a16z Podcast - a16z Podcast: Apple and the Case of Invisible But Audible Innovation

Episode Date: September 13, 2016

"Apple isn't just a tech company; it's a tastemaker." Remember the iconic ads of dancing silhouettes in black, with only the headphone wires visible in white? They were a critical part of the larger buy-Apple innovation narrative. So what happens now when those wires -- an emblematic and enduring image -- are no longer visible, as is the case with the removal of the traditional headphone jack in iPhone 7? It's part of a broader story, both about how product narratives are shared/told and about how innovation happens: "amazingly", subtly, and sometimes, invisibly. Some innovations, like preventing "battery anxiety" or building a platform ecosystem or even laying the tracks for a train that hasn't arrived yet ("ear computers" or "audible computing"? VR/AR? car?) take time. And a direction we may not be able to anticipate from the outside looking in. ...Or so argue the a16zers on this episode of the a16z Podcast featuring in-house analyst Benedict Evans and board partner Steven Sinofsky with Kyle Russell.

Hi, everyone. I'm Kyle Vossel here with the A16Z podcast. I'm joined today by Benedict Evans, our in-house expert on all things mobile, and Steven Sinovsky, former head of Windows and aspiring amateur photographer. We're here to talk about a couple of things that Apple announced last week, like a new iPhone with, controversially, no traditional headphone, but a fancy new camera, an updated Apple Watch and wireless AirPods that solve a lot of the problems that we've seen with previous Bluetooth headphones. In addition to talking about the specific updates themselves, we're also going to dip into what they're, they imply about where Apple is going and where Apple is in terms of the iPhone sales cycle. So I think there's a couple of meta narratives coming out of Apple's event that are maybe worth talking about and maybe we can kind of figure out which we want to get to first. Well, I mean, I think I'd agree. I mean, there is a sort of a wonky financial analysis piece here around like what is the cycle and the super cycle and Apple previously replaced the

case design every two years and now they've gone three years and what's going on and what about what's going on with people who are on upgrade plans and who are on subscription plans and so on. I think I sort of said last week, thank God I don't need to think about that stuff anymore. You know, there's a margin in the ASP and the case design and the China distribution and so on. And, you know, that's part of shifting out of the kind of the explosive growth phase. I mean, there's two or three different things to talk about here. First of all, there is the iPhone sales cycle and the refresh cycle and how often they change the case and how often people buy a new phone and whether people buy a new phone every one year or two years or

18 months or something. There is a second piece around the iPhone growth and smartphone growth slowing down because frankly most people have got a phone and most of those phone sales are smartphones and Apple's got the top end of that and there was only so far that that was going to grow. And with that is the slowing in the perceived improvement in smartphones because the difference between no smartphone and a smartphone is big but 10 years on the smartphone growth is a bit smaller. And then there's a sort of a third piece around like interesting things Apple has done around the camera, around wireless, around the wireless headphones, maybe a couple of other bits and pieces. And then there's a sort of a final point to think about, I think, which is we know,

well, what is going to happen next for Apple? And we can probably kind of leap back onto that at the end. But it's like, you know, the VR thing is a couple of years away. The car thing, if there's a car thing, is a couple of years away. The TV thing has kind of happened, and that was a bit of an anticlimax because everyone actually TV. This TV story turned out to be phones. And so there's a kind of a gap

in the Apple innovation story for the next couple of years, which is going to be filled with people saying, oh my God, Apple can't do anything anymore. I think you'd want to be careful there. There's a gap in what the press perceives as step function innovation. Yeah.

There's a gap in big, because the amount of innovation that's in this iPhone, you know, I would argue is on par with the entire rest of the software and hardware combination that's out there of makers and operating systems. I mean, Phil did the list of ten things, but each of the ten things has several underneath it. That's a combination of pure hardware, firmware, software, and services.

So there's like a monster amount of innovation. There's just not like the new thing that's going to replace everything. There's a steady line in which this stuff gets amazingly better every year. Yeah, amazingly is important. Because it's not, we're not talking about, you know, like we're talking about scenarios that change. We're talking about new use cases. This is not just making everything 10% better every year. There were a couple of generations ago a point where it was, oh, wow, their custom silicon is really getting faster really quickly.

50% leap. Everyone was talking about it. But now we're in kind of the third year of that since the iPhone 5S. And it's, okay, it's 50% faster again. That's impressive. And, you know, you kind of get numb to it, I think. And that's like a thing that I'm, as you can tell, I get overly sensitive to because, you know, working on office for a very long time, you know, you would do some release of office and then everybody would say there's no new features in it. And you're like, well, we just spent like a thousand people in two years making features. There's clearly something in it. And like the flip side is like, you know, the iPhone six, whatever is not the pinnacle edge of achievement that that humankind will ever have in mobile communication devices. Like it's not like the end of everything. I think it can get very discouraging. for people out there every day in startups trying to innovate because it draws this bar

that's either like you do something that's like a computer invention that's never been done before or you don't bother. Yeah, I think that's true. I mean, there's a comment someone made that basically if Apple had put out a new phone that had exactly the same components, but the case has had angled edges instead of round ages, people go, oh my God, Apple's innovated again. It's like, well, yeah, maybe. And there's a rumor going around that Apple is working on a sort of a composite zirconium

aluminum case or some kind of ceramic casing for the next version of the iPhone if they do that people will go oh my god this is amazing but actually the chips inside will be 50% faster and they'll be doing all kinds of interesting new wireless stuff again I mean there are two sort of specific things that they did with all of this innovation one is the camera

and the other is the wireless earphones which I think are both kind of equally interesting and so Stephen is the camera nerd so tell us talk cameras I'm excited I mostly just I actually really want to go use it, and I haven't had that chance yet. So I definitely am of the camp of reserving judgment. I think that there's one of the neat things about cameras is that there's a lot of technology you can draw from the high-end digital SLR world, where they've been doing auto-focus and

depth of field and all sorts of detection and face detection for a long time. A lot of the consumer point shoots all have face detection. And anybody's used Photoshop knows that once you know a region, You can do a lasso selection around it, and Photoshop has gotten increasingly better, and then there are add-ins that do an even better job. And Apple, you know, in the announcement, says they're taking it a step further and using some form of machine learning. And to me, that that could be like a big deal, or it could just be a different kind of more modern implementation of what you see in Photoshop today, which is just face detection. And then the use of Boka, which I'm glad to see, you know, put this cool vocabulary word on the tip of everybody's tongue. the industry that aren't a much photo. Although there are many photographers amongst the press

who've written some very excellent pieces about the innovation there. You know, Boca is a thing that really makes photos like much, much better. It's like if you ever watch the guys that do the sidelines of the NFL, the people that do those, you know, they're using these super long lenses and part of it is to make sure

that the background is faded away. And there's a lot of technology, history, 50 years of optics to do a really good job there. And the funny part is, is that all along Photoshop's been able to fake it. and fake it, like, super, super, well, they could put all the 50 years of optics into one filter and change it.

So there's a lot of opportunity to see what will happen. I suspect that this is also going to drive a wave of the apps that replace the camera app for a student high-end users to, like, go put more features in for this. You see this today in, like, the apps that allow you to do the miniaturization mode, tilt shift, where it looks like a Godzilla movie

or old-school special effects. And, like, that's just another lens with a bunch of optics. Yes, and that's being done in software. And having a telephotal lens, of course, is super cool. You know, they're constrained by the physics of the phone, like, to really do a good job on telephoto. So that's why a lot of us have, like, the carry-around extra lenses. You know, and improving the optics, improving the aperture in general, it's just great.

And it's just digital, and it's just going to keep getting better. And it's also an example of something. I mean, it's been around, this is not the first phone with dual lens. It's not the first phone that's had Zumes. It's something where it's easier for Apple to create a really great customer experience because Apple knows what lens and what GPU and what image processing chip is in the phone. Whereas when you are at Android or at Samsung,

you've got that kind of disconnected experience where it's not all linked together. Yeah, the biggest example, I think, from the event of this integrated engineering, you know, basically from the chip set all the way up to the service and the user experience, was just the Bluetooth pairing. Yeah.

I mean, under the covers, there is a lot of Bluetooth. And then they somehow magically got rid of typing in like four-digit number or figuring out how to tap it three times or any of this other stuff, to enable not just pairing, but secure pairing, and then roaming pairing across multiple Apple devices. Yeah, so this is the airport, which is the other thing. So there's a camera on the one hand. I think, I mean, to kind of leap back on the camera,

there's a point on the camera which is like when they put the fingerprint sensor out, they launched it a year before Apple pay. And so what Apple tends to do is to do this new hardware thing. And then, but with like two or three or four things that they plan to do with it over time. And they launch it with one use case. It's kind of how Apple does an MVP. It's a launch one use case, and then you get more use cases over time as more stuff gets built. So it may be that this camera does other stuff beyond just taking better pictures.

Well, it absolutely can. And so it's just a matter of them, they're going to pick some stuff for it to do, and it'll be super cool. So the thing people particularly talking about is ways of thinking about doing 3D, maybe doing depth perception, maybe doing some kind of 3D capture. There's a lot of kind of, until we get our hands on the thing, it's not quite clear because then you have people saying, well, if you've got two different focal lengths, then you can't. you can't really do 3D, and the sensors aren't far enough apart. But there's also the flash and adding more LEDs to the flash, that one of them can just be infrared, it could be a laser. There's like a lot of stuff that they could potentially do.

Once they've carved out the space, the ability to deliver the component. I think it's also a good example of Apple doing something subtle that is very helpful in real-world usage but isn't necessarily a whiz-bang feature in that you talk to any photography nerd and they'd say, oh, well, you know, digital Zoom, as most people do on phones when they're at a concert or at their kids, you know, school event. Yeah, you pinch and zoom, and rather than actually zooming in with the physical lens,

it's cropping the photo and you get a blurrier final output. And so having just the second lens where you tap 2X zoom, same quality, but you didn't have to move with your feet, that's something where in the real world, people will actually benefit from it with the exact same usage behavior. I think there's a way I've heard someone talking about this, which is that Google tends to talk at great depth and detail around what they're doing with their algorithms.

Apple, on the other hand, tends to talk at great depth and in great detail around what they're doing with their hardware and you get all the videos of Johnny I of talking about milling hardware as though he's Mies van der Roe describing a skyscraper. You know, it's like we have to express the form, yeah, but they don't talk at all about software. Yeah, and so you get this kind of hand-wavy, well, it's machine learning. And like, until everybody started saying Apple doesn't know how to machine learning,

if no one had said Apple doesn't know how to do machine learning, I bet they wouldn't have said this of machine learning. There's just like, it's software, just trust us, it'll take a good photograph. Yeah, but there's, I mean, it's a good lesson in there, too, that, you know, a product launch is a narrative. And just like any two-hour movie, some parts of the narrative are flawless, and some parts of the narrative, you know, there's a little Dave's Ex Machina. See, I used a big word just for you. Yeah, well, that's actually three words, but anyway. Okay, well, that was a joke, and you just ruined it.

But I do think that there's, the telling of the story is super important because, and you see why, because it absent the story, everybody just said, oh, it's a new camera. Yeah. And there's a story there that's real. Yeah, it's a great camera. I mean, I think this is a point just about, kind of, you know, for Google, there should just be one button. You should type the query in, and you should press, and you should get the answer. And for Apple, it's kind of the same. You should just point this picture, you should point the phone at the thing you want to take a picture of,

and you should press, take picture, and it should take a great photo. And you shouldn't have to worry about, like, how is it doing it, or what's going on. Right, well, it's called point and shoot. Exactly. You know, as photographers say, the best camera is the one with you. Yeah. But interesting here, you know, this is going to be the iPhone, or, you know, frankly, any high-end smartphone, but in particular the iPhone is basically going to be the best camera at anybody's at most

people have ever owned, never mind the best smartphone. It's all the west one they've got in their pocket. It will be the best camera they've ever owned, period. Yeah. Kind of picking up the integration point, I think then there's the airport. A bit like the camera, it's like it, on the one hand, it's like the camera is just something that takes pictures, but it's a bit more to it than that. And the same with the earpods, this is what these wireless earphones. Again, there's, so you've got a Bluetooth wireless headphone, but when you buy them, you open the box as you're standing next to your phone and their pet. So as Stephen was saying, there's none of this kind of messing around with the codes and standing on one leg, crossing your fingers.

Having to Google and realizing it's just yours, yours, yours. Yeah, exactly. So just describe it, you buy the thing. You've got the iPhone is sitting on your desk. You open the packet and they pair. And something comes up on the iPhone screen and pairs it, which again, it's like, it sounds trivial, but it's hard to do if you don't own the whole thing.

We're getting up to Bluetooth version 5. And this is like a thing where most people still can't pair their phones with their cars. Most people struggle. And even in the wireless keyboard industry, they're still using RF because Bluetooth doesn't really work with a computer bias and things. There's so much that they just did

by making Bluetooth work that they should win some industry award on top of the consortium that they're not even part of. It's just such an important thing. Yeah, I remember Bluetooth in 1999, so that was going to be the future of computing. And here we are.

It's version five. Five. But then there's a pairing, but then there's all the other stuff that's going on in the headphone. So it knows when you've put, put them in. And so it'll stop playing music when you take them out. And it then obviously has a microphone built in so you can speak. And then it's doing kind of voice recognition so it can

work out when you're speaking. And not speaking. Again, using lots of terms that Amazon uses actually when talking about the echo, the other kind of invisible computing product, where it's doing beam forming with the microphone to detect your voice and then lock in on it. What they claim is that they recognize the source of the audio, both based on the microphone picking up your voice and the motion sensors and the headset picking up on the motion of like sound across the bones on your face. Hence the name Job Bone as a portfolio company for the record on that one. And then using that to essentially almost like noise cancellation but for everything but your voice. I just, I couldn't believe the pre-launch event stories and then the post about like you really would have thought some sort of Armageddon thing had happened where my least favorite headline was Apple removes headphone jack.

No, it didn't remove that. a headphone jack, it removes a certain kind of jack, and if you want to use a wire, you can still use a wire. I feel like we should just kind of stay at this on record. When you buy an iPhone 7, it comes with headphones that work with it, and almost everybody actually only ever uses the headphones that come with their phone. And secondly, it comes with a free adapter, so you can use your 120-year-old headphone jack if you want to. Right, and the adapter, it's not like some two-pound thing with a box that needs charging. It's like an inch of cable. Yeah, and the Apple earpods use, yes, there's this clever secret source we've talked about,

but you can use the Apple AirPods, the Bluetooth headphones, with an Android phone. Yeah, but now with their DRM music. And that was a joke. And you can use any Bluetooth, are there any other Bluetooth headphones with this thing? So, in fact, the only thing that Apple has actually changed is that you can't charge your phone and listen to music with the wide cable at the same time. Right, but that, even in itself, is consistent with what we went through with the new MacBook and consistent with just the whole metaphor of like enough with thinking during the day,

where am I going to go charge? And now everybody can be critical. If you're stuck with an app that's not polite or you're just sitting in, you know, with your phone on for six continuous hours using the network and everything, you're going to hit the limits. But like the vast majority of people are not running around like, where's my next outlet, except the press might be. Particularly, you know, you go to CES and you, you know, it's a whole day of taking pictures and all that.

the 85% use case is completely covered here. This also touches on something... Sorry, I get emotional about these shortcomings that aren't shortcomings. No, and I think something else about the, you know, iPhone didn't get a new physical design on the outside, so there was no innovation. You know, something that we hear regularly cited on Twitter as something Apple could do to improve the iPhone is not make it thinner, but have a bigger battery. Yeah.

This generation iPhone has a 14% bigger battery and two hours more of battery life. They did exactly what everyone asked for. They did exactly what everybody asked for. It's just that they didn't have RCA jacks in it. Like, I mean, you know, it's an interesting thing. But I do really feel that, as you were just saying, like, we had to emphatically state that, like, you still get headphones with a wire. And the thing I'm most looking forward to is 12 or 18 months from now, like, how many people walking down the street are not going to have a cable? How many people driving in their car are going to have little white things with no cable?

You know, like, will there be a reverse cultural transformation where everybody had wireless headphones? then they became a joke on Saturday Night Live, and nobody had them anymore. And then cool was, you know, having a white wire. I mean, if you remember the Apple iPod ads or the silhouetted figure is dancing, with a white app, with the white outlines. Like, so what's the silhouette? What's going to be cool? And this is where Apple is not just a tech company, but they're a tastemaker.

Yeah. And I find, I think this is going to be super interesting. Like, I'm, like, scary if I'm going to actually use these things because I have, like, the Saturday Night Live joke in my head, and I don't want to be that guy. No. Well, I never seen Saturday Night Live joke. day night live. I know. It's on TV, which is that box that you don't have. But never outside the USA, actually. It was never on TV outside the USA. I mean, the cultural point is interesting. People's

willingness to wear the wireless thing again. So there was two other interesting things here that are sort of about removing friction. And one of them is the friction of you take your phone out, you uncable the thing, you untangle the cable. Untangle it. Yeah. Yeah. You know, it's like you have this living creature in your pocket that tangles itself up when you're not looking. And then you put it in, and then you've got it hanging down and then you put it in your pocket and it tugs and it catches. You know, you go from headphones that you have to plug in every time you use them to headphones you have to plug in once a week. Yeah. And I thought the clever thing about the case, which is Apple aren't the first people to do this.

So the headphones themselves have five hours battery live, but then you drop them in the case and the case has got 24 hours more charge. So most people, that's like a week or two. Oh, that was incredibly clever. Like, I think that people have not been, like, paying enough attention or giving them enough credit for that small invention. I mean, it, you know, apparently this is the size of a tick-tack box. Yeah. Yeah. So, no, it's never the first.

Yeah. Like, someone always had the idea. First, you have all the stories about you're going to lose them, these little chicklets that are roaming around on the bottom of your purse or in your pocket and the caught in the sofa chair or whatever. And so now you have this storage case that is like a fat chicklets or fat. A tick-tack. It's like a tick-tack case. Yeah, I don't know. Is it that thin, though?

It's a little bit thicker. Yeah. And you get, like, another day, a full 24-hour of battery charge. And that's how you charge it. And that's how you charge them. And then you charge that case when... Like once a week. Once a week.

I mean, for me, like, depending on the how long the energy bleed, like, I could probably go for a year because I never... I mean, who talks on the phone? But this is music. I don't listen to music. Okay. Like, oh, wow, now we're going to get in a big fight. Let's just move on.

But, well, okay. I think the battery thing is kind of interesting more broadly because, I mean, yes, it's a great piece of design. But I was also thinking about, so there's not having to plug the cable in, and there's the not really having to think about charging it. And yes, you have to charge it, but you don't really have to think about charging it. And then it occurred to me, like, how many other little things does Apple make where you don't really have to think about charging it or you don't have battery anxiety?

So you kind of go through it. There's a keyboard and then the mouse, which you really don't have to charge very often. there is the Apple pencil where again the charge lasts a couple of weeks and there is the Apple TV remote and then there's these earpeaches and then there's the watch and for all of these things

like there's two interesting things here one of them is they have very small batteries and they charge very quickly so the pencil like goes from nothing to a full charging like five minutes and the same with a lot of these other things and then there's the battery anxiety which is yes so the watch lasts all day

Yeah. So you have no battery anxiety. Yes, you have to charge every night, but you have no anxiety. The other things probably last a week. And again, you have no kind of battery anxiety. And so you've gone from these things where there was a cable, which was kind of aggravation, although you never really thought about it, to these things where you have to charge it, which is another kind of aggravation, but only like very occasionally or when you don't have to think about it. And so you kind of, it's actually, and then the same thing, paradoxically, also applies for the iPad, which has got this enormous battery in it. And so the iPad, had also kind of lasts a week. That's a super important cultural point, too, because it's a thing where, like, I remember when the first iPads came out, and one of the fascinating things was, like, when you gave it to a kid, you know, the whole thing was, like, you had a laptop and you had a charger, and you went from meeting to meeting, carrying this power brick, looking for an outlet, you'd watch everybody sitting on the floor in airports. Yeah, the battery was basically to let you walk between power hours.

Right, and then the iPad came out, and one of the things that I remember observing was that, like, when you gave it to kids, the idea of charging it wasn't a thing. like they never and so I think what's happening too is another cultural transformation where even though you have to charge it you just don't it it's like charging isn't inconvenience but it's not like a threat and it's not this like cloud that follows you around I like I have like I don't carry chargers around with me yeah so the phone the phone is the only thing where you can have a realistic like I'm going to run out of power but not everything else you've got rid of the cable and you've also got rid of the charging anxiety around that and with the watch

you even have with the contact-based charging, with several docks that are available for it and things, it almost feels like putting your watch in like a changeable when you got home or your keys in something where it's just kind of invisibly gets charged and it's ready to go tomorrow and I didn't really think about it. And I think, you know, that certainly leaves room for a bunch of people who are like, oh, there's no wireless charging in the phone.

And, you know, when that works, it's going to work super well and Apple is going to find a way to, again, integrate a full stack of things and not just make it technically possible, but make it somehow a uniquely positive experience, much of the way that the pairing and the charging of the AirPods was. It's interesting, I think, also to what Apple's done with the watch in that, you know, this is a thing that sold, what, 15 million units,

Apple put up a slide saying that it's the second biggest watch business by revenue between fossil and Rolex, which is like $3 or $4 billion. There's a sort of weird narrative that it's been a huge flop because it's not the new iPhone, but actually it's a great business that almost all the people who bought one actually love it if you look at the surveys. And they've gone, what, two years? They've done a slightly new one.

They've called it Licing Sync Series 2. It's merely like kind of 1.5. Like the chips faster, the battery's bigger, but you wouldn't be able to tell from looking at it. And they're kind of iterating on health. And so all the marketing is about, okay, now it's waterproof, and all the marketing is about running and jumping

and running in servers and running straight lines. Hardware-wise, besides a newer processor is the inclusion of GPS. in it, so you don't need to have your phone with you while you jog, to record it. Yeah, and swimming. So you can't go scuba diving, but you can go swimming in it. And so it feels like they're kind of, they're pushed circling around on what is the reason that you can get people to buy this thing.

And the whole kind of, it's a little computer and it runs apps, has been kind of pushed further down the page. I mean, it does feel like there's more to happen here. So there is the whole story around, well, it will pair with your, your AirPods will pair with your watch. And you don't need to have your phone with you at that point. And so potentially at the point that the watch gets out. to ye, then you could go out all day with the airports and the watch and Siri.

That feels like that's a couple of years away, maybe. But there's kind of more stuff happening there. But at the moment, it's kind of an accessory. It's like they've felt 10 or 15 million of them. You need to have an iPhone as well. You need to take your iPhone with you as well. So it can't be like your only device. And so it's, you know, from a cynical point of view,

its purpose is to drive repurchases of iPhones. That and keep you just more absorbed in the Apple ecosystem generally. Like new feature in watchOS3 is when you open your laptop tied to your iCloud account, it'll automatically log you in without needing to enter your password into your Mac, for instance. So kind of like touch ID for your Mac. Yeah, there's a lot of little bits of taking friction away. Yeah, for sure. The neat thing about being a giant company is that within the company, there is a million ideas floating around and a million prototypes and the process by which they go through this funnel and come out. That's what makes a company unique and their proprietary

advantage. And I think Apple has a particularly good approach at editorializing those ideas and letting the right thing surface. And so I think there's nothing that anybody's going to write a post about that isn't being done somewhere in one of those buildings at Infinite Loop. And that's what's so interesting about the next couple years. So there's a final thing I think to think about here, which is, you know, it'll be the 10th anniversary of the iPhone next year. And there's these rumors that it'll be like a kind of a new ceramic case, which would also actually make wireless charging easier. But then there's like kind of the what next. And so we had the TV and it turned out the TV was a massive anti-climax based for Apple and Google and everyone else because

actually it turns out that the way to get for tech companies to get into the living room is actually the phone, not the television set. And the iPad is there and that's kind of coming along, replacing laptops, but that's not a massive growth story. And then like the two big things that are next for Apple on the one hand VR or potentially AR and then on the other hand cars, but just from looking at the state of the technology, but those are both basically two, three, four years away, and if not longer, certainly for the car potentially longer, arguably for augmented reality as well. And so there is this sort of, okay, these are the next things, but it's not like the TV where

the problem was, well, let's work out the interface in the business model, there's kind of basic hardcore engineering. And so there's going to be like a gap where Apple isn't announcing a big new shiny, unless there's some other thing that we haven't thought of that they're going to produce for that seems kind of unlikely. Amazon Echo competitor seems like the only new category that could also come out in next year too. That's like the new app, but that's not like a trillion dollar business.

This is where I think we have to be super careful about when you say, oh, this is the only thing that looks likely. We have to be careful about that because had we been doing this podcast nine years ago, we wouldn't have been sitting around looking at the iPod saying, wow, more storage, a different click wheel. What's going to come next? Oh, yeah, they'll probably just do a phone. Like, we weren't really thinking like that. And I think this is where what it means to be a company and why it's so interesting. It could be, you could paint some extreme case where they're going to. going to go and pick off the next six top apps and just go build those into the phone,

which is what happened when they started going down the Mac OS System 7 and 8. They, like, ran out of stuff to really shift a lot, and the chips were dying. And so they just sort of picked off the note app, the calendar app and things like that. Or there's like another big thing that nobody's thought of integrating in a certain particular way. Like, I think we didn't touch on health. I think that the AirPods and health become a very interesting thing. I mean, you're pretty close to your circulatory system and all a bunch of stuff. if something in your ear, assuming you could stay in when you're moving.

And so there's stuff there. So looking at VR, on the one hand, there were these engineering questions around how you get the tracking and the GPU and the screens and everything and the device right. And that is like a two, three, four years story. At the same time, you kind of know that Apple and Google and Facebook and two or four other people have got like half a dozen things in their lab. And so Apple has got like a thing that looks like a gear VR and a thing that looks like an Oculus running off a Mac Pro.

and they're kind of looking at it and going, do you think we want to sell this yet? And Google's doing the same and Facebook's doing the same. And so the question is not who's working on it or who's early or late, because it's like we're five years before you're going to be able to say that somebody's early or late. At some point, Apple is going to ship this thing.

And at that point, you will see a lot of the same benefits of hardware integration that we've been talking about so far. They make the GPU, they control the screen, they control the whole thing. In terms of raw performance, especially on the graphics side, they're rushing way ahead of what the phone needs, I think, for most people's usage. You know, again, these 50% year-over-year gains three or four years in a row.

Some of the fun comparison tests when the Galaxy Note 7 came out, but before it was exploding where people would do side-by-side speed tests of loading kind of common apps, you know, with a video recording both of the phone simultaneously. And the iPhone from last year was able to lap the Note 7 that came out just a few weeks ago. Yeah, this is hysterical. So this is test, basically, you have the phone on the table, you tap each app. When it's finished loading, you press a boat home button. and then you press the next app.

And you just wait for each one to be responsive. That was a brutal test. Yeah. And so basically you go through the Galaxy Note and it takes basically twice. The iPhone has done the test twice before the Galaxy Note has finished the first test. I mean, if I were on one of those, that was just, that was the most humiliating test. And it's not just so many parts that go into, like, app loading, but that was tough to watch. But it's one of those things where you could argue, because they don't have something on the market, Apple is behind on VR.

But if you look at the things that make up what a good. VR experience will be having this raw GPU performance, having screens that, you know, they have very fine control over the color gamut shown. And so if you're watching, you know, several years from now on an Apple device, something that's a 360 video of a concert or something filmed at National Parks like Google just put out, it'll be the device that best replicates what you actually saw in the real world. You know, you can imagine all these things where they're laying the pieces several years ahead of time for, frankly, something that could be well ahead of, you know, what the competition's putting out now as they're building it piece by piece.

It's important, remember, like, Apple is also, they make devices, but they're a platform company, too. And quite often the way that you make a platform is you build out some infrastructure, and you have an idea of where it's heading, but it's going to take time for the idea to fill in. But that's the only way, like, you know, it's the classic to get a person on the moon. You needed a 10-year project that included very dumb little steps, like just launching an rocket, going around the Earth once. And those are all important to building a platform to get to the moon. And that's very much what's going on now. And it doesn't mean that they have a singular goal, but that they're just building these blocks upon which the whole future is based.

Yeah, I mean, you saw this with the story this week that a couple of people got laid off from the Apple car team, apparently. I don't know if that's true. But again, this is three or four years away from shipping, at least. So they're probably not quite sure what they're going to ship yet. So they'll be iterating. I mean, again, for clarity, when we talk about VR, like right now, we've got the $3,000 thing that's like 70, 80% of where people want it to be and you've got the $100 thing which gives you a sense of what this would be but I've kind of described it as like sipping drinking beer through a straw it's like it gives you an idea of what beer is but this is really not the right way to do it

and what we want is like 4K or even 6K at 90 frames a second twice once for each eye with positional tracking inside out and full field of view with positional tracking that is only just working in the Microsoft HoloLens, which is, what, $6,000? And doesn't have full field of view, and doesn't have the frame rate. It's all engineering. Yeah, there's a huge amount of engineering to go on

before this gets built, and Apple has this kind of component involved. It's also tracking VR, especially, again, at this high end of the market, so many of the big things that are happening in terms of rendering both eyes simultaneously in one pass, or being able to predict when you're rendering load

is going to get heavy, and so doing things like reprojecting frames so that your brain gets tricked into thinking that the frame rate didn't drop so you don't feel nauseous. This requires collaboration between Oculus and the chip makers like Nvidia and Microsoft. And Apple can do all of this on their own. They have their own semiconductor capabilities with some of the best GPUs on the market. They have the ability to work on things like metal, their low-level graphics framework. They have the ability to then take the combo of those two and bake deep into the OS,

things like the capability to do that asynchronous time warp. years ahead of time, and for other, like, oh, that's just to get, make sure that we're 90, 60 frames per second while you're on Facebook. Yeah, that lets you blow up monitors quicker. Well, but they also have the image sensors. So even if the camera on the back of the iPhone and 7 plus doesn't do 3D, what you're seeing there is an image sensor capability, which you will then be using for your VR headset so that the headset can work out when you've just ducked. Yeah. What you just said by rattling off all of those specs is your view from watching products get built and not building them of the solution space. Right.

And so you've defined the solution space and the problem space. And that's why, like, tech enthusiasts views of where things are going are so, you know, often limited. You don't know what kind of scenario they want to go do, and you don't know what they can go and pull off a shelf and what technology they can go invent in order to assemble a package. But yet, everybody knows speeds and feeds and can say, I need this frame rate and that color gamut and this size screen and then define a product. And, you know, and then I want a pony. And I think that it's just you have to like let the process happen. And it's not one you can be transparent. Like it just doesn't work that way.

And it's super interesting. There is something that's really worth everybody noting, which is that custom chips have always been a competitive disadvantage for a company. In particular, they were a very deep competitive disadvantage for Apple when the run rate for Motorola chips went down and they couldn't sustain it. And then they made the same mistake with the power PC chip where that run rate declined. And there wasn't enough of an ecosystem to support. the chip. And now, when you have a billion devices, all of a sudden, there's an ecosystem and it's becoming, for the very first time, viable for a company to have its own custom chips at this unit run rate at a global scale. And that is a very, very different competitive dynamic that

hasn't been in place before. Very similar to Benedict's point about at this volume, it's perfectly viable to have two platforms like Android and iOS. And it's just as viable to have Apple's arm and everybody else's arm. This comes back to what we were saying about the performance issue on the Galaxy Note, which is, in a sense, what we're doing is we're rerunning Mac versus Windows. And Android has the problems that Windows had of it's got a run on 18,000 different devices and you don't know what graphics processor was going to be in there. But Apple doesn't have the problem that they had then,

that they didn't have any scale and couldn't get anyone to make chips for them. Exactly right. Okay, guys, so besides a few small other updates, I think that actually about covers everything that Apple talked about. Thank you very much for joining.