The Talk Show

87: ‘Free Alcoholic Beverages’ With Ben Thompson


00:00:00   So, anyway, have you ever noticed—Ben Thompson joining me this week on the talk show—do

00:00:05   you ever notice there's some websites where the username and password don't get autofilled?

00:00:11   Ben: Yeah, I think usually it's the website's fault. Like, mislabel the field or something.

00:00:15   Pete: Yeah, and it's not like the thing where certain financial sites have an opt-out

00:00:21   thing. It's like a site where there's nothing really super confidential about it. It should

00:00:26   work, it just doesn't.

00:00:27   Yeah. Well, I'm still scarred from the whole like, they've had auto complete for just like addresses, like when you're buying something. And I swear those never worked for like the first three years. And maybe they work today, but I will never know because I refuse to use them.

00:00:42   Well, you don't use the auto

00:00:44   I still tabbing through every field, which then brings me to the even worse annoyance when they have the fields in the wrong order in your tab selling lands you on the bottom of the page.

00:00:53   The credit card thing works perfectly for me. I can't remember the last time that the credit

00:00:58   card autofill didn't work. But the password thing drives me nuts. And sometimes I think it's because

00:01:05   it's like I've already saved a password for www.example.com. But right now, I'm on store.example.com.

00:01:16   And so it doesn't see it as the same website and doesn't fill it in. I don't even know. And then

00:01:22   other times I think it's like you said like they don't have the password field

00:01:25   correctly labeled as a password field like yeah I don't know I I've used I

00:01:30   mean I've used one password for a long time but the funny thing is funny thing

00:01:34   is I actually rarely use it because I have this you know this super convoluted

00:01:39   system for for passwords that you know involves like a a seed a random string

00:01:46   shifting your your fingers like two things over on the keyboard explain it

00:01:51   Explain it in detail for us.

00:01:52   Well, no, it was basically it's it I actually don't mind. I feel

00:01:57   pretty I mean, I should never say that some of the actually

00:02:00   I'm not gonna say anything as for those that listen to ATP and

00:02:03   Casey's showbot know that challenging, challenging tech

00:02:08   listeners to do anything is not a good idea. But it's quite

00:02:13   convoluted. It takes it would take me like 10 minutes to

00:02:15   explain it, which is hopefully a sign that it's it's robust. But

00:02:20   But it's good though, actually I switched to this when the iPhone first came out and

00:02:26   you couldn't use like one password or anything like that.

00:02:29   I wanted to have complex passwords and different passwords on every site, but still be able

00:02:34   to somehow memorize them all.

00:02:37   And so it's been pretty good.

00:02:39   Most of the only thing is when a site has a breakdown or passwords get stolen, they

00:02:45   have to reset it and then you have to have a backup system for sites that have been compromised

00:02:49   once and it gets messy pretty quickly.

00:02:50   Well, the thing that gets me is that I'm more annoyed now when I run into a site where the

00:02:57   password autofill doesn't work than I was back in the days when no passwords got autofilled.

00:03:02   Yeah, because it's like it wasn't an annoyance before.

00:03:05   Right. I think it's probably like when they invented modern plumbing and people who grew

00:03:11   up always having to go to an outhouse every time they wanted to go. And then all of a

00:03:15   of a sudden most places had indoor plumbing but then every once in a while you get to

00:03:19   a place where you'd have to go out in the outhouse. It was worse. I'm sure that that

00:03:22   was worse than when they were children and had to go in the outhouse every single time.

00:03:27   Kevin: Yup, everything is relative.

00:03:28   Davey, Right. It's like once the bar is raised, you can never go back.

00:03:33   Kevin Yup. I think there's probably, I was going to make some sort of, there's a funny

00:03:40   tweet on Twitter that day about someone's going to make a podcast cut up of everyone

00:03:44   saying can I swear and there's some shitty joke to be made there except that

00:03:49   I remember the last time I was on the show that was the time you I think you

00:03:52   actually did get busted for swearing on your podcast oh you think it was your

00:03:55   it was it your episode I think so I think it was because you I think you

00:03:58   pretty cool days later because we had talked about on the podcast like yeah so

00:04:01   I actually I met the guy from Apple on podcast he asked me to tone it down yeah

00:04:06   and that was the one where the shit hit the fan maybe I don't remember but

00:04:09   that's funny because you don't seem you seem like one of my least profane I know

00:04:13   I think I had one word the whole thing.

00:04:16   But maybe it's the exact same thing you just talked about.

00:04:18   When there's one password that doesn't work, it stands out more.

00:04:21   Whereas if there's just a whole string of expletives, they kind of just run into each

00:04:25   other at some point.

00:04:28   But there's just one, one finally placed one, it really jumps out.

00:04:31   I'd like to be known for that.

00:04:33   The well-placed expletive.

00:04:35   [laughter]

00:04:36   The well-placed expletive, that's a good site.

00:04:43   So I guess there's not much going on except that it seems like everybody has collectively

00:04:49   sort of finished digesting WWDC and Google I/O.

00:04:57   Yeah, no, I agree.

00:05:01   And a couple of good pieces this week.

00:05:04   You had a good piece on, let me try this, Stratechary.

00:05:07   Stratechary?

00:05:09   Second one's the term.

00:05:10   Stratechary, because it's tech.

00:05:12   But I did switch it up, so it's my fault that now no one knows how to say it.

00:05:16   But you did have a good piece on Samsung, because that's a little tidbit.

00:05:22   And who knows?

00:05:23   One quarter is a data point, not necessarily a trend.

00:05:29   But Samsung had a pretty bad quarter.

00:05:32   Their last one wasn't hot either.

00:05:35   It was soft, I think is the word that they use.

00:05:39   So this is not by any means out of the blue.

00:05:44   Right.

00:05:45   Well, let's talk about them first.

00:05:47   I think in broad strokes, what it seems like we're seeing is that Samsung had for a while

00:05:55   occupied a certain middle ground, making some money on a lot of high quantity of lower end

00:06:05   smartphones and a decent size chunk of higher-end smartphones, but that they're—we're seeing

00:06:14   signs that they're getting pinched on both sides, that Apple still—it dominates the

00:06:18   high-end and as, you know, has throughout the whole era of smartphones in terms of profit

00:06:25   and revenue.

00:06:27   And on the low end, they're running into various competitors, right?

00:06:33   in China in particular with, how do you say it?

00:06:37   - Xiaomi.

00:06:38   - Xiaomi, now how do you spell that?

00:06:40   - X-I-A-O-M-I, which is the,

00:06:45   it's actually, it's originally a Chinese character

00:06:48   and that's how you use what's called pinyin

00:06:50   to write it in English, so.

00:06:52   But it actually, it works well.

00:06:54   Any name with an X in it looks good.

00:06:56   - And it's a company that's very interesting to me

00:07:00   and you know far more about them than I do.

00:07:03   It's actually one of the main reasons I thought to invite you on the show this week.

00:07:07   If I don't know a lot about them, I can't help but think that there's an awful lot of

00:07:11   listeners of the show who don't and maybe even haven't heard of them before.

00:07:14   But I think they should be on everybody's radar, especially when it comes to Samsung.

00:07:23   Even though I think for the last year or so, there's been a lot of stuff in the press and

00:07:27   in the investor world that sort of has them as somebody who Apple should be looking out for.

00:07:35   But I think it's actually, I think you've made this point pretty well that it's Samsung.

00:07:38   Well, I think the number one thing about Xiaomi in particular is you have to really,

00:07:46   there's this really breathless feature in Bloomberg and they had Xiaomi Week, talking

00:07:53   about Xiaomi, this big thing. You have to clearly delineate between China and the rest of the world.

00:08:00   And in China, Xiaomi deserves all the hype. They're killing it.

00:08:07   They are a Chinese company. They are a Chinese company and just in general, and this goes for a lot of the Chinese companies in general, like China really is its own completely separate world where very little applies to what happens the rest of the world, particularly in the West and vice versa.

00:08:27   versa and a lot of that's because of the great firewall. Part of it is because of

00:08:31   you know just cultural differences and part of it is because it's such a huge

00:08:36   market. It's like I mean US companies get criticized for being you know

00:08:41   too US focused but why wouldn't they be? It's you know it's 300 million of the

00:08:45   richest consumers in the world like it makes sense to start out there. Same

00:08:49   thing if you're a Chinese company like you're sitting you have a billion

00:08:52   customers, an absolute number of which are very rich and a good number of which are getting

00:09:02   richer, so why not focus there?

00:09:08   Anytime you talk about Xiaomi or anything about China, it's really important to draw

00:09:12   the two.

00:09:13   I think Xiaomi is not much of a threat outside China, but in China they're a big deal.

00:09:18   In China, they're a threat to Apple as well, but that's why you have to make the distinction.

00:09:23   Right, and China is big enough that even if they're a Chinese-only company, it's big

00:09:30   enough to matter.

00:09:31   Oh, it's big enough to matter.

00:09:32   I mean, China's going to be Apple's biggest market in like five years or something.

00:09:37   So it matters, just to give you an idea of what a massive market it is.

00:09:43   And so it does matter, even if Xiaomi only threatened Samsung in China or only threatened

00:09:50   Apple in China, because China is such a significant market for both companies, that means the

00:09:56   companies as a whole are threatened.

00:10:01   And part of it too is this is where being based on Android can work in their favor is

00:10:10   If they were running their own proprietary platform, it might be a problem that they

00:10:15   were strong only in China.

00:10:18   Maybe sort of like what Blackberry was like back when Blackberry had a huge market share

00:10:24   in the US and was sort of nonexistent elsewhere.

00:10:28   This is going back pre-iPhone.

00:10:30   This is like early 2000s when Blackberry was this abnormality.

00:10:35   It worked for them because they didn't need software.

00:10:38   It wasn't really about apps yet.

00:10:39   it was just about communicating. And the people in the US who had Blackberries were for the

00:10:43   most part communicating with other people at Blackberries, so it was okay. Whereas now,

00:10:48   where you need an app ecosystem, you know, Xiaomi can capitalize on that, even if they're

00:10:57   only really strong in China because Android is Android.

00:11:00   Well, I mean, it's actually funny because that's the other part where China is just

00:11:05   a different world, right? As a rule, I think we talked about this last time, is you have

00:11:12   to be one of the two. Sorry, I lost my train of thought. You have to be one of the two,

00:11:21   but in China, that's the big exception, right? Because most of phones in China are on AOSP,

00:11:28   the open source Android, and there's a whole plethora of services that fill in there. Like,

00:11:33   UCWeb, which is the biggest browser, which was just bought by Alibaba, there's a whole

00:11:38   bunch of app stores, a few of which, like, there's been some competitions, some of which

00:11:42   are kind of emerging as the key ones, and so there's almost like, there is a whole separate

00:11:48   ecosystem of services that most of the phones there use, and it actually, so in China, Chinese

00:11:54   developers are used to this, right?

00:11:55   There's actually services that help you get your app on all the different stores, you

00:12:00   be everywhere. And it's funny, if that sort of whole ecosystem were in the West, it would

00:12:08   actually totally transform the market here because it would really weaken the importance

00:12:16   that the Play Store does have in giving Google full control of that, if that makes sense.

00:12:24   Everything there is really so different, and there's lots of things that are interesting

00:12:28   for Western companies, it means Google's really not important at all there. They're

00:12:34   not important because they're blocked as far as search, but they're also not important

00:12:37   because they don't really control Android there. And the only Western company actually

00:12:41   that really matters is Apple, and that's because they sell hardware.

00:12:45   So do you think that's already having an effect on Samsung's numbers?

00:12:50   Oh, yeah.

00:12:51   Or do you think it's more, it's already partly China, but is it only China? Is it

00:12:57   worldwide?

00:12:58   I think for sure, so you alluded to it before, I think Samsung has a problem on both ends.

00:13:07   On the high end, they got a lot of high end customers, I think, for two specific reasons.

00:13:17   Again, this was more conjecture previously, but now that it's actually happening, I think

00:13:21   we can say a little more certainty.

00:13:24   One was the iPhone has always been relatively limited when it comes to carrier distribution.

00:13:30   They were stuck at 220 for two or three years, and even before then it was even lower.

00:13:38   That left a good 500 carriers around the world where there was no iPhone, and presuming you

00:13:44   were loyal to your carrier, and in richer countries people tend to be more loyal to

00:13:48   with their carriers, and you wanted a high-end phone,

00:13:52   well, there was no iPhone choice.

00:13:54   It was Samsung or HTC or whatever those.

00:13:57   And Samsung has always been a very good competitor.

00:14:02   Whatever you think about their design decisions,

00:14:05   they're a very well-run company,

00:14:06   they're a very good competitor, they have great marketing,

00:14:08   they pull all the levers.

00:14:10   And if there were no iPhone, they would continue,

00:14:15   I think, to do very well at the high end.

00:14:17   and HTC would probably be doing much better as well.

00:14:21   But now the iPhone has really started to again expand its carriers.

00:14:27   And part of that is the big ones, which is NTD, Docomo in Japan, and China Mobile in

00:14:31   China, but also lots of little ones.

00:14:33   Like I'm here in, I'm back in the States now, I'm in Madison just for the summer, and a

00:14:37   big carrier here is US Cellular, right?

00:14:39   It's the fifth largest in the US, but still a lot smaller than the other ones.

00:14:42   They've never had the iPhone, now they do.

00:14:44   And there's lots of these little ones that any one of them by themselves doesn't mean

00:14:48   much, but when you're adding like 50 of them, like Apple has, that just increases Samsung's

00:14:55   competition where Pusi didn't have any competition there.

00:14:58   Yeah, it's filling out the long tail of carriers.

00:15:01   Right, exactly, exactly.

00:15:02   And Samsung has owned that long tail.

00:15:05   Samsung's big advantage still remains their relationship with carriers and how they own

00:15:13   that whole connection, they deliver exactly what the carriers want, what they need. And

00:15:17   really, they've kind of stepped into the Nokia role, which that used to be Nokia. Nokia had

00:15:21   all the except for except for the US, Nokia had relationships with every carrier, they

00:15:27   delivered everything that the carriers wanted, they needed. And that gave them a that's really

00:15:31   important in the mobile business. And Samsung has kind of inherited that and they still have

00:15:35   that advantage. You know, what made the iPhone so unique when it came to carriers and that sort

00:15:40   thing was it was the first phone that people where people valued the phone more than they

00:15:44   valued their relationship with their carrier and that really upset the whole apple cart

00:15:50   and it is less in samsung's advantage in the carriers where they're competing directly

00:15:56   with with the iphone yeah i think like go back you know pre smartphone you know and

00:16:01   you'd go in and you know the big ones i remember at least here in the states were always nokia

00:16:06   and Ericsson and eventually Sony Ericsson. But they were seemed to me like somebody who

00:16:14   never was really into cell phones before that. I mean I'd have one just for the sake of making

00:16:18   calls and truly rudimentary texting. But it just seemed to me that those were the two

00:16:25   brands and you'd go in. But it never really seemed to matter too much. You know it was

00:16:30   far, far more about choosing between, you know, Verizon and Singular or whoever, you

00:16:36   know, whatever the names of the various carriers were in the States then. It was really mostly

00:16:39   about which carrier store you're going to go into.

00:16:41   Yep. And even now, I mean, what made the iPhone so unique is, you know, it was the first phone

00:16:50   that people were really willing to switch carriers for, and that gave Apple all the

00:16:56   negotiating leverage with carriers from that point on.

00:17:00   But even then, there was still a limit to the number of people who would do that.

00:17:07   There were still people who were going to stay with Verizon no matter what.

00:17:12   And so it's been that dynamic has helped Samsung and continues to help them.

00:17:20   But as Apple expands, that kind of, again, picks off just a lot of the long tail, exactly

00:17:26   as you said.

00:17:27   Yeah.

00:17:28   And you made the point that one of the things to understand the dynamics of this is that

00:17:33   for practical purposes, no, it's not really 100 percent, of course.

00:17:36   Nothing ever is.

00:17:37   But practically speaking, it's best to think of it as this.

00:17:41   Everybody is going to own a smartphone.

00:17:43   Right.

00:17:44   Which is, there's very few things in the world that are like that.

00:17:50   Especially in tech.

00:17:51   A lot of the things that are like that are things like, I don't know, like...

00:17:55   JE: Wash machines or...

00:17:57   DAVE PORTNOY Yeah, or having a toilet in your house.

00:17:59   Yeah, or TV, a TV is a good example.

00:18:01   JE Sure.

00:18:02   But that's the thing though, TVs even will ultimately have less penetration than a smartphone,

00:18:07   which is pretty amazing.

00:18:08   DAVE PORTNOY Right, because a lot of, it's going to end

00:18:10   I think maybe a little bit more towards one TV per household and

00:18:14   one cell phone per person

00:18:17   Right. Yeah, exactly. Yep. And even if you go to multiple TVs per household

00:18:21   it still is probably going to trend not towards one per person but

00:18:25   But less than one per person maybe you'll have one in the master bedroom and one in the living room

00:18:31   But tablets are clearly eating into that, you know where a lot of you know personal consumption of video

00:18:39   is clearly going towards tablets and smartphones, you know, like like if

00:18:43   You know the average number of TVs in a house

00:18:46   I'm sure has

00:18:47   if anything it might be going down because if you were going to have one like for your teenager and let your teenager have a

00:18:52   TV in their room

00:18:54   That might be a PC and a tablet now, right, you know PC for the games and and a tablet for watching video and TV

00:19:02   Well, just to just kind of rathole a little bit more

00:19:06   One thing that's actually really interesting about these Samsung results, we'll get back

00:19:10   to the high and low and stuff, but is they talked about the fact that they felt their

00:19:15   tablet sales had been hurt by their big phones, their phablets.

00:19:21   Which building on this point, I think there's a lot of conjecture, and I think rightly so,

00:19:25   that a lot of tablets are used primarily for TV viewing basically.

00:19:29   Especially worldwide. Not the US market where the iPad has disproportionate share, but if you look worldwide at tablets, and so many people had so many observations from CES this year, that there were a lot of the no-name brand Android tablets that are clearly designed knowing that they're just going to be used for consuming video.

00:19:51   yep and the other thing about video is like video in Asia is a lot different than here in that

00:20:00   basically everything is available very easily like I mean it's yes there's things like Hulu and

00:20:08   Netflix here but there's always kind of a bit of a challenge of seeing like whatever's up next

00:20:13   like whatever hot show is going on and right now they're mostly Korean shows like these soap operas

00:20:20   or like, once it's aired, it is available for streaming within like an hour, if not faster.

00:20:28   And it's interesting because I don't think it's actually, it's not really frowned upon. I don't

00:20:35   think anyone really sees it as an issue. Is it legal? You're saying it's not legal, but the

00:20:41   IP infrastructure there is such that nobody really... I'm not sure, to be honest. I mean,

00:20:48   I mean, it may be one of those things where it's nominally legal, but no one actually

00:20:54   cares.

00:20:55   It is true that in many countries the IP infrastructure is not there.

00:21:00   But also--

00:21:01   Or maybe even the IP culture, frankly.

00:21:03   Yeah, that's a big part of it as well.

00:21:06   The other thing is, just in general, there's a different-- I mean, because it's very open,

00:21:12   right?

00:21:13   in some of the more, you know, I don't know, advances in the word, but countries that have

00:21:20   had a longer history of IP enforcement like Japan or Taiwan a little bit more so. Although

00:21:27   it's not, you can still find counterfeit bags and stuff, but they're more like in the alleys,

00:21:34   right? It's not like on the street corner like in some parts of Asia. So it's a little

00:21:38   stronger. But they're very publicly available and to watch TV like that is very common.

00:21:50   And I don't know all the countries in Asia, obviously, but in my experience, TV is just

00:21:57   as much a thing there as it is here, if not more so. And so, yeah, that whole idea of

00:22:04   being used primarily for that use rings very, very true to me.

00:22:08   Well, all right, and then you were saying that Samsung explicitly said with regard to

00:22:14   their poor results or disappointing results.

00:22:16   Yeah, and they had a whole--

00:22:17   And it's not just that they're down. They were down, it was somewhere around 16% less

00:22:22   profit than was expected.

00:22:25   Right, I mean, that's the weird thing about reporting results, right? It's all about expectations.

00:22:28   And they were under their expectations, they were under analyst expectations, and by a

00:22:33   significant amount. So we can even even if we go with the hey come on analysts just make this stuff

00:22:39   up at least Samsung's own guidance is a you know should be a fair measure that most companies you

00:22:46   know usually put out guidance that they expect to at least be able to meet like it's a genuine

00:22:50   it's one if it's just you know an apple has run into this many times over the years where where

00:22:56   apple will will post results that are pretty close to their guidance maybe a little up maybe a little

00:23:01   down but generally pretty close but if they're way less than what analysts had

00:23:06   had projected it's uh... headlined as a big mess yet what's weird because the

00:23:11   like the worst of the worst thing you can do is miss your own guidance right

00:23:15   you're gonna get hammered for that uh... the second worst thing you can do

00:23:20   it was that that that is missing analyst guidance but then there's also if your

00:23:24   guidance is lower than what analysts expect your head and to be like in so

00:23:28   So that's when Apple takes hits after earnings.

00:23:31   It's usually because their guidance for the following quarter is lower than what analysts

00:23:36   anticipated it would be.

00:23:39   Whereas everything that happened in the previous quarter, that's almost always baked in.

00:23:42   And Apple's never missed meaningfully, at least in recent history, their recent results.

00:23:49   So, yeah, it's all an expectations game.

00:23:53   I know people get frustrated with Wall Street, but it's a lot more, it's not as ridiculous

00:24:00   as people think. I think the main thing with Wall Street is Wall Street is a stock inherently

00:24:06   is all about the future. So whatever you've done in the past, it's only useful in so much

00:24:12   as it's an indicator of what will happen going forward, right? It's not a reward system.

00:24:16   bringing Apple into it is sort of an aside but I think it's interesting

00:24:20   because there has been I mean this is not this is something that they actually

00:24:23   came out and said is that we're going to try to be a little bit more accurate

00:24:27   with our does Apple that that you know a couple of maybe it was a year or so ago

00:24:32   maybe a little bit more yeah I think about a couple years but yeah and that

00:24:34   they said look we're good we used to you know give you a lower end of our

00:24:38   guidance yeah which is translated means we really low balled the numbers and

00:24:43   to always put out a number that we knew that we could beat.

00:24:46   And therefore, anybody who is trying to accurately gauge what to expect from Apple had to pick

00:24:53   a number that was higher than that.

00:24:55   And so you had to, analysts had to pick a number that was different from Apple's, always

00:25:02   higher because Apple low balled it, significantly low balled them.

00:25:09   I think that the change, and this is one of those, it's something that started in the

00:25:15   post-Steve Jobs era.

00:25:17   I think it's probably had the intended effect in that it seems as though Apple's guidance

00:25:23   and Wall Street guidance have become much more largely aligned.

00:25:28   Whether it's a little bit up or a little bit worse, it seems like the stock has become

00:25:34   a little bit less volatile just when results are issued.

00:25:39   No, that's a really good point. I think you're probably exactly right that this

00:25:43   is probably a cook thing. Jobs probably enjoyed beating expectations by a lot, but the reality

00:25:50   is that actually introduced more uncertainty. Yeah, I think Jobs' perspective was probably

00:25:55   along the lines of, "Screw those guys. Screw them."

00:25:57   Well, Jobs liked the surprise, right? He liked to pop out and say, "Wow, lookit, we just

00:26:02   murder results right i mean it was another chance

00:26:05   um you know he loved the reveal um where but i think it was bad for apple

00:26:10   you're exactly right because analysts had to make

00:26:13   had to pick something up and what i just said about

00:26:16   about the current results no longer being interesting

00:26:19   is because of this change it's because they they are almost exactly right every

00:26:23   time and so now everyone's focused on their

00:26:25   they're going forward estimates yeah yeah i think that i think under jobs

00:26:30   with the low ball numbers, it was like, screw 'em,

00:26:32   let them figure it out.

00:26:34   Whereas the cook idea is, let's help these guys out

00:26:38   because they're wrong, they're always wrong.

00:26:40   - And it hurts Apple.

00:26:41   - Because we keep so much close to our vest, so let's, yeah.

00:26:45   And them being wrong hurts us.

00:26:47   So it's in our interest to help these guys

00:26:50   and give them guidance that actually is truly guidance.

00:26:54   - Yeah, I mean, this is another thing

00:26:57   that just really attests to Cook's, how impressive Cook's

00:27:02   operation is, is the way that Apple is so exact on their

00:27:08   numbers every single time.

00:27:09   And that goes back to the operations side of it.

00:27:12   Operations is not just the actual making, it's the

00:27:15   predicting, it's the modeling, knowing what we're going to

00:27:19   sell of what.

00:27:20   And Apple, ever since they did this change--

00:27:25   And I think Horace DeGio has a chart that shows how much off they've been.

00:27:30   Like has been in almost exactly.

00:27:32   And I think a lot of the optimism for Apple

00:27:34   actually is because last quarter they actually did beat themselves, right?

00:27:38   In a way that they hadn't previously.

00:27:40   And so that showed that even Apple was surprised.

00:27:43   But I mean, it's kind of uncanny how perfectly almost it

00:27:48   feels like they can predict the future.

00:27:50   Yeah.

00:27:50   And sometimes I feel like it's because of changes

00:27:52   that they couldn't foresee, like not necessarily demand,

00:27:55   but pricing of components or something like that, like something maybe dropped in price

00:28:01   and helped margins and they just couldn't foresee that.

00:28:06   Jeff: Right. Well, I think, right. If that's what happens, it's usually what it is. But

00:28:10   I do think it was last quarter, like they genuinely beat their numbers and they're like,

00:28:15   "Yeah, we had a really good quarter." And I think that's why like right now, there is

00:28:21   so much positive sentiment around Apple, I think is they've kind of, you know, the

00:28:26   challenge with, you know, I think Apple's actually mostly gotten past the kind of big

00:28:31   number, it's not really a big number problem, but like the problem where because they're

00:28:36   such a big company now, like any percentage increase is going to be small because the

00:28:40   denominator is so huge.

00:28:42   Right, and conversely, any small percentage difference is actually going to be a large

00:28:48   number of dollars. So Apple could miss by half a billion dollars and it's like, "Holy

00:28:53   shit, they missed by half a billion dollars," and it's a couple of percent.

00:28:58   Right. Exactly. But I think 2012, I think late 2012, was like their growth rate peaked.

00:29:07   Ever since then, their growth has slowed considerably. And I think that really, I think justifiably,

00:29:14   depressed the stock for a few years now. But I feel like that's been worked through the

00:29:19   system. And this is the-- with any company that's changing up, that's just shifting in

00:29:25   a different phase, there is this part where-- and a lot of stock is an expectation sort

00:29:31   of thing, like people understanding and grappling with your business. As your business changes,

00:29:35   there's going to be upheaval. And I think-- and so you talk about a company like Intel

00:29:39   or like Microsoft that has to make big changes.

00:29:45   Once you get through those changes

00:29:47   and you've kind of shifted expectations

00:29:49   and people are now used to something else,

00:29:51   then you actually do get more breathing room.

00:29:53   And I actually feel like Apple has kind of crossed

00:29:55   that cast in a lot of ways.

00:29:57   People are cool with 6% growth, 10% growth,

00:30:02   whereas before they were punished because they were no longer

00:30:05   growing 20%, 30%.

00:30:08   And I think that's just going back to like there's the famous saying like in the,

00:30:12   what is it in the, something about the stock market,

00:30:15   the short term is a something machine and long term it's a weighing machine.

00:30:18   The idea is like over time, over a few years,

00:30:22   like the stock market actually is very,

00:30:25   very rational and it does exactly what you'd expect it to.

00:30:27   And there's no point in getting caught up on kind of what happens day to day or

00:30:32   quarter to quarter because it usually does work itself out in a way that makes

00:30:35   sense.

00:30:36   All right, I'm going to take a break in just a moment.

00:30:38   But I come back to that because I think it plays into the next point I want to talk to

00:30:42   you about, which is software as differentiation, which I think, and the reason I think it's

00:30:47   a good parlay is I think it helps explain Samsung's problem, which is something you

00:30:52   wrote about this week.

00:30:53   And I also think it's something that might finally be sinking in in Wall Street's consensus

00:31:00   estimate of Apple is that tablets aren't just tablets, you know, that the iPad and iPhone

00:31:07   have a sustainable position because of the differentiation but hold that thought. Think

00:31:12   about it while I thank our first sponsor, our good friends at Squarespace. Now you guys

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00:33:18   listener of the talk show so my thanks to Squarespace. All right, so tell me about the

00:33:24   tell me you tell me about software differentiation as an advantage and the lack thereof as a

00:33:31   disadvantage in mobile.

00:33:33   I think the easiest thing is look at computers. I mean like I have if you have a MacBook it

00:33:41   runs OS 10 if you have any other computer it runs it runs Windows and even if you had

00:33:46   the exact same hardware, if you have a preference for OS X, you're going to buy the one that

00:33:54   has OS X.

00:33:56   And even if, virtually identical hardware, if the OS X machine costs $1,000 and the Windows

00:34:03   machine costs $800, well it turns out there are a lot of people that will pay the extra

00:34:08   $200 for that machine and that $200 is pure profit, right?

00:34:12   Even if they don't perceive a difference in the hardware.

00:34:16   - Exactly.

00:34:17   - Even if you're there and if side by side

00:34:19   with the screens off, you don't see an advantage

00:34:24   to the MacBook Air versus the HP, you know,

00:34:30   HP Air, whatever they call their, you know.

00:34:32   - Well, even if Apple licensed out their hardware, right?

00:34:37   And it was like literally every single component

00:34:41   on this computer is identical.

00:34:42   It has the same track pad, it has the same keyboard.

00:34:45   - But it doesn't run OS X.

00:34:46   but it doesn't run OS X.

00:34:47   People will pay a premium for that.

00:34:50   I'm sure I'm speaking to the choir here

00:34:53   with you and your audience.

00:34:55   And by definition, that premium is profit.

00:35:00   Because Samsung's a big guy, all these guys are big guys,

00:35:05   HP's a big guy, they are all going to get the economies

00:35:08   of scale that Apple is getting.

00:35:10   So if the parts for this machine cost $750, let's say,

00:35:15   And the guy who has Windows charges $800, well he has $50 of profit, that's not very great.

00:35:23   Meanwhile Apple's charging $1,000, that's $250 of profit, that's 33%, that's very good.

00:35:31   And that difference is solely because it runs OS X.

00:35:38   And it turns out that Apple is the only company that sells OS X,

00:35:43   you can't buy OS X separately and put it on your own computer. You have to buy the hardware

00:35:47   to get the software. And that makes the hardware valuable. And I think it's valuable in a way

00:35:59   that generates profit. It's all upside. Because software is free. It's not free to make, but

00:36:06   to make one additional copy of software is free. If I already have OS X, to make another

00:36:10   OS X is literally just clicking a button.

00:36:14   And it's the exact same thing with phones.

00:36:17   If you prefer iOS or the iOS ecosystem, guess what?

00:36:21   There's only one way to get iOS and that's to buy hardware from Apple.

00:36:25   And so even if HTC or Samsung made an iPhone where every single component was the same,

00:36:33   look and feel was the same, and the camera was the same, and the button was the same,

00:36:39   Apple could still charge a premium because people will pay for iOS.

00:36:43   Yet, iOS doesn't cost Apple anything.

00:36:47   So that's why Apple dominates profits and that's why, I think to your point, why Apple

00:36:54   is safe in a lot of ways.

00:36:56   Like...

00:36:57   It leads to less fluctuation year over year and less pressure to come out with.

00:37:04   And this is something Apple has gotten dinged in the press year after year after year with

00:37:08   new iPhones. Well, geez, this is almost just like last year's iPhone, but it's a little

00:37:12   smarter and a little faster and the camera's better. And I think you see that with Samsung

00:37:18   flailing around with a lot of gimmickry in their new phones. Like a year and a half ago

00:37:24   when they came out with the ones that tried to read your eyes for, "Hey, look up. We'll

00:37:29   pause the video for you or we'll scroll the webpage while you're moving your eyes," which

00:37:34   And by all the reviews I've seen, it wasn't really a good feature, but they needed some

00:37:38   way to do that, to stay above the fray of all the other Android phones that were similar

00:37:46   to the previous Samsung phone.

00:37:49   Whereas Apple doesn't really need to worry about gimmicks like that, because people who

00:37:56   want to buy an iPhone are going to buy the new iPhone no matter what.

00:37:59   Right, and so the problem is, this is actually why in the long run you end up not having

00:38:05   hardware comparable to Apple. Why doesn't someone, you hear this a lot, like why aren't

00:38:10   there any laptops as good as Macbooks? I mean there are some.

00:38:14   Lenovo I would always hold up as the one who's closest and I would also

00:38:20   I would take a ThinkPad, if they had better screens, I would take a ThinkPad over a Macbook.

00:38:25   Those machines are amazing.

00:38:28   Well, I've always said that if I couldn't, like as a what-if scenario, you know, it's

00:38:33   not going to happen. But if you had to choose between a, let's say, a ThinkPad running OS

00:38:38   10 or a MacBook Pro running Windows, which would you prefer? And I wouldn't even hesitate.

00:38:44   I'd rather have a ThinkPad running OS 10. I don't think I would prefer a ThinkPad running

00:38:49   OS 10 versus a MacBook running OS 10, but I would at least try it.

00:38:53   The nub isn't acquired taste. I get that.

00:38:57   the software that's more important. Right, no exactly. What happens though is, so let's

00:39:02   say you start out at point zero, right? And the Apple, you have two, you have Samsung

00:39:08   and Apple, say, and they make identical phones. And one runs Android, the other runs OS X,

00:39:15   or sorry, iOS. Yeah, right, like hypothetically speaking, let's take Samsung's copying to

00:39:22   the logical extreme. And legalities aside, let's say that they made a genuine complete

00:39:27   clone of the iPhone. Right. So it's perfect. It's exactly the same. The problem is, and

00:39:32   so the problem is, is because Android's open and there's lots of hardware manufacturers

00:39:37   out there, someone's going to come along and make another Android phone and maybe they

00:39:43   copy it too and they make it the exact same way. But what are they going to do? Samsung,

00:39:48   so Apple's priced it at $600, Samsung's priced it at $600, well the other guy's going to

00:39:52   is going to price it at $575. And then everyone's going to go buy the other one. And then Sam,

00:39:59   and so what happens, Sam's going to respond by lowering the price. But the problem is

00:40:02   as you lower the price, now your margins getting compressed. And so you start cutting corners.

00:40:07   So suddenly the display is not quite as good. Or the button quality is a little lower. Or,

00:40:13   you know, and so what happens is because you're forced to compete on price, the quality actually

00:40:21   ends up going down along the way because it's like, you know, it's death by a thousand cuts.

00:40:27   And that's why, and you saw this in PCs, this is why laptops have always been, Windows laptops

00:40:33   have mostly always been inferior from a quality perspective. It's not, it's not, it has nothing

00:40:39   to do with the software per se, it's because they're stuck in this game where they have

00:40:43   to find margins somewhere.

00:40:44   Right, and, but then they screw up the software because to try to squeeze little bits of margin

00:40:50   is why they do things like pre-install the Norton bug you until you try to sign up for

00:40:59   Norton experience, right? You go in and buy a brand new laptop and you open it up and

00:41:04   if it's running Windows and it's from most OEMs, you're going to have stuff that's not

00:41:09   from Microsoft, not officially part of Windows and it's all annoying and it's there to try

00:41:15   to – a lot of it is there to try to increase the margins because Norton gives them two

00:41:20   or three bucks for everybody who has it pre-installed.

00:41:22   So that's actually where most OEMs make all their margin. Like actually most computers

00:41:29   are made at cost and then any profit margin they make is from the crapware. And that's

00:41:33   why to get a crapware free machine you have to pay more. And the thing is, in Windows,

00:41:42   I obviously worked for Microsoft and worked for Windows and they would bitch and moan

00:41:45   about how terrible the hardware was, but this is all Microsoft's fault, right?

00:41:50   It's one of those things where it was always to their benefit, right?

00:41:55   The whole thing where you want to commoditize your compliments.

00:41:58   Like the things that are important for your product, but that you don't sell,

00:42:02   you want them to be as cheap and as low cost as possible.

00:42:06   And so it was in Microsoft's great benefit that computers decreased in cost so rapidly,

00:42:12   and there was all this competition and driving down prices,

00:42:15   But the problem is, as with anything, you take it too far and then oops, you're stuck with these terrible machines with creaky hinges and crapware all over them.

00:42:25   And then that rolls back and now it's being ascribed to Microsoft and they're like, "Well, Microsoft always is on crappy machines and whatever."

00:42:33   And it's the same thing with Google, except Google is even more ruthless, right?

00:42:38   right? They don't... they want everything to be free. They want everything to not cost anything.

00:42:43   They want people to be online as much as possible, as easily as possible,

00:42:46   and they are more than happy to watch Samsung and HTC and everyone kind of kill themselves here.

00:42:53   And again, Google is quite smart about this, because to our earlier point,

00:42:57   because smartphones are going to be everywhere, everyone's going to have one.

00:43:01   Like there really is no floor to like how cheap or crappy a phone can be because someone

00:43:09   is going to buy it.

00:43:10   Right.

00:43:11   There's a tweet from earlier today.

00:43:14   I think it was earlier.

00:43:15   Yeah.

00:43:16   Earlier today from our mutual friend Benedict Evans.

00:43:20   And I think it's very, very well summarizes the situation in the long term.

00:43:25   Here's his whole tweet.

00:43:27   OEMs will be able to differentiate on this common platform has been a false

00:43:33   promise for 30 years right that's because they're kicking it old-school

00:43:39   here but I mean this was something like when Apple was in trouble in the 90s

00:43:42   that was over and over and over again people would say well what Apple should

00:43:45   do is start making Windows machines too and differentiate on on design right so

00:43:53   Apple but you know Apple's strength isn't Mac OS are getting killed because

00:43:56   because the Mac is so much smaller than Windows

00:43:58   and everybody's on Windows.

00:43:59   What Apple's good at is design.

00:44:01   So Apple should make Windows machines

00:44:02   and differentiate on design.

00:44:05   And that's, it's, actually that's exactly,

00:44:08   I would say that's exactly the Sony PC business, right?

00:44:13   That was the art, you know, the whole idea of Sony's PC.

00:44:16   Right, and how'd that work out?

00:44:18   - They, Vio is now its own company.

00:44:20   (laughing)

00:44:21   And they're money losing one at that.

00:44:23   would say Sony gave that as good a run as anybody. Yeah, and they were very nice computers. Right.

00:44:30   And, and, you know, innovative in certain ways to like VAOs got small, like usable small laptops,

00:44:40   you know, way before everyone else, right before everyone else with, you know, with with minimal

00:44:45   compromises. And it just, it's not sustainable on a common platform. Yeah, no, it's like, I think,

00:44:52   like the analogy is almost like air travel and this is I'm not sure this is gonna work

00:44:56   because it literally just occurred to me um but like everyone like bitches about like oh we want

00:45:01   good service on airplanes and like we want more seats more more seating area and stuff like that

00:45:06   the problem is every single time an airline tries that like continental did a thing where we're

00:45:11   gonna have better service American Airlines did a thing where we're gonna have you know more more

00:45:15   room in our aisles and we're gonna advertise based on that and we're gonna be able to to charge a you

00:45:19   you know, a slightly higher price. Well, guess what, everyone kept going to Expedia

00:45:23   or Kayak or whatever and picking the lowest, the lowest number.

00:45:26   This is very painful to me because two or three years ago,

00:45:31   Virgin America came to Philadelphia and,

00:45:34   and it was the most welcome breath of fresh air in the history of PHL

00:45:39   International Airport.

00:45:41   And they are leaving Philadelphia International Airport in two months because

00:45:48   No one wants to pay.

00:45:50   Well, it's not-- and they're not going away,

00:45:52   but clearly it wasn't a big success for them.

00:45:54   And they were always more expensive.

00:45:56   US Air is the carrier that dominates PHL.

00:45:58   And it's one of their hubs.

00:46:00   And they've got this merger with American.

00:46:04   And part of the concessions for this merger

00:46:08   is they had to give up gates at Washington--

00:46:12   National, yeah.

00:46:13   And one of the New York ones.

00:46:15   I'm guessing it's probably JFK because JFK is bigger.

00:46:21   That combined, US Air and American have to give up some number of their gates at those

00:46:27   and Virgin decided to take, I think, I don't know if they took them at Washington too,

00:46:31   but I know that they took some of their JFK ones and they literally don't have enough

00:46:35   airplanes.

00:46:36   So they have to take the airplanes that have been flying the Philly routes and they're

00:46:39   going to be flying JFK routes.

00:46:41   they're like, it's like a waiting list.

00:46:44   It's like trying to get Washington Redskins season tickets

00:46:47   or something that's like,

00:46:48   there's like a five-year waiting list

00:46:51   to get new airplanes from Boeing or something like that.

00:46:54   They can't just order them.

00:46:55   And I don't think that they were,

00:46:57   I'm pretty sure Virgin America

00:46:58   has never turned a profit anyway on a quarter.

00:47:00   - No, well, yeah, I was gonna mention that.

00:47:03   It just doesn't work because it's one of those things,

00:47:06   like air travel is a commodity.

00:47:11   I don't know. I think the analogy sort of holds up. It is a commodity and there's an economy of scale.

00:47:16   That's the thing. That's the magic. You've got to get off the ground somehow and get this mass

00:47:26   of users to sustain it if you're going to be different. They just don't have it.

00:47:33   Virgin America just didn't have it, at least out of Philly.

00:47:37   yep do any I think you there's the whole business thing right because they're the

00:47:41   ones that are price

00:47:42   insensitive arm and yeah I don't know what

00:47:45   we're not an airlines it is for you though they think there's actually a ton

00:47:48   of people that I know

00:47:49   I myself am kinda narrow arrow airlines geek there's some people I follow on

00:47:52   Twitter

00:47:53   and it's funny there's actually it's like there's quite a few people

00:47:57   in in in tech or whatever that

00:48:00   as a side thing like love to follow like the airline industry arm

00:48:04   It's so much better than others. I mean I and I'm what I actually have gold status on US air because I that's all I ever

00:48:10   Fly I mean every flight I take whether it's a vacation or whether it's work to go to the West Coast. It's always

00:48:15   US air and because so many of my flights are entirely across the country. I've somehow gotten the gold status

00:48:22   Which is good customer service wise like I can book tickets now that that are like

00:48:28   refundable. I can change my tickets and not pay a fee, like

00:48:32   literally not even pay like a nominal fee. It's kind of

00:48:34   awesome. And if I could book a flight on Virgin America, and it

00:48:39   costs more, I would do it in a heartbeat because it's such a

00:48:42   nicer experience.

00:48:42   Unfortunately, you know, you have a, you know, well, a

00:48:46   reputation for valuing quality in the products you buy that is

00:48:51   that is not broadly shared.

00:48:53   I've been on I've been on flights. I can't remember the

00:48:56   last time I flew in you know for the most part it was all SFO to Philly

00:49:01   although sometimes depending on the hour I would I would even take this is what I

00:49:05   would do too is I would fly Philly to LAX LAX to SFO on virgin rather than a

00:49:12   non-stop which I have numerous numerous choices between SFO and Philly on US air

00:49:16   right rather have the layover in LAX oh yeah well and once you're flying far

00:49:20   enough it makes enough of a difference. Especially with Wi-Fi.

00:49:26   It's everything. It's just so much more comfortable. The plane doesn't have the funky smell. But

00:49:33   anyway, there's not enough people like me to get it off the ground.

00:49:37   It's funny because we should probably stop rattling on airlines. I'm based in Asia where

00:49:43   flying economy class on an Asian airline is like flying above first class on a typical

00:49:47   US Airline. US Airline has Stockholm Syndrome. They're like Business Insider, right? They

00:49:56   always do the "Oh, I flew on this airline," and everyone clicks on it 5 million times.

00:50:01   But I think Steve Kovacs did one. He's like Singapore Air. He's marveling at every seat

00:50:06   had its own television. It's like, "Oh, first class." I forgot how bad. No, in economy.

00:50:12   First class on US Air is literally just a bigger seat. They do give you a meal. They

00:50:16   They do give you a meal that you don't get back there, but it's so bad.

00:50:20   Honestly, you're a fool if you eat it, I think.

00:50:24   You're just asking to be made sick.

00:50:27   You get drinks.

00:50:29   It's a bigger seat and you get alcoholic drinks.

00:50:33   That's it.

00:50:34   Which one should not frown upon too much.

00:50:36   No, but it's so much different than international airlines.

00:50:43   We are massively...

00:50:44   So it's funny, so we are way off, right?

00:50:45   So that Samsung--

00:50:47   - Well, I don't know that we're way off though.

00:50:48   I do think it kind of explained the race to the bottom

00:50:52   on a commodity platform like Windows,

00:50:57   and I think that's where Android is heading.

00:50:59   - Well, the weird thing with,

00:51:00   what makes it different though,

00:51:02   and the weird, well, maybe it's the same,

00:51:04   because the thing with an airline

00:51:06   is because it is super heavily regulated, right?

00:51:08   There's a certain floor of service.

00:51:11   Even if you fly Frontier or Spirit or whatever,

00:51:13   the cheap ones are, you can feel reasonably confident that they're going to get you there

00:51:19   in one piece. Because they all have to pass the same FAA regulations, they all have to

00:51:24   have the same maintenance regimes. And so because of that, it's not like you're flying

00:51:31   and like, "Wow, this guy is $300 cheaper, but they have a plane crash every other week."

00:51:39   everyone's at a certain level.

00:51:41   And what's happening with smartphones is you're getting actually a similar idea.

00:51:45   Like a few years ago, even a couple years ago, the difference between a $200 smartphone and a $400 smartphone was huge.

00:51:54   Now, there really isn't that much of a difference at all.

00:51:57   And by the way, that $200 smartphone is now a $100 smartphone or a $150 smartphone.

00:52:02   phone. And so like the the the the difference between the high

00:52:08   and low end is shrinking. And what's funny is everyone uses

00:52:11   this to say why Apple's doomed, but they're only doomed if you

00:52:15   ignore the software, right? All those critics actually, I think

00:52:18   the first time you've linked to me I'd have been this article,

00:52:19   like I said, well over a year ago that Samsung was in trouble.

00:52:22   Because unlike Apple, there is nothing to make a Samsung phone

00:52:28   different from a no-name phone.

00:52:32   And especially in China, where in China, there's--

00:52:37   well, first off, there's a few more things that are different

00:52:40   in China.

00:52:40   One, there's just way more--

00:52:42   because that's where all the manufacturing happens,

00:52:45   there's just way more phones there.

00:52:47   There's way more companies making phones,

00:52:49   the vast majority of which don't export at all.

00:52:51   So there's tons and tons and tons of, quote, unquote,

00:52:54   "brands" in China, most of whom I've never heard of,

00:52:57   much less anyone else.

00:52:58   So one, there's just way more competition.

00:53:01   And then two, in China, for the most,

00:53:05   it's much more so the phone is separate from the plan.

00:53:10   So you usually, not always,

00:53:13   I mean, and actually the iPhone has pushed

00:53:15   more of a subsidization into the system,

00:53:18   but especially traditionally,

00:53:19   it's always been very separate,

00:53:20   where you buy your service from the carrier

00:53:24   and you buy your device from a device seller.

00:53:27   Like they're different transactions.

00:53:29   And so that neuters Samsung's carrier advantage.

00:53:32   It doesn't really exist as much there.

00:53:35   And then you add on top of that,

00:53:38   Samsung did have more of a prestigious brand in China.

00:53:41   Like if you're gonna buy,

00:53:42   it'd be better to buy a $200 Samsung phone

00:53:44   than a $200 Chinese phone

00:53:46   because Samsung was a meaningful brand.

00:53:49   - And that's where you get into that massive spend

00:53:51   that Samsung still has on marketing.

00:53:54   - Totally, totally.

00:53:56   But Xiaomi's just destroyed that.

00:53:57   Like that's, like Xiaomi is,

00:54:00   Xiaomi, what Xiaomi really does have a lot in common

00:54:02   with Apple is like Xiaomi's founders are like rock stars.

00:54:06   Right?

00:54:07   They are the Steve Jobs and, you know,

00:54:09   and the Craig Federighis of China.

00:54:13   - And their phones actually do,

00:54:14   I've never held one in my hand,

00:54:15   so I can't speak to build quality,

00:54:17   but you take a look at them and they do,

00:54:18   to my eyes, instantly look better designed

00:54:22   than Samsung and most other brands.

00:54:25   - Yeah, and the quality is decent.

00:54:28   I've held both the high end and the low end.

00:54:31   The low end wasn't the most previous one.

00:54:34   It was a little, like, I thought it was a little flimsier,

00:54:37   but it wasn't, it was a fully functional,

00:54:42   like, there's no problem in using this day to day.

00:54:44   You can tell it's a couple hundred bucks cheaper

00:54:46   than its sibling.

00:54:47   But again, that's improving as well.

00:54:51   like those are way better than what was available at the price point previously

00:54:55   and so for Xiaomi, and then Xiaomi has like

00:54:58   you know, so they have these rock stars and there's the whole Chinese like social network

00:55:02   you know, which we talked about last time, the WeChat and all these sort of things

00:55:06   where they actually sell, they sell completely online

00:55:09   so they don't have to pay any overhead to carriers, they pay nothing for marketing

00:55:12   they just basically sell everything through their brand and through their website

00:55:16   and so they can keep their costs super low and then their whole business model

00:55:20   is to basically sell at cost, right?

00:55:22   They say they're gonna make it up by selling services,

00:55:25   by selling app store and all that sort of stuff.

00:55:28   And Samsung is just getting walloped.

00:55:31   Like Samsung can't compete with that.

00:55:34   And that's why Apple is more threatened in China

00:55:36   by Xiaomi as well, because Xiaomi isn't just cheap.

00:55:39   They're cheap and they're a brand.

00:55:42   And they're like, they're a statement.

00:55:44   Like you're saying something by carrying a Xiaomi phone.

00:55:48   And that has been Apple's selling point in China

00:55:50   Yes, the software is important, but it's actually, I think it's less of a differentiator in China,

00:55:59   especially because there's lots of crazy stuff you can do with Android, right?

00:56:03   That Chinese value.

00:56:06   Whereas Apple, the lockdown actually works against them a lot of ways.

00:56:10   This is actually an area where the keyboards are going to help.

00:56:13   There's lots of alternate Chinese keyboards that I know people that's been a holdup for not wanting to go with iOS

00:56:23   But even beyond that there's tons of stuff like the whole idea of skinning stuff and having all these cutesy things

00:56:28   and all this stuff on our phone that we in the West feels very weird

00:56:33   It's just different there

00:56:35   You go to Yahoo China or Alibaba or Baidu

00:56:39   The pages are all busy and there's links everywhere and they're just like, they hurt your eyes.

00:56:44   It's just a very different aesthetic.

00:56:46   And so, Xiaomi delivers all that and they let you customize, let you do all this stuff, yet they're also cool.

00:56:54   But all those advantages only exist in China.

00:56:59   And so that's why Xiaomi is a big deal in China, but I'm way more skeptical about them outside of China.

00:57:06   Because it just doesn't translate as much.

00:57:09   Alright, let's hold this thought because I'll pick it right back up.

00:57:12   I know where I want to go.

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00:59:20   So I think the irony,

00:59:21   the irony of the whole Samsung-Apple thing

00:59:23   is that the consensus refrain against Apple,

00:59:28   I would say while like the stock was depressed

00:59:32   after Tim Cook first took over,

00:59:34   that it's unsustainable for the minority market share OS. They can't sustain it against Android.

00:59:43   It's inevitable that it's going to be all commoditized and the whole thing's going to

00:59:47   collapse. And Samsung is going to beat them. Samsung is more innovative than Apple. They

00:59:53   can't beat Samsung. I think the irony is that it's really all those arguments really do

00:59:59   apply, but they don't apply to Apple, they apply to Samsung.

01:00:02   You know, the knock against Apple for most of 2011, 2012, maybe even into 2013,

01:00:09   really was the case against Samsung. That the differentiation that they had for a while was

01:00:16   not sustainable. No, that's exactly it. I mean, I think, like I said, I think this is when we

01:00:21   first connected was, you know, I wrote a piece called Two Bears, like, that basically it's this

01:00:29   point, it's like, for some reason, and it's funny, like, I wrote another piece, Two Bears Revisited,

01:00:36   where I drudged up like some old like PC reviews of like Mac books, right? And in every single one

01:00:42   of them, they don't talk about the operating system, they talk about like, what ports it has,

01:00:46   the screen quality, the keyboard quality, and it's like, and analysts do the same thing, and it's

01:00:51   so weird, right? It's like, how can you, like, I think the vast majority of the Apple is doomed

01:01:00   narrative comes from people that fundamentally don't grok the software differentiation angle,

01:01:07   right? And if you don't understand that, then yes, Apple is doomed. They're selling very expensive

01:01:13   of gadgets when you can get a perfectly good gadget for a quarter of the price.

01:01:17   Right. And it's almost impossible to overstate just how high the table stakes are to get

01:01:30   into that. So clearly the biggest thing that's happened in tech, I mean we spent most of

01:01:40   last seven years talking about one thing which is the revolution that iOS sparked. It's not

01:01:45   all about iOS because Android followed, but it's changed the world. But it wasn't just

01:01:50   that Apple in 2005 through 2007 was able to create iOS. That iOS entirely is based on

01:01:59   work that started in 1988 with Next and that in some sense it was a continuous effort.

01:02:07   Not that in 1988 or 1989 that Next had in mind something like the iPhone, but there's

01:02:14   so much that is shared and that is built on, you know, and why, you know, for example,

01:02:20   just the simple aspect of, you know, it's something that came up once again just every

01:02:24   single year, just like it being the year of Linux.

01:02:26   This is the year where Android gets 60 frames per second animation.

01:02:30   Why does the iPhone have better, less stuttery scrolling and animation than Android?

01:02:37   not because of work that Apple did not only because of work that Apple had did in 2006

01:02:42   through the present it's because of work that Apple has done since 1988.

01:02:46   What about the next?

01:02:47   Well, and why it's on the same point. Windows Phone came out after Android yet Windows Phone

01:02:52   has always had better animation.

01:02:54   Why?

01:02:55   Exactly.

01:02:56   Because Microsoft's been writing device drivers since the 80s, right?

01:03:00   And has always to their credit for all the knocks you can give against Windows up until

01:03:06   Vista had a tremendous reputation for at least the interface in Windows was snappy and responsive.

01:03:15   Right.

01:03:16   Especially like XP versus the early versions of Mac OS X. Apple's interface felt slower because

01:03:25   they were doing so much more graphically. It was like a long play that got them to where they could

01:03:31   do these things like the stuff.

01:03:34   But anyway, following different paths

01:03:36   and with different priorities, Microsoft and Apple both

01:03:39   have decades of work that's resulted

01:03:44   in the snappiness of the interfaces you see today.

01:03:47   And so it's just so hard to overstate

01:03:50   how hard it would be for somebody like Tizen

01:03:53   or like Samsung to get Tizen established

01:03:56   as a true peer to those platforms.

01:04:01   Well, I mean, I think yeah, because I mean, it's easy to look at the, the App Store. And that's certainly a big part of it. But like, I mean, if you think about that, that's another part of the table stakes at this point, though, because it wasn't in 2007 or 2008. Right now it is what

01:04:16   No, that's my point, right? Because everyone, you can stop there and say that's reason enough that no one else is going to break in.

01:04:23   But if you look at iOS, to me there's like three, I mean everything's Unix, right? But there's three kind of seminal, proprietary things that happened that made iOS.

01:04:32   iOS. One is next, back in the 80s. So that's where it started. Two was the iTunes store.

01:04:42   And then three was the App Store, which I guess is part of that. But what makes iOS what it is,

01:04:51   has been a decade-long process. And that's the thing, right? It's not just that Apple's

01:04:59   differentiated, it's almost a little too simple to say Apple products are differentiated by software,

01:05:05   because it really is differentiated by the entire ecosystem, by everything that sits on top of it.

01:05:11   So now, and we saw this with Palm in a lot of ways, even if you came out with an operating system

01:05:16   that was as elegant and as easy to use, now that is no longer enough. And there is nothing like,

01:05:26   There are very few things in business broadly, I think, that are more challenging than building an ecosystem.

01:05:34   Because there's so many players involved. There's so much out of your control.

01:05:38   When I was at Windows, I was working on the Windows 8 App Store and managed a few categories in the App Store and trying to get people on board.

01:05:46   And you need the users in place. You need the developers in place. You need the right capabilities in the system.

01:05:53   Like there's, it's this, it's like, speaking of watches, like this inter,

01:05:57   interlocking watch, right?

01:05:58   But it's not like where you can put one piece in and add the next piece.

01:06:02   And then they all work together.

01:06:03   You have to not just put all the pieces in, but they have to all fit in at the same

01:06:07   time immediately, right?

01:06:08   Like they have to just magically come together and then work.

01:06:11   And without that, um, it's you, you're forced to like go to shortcuts where it's

01:06:17   paying developers, whether it's, um, you know, trying to come up with something

01:06:22   that's so unique that people will look over the holes, which you know, Amazon's trying

01:06:28   to do. But it's fiendishly hard. And this is, if Apple is discounted on Wall Street,

01:06:38   and I think this is going away to your point, but it's on this, is that people don't, like,

01:06:45   someone at Microsoft told me that, you know, what Wall Street values is knowing that you

01:06:51   can totally fuck it up and you'll still be in business, right?

01:06:54   And so Microsoft can release Vista and they're still going to make tons of money.

01:06:59   You know, they can release Windows 8, they're still going to be making tons of money.

01:07:02   Their stock is higher now than it's been in years.

01:07:05   That's an interesting point.

01:07:07   And this is one of the reasons why Amazon has always had such a strong stock is like

01:07:11   people view them as being untouchable, right?

01:07:15   Like their core business, no one's going to threaten it.

01:07:20   And Apple has always been viewed as, well, one bad break and they're in trouble.

01:07:25   And that's why the Intendigate was a big deal to a lot of people, because there's this perception,

01:07:31   "Well, is this it?

01:07:32   Did they finally mess up?"

01:07:34   And what I think they've missed and what most analysts miss is actually Apple could release

01:07:39   a dud and they would be okay because their ecosystem advantage is so significant and

01:07:46   it's so hard to, to catch up with that. Yeah, I totally

01:07:51   agree. That's a good point. And I do think that there is like,

01:07:56   as you know, circling back a couple of minutes, you know,

01:08:00   segments ago, that I do think that it's finally starting to

01:08:05   dawn on the, you know, investor world, you know, that Apple is

01:08:10   not on the precipice, you know, yeah, I, you know, I still think

01:08:15   you're going to see a lot of jackassery related to Apple.

01:08:19   I still think that you're going to see, let's just say,

01:08:23   they ship something that you wear on your wrist

01:08:26   and it costs $300 and they sell 5 million of them,

01:08:31   which I think is pretty reasonable for a new thing.

01:08:34   Let's just say, I don't know, who knows what the device does?

01:08:36   It's a dingus that you wear on your wrist

01:08:39   and it sells for $300 and they sell 5 million of them.

01:08:42   And there's going to be people who say,

01:08:44   Multiply five million by three hundred dollars and say well that's nothing that that that averages out to zero for Apple

01:08:51   Therefore Apple is doomed because they needed to sell 50 million of them which doesn't happen with new products. Mm-hmm, right

01:08:57   You're still gonna see that to some degree, but I think that

01:09:01   Most there's there's that it's gonna be the fringe that that holds on to that rather than the the conventional wisdom. Yep

01:09:12   No, that's part of the what we talked about like there's kind of like this

01:09:15   Apple had to go through the valley a little bit as far as like

01:09:19   Perception goes and and this is something where I mean, I know I talked to I talked to some people who you know

01:09:25   been long close watch of Apple and we're very nervous about

01:09:29   Cook meeting with like Carl Carl icon and stuff like that and and really holding that up as a counter to what you know

01:09:36   What jobs would have done?

01:09:37   - Right, which is tell Carl I kinda go fuck himself.

01:09:40   - Right, exactly.

01:09:41   And, but I think this was,

01:09:44   and I was sympathetic to the degree,

01:09:46   I've always been very sympathetic to Cook's position

01:09:49   that the stock price matters a lot for employee retention.

01:09:53   It's kind of been my position,

01:09:56   but I think what you're seeing now

01:09:58   is that kind of effort paying off, right?

01:10:01   Like Apple, I feel like Apple

01:10:04   has gotten a lot more breathing room,

01:10:07   exactly what you just said.

01:10:08   And that actually is to, I think,

01:10:11   Cook's credit quite a bit as well.

01:10:13   - Yeah, I think it may be, you know,

01:10:15   I don't wanna psychoanalyze him because, you know,

01:10:18   I'm not a psychoanalyst and I'm too distant,

01:10:20   but that there's something, you know, to be said

01:10:22   that among the ways that Cook is a great CEO

01:10:25   for Apple right now and ways that he is better

01:10:28   than Steve Jobs is ego, right?

01:10:31   That obviously, I mean, famously,

01:10:33   I don't think it takes, you don't have to be a psychologist to say that Steve Jobs had

01:10:37   a very large ego.

01:10:41   I think while Apple was an upstart, it helped.

01:10:44   It helped to have a rock star at the helm of the company.

01:10:49   But doing something like going to dinner with Carl Icahn, that shows that not that Tim Cook

01:10:54   doesn't have a large ego, but that he's willing to sublimate it.

01:10:58   He's willing to say, "Look, I really doubt.

01:11:02   I'll bet, I really doubt that he felt like going to dinner with Carl Icahn.

01:11:05   But he did it because it was good for the company.

01:11:07   I think there's a certain extraordinary diligence to the way Cook is doing that.

01:11:14   A humility, maybe.

01:11:16   Maybe that's a better word.

01:11:18   That there's a humility to Tim Cook.

01:11:22   Whether that's innate, whether that's partly his southern upbringing, I don't know.

01:11:26   But one thing nobody would say about Steve Jobs is that he was humble.

01:11:29   Well, and I think, you know, it's one of those things where it's super easy to look back on someone, right?

01:11:35   And you only see the positive sides. But if Steve Jobs acted like Steve Jobs does, well, Apple is the most valuable company in the world.

01:11:43   Like, you would like to think that everything is logical and like, no one, like, it's just a lot easier to see them getting themselves in trouble.

01:11:53   whether it be with the government, whether it be with like, with other people, like, um,

01:11:58   you know, the, whether it be the app store sort of stuff. I mean,

01:12:02   I don't know what it would be, but that kind of imperiousness, um,

01:12:06   where's much better to your point when you're,

01:12:09   when you're the underdog as opposed to when you're the 800 pound gorilla. And,

01:12:13   um, you know, when I was, when I w this was something that was talked about a lot,

01:12:17   you know, I was there at, you know, the university was like,

01:12:19   Like, we have to change, like, by virtue of being huge, we have changed.

01:12:28   And we can either accept that and then try to figure out how to preserve what makes Apple

01:12:33   Apple, or we can continue as we are, but that's actually a worse place to be, because we're

01:12:39   kind of being blind about the reality, which is the fact that we're this massive company

01:12:43   now.

01:12:44   We can't, it can never be the way it was,

01:12:47   just because things have changed, the world has changed.

01:12:51   - Yeah, and I think the flip side of that exact same

01:12:55   thinking is what I wrote about last month

01:12:57   with the only Apple piece that I killed myself knocking out,

01:13:02   and about the way that, you know,

01:13:05   that I, it seems very clear to me that Tim Cook

01:13:08   has brought about in the same way that the operations

01:13:12   manufacturing has always been very very

01:13:15   a well-oiled

01:13:17   you know i use that a multi-part watch all works together that he's bringing

01:13:21   that sort of efficiency to apples internals in cooper tino

01:13:25   with divisions working together across you know that that

01:13:28   things like just a perfect example the way that this extensions system is

01:13:32   coming to you know seventy and i was a at the same time

01:13:36   because they're working together i've i'd w_w_t_c_ i spoke to some of the

01:13:39   engineers

01:13:41   You know, and that Apple just was not set up that way.

01:13:43   Those were silos previously.

01:13:45   And it would have been, you know, they even called it the one time back to the Mac.

01:13:50   It's like, okay, here's a bunch of stuff where iOS got ahead of the Mac.

01:13:54   It's already shipped.

01:13:55   It shipped last year, you know, in last year's version of iOS.

01:13:57   Now we're bringing it to the Mac.

01:14:00   Apple isn't working like that now.

01:14:02   They're developing these things together, you know, and some of them are things that

01:14:05   have to be done together like I keep forgetting the name of the

01:14:11   feature but you know, hey, there's a web page in front of

01:14:13   me and Safari on my Mac and I want to fling it over to my

01:14:16   phone continuity continuity. Well, the continuity is the the

01:14:19   the parent name for all of these features, but there's a specific

01:14:23   name for handoff. Right? Yep. handoff is that is continuity is

01:14:27   like the umbrella name for all of the features that are like

01:14:30   this. Like answering a phone call on your Mac is part of

01:14:33   continuity too. But they're all you know that it's you know and to me it's a

01:14:40   realization that it's not just about Tim Cook having a different personality than

01:14:45   Steve Jobs. I think it's about Apple being big enough that they can do things

01:14:51   like this. Like it's not that let's say Apple circa 2003 or 2004 could have been

01:14:57   operating like that or should have been operating like that under Steve Jobs and

01:15:01   that Steve Jobs' mercurial nature kept them from doing it. They weren't big enough

01:15:05   to do it yet, and they needed to be more focused. I think it was the right strategy. But they've

01:15:13   crossed a certain chasm in terms of size where if they didn't embrace a more collaborative

01:15:20   culture, they were missing an enormous opportunity, that they were leaving an enormous amount

01:15:27   of wasted potential on the floor because they could be doing so much more in the same amount

01:15:33   of time with a more collaborative culture than they would otherwise.

01:15:37   So, here's the question though. I agree with you. I wrote a similar thing, but something

01:15:43   that after your piece on my podcast exponent with James Allworth, we talked about this,

01:15:52   Like, yeah, it's what's so fascinating, and you talked about Apple growing up, and I talked about them, you know, kind of forgetting like the 1997 mindset, you know, that was kind of holding them, holding them back.

01:16:06   them back. And what's so striking about this is the language that we are using, and I literally

01:16:15   went back and looked up articles and profiles, was the exact same language that was used for

01:16:19   a company like Microsoft in the early 2000s. Like, "Oh, they've grown up. They're going to

01:16:24   stop being bullies, and they're going to be more collaborative." And yes, again, I'm not saying

01:16:30   Apple's Microsoft at all. There's lots of important differences. But it is worth thinking

01:16:38   of. I'm just curious what you think, right? Steve Jobs said, "Stay hungry, stay foolish."

01:16:43   But we're talking about them growing up and being a little less foolish. Do you worry

01:16:48   at all that maybe there might be something that gets lost in this?

01:16:53   Oh, definitely. I mean, worry is the wrong word, but I definitely file it under things

01:16:59   to keep an eye on. Because I think it's uncharted territory. I don't think that they're following

01:17:06   Microsoft's footsteps. And some people have… if there was any criticism of my only Apple

01:17:13   piece, it was along the lines of how is this different from what Steve Ballmer taking over

01:17:20   from Bill Gates, you know, and they, you know, first couple of, well, actually, the whole time,

01:17:26   he did lead Microsoft to significantly higher revenue and profits on a consistent basis,

01:17:30   while driving the, you know, a ship that with the product categories that were heading over a cliff,

01:17:37   strategically, by being a little bit more conservative and, you know,

01:17:42   focusing on what we already have, rather than new stuff.

01:17:44   Well, I think that's not true, though, because Microsoft did know that mobile was next. And so,

01:17:50   Yeah, but they didn't want to disrupt themselves and they didn't want to do mobile in a way

01:17:53   that might decrease sales of Windows PCs.

01:17:57   I think that's the fundamental difference.

01:17:58   And that's, to me, is the thing that I don't worry about.

01:18:02   If somebody came to Tim Cook with an idea that—I don't know what it would be, but

01:18:07   clearly the sacred cow at Apple financially is the iPhone.

01:18:12   I think it's over half of profits and half of revenue, even though the iPad is still

01:18:17   growing and is huge and the Mac is doing very well. The iPhone is the thing. If they came

01:18:22   up with something that would make people less likely to buy iPhones, I don't know what it

01:18:26   would be. But if this is say a watch that is so it doesn't it's not a something that

01:18:31   you Bluetooth tethered to your phone. It's just a watch and it would make people not

01:18:36   buy iPhones. And it only costs $300 but it's so awesome that do it would genuinely drive

01:18:42   a rational person to think I don't even need an iPhone anymore. I don't think Tim Cook

01:18:45   would hesitate to do that, to go ahead with it. Because if somebody could do it, it might

01:18:50   as, you know, that logic of being able to, you know, rather disrupting yourself than

01:18:55   having somebody else disrupt you, it holds true. I think he has the common sense to think,

01:19:01   well, you know, that's where it's going. You know, I don't think he would hesitate

01:19:04   to chase that and pursue that.

01:19:06   Yeah, I mean I think the best thing in support of that is probably the iPad, which is cheaper

01:19:16   than a Mac and does cannibalize the Mac. I do think that...

01:19:20   And I don't think they care, right? And it sells for a significantly lower average selling

01:19:25   price than even the cheapest MacBook Air, let alone the average selling price of a regular

01:19:30   MacBook.

01:19:31   Right.

01:19:32   probably half the price at least of average selling price. And I don't think Apple regrets

01:19:37   it at one bit.

01:19:38   Yeah, well they've increased volume, right?

01:19:41   Right.

01:19:42   I think the only hesitation I have is people always point to like, "Oh, the iPhone replaced

01:19:49   the iPod." Well, the problem is they're making more money on iPhones than they were on one

01:19:53   iPhone than they do on one iPod. So it's not a great example. That's why I like the iPad

01:19:57   But it's interesting.

01:20:01   The other reason I think that Apple is not Microsoft is Microsoft's strengths and advantages

01:20:09   were not in the product.

01:20:14   Microsoft has always been a marketing company.

01:20:16   Where by marketing I mean not advertising, but they've always done a very good job of

01:20:21   understanding their customers' needs and then building exactly what they want.

01:20:26   And that's why they have all the backwards compatibility stuff and all the like multiple,

01:20:31   all the driver issues and stuff.

01:20:32   All that is because everything they do has been, they really have gone all bent over

01:20:39   backwards to meet people's needs, right?

01:20:43   But that doesn't work so well when it comes to consumer products where you can't ask every

01:20:49   consumer what they want.

01:20:50   You have to build like the right product and make them want it.

01:20:55   I've always said that one of the things I think is underestimated is the importance

01:21:01   of the exact order of your priorities. Even if you only care as an institution or even

01:21:07   a person about three things, it really makes a difference which one's number one and which

01:21:12   one's number two.

01:21:13   Because there always come a decision where you have to choose.

01:21:15   Right. Like all I really care about in life is, you know, or I don't know how to say it

01:21:21   but let's say Apple. I still think that their number one priority is creating great products

01:21:27   and great experiences for the users. And maybe number two is doing it at a profit because

01:21:34   the profits sustain everything. But it makes a huge difference that one is in front of

01:21:40   two and that all sorts of things fall out from that, especially in the long run.

01:21:45   It's going to be interesting to see the...

01:21:48   Because it's not that Microsoft doesn't care about experience.

01:21:51   I just don't think that they place it quite as high in the priority list institutionally as Apple.

01:21:55   And then there's, in the long run, there's been profound differences because of that.

01:22:00   Well, and there's different kinds of experiences, right?

01:22:03   To satisfy a business's needs, you often prioritize things other than like the end user experience of actually using the product, right?

01:22:14   using the product, right?

01:22:15   It's because the buyer is different than the user.

01:22:19   And so you prioritize what the buyer values.

01:22:22   And yeah, and I think that's the real kind of big difference

01:22:27   between the consumer market and the business market

01:22:30   is the end user is the buyer.

01:22:35   And that, yeah, that makes Apple's strategy

01:22:38   much more, much better, Apple's priorities,

01:22:42   a much better match for the consumer market.

01:22:45   - Here's another example.

01:22:46   I'll give you an example that I think is very clear

01:22:48   and that this month's Android Wear watches show.

01:22:53   Google and OEMs like LG and Samsung plays a much higher,

01:23:02   well, maybe not much, it's just a different order,

01:23:05   but they place a higher priority on being first to market

01:23:09   than Apple does.

01:23:11   No doubt in my mind, and it's watches to me are proof of it, that they're clearly

01:23:17   rushed.

01:23:18   They're clunky.

01:23:19   There's a lot of – you read the reviews, there's a lot of things that just are half-baked.

01:23:22   You know, Joanna Stern had my favorite review of them in the Wall Street Journal.

01:23:29   I guess it was last week, but great review.

01:23:32   But right now, notifications are all or nothing.

01:23:35   You either say all of your notifications from your phone go to your watch or none of them

01:23:40   at least on an app-by-app basis. So it's like you either have if you want a

01:23:43   notifications for incoming email on your phone then every time you get an email

01:23:46   your wrist is gonna buzz which is maddening at least for some people like

01:23:50   Joanna and it is for me because I've tried it with the pebble but you might

01:23:55   want something like look just these two people my wife and my boss you know when

01:24:01   they email me I want or like in Apple terms the VIP list right if my it just

01:24:06   if there's nothing like that and of course it's going to come eventually but

01:24:09   But that just seems like a, "Why would you buy that?"

01:24:12   And then an even better example, the Moto 360, which is, to me, it's the most controversial

01:24:18   product I can remember in years.

01:24:22   Because so many people on the Android site are saying, "Now, here's a beautiful thing."

01:24:27   And it's like, "No, it's not.

01:24:29   It is not a beautiful thing."

01:24:31   It is better looking than the other two clunkers so far from LG and Samsung, that's for sure.

01:24:38   But it is not a beautiful thing.

01:24:40   And that stupid bar at the bottom of the screen.

01:24:44   Oh, it's awful.

01:24:45   It's awful.

01:24:46   Apple wouldn't ship that in a million years.

01:24:48   And the only reason Motorola is shipping it is because it's rushed to market.

01:24:51   Everything's relative, right?

01:24:52   Right.

01:24:53   Yeah, it looks great compared to the LG, but compared to my watch, it's...

01:24:57   Right.

01:24:58   And clearly, Motorola and the designers and the team that built that Moto 360 place a

01:25:01   a higher priority on design than the idiots at LG and Samsung who made their watches.

01:25:09   And even if they value design as much as Apple, they also have this higher priority of wanting

01:25:14   to ship it as soon as possible. Clearly, I guess, in anticipation of Apple coming out

01:25:19   with something, shipping it before Apple does. And so they were willing to compromise and

01:25:23   ship this thing with a black bar at the bottom of the circle, which is ridiculous.

01:25:26   So here's what's interesting is, you know, because the counter would be, "Oh, that's okay, we're going to iterate, we want to learn from the market."

01:25:32   But in the meantime, they're charging people $225 for these things.

01:25:36   Well, it's not just that, though, because think about it. If you actually realize that you only want notifications for one to two people, do you then need a screen?

01:25:51   Well, that's a good question. Let's come back to that

01:25:53   Let me thank our third sponsor and then we'll do one more segment on the show and we'll start with with that with the watches

01:25:58   I want to thank another

01:26:00   Long time friend of the show our good friends at igloo the intranet you'll actually like

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01:27:38   feature. I think this is, it's obviously turned Igloo into more than just an internet. It's

01:27:43   more of a project management platform for your small teams. Really great stuff. It's

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01:27:54   it. Here's where you go. Igloosoftware.com/talkshow. They've got all sorts of great stuff too.

01:28:02   I always throw this out there. It's free for up to 10 people, not free for like a month,

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01:28:15   go check them out igloosoftware.com/thetalkshow. That's a great point. I think bottom line

01:28:24   is I think you were saying about do you need if you only want notification for one or two

01:28:28   people do you need a screen on your wrist? To me the answer is no. I don't think so.

01:28:34   Just before we actually get into that, and I'd actually love your take, as we've established back and forth, your product sense is much better than mine.

01:28:42   But what's interesting though about these guys rushing to market is they can say that, "Oh, we're just iterating."

01:28:50   But now they're locked into this paradigm, right?

01:28:52   If it turns out that the best sort of secondary device needs only to be screenless, for example,

01:29:02   Like, now they're like, now they're kind of like, it's like they've sailed up a dead end.

01:29:06   Now it's not just that they need to iterate, they actually need to backtrack and like re,

01:29:11   you know, they've actually put themselves more behind than they might have been otherwise.

01:29:15   So that's what would make something like that particularly interesting if they actually were

01:29:20   pursuing the wrong paradigm to start out with. I'm not saying they are, it's just—

01:29:24   Pete: I don't know, but I can't help but think that they are. And, you know,

01:29:27   Joanna Stern's review just went, just explicitly called it, you know, what I think it looks like is they've taken modern smartphones and shrunk them to two inches and put them on a wristband and now they go on your wrist.

01:29:39   And we saw that worked with mobile, right? That's what Microsoft did. Taking it, taking this conversation full circle. They tried, they literally had a start button.

01:29:47   That's true. In the lower left, lower left.

01:29:50   Right.

01:29:51   And I think they might have had it on the upper left just to switch it up a little bit.

01:29:56   - Oh, maybe they did, yeah.

01:29:57   But it was the same thing though.

01:29:59   Tap the start button and get a start menu and go from there.

01:30:02   - Right, and so I really do think

01:30:04   their mobile shortcomings were first and foremost

01:30:08   because they just made a bad product.

01:30:10   And they made a bad product

01:30:11   because they couldn't break out of desktop thinking.

01:30:15   And to me, this is by far the biggest criticism

01:30:18   of Android Wear.

01:30:19   I have a few criticisms, but the biggest one is

01:30:21   it's Windows Mobile 2.0.

01:30:24   It's taking a smartphone and cramming it onto your wrist.

01:30:28   And I, anytime you're shifting a paradigm

01:30:32   or shifting a device, like I think we,

01:30:36   tech history isn't that old,

01:30:38   but I think we can say pretty confidently

01:30:40   that you have to change everything.

01:30:42   And they haven't done that.

01:30:44   And yeah, I'm, for that reason alone,

01:30:47   plus some other reasons, I'm very skeptical.

01:30:50   - You know, and I've gotten some emails,

01:30:52   and I love them, I do.

01:30:54   And I know that my audience, that there's a,

01:30:57   just human nature is such that,

01:30:58   and modern media is such that whether it's,

01:31:01   you know, like national politics or whether it's tech,

01:31:04   that people tend to, they enjoy reading the things

01:31:08   that come from the people who already think

01:31:09   the way they think.

01:31:11   But I do, I love the people who are like big Android fans

01:31:13   who read "Daring Fireball."

01:31:15   'Cause their feedback to me, they seldom change my mind,

01:31:20   but I always consider it, and it's, you know,

01:31:22   To me, it's a great perspective.

01:31:24   And I've already gotten some emails from people

01:31:26   who were at IO and have one of these Wear watches already

01:31:31   and they say that they like it.

01:31:32   I've probably gotten more such emails

01:31:36   than I've ever gotten from people

01:31:37   who tell me that glass is actually for good.

01:31:40   (laughing)

01:31:41   - Well, you're talking about relativity

01:31:44   and setting little bars.

01:31:45   - Basically, saying, you know what, I think it's great.

01:31:49   I love having my notifications on my wrist.

01:31:51   People love Windows Mobile.

01:31:52   - Right, yeah.

01:31:53   I just don't think it's,

01:31:54   I don't dispute that there are some number of people

01:31:57   who do like getting their notifications on their wrist

01:32:00   and just looking at it.

01:32:01   And my big thing with the Pebble

01:32:03   that I just thought was the deal breaker was that,

01:32:07   okay, I tried boring the Pebble and God bless them,

01:32:10   I love their gumption.

01:32:13   But you get a notification

01:32:15   and if it was something you had to act on,

01:32:18   you had to take your phone out, right?

01:32:21   So it's, you know, the one time I was wearing a pebble,

01:32:24   the one time I wore it for a couple of weeks,

01:32:27   that it was actually useful as I was driving my car

01:32:30   and I was going to pick up my son at school

01:32:33   and I got a text from my wife,

01:32:34   and I forget what it was said,

01:32:36   but it was something, it was actually useful

01:32:38   for me to get the text, but I needed to text her back.

01:32:41   So I had to, and I do this, I'm literally,

01:32:44   I'm like a fanatic about it.

01:32:45   I will not use my phone while I'm driving a car.

01:32:47   I had to pull over and park the car for a second

01:32:51   and then text her.

01:32:53   It wasn't that much better than just feeling

01:32:55   the phone vibrate and waiting until I got to the school

01:32:59   and take the phone out and see the text.

01:33:02   It wasn't an emergency, it was not an emergency thing,

01:33:04   it was just, but I had to write her back.

01:33:06   The thing that the wear has is they have the talk,

01:33:09   so that if you do get a text and your hands are free,

01:33:11   you can speak your reply to the thing.

01:33:15   So there is that and that's a huge step over Pebble.

01:33:18   But to me, it is not an inconvenience to me.

01:33:22   It's never felt like a burden to me to take my phone out when I feel a buzz.

01:33:26   Well, I mean, I think they've solved a problem that I don't think many people have.

01:33:31   And I can't tell you how many people have told me over the years, all this time that

01:33:34   watches have been rumored as the next area of innovation in text, I can't even count

01:33:39   the number of emails and tweets I've gotten from people who say, "I used to wear a watch.

01:33:44   were a watch when I was in college, whatever.

01:33:47   Haven't won a watch since I started carrying a cell phone.

01:33:49   I wanna know the time, I just take my phone out.

01:33:51   - So what's interesting is I do think

01:33:53   where it makes a big difference actually is for women,

01:33:56   especially if they carry their phone in their bags.

01:33:59   I mean--

01:34:01   - That's a very good point, right?

01:34:03   That it's harder to find a phone in a bag

01:34:07   than it is to find a phone in your front pocket.

01:34:08   - Yep, and actually in Asia, most men carry bags as well.

01:34:12   Like that's actually another reason why the bigger phones

01:34:14   are a thing.

01:34:16   - And so they've made these watches

01:34:18   that are so appealing to women.

01:34:20   - No, but that's the point.

01:34:22   So actually, probably the best market is women

01:34:25   and these are, yeah.

01:34:26   The video, the listeners have to watch

01:34:30   the Joanna Stern video.

01:34:31   - Right, I'll put it in the show notes.

01:34:33   - We won't give it away, it's really great.

01:34:38   Which addresses that point specifically.

01:34:41   But anyway, the one thing that watches have been best at, ever since they were invented,

01:34:45   is telling time. That's the one thing everybody, I think, would agree is the one thing that,

01:34:49   you know, it's the definition of a watch. Everything else, every other complication

01:34:53   on a watch is like a secondary feature. Primary purpose is to find out what time it is. And

01:34:59   I think for most people, the phone has proven to be a good enough solution. And that, you

01:35:08   you know i can't tell you how many people told me that that the one thing

01:35:10   watches specialize in

01:35:12   people like i always have myself on my pocket i don't wear a watch anymore

01:35:15   let alone

01:35:17   let alone everything else like people who might be texting you pictures and

01:35:21   longer texts and

01:35:23   you know uh...

01:35:25   even on screenshots you know that i don't know there's just so many so many

01:35:28   bizarre compromises in the design of this where and the pebbles the same way

01:35:32   where it shows so few characters because

01:35:35   you know it's a tiny little you know

01:35:38   one point six inch display

01:35:40   and you can't just can't show even like a text message is hard to fit on

01:35:43   and once yeah

01:35:44   uh... the other thing that is

01:35:46   like there's one thing watches are better at and even then people are

01:35:49   going to wear them

01:35:50   right why would they were them for something that

01:35:52   it's worse that

01:35:53   and it's you know and and again repeating myself everybody's made this

01:35:57   point but it's also very decidedly

01:36:00   uh... a generational thing

01:36:02   where the younger you are, the less like you are

01:36:07   to have ever worn a watch,

01:36:09   and therefore why would I do that?

01:36:10   Why would I buy a thing that just tells me the time?

01:36:12   I always know the time I've got my phone with me.

01:36:14   - So I increasingly feel, again,

01:36:18   I don't have a great product sense,

01:36:19   but just kind of thinking through this stuff through,

01:36:22   is one, I think there's gonna be a range.

01:36:27   I don't think there is AI watch or animal watch.

01:36:30   There's gonna be a whole bunch of devices there might be rings there might be watches there might be clips there might be

01:36:35   like you literally might be like ten different things actually um and

01:36:39   Two I think most of them won't have screens. Maybe there will be one or two that do but um I

01:36:45   Don't know that that's kind of thing. Yeah

01:36:48   I don't know I especially screens as we know them which are enormous energy hogs and which is the reason why your

01:36:54   Gear watch has to or Android wear watch has to be charged daily

01:36:59   And I know, I think I said this last week when Whiskas was on the show, but I just think

01:37:04   people are, I think so many tech people are vastly, vastly overestimating what an enormous

01:37:11   burden is to carry even a single device that needs charging daily. And we've all made this

01:37:17   decision. We all have decided that having these modern cell phones is important enough

01:37:23   to do it. But it's an enormous burden. And every time you go to the airport and you see

01:37:27   people sitting, grown men in suits sitting on the floor so they can be near an electrical

01:37:32   socket. That's for one device, right? Asking people to have a second device that you need

01:37:38   to charge on a daily basis and one which requires a proprietary weirdo charger thing that you

01:37:45   have to somehow carry around with you is, again, I'm not saying it's impossible, you

01:37:52   know, clearly the cell phone river. If it's possible to get

01:37:56   everybody to carry one device that needs charging daily. It's

01:37:59   possible to make them have to, but don't underestimate just how

01:38:03   crazy it is that we've convinced everybody to carry even one

01:38:06   device that needs charging. Yeah,

01:38:07   I don't think so. I mean, because you just said you just

01:38:09   said it exactly right. If that one device can do what that

01:38:12   other device. Yeah,

01:38:12   exactly. It was show notifications like you reply to

01:38:16   them. But

01:38:16   like we were convincing me even more like I really don't think

01:38:20   there's gonna be a screen because like,

01:38:22   you know, there's a, you think about it a few ways.

01:38:25   Like, well, one, just imagine the showmanship, right?

01:38:27   It's gonna be like the whole like,

01:38:28   the iPhone has no buttons,

01:38:30   while the iWatch has no screen.

01:38:32   But I think you have to think about it.

01:38:34   Like, you think back to the iPod.

01:38:36   Like, what made the iPod so transformative?

01:38:40   It was that it removed features from music players, right?

01:38:44   There were music players on the market,

01:38:46   but they had all these fiddly things to change controls.

01:38:49   I mean, yes, part of it was the thousand songs in the pocket

01:38:51   and the design, but a big part of it was iTunes.

01:38:55   It was that all this complex management stuff

01:38:59   was removed from the device

01:39:01   and put on a much more suitable device.

01:39:03   - Yeah, using it felt like going downhill, not uphill.

01:39:07   - Right, exactly.

01:39:08   Like, all it did was like what only it could do,

01:39:11   which was play music on the go.

01:39:13   And actually managing playlists

01:39:14   and all that sort of stuff you did on your computer.

01:39:17   And over time that changed.

01:39:20   Like now my phone has never been connected

01:39:23   to my computer, right?

01:39:24   But that took like over a decade, right?

01:39:27   I think watches or these wearables

01:39:31   are gonna start the same way.

01:39:32   Like their function will be something

01:39:34   that only they can do, that a watch cannot do.

01:39:37   It's probably, some of it's gonna be the sensor stuff,

01:39:39   some of it's gonna be, I think that,

01:39:40   I do think there'll be a notification thing,

01:39:42   but it will be the like only your favorites.

01:39:45   Like you can do favorites on your phone,

01:39:46   those will be the only ones. And people will bitch and moan about how limited it is. But,

01:39:51   and then all the other stuff will be on the phone. There won't be, I don't think there will be,

01:39:56   there will be minimal, if any, duplication between what one does and what the other does.

01:40:01   And on the flip side, I think Apple is going to try to make these not tech devices that look good,

01:40:08   but fashion accessories that happen to have electronic functions.

01:40:13   them. Right. You've got to work backwards. And it's a, you know, I'll paraphrase it,

01:40:16   but it's a Steve Jobs quote that you've got to work backwards from the experience,

01:40:23   what it is you want to do to the technology and not the other way around. And to me, these

01:40:27   Android Wear devices are exactly the opposite. It's starting with, and Google even said this

01:40:33   explicitly on stage at I/O, it's now possible to build a smartphone-like device that fits

01:40:39   on your wrist. And it's true that that wasn't possible before. That it's, it's, you know,

01:40:45   great increases in miniaturization, great increases in, you know, it, you know, just the ability to

01:40:52   power the power of this little tiny screens, even for a day does require new technology.

01:40:58   And Bluetooth LTE is new technology so that you can actually maintain a tethered connection.

01:41:03   Even if you know, one day's battery life is crappy, I think for a watch, but it says something

01:41:08   that you can keep a Bluetooth and all the reviews indicate that you do get a full day

01:41:13   out of the thing. That's new technology. But it's all working backwards from we can do

01:41:17   this so let's do it and here it is instead of starting with what would actually be a

01:41:22   good experience for a thing you wear on your wrist and what would look good.

01:41:25   Dave Asprey No, exactly. I do, I have one more question

01:41:29   for you. That I'm actually curious your take on. So that's my, we just nailed my big criticism

01:41:35   and Android Wear and Wear I don't think, like I think it's a misstep. I think it's Windows

01:41:41   Mobile. My other question is what you think about Google now.

01:41:48   I, you know, I think it's, I wrote just a little thing about it when I linked to Joanna

01:41:56   Stern's review today. But I do think that's where there's the

01:42:00   most potential in Android or Google based wearables is that

01:42:09   Google to me, I think has best of breed speech understanding

01:42:15   speaking.

01:42:15   Oh, yeah, it's amazing. It works every single time.

01:42:18   Yeah. And I think Siri has gotten better. I really do. I

01:42:21   use it all the time walking, walking around the city while

01:42:24   while texting, I'll do use the speech and I serious the umbrella term, not Siri, the

01:42:28   intelligent agent, but Siri, the hit the microphone next to the spacebar to dictate a text. It's

01:42:35   gotten better, it's gotten more accurate, and it has gotten the latencies improved,

01:42:39   and it works better over cellular, but it still is not as good as Google's. And that's

01:42:42   because I think Google's is isn't standing still on that either. Right? Best of breed,

01:42:46   Google's best best of breed for speaking to a device and understanding it quickly. And

01:42:52   I think there's a lot of potential there for wearables.

01:42:55   But my problem is I don't buy into the,

01:42:57   let Google know everything about me.

01:42:59   I don't use Google Calendar.

01:43:00   I don't want Google knowing my location.

01:43:04   I'm genuinely creeped out by all of that.

01:43:06   - Well, what if you weren't creeped out though?

01:43:08   Like, do you think that's something

01:43:09   that you would find useful?

01:43:11   I mean, the reason I ask is to me,

01:43:15   I feel this is a,

01:43:17   there's a really interesting interview

01:43:20   with Vinod Khosla of Khosla Ventures and Larry Page and Sergey Brin earlier this week.

01:43:28   And they talk about this a bit.

01:43:30   And I feel there's just a fundamentally different view of computing between Google and Apple.

01:43:37   And it really is personified right now more than anything by Siri versus Google Now.

01:43:41   Yeah, I think that's a good point.

01:43:43   I think I know where you're going with that.

01:43:44   And part of it is I've been reading these reviews of the Wear devices.

01:43:48   And a lot of what you see on them isn't what you've asked for.

01:43:51   It's what Google thinks you want to see.

01:43:53   Right.

01:43:54   And like Google…

01:43:55   You don't say, "Show me my flight."

01:43:57   It…

01:43:58   You've put your flight in your calendar and at a certain point Google says, "Hey,

01:44:02   you've got a 1 p.m. flight and it's 1030 in the morning and it's going to take you

01:44:07   at least 45 minutes to get there."

01:44:10   And it comes up…

01:44:11   You didn't ask for it, does it?

01:44:12   And I've seen a couple of reviews mention weather is like that.

01:44:15   Like, you'll get like a weather thing and once you dismiss it, you can't make it come

01:44:19   back.

01:44:20   There's no way to say, "Show me that weather card I just dismissed."

01:44:22   They show you the weather when they think you'd want to know about the weather.

01:44:26   And I think I would find that maddening.

01:44:28   Well, yeah, one thing that was interesting that…

01:44:31   No, exactly.

01:44:32   It's they… their view is anticipating your needs and like taking care of them for

01:44:39   you.

01:44:40   it really is a um...

01:44:42   uh... you know, Larry Page said like that's why the "I'm feeling lucky" button was there

01:44:46   because "I'm feeling lucky" is what Google...

01:44:48   that's Google's ideal vision of Google search

01:44:51   is that actually everyone always can hit "I feel lucky" because it will always serve

01:44:55   exactly the right result

01:44:57   and

01:44:58   but their vision now is even past that it's like you don't even have to type

01:45:01   something in the box like they will know what you want and give it to you

01:45:04   and it's like

01:45:05   it really is uh...

01:45:07   uh...

01:45:08   Benedict Evans, we mentioned earlier, posted a tweet during Google I/O of saying,

01:45:14   he posted a picture of the scene from Wall-E, where everyone's fat and sitting in chairs,

01:45:20   and all their needs are being addressed. He's like, "Oh, Google and Apple are racing here."

01:45:24   And I wrote in a piece, I'm like, "Actually, I think Google is going there,

01:45:29   but I think Apple is very explicitly not going there."

01:45:33   And it goes back to Steve Jobs saying the computer is a bicycle, right?

01:45:38   A bicycle is still subject to a human's direction and a human's propulsion.

01:45:44   It just enhances that.

01:45:47   It's not a self-driving car taking you where you want to go.

01:45:52   And you see that with Siri.

01:45:54   Siri doesn't anticipate your needs.

01:45:56   It only responds to questions.

01:45:58   And I don't think that's a technical limitation.

01:46:01   I think it's a philosophical one.

01:46:03   And to me, I think that's something that is really

01:46:08   a question of who's going to own the future.

01:46:10   Because if Google's right, they will own the future,

01:46:13   because they're so far ahead of everyone.

01:46:17   But if computers stay a tool, then Apple and their user

01:46:25   experience and all that sort of stuff

01:46:27   will continue to differentiate them.

01:46:29   Yeah, maybe it's not either or either. Maybe it's a bifurcation and one group of, depending

01:46:39   on your personality, is drawn to one side and one's drawn to another. And it comes back

01:46:43   to, I think, what Benedict Evans had written this week about that ever since 2007, iOS

01:46:52   and Android have been converging and that they've been picking up the same feed. Google

01:46:57   picked up Drag From The Top for notifications first and then Apple picked it up and Android

01:47:03   picked up a whole bunch of features from that iOS. It was way ahead of them as the years

01:47:07   went on. But then eventually they picked up all—both of them got all the low hanging

01:47:10   fruit and with this year's iOS 8 and Android L announcements, now you're seeing them

01:47:15   go in different directions. I think you're talking about the same sort of thing, I think.

01:47:22   Maybe they're both sustainable. Maybe it's not, but that they appeal to very different

01:47:26   people. I don't know. I think one of the most telling things I've read about Android Wear,

01:47:30   I haven't written about it yet, but it was Ron Amadeo's review in Ars Technica of Android Wear,

01:47:39   just the software, which when I first started reading it, I thought I expected to roll my

01:47:45   eyes because I thought it was a weird idea to review the software in the abstract as opposed

01:47:53   to the actual experience of the watches it on the actual devices but you know to

01:48:00   their credit ours did have reviews of the watches but and Ron's review of just

01:48:05   Android where was interesting because it just sort of focused on the philosophy

01:48:08   of it and yet you know it emphasized these things that a lot of what you see

01:48:12   on it is what Google thinks you want to see and that you know and he mentioned

01:48:17   specifically with the weather that it was frustrating that you couldn't just

01:48:20   bring it back up. And that to me would be maddening, but I think it's also very telling

01:48:25   about the philosophy behind it. And I think you're exactly right, that it is, philosophical

01:48:35   differences is that exactly. And I saw the interview, I didn't read the whole thing,

01:48:40   but I saw the interview with, where was that? I should probably link that up too, the interview

01:48:44   with Sergey. I think the gist of it was that he was saying that eventually the algorithms

01:48:49   are going to be smarter than us.

01:48:51   Right.

01:48:51   I mean, it really-- it's interesting, too.

01:48:53   And I think this is part of the thing why Google tends

01:48:59   to have such a hold on geeks in general,

01:49:02   is it's always been a very geeky domain.

01:49:07   Geeks aren't afraid of AI.

01:49:09   They're not afraid of robots.

01:49:11   They're intrigued by them.

01:49:12   They're drawn to them like moths to a flame.

01:49:15   And Google has always been very much in that sort of vibe.

01:49:20   But what's really interesting and is going to be--

01:49:23   you see it starting to play out now, it's going to play out even more--

01:49:25   is as tech has kind of spent the last 30 years eating itself, right?

01:49:30   We disrupt each other and all that sort of stuff.

01:49:33   But now as it's touching every part of society,

01:49:36   you're getting people who don't think about this, who really

01:49:39   do see computers as tools, right?

01:49:42   They help them get stuff done.

01:49:45   now they're encountering this, they're encountering stuff like Facebook and the testing and all that, which to most geeks it's A/B testing, but to someone else it's like, what the hell is going on here, right?

01:49:55   And I think it's going to be really interesting to see as this kind of collision happens with society as a whole and they start waking up to this kind of like, what is almost we're used to,

01:50:08   I suspect that actually that I obviously think it's going to play out more in the computers as tools and it's on most people view them and want them to operate.

01:50:19   But maybe Google's right and people do want, you know, personal assistance.

01:50:25   All right, and that algorithms can deliver a satisfying...

01:50:30   Superior.

01:50:31   Yeah, or superior, right.

01:50:33   I mean, that's the whole...

01:50:34   I mean, it's not even new.

01:50:35   It's not...

01:50:36   It's certainly not a new direction for Google.

01:50:37   It's new terrain in the same direction.

01:50:42   You know, like Google News, that's the whole point between Google News is that you could...

01:50:46   Which, you know, I don't think it's a major product for them anymore, but the basic idea

01:50:50   behind it that Google could algorithmically predict the most important news and the news,

01:50:56   I guess, personalized that would be most appealing to you as opposed to the editors of the New

01:51:01   York Times or the Verge for technology or whatever.

01:51:08   What's so interesting though is Google's big product still is today is search. And search

01:51:14   is actually much more, if we're going to call this divide like an Apple-Google divide, it's

01:51:18   much more on the Apple side of things. It's directed. You go there and you put in a word

01:51:24   and you click the button or you press enter.

01:51:26   Right. It's the one Google product that Steve Jobs has adamantly said is a great product.

01:51:30   Exactly. It's funny because what Google is pushing for is actually different than what

01:51:38   their big successful product is.

01:51:40   Yeah. Yeah. That's a great point. I agree with that. Briefly, because I don't want to

01:51:45   go past the two hour mark.

01:51:46   But one last thing I wanted to speak to you about while I had

01:51:49   you, and I'd loathe it if I didn't,

01:51:51   is that just yesterday it broke that Apple has hired--

01:52:01   Yeah, Tag Heuer, the sales director.

01:52:03   Yeah, sales director, sales executive

01:52:05   from Tag Heuer, a high end luxury watch brand,

01:52:09   which is part of-- it's not like an independent brand.

01:52:11   It's part of--

01:52:12   LVMH.

01:52:13   LVMH, which is Louis Vuitton.

01:52:15   What's the MH stand for?

01:52:16   - I always get the M wrong, 'cause H is Hennessy.

01:52:18   It's a Mo, I think it's like the champagne brand

01:52:22   or something, isn't it?

01:52:23   - Well, it's a--

01:52:24   - I get this wrong every single time.

01:52:25   - Oh, I know the, all right.

01:52:26   So, but anyway, French conglomerate

01:52:28   that owns Louis Vuitton, Hennessy, you know,

01:52:32   true conglomerate, 'cause it's part of their stuff is--

01:52:34   - Moet, M-O-E-T with the little, with omelet on it.

01:52:37   - Right, so, you know, I think it's fair to say

01:52:40   that any company that owns both Louis Vuitton

01:52:42   and the champagne and cognac brand is a conglomerate.

01:52:47   But obviously there's a certain, you know, it's luxury.

01:52:52   It's quality, it's branding.

01:52:56   They've hired a sales executive from Tag Heuer.

01:53:00   And that joins Paul Deneve who came from Yves Saint Lawrence

01:53:04   and most famously Angela Arenz.

01:53:06   - Burberry. - Burberry.

01:53:11   And I wrote about this and said that I would include Jimmy,

01:53:15   Yovine, and Dr. Dre in that group.

01:53:17   And that's all I said last night.

01:53:19   And I got a lot of stuff like,

01:53:20   ah, Beats isn't a luxury brand.

01:53:23   And I realized luxury is the wrong word.

01:53:24   And this is the clarifying thing I added today,

01:53:28   is that I include Yovine and Dr. Dre

01:53:30   because I don't think Beats is a luxury brand,

01:53:32   but I don't think luxury is the right word

01:53:34   to explain these hires.

01:53:35   It's about some kind of like circling around taste,

01:53:39   style, branding.

01:53:41   Yes, see, Beats is a luxury brand, though.

01:53:43   It's a luxury brand the same way Apple is a luxury brand.

01:53:45   Right, well, and then I even said,

01:53:48   here's where I think when people say I'm worried about this,

01:53:50   I'm worried about the direction Apple's going,

01:53:51   is think about this.

01:53:52   The iPhone is nothing like Virtu,

01:53:55   where you buy like a $6,000 Symbian phone,

01:53:58   and it's got leather and jewels on it.

01:54:02   And Beats isn't like Virtu either, right?

01:54:03   Because I never see people walking down

01:54:05   the street with Virtu phones.

01:54:07   But every single day in Philadelphia,

01:54:08   I see people wearing-- especially,

01:54:10   it's certainly come to my attention since Apple bought them. I see them every day. I

01:54:14   see people wearing Beats every single day in Philadelphia. And Virtu's not like that.

01:54:19   Beats is like an Apple luxury brand where it's accessible luxury.

01:54:23   Right. And depending on your taste in music, it's as good of-- people are going to crucify

01:54:29   me for this. It's as good of a performance you can get, right? People like that sound.

01:54:34   I know it's not technically accurate.

01:54:36   Right. It's, you know, it's, you know--

01:54:39   The point is most people don't feel like they're sacrificing.

01:54:42   To use a virtue, you're sacrificing.

01:54:45   You're not using an iPhone.

01:54:46   Right, exactly.

01:54:47   Or they make androids and all that.

01:54:50   And don't you think there's some quality in a certain sense?

01:54:55   Somebody told me, for example, and this is the sort of thing, I don't know a lot about

01:54:58   headphones.

01:54:59   I really didn't know a lot about Beats before Apple bought them.

01:55:00   But one guy wrote me and said, "You know why I buy Beats headphones?

01:55:03   They have an amazing return policy and they take care of you."

01:55:07   He said, "I bought a pair of Beats, cost me 300 bucks, and like nine months later they

01:55:10   broke and I took them back and they just took them and gave me a new pair.

01:55:13   No questions asked."

01:55:14   And he goes, "That's, it can't be Beat and you don't get that sort of thing from other

01:55:18   companies."

01:55:19   Yeah.

01:55:20   Making people happy and building a relationship.

01:55:23   I don't know a ton about Beats specifically, but what strikes me about these…

01:55:29   Yeah, I'm more interested not in your take on Beats, but just on the hiring of, you know,

01:55:35   or two could be an outlier but it seems to be a trend.

01:55:37   Yeah, I mean to me that suggests one that the wearable thing is multiple things. Two,

01:55:44   that they're focused on fashion first.

01:55:48   Yeah, you know I missed that word. Fashion is an important word, I think.

01:55:52   But three, I thought it was most interesting that this guy was the sales director.

01:55:56   Yep, I thought so too.

01:55:57   Because that's a completely different kettle of fish than retail which they already do

01:56:03   or the CEO, which you could certainly see him tie more into the product side of things.

01:56:08   But this guy is not doing product.

01:56:10   He's not actually making the things.

01:56:11   He's selling things.

01:56:12   He presumably has connections with these Asian department stores that sell LVMH products

01:56:20   or with the duty-free shops over here that-- I'm not over here anymore-- but that sell--

01:56:29   that sell champagne, that sell all the perfumes.

01:56:34   I think Christian Dior is part of them

01:56:36   and all that sort of stuff.

01:56:38   That's super interesting because it's not just

01:56:41   that Apple's doing a new product,

01:56:42   but they're talking about a new channel,

01:56:43   a new distribution strategy.

01:56:45   And I would suspect that errands would have a lot to say

01:56:49   about that as well.

01:56:50   Because the traditional Burberry outlet,

01:56:54   yes, they are in the same place as Apple stores.

01:56:56   Apple stores have been in malls and stuff like that.

01:56:59   Like, there's not a Burberry in your typical suburban mall.

01:57:04   There is a Burberry in like the, you know,

01:57:08   the Hong Kong airport or like the Taipei 101 building,

01:57:11   which is like these super high-end shopping destinations.

01:57:15   - Right, or like the shops at Caesars

01:57:18   right in the middle of the most,

01:57:20   the best intersection of the strip in Vegas.

01:57:22   - Right, and Apple does do that internationally

01:57:25   with their stores.

01:57:27   So this is something that's really interesting too,

01:57:28   that's really interesting about analyzing Apple.

01:57:31   And I wanted to get this, it's like,

01:57:34   it differs by region, right?

01:57:36   The way Apple presents itself in the US

01:57:40   is different than they're presented in,

01:57:42   like China, for example,

01:57:43   where it's much more of a luxury good

01:57:45   and their stores are next to,

01:57:47   it's next to the Louis Vuitton store,

01:57:49   whereas in the US it's famously,

01:57:51   they're always next to Victoria's Secrets.

01:57:54   It's just a different, it's a different presentation and--

01:57:58   But yet they also have, for example, a true flagship destination store on Fifth Avenue

01:58:05   in New York.

01:58:06   Oh, for sure. Yeah, they do both in the US.

01:58:08   They do both, right. They're right there on Fifth Avenue with the true flagship, you

01:58:13   know, almost sickening when you see how many people take pictures in front of it with all

01:58:19   the other landmarks in New York. But yet, at the same time, they're at the Burlington

01:58:24   Mall in New Hampshire.

01:58:26   And the other thing is this is why Apple will never release a low-end iPhone, right?

01:58:32   Because that would hurt their brand in other parts of the world.

01:58:40   And so it's super interesting, hiring the sales guy, because that also makes me think

01:58:47   that you're not going to get into these stores selling a smartwatch that looks good.

01:58:53   You're gonna get in these stores by selling a desirable object that also has this functionality.

01:59:02   And that's, again, I don't see there being a bulky screen on it.

01:59:06   I don't see there being a charger with it.

01:59:07   I think I see it being something that's very, a range of things.

01:59:12   I don't know.

01:59:13   It's super interesting.

01:59:14   Yeah.

01:59:15   Let me correct myself.

01:59:16   Rockingham Mall, Rockingham Park.

01:59:18   That's where I used to go to the Apple Store when I lived up in Massachusetts.

01:59:21   It's great that we know more about suburban malls than we do the names of luxury goods

01:59:24   companies.

01:59:25   In beautiful Salem, New Hampshire.

01:59:28   Yeah, I totally agree.

01:59:30   And like I said, I stand by this.

01:59:32   I really do.

01:59:33   In the weeks since I wrote it, I really do think that it has to start with a design that

01:59:41   before you even see what it does, when you hold it up, that you say, "Ooh, I might

01:59:44   buy that and wear it."

01:59:45   Yep.

01:59:46   It has to.

01:59:47   that sounds, there's a certain logical minded engineering mindset out there.

01:59:55   And I think sort of people who might be drawn more towards the Google side of things than

02:00:00   the Apple side of things who thinks that's crazy.

02:00:03   Why in the world would you, why would that matter?

02:00:06   It's function first, right?

02:00:08   And I'm telling you that for me, and I think for the mass market, you've got to start with

02:00:12   something where you just hold it up and before you turn it on, people say, "Oh, I want that."

02:00:16   I hate to say it, I think the iPhone was like that.

02:00:20   And I think the most amazing thing about the iPhone was what the software did and how the

02:00:24   screen worked.

02:00:25   But I think it could have just held that up and not even turned the screen on and said,

02:00:29   "Here's the iPhone."

02:00:30   And people would have been like, "Oh, where do I get in line?"

02:00:32   So what's interesting is this takes it full circle, right?

02:00:34   Because we just talked about the beginning where the hardware actually wasn't Apple's

02:00:38   most important thing, it was the software.

02:00:40   But in a lot of ways, for a new category, it's the hardware that gets you in the door.

02:00:45   And then you hook people and now they're stuck on the software and they're not going anywhere.

02:00:51   Right.

02:00:52   Yeah.

02:00:53   It's never, never…

02:00:54   There are certain areas where the software is more important and certain areas where

02:00:57   the hardware is more important, but it never, never…

02:00:59   You're always in trouble if you start saying that Apple is either a hardware company that

02:01:04   does software well or a software company that does hardware well.

02:01:09   You got to see it as a virtuous cycle.

02:01:12   Neither is more important than the other.

02:01:13   just there's certain aspects of the product cycle where one is more important than the

02:01:18   other. All right, let's call that a show. Ben Thompson. Thank you. Where can people

02:01:23   find more people who want more Ben Thompson can go to let's say there's Stratechery.

02:01:27   Ben Thompson 0:

02:01:27   Stratechery. S T R A T E C H E R Y.com.

02:01:31   Trenton Larkin Yeah, just Google Ben Thompson blog.

02:01:33   Ben Thompson 0.0 0.0

02:01:34   Ben Thompson I show up. I show up at first people always give me a hard time because

02:01:38   my website's like official name is Stratechery by Ben Thompson. But with a name like Ben

02:01:43   Thompson you have to like yeah, I don't want to make sure you I

02:01:46   don't blame you one bit. There's the exponent podcast. Yeah, I've

02:01:50   been listening to very good. That's an exponent dot FM. I

02:01:54   correct them. Yep. I just did that by memory. Yeah, no, I

02:01:57   like I think. I don't know if Marco started it. That's where

02:02:00   I was where I got it from was the whole FM for podcasts. Oh, I

02:02:03   think it's great. Yeah. Yeah. It gets totally memorable. And it's

02:02:07   easy to get names too. Because it costs like 80 bucks a year.

02:02:09   Right? Which is high enough that people aren't gonna squat on it.

02:02:12   Right, but not like crazy. So yeah, it's funny

02:02:15   You get to be an adult and you have 80 bucks a year and it's actually a good thing

02:02:20   Whereas I remember I started registering domain names and it was like, what do you mean you want $15 a year?

02:02:25   I just registered one for $8 a year

02:02:27   It was funny those I I have my domains registered at a company called Gandhi

02:02:32   Yeah, and and they tell you like how much you've spent on domains. Oh, that's terrible. Why would you do that?

02:02:39   - I know, it's pretty, 'cause now it's been years, right?

02:02:43   I've been carrying domains for like 10, 15 years

02:02:46   at this point, it adds up.

02:02:48   - Oh my God, yeah, it's like when Mike Montero

02:02:50   was on this show, it's like you never tell an addict

02:02:52   how much they've spent.

02:02:53   - I know, it's so true, yup.

02:02:55   - Like you get a bar tab, but they don't put like a thing

02:02:58   at the bottom of your bar tab that tells you like,

02:02:59   here's what you've spent year to date.

02:03:01   (laughing)

02:03:02   Right, nobody would do that.

02:03:04   Like your beer distributor does not give you a year to date

02:03:09   tab

02:03:10   the crazy

02:03:11   well anyway last but not least on twitter excellent twitter account you

02:03:15   are uh...

02:03:18   monk m_o_n_k_

02:03:20   bent b_e_n_t_ as in ben thompson that's me

02:03:24   uh... so thank you very much great show this is absolutely great i think it was

02:03:27   uh... worth it just for thinking of android where as as windows mobile two

02:03:31   point oh

02:03:33   alone 'cause to me that's it

02:03:35   just put that

02:03:36   finger right on the middle of the button of what I see as being the problem with it. Anyway,

02:03:40   thank you, Ben.

02:03:41   Ben: Good to be here.

02:03:42   I'm hitting stop.

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