The Talk Show

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,

01:12:43 ◼   ► when they listen to the show,

01:12:44 ◼   ► they're gonna hear music right now,

01:12:46 ◼   ► which is amazing,

01:12:47 ◼   ► 'cause there's usually not music on this show.

01:12:49 ◼   ► But music is a crucial part of almost every visual project.

01:12:54 ◼   ► Like you make a movie if you're on YouTube,

01:12:56 ◼   ► doing that sort of thing.

01:12:57 ◼   ► Your next film, commercial, or app, right?

01:13:00 ◼   ► 'Cause you can't release a new app now without a video.

01:13:02 ◼   ► It needs music to tell a story.

01:13:04 ◼   ► And pairing your work with the perfect piece of music

01:13:06 ◼   ► is sort of like finding the project soulmate.

01:13:09 ◼   ► It's an intimate connection.

01:13:10 ◼   ► The right music, what makes it right, it's ineffable.

01:13:14 ◼   ► Well, meet composer Alex Weinstein.

01:13:17 ◼   ► Alex has over a decade of experience writing music

01:13:20 ◼   ► for commercial and films.

01:13:21 ◼   ► His clients include Amazon, Starbucks, Disney,

01:13:23 ◼   ► True Car, Etsy, and others.

01:13:26 ◼   ► He's a long time collaborator with my personal friend,

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,

01:13:39 ◼   ► that's an Alex Weinstein song.

01:13:41 ◼   ► So what makes his music different?

01:13:43 ◼   ► It's all handmade and organic,

01:13:45 ◼   ► beautiful instrumentation, infections, rhythms,

01:13:48 ◼   ► and a humanistic approach to composition,

01:13:51 ◼   ► preferring live raw sounds that don't sound machine-made.

01:13:54 ◼   ► So there's two services, custom and library.

01:13:59 ◼   ► Custom music, that's when you work with Alex

01:14:02 ◼   ► to make a brand new song, soundtrack, something like that,

01:14:07 ◼   ► creating a score that matches your vision.

01:14:09 ◼   ► You can hire him, you can work with him,

01:14:11 ◼   ► create your own original music.

01:14:13 ◼   ► Also, there's the library.

01:14:16 ◼   ► Alex has carefully curated a library of just a few hundred

01:14:20 ◼   ► songs, and all are available for non-exclusive license.

01:14:24 ◼   ► Finding a great track couldn't be easier.

01:14:27 ◼   ► He's got different styles of music--

01:14:28 ◼   ► fun, strange, quirky, thoughtful.

01:14:31 ◼   ► Simple and intuitive search.

01:14:33 ◼   ► You can preview tracks without irritating audio watermarks.

01:14:36 ◼   ► And you can purchase a license right in the browser

01:14:38 ◼   ► and download broadcast-ready files right there.

01:14:42 ◼   ► It's great stuff.

01:14:43 ◼   ► listening to it now. Use promo code the talk show and you will get 30% off your first purchase

01:14:48 ◼   ► from the license store. Visit Alex Weinstein.com. A-L-E-X-W-E-I-N-S-T-E-I-N. AlexWeinstein.com/thetalkshow

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.