The Talk Show

00:00:00 ◼   ► I have a good I told you I've told you before we started the show. I have a SodaStream story. This is out of nowhere

00:00:04 ◼   ► I hear so it it psychoanalyzed me. I'm on your couch Ben. You're you're the the psychoanalyst

00:00:10 ◼   ► So

00:00:14 ◼   ► The context is I was looking for drink recommendations for the podcast and I decided to go with

00:00:19 ◼   ► SodaStream and scotch in two separate glasses

00:00:22 ◼   ► I drank my scotch straight to be clear

00:00:24 ◼   ► Longtime listeners of the show know that I'm a firm believer that all you need to be successful in today's world

00:00:30 ◼   ► You need three things you need

00:00:32 ◼   ► Well, actually I may be my three things have changed but I forget but right now

00:00:37 ◼   ► I would say the three things you need is you need

00:00:39 ◼   ► You need good coffee fussy way to make coffee. You've got to be real fussy about it make real good coffee

00:00:45 ◼   ► You need

00:00:49 ◼   ► Highly carbonated water and the only way to get it

00:00:52 ◼   ► It's in my opinion is to own your own soda stream machine

00:00:55 ◼   ► So you can you can carbonate your own water and you need a clicky keyboard

00:00:59 ◼   ► That's those are my three keys to success that if you ask me why daring fireball and and this podcast are doing well

00:01:06 ◼   ► It's that I have a fussy way to make

00:01:08 ◼   ► Good coffee. I have a soda stream and a super carbonated water and I have a very clicky keyboard

00:01:15 ◼   ► I have an Apple extended keyboard -

00:01:18 ◼   ► Here's the problem. The problem is about a week ago

00:01:21 ◼   ► My current

00:01:25 ◼   ► Carbonation canister in my soda stream ran out of

00:01:28 ◼   ► Co2 and

00:01:32 ◼   ► So it's always so demoralizing that happens. It's just like the little the little piffed into the water

00:01:37 ◼   ► Well, here's my in my my strategy for years

00:01:41 ◼   ► I mean years now has been that I have four canisters of co2 and when three get empty

00:01:48 ◼   ► I go to, there's a Williams-Sonoma across town, right in Center City, Philadelphia.

00:01:55 ◼   ► I take the three empty ones to the Williams-Sonoma. I exchange them. You get like a discount when you

00:02:02 ◼   ► give them the empties and you can buy new ones. So I always buy three at a time. But then I have

00:02:08 ◼   ► my fourth that's in the canister so I don't have to, you know, it's not gonna come out. Well,

00:02:12 ◼   ► here's the thing. My thing ran out last week and I've had this thing for years and I went down to

00:02:17 ◼   ► where I keep the empties down in our bottom floor.

00:02:20 ◼   ► But it's not really a basement, it's sort of a bottom floor.

00:02:23 ◼   ► And they weren't there.

00:02:24 ◼   ► I don't know where the hell my other ones are.

00:02:27 ◼   ► And I spent all day and I asked Amy.

00:02:30 ◼   ► We looked, I looked everywhere.

00:02:33 ◼   ► I don't know where the hell I put my,

00:02:35 ◼   ► I don't know what happened at some point

00:02:37 ◼   ► in the last few weeks or months.

00:02:38 ◼   ► Either me or I suspect, quite frankly, my wife moved

00:02:46 ◼   ► my refill canisters and I don't know where the hell they are.

00:02:53 ◼   ► So I couldn't make fizzy water.

00:02:55 ◼   ► And so I was stuck buying, what I did is I started buying Pellegrino and some Perrier

00:03:02 ◼   ► because I even forget, I'm so used to making my own I forget which I like better.

00:03:08 ◼   ► That's what I do.

00:03:09 ◼   ► I have the 24-pack Perrier at Costco that I keep for like car rides and and in case I run out

00:03:16 ◼   ► Yeah, I think I like Perrier better than pellet green

00:03:18 ◼   ► I think Perrier is a little bit more bite to it

00:03:21 ◼   ► But either way I but then I'd run out and I couldn't make more and I was dehydrated. I

00:03:25 ◼   ► Mean I was dehydrated because I cannot drink flat water. It's just awful and

00:03:31 ◼   ► Here the days are going by and I'm dehydrated and I'm miserable and

00:03:38 ◼   ► And even when I have the stuff in the house, even when I have like the Perrier or whatever,

00:03:42 ◼   ► I'm unhappy with it because it's nowhere near carbonated enough for my taste.

00:03:47 ◼   ► And then I realized, this is literally yesterday, I realized, you know what?

00:03:50 ◼   ► I could just go to the goddamn Williams Sonoma and buy a couple more canisters of this stuff.

00:03:56 ◼   ► And if and when I find the ones that are somewhere in my house, I'll use them eventually too,

00:04:03 ◼   ► I can still take, even though I'll have more empty canisters than I need, I'll just take

00:04:09 ◼   ► them all back. It doesn't matter. Why did it take me a week? This is my question. Why

00:04:13 ◼   ► did it take me a week to realize I can just go there and buy the goddamn refills that

00:04:19 ◼   ► I need? Why did I make myself miserable for a week then?

00:04:24 ◼   ► I laugh because I have done the exact same thing. So here you'll usually buy them at

00:04:29 ◼   ► a department store. I'll get to the department store. I'm like, "Oh, shoot! I wanted to get

00:04:33 ◼   ► more canisters, but I forgot to bring it. And then I don't buy it. And then I don't have

00:04:38 ◼   ► any eating canisters. It's totally illogical and I do the exact same thing.

00:04:43 ◼   ► I somehow convinced myself that I need the one for one exchange to get the refills. When

00:04:51 ◼   ► I don't, I don't. I didn't need that. I just went there with the one refill that I had

00:04:56 ◼   ► because of the one that was, you know, that I just emptied and did it. I will say...

00:05:01 ◼   ► Did you find the canisters?

00:05:02 ◼   ► No, no and my wife said you know as soon as you come home

00:05:06 ◼   ► You're going to find that those canisters and and I said yeah, she was waiting

00:05:09 ◼   ► She was waiting for you to leave and then she was gonna smuggle them back to the shelf where they were so you would show

00:05:14 ◼   ► Off and find them right well that seems like the Murphy's law way that it would roll, but it did not actually happen

00:05:19 ◼   ► I'd I still have no idea where the hell the the canisters are if anybody knows where my extra canisters are please please

00:05:25 ◼   ► Tweet at me or send me an email

00:05:28 ◼   ► It occurs to me, it does occur to me, because it's like having a superpower, having as many Twitter followers as I have.

00:05:40 ◼   ► And you know, I think you're in the same boat. It can be a superpower. Like on the last episode with Guy English, when I was wondering what the hell, you probably don't remember this, because I don't think you were a Mac user back then.

00:05:53 ◼   ► back then but I was wondering about there was this chooser extension for the

00:05:58 ◼   ► classic Mac OS that if you had a local talk network if you if other people had

00:06:02 ◼   ► this chooser extension you could effectively show you could like chat to

00:06:08 ◼   ► them you could it if we both had it I could look your machine if I knew and I

00:06:14 ◼   ► knew your Mac's name I could send you a message so it was effectively like

00:06:19 ◼   ► instant messaging over the local talk network back in the very early 90s and I

00:06:25 ◼   ► could not remember the name of the chooser extension and googling for

00:06:30 ◼   ► anything like pre-google is very difficult very difficult and and

00:06:35 ◼   ► googling for this particular problem really unless there's some better way to

00:06:39 ◼   ► phrase it so there's a common word involved yeah yeah it doesn't give you

00:06:43 ◼   ► the answer and so I asked on Twitter and within like five minutes somebody

00:06:49 ◼   ► was, you know, had the answer. It was called "Broadcast." And as soon as they said

00:06:52 ◼   ► "Broadcast," I was like, "That's it!" And then somebody even posted screenshots of

00:06:56 ◼   ► it, which is amazing, because if you type "Broadcast chooser extension classic Mac OS"

00:07:01 ◼   ► into Google, you still don't get the screenshots in the, like, image search.

00:07:05 ◼   ► It's literally un-Googleable, even if you know the name of it. But asking on

00:07:10 ◼   ► Twitter got me the answer. And I have to say, it does occur—it often occurs to me

00:07:16 ◼   ► in situations like when I'm looking for the SodaStream in my house, like I should ask

00:07:20 ◼   ► on Twitter. And then I realized, no, nobody on Twitter is going to be able to help me

00:07:24 ◼   ► on this. It has spoiled me.

00:07:29 ◼   ► Yeah, it's funny, I realized I just kind of did that today. I thought about the mini-Microsoft.

00:07:36 ◼   ► Do you remember that guy?

00:07:38 ◼   ► Oh yeah, he was great. Well, it's great that he's kind of stopped, right?

00:07:43 ◼   ► Yeah, no, that's why I asked. He's just telling me, I don't know why, the guy just suddenly

00:07:47 ◼   ► occurred to me. So I just threw it on Twitter, "What happened to Mini Microsoft?" And I heard

00:07:51 ◼   ► from someone actually kind of off the record that said that he left Microsoft.

00:07:54 ◼   ► Oh really?

00:07:55 ◼   ► He didn't tell me who it was. But, and then of course the joke is, you know, because he

00:07:59 ◼   ► left, you know, he piped down around the time Steven Sinofsky was. There's always a joke

00:08:03 ◼   ► that Steven Sinofsky was actually Mini Microsoft, especially he was very complimentary of Sinofsky

00:08:10 ◼   ► in general and very anti-balmer.

00:08:14 ◼   ► So actually, Sanasi jumped in on the thread.

00:08:17 ◼   ► He's like, oh, you got me.

00:08:18 ◼   ► But no, it was funny.

00:08:19 ◼   ► Actually, the funniest answer, though,

00:08:21 ◼   ► was Contra, Counter Notions, our anonymous friend,

00:08:26 ◼   ► where he said he's now known as Mini Amazon, which

00:08:28 ◼   ► is probably true, given that he was at Microsoft.

00:08:31 ◼   ► But yeah, that's like the most inside of both the Seattle

00:08:37 ◼   ► and tech jokes as you can get.

00:08:41 ◼   ► Many of you--

00:08:41 ◼   ► He was great.

00:08:42 ◼   ► Yeah, he used to-- and it looked so beautiful, too,

00:08:49 ◼   ► because he'd spell Microsoft with the stock quote MSFT.

00:08:53 ◼   ► So it was M-I-N-I-M-S-F-T. And somehow,

00:08:58 ◼   ► that eight-character name, it looked very balanced to me.

00:09:03 ◼   ► And he was a guy for years who ran a blog where

00:09:06 ◼   ► He, and I think, I don't think anybody disputes that he actually worked there.

00:09:11 ◼   ► I mean, you can't, he was anonymous, obviously, or pseudonymous would be a

00:09:14 ◼   ► better way, but he was like a pseudonymous Apple or not Apple, a Microsoft, um,

00:09:20 ◼   ► longtime Microsoft employee who was a critic of the late Balmer era.

00:09:27 ◼   ► Um, but he was a critic who loved Microsoft, right?

00:09:31 ◼   ► Like that's a, and that's what made it so compelling and saw,

00:09:34 ◼   ► saw tremendous potential there.

00:09:36 ◼   ► And I think in hindsight was largely proven correct that what he saw as

00:09:42 ◼   ► Folly, you know, and I think folly is a good way to put it

00:09:46 ◼   ► Turned out to be correct

00:09:49 ◼   ► Yeah, no, absolutely

00:09:53 ◼   ► And and the other thing that was amazing about it too was he had these

00:09:58 ◼   ► Unbelievable comment threads and all his posts because everyone at Microsoft read it

00:10:01 ◼   ► Yeah

00:10:01 ◼   ► And so he would have these thousand comment long posts that like debating stuff going back and forth

00:10:08 ◼   ► Like it was I mean, he slowed down a lot. The site's still there. It's it's mini MSFT blogspot.com

00:10:15 ◼   ► but but I mean at the time especially when he was posting regularly like it was like the outlet for for like Microsoft inks and

00:10:22 ◼   ► Complaints and all that sort of stuff. It was really something else. Yeah

00:10:25 ◼   ► Imagine if we had that imagine we had someone at Apple doing that like how how

00:10:31 ◼   ► How many black ops would they bring in to find out who the guy was or who the gal was or whatever it might be?

00:10:37 ◼   ► I don't think I you know, that's interesting. I know that some people

00:10:41 ◼   ► Think that I wonder if they would I mean my understanding I know that that that off the cuff that a lot of people seem to

00:10:50 ◼   ► think that Apple

00:10:52 ◼   ► does

00:10:54 ◼   ► What would you call it counter espionage

00:11:00 ◼   ► you know, but they don't that Apple does not

00:11:03 ◼   ► Really my understanding I mean I can't prove it but my understanding is that Apple doesn't really have like

00:11:12 ◼   ► Anybody inside who like investigates leaks or anything like that that they don't and specifically they don't because

00:11:22 ◼   ► They think that if it ever leaked that they have a team that investigates leaks

00:11:27 ◼   ► it would be so bad PR wise that it would be worse than the actual leaks.

00:11:32 ◼   ► And that the only reason that so little tends to leak from Apple is really, even as their headcount grows,

00:11:40 ◼   ► it's literally just the internal culture of people who work here don't leak.

00:11:45 ◼   ► Yeah, well, and I'll tell you too, on the first day on the orientation,

00:11:50 ◼   ► like, this orientation is very upbeat and all these great things about Apple and history and blah, blah, blah.

00:11:56 ◼   ► And then this very stern looking security woman came in, and I'm telling you, we were a bunch of interns when I was there, so we're all kind of young and impressionable anyway.

00:12:06 ◼   ► But she put the holy fear of God in you. It was incredible. It was delightful looking at it from the outside.

00:12:14 ◼   ► Even as sitting there, you're like, "Holy crap, I will never leak anything ever again."

00:12:17 ◼   ► [Laughter]

00:12:18 ◼   ► It was awesome.

00:12:20 ◼   ► uh... it

00:12:21 ◼   ► river her big example was i have for apple store i think like the old the old

00:12:26 ◼   ► the old dog that that tracked apple stores

00:12:28 ◼   ► and she was like

00:12:30 ◼   ► yet back and remember what the context was a member that blog

00:12:34 ◼   ► was one of the examples she had

00:12:36 ◼   ► uh... but yeah it was something else but you know i agree obviously a harsh

00:12:40 ◼   ► presentation i could last that long it's it's absolutely a cultural cultural

00:12:43 ◼   ► thing

00:12:44 ◼   ► and

00:12:45 ◼   ► uh...

00:12:46 ◼   ► yeah it's it like their remember going into an office

00:12:49 ◼   ► and like my first couple days and someone like,

00:12:52 ◼   ► and I was kind of jarred that they didn't hold the door open for me.

00:12:55 ◼   ► But like that would, that's just the way that just, you don't,

00:12:59 ◼   ► you don't do that. Right. Because you don't know that I have to badge in. Right.

00:13:02 ◼   ► Right. You don't know that. So it is, it's totally a thing. Yeah. Yeah.

00:13:06 ◼   ► All right.

00:13:07 ◼   ► Do you don't know that the guy behind you actually has the credentials to come

00:13:10 ◼   ► in? Right. You know that the guy who, right. Especially,

00:13:12 ◼   ► especially because the different, uh,

00:13:14 ◼   ► different parts of the apple will be like specified by the badge.

00:13:19 ◼   ► even though you have an Apple badge, you can't necessarily get into all parts of Apple.

00:13:22 ◼   ► Right.

00:13:22 ◼   ► So...

00:13:22 ◼   ► The guy who wrote IFO Apple Store, you know, he died recently.

00:13:28 ◼   ► Yeah, it's very sad. I was just thinking about that when I...

00:13:30 ◼   ► His name was Gary Allen. I'll put a link in the show notes, but it was a good site. And

00:13:36 ◼   ► it's funny because a lot of people I noticed, I mean, it wasn't like, you know,

00:13:41 ◼   ► first thing I do in the morning is check IFO Apple Store. But, you know, in the racket that I'm in,

00:13:46 ◼   ► I obviously you know would come across it and it occurred to me at one point that boy

00:13:50 ◼   ► IFO Apple store has really died down

00:13:52 ◼   ► I wonder if the guy is sort of just lost his interest in it or it you know now that the stores have rolled out

00:13:57 ◼   ► Worldwide is it just not interesting and then it turned out it was you know, he was he was ill and

00:14:03 ◼   ► I

00:14:05 ◼   ► Think he died

00:14:07 ◼   ► Last fall I just look yeah, you know what's in the sights down. It's like it's a bummer. It's just yeah

00:14:15 ◼   ► I suddenly feel very mortal, both because, one, we're both getting older, two, we're

00:14:21 ◼   ► talking about death, and three, making my living on the web and going to this guy's

00:14:25 ◼   ► website that he poured his life into and there's nothing there.

00:14:28 ◼   ► Now I'm really bummed out.

00:14:29 ◼   ► I think he's written about it publicly, but my pal and longtime blogger at waxy.org,

00:14:35 ◼   ► Andy Baio, has thought about this for a long time, maybe even years ago, that there should

00:14:42 ◼   ► be some sort of, you know, his idea is to somehow set up some kind of a trust where

00:14:48 ◼   ► people with websites can, you know, pay for them. Yeah, you'd somehow somehow set up a

00:14:54 ◼   ► trust where and some sort of and like a trusted organization where you would put, you know,

00:15:00 ◼   ► trust them with the credentials for your website. And so that you can, you know, with some sort

00:15:08 ◼   ► of modicum of financial backing that to keep websites up in perpetuity after, you know,

00:15:16 ◼   ► because obviously, you know, let's face it, we're all going to die eventually.

00:15:20 ◼   ► No, it's awesome. It's something like that that WordPress or whoever should think about,

00:15:25 ◼   ► like there should be a button to like export as HTML and like, actually, WordPress to do

00:15:31 ◼   ► this. I'll talk to Matt about it. Like, imagine being able to have it in a will, whatever

00:15:36 ◼   ► you can export the site so it's just HTML, they're not rendering every time so it's not taking any

00:15:40 ◼   ► compute resources, it's super lightweight. And yeah, you put down, it wouldn't be that much,

00:15:45 ◼   ► honestly, to be able to serve a static web page for a very long time.

00:15:50 ◼   ► >> I think in the long run, the biggest expense honestly would be the keeping the domain name

00:15:55 ◼   ► registered. >> Yeah, I think that's exactly right.

00:15:58 ◼   ► >> And even if it's only six, seven bucks a year, in the long run for a statically rendered version

00:16:04 ◼   ► of during Fireball, and especially as time goes on, let's face it, let's just say 100 years from now,

00:16:09 ◼   ► there's not going to be a lot of traffic on this site.

00:16:13 ◼   ► Right.

00:16:14 ◼   ► And even if there were.

00:16:15 ◼   ► This kind of sounds a little narcissistic when you put it that way. Who's going to be reading

00:16:20 ◼   ► the year 2100? Let me see what SirTekkari.com had to say about this.

00:16:23 ◼   ► Right, but at least, but I would like to think that it'll still be there for people to refer to,

00:16:29 ◼   ► and that somebody who wants to refer to it,

00:16:34 ◼   ► that they can still point to the URL and it'll still respond.

00:16:37 ◼   ► This is why I'll put the...

00:16:40 ◼   ► I think I said this last time I was on your podcast too.

00:16:42 ◼   ► I have a recurring donation set up for the Internet Archive

00:16:45 ◼   ► and it's something I would counsel everyone to do

00:16:48 ◼   ► because that is such an unbelievable resource.

00:16:50 ◼   ► It's the closest that we have.

00:16:51 ◼   ► It is and they do really important work

00:16:56 ◼   ► And I use it a lot for researching stuff because stuff disappears all the time.

00:17:02 ◼   ► Like you'll, especially when you talk about the pre-Google stuff, you're trying to find stuff back in the day and you find a link and you know at the end of the link is what you need and then crap, it's gone.

00:17:10 ◼   ► And then you go to Internet Archive and it's there.

00:17:12 ◼   ► So yeah, I set it up just an automatic donation every single month.

00:17:15 ◼   ► Um, because I mean, one, it's awesome.

00:17:18 ◼   ► Two, it's important.

00:17:19 ◼   ► And three, it's like super important to my work.

00:17:20 ◼   ► So, yeah.

00:17:22 ◼   ► I've said this to people multiple times and it's one of those things I'll get to someday,

00:17:28 ◼   ► but it's one of those things where if I had an intern or an employee or something, but

00:17:33 ◼   ► it is astoundingly depressing how if you go back to 2004, which was the first year where

00:17:42 ◼   ► I had the link list feature on Daring Fireball, where I'd link to things on a daily basis.

00:17:50 ◼   ► absolutely astounding how many of those links are 404s at this point. And

00:17:54 ◼   ► Kottke and I have talked about this, like, because Kottke has been doing his thing

00:17:57 ◼   ► since like 1998. If you go back to the earlier, I mean, the longer you go back,

00:18:02 ◼   ► it's like almost exponential. If you go back to the earlier year, the earliest

00:18:06 ◼   ► years of Kottke, it's even worse. It's like the even just every year you go

00:18:11 ◼   ► back, it's worse and worse and worse. It makes a difference if it's like 2005

00:18:16 ◼   ► versus 2003 versus 2001.

00:18:19 ◼   ► It's absolutely astounding how many links are 404s.

00:18:22 ◼   ► Really, it's depressing.

00:18:23 ◼   ► So my idea would be to hire somebody

00:18:27 ◼   ► to go back and, for every dead link,

00:18:31 ◼   ► see if it's available at archive.org.

00:18:33 ◼   ► And if it is, change the link to the archive.org version.

00:18:36 ◼   ► It makes sense.

00:18:41 ◼   ► And also then it comes back to, well, how many people

00:18:45 ◼   ► We're gonna actually click these links. Yeah, but it's I just want it to be right

00:18:48 ◼   ► You know what? I mean? It has nothing to do with me. No, I

00:18:51 ◼   ► totally get it's just that it just bothers me in a I don't know it isn't you know in the way that

00:18:59 ◼   ► My obsessions, you know

00:19:01 ◼   ► It's I know that it's the right thing to do and it doesn't matter what right in a bother

00:19:06 ◼   ► It bothers you to know that there's a bunch of bad links and I'm you know in your stream

00:19:11 ◼   ► All right, and I don't want any blink on during fireball to ever go bad. I really do

00:19:15 ◼   ► I mean it. I mean, I want everything that I've ever posted it during Firewall to be a, you know,

00:19:21 ◼   ► a valid URL in perpetuity, long past, you know, when I'm dead.

00:19:27 ◼   ► I was going to say in the ground that I doubt, I really doubt that I'm ever going to be put in

00:19:35 ◼   ► the ground. So I wasn't sure what to say. We have taken such a morbid turn. I know.

00:19:41 ◼   ► I think we started with sparkling water and now we're in the ground.

00:19:45 ◼   ► Well, I was gonna say until I'm in the ground. This is why I hesitated there. I was gonna say

00:19:49 ◼   ► in the ground and then I realized I don't want to be buried. I think that's antiquated and a waste of

00:19:55 ◼   ► real estate. And so I was gonna say burned up, but then I realized if I said burned up, it's as

00:20:00 ◼   ► though I'm predicting that I'm gonna die in some kind of terrible fire, which is, you know, I

00:20:06 ◼   ► hopefully will not be the way that I go. Hopefully you'll be already dead before you enter the

00:20:11 ◼   ► the charitable fire.

00:20:12 ◼   ► Exactly.

00:20:13 ◼   ► Well, what better segue into my first thanking my first sponsor.

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00:20:23 ◼   ► So I had to do the panic hit record.

00:20:25 ◼   ► So I was going to break up.

00:20:28 ◼   ► You should always be recording.

00:20:30 ◼   ► No, I did.

00:20:31 ◼   ► I did.

00:20:32 ◼   ► I was only five seconds late.

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00:24:17 ◼   ► talk about. It's a good thing we wasted the first half hour.

00:24:20 ◼   ► on sparkling water.

00:24:22 ◼   ► On sparkling water, nonsense.

00:24:25 ◼   ► We do.

00:24:26 ◼   ► Multiple topics, and I think all Apple related, but...

00:24:30 ◼   ► Well, I want to talk to you about this stupid Amazon Echo that you talked me into buying.

00:24:36 ◼   ► Oh, that's right.

00:24:38 ◼   ► But we should talk about Apple first.

00:24:43 ◼   ► And we should get to both the Apple iPhone and to you and Guy's discussion on the services,

00:24:49 ◼   ► I thought was actually really good. I enjoyed it. I had one addition to make.

00:24:54 ◼   ► Well, make it now. Let's do that first. Let's do that. So last week's show, Guy and I spent

00:24:58 ◼   ► a long time talking about your recent piece on Apple and services and their organizational

00:25:06 ◼   ► structure. So tell me what you quibble with. The only thing I would say is when I say Apple

00:25:11 ◼   ► services, I'm talking about much more than just iCloud. And I think that that was a...

00:25:18 ◼   ► I did say that in an article, but I probably could have made the point more forcefully

00:25:22 ◼   ► because people hear Apple services and they think iCloud.

00:25:25 ◼   ► Like iCloud as it is, I actually agree with you, it's mostly fine.

00:25:29 ◼   ► I think they prompt your password way too much for one.

00:25:32 ◼   ► But when I talk about services, that includes things like the App Store.

00:25:37 ◼   ► Like that is a service and I don't think it's run optimally.

00:25:42 ◼   ► Like and I think it's actually to Apple's detriment.

00:25:45 ◼   ► uh... it's things like apple pay it's things like homekit it's all these

00:25:50 ◼   ► ancillary things and i think where they actually struggle the most in many cases

00:25:54 ◼   ► is placed with a foster ecosystems like that to get merchants to adopt apple pay

00:25:59 ◼   ► they did they did get device makers to to integrate with

00:26:03 ◼   ► with home kit

00:26:05 ◼   ► make it so's developers can build sustainable businesses on the app store

00:26:08 ◼   ► like all those go into the services bucket and i think in general apple is

00:26:14 ◼   ► not good at those and it's not just the timing issue, it's the control issue.

00:26:19 ◼   ► A big reason why Apple sucks at that stuff is they have a very hard time of letting go

00:26:24 ◼   ► of control.

00:26:26 ◼   ► And so that was the one thing.

00:26:28 ◼   ► You guys didn't talk about that part and I actually think that's the more important part

00:26:32 ◼   ► because that's the potential part.

00:26:34 ◼   ► That's what Apple...

00:26:35 ◼   ► It's so easy to look at stuff that companies do poorly, but often the bigger, the greater

00:26:42 ◼   ► damage is the stuff that's not done, the advantages that aren't taken advantage of, or the opportunities

00:26:47 ◼   ► that aren't taken advantage of. And so that was just the one kind of missing piece.

00:26:50 ◼   ► Don't you think Apple Pay is a good example of Apple getting it right? Where they've built

00:26:58 ◼   ► this thing on top of, they're not requiring people to have an Apple, retailers to have

00:27:03 ◼   ► a Apple Pay proprietary sensor. It's this thing that works with anybody. It works with

00:27:11 ◼   ► Android phones, it was already there. Like some retailers on day one could just say,

00:27:17 ◼   ► "Okay, we're in." And I think that the growth in Apple Pay is actually pretty impressive.

00:27:23 ◼   ► I think Apple Pay is actually a really interesting example to talk about. And the reason is,

00:27:31 ◼   ► because first off, because there's multiple components that go into Apple Pay. So first

00:27:37 ◼   ► First off, there's the actual hardware aspect of it, which is brilliantly done.

00:27:41 ◼   ► It works really well.

00:27:43 ◼   ► There is one downside, which is I personally trigger Apple Pay too often, just in general

00:27:47 ◼   ► day-to-day use, which is kind of annoying, especially since I have it in Taiwan and it's

00:27:50 ◼   ► not really available here.

00:27:52 ◼   ► That part's awesome, which makes sense.

00:27:56 ◼   ► It's a beautiful example of Apple integrating all the different pieces that go into making

00:28:01 ◼   ► that experience work flawlessly.

00:28:02 ◼   ► So the hardware aspect is amazing.

00:28:06 ◼   ► this secure enclave in all all that sort of stuff

00:28:09 ◼   ► uh... apple brought the banks to heal very effectively and in in general if

00:28:13 ◼   ► you look at apple in any cues division in all that sort of stuff from a

00:28:16 ◼   ► business development perspective they're actually usually pretty good at working

00:28:20 ◼   ► with big established players they understand negotiate understand how

00:28:24 ◼   ► where leverage is and how how to use it and things like that

00:28:26 ◼   ► you know we've seen that with the label we've seen that with with himself the

00:28:29 ◼   ► banks and so apple but again

00:28:32 ◼   ► i think when you get a bunch of apple

00:28:34 ◼   ► executives and other companies in a room Apple feels like they can control that

00:28:38 ◼   ► situation they do it well

00:28:39 ◼   ► where I think Apple has really dropped the ball

00:28:43 ◼   ► is in coming up with an effective means to

00:28:46 ◼   ► get retailers on board. Yes they've gone to the big retailers and work with them

00:28:51 ◼   ► again directly

00:28:52 ◼   ► but where's the incentive program for

00:28:55 ◼   ► small merchants to sign up? Where's the program to go and get information about

00:28:58 ◼   ► Apple Pay and supporting it in your store?

00:29:00 ◼   ► Where's the program to get stickers for your door that says Apple Pay supported

00:29:03 ◼   ► here?

00:29:04 ◼   ► all that stuff is not existent actually wrote about this in the update actually

00:29:07 ◼   ► heard from multiple

00:29:09 ◼   ► people who wanted to support apple pay because of the what you there was the

00:29:13 ◼   ► liability shift last fall which is a huge opportunity for apple to take

00:29:16 ◼   ► advantage of

00:29:17 ◼   ► and and they're like we

00:29:19 ◼   ► we'd like we could get over apple there's nothing to say about what to do

00:29:23 ◼   ► that we bought a new we bought a new pair processor none of them said if they

00:29:26 ◼   ► supported apple parent out so we didn't know so apples not working with the

00:29:29 ◼   ► manufacturers of these things

00:29:31 ◼   ► and that's where apple falls down because

00:29:33 ◼   ► there it's a you can't an apple representative can't go out and talk to

00:29:37 ◼   ► every small medium-sized business they can't talk to every merchant

00:29:40 ◼   ► they probably should talk to every manufacturer payment terminals but they

00:29:43 ◼   ► didn't apparently

00:29:44 ◼   ► but but what you have to do is you have to create incentives you have to do to

00:29:48 ◼   ► have a bonus programs you have to

00:29:50 ◼   ► figure out ways we can sign up seamlessly to integrate the rewards

00:29:53 ◼   ► program or coupons or whatever might be and that sort of stuff where it's

00:29:57 ◼   ► itself serve

00:29:59 ◼   ► apple doesn't do a good job with that stuff and i again you can see that with

00:30:03 ◼   ► the App Store. The people that Apple deals with directly, they do a good job and they

00:30:08 ◼   ► partner well, but when it comes to creating the conditions for success for people broadly

00:30:14 ◼   ► that aren't necessarily going to ever talk to Apple one-on-one, the company doesn't do

00:30:18 ◼   ► a good job. And I think that's why Apple Pay, like there was this huge opportunity last

00:30:23 ◼   ► year with this liability shift where basically what happened was if you didn't have a chip

00:30:29 ◼   ► readable terminal

00:30:31 ◼   ► and someone had a chip card you were liable for any fraud

00:30:34 ◼   ► and vice versa if you didn't have a chip card and they had a chip terminal then you were

00:30:37 ◼   ► liable for fraud so it was a great example of how incentives

00:30:42 ◼   ► drive change they couldn't force people to upgrade their terminals but they could say

00:30:46 ◼   ► if you don't you're going to be held liable and so people would would pay themselves to

00:30:50 ◼   ► to upgrade and Apple should that was the huge example for Apple Pay to be all over that

00:30:54 ◼   ► and be advertising and say these chips suck they take a long time to use it take like

00:30:58 ◼   ► 60 seconds or 30 seconds or whatever to process. This is the chance everyone's

00:31:02 ◼   ► gonna buy new ones. Apple should have had a huge blitz. They should have had

00:31:04 ◼   ► marketing targeted at business owners and none of that happened. Absolutely none of it.

00:31:08 ◼   ► So you're saying even though the growth is great that it could have been

00:31:13 ◼   ► it could be accelerated if Apple were doing everything? Hugely accelerated, right?

00:31:18 ◼   ► Right? Because Apple Pay is not never going to reach its potential unless

00:31:21 ◼   ► people have confidence that it will mostly be okay. Actually this is a

00:31:26 ◼   ► tie into the echo thing right the reason one reasons i like

00:31:28 ◼   ► alexa much better than siri is i'm shocked when alexa doesn't work and i'm

00:31:33 ◼   ► pleasantly

00:31:34 ◼   ► pleased when when siri does like that there's a

00:31:37 ◼   ► there's a line that that is like where you assume it's going to work and

00:31:41 ◼   ► mhm apple pay is a long ways away from that line

00:31:43 ◼   ► like in with the what happens is even if you know mcdonald's accepted or

00:31:47 ◼   ► walgreens accepted or whatever the places may be you're not in the habit at

00:31:50 ◼   ► all of using it because no one wants to walk up and look like an emily bonus

00:31:54 ◼   ► geeks will. "Do you support Apple Pay?" But normal people don't want to be in that

00:32:00 ◼   ► awkward situation and so it's just frustrating because it's such a great product. It has

00:32:05 ◼   ► so much potential. Imagine Apple owning your wallet. What opportunities are out there if

00:32:15 ◼   ► they really establish this and make it a very real thing? And again, that's my services

00:32:21 ◼   ► It's not that the stuff they do isn't as great as it could be.

00:32:23 ◼   ► It's not, frankly, but it's not that big a deal.

00:32:25 ◼   ► It's probably mostly fine.

00:32:27 ◼   ► It's the opportunities that I believe they're missing.

00:32:30 ◼   ► I don't know about that, but it's an interesting argument.

00:32:36 ◼   ► I don't know.

00:32:37 ◼   ► I don't know.

00:32:39 ◼   ► Hey, I was appreciative that you didn't dismiss my proposal outright, so I'll take

00:32:44 ◼   ► what I can get.

00:32:47 ◼   ► What do you think... who just said this? There was something I linked to this week

00:32:55 ◼   ► where somebody held up iMessage as a... it might have been the kook I linked to

00:33:06 ◼   ► who said Tim Cook should be fired which is cropped up again.

00:33:13 ◼   ► He's a character to say the least.

00:33:17 ◼   ► Wait, who was it? Oh, Lefsitz. Yeah, that's it. Bob Lefsitz.

00:33:21 ◼   ► Held up iMessage as

00:33:25 ◼   ► like Apple dropping the ball because they're keeping it proprietary.

00:33:29 ◼   ► And Lefsitz is a kook and he's not the only person who's said it.

00:33:33 ◼   ► But to me, iMessage is a

00:33:37 ◼   ► very

00:33:41 ◼   ► under-appreciated aspect of modern Apple,

00:33:46 ◼   ► because they don't, and it is to me,

00:33:51 ◼   ► almost a pure Apple service,

00:33:55 ◼   ► because nobody else would ever do anything like this,

00:33:58 ◼   ► 'cause it wouldn't make sense for anybody else to do it.

00:34:01 ◼   ► Is they-- - Well, except for Blackberry.

00:34:03 ◼   ► - Yeah, I guess so, I guess so, I guess you're right.

00:34:06 ◼   ► I guess it is sort of a copy of BBM.

00:34:10 ◼   ► That's fair, you know.

00:34:12 ◼   ► - But that's a testament to the point.

00:34:16 ◼   ► And that's like the tension here, right?

00:34:18 ◼   ► Because iMessage is a beautiful example

00:34:20 ◼   ► of Apple having a vertical sort of model

00:34:24 ◼   ► where their services differentiate their hardware.

00:34:26 ◼   ► Like iMessage is a reason to have and use an iPhone.

00:34:30 ◼   ► Like I tried to switch to Android when my arm was broken

00:34:32 ◼   ► because the speech recognition is so much better.

00:34:34 ◼   ► And one of the things that made it very difficult

00:34:38 ◼   ► was the lack of iMessage.

00:34:39 ◼   ► Like it's a super great lock and it really is.

00:34:44 ◼   ► And yeah, so that's why this whole services thing

00:34:49 ◼   ► is so fraught because to date it has been about

00:34:53 ◼   ► differentiating Apple's services.

00:34:56 ◼   ► And the question is in the long run, like,

00:34:59 ◼   ► is that enough?

00:35:02 ◼   ► - Right, the thing that to me is underappreciated

00:35:05 ◼   ► is that if you and I started a messaging service

00:35:09 ◼   ► that had only and exactly the features that iMessage has.

00:35:13 ◼   ► End-to-end encryption, you can put,

00:35:17 ◼   ► you can send text and you can embed images and that's it.

00:35:22 ◼   ► And we got as many users as iMessage has.

00:35:26 ◼   ► It would be a tremendously valuable company.

00:35:30 ◼   ► It's on the scale of like WhatsApp and what's the other one?

00:35:38 ◼   ► You know them all.

00:35:40 ◼   ► Line, we just could call it.

00:35:42 ◼   ► Right.

00:35:42 ◼   ► It's--

00:35:43 ◼   ► Or--

00:35:44 ◼   ► Yeah.

00:35:44 ◼   ► It-- the number of--

00:35:46 ◼   ► and whatever buzzword metric you want to use,

00:35:50 ◼   ► like daily active users, it's huge.

00:35:53 ◼   ► iMessage is huge in terms of how many people send or receive

00:35:57 ◼   ► an iMessage every day.

00:35:59 ◼   ► It would be tremendously valuable.

00:36:02 ◼   ► And it goes completely, to me, unrecognized

00:36:05 ◼   ► in people evaluating Apple.

00:36:09 ◼   ► And maybe it should. - I don't think so, though.

00:36:09 ◼   ► - Maybe it shouldn't.

00:36:10 ◼   ► Maybe it shouldn't because the other ways

00:36:14 ◼   ► that people value Apple are intrinsically tied to iMessage.

00:36:18 ◼   ► - Exactly, 'cause people value Apple

00:36:20 ◼   ► based on how many iPhones they sell.

00:36:21 ◼   ► And the way iMessage is leveraged by Apple right now

00:36:26 ◼   ► is as a tool to sell more iPhones.

00:36:28 ◼   ► And so it is properly valued.

00:36:30 ◼   ► Like the only way it should be valued separately

00:36:34 ◼   ► is if apple explicitly starts to think about it as as a service in his own

00:36:39 ◼   ► right in maybe you could do that was well retaining it being only on on

00:36:44 ◼   ► iphones you may have

00:36:46 ◼   ► we maybe have less potential then but but no i i don't think it is under

00:36:50 ◼   ► valid to think all week they look at what's up to a fifteen billion i will

00:36:54 ◼   ► how much is i miss is worth to that read up as well on the stocks on fair bowl

00:36:57 ◼   ► blah blah it's not because

00:36:58 ◼   ► apple has

00:37:00 ◼   ► strategy is such that

00:37:02 ◼   ► it is eight part of the iphone and the iphone is value very highly i mean

00:37:06 ◼   ► apple is still the most valuable company in the world

00:37:10 ◼   ► and it it leads me to what apple has invented as and to me a fairly

00:37:16 ◼   ► as its own metric

00:37:17 ◼   ► uh...

00:37:18 ◼   ► and i think it's only going back to a three quarters where they've started

00:37:21 ◼   ► citing this

00:37:23 ◼   ► number of uh...

00:37:26 ◼   ► i don't know if they're calling it daily but actively use devices

00:37:31 ◼   ► They're saying that they, I think it's a billion, right?

00:37:34 ◼   ► - A billion, yep.

00:37:35 ◼   ► - That there's a billion Apple devices in active use,

00:37:40 ◼   ► which is, no other company, maybe other than Samsung.

00:37:44 ◼   ► Samsung, I guess, would be an interesting,

00:37:47 ◼   ► I guess Samsung could use that figure,

00:37:51 ◼   ► and it would be interesting too,

00:37:52 ◼   ► especially considering that Samsung has things

00:37:55 ◼   ► like refrigerators and washing machines

00:37:57 ◼   ► and microwave ovens. (laughing)

00:37:59 ◼   ► No, seriously!

00:38:00 ◼   ► No, I'm laughing because first, sorry,

00:38:04 ◼   ► it's just a side note, but it's not even about Samsung,

00:38:09 ◼   ► so I probably shouldn't even tell this story,

00:38:10 ◼   ► but now I feel like I've gotten myself too far in.

00:38:13 ◼   ► During the NCAA tournament,

00:38:14 ◼   ► you know you see the same commercial a million times?

00:38:16 ◼   ► - Yeah.

00:38:17 ◼   ► - And I think it was a couple of years ago,

00:38:18 ◼   ► there was a commercial for the LG smartphone,

00:38:21 ◼   ► like the Optimus or Prime or whatever it's called.

00:38:23 ◼   ► That's not the right name, but it's something like that.

00:38:25 ◼   ► And the commercial would be all about the phone.

00:38:29 ◼   ► At the very end, I think Kenny Smith was the guy that was doing it.

00:38:32 ◼   ► No, it was Greg Anthony.

00:38:33 ◼   ► They would show him in front of the lineup of like washers and dryers and

00:38:37 ◼   ► refrigerators, which the whole commercial was not about at all, but they felt like

00:38:41 ◼   ► that they felt the need to squeeze that into this ad they were paying a lot of

00:38:44 ◼   ► money for and it cracked me off every single time I saw it.

00:38:47 ◼   ► I mean, it's like been three years.

00:38:49 ◼   ► I'm still laughing about it.

00:38:50 ◼   ► Anyhow, sorry.

00:38:50 ◼   ► That was totally, totally off track.

00:38:52 ◼   ► Well, now that I think about it though, I realized that there's a lot of companies,

00:38:57 ◼   ► you know, Sony and LG, any of those companies that I guess could cite a lot of quote-unquote

00:39:03 ◼   ► devices. I guess what makes Apple's metric more interesting is that Apple's devices are

00:39:08 ◼   ► actually things that you pay attention to. You know, they're real computers is what they're

00:39:15 ◼   ► talking about.

00:39:16 ◼   ► It is, and honestly, Apple talking about services and that they're a services company is totally

00:39:21 ◼   ► legitimate because it is a it is a real one they make real money the vast majority of

00:39:27 ◼   ► it is from the App Store and most from pay to play games because you know that's all

00:39:31 ◼   ► that Apple has enabled from a business model perspective which I'm happy to rant and rave

00:39:35 ◼   ► about but it is real money and and they're right and it is also real potential like if

00:39:42 ◼   ► they actually did get serious about it like a you can do a lot with a billion devices

00:39:49 ◼   ► and and that's the this is the other thing with the i called thing the reason

00:39:52 ◼   ► why i don't like folks you know i called is because the implication of folks and

00:39:55 ◼   ► i called it it should be on all devices you know like apple music is on android

00:39:58 ◼   ► and stuff what what i think is the huge potential for apple is device specific

00:40:02 ◼   ► services it is

00:40:04 ◼   ► it is the things like apple pay it is the things like home kit it is the

00:40:07 ◼   ► things like the watch like

00:40:09 ◼   ► the watch the huge potential for the watch from my perspective is being the

00:40:13 ◼   ► key to your life

00:40:14 ◼   ► like literally the key your watch to open your door your watch it

00:40:17 ◼   ► should start your car, your watch should be your badge at work.

00:40:21 ◼   ► Like your watch should be this movable piece of identification

00:40:25 ◼   ► that oper-- Apple Pay. Like the watch with Apple Pay is

00:40:29 ◼   ► amazing, you just have to find a place that has Apple Pay.

00:40:32 ◼   ► You know I've thought about that

00:40:36 ◼   ► too, that the watch as your sort of

00:40:39 ◼   ► key to your life and I've written about it too little, way too little, maybe

00:40:44 ◼   ► even borderline not at all, in terms

00:40:47 ◼   ► of... the big picture question of, which I've sort of been writing about recently, is why

00:40:56 ◼   ► did they do the watch, you know, why did they do the watch, why did they release the watch

00:40:59 ◼   ► when they did with the features that it has?

00:41:02 ◼   ► You know, should they have released a...

00:41:06 ◼   ► Obviously the watch is significantly flawed.

00:41:08 ◼   ► It's the most flawed device Apple has released in modern history, in my opinion.

00:41:15 ◼   ► And recently I've been writing either, you know, I've posited that either…

00:41:18 ◼   ► And with that, with that Gruber just, just, just spawned a hundred articles, but continue.

00:41:25 ◼   ► I've posited though that Apple should have either waited longer to release the watch

00:41:30 ◼   ► so that it would have been faster and that some of the features that don't work well

00:41:34 ◼   ► would have worked better or cut those features that don't work well on the watch as we

00:41:39 ◼   ► know it and released when they did.

00:41:43 ◼   ► But I do think, lost in there is that one of the reasons that I think they wanted to

00:41:46 ◼   ► get the watch out sooner rather than later, flaws though it had, is that idea though of

00:41:54 ◼   ► the watch in the long run being a sort of key to your life.

00:42:00 ◼   ► I do think there's tremendous potential there.

00:42:02 ◼   ► And I've thought about things like, you know, Touch ID is such an eye-opener on iOS devices,

00:42:10 ◼   ► But it's conspicuously absent on the Mac.

00:42:14 ◼   ► And every time I have to type my password to unlock,

00:42:17 ◼   ► you know, wake up my Mac,

00:42:18 ◼   ► I think what a pain in the ass this is every single time.

00:42:21 ◼   ► And why, you know--

00:42:22 ◼   ► - If you have your--

00:42:24 ◼   ► - Well, people-- - If you have a watch on,

00:42:25 ◼   ► it should be unlocked.

00:42:26 ◼   ► - Yeah, exactly.

00:42:27 ◼   ► And people, a lot of,

00:42:28 ◼   ► it's like a frequently emailed question to me is,

00:42:31 ◼   ► you know, like, just with the recent update

00:42:34 ◼   ► to the MacBook One,

00:42:35 ◼   ► that, you know, hey,

00:42:38 ◼   ► come they don't put a touch ID sensor on the MacBook because I'm so used to it on

00:42:42 ◼   ► this and I tend to think that the answer isn't touch ID for the Mac I tend to

00:42:46 ◼   ► think that the answer is like some sort of way of if you if you've got the watch

00:42:53 ◼   ► on and you're within a very very close distance you know like like three inches

00:42:59 ◼   ► of the Mac that it just unlocks there are actually apps you can get that do

00:43:05 ◼   ► this and they do that with the phone as well but they're a little clunky as

00:43:08 ◼   ► anything kind of third party is yeah it has to be has to be first party yeah I

00:43:12 ◼   ► know absolutely and no the other thing with with the MacBook is the touch ID is

00:43:19 ◼   ► is intimately integrated with the secure enclave on the on the a series chips so

00:43:25 ◼   ► as long as there isn't an arm based Mac I don't think there's going to be touch

00:43:29 ◼   ► ID yeah that's it's probably true and I just I just tend to think that it's the

00:43:35 ◼   ► wrong form factor and the fact that it it kind of makes sense from it has to it

00:43:43 ◼   ► should be to be due to be done right it has to be platform wide that any Mac or

00:43:49 ◼   ► at least new Mac could do it but touch ID to do it the exact same way would

00:43:54 ◼   ► only work on Mac books because there's there's just no feasible way that that

00:44:00 ◼   ► it well I guess not no feasible way but you'd have to have you know to have it

00:44:03 ◼   ► work on the iMacs and Mac Pros. Remember the Mac Pro?

00:44:07 ◼   ► Do they still make that? You would have to build it into the

00:44:11 ◼   ► keyboard and it's, you know, and the

00:44:15 ◼   ► idea that you could do it from the watch, I guess if you could do it from the watch you could do it from the keyboard

00:44:19 ◼   ► you know, that it would be some kind of secure way to do it wirelessly, but

00:44:23 ◼   ► it just makes more sense to me that it would be the thing, you know,

00:44:27 ◼   ► and like you said, like it should start your car, it could let you into your house

00:44:31 ◼   ► if you have a smart door, you know, it's there's so many ways that it could be done for that and it would be a

00:44:36 ◼   ► Tremendous like it would really like start to remove so many questions about why are they building?

00:44:42 ◼   ► We know why did they make a device that you can wear, you know on your wrist?

00:44:46 ◼   ► No, I could I completely agree and I mean this has been my vision for the watch kind of from the beginning

00:44:50 ◼   ► I actually thought it might not even have a screen at the beginning because I was so like to me this idea of being the

00:44:55 ◼   ► Key to your life and then notifications

00:44:57 ◼   ► I mean the best feature of the watch is the taptic engine unless it fails

00:45:00 ◼   ► But I mean, it's like that's what makes it really great. I was aware regularly

00:45:05 ◼   ► I would argue though that the Taptic Engine is the best in theory. It's the best feature but in practice

00:45:12 ◼   ► it's not and and I think part of that is me being biased because I have my watch is a stainless steel one and

00:45:19 ◼   ► I've yep, I hear and I've worn the aluminum ones enough and it's you know

00:45:25 ◼   ► it's just the privilege of getting review units and

00:45:29 ◼   ► and being able to try both because I realize most people why in the world would a normal

00:45:33 ◼   ► person be able to wear both but I have an aluminum model here that I don't own it's

00:45:37 ◼   ► you know it's a review unit from Apple but it's eye opening after a while how much better

00:45:41 ◼   ► the taptic engine is on the aluminum models than the steel ones and I've even worn I've

00:45:47 ◼   ► tried it I've tried my son has the aluminum you know the sport model too and I've worn

00:45:51 ◼   ► his just for you know like an hour or so and just said like hey just send me a text every

00:45:58 ◼   ► couple minutes, you know, or send yourself a text, you know, because it was synced to

00:46:02 ◼   ► his phone, but so I would feel it on my wrist, and it feels so much better. And it's, you

00:46:07 ◼   ► know, it's just...

00:46:08 ◼   ► How does it feel on the Edition, John?

00:46:10 ◼   ► I don't know. I actually, I've never even tried an Edition, honestly. Even reviewers

00:46:15 ◼   ► don't even get to try them. You know, I have noticed, though, that Apple Store here in

00:46:20 ◼   ► Center City, Philadelphia, used to be one of the stores that had the Edition models

00:46:25 ◼   ► in the display and you could buy the edition model here.

00:46:28 ◼   ► And just last week, Amy and I were running errands

00:46:36 ◼   ► in center stadium.

00:46:37 ◼   ► We stopped into the Apple store, and the edition models

00:46:41 ◼   ► are gone in the Philadelphia store.

00:46:44 ◼   ► Interesting.

00:46:45 ◼   ► That is interesting.

00:46:46 ◼   ► Yeah, I noted a while ago that there

00:46:50 ◼   ► seemed to quietly be emphasizing the edition less and less

00:46:55 ◼   ► uh...

00:46:56 ◼   ► and there is some pushback from a few people on twitter who are saying no

00:46:59 ◼   ► they're not you know and it's still there it's just they're just putting in

00:47:02 ◼   ► it you know

00:47:02 ◼   ► they've just rearrange it is not really less emphasis but there's no doubt my

00:47:06 ◼   ► mind that there

00:47:08 ◼   ► just quietly you know

00:47:10 ◼   ► uh... i know that quietly is often overused like finally when talking about

00:47:14 ◼   ► apple you know apple quietly you know

00:47:16 ◼   ► blah blah blah and it's you know not really any less

00:47:19 ◼   ► or more quiet than anything else

00:47:22 ◼   ► it's just that they're not trumpeting it

00:47:23 ◼   ► but the... It's nowhere on... I'm on the front page of the watch page and there is not an

00:47:27 ◼   ► edition on here. No. And there's like 15 watches on here. No, it's just there... but to me the way

00:47:33 ◼   ► that they're backing away from the edition model watches really is sort of a quiet like,

00:47:39 ◼   ► you know, let's start pretending like this doesn't exist. And to me the new... the new edition is the

00:47:48 ◼   ► Hermes models of the watch. That's the, and you know like the stainless steel link bracelets,

00:47:58 ◼   ► you know, that the luxury version of the watch are the ones that cost a thousand to two thousand,

00:48:04 ◼   ► not five to twenty thousand. Yeah, it'll be interesting to, if we look back on that edition

00:48:13 ◼   ► sort of series. We had so much fun speculating about that, how much they would cost.

00:48:17 ◼   ► I'm pretty sure we did all five. Yeah, I'm looking at the whole

00:48:21 ◼   ► kind of nature. There's nothing about him at all. Yep, and if we look back at it,

00:48:29 ◼   ► it's sort of a kind of hubristic moment to be honest. I mean we're going to sell a

00:48:34 ◼   ► a $20,000 watch because we can and we're gonna show it at these

00:48:40 ◼   ► fashion boutiques and all this sort of stuff. And you know, and to lots

00:48:44 ◼   ► of people's credit. There was a significant sector of the sort of Apple world that felt

00:48:53 ◼   ► very uncomfortable with that, more so than I did, to be frank. And maybe there was something

00:48:59 ◼   ► really to that.

00:49:00 ◼   ► Yeah, it's fascinating.

00:49:01 ◼   ► Getting away from your... We had this discussion, I think, the whole Andy Warhol Coke thing,

00:49:07 ◼   ► right? And yes, the function of an addition was the same as the function of a sport, but

00:49:12 ◼   ► just the idea and because what makes the iPhone so powerful as a consumer product, there's

00:49:18 ◼   ► lots of things about it that make it powerful, but the best phone in the world has an entry

00:49:23 ◼   ► price of $650 and while that is massively more expensive than the cheapest Android you

00:49:29 ◼   ► can get for like 50 bucks, on an absolute basis it's just not that much money. And

00:49:35 ◼   ► whereas cars, you say, "Oh, the iPhone is the BMW of cars." Well, sure, but on an

00:49:39 ◼   ► absolute basis a BMW is what minimum 35,000 if you want something you know if you want

00:49:43 ◼   ► a real BMW it's a lot more than that like just absolute numbers matter and on an absolute

00:49:51 ◼   ► basis the iPhone has never been that expensive on a percentage on a relative basis yes it

00:49:55 ◼   ► is absolutely expensive but and that is something that's core to Apple you can have the best

00:50:01 ◼   ► phone in the world for relatively to the grand scheme of luxury goods not that much money.

00:50:07 ◼   ► I forget what year it was, but it was probably the last year I went to South by Southwest.

00:50:12 ◼   ► And so that's probably like 2010 or maybe it was even 2011, but somewhere around there.

00:50:19 ◼   ► The last year I went to South by Southwest in Austin.

00:50:23 ◼   ► And me and Jim Kudall and Michael Lop and a few other people went to dinner at a steakhouse.

00:50:35 ◼   ► And as we were leaving, we were like waiting in the entry area, you know, like the sort

00:50:41 ◼   ► of foyer of the restaurant to leave.

00:50:45 ◼   ► And we saw by him standing by himself waiting, I guess, to go in.

00:50:49 ◼   ► It seemed it very soon seemed like he was waiting to meet his party.

00:50:53 ◼   ► We saw Michael Dell.

00:50:54 ◼   ► And it was like, Holy shit, that's Michael Dell.

00:50:56 ◼   ► You know, there's a billionaire.

00:50:58 ◼   ► And he was on his phone.

00:50:59 ◼   ► And I don't know what kind of phone he was using.

00:51:02 ◼   ► But the thought just popped into my head.

00:51:04 ◼   ► He's a billionaire.

00:51:05 ◼   ► I have a better phone than he does.

00:51:09 ◼   ► It was such a weird thought.

00:51:10 ◼   ► It was like, holy shit, there's Michael Dell.

00:51:13 ◼   ► Wow.

00:51:14 ◼   ► And then because he was on his phone

00:51:16 ◼   ► and it was clearly some sort of-- I don't know if it was--

00:51:21 ◼   ► Not an iPhone.

00:51:22 ◼   ► Yeah, it was not an iPhone.

00:51:24 ◼   ► And I realized because it was not an iPhone, whatever it was,

00:51:26 ◼   ► he's a billionaire, but I have a better phone than he does.

00:51:30 ◼   ► And it was such a weird thought.

00:51:32 ◼   ► And it is that sort of egalitarian thing.

00:51:35 ◼   ► If you take the edition out of the Apple Watch lineup

00:51:38 ◼   ► and just look at what they have without the edition,

00:51:41 ◼   ► it makes total sense to me as an Apple product,

00:51:44 ◼   ► where it ranges from $299 to-- I think the most expensive

00:51:49 ◼   ► is the Hermes cuff, which is-- I'm looking-- $1,500.

00:51:55 ◼   ► And take the cuff out, and I think

00:51:57 ◼   ► it's like $1,250 for one of the Hermes models.

00:52:01 ◼   ► And that makes total sense.

00:52:02 ◼   ► The cheapest stainless steel is like 450 or something. Yeah, and

00:52:05 ◼   ► Apple has always had kind of two levels in their lineups, right?

00:52:07 ◼   ► They have the low end and the high end like and yeah, it does

00:52:10 ◼   ► make much more sense.

00:52:11 ◼   ► But I really do think one of the fascinating you know that the

00:52:14 ◼   ► whole like hand some of the hand wringing. I think the idea that

00:52:18 ◼   ► the addition is folly and it's a sign that the company is

00:52:22 ◼   ► distracted has merit. I think that the hand wringing over the

00:52:26 ◼   ► difference between the sport aluminum sport models and the

00:52:30 ◼   ► stainless steel models though is misguided because to me the range is

00:52:37 ◼   ► reasonable but it's also fascinating to me that to me at a at a at a functional

00:52:43 ◼   ► level the sport models are actually better because the taptic engine works

00:52:47 ◼   ► better the one thing that the stainless steel models have that the sport don't

00:52:51 ◼   ► that is functionally better is that the the sapphire cover for the display truly

00:52:59 ◼   ► is scratch proof. Like mine.

00:53:02 ◼   ► I think and I think that I still think they look better too.

00:53:04 ◼   ► They do look better. I think so too. I do. But at a every other

00:53:09 ◼   ► functional level, because the the Taptic engine works better

00:53:12 ◼   ► that the sport models is actually a you know, it's

00:53:15 ◼   ► superior. And and so in terms of like the speed of the CPU and

00:53:20 ◼   ► the resolution of the display, etc, etc. It's all the same. It's

00:53:23 ◼   ► exactly the same. You don't get you spend the extra money and

00:53:27 ◼   ► all you're getting is the what you can touch that the materials are better.

00:53:31 ◼   ► So two observations. One,

00:53:35 ◼   ► it's interesting that all the Hermes models are always stainless steel.

00:53:40 ◼   ► There's no edition. And two, I've been clicking around this site for the last five

00:53:43 ◼   ► minutes. I cannot find the edition anywhere.

00:53:45 ◼   ► I honestly cannot find it on the website. Yeah, it's down the memory hole.

00:53:49 ◼   ► It's actually,

00:53:49 ◼   ► since I brought it up, it's actually been emphasized even less.

00:53:54 ◼   ► No, I... oh there it is, watch edition. You could only find it in the buy tab.

00:53:59 ◼   ► In all the product marketing tabs, it's non-existent. It's completely not really gone.

00:54:04 ◼   ► Right, and that makes me think, I would place a bet here today, May 5th,

00:54:11 ◼   ► that when we see Apple Watch 2.0, there is no edition model.

00:54:15 ◼   ► That it's sport, and I don't know, maybe they'll come up with a new name, but it's stainless steel and aluminum.

00:54:21 ◼   ► I think the addition thing is gone. And I know for a fact, I have heard from

00:54:27 ◼   ► numerous, at least several, I wouldn't say numerous, but several people within Apple

00:54:31 ◼   ► that there was significant debate within the company

00:54:35 ◼   ► at high levels as to whether addition should be a thing or not.

00:54:40 ◼   ► And that it was Johnny Ive and

00:54:43 ◼   ► you know, anybody who's under him, maybe, you know,

00:54:46 ◼   ► almost certainly Mark Newsome who pushed for it and that there were others within

00:54:53 ◼   ► the company who were like this is you know this is not a good idea you know

00:54:56 ◼   ► but it was more or less a Johnny Ive idea and that I think that oh I mean

00:55:02 ◼   ► obviously ultimately it came down to Tim Cook and I think ultimately and I don't

00:55:07 ◼   ► know this this isn't you know that the people who I've talked to don't you know

00:55:11 ◼   ► aren't the sort of people who would know what Tim Cook was thinking but my

00:55:16 ◼   ► My guess is that it wasn't so much that Tim Cook thought it was a good idea in and of itself,

00:55:22 ◼   ► but that Tim Cook wanted to make Johnny happy.

00:55:25 ◼   ► And that making Johnny happy was doing this addition thing.

00:55:29 ◼   ► And there's something so telling about that, and whether or not it may be right,

00:55:35 ◼   ► but is this idea that Apple is, at the very top of the company, still ruled by consensus.

00:55:44 ◼   ► And the power of Apple's organizational structure, which I wrote about, is the way it kind of forces collaboration.

00:55:50 ◼   ► And groups have to depend on each other, and there is no dictator.

00:55:54 ◼   ► But that worked in part.

00:55:55 ◼   ► A lot of Apple's organization was Steve Jobs wanting to make an Apple that could be his instrument that he could play, right?

00:56:04 ◼   ► Like, that would do his bidding.

00:56:06 ◼   ► And like, there's the counterweight of the dictator at the top.

00:56:09 ◼   ► That's...

00:56:10 ◼   ► The way I framed it is editor.

00:56:12 ◼   ► And actually, I think they still use it at Apple University.

00:56:16 ◼   ► Like I came up with it back then.

00:56:18 ◼   ► Like the best way to think about what Jobs does at Apple is he's the editor,

00:56:21 ◼   ► or what did at Apple was he's the editor in chief.

00:56:24 ◼   ► Like he didn't write the copy.

00:56:27 ◼   ► He didn't do the things.

00:56:29 ◼   ► He may have tweaked a headline to make it that much more gripping.

00:56:33 ◼   ► And he said, no, and he cut stuff and he pushed stuff forward and he said,

00:56:38 ◼   ► oh, well, you should go work on this sort of thing.

00:56:41 ◼   ► And for all the good things that Tim Cook has done

00:56:46 ◼   ► and all the things that he's good at,

00:56:48 ◼   ► and to his credit, he knows he's not that person.

00:56:51 ◼   ► He's not a product person.

00:56:52 ◼   ► So I think he's empowered Johnny for sure.

00:56:55 ◼   ► But Johnny has a distinct set of skills that are not,

00:57:00 ◼   ► I don't think, as broad as jobs were.

00:57:02 ◼   ► And I don't know that he has the connection to

00:57:08 ◼   ► and the empathy for the kind of common man,

00:57:12 ◼   ► and you see this, I think,

00:57:13 ◼   ► in some of the design decisions as well,

00:57:14 ◼   ► particularly when it comes to the user interface,

00:57:17 ◼   ► that that job is it either.

00:57:18 ◼   ► And you always hate to break out the,

00:57:22 ◼   ► they miss Steve sort of thing,

00:57:25 ◼   ► but when it comes to the watch

00:57:27 ◼   ► and it comes to having the addition,

00:57:28 ◼   ► it comes to having these apps that were underpowered

00:57:31 ◼   ► and this watch kit idea, which was a disaster.

00:57:33 ◼   ► Like the watch should have,

00:57:35 ◼   ► if the watch was nothing but the display

00:57:37 ◼   ► and notifications, like one, it would be a great experience. Two, what's the criticism?

00:57:43 ◼   ► Oh, it doesn't have apps. Let's do that. Let's do that. But implicit in that criticism is,

00:57:47 ◼   ► oh, but of course they're coming soon, right? Oh, the iPhone watch has all the apps too,

00:57:51 ◼   ► right? And it's such a different framing about the watch. It's a framing of it's not what it

00:57:57 ◼   ► is now, but it has the potential to be like, it's great now, but it's going to be even better

00:58:02 ◼   ► as opposed to it kind of sucks now and it might be better in the future. Like just the tone of

00:58:07 ◼   ► that is so fundamentally different?

00:58:10 ◼   ► We've, you know, this is, it's not just me, you know, but I feel like

00:58:16 ◼   ► there's been a research, I think it's sort of the roughly one,

00:58:20 ◼   ► you know, the watch's one year old has sort of brought out a lot of,

00:58:25 ◼   ► you know, big picture, hey, let's take a, let's re-look at

00:58:29 ◼   ► Apple Watch commentary. And, you know, I've certainly written a lot

00:58:35 ◼   ► more about it recently than I had for a while.

00:58:39 ◼   ► And I'm with you.

00:58:42 ◼   ► I really do think at a fundamental level

00:58:45 ◼   ► that shipping with an SDK in an app store was a mistake.

00:58:49 ◼   ► Or maybe not an SDK, but that the SDK

00:58:51 ◼   ► should not have been about quote unquote apps.

00:58:53 ◼   ► It should have been an SDK

00:58:54 ◼   ► for empowering smart notifications, right?

00:58:58 ◼   ► - Or the key stuff, right?

00:59:00 ◼   ► - The what?

00:59:02 ◼   ► - The key stuff, like being the key to your wife.

00:59:04 ◼   ► - Oh, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah.

00:59:06 ◼   ► I see what you mean.

00:59:07 ◼   ► I somehow thought you were talking about

00:59:08 ◼   ► like a keyboard or something.

00:59:10 ◼   ► Yeah.

00:59:11 ◼   ► (laughing)

00:59:12 ◼   ► But yeah, like the way that there are apps,

00:59:14 ◼   ► like I have this great app.

00:59:17 ◼   ► I use it, I've long used this great app

00:59:19 ◼   ► on the iPhone called Do, D-U-E.

00:59:21 ◼   ► That is a, to me it's way better than,

00:59:26 ◼   ► it's a way to set reminders,

00:59:30 ◼   ► either one-time reminders like,

00:59:32 ◼   ► go pick up the dry cleaning on Friday at five o'clock.

00:59:36 ◼   ► Or repeating reminders, like every Wednesday at 10 o'clock,

00:59:40 ◼   ► I have a do reminder that tells me to take the trash out.

00:59:43 ◼   ► That works better for me than either putting them

00:59:48 ◼   ► on my calendar or using the clock app or something like that

00:59:53 ◼   ► 'cause they're out of the way.

00:59:54 ◼   ► I don't want these things, I don't want my calendar

00:59:57 ◼   ► to say take out the trash every day at 10 o'clock.

00:59:59 ◼   ► I want my calendar to just tell me things

01:00:01 ◼   ► that are actually novel.

01:00:03 ◼   ► So Do is a great app for that.

01:00:05 ◼   ► And the watch integration with Do is great,

01:00:08 ◼   ► but 'cause it lets me do things like you can,

01:00:11 ◼   ► Do lets you snooze things,

01:00:15 ◼   ► and so you can snooze by like one hour,

01:00:19 ◼   ► three hours, or a whole day.

01:00:22 ◼   ► And they're just buttons,

01:00:23 ◼   ► so you just scroll down on the Apple Watch

01:00:25 ◼   ► and it'll be like, you know,

01:00:26 ◼   ► mark it as done because you've done it,

01:00:28 ◼   ► snooze for an hour, three hours a day. Great. And it's a total like

01:00:33 ◼   ► notification. It's not really an app. It doesn't launch an app. It's just that the

01:00:37 ◼   ► notification is smart in that way. So that sort of SDK, definitely the Apple

01:00:41 ◼   ► Watch. It's integral for what the Apple Watch is actually good for. So I

01:00:47 ◼   ► don't want to say no SDK, but definitely it should not. I really feel firmly that

01:00:51 ◼   ► it should not have apps because the apps are such a bad experience. Every

01:00:54 ◼   ► aspect of it from the beginning to the end. From actually just launching the app on that

01:01:00 ◼   ► Honeycomb screen all the way to the end of using the app is a bad experience and I really

01:01:06 ◼   ► think it shouldn't have had it.

01:01:08 ◼   ► And in a way to take this kind of full circle, the problem with Do is you can't integrate

01:01:15 ◼   ► it with Siri. Right?

01:01:16 ◼   ► Yeah. Yeah.

01:01:17 ◼   ► Like, which is, Siri, one of the things I do use Siri for regularly is to do reminder

01:01:22 ◼   ► things, particularly when I'm driving. I always think of it as when I'm driving,

01:01:25 ◼   ► and I find it very helpful then. But we're what, five years on now? Yeah, five years

01:01:31 ◼   ► on and there is no SDK for Siri. And meanwhile, you have Amazon, to go the Echo thing, where

01:01:39 ◼   ► the SDK is spreading like wildfire. And in some respects, it gets this whole tension.

01:01:47 ◼   ► Is the Amazon kind of vernacular more limited? Yes, you have to kind of train yourself and

01:01:52 ◼   ► you have to use the right language, right?

01:01:53 ◼   ► But that also imparts a degree of flexibility

01:01:58 ◼   ► and experimentation and easy to plug into-ness

01:02:02 ◼   ► that really works to its credit.

01:02:04 ◼   ► And you know, Apple's trying to perfect

01:02:06 ◼   ► this natural language interface

01:02:07 ◼   ► and have an assistant that makes jokes to you

01:02:11 ◼   ► that make you want to throw your phone in the ocean

01:02:14 ◼   ► when it makes a joke because it just misinterpreted

01:02:16 ◼   ► what you said four times in a row.

01:02:18 ◼   ► And it's just like--

01:02:20 ◼   ► - Hold that, you know, let's stop, stop.

01:02:22 ◼   ► I want to get on the recycle stop stop. I was getting worked up

01:02:27 ◼   ► All right, okay, I'm gonna scotch do it do an ad I need to go

01:02:32 ◼   ► I need to go get another floor

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01:06:37 ◼   ► - So you got your license back?

01:06:40 ◼   ► - Yeah, well, I drive without a license.

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01:06:44 ◼   ► - You know the vast majority of your listeners, I think,

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01:06:51 ◼   ► Sorry, that's an ancient joke at this point, I think.

01:06:55 ◼   ► - Well, the longtime listeners will enjoy it.

01:07:01 ◼   ► What happened is I lost my license a few years ago for driving too fast.

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01:07:13 ◼   ► It adds to the myth.

01:07:14 ◼   ► Let's talk about Apple's quarter before we get too far.

01:07:20 ◼   ► So Apple ten days ago or so announced their January to March quarter, which is for them

01:07:29 ◼   ► in their calendar year, Q2.

01:07:33 ◼   ► And it was bad for Apple because insofar

01:07:38 ◼   ► as it was the first time in 13 years

01:07:41 ◼   ► that they had a year-over-year decline in revenue and profit,

01:07:47 ◼   ► which is an extraordinary streak.

01:07:50 ◼   ► But obviously, even if you subscribe to the--

01:07:55 ◼   ► had to happen eventually, which I think is totally true.

01:07:58 ◼   ► impossible for a streak like that to go in forever. It's extraordinary. It's an

01:08:05 ◼   ► extraordinary run, but you know, it obviously, even if it was inevitable, it

01:08:10 ◼   ► can't be seen as anything other than bad news. Well, it's okay. So it was expected

01:08:20 ◼   ► in some respects, and actually last quarter, in the first quarter,

01:08:25 ◼   ► where people were kind of banging them, I was still pretty optimistic and I thought it was a pretty good quarter.

01:08:30 ◼   ► And my contention was actually the same thing that you just wrote last week,

01:08:36 ◼   ► was that, well, if you, I charted out, if you took their results from 2008 to 2014,

01:08:42 ◼   ► and you took it on an annual basis because, you know, they shifted when the iPhone was sold,

01:08:47 ◼   ► was launched and they, like there's lots of, you couldn't do it on a quarter by quarter basis because stuff has changed.

01:08:54 ◼   ► But if you put that on a graph and then forecasted forward what the expectations would have been

01:09:01 ◼   ► for 2015 and 2016, they were actually right on track.

01:09:07 ◼   ► And they were growing nicely.

01:09:08 ◼   ► It just happened they picked up like a free 50 million users in 2015.

01:09:15 ◼   ► Let's take a step back though and just emphasize that what we're talking about here is that

01:09:20 ◼   ► two-thirds of Apple's revenue comes from the iPhone. Fundamentally, right now, and

01:09:25 ◼   ► for the foreseeable future, as the iPhone goes, so goes Apple as a whole. And what I

01:09:32 ◼   ► was… the graph you're talking about was specifically… it wasn't about Apple as

01:09:34 ◼   ► a whole, it was specifically iPhone sales.

01:09:36 ◼   ► Right, exactly. Yeah, no, you're right. I'm talking about iPhone sales. And just

01:09:40 ◼   ► to be clear…

01:09:41 ◼   ► It's two-thirds. It's two-thirds. It's just… it's just an enormous… as big

01:09:46 ◼   ► as iPad and Mac and services and watch and everything else Apple does, which would still

01:09:52 ◼   ► leave them as an enormous and arguably, it might even still be the most, what's one third,

01:10:00 ◼   ► yeah, they'd still be close to the most profitable company in tech, or at least they'd be in

01:10:05 ◼   ► the ballpark. Without the iPhone.

01:10:07 ◼   ► Without the profits, because the iPhone is also, the iPhone has significantly higher

01:10:10 ◼   ► margins in other products as well. So it's a two thirds of revenue, but it's like three

01:10:15 ◼   ► quarters of profit. So it's, yeah, absolutely.

01:10:18 ◼   ► But so fundamentally though, as goes the iPhone, so goes Apple. And it's the decline in iPhone

01:10:24 ◼   ► sales correlates directly to the decline in everything else.

01:10:27 ◼   ► Right, right. And so I came out of the first quarter pretty optimistic. And then this quarter

01:10:34 ◼   ► came along and I frankly completely changed my view. Like I think that we got a lot more

01:10:41 ◼   ► information this quarter about lots of things that frankly discredited a lot of the things

01:10:48 ◼   ► that Apple itself told us in previous quarters and cast a lot of doubt on the iPhone. And

01:10:56 ◼   ► I actually think that the situation is worse than you wrote last week, for example. I think

01:11:03 ◼   ► there is genuine reason for concern. And just to be super duper clear, the iPhone's not

01:11:08 ◼   ► going anywhere. Like this is a discussion about like the growth prospects of the iPhone,

01:11:14 ◼   ► which to your point are about the growth prospects of Apple, which by extension are about the

01:11:19 ◼   ► stock. The stock is about the future growth opportunities. The stock is not, it's not

01:11:22 ◼   ► a scorecard. It's not, it's not a scoreboard, but we've done in the past. And I now have

01:11:29 ◼   ► very serious, like I wrote a thing this week in the daily update, like I kind of went through

01:11:33 ◼   ► Like one, there's a data point that is different than I thought it was and there are three assumptions that I had about the iPhone business

01:11:41 ◼   ► Before that I have now changed my assumptions about and that makes and as a whole it makes me much more bearish

01:11:47 ◼   ► There's an interesting point and you're the one who pointed it out to me not not publicly

01:11:51 ◼   ► I don't think until now on this show

01:11:52 ◼   ► but and when I wrote I took the the the stands last week in my the written piece that

01:11:58 ◼   ► on daring fireball that

01:12:02 ◼   ► What Apple announced for q2 was exactly what they had forecast in q1 and therefore

01:12:08 ◼   ► whether you think this is

01:12:10 ◼   ► However bad or okay you think this is it shouldn't have resulted in a jolt in the stock

01:12:17 ◼   ► But the stock jolted badly downward

01:12:20 ◼   ► Six or seven percent which was for Apple is about like it was something like forty billion dollars in market cap just poof and

01:12:30 ◼   ► And you pointed out that that's not true. Like for Q2, yes, they were what they announced was exactly within the guidance from three months ago, but you pointed out and I completely missed this, that the the part that was the surprise or was unexpected, or quite frankly, contrary to what Apple had said before, was what they're now guiding for Q3, which is that Q3, this current quarter, April

01:12:59 ◼   ► to June is actually going to be the worst of it. And where that's contrary, and people,

01:13:05 ◼   ► you know, and I've, I think I tweeted about it, I didn't write about it on During Fire

01:13:09 ◼   ► Bulbs, people are like, no, they'd never guide more than one quarter in advance. So they,

01:13:14 ◼   ► you know, that's not true that they that they misguided on Q3. But they did indirectly because

01:13:20 ◼   ► they said, in January, and their quarterly results, we think that this upcoming Q2 will

01:13:26 ◼   ► be the worst. And now they're saying, actually Q3 is going to be the worst. And that's a

01:13:34 ◼   ► huge thing. That is significant and it's worrisome.

01:13:42 ◼   ► It's worse in two ways. So the next Q core is going to be worse. The first reason is

01:13:47 ◼   ► going to be worse is they're basically saying they're going to run down inventory to the

01:13:52 ◼   ► tune of two billion dollars. And what that means, and they're contrary to what people,

01:13:58 ◼   ► there's kind of a thing a few years ago about ship versus sold. Apple and every other manufacturer

01:14:02 ◼   ► calculates based on ships, not on sold, because it's just impossible for them to know, except

01:14:08 ◼   ► for Apple stores, which only sell actually a relatively small fraction of iPhones. There's

01:14:12 ◼   ► no way for them to know when it's sold. And so it is calculated on ship versus sold. And

01:14:16 ◼   ► if you look at their financial reports, you can see like their inventory and what's in

01:14:20 ◼   ► the channel, that sort of stuff. And basically over the last two quarters, they've been significantly

01:14:26 ◼   ► increasing inventory. The only reason they were up in the first quarter was because they

01:14:32 ◼   ► ran up inventory. And the only reason they met their guidance in the second quarter was

01:14:37 ◼   ► because of the inventory thing as well. And so and so now they're saying, oh, a third

01:14:41 ◼   ► quarter, we're gonna have to run this inventory down. So we're there, they guided way lower,

01:14:45 ◼   ► the advantages, they're going to meet their guidance again, right. But had they played

01:14:49 ◼   ► the inventory game fairly, for lack of a better word, they would have missed last quarter,

01:14:56 ◼   ► and they would have missed in the first quarter as well. So one, if they were running their

01:15:03 ◼   ► business as they've traditionally run it, this would actually be the second miss in

01:15:08 ◼   ► a row, instead of being the second barely making guidance. So that's one.

01:15:13 ◼   ► But then two, and so you can say--

01:15:14 ◼   ► - And it's easy, I would just back up,

01:15:16 ◼   ► keep your number two, but I would just back up

01:15:18 ◼   ► and say that Apple, in the Tim Cook era,

01:15:21 ◼   ► and that's not just Tim Cook as CEO, but COO,

01:15:25 ◼   ► they're so operationally efficient

01:15:27 ◼   ► that the ship versus sold thing was easy

01:15:30 ◼   ► for us Apple people to mock other makers for,

01:15:33 ◼   ► because with Apple, for any device,

01:15:37 ◼   ► has largely been irrelevant,

01:15:39 ◼   ► because they're so operationally efficient

01:15:41 ◼   ► that what they ship is what they sell.

01:15:43 ◼   ► - Exactly, so it was actually a fair criticism,

01:15:45 ◼   ► even if like on a technical basis it wasn't quite right.

01:15:49 ◼   ► Like the implication of the criticism

01:15:50 ◼   ► was actually totally fair, you're exactly right.

01:15:52 ◼   ► - They tend to keep inventory so low

01:15:54 ◼   ► in that they really do, you know,

01:15:56 ◼   ► whatever they make is what they're selling.

01:15:58 ◼   ► You know, and they make what they sell

01:15:59 ◼   ► and they sell what they make.

01:16:00 ◼   ► But in this case, they've obviously made,

01:16:04 ◼   ► you know, they got ahead of themselves in manufacturing.

01:16:07 ◼   ► - They did, and so one, the Q3 is gonna be worse

01:16:12 ◼   ► because of the two billion.

01:16:13 ◼   ► But here's what's really concerning.

01:16:16 ◼   ► Even if you take out that two billion,

01:16:18 ◼   ► the Q3 is still going to be worse.

01:16:22 ◼   ► Which means like when they said that,

01:16:23 ◼   ► and they said that at the end of January,

01:16:26 ◼   ► which means they're a month into the current quarter,

01:16:29 ◼   ► they said that, "Oh, we think the next quarter

01:16:30 ◼   ► "is gonna be the worst quarter."

01:16:32 ◼   ► And it turns out like they were wrong.

01:16:35 ◼   ► Like they don't know what's happening

01:16:39 ◼   ► with the iPhone, frankly.

01:16:40 ◼   ► right you haven't seen apple bid be this

01:16:44 ◼   ► on accurate

01:16:46 ◼   ► and

01:16:47 ◼   ► uh...

01:16:47 ◼   ► ended that's just this quarter i mean that will buy a pool

01:16:51 ◼   ► we can get to their earnings calls last year which are actually

01:16:54 ◼   ► for me personally are even more

01:16:56 ◼   ► concerning some respects

01:16:58 ◼   ► yeah you wrote about that recently

01:17:00 ◼   ► i did it in the in that

01:17:03 ◼   ► like so i'd

01:17:04 ◼   ► so i'd i'd like to know if i face let me paraphrase maybe i can do a better job

01:17:08 ◼   ► paraphrasing then

01:17:09 ◼   ► you can because you wrote the piece but paraphrasing and you can correct me or

01:17:14 ◼   ► clarify but basically zoom out big picture what we're seeing is that the

01:17:21 ◼   ► iphone 6 last year was a not an anomaly in terms of its popularity it was off

01:17:28 ◼   ► the curve and I think I think that the reason was twofold I think it was that

01:17:36 ◼   ► that that was when they hit, what's the carrier in China?

01:17:40 ◼   ► - China Mobile.

01:17:41 ◼   ► - China Mobile.

01:17:42 ◼   ► And it was pent up demand for larger iPhones.

01:17:48 ◼   ► And with the long rumors, you know, the year long rumor

01:17:53 ◼   ► that hey, Apple's next iPhone is actually gonna be have,

01:17:55 ◼   ► they're gonna have a bigger screen version.

01:17:57 ◼   ► And anybody who was maybe leaning towards upgrading

01:18:01 ◼   ► or getting an iPhone was like, well,

01:18:03 ◼   ► I'll wait for that bigger screen one

01:18:05 ◼   ► I want a bigger screen and that there was so much pent-up demand for that that it that it

01:18:09 ◼   ► was an anomalously

01:18:12 ◼   ► Popular

01:18:15 ◼   ► But if you look back a year at what Tim Cook said on quarterly these quarterly and analyst calls

01:18:23 ◼   ► He downplayed that it was you know

01:18:26 ◼   ► He more or less made it sound as though this is what he expected and that this was the growth that they you know

01:18:31 ◼   ► This was organic growth. It wasn't anomalous growth

01:18:35 ◼   ► Exactly. He was pressed on every single... So on the first two earnings call, he volunteered that,

01:18:41 ◼   ► "Oh, there's tons of people that haven't upgraded yet. We have tons of greenfield." And by the Q3

01:18:46 ◼   ► and Q4, the analysts were getting a little skeptical of this, especially Tony Sacc and

01:18:50 ◼   ► Agua, who asked really good questions every call, and he's been a great skeptic all along.

01:18:55 ◼   ► And he was pressing Cook on this, like, "Look, are you sure that you're not just the delayed 5S

01:19:04 ◼   ► upgrades but also pulling forward upgrades where people were upgrading early just because

01:19:07 ◼   ► they wanted to get the big screen phone. He's like, "Are you sure that..." Tim Cook, four

01:19:13 ◼   ► times in a row, and I quoted all four times in my update, he said, "Oh no, we think there's

01:19:18 ◼   ► tons of opportunity here. Only this fraction is upgraded, blah, blah, blah, blah." And

01:19:25 ◼   ► the reason, I'm personally frustrated. I know we've talked to this one-on-one. The only

01:19:32 ◼   ► thing worse than being wrong is letting something that you said that was wrong like persist

01:19:35 ◼   ► out there. And so like you want to correct it and make clear what it is. And I wrote

01:19:38 ◼   ► a piece last fall like saying stop doubting the iPhone. And one of my core things was

01:19:43 ◼   ► that this upgrade point because I believed Cook. I believed him when he said that we're

01:19:49 ◼   ► not seeing an upgrade rate out of the ordinary and there's a ton of opportunity. And for

01:19:53 ◼   ► him to come back on this call and to say, "Oh, well, there was a massive upgrade cycle

01:19:57 ◼   ► last year and obviously as you would expect to be slower this year it was i

01:20:01 ◼   ► mean

01:20:02 ◼   ► i don't know the right word for it because

01:20:05 ◼   ► it's in the record he'd he's changed his tune and in tony

01:20:11 ◼   ► call them out on the call and cook actually got a little annoyed had it

01:20:14 ◼   ► which was in really interesting because tony had him dead to rights because he

01:20:18 ◼   ► was the same when i was asking the questions last year uh... and

01:20:22 ◼   ► i i i don't think cook was reading on purpose i i i because that would be

01:20:25 ◼   ► stupid. It'd be stupid for fusions. One, because you get in trouble. Two, because

01:20:30 ◼   ► if Cook did it on purpose, he was setting Apple up for a fall. Like,

01:20:34 ◼   ► Apple's... no one... people in the investment community don't believe Tim Cook right

01:20:40 ◼   ► now. Like, because he's changed exactly what he's saying, and so he's hurt his

01:20:46 ◼   ► credibility. I just kind of think that Apple didn't know. Like, they

01:20:52 ◼   ► They didn't really do the research on upgrades,

01:20:55 ◼   ► and I suspect before this quarter's called,

01:20:58 ◼   ► like, how do we explain this?

01:20:59 ◼   ► And they sent some intern to figure out

01:21:01 ◼   ► what are the upgrade rates in previous cycles,

01:21:03 ◼   ► how does that compare to this cycle?

01:21:05 ◼   ► And they're like, oh crap,

01:21:06 ◼   ► we were saying the wrong thing last year.

01:21:08 ◼   ► Actually, we're wildly out of the ordinary,

01:21:10 ◼   ► and we have much slower upgrade rates as a result this year.

01:21:13 ◼   ► And that's how that kind of played out.

01:21:16 ◼   ► - Yeah.

01:21:20 ◼   ► I think you called it out in one of your daily updates

01:21:23 ◼   ► was that it was, how do you pronounce his name?

01:21:27 ◼   ► Tony Sacanale or something.

01:21:31 ◼   ► I was so annoyed because I was listening to the call

01:21:33 ◼   ► because I sleep through it during the night here.

01:21:37 ◼   ► And so I woke up and as soon as Cook said that,

01:21:39 ◼   ► like my radar went up because I remembered him saying that.

01:21:41 ◼   ► - Cook said was I don't recall saying anything.

01:21:43 ◼   ► - No, before that, no, 'cause Cook,

01:21:45 ◼   ► in Cook's opening remarks, he said,

01:21:48 ◼   ► "Oh, this upgrade cycle, blah, blah, blah."

01:21:49 ◼   ► in a meal like that's the key my daily update i'm gonna nail him on his point

01:21:53 ◼   ► because

01:21:53 ◼   ► uh... that's wrong and it totally asked the question like damn you tony you just

01:21:58 ◼   ► all night under

01:21:59 ◼   ► right so

01:22:01 ◼   ► twofold

01:22:02 ◼   ► basically and again if i'm summarizing this wrong

01:22:07 ◼   ► tell me but

01:22:08 ◼   ► twofold

01:22:08 ◼   ► one

01:22:09 ◼   ► it seems like apple misinterpreted a year ago apple misinterpreted the

01:22:14 ◼   ► successes success or six is success the iphone the original iphone six and six

01:22:18 ◼   ► plus. It misinterpreted their success as being part of the growth of iPhone in general, as

01:22:30 ◼   ► opposed to being exceptional, out of line with the expected growth. They thought, "Hey,

01:22:36 ◼   ► this is part of the growth curve," but the truth was it was outside the growth curve.

01:22:42 ◼   ► missed that and then this year they're clearly overestimated the success I

01:22:48 ◼   ► think basically for the same reasons that because they thought the six was

01:22:53 ◼   ► normal they thought the success was going to continue on that path and it

01:22:56 ◼   ► did not well I think they knew the six was out of whack but I think they

01:23:02 ◼   ► attributed it mostly to being them acquiring new customers as opposed to

01:23:05 ◼   ► pulled for do as opposed to pull forward upgrades one thing that's really

01:23:10 ◼   ► interesting and this is this is if you want to have a bull case for Apple today

01:23:14 ◼   ► this is probably the one to take is if you invert 2015 and 2016 that linear

01:23:22 ◼   ► line I talked about actually continues why because right now Apple's probably

01:23:26 ◼   ► going to come in with about 200 million iPhones but 210 million or so for

01:23:31 ◼   ► fiscal year 2016 and and this is another thing that that that changed Apple

01:23:36 ◼   ► People didn't say, but they hinted that 2016 would be about the same as 2015.

01:23:41 ◼   ► 2015 was 230 million.

01:23:42 ◼   ► And so it seemed like, oh, they have this nice boost along the way.

01:23:45 ◼   ► But that's clearly not happening, one.

01:23:47 ◼   ► But two, if you invert that and you pretend that 2015 was 205 million and 2016 was 230

01:23:55 ◼   ► million, that actual, that line is almost perfectly linear, like it's an R squared

01:24:00 ◼   ► of 0.98, like it's incredibly straight on.

01:24:03 ◼   ► And you could say, "Oh, they just got all the 216 buyers, just all bought a year early,

01:24:10 ◼   ► and 2017 is going to revert back to normal."

01:24:12 ◼   ► Like if that is, I think, the bull case to make for 2017 and the iPhone 7, I don't buy

01:24:22 ◼   ► it, but that is the bull case.

01:24:24 ◼   ► And I can tell you why I don't buy it if you don't want it.

01:24:29 ◼   ► Well tell me, tell me why you don't buy it.

01:24:31 ◼   ► I don't think so either.

01:24:32 ◼   ► - The reason, the reason why I don't buy it.

01:24:34 ◼   ► - Let me, let me, let me--

01:24:35 ◼   ► - Oh, you go first, you go first.

01:24:36 ◼   ► - I think that the extraordinary growth of the iPhone

01:24:40 ◼   ► was fueled by adding new carriers around the world.

01:24:45 ◼   ► And they've already added most of the carriers.

01:24:50 ◼   ► There's no big pickings left.

01:24:53 ◼   ► And then-- - Yep, that's 100 it.

01:24:56 ◼   ► That's 100% it.

01:24:57 ◼   ► Like, they, they, they, like,

01:24:59 ◼   ► I actually tried to research this and I spent,

01:25:01 ◼   ► I remember I spent days on this,

01:25:03 ◼   ► and it was so hard to figure out.

01:25:04 ◼   ► I need to hire an intern too to try to figure this out

01:25:06 ◼   ► and try to measure when they went into new carriers

01:25:10 ◼   ► in new countries and how that contributed iPhone growth.

01:25:13 ◼   ► But one thing that was always so striking about Apple

01:25:15 ◼   ► for years is how accurate their forecasts were, right?

01:25:18 ◼   ► They would miss on the high side,

01:25:19 ◼   ► but they'd miss on the high side

01:25:20 ◼   ► by the exact same percentage every single time, right?

01:25:22 ◼   ► It was uncanny.

01:25:23 ◼   ► And then they said, "Oh, from now on,

01:25:25 ◼   ► "we're actually gonna make sure we're more concerned,

01:25:27 ◼   ► "or we're gonna make our guidance actually accurate."

01:25:29 ◼   ► and then they were accurate by the exact same amount every time and i wonder how

01:25:33 ◼   ► much of that was they knew which carriers were coming online in new which

01:25:36 ◼   ► countries are coming online and they knew because they've done this bunch of

01:25:39 ◼   ► times we're gonna get this carrier has has has the certain number of customers

01:25:43 ◼   ► we get a certain percent of those customers we know that's gonna happen

01:25:46 ◼   ► and actually built this in the contract right cares had to had to guarantee a

01:25:50 ◼   ► certain number of subscribers

01:25:53 ◼   ► and so they

01:25:54 ◼   ► it's a huge factor in i phone growth was just increasing the available market of

01:25:58 ◼   ► the iPhone and once you got the last one the left like that in there was Verizon

01:26:04 ◼   ► there's NT Docomo been a bunch of small ones in general but the last the big one

01:26:08 ◼   ► was China Mobile and China Mobile came on in 2014 and then the iPhone 6 launched

01:26:13 ◼   ► and and that was the last one and now that is gone and the question for growth

01:26:21 ◼   ► for the iPhone 7 is not just getting people to upgrade because there's lots

01:26:25 ◼   ► of evidence that that's extending and we talked about that as well but where is

01:26:28 ◼   ► the new users going to come from right yes people are switching i i do think

01:26:32 ◼   ► they're switching and i think the iphone will get growth from switchers

01:26:35 ◼   ► but that's countered by

01:26:38 ◼   ► upgrade cycle being allen gated for two reasons one

01:26:41 ◼   ► iphones are just getting better and better

01:26:44 ◼   ► and to

01:26:45 ◼   ► the bigger apple gets the more they get away

01:26:49 ◼   ► they more they get into like the mainstream people that just aren't that

01:26:51 ◼   ► concerned with performance like us geeks are gonna upgrade all the time but but

01:26:56 ◼   ► the farther away they get from us

01:26:59 ◼   ► the less likely it is that they're going to upgrade

01:27:02 ◼   ► and you combine that with with carriers moving to these these plans where

01:27:05 ◼   ► once your phone's paid off your bill actually goes down

01:27:08 ◼   ► like there's

01:27:09 ◼   ► i'm skeptical where the news is going to come from

01:27:13 ◼   ► it's

01:27:14 ◼   ► it's crazy if you think about it i mean it was only january twenty eleven

01:27:18 ◼   ► i mean that's four years into the iphone

01:27:21 ◼   ► that it was available on a second carrier in the u_s_ switches verizon

01:27:25 ◼   ► I mean, it took a long time to spread.

01:27:28 ◼   ► You know, there was so much potential.

01:27:33 ◼   ► And if you look at the absolutely explosive growth,

01:27:37 ◼   ► I mean, I forget which iPhone,

01:27:39 ◼   ► but it was well into the iPhone 4 era,

01:27:41 ◼   ► maybe even the 4S, where--

01:27:43 ◼   ► - It was the 4S that was like, blew everyone's mind.

01:27:45 ◼   ► - But it wasn't just that each iPhone

01:27:48 ◼   ► outsold its predecessor,

01:27:50 ◼   ► it was that each iPhone outsold

01:27:52 ◼   ► all of its predecessors combined.

01:27:54 ◼   ► - Right, right.

01:27:55 ◼   ► Well into like the fourth, fifth, maybe even the sixth iPhone generation

01:28:01 ◼   ► outsold all of the previous iPhones combined and the one before it outsold all of its previous ones combined.

01:28:09 ◼   ► The slope on the growth curve, it's just phenomenal. It's almost incomprehensible, but it was fueled largely by

01:28:18 ◼   ► Yes, lots and lots of people wanted iPhones

01:28:21 ◼   ► once they, you know, a year or two in and they understood what it was,

01:28:25 ◼   ► but they couldn't get it, or thought they couldn't get it because they didn't want to switch carriers.

01:28:29 ◼   ► Or it wasn't, or it literally wasn't even available in their country yet.

01:28:32 ◼   ► On any carrier, even if they were willing to switch.

01:28:35 ◼   ► And

01:28:38 ◼   ► this is such a danger zone for companies where you kinda

01:28:42 ◼   ► mis-

01:28:42 ◼   ► attribute your success, and the iPhone just grew for so long,

01:28:46 ◼   ► and it's easy for even someone as smart as Tim Cook and his executive team

01:28:51 ◼   ► team to just assume that's going to go on forever and to discount like structural changes

01:28:57 ◼   ► in the market where you're changing, like if the iPhone will always have X percent of

01:29:02 ◼   ► the market, there's two functions, like you can either increase the percentage of the

01:29:07 ◼   ► market or you can change the market size. And for years, Apple was changing the market

01:29:13 ◼   ► size slowly and steadily. And in some respects, that's why you could argue that's why the

01:29:18 ◼   ► growth went on for so long unlike someone like Samsung. Samsung's great

01:29:21 ◼   ► strength has always been they're on every single carrier in every single

01:29:25 ◼   ► market and they have this massive distribution network and that's

01:29:30 ◼   ► why they just came out of nowhere to dominate Android because they had this

01:29:33 ◼   ► network built in. Right and if like they come and they're like they come to

01:29:36 ◼   ► Verizon and they're like we want you to carry this and Verizon says something

01:29:40 ◼   ► like okay we'll do it but we want to put our own custom skin on the UI Samsung

01:29:45 ◼   ► Sam's like, "Go ahead."

01:29:46 ◼   ► Sam's like, "You got it, chief."

01:29:50 ◼   ► It's like they just stick out their hand for the handshake.

01:29:52 ◼   ► You got it.

01:29:55 ◼   ► People diss them, especially in Apple world, but there's something admirable about that.

01:29:59 ◼   ► It's a totally valid strategy.

01:30:01 ◼   ► And people, of course, kind of came crashing down to earth, which was predictable, but

01:30:08 ◼   ► don't discount the fact they made billions and billions and billions of dollars along

01:30:12 ◼   ► the way.

01:30:13 ◼   ► Right.

01:30:14 ◼   ► I agree.

01:30:16 ◼   ► I do.

01:30:17 ◼   ► And to me, there is something-- there's obviously

01:30:20 ◼   ► something different about Samsung compared

01:30:23 ◼   ► to all the other Android handset makers in the way

01:30:25 ◼   ► that in a normal market, all those very--

01:30:35 ◼   ► or let's just take Samsung out.

01:30:37 ◼   ► Take Samsung out, and all of a sudden,

01:30:38 ◼   ► the entire Android market is more or less indistinguishable.

01:30:42 ◼   ► I mean there's, you know, obviously some sell more than others, but there's really no standout

01:30:46 ◼   ► manufacturer. Samsung is a standout manufacturer though. And it's, you know, there's something

01:30:55 ◼   ► there. And it's not so much that their devices are, the devices don't speak for themselves.

01:31:02 ◼   ► It's something that they do strategically.

01:31:06 ◼   ► Right because there's ways to compete other than the product. Apple has chosen to compete

01:31:10 ◼   ► on the product. So I think people in the Apple world kind of trigger on that, but you can

01:31:17 ◼   ► compete through distribution, you can compete through marketing, there's lots of places

01:31:21 ◼   ► to compete. And Amazon, yeah, they were available to everyone. And particularly when everyone

01:31:27 ◼   ► like, the classic example is actually Motorola with the Droid phone, but that's an example

01:31:33 ◼   ► of what Samsung did worldwide, where Verizon was like, "We're bleeding customers because

01:31:39 ◼   ► "We don't have the iPhone.

01:31:40 ◼   ► "Like, we need an alternative."

01:31:42 ◼   ► And like, and some of Motorola's best years were like,

01:31:46 ◼   ► was like that year when the Droid,

01:31:49 ◼   ► and there's the commercials everywhere,

01:31:50 ◼   ► because they just needed an alternative.

01:31:52 ◼   ► And Samsung filled that role all over the world.

01:31:55 ◼   ► - Right.

01:31:56 ◼   ► Before we leave the topic of iPhone,

01:32:00 ◼   ► let's talk about the S strategy.

01:32:04 ◼   ► And I don't wanna put words in your mouth,

01:32:07 ◼   ► but I think you're questioning whether the S strategy

01:32:10 ◼   ► can continue, which is, to put it another way,

01:32:13 ◼   ► the TikTok strategy of, here's a new form factor,

01:32:18 ◼   ► the iPhone, let's just call it the iPhone 7,

01:32:21 ◼   ► and a year later, here's the same form factor,

01:32:25 ◼   ► but with a whole bunch of new stuff inside the iPhone 7S.

01:32:29 ◼   ► Then the iPhone 8, then the iPhone 8S,

01:32:31 ◼   ► then the iPhone 9, iPhone 9S.

01:32:34 ◼   ► And that's put aside whether any of us think

01:32:37 ◼   ► that Apple is gonna keep numbering the iPhones,

01:32:41 ◼   ► but this whole one year is a new form factor,

01:32:44 ◼   ► the next year is the same form factor with an S.

01:32:47 ◼   ► You question whether they should continue with that, correct?

01:32:52 ◼   ► - Absolutely, yeah, no, absolutely.

01:32:55 ◼   ► And I think one of the challenges with technology in general,

01:32:58 ◼   ► we've seen this with PCs, we've seen this with iPads,

01:33:00 ◼   ► is that at some point it just gets,

01:33:03 ◼   ► it's good enough for the majority of people.

01:33:05 ◼   ► and whatever, like the 6S is a big jump over the 6

01:33:10 ◼   ► in many respects, but it's a big jump

01:33:12 ◼   ► that doesn't really make a big difference

01:33:13 ◼   ► in the way people use their phones day to day,

01:33:15 ◼   ► at least the majority of people.

01:33:17 ◼   ► But something that's so powerful about the iPhone

01:33:21 ◼   ► and has made it such an iconic device,

01:33:23 ◼   ► has made it such a profitable device,

01:33:24 ◼   ► and in the U.S. to a degree,

01:33:26 ◼   ► but particularly in places like China,

01:33:28 ◼   ► is the status of it.

01:33:30 ◼   ► Like it is the, we talked about the beginning,

01:33:32 ◼   ► it's the best phone, and it means something

01:33:34 ◼   ► that you carry it. And there is no way this is why I think they've they've introduced

01:33:40 ◼   ► the new colors on the S models, because that can show you have the newest model. But I

01:33:46 ◼   ► think they like if they want to push growth in we should talk about China because I think

01:33:51 ◼   ► that that's the other real worry point for me. I question whether you can stick with

01:33:57 ◼   ► this same form factor for two years because the thing about the phone, it's a personal

01:34:01 ◼   ► device, you carry it with you, you pull it out when you sit on the cafe, you put it on

01:34:04 ◼   ► the table. Like, it is like a car in that respect, where it matters like what car you

01:34:09 ◼   ► get out of. And I question how long they can stick with this strategy where you don't know

01:34:15 ◼   ► if you're using last year's phone or this year's phone. And it sounds super shallow,

01:34:19 ◼   ► but it's a reality.

01:34:20 ◼   ► I don't necessarily question that going forward in terms of where Apple goes in the future.

01:34:30 ◼   ► But I want to take a moment just to point out, and I suspect a lot of people listening

01:34:35 ◼   ► might succumb to this fallacious thinking, because I've definitely seen it on Twitter

01:34:41 ◼   ► and commentary on what Apple needs to or ought to do with the iPhone going forward.

01:34:48 ◼   ► And I've noticed it for years, is that people who are the more closely attuned you are to

01:34:55 ◼   ► this, if you're the less less casual you are of an iPhone

01:34:59 ◼   ► user, if you're, you know, an obsessive and you know, quite

01:35:01 ◼   ► frankly, if you're listening to this podcast, you're probably

01:35:04 ◼   ► right, pretty seriously. And the tech gadget, journalism racket

01:35:12 ◼   ► in general, has long, I mean, forever, right from the three

01:35:17 ◼   ► GS, the four s, the five s has always under appreciated the

01:35:23 ◼   ► success of those S models. And there's, I think, a conventional wisdom that people

01:35:29 ◼   ► are only, the general public, the world is only interested in the new form

01:35:35 ◼   ► factors and that they see because the S ones look the same, they're not as

01:35:41 ◼   ► interested in them. And that's not true at all because this is, the 6s is the

01:35:46 ◼   ► first iPhone that hasn't outsold its predecessor. The 4s outsold the 4, the

01:35:51 ◼   ► 3GS outsold the 3G and the 5S outsold the 5. I have no idea why I went in that order, 435.

01:35:59 ◼   ► But up until now, no S model has failed to outsell its predecessor. And like I said,

01:36:08 ◼   ► at least up until the 4S, the 4S outsold all previous iPhones combined. So now part of that,

01:36:15 ◼   ► as we've just said, you know, 10-15 minutes ago, was about the worldwide expansion to more countries

01:36:21 ◼   ► and carriers. But it's really just the obsessives who say, "I'm bored by the form factor." But now

01:36:31 ◼   ► that we are... but I do agree too though that it's so old. I mean, we're almost, you know, next year's

01:36:37 ◼   ► going to be the 10-year anniversary. I mean, we're a decade into the iPhone era. It's amazing. The

01:36:43 ◼   ► world has changed. What was true in the early years is not going to be true going forward.

01:36:51 ◼   ► Like everything in technology, there's no way to expect what happened before to continue

01:36:58 ◼   ► happening. So I don't know.

01:37:00 ◼   ► Well, that leads to the big engine for China, or sorry, the big engine for Apple has been

01:37:09 ◼   ► China and that's been the promise that it's this massive market that we're

01:37:13 ◼   ► growing in and it's going to be awesome and I'm exceptionally worried about

01:37:18 ◼   ► China now and for a few reasons. So first off, Apple was up in China in the

01:37:24 ◼   ► first quarter but people forget and I actually forgot originally in October or

01:37:29 ◼   ► in 2014 when the iPhone 6 launched, the Chinese government actually held up the

01:37:34 ◼   ► approval of the iPhone 6 and even though Apple intended to launch it in September

01:37:39 ◼   ► with everyone else, they didn't watch it until October 17th. So on a year-over-year comparison,

01:37:45 ◼   ► you were comparing two and a half months versus three months. And had you done a straight-up

01:37:50 ◼   ► comparison, actually in Q1, it would have been down in China. Two, in Q2, it was massively down

01:37:56 ◼   ► in China, in Greater China. And Tim Cook tried to take care to say, "Oh, in China itself, it was

01:38:02 ◼   ► only down 7% or 11% or whatever it was. All the drop was in Hong Kong." The problem with that is,

01:38:08 ◼   ► is a lot of those Hong Kong sells were gray market imports into China and as

01:38:15 ◼   ► availability increased in China it was it's natural if the Hong Kong market

01:38:19 ◼   ► would decrease and I think that's a red herring because I suspect the vast

01:38:23 ◼   ► majority of the Hong Kong which was just demolished was people who used to buy in

01:38:29 ◼   ► Hong Kong and smuggle into China and sell in China no longer did so because

01:38:33 ◼   ► people just bought it in China now that is widely available and so I think you

01:38:37 ◼   ► do have to look at it as a whole and it was down like 27% or something like a huge amount

01:38:42 ◼   ► and this is really really concerning because this is supposed to be the the the engine

01:38:47 ◼   ► up because you again you don't one it's not just that you need up graders you who are

01:38:53 ◼   ► arguably not upgrading as frequently you need to find new customers and the new customer

01:38:59 ◼   ► engine was supposed to be China and and the problem is that Tim Cook saying oh we sold

01:39:05 ◼   ► a ton with the six, so of course it was down this year. Well, yeah, that's an upgrade story.

01:39:10 ◼   ► Where are the new customers? And they're not materializing. And you say, "Oh, well, China's

01:39:14 ◼   ► macroeconomic environment is challenging." It is. It is a problem. But if you're in a

01:39:21 ◼   ► greenfield environment where you have so many new people to sell to, the macroeconomics

01:39:27 ◼   ► don't affect you. Like Apple in 2008 was not affected by the Great Recession, right? Because

01:39:33 ◼   ► was so many people to sell iPhones to, it didn't slow the company hardly at all.

01:39:37 ◼   ► Yeah, I wouldn't say they weren't affected, but it was that they were in such a period of growth

01:39:42 ◼   ► that their growth exceeded, the positive aspects of their ability to grow exceeded the negative

01:39:51 ◼   ► aspects of the Great Recession. You can't say they weren't affected.

01:39:55 ◼   ► No, that's fair. But the degree to which you are affected by macroeconomic conditions

01:40:00 ◼   ► is a function of how mature your market is.

01:40:03 ◼   ► Like the more mature your market is,

01:40:05 ◼   ► the more you're gonna be effective

01:40:06 ◼   ► at macroeconomic conditions.

01:40:07 ◼   ► If you're in a new market

01:40:10 ◼   ► where there's tons of growth opportunities,

01:40:12 ◼   ► like the macroeconomics don't affect you nearly as much.

01:40:15 ◼   ► And like I listen to all these earnings call every,

01:40:18 ◼   ► like this is earnings call season for checkery.

01:40:20 ◼   ► Like almost all my data updates are about earnings.

01:40:22 ◼   ► And I actually love earnings call.

01:40:23 ◼   ► I feel it's the time you can learn more about a company

01:40:25 ◼   ► than almost any other time.

01:40:27 ◼   ► But the degree to which Apple for the last two quarters has focused on macroeconomic

01:40:32 ◼   ► conditions, it's kind of striking how it's far exceeded any other tech company.

01:40:36 ◼   ► Like they're really concerned about the world economy growing into the ditch and

01:40:40 ◼   ► like Facebook's not worried about it.

01:40:42 ◼   ► Like they're doing fine.

01:40:43 ◼   ► Like it's, it's, it's a testament to how mature your market is, how much that affects

01:40:48 ◼   ► you.

01:40:48 ◼   ► Uh, isn't it also sort of, uh, that Apple more than any of the other

01:40:57 ◼   ► companies you might compare it to is shipping atoms, not bits, and that therefore they're

01:41:03 ◼   ► more affected by currency exchange rates?

01:41:12 ◼   ► Well, I mean, currency is just where you sell it. Facebook has a great Asia-Pacific business,

01:41:17 ◼   ► so they were affected, for example. And advertising for sure is impacted by recessions. I think

01:41:24 ◼   ► But the Adams versus I actually thought you were going to talk about China because a reason

01:41:29 ◼   ► why Apple's been so successful in China is because they're shipping Adams, not bits,

01:41:34 ◼   ► because bits can either be a copied or be blocked.

01:41:36 ◼   ► Yeah, that's true.

01:41:37 ◼   ► Right.

01:41:38 ◼   ► And the fact that they ship Adams that are differentiated by the software has made them

01:41:43 ◼   ► to a massive degree more successful than any other company in China.

01:41:47 ◼   ► And frankly, Carl Lacan getting out of the stock last week and blaming China, I thought

01:41:52 ◼   ► it was totally reasonable to be honest.

01:41:54 ◼   ► the iTunes store being blocked. Yeah, I mean like it's not, it didn't cause a problem for Apple

01:41:59 ◼   ► financially, but it's a worrisome sign. And like it's very, like Apple's China prospects,

01:42:07 ◼   ► irregardless of whether they're saturated the market, which is, which is, which is something

01:42:11 ◼   ► that can be, I mean, Tim Cook talks about the upper middle class in China. The upper middle

01:42:15 ◼   ► class in China as it's defined in this McKinsey report he cites, which I actually cited first on

01:42:19 ◼   ► this trajectory, I'd like to think he got it from that, but I don't know. But the upper middle class

01:42:22 ◼   ► is defined by an income of $27,000 to $60,000, or sorry, $16,000 to $35,000 US dollars. And

01:42:31 ◼   ► that's not very much money. Like in purchase power parity, it's much more because stuff

01:42:36 ◼   ► in China is cheaper, but iPhones aren't cheaper in China. Like they're actually more expensive

01:42:40 ◼   ► in China than in the US. Like you have to wonder, like, I'm concerned about this narrative

01:42:48 ◼   ► in China, like how big actually is the iPhone market in China? And if, and again, it just

01:42:53 ◼   ► goes back into this, like one, Apple doesn't seem to know what's going on with the iPhone.

01:42:58 ◼   ► Two, there's evidence that upgrade rates are extending, particularly as the iPhone pushes

01:43:03 ◼   ► into the marginal customer that's not a geek and upgrades every year. But then three, and

01:43:09 ◼   ► three, they're not adding new carriers. And then four, the inch in China, like maybe it's

01:43:13 ◼   ► not nearly as big as we all thought it was. Like, there's genuine reason to be concerned.

01:43:21 ◼   ► And again, the iPhone's not going anywhere, no one's replacing it with Android, it's going

01:43:25 ◼   ► to be super successful. But where's the growth going to come from? And if the growth's not

01:43:30 ◼   ► going to be there, then we're almost back at the services discussion, if that makes

01:43:33 ◼   ► sense. Like, everything's connected.

01:43:35 ◼   ► Well, and the other thing Tim Cook mentioned, and again, this is maybe a little worrisome,

01:43:40 ◼   ► that Tim Cook spoke optimistically about growth in India and sort of comparing it to China.

01:43:49 ◼   ► And I linked to a, I thought it was a really good piece by Rupesh Shander, I hope I'm pronouncing

01:43:58 ◼   ► it right, who lives in India and is a long time daring fireball reader and has written

01:44:03 ◼   ► to me many times over the past.

01:44:05 ◼   ► But he wrote about the differences between India and China and I, it's almost summarized

01:44:08 ◼   ► by his footnote in his post, which is, I'll just read it entirely, "According to Pew Research,

01:44:15 ◼   ► less than 2% of Indians earn more than $20 a day, which is about $7,000 a year, as of

01:44:22 ◼   ► 2011."

01:44:24 ◼   ► And that's an increase of about 0.5% over 10 years.

01:44:29 ◼   ► In China, the number of people who earn more than $20 a day increased by 5% in the same

01:44:38 ◼   ► period. So China's, there's, you know, the similarity between

01:44:41 ◼   ► India and China is that there's a billion plus people in a lot

01:44:46 ◼   ► of a lot of people, a lot of people. And so even if a

01:44:49 ◼   ► relatively small number of people earn, I can buy an iPhone

01:44:53 ◼   ► amounts of money. A small percentage of a billion people

01:45:00 ◼   ► is an awful lot of potential iPhone buyers, but that it

01:45:03 ◼   ► India's economy is not doing as well as China's in terms of

01:45:07 ◼   ► raising the number of people who earn, you know, $7,000 or more a year. And again, if

01:45:13 ◼   ► you only earn $7,000 a year, buying an iPhone is, you know, enormous, right? Because an

01:45:21 ◼   ► iPhone is, even if you get the SE, it's $400.

01:45:28 ◼   ► He cited an observation in his article, which I was grateful for. iPhone and China are very

01:45:34 ◼   ► different in two respects. One is that China is just much richer than India. Like it's

01:45:40 ◼   ► eight or nine times on a GDP basis, like per capita basis, richer, one. But then two, inequality

01:45:48 ◼   ► in China is much greater than inequality in India. And the implication of high inequality

01:45:53 ◼   ► with a ton of people is that there's a lot of rich people. And so China has this huge

01:45:59 ◼   ► number of people that are like living on Western standards and incomes and India and you like

01:46:08 ◼   ► arguably to its credit, I mean there's a lot of sociology that goes into this, but it's

01:46:12 ◼   ► a relatively equal country. So even the rich people in India, one, there's not that many

01:46:18 ◼   ► of them and two, they're not that rich relatively speaking. So the market, like even though

01:46:24 ◼   ► it's a billion people, the people who can afford an iPhone is structurally much smaller

01:46:30 ◼   ► than it is in China.

01:46:32 ◼   ► Yeah. So anybody looking for a China-style explosion in India, I don't think it's

01:46:36 ◼   ► going to happen. And Apple added setback after results where they'd been petitioning the

01:46:43 ◼   ► government in India to allow them to sell refurbished iPhones and it got rejected, which

01:46:49 ◼   ► Which is weird.

01:46:50 ◼   ► The whole idea of not being allowed to sell refurbished phones is weird, but it seems

01:46:56 ◼   ► like some kind of political issue in India.

01:46:58 ◼   ► But that was a big path for potential sales for Apple in India because it would allow

01:47:04 ◼   ► them to sell the iPhones at prices that Indians could more likely afford.

01:47:10 ◼   ► And without being able to know what Apple's doing...

01:47:12 ◼   ► Yeah, I don't know what Apple's doing.

01:47:13 ◼   ► It's sort of...

01:47:14 ◼   ► Well, it's just sort of like the way that you can...

01:47:18 ◼   ► is BMW's strategy for reaching people who can't afford a new BMW? It's the certified

01:47:23 ◼   ► BMW, certified pre-owned, they don't call them used, they're not used cars, they're

01:47:28 ◼   ► pre-owned. Certified pre-owned BMW. And all the premium car makers have these certified

01:47:34 ◼   ► pre-owned things. And that's the way that premium car companies like BMW and Mercedes,

01:47:41 ◼   ► Porsche, whoever you want to talk about, they have these certified pre-owned sales things.

01:47:46 ◼   ► It's exactly what Apple's strategy is with the iPhone, and it's two orders of magnitude

01:47:53 ◼   ► different in price between, say, a new Mercedes and a new iPhone, but Apple's brand is exactly

01:48:00 ◼   ► the same.

01:48:01 ◼   ► They're a premium phone maker, and the way that they expand to the lower price points

01:48:05 ◼   ► is with refurbished models.

01:48:09 ◼   ► I also thought, I'm confused about what Apple's doing in India, because they did something

01:48:14 ◼   ► really interesting in India, which they haven't done in any other country, which is they allowed

01:48:18 ◼   ► for massive discounts of their phones. So the 6s and the 6 were hugely discounted in

01:48:24 ◼   ► India and you could get them for, like you could get the 6s for something like $500 in

01:48:28 ◼   ► India, which is massively less than in the US. And so when the SE launched, I actually

01:48:36 ◼   ► thought it was targeted in India. And I presumed that even though it launched in India for

01:48:41 ◼   ► like five hundred dollars like what more expensive than the US I presumed in a

01:48:45 ◼   ► matter of weeks or months it would be discounted twice three hundred dollars

01:48:48 ◼   ► and I I thought they were gonna make a big push India with the SE and it what

01:48:54 ◼   ► they actually did was they cut off the discounts for the success so wouldn't

01:48:58 ◼   ► compete with the SE and they raised it back up like $800 right because they

01:49:02 ◼   ► felt it was suppressing SE cells and like I don't know one I don't know what

01:49:09 ◼   ► are doing. Two, I feel silly because I presume their discounting was a strategy or an extend.

01:49:15 ◼   ► But three, if that is their strategy where their entry level phone is going to be super

01:49:20 ◼   ► expensive in India, the SE, it's not going to be China at all. And again, where are new

01:49:28 ◼   ► customers going to come from?

01:49:30 ◼   ► I don't know. Before we leave, with this idea that Apple might need to abandon the S strategy,

01:49:38 ◼   ► I see a few problems with that.

01:49:42 ◼   ► One of them is that, and I haven't done it, I should have maybe, but anecdotally, and

01:49:48 ◼   ► I could be just as wrong as the people who I know are wrong that the S models generate

01:49:54 ◼   ► less consumer interest, or have in the past generated less consumer interest than the

01:49:59 ◼   ► new model ones.

01:50:01 ◼   ► But I think that the new ones tend to be supply constrained when they're new in ways that

01:50:07 ◼   ► the S model ones aren't for the very obvious reason that Apple is good at making, like

01:50:15 ◼   ► for example, last year the iPhone 6 was supply constrained when it first came out.

01:50:20 ◼   ► And that was one of the reasons that the January to March quarter did so well.

01:50:26 ◼   ► One of the reasons was that it was delayed in China and then it was available in China.

01:50:30 ◼   ► And one of the reasons, simple reasons that Q2 last year was so good for the iPhone 6

01:50:35 ◼   ► that there were people who wanted to buy in Q1 and had to wait. And that to me is

01:50:40 ◼   ► one of the very obvious reasons that Apple goes with this S strategy is that

01:50:45 ◼   ► operationally it's a huge advantage because they get very very very

01:50:49 ◼   ► efficient and good at making this form factor and all they have to do is put in

01:50:54 ◼   ► like a new touch ID sensor which is very different than making an entirely new

01:50:59 ◼   ► aluminum case and an entirely new screen size and stuff like that. So I just wonder,

01:51:06 ◼   ► I don't know that it's even feasible for Apple to make a new form factor every

01:51:09 ◼   ► year. I just don't think, I think that's too much too fast. I don't think that, I

01:51:13 ◼   ► think it actually takes two years for them to get, you know, to get in place to

01:51:17 ◼   ► make a new form factor. It's a fair point, but I guess the counter to that would be

01:51:23 ◼   ► is that when they did that with the 3G, with 3G, 3GS and 4, 4S,

01:51:28 ◼   ► the volumes were so much less.

01:51:30 ◼   ► Like, there's a very real factor where

01:51:33 ◼   ► the more you can spread out the fixed costs

01:51:36 ◼   ► of your tooling and your factory over a number of phones,

01:51:39 ◼   ► like the better margin you get, it's called leverage,

01:51:41 ◼   ► and there certainly is an aspect to that,

01:51:44 ◼   ► but at this point, they're selling every year,

01:51:47 ◼   ► even in a down year, they're selling so many more 6S,

01:51:51 ◼   ► they're selling more 6Ss than they sold 4s

01:51:52 ◼   ► and 4Ss combined, or certainly 3G and 3GS combined.

01:51:56 ◼   ► I think they have the scale at this point that they could justify the investment in

01:52:04 ◼   ► tooling and setting up lines even if it was only over one year.

01:52:09 ◼   ► But it is a very... it's a fair question.

01:52:12 ◼   ► I think you're exactly right.

01:52:15 ◼   ► It's work to Apple's benefits.

01:52:16 ◼   ► I mean, certainly they've changed the phone, so I'm actually very curious to know how much

01:52:21 ◼   ► benefit they do get, because the 6S is a different phone than the 6.

01:52:24 ◼   ► It is.

01:52:25 ◼   ► I'm curious how much benefit they do get year by year.

01:52:29 ◼   ► Like do they really get to reuse that much tooling

01:52:31 ◼   ► 'cause they use different aluminum,

01:52:33 ◼   ► they use all this sort of stuff.

01:52:35 ◼   ► If they do get a lot of benefit,

01:52:36 ◼   ► then the question is probably closer than I'm thinking about

01:52:38 ◼   ► 'cause there's a cost component to it as well.

01:52:41 ◼   ► But I don't know, it just--

01:52:44 ◼   ► - Even if they could, and there's another factor

01:52:47 ◼   ► which is that even if they could, manufacturing-wise,

01:52:49 ◼   ► literally just snap their fingers

01:52:50 ◼   ► and Johnny Ive's team says,

01:52:53 ◼   ► "Here's what this year's iPhone looks like."

01:52:55 ◼   ► If they could just snap their fingers and within a day have the supply chain turning

01:53:00 ◼   ► them out in the quantity that they need to meet demand, even if it was that magical,

01:53:05 ◼   ► I don't know that I really doubt that Apple's, you know, that Johnny Ive's team would come

01:53:11 ◼   ► up with a new design every year that was noticeably different because they're getting paid enough

01:53:17 ◼   ► thing into it.

01:53:18 ◼   ► Well, they could, but their philosophy though, their ethos is that they don't, they're

01:53:24 ◼   ► The idea of changing, making something look new,

01:53:28 ◼   ► just to have something that looks new,

01:53:30 ◼   ► is antithetical to their philosophy,

01:53:32 ◼   ► which is that they are only going to make something look new

01:53:36 ◼   ► if they are convinced that it's better.

01:53:39 ◼   ► And if not, then they won't do it.

01:53:41 ◼   ► - I will tell you, I couldn't go back to the size.

01:53:44 ◼   ► I have it sitting here though, but this iPhone 5,

01:53:47 ◼   ► I'm, 5S, I'm holding my hand,

01:53:48 ◼   ► is a vastly more beautiful phone than my 6S.

01:53:52 ◼   ► Well, I find, you know, in terms of, you know, things I'm worried about with Apple in the

01:53:57 ◼   ► long run, it's, you know, the fact that I prefer the, I've been doing, I do it every

01:54:03 ◼   ► time I keep my SE review unit here. I don't use it day to day anymore, but I much prefer

01:54:10 ◼   ► the way, I just sit here and worry stone it in my hands over and over again. I find that

01:54:14 ◼   ► they...

01:54:15 ◼   ► Oh, it's, it's, it's, like the 5, to me the 5 and 5S were the pinnacle of, because the

01:54:20 ◼   ► was brilliant it was so auto left field but the five like perfected the four

01:54:25 ◼   ► right like it's it really is like the perfect the perfect form factor in my

01:54:29 ◼   ► opinion yeah I find that the four was you know well the fact that the back

01:54:34 ◼   ► could crack was right that was the problem deficiency but in the fact that

01:54:37 ◼   ► you couldn't tell in your hand which side was which was sort of an

01:54:40 ◼   ► inefficiency as well I find it worrisome that Apple clearly in at least Johnny

01:54:45 ◼   ► Ives team thinks that the 6 6s form factor is superior to the 5 5s SE and size aside I would

01:54:55 ◼   ► I would prefer I think a a 4.7 inch phone that was had the flat sides you know and sharp I think the

01:55:04 ◼   ► seven will be better because I think what they were concerned about was like the round I think

01:55:10 ◼   ► Apple was so worried about making a big phone that I think the 6, like they did a lot of affordances

01:55:15 ◼   ► in the 6 for a larger phone, like having the rounded edges and stuff like that. And now that

01:55:20 ◼   ► people are more comfortable with it, I think they'll be a little more exploratory with the 7.

01:55:26 ◼   ► The other thing too is actually the supply chain rumors, which credit to the supply chain,

01:55:32 ◼   ► the supply chain nailed the 6s being low. It was widespread in Taiwan for sure. And it got out in

01:55:39 ◼   ► out in the western media as well that the Apple was tamping down inventory. Oh, here's

01:55:43 ◼   ► a factoid, John. I just posted this today because I did some calculations. So Sony in

01:55:48 ◼   ► their earnings, and they actually did a warning, wait in April, where they said that their

01:55:54 ◼   ► devices division, where they make the camera sensors, was going to have a big miss. And

01:56:01 ◼   ► it was a real surprise because that's been a real strength for Sony for the last couple

01:56:04 ◼   ► of years. And kudos to Sony, by the way. The company is doing really, really well and I

01:56:08 ◼   ► I couldn't be more pleased.

01:56:10 ◼   ► I think for us children of the 80s,

01:56:11 ◼   ► like it's a company that will always hold

01:56:12 ◼   ► a special place in our hearts.

01:56:14 ◼   ► - Oh, definitely.

01:56:15 ◼   ► - But their devices had a big loss

01:56:17 ◼   ► and they had to do a write down.

01:56:19 ◼   ► And the write down was of $560 million worth of sensors

01:56:23 ◼   ► that basically they didn't sell.

01:56:26 ◼   ► And there was some speculation that it was a customer,

01:56:29 ◼   ► what happened, what went on.

01:56:30 ◼   ► It turns out if you go to the estimates of the success cost,

01:56:35 ◼   ► which obviously who knows if they're true or not,

01:56:37 ◼   ► But the estimate for the camera on the 6S is $22.50, $22.50.

01:56:42 ◼   ► That may or may not include the lens assembly,

01:56:45 ◼   ► but if you presume that's the sensor, that is--

01:56:49 ◼   ► that sensor that costs $22.50, if you take $560 million divided

01:56:54 ◼   ► by $22.50, it comes out to 25 million sensors

01:56:57 ◼   ► that Sony apparently made and one of their customers

01:57:01 ◼   ► ended up declining to accept shipment of.

01:57:04 ◼   ► It turns out $25 million is about what most analysts think

01:57:07 ◼   ► Apple over forecasted the iPhone 6s.

01:57:11 ◼   ► Which is, it's interesting on a few levels.

01:57:13 ◼   ► One, like I already had in my head,

01:57:17 ◼   ► in my Excel spreadsheet,

01:57:19 ◼   ► that Apple had lowered their forecast by 25 million

01:57:23 ◼   ► and it actually matched almost perfectly.

01:57:26 ◼   ► Two, it goes to show the leverage and power Apple still has

01:57:30 ◼   ► that Sony had to eat it,

01:57:33 ◼   ► even though Apple's the one that screwed up.

01:57:36 ◼   ► But yeah, that was just a factoid. That was pretty interesting.

01:57:43 ◼   ► You know what? You know those sensors? You know what? No.

01:57:46 ◼   ► We're not gonna pay for them. We're actually not gonna pay for them.

01:57:51 ◼   ► That is interesting. Where did you post that? I didn't see it and I thought that...

01:57:53 ◼   ► I just did today. You might not have seen it yet. It was in my "Today's" update.

01:57:57 ◼   ► Oh, I thought I... But I really thought before we started recording that I had caught up.

01:58:01 ◼   ► I was like... Oh, it was in a... It was a section about Nintendo versus Sony, so it might...

01:58:05 ◼   ► Oh, I skipped it. I skipped the Nintendo part. I did see it, but then I skipped it.

01:58:10 ◼   ► Yeah, it was just stuck at the very end.

01:58:13 ◼   ► I don't... yeah.

01:58:16 ◼   ► It's interesting. I enjoy the fixed typo too.

01:58:19 ◼   ► This is why I don't think I could ever do...

01:58:23 ◼   ► I don't think I could ever do a newsletter. It's awful. It's awful. Yeah, because

01:58:26 ◼   ► once it's out, it's out. So there's always a balance, do you fix it or not?

01:58:29 ◼   ► And so I did about Tesla, and I said that they had had a

01:58:32 ◼   ► cash out full in operations of $560 billion or $525 billion.

01:58:36 ◼   ► And $525 billion is the market cap of Apple approximately.

01:58:40 ◼   ► Like, of course it's not billion, it's million. And in the next sentence

01:58:43 ◼   ► I added up the stuff and it was clearly I meant million.

01:58:46 ◼   ► One of the... It's one of the great flaws

01:58:50 ◼   ► in the English language that million and billion and

01:58:54 ◼   ► even trillion and whatever go on. But especially in terms of what numbers we

01:58:58 ◼   ► actually use.

01:58:59 ◼   ► And in terms of talking about money, million and billion are the only ones that really matter.

01:59:03 ◼   ► It's very, you know, there's very few discussions that go into trillions.

01:59:06 ◼   ► And they're only one letter. Like, a trillion is two different letters, right? So it's, like, significantly different.

01:59:12 ◼   ► Yeah, but they should be... it's helpful and proper and, I think, actually helps you understand how different a thousand from a million is.

01:59:23 ◼   ► because the word sounds so different and a hundred sounds so different from a

01:59:28 ◼   ► thousand even though it's only a tenfold difference it's only a tenfold

01:59:31 ◼   ► difference from a hundred to a thousand a thousand to a million is a thousand

01:59:35 ◼   ► fold difference and it sounds totally different but a million to a billion is

01:59:39 ◼   ► a thousand fold difference and it sounds so similar and our brains just so many

01:59:44 ◼   ► people's brains just naturally file them together and I totally understand the

01:59:49 ◼   ► difference but in writing it is the easiest and anybody who writes only that

01:59:56 ◼   ► mistake one way or the other. So the worst thing with an email is because it's out

01:59:59 ◼   ► there right and so I was just gonna leave it I saw it actually right away

02:00:03 ◼   ► and I'm like crap but I was gonna leave it but I got like double digit like

02:00:09 ◼   ► tweets and emails yeah cuz I feel like if you actually think about it like

02:00:13 ◼   ► obviously I meant million but I got more than usual like did you mean million or

02:00:17 ◼   ► billion. And like, and so I had to issue the follow up email saying fixing this

02:00:22 ◼   ► typo, which I hate doing because like, to me, a really powerful aspect of the

02:00:28 ◼   ► check remodel is I insert myself into a place that people always look at with

02:00:32 ◼   ► their email blocks. And I take that, like very seriously, right. And so to send a

02:00:36 ◼   ► second email, I really hate doing, but if I'm getting so many responses, like,

02:00:42 ◼   ► what did you mean? I feel like I have to correct it and like, Oh, yeah, right. It

02:00:46 ◼   ► depresses me. So before we move on to the final segment of the show, but just hit the rumor mill.

02:00:54 ◼   ► The rumor mill though is that the iPhone 7 or whatever they're going to call it this fall,

02:00:58 ◼   ► the new iPhone this fall, is going to be very very similar to the... it seems as though the S cycle is

02:01:03 ◼   ► coming to an end, but it seems as though the way it's coming to an end is not by coming up with

02:01:08 ◼   ► new form factors every year, but by extending existing form factors for additional years. So

02:01:13 ◼   ► first example proof of it we have is the iPhone SE which is the first time that

02:01:17 ◼   ► the same form factor has been used three times and the rumor mill is very strong

02:01:24 ◼   ► that the iPhone that this year's iPhone I don't even I I'm really starting to

02:01:29 ◼   ► think they're not gonna call it the iPhone 7 just on a gut level so I don't

02:01:33 ◼   ► want to call it that but for lack of a better term the iPhone 7 is going to be

02:01:36 ◼   ► in large part in this physically indistinguishable from the iPhone 6 and

02:01:40 ◼   ► and success except that the antenna lines are moving.

02:01:44 ◼   ► That's a bummer. Yeah, that's a bummer. I'm not a huge fan.

02:01:49 ◼   ► Well, I was going to go the other direction. The other rumor is that the iPhone, the 2018

02:01:57 ◼   ► iPhone, which would theoretically be the 7S, is going to be markedly different from--

02:02:01 ◼   ► No, no, 2017. That'll be 2017. This year is 2017.

02:02:05 ◼   ► Yeah, you're right. Sorry, you're right. 2017, you're right. Fiscal year 2018, that's

02:02:08 ◼   ► - That's why I get confused, 'cause Apple starts in October.

02:02:11 ◼   ► But that that phone is also gonna be markedly different

02:02:14 ◼   ► from the 2016 iPhone, which, so either one,

02:02:19 ◼   ► they're gonna like extend the six to like three years,

02:02:23 ◼   ► which you just kinda said, or on the flip side,

02:02:26 ◼   ► they're gonna move into an annual refresh cycle.

02:02:30 ◼   ► I hope for, I think it needs to be a refresh cycle,

02:02:32 ◼   ► but if they ship a phone with the same form factor,

02:02:36 ◼   ► I would be, that would be amazing.

02:02:38 ◼   ► Here is what I would not wager heavily on any aspect of this,

02:02:43 ◼   ► but if you wanted me to wager at all,

02:02:45 ◼   ► I think that they are getting away from the tic-tac S cycle.

02:02:50 ◼   ► But the way that they're doing it is not with significant--

02:02:53 ◼   ► it's different.

02:02:54 ◼   ► Here's what I think is going to happen.

02:02:56 ◼   ► I think that this year's iPhone, new iPhones,

02:02:59 ◼   ► will only be in the 4.7 and 5.5 sizes.

02:03:03 ◼   ► There's not-- the SE-- if you like 4-inch iPhones,

02:03:05 ◼   ► you might as well buy the SE now.

02:03:07 ◼   ► I really don't think that they're gonna come out

02:03:08 ◼   ► with a new four-inch iPhone six months from now.

02:03:11 ◼   ► I think it's gonna be 4.7 and 5.5.

02:03:14 ◼   ► I think it'll largely look like the iPhone 6 and 6S.

02:03:19 ◼   ► I think that, this is the biggest question I have

02:03:23 ◼   ► is whether both phones get the dual camera module

02:03:26 ◼   ► or whether only the 5.5 Plus does.

02:03:29 ◼   ► The rumor mill says that only the Plus will.

02:03:33 ◼   ► I, my gut feeling, my spidey sense says

02:03:36 ◼   ► that doesn't sound like Apple.

02:03:37 ◼   ► And I think that maybe the reason the rumor mill has that

02:03:40 ◼   ► is that the schematics,

02:03:41 ◼   ► the only schematics that have leaked are for the 5.5

02:03:44 ◼   ► and that the schematics for the 4.7 didn't leak.

02:03:47 ◼   ► But I don't wanna bet against it

02:03:50 ◼   ► because so much of the rumor mill says

02:03:52 ◼   ► only the plus is getting the dual camera module.

02:03:54 ◼   ► That just seems out of character to me

02:03:58 ◼   ► because the 4.7 inch is the best selling model.

02:04:01 ◼   ► So I don't know.

02:04:02 ◼   ► Because it's the best selling model, it just seems unusual.

02:04:04 ◼   ► But I just think whether they both get the dual camera or not,

02:04:09 ◼   ► it's largely going to--

02:04:10 ◼   ► I think the rumor is probably right that this year's phone

02:04:13 ◼   ► will largely look like the 6 and 6S,

02:04:15 ◼   ► except that the antenna lines move.

02:04:18 ◼   ► And I think--

02:04:19 ◼   ► I haven't seen that, actually.

02:04:20 ◼   ► That only the Plus is going to get the dual camera?

02:04:24 ◼   ► Or no, that the--

02:04:24 ◼   ► No, I hadn't seen that.

02:04:25 ◼   ► That was going to look the same.

02:04:27 ◼   ► I'll put it in the show notes, and I'll send you a link

02:04:29 ◼   ► privately.

02:04:29 ◼   ► But I will put it in the show notes.

02:04:34 ◼   ► And then I think next year's phone, the 2017 model,

02:04:38 ◼   ► the one that will come out in September 2017,

02:04:41 ◼   ► what I have heard-- now this is not really from the rumor

02:04:44 ◼   ► mill, this is more just scuttlebutt that I've heard--

02:04:46 ◼   ► is that it will be an all new form factor.

02:04:50 ◼   ► And there have been some rumors, I guess, that say this.

02:04:53 ◼   ► But what I'm saying is I've heard this independently,

02:04:55 ◼   ► that it is getting rid of the-- that it'll completely

02:04:59 ◼   ► get rid of the chin and forehead on the phone.

02:05:01 ◼   ► and the entire front face will be the display.

02:05:04 ◼   ► - Interesting.

02:05:06 ◼   ► - And that the touch ID sensor

02:05:08 ◼   ► will be somehow embedded in the display.

02:05:09 ◼   ► The front facing camera

02:05:11 ◼   ► will somehow be embedded in the display.

02:05:13 ◼   ► The speaker, everything,

02:05:15 ◼   ► all the sensors will be somehow behind the display.

02:05:17 ◼   ► And what I don't know, I have no idea,

02:05:21 ◼   ► but whether that means that they're going to shrink

02:05:23 ◼   ► the actual thing in your hand

02:05:26 ◼   ► to fit the screen sizes we already have,

02:05:28 ◼   ► or whether they're going to grow the screens

02:05:30 ◼   ► to fit the devices we're already used to holding, I don't know.

02:05:35 ◼   ► But that's what I think is going to happen.

02:05:37 ◼   ► I think 2017 is going to be the jaw-dropping, wow,

02:05:41 ◼   ► that's an astounding industrial design iPhone,

02:05:44 ◼   ► and that this year's is not.

02:05:45 ◼   ► But it's not going to be the-- you really

02:05:49 ◼   ► have to look at very, very, very, very fine details

02:05:52 ◼   ► to tell the difference between the 6 and 6S.

02:05:55 ◼   ► I think that the iPhone 7 or whatever you want to call it

02:05:57 ◼   ► this year will be-- it'll largely look the same,

02:06:00 ◼   ► but that the antenna lines being different will make it pretty easy to tell that it's

02:06:05 ◼   ► new. That's what I've heard.

02:06:06 ◼   ► Well, I feel good about my prediction that they're not going to turn to growth then.

02:06:13 ◼   ► I don't think that that's what drives it. I really don't. I don't think that normal

02:06:17 ◼   ► people really care too much about that.

02:06:20 ◼   ► I disagree, at least on this side of the world. It matters that you can show off that you

02:06:28 ◼   ► have the latest iPhone. It's a much more materialistic, displaying your status world

02:06:35 ◼   ► than the United States is. It's a different culture.

02:06:37 ◼   ► Well, can't they solve that? I think they could solve that with...

02:06:39 ◼   ► That's why all the luxury goods are sold here.

02:06:40 ◼   ► I think they could solve that, though, with different anodization and colors.

02:06:44 ◼   ► Absolutely. Like I said, that's why I think they've launched the additional colors with

02:06:49 ◼   ► the S models recently. But yeah, I don't know. It's interesting.

02:06:54 ◼   ► Yeah, like the whole rose gold thing seems like this sort of fashion oriented thing that

02:07:01 ◼   ► it's not like a long term trend, it's a short term fad.

02:07:08 ◼   ► And that maybe, who knows what they'll do. But obviously they have a lot of opportunities,

02:07:12 ◼   ► they could color them any way they want, they could go like the way the iPods used to be

02:07:17 ◼   ► and go colorful. I mean, and totally throw a loop in all of Samsung's rose gold production,

02:07:24 ◼   ► or whatever they call their rose gold.

02:07:26 ◼   ► But what we learned with the 5C is it has to be the high-end iPhone that does it. You

02:07:30 ◼   ► can't come in on the middle level because an iPhone is high-end. It has to retain that.

02:07:36 ◼   ► Yeah, yeah. It has to be premium.

02:07:39 ◼   ► I don't, it's fast.

02:07:41 ◼   ► I mean, we're in a really fascinating time with Apple.

02:07:44 ◼   ► I mean,

02:07:45 ◼   ► can they, I guess here's what concerns me.

02:07:52 ◼   ► Here's what makes me really worried

02:07:53 ◼   ► about the last little bit.

02:07:56 ◼   ► It's that, one, it doesn't seem that Apple

02:08:01 ◼   ► knows what's going on.

02:08:02 ◼   ► And that concerns me.

02:08:03 ◼   ► Because we talked about like the changing forecast

02:08:06 ◼   ► and what they said last year and stuff.

02:08:07 ◼   ► And that's very worrisome in general.

02:08:09 ◼   ► one and then two it feels like Cook has defaulted to the short-term expedient answer to questions

02:08:21 ◼   ► that will prop up Apple stock as opposed to laying the groundwork for the what is best for Apple in

02:08:28 ◼   ► the long term. Apple would be in better shape today if Apple if Tim Cook had been much more

02:08:33 ◼   ► conservative last year and said this growth has vastly ceded our expectations which was true

02:08:39 ◼   ► and said we next year we might be down

02:08:43 ◼   ► like if he had like

02:08:44 ◼   ► it would it he could have adopted a conservative approach

02:08:49 ◼   ► and apple could have beaten it

02:08:51 ◼   ► and they're like wow look at that it turns out we're beating it

02:08:54 ◼   ► or if they could have been like they are today like yeah as i told you last year like the

02:08:57 ◼   ► six was amazing like we really crushed it we got super like we just everything came

02:09:02 ◼   ► to we had china mobile with the big screen all at the same time everything was a perfect

02:09:06 ◼   ► year, but like I told you last year, like that was probably going to make 2016 tough.

02:09:12 ◼   ► Apple would be in better shape today. They really would be. And it concerns me that Cook

02:09:17 ◼   ► did not take that approach. Because it's counter to...

02:09:20 ◼   ► It's like the old Seinfeld skit about nighttime Jerry screwing daytime Jerry. And nighttime

02:09:25 ◼   ► Jerry will stay up and watch the end of the movie knowing that morning Jerry has to get

02:09:30 ◼   ► up for a night.

02:09:30 ◼   ► I love that analogy.

02:09:31 ◼   ► Right?

02:09:32 ◼   ► Yes.

02:09:32 ◼   ► And 2015 Tim Cook hung 2016 Tim Cook out to dry.

02:09:37 ◼   ► - Yep. - Or didn't,

02:09:40 ◼   ► knowingly or unknowingly.

02:09:42 ◼   ► But 2016, today's Tim Cook has to, you know,

02:09:46 ◼   ► wanna kick 2015 Tim Cook in the ass.

02:09:49 ◼   ► - But what worries me is, Tim Cook,

02:09:52 ◼   ► did you watch the Jim Cramer interview with Tim Cook?

02:09:54 ◼   ► - Yes, yeah.

02:09:55 ◼   ► - Like, it worries me because it feels like 2016 Tim Cook

02:10:00 ◼   ► is now hanging 2017 typical cut to dry. Yeah, and it's like you know what you think you know,

02:10:07 ◼   ► that Tim Cook really has Apple's long-term interests at heart, that he is not a short-term

02:10:14 ◼   ► quarter-to-quarter thinker. He's not trying to maximize Apple. But he has lots of stuff that

02:10:20 ◼   ► looks like it's quarter-to-quarter. Yeah, exactly. Right. You think you know that, and it's like you

02:10:25 ◼   ► said that you, you know, it lends a lot of you're willing to, or at least have been in the past,

02:10:30 ◼   ► been willing to take Tim Cook at his word because you think that, but now you start to start, you

02:10:35 ◼   ► have to start wondering about that. Like how much is Tim Cook?

02:10:38 ◼   ► I will tell you as an analyst, like, I really want to be right. Like, it's super important to me.

02:10:43 ◼   ► Not because like, and I don't do stock picks and stuff like that, but like, I just try to be right.

02:10:48 ◼   ► I work really hard at my job and do what I do. And it bugs me that I was wrong because I believe

02:10:55 ◼   ► Tim Cook. And again, that's my personal problem. Tim Cook doesn't need to worry about me, but

02:11:05 ◼   ► I think that Apple and the Apple stock and all the stuff that Tim Cook is worried about

02:11:09 ◼   ► would be in better shape if Tim Cook had... I don't know. It worries me. I wrote about

02:11:17 ◼   ► this last year with Apple Music. We were sitting next to each other at the Apple Music keynote.

02:11:21 ◼   ► we're just baffled. And we should talk about your article.

02:11:24 ◼   ► Like, we're just baffled at this Apple Music presentation. It was so bad.

02:11:28 ◼   ► And I went back to my hotel room and I wrote about that day, and I said,

02:11:33 ◼   ► and I talked about, Tim Cook talks about focus.

02:11:36 ◼   ► And he says about how Apple's so focused, all sort of stuff.

02:11:39 ◼   ► And I'm like, I'm not seeing that from Apple.

02:11:42 ◼   ► I'm not seeing, the rhetoric is not matching what's coming out of the company,

02:11:47 ◼   ► and that concerns me.