02:36:46   is people almost become hesitant to promote it

02:36:48   'cause they're worried about promoting the wrong thing.

02:36:50   But that's the reality of business,

02:36:52   you gotta make trade offs.

02:36:54   But yes, that is free.

02:36:55   If you go on the page, you have the Apple piece,

02:36:58   and then the one before it is the Year in Review,

02:36:59   which is all the,

02:37:02   pretty good overview of everything I wrote in the last year.

02:37:04   What was the most popular,

02:37:05   which ones I thought were particularly meaningful.

02:37:07   And then I believe the article before that is,

02:37:10   or a couple ones before that is the Apple antitrust one.

02:37:15   - We didn't even get into the damn MacBook keyboards.

02:37:19   - Oh, I was doing one of your commercial breaks.

02:37:23   Dieter Bodge from The Verge posted one of his coworkers at CES with a portable Bluetooth

02:37:30   keyboard sitting on top of her MacBook because her spacebar stopped working.

02:37:35   I feel this.

02:37:37   I travel and I am constantly low-key nervous about my computer suddenly not working.

02:37:42   It's ridiculous that that would even cross my mind of being something.

02:37:47   Frankly, it makes me want to buy...

02:37:50   If my computer ever suddenly stopped working, I would probably go buy a Windows computer.

02:37:55   I'm dead serious.

02:37:56   I don't care how much I'm used to Mac OS, and I know you were complaining about it during

02:38:01   Firewall this week, so I don't want to open that can of worms about Windows, but literally

02:38:04   having your keyboard suddenly stop working is ridiculous.

02:38:08   It's just absurd.

02:38:11   Wouldn't you be more likely to get a Chromebook?

02:38:13   No.

02:38:14   Actually, I haven't used Chromebooks in a while.

02:38:16   I love Chromebooks.

02:38:17   I think they're a great experience.

02:38:18   Pixelbook. I wrote a lot of it on Pixel. The big problem I had was the lack of clipboard

02:38:26   history. It just wasn't possible. That might be possible on Chromebooks now. I'm not

02:38:31   sure. But literally, that was the number one reason why I couldn't keep using the Chromebooks.

02:38:37   But I do like Chromebooks.

02:38:39   That's one of the top reasons I can't. Whenever I try using an iPad for an extended

02:38:44   period of time. The lack of a clipboard history is such a deal breaker. For those of you who

02:38:49   don't know, if you want to take away a tip, do a tips and tricks segment, find yourself

02:38:53   a clipboard history app for the Mac and try it. There's so many. Keyboard Maestro has

02:38:59   one. I've got like three apps running at all times that offer it as a feature. I have to

02:39:02   choose which one. Launch Bar has one. I'll bet Alfred has one.

02:39:07   Dave: Payspot.

02:39:08   Dave: Payspot is actually the one I use because it's dedicated to clipboard manager. The basic

02:39:12   idea is everything you can set it to say, "Remember my last 100 copies." The last

02:39:18   100 things you've copied are all remembered. Then there's a system-wide keyboard shortcut

02:39:22   that you can invoke to show you a list of them and search them. Once you get used to

02:39:31   it, it feels like going to the 1800s to go back to once you copy something, the previous

02:39:37   thing you had copied is gone. It is a game changer. For me and you who write things and

02:39:43   we put a lot of links in, like going to Safari and going copy, copy, copy for three URLs

02:39:48   and then going back to the writing environment and paste, paste, paste to get the three things,

02:39:53   the idea that you'd have to go back and forth between the two apps is crazy. I know there's

02:39:57   some utilities, the iPad that kind of let you, but it's not as automatic. The thing

02:40:02   about the Mac one is that it's just automatic. Every time you hit Command C, it's in your

02:40:06   clipboard history.

02:40:07   Yeah, that's exactly right. I think I remember looking at Chrome OS. I think it might be

02:40:12   possible now, but it's not just using keyboard shortcuts super fast, everything's super

02:40:17   automatic. Yeah, no, that's exactly right. No, I would get a—my wife got a, for various

02:40:24   reasons, got a Surface laptop. It's nice. The hardware's beautiful.

02:40:33   Is that the one? Is it the one that's all metal? It's not the one with the fake leather,

02:40:36   - No, it does have the fake leather, which I thought--

02:40:38   - Oh, it does have the fake leather.

02:40:39   - Which actually in use is not nearly as objectionable

02:40:43   as I thought it was.

02:40:44   And she has the blue one, so it's like this blue metallic,

02:40:48   like when it's closed, it is gorgeous.

02:40:51   Like it's a really good looking machine.

02:40:53   I was really impressed by it.

02:40:55   Obviously it's still Windows, whatnot,

02:40:56   but the keyboard works great.

02:40:58   The trackpad is matte quality.

02:41:00   Like that was always a big objection I had

02:41:01   to all Windows laptops,

02:41:02   the trackpad seemed to always be terrible.

02:41:05   It's a nice machine.

02:41:07   - Well, bizarre, for whatever bizarre reason,

02:41:09   of all the things that Microsoft has always been good at,

02:41:12   is they've always been good at input devices.

02:41:15   They got into the business selling mice and keyboards

02:41:17   long ago, and it seemed so crazy at the time.

02:41:19   Like, why the hell is Microsoft making mice and keyboards?

02:41:21   Their mice were always excellent, excellent.

02:41:23   I used a Microsoft mouse for a while.

02:41:25   And their keyboards, the keyboards have--

02:41:27   - We were when they did the Surface--

02:41:28   - Never to my liking, but they were very good.

02:41:30   - Even when they did the Surface from day one,

02:41:32   the trackpad was always good,

02:41:33   'cause that always drove me up the wall

02:41:35   with Windows laptops, is the trackpad was always bad,

02:41:37   and then Microsoft, even V1, the trackpad was great.

02:41:40   So apparently, I don't know if people

02:41:43   were just cheaping out or what.

02:41:44   The Microsoft computers are expensive.

02:41:47   They are not making any bones about it.

02:41:49   They are very much Apple prices,

02:41:53   and I think probably with the trackpad,

02:41:55   it was a matter of you get what you pay for,

02:41:56   and it has a really good trackpad.

02:41:59   And by the way, having touch is really nice.

02:42:02   I think the mistake people make about touch is no one's using touch all the time, but

02:42:09   it's like every now and then, it's just easier to touch something than to click on

02:42:14   it.

02:42:15   It's not like an all or nothing sort of thing.

02:42:17   My wife's very happy with it.

02:42:19   Mad Fientist My Windows observation, my son got a gaming PC, for those of you who didn't

02:42:25   pay attention, and helped him set it up over Christmas.

02:42:29   I haven't seen Windows in like 15 years.

02:42:33   I mean, I've seen it, but I've never actually tried to do anything,

02:42:35   just connect a computer to Wi-Fi or something like I did.

02:42:39   And it's horrendous.

02:42:41   To my opinion, worse than ever, because it's

02:42:43   like whatever Windows 10 does is actually just a veneer over Windows 7,

02:42:47   and Windows 7 is just a veneer.

02:42:48   And if you poke around and keep hitting advanced settings enough,

02:42:51   you eventually get all the stuff from Windows XP.

02:42:54   It's all still there.

02:42:56   Yep.

02:42:57   This has always been Windows blessing and curse, right?

02:42:59   Like the--

02:43:00   - Right.

02:43:01   - It will still run everything that has ever been written

02:43:03   because of that, but you, like,

02:43:05   there's a definite trade-off involved.

02:43:07   And yeah, the, no, it--

02:43:09   - So my observation was that I would rather retire

02:43:11   from using computers than using Windows.

02:43:14   - The other thing that I really dislike about Windows

02:43:16   is they're much better about switching languages

02:43:17   than they used to be, but you have to log out

02:43:19   and log back in, whereas with a Mac,

02:43:21   you can just switch, when you, in a Mac,

02:43:24   if you switch the language, the finder will always be

02:43:26   the language that it booted up into, but if you quit an app and restart the app, it will

02:43:29   be in the new language. And so my wife, her computer's in Chinese, and so I was trying

02:43:34   to do settings and you're right. The settings, the settings area is a bit of a disaster as

02:43:40   is and then once you start digging deeper, it gets worse. So you ha I have to have it

02:43:43   in English to get it set up. Like I'm not going to figure it out. And then they have

02:43:46   to log out and log back in. Oh, it's a bit, it's a big pain. And the start menu, my God,

02:43:52   it's like an entire operating system in the start menu.

02:43:55   - Well, that's kind of what it is.

02:43:56   That's where Windows 8 ended up.

02:43:58   - It is the craziest thing I've ever seen.

02:44:01   And my son has a, we got him a 4K display.

02:44:04   So in theory, it's quote unquote retina.

02:44:08   But there's certain apps and windows

02:44:10   are like effectively retina,

02:44:12   like using four pixels to render one dot,

02:44:16   so everything looks fine.

02:44:17   Other things though are like one to one.

02:44:19   So it's just like the tiniest text

02:44:21   you could ever friggin' imagine.

02:44:23   Like literally using one pixel on the display

02:44:26   as a stroke of the letter.

02:44:30   - Yeah, it's too bad.

02:44:31   I mean, if you go back, I mean, I say this

02:44:33   as someone that worked there during the Windows 8 era,

02:44:34   so to whatever small responsibility I have, I apologize.

02:44:39   But Windows 7 was actually a really solid operating system.

02:44:43   Like, if there were little things in its appearance

02:44:46   that drove me up the wall, like this weird highlighting

02:44:48   in the menu bar and stuff like that,

02:44:50   but like it generally worked and it worked well

02:44:52   and it was predictable and sort of understandable.

02:44:55   And I think Windows, like the whole Metro UI,

02:45:00   which took pictures really, really well,

02:45:02   but I think from a usability standpoint was not great.

02:45:06   It would be kind of nice if they could kind of rewind that.

02:45:08   And if they had, 'cause right now, yeah,

02:45:10   that whole Start menu is basically trying

02:45:12   to cram that in there.

02:45:13   And the reason why the settings are such a mess

02:45:15   is because that's like that new UI

02:45:17   and it didn't get translated everywhere.

02:45:19   and if Windows could just be Windows 7

02:45:22   but evolved since then,

02:45:24   but that the same general aesthetic and design,

02:45:27   which again, I'm not saying it's a wonderful design

02:45:29   or aesthetic and I'm not saying you should like it,

02:45:31   but it was predictable in a way that Windows 10

02:45:35   is much better than it used to be,

02:45:38   but I think they're in definitely a worse place

02:45:41   because of it.

02:45:42   - I don't know how unique I am.

02:45:43   I mean, obviously my career is a privileged position

02:45:47   where I can only use, I only have to use whatever devices I want to use, but man, if anybody

02:45:53   else out there has not used Windows in like 10, 15 years, you really should sit down and

02:45:58   try it.

02:45:59   It is.

02:46:00   I worked at Microsoft, so I had a few years of using Windows.

02:46:03   And honestly, once you were like, mostly Windows 7, and then, and once you're used, like if

02:46:08   you're used to it, it's, it really was fine.

02:46:11   Like the biggest problem I had with Windows, and this surprises people, was third-party

02:46:15   apps was actually the sort of like, you know, uh, the back apps and the functionality provided

02:46:23   and the, the general overall design and quality of them was weeks higher than that sort of

02:46:28   third party windows app. Again, for like an individual, like when that surprised me, like,

02:46:33   Oh, windows has a big app advantage, right? Well, that advantage is like line of business

02:46:37   apps and like all of these like customized things for a particular business that are

02:46:41   not there because of the great user interface. They're there because they do a very sort

02:46:44   of specific function. That was always the max sort of big advantage. The actual day-to-day

02:46:52   experience of using Windows once you were used to it, Windows 7, was honestly not that

02:46:57   bad. It was a lot better than I expected. But I agree that then Windows 8 came along

02:47:03   and it got a lot more complicated.

02:47:07   That's a good postscript to the show. Anyway, people can read you on Twitter. Your regular

02:47:13   Twitter account is @BenThompson. And then anybody who actually is interested in your

02:47:17   nightly musings and gloating lately on the Milwaukee Bucks can find your sports stuff

02:47:24   nicely separated in the NoTechBen Twitter account.

02:47:28   Twitter account.

02:47:29   Ben

02:47:35   come to me when I go off on sports on Twitter and they're like can't you set

02:47:38   up can't you set up a no tech or a sports sports account like Thompson did

02:47:43   and I don't want to do that but anyway all right hey have a great day sounds

02:47:50   good I'll talk to you later I appreciate your time thank you Ben oh yep bye bye