a16z Podcast - a16z Podcast: Apple Has Lock on Luxury Smartphones, But Not Business of TV

Episode Date: September 10, 2015

Apple has once again shown it absolutely dominates the high-end for smartphones, and no other company is likely to knock it from its perch in the near term, says a16z's Benedict Evans. But does it control the future of TV? Not yet. Evans breaks down the latest Apple event, filled with iPhones, iPads and Apple TV, in this segment of the a16z Podcast. Why the "3D Touch" Apple is featuring on its 6S phones is something only Apple could have pulled off, and why its latest iPad -- the Pro -- creeps into the PC market.

Welcome to the A16Z podcast. I'm Michael Copeland. I sit here with Benedict Evans, who has been pouring over again and again. How many times have you watched the Apple event, Benedict? I haven't actually watched it all the way through because I was in a cab going to JFK when it was going on. Okay, he's mostly watched the Apple event from yesterday, so we want to talk all about it. It's the annual iPhone event, but it was clearly much more than that. Yeah.

So there were, it was over two hours. There were no jokes. There were no updates. It was very, very dense with stuff and with product and with new things that they were doing. And that fell kind of into, I suppose, four categories. I mean, very briefly, the watch will get new colours and new bands. And the new software, which we already knew about from WWDC, allows third-party apps. So they gave some demos of some cool third-party apps that actually run properly now,

supposedly, on the watch, and we'll have to see. but then very quickly we went into kind of the three pillars which were first the new iPhone secondly a new iPad and thirdly Apple TV all right well let's take those in turn you know they flashed the new iPhone out there Tim Cook put this thing up on the screen and initially you're like huh it looks like an iPhone 6 well they always do this they change the enclosure every two years but then they don't the the pace of technology change inside is pretty steady. And so, and a thing that's always important to remember is that most people

will place their phone every two years. So the people who will be in the market for this, mainly will be people who have got a 5S or even a 5. And so for them, they're not upgrading from the 6th, and that's always been the dynamic. But within that, and so then there's a bunch of, you know, there's the usual stuff like faster chip, better battery and so on. A9 were up to you now? Yeah, exactly, better camera, et cetera, et cetera.

It's all the sort of steady progression that all the handset guys do. You know, it's always, it's always better every year. You know, the pace of improvement is kind of slowing a bit, just because, you know, we're not making, the curve is kind of flattening out a bit, and it's a bit harder every year to tell why this one's better than the one from last year. That said, there are two quite eye-catching things in these new ones. The first is this thing called Sweetie Touch or Force Touch, which is basically if you press hard on the screen, then something can happen.

And they used that on the watch, very obviously, because there's not much space, but they're using it on the phone now. And they've also put that on track pads, correct? Yeah. But obviously that's on the Mac, which is kind of a niche business. But now in the scale of Apple. But that means, for example, you can press on a message and you get a preview of it. You can press on an image and it zooms up.

You unpress and it goes away. So it's a little bit like a right click. It's a little bit like a click and hold, but it gives you that kind of other layer of interaction. And, you know, one's going to have to sort of sit and spend a day playing with it. I mean, is it a new gesture and is it a natural gesture? A new gesture and a natural gesture, the question is, well, does that fit naturally in? And does it just become yet another thing you can do? So that's interesting.

And obviously, that's, you know, it's a classic example, whether it's good or not. It's a kind of thing that's much more difficult for an Android OEM to do because Apple controls the operating system and all the apps as well. Whereas whenever Samsung tries to do something like that, it only works with the Samsung apps because developers say, well, why would I support that when it's only on a Samsung phone? And only on one Samsung phone, not on all the other Samsung phones. And that's just kind of a structural advantage Apple has. You saw that also with Apple Pay. You saw it, for example, with the Microsoft Surface. So there's four such.

To me, the really interesting thing is they have this thing called live photos. And the way that works is when you open the camera app, it's recording. Or it's recording the last couple of seconds all the time. And so when you press the shutter, what you get is a grab. It's almost like a grab of a burst mode. So you've got a second or two before you took the shutter. press the shutter and a second or two afterwards as well, I think. I have to play with it to be sure.

And so every single photo that you take, you can 3D touch on it, press hard on it, and you'll see a five-second video clip around that photo, a bit before and a bit after. Every photo that you take. And at that point, pressing the shutter becomes less about capturing data and more about an edit. It's like a better way of doing burst,

except you don't have to choose you're going to do burst it's just there for you all the time again once the camera is open you're basically shooting whether you know that or not and it's keeping the last two or three seconds so it's like having the best cameraman kind of always there and always ready I suppose yeah exactly and it's of course it's invisible

and automatic and you don't have to do anything it's just now all of your photos are little video clips every single one of them which of course helps themselves phones with more storage perhaps but and I think it's kind of interesting when you think about you know why what the distinction is between video and a photograph because you know photograph in a sense is now a still from a video when you're shooting

a 4k yeah and you're only looking at on the phone probably anyway a photo really is just a still from the video and this is getting pushing more and more towards that point of you know let's fundamentally think about what we can do now that this is all in software um not just do a digital version of a film camera. Do you know what it took to make this 3D touch, this forced touch? A lot of hardware engineering. I mean, I am sure that

it wasn't all Apple engineers. It was people at LG or Sony or of course. Screen makers. Of course, Amazon. People who make screens. And of course, people at Corning because the glasses has to be kind of flexible, apparently, to make it work. That's the name that they called out. There's a piece about this in Bloomberg Business Week.

But it is about that integration as well. It's about making the whole thing. it's really hard to do that when you're not in that position. The other interesting thing just on that note is, so now if you take a selfie in the dark, the screen will flash to light you up, and it will flash at three times normal brightness, so much brighter than it would be normally.

And they made a special little chip to power it to do that. So Apple made a chip to give you a better flash to take better selfies. Think about the kind of the kind of hardware, software integration that's involved to do that. Well, I'm thinking about the cultural implications too, but that's for another podcast maybe. Apple owns the high end already. Does this just wrap that up even tighter?

I think that's right, yes. I mean, Apple has always been pretty secure in its market, and then, like Apple had, as it might be a half to two-thirds of the high-end and Samsung had most of the rest. With the big phone, it took a big phones last year. It took a lot more of that, and you've seen Samsung sales sang really dramatically. and I think that just locks it in again it's more and more reasons why it's hard to why the iPhone is going to be more appealing

if you've got that kind of money and that kind of sensibility and why it's harder to move away and on that point one of the kind of the thing that was almost announced in passing is that Apple will now have its own installment plan for iPhone and so the narrative over the last couple of years was that mobile operators will move from contract obviously like outside of Western Europe and Japan

nobody's on contract. But in Western Europe, in Japan, most of America is on contract. The top half to the top third of Western Europe is on contract. Almost all of Japan is on contract. And of course, that makes it easier to buy high-end phones because you get a subsidy, although it's not really a subsidy, but the phone is cheap, looks cheap. And so as the operators moved away from subsidies, towards kind of unbundled installment plans where the price of the phone was much more transparent, there was his narrative, the high-end phone market was going to collapse because everyone could see what they were paying. Who's going to buy a $700 phone? And that didn't happen at all, because actually it's still an

installment and people kind of knew that they were paying an installment for the phone anyway and people actually still want to get those phones. And so that's kind of been the transition that's happened over the last couple of years and now Apple has its own installment. And of course the thing here is if you are going to Verizon or Vodafone or, you know, Deutsche Telecom and you've got an installment plan. So it may take a step back. What a lot of those operators now have is they have an installment plan where you can get a phone every year. Right. And the advantage for the operators is therefore you are effectively always on a rolling contract because you're always at least a year away from being able to leave them. Right, right.

Because you've always getting, you've always got that phone. And the disadvantage, though, is that like that rolling contract could be in like, oh, new Samsung phone? Exactly. Whereas if it's a, if it's an installment plan or a replacement plan from Apple, then the next one is going to be an iPhone because that's kind of the plan that you've signed up to. And, of course, they can sell it to you in the store as well. So it's another way of driving stickiness at a kind of, I mean, I think Horace did you said that Apple is basically a, a membership club where your subscription prices, you pay six or seven hundred, six or seven hundred dollars every two years. And Apple are now sort of explicitly converting that to our monthly fee.

Right. Your monthly membership fee is $30 a month. And now you get Apple product. And there's other advantages like you get free Apple care included. Like if you can drop the phone up to three times and they'll place a screen for you. Now what it isn't though, it isn't like GM, you know, in the finance business financing cars. Not really, no.

It's not even on their balance sheet. It's being done by a third party financing company. And, you know, GM made it with a low margin business and all the margin was actually coming from the financing. I don't think Apple are doing that here, and we want to have to kind of carefully analyze the TCA. But, you know, to me, it's really a way of driving phone cells and driving stickingness again. So that's the phone. And then there was the iPad. Yes.

And so there were a couple of interesting things here. One is they didn't upgrade the iPad Air at all. They upgraded the iPad Mini to have the same chips as the iPad Air. and last year they didn't upgrade the iPad Air iPad Mini at all except for adding the fingerprint scanner and from looking at the kind of the metrics that I've seen it looks like the iPad Mini is basically not working because people are just buying if you're like your people will buy the 6 plus

right you're the mini might as well buy a big phone yeah exactly you might as well get the 6 plus and even if frankly even if you've got six and so people are buying the air but they're not buying the mini and so but that was like 30 seconds of the event and then of course The new thing is this iPad Pro, which had been rumored, reported, and leaked quite a lot. And it's, it both is and is not a Microsoft surface. Explain. There's a keyboard we saw, which actually looks very surrogacy.

There is a magnetic clip-on fold-up keyboard that looks very surfacy. There is a stylus, and the surface has a stylus. One can argue about this one is better. It has stroke, and it, you know, so you can angle it and get different inputs and so on, and it has very fast input tracking and so on. I'm pretty skeptical about the kind of the broad value of styluses, style I think. I mean, people always show you drawing and

people creating beautiful illustrations and I think fine, what about the other seven billion people on earth you can't draw? Well, it depends on who this iPad Pro is directed toward, right? No, then to be fair, then they show a set of a compound. So there's a plug on a keyboard, there is a stylus.

The thing itself is bigger. And it's bigger to the point that you can run two iPad apps in portrait mode next to each other. So you can have word and Excel next to each other in the size that they would be on an iPad air. Or you can have email and PowerPoint or you can have email in a web browser.

And so you can multitask in a way, again, that you can do on the surface. You know, with Windows, starting from Windows 8, you had this model where you could kind of snap two apps next to each other. You don't have floating windows the way you do on Windows, obviously, on the iPad. And so I think what Apple are doing

is that we're pushing further into, you know, this as a kind of a serious productivity tool. You know, you can view a, look at it, you can look at a PDF in actual size and you can mark it up with a stylus and you can email it to people and you can manage all of those kinds of things. So in the enterprise, in certain use cases,

I can see it doing really well. Analogous ways to the way the surface works. I've seen people marking up PDFs on the surface with a stylus as well. I think the thing within this, though, it's like you can sort of sit and say okay what does Apple need to do around this what do they need to fix

what are the problems with the iPad and there's a whole question around like the difficulty of people making money from producing iPad productivity apps because I work is free and Office 365 is effectively free because you'll be paying for it somewhere else anyway but the kind of the deeper context here

is this is a people goes into the PC market my initial reaction and I haven't had this with tablets at all? Was it like, wow, this is a laptop that I could like. Exactly. You know, it's a little bit like the surface is kind of coming from one direction, which is it's a PC that's kind of a tablet, and this is a tablet that's kind of a PC.

But the point is, and this is kind of my broader sort of thesis here, is that everyone will have a screen that take with them everywhere, which for the foreseeable future is a smartphone. That may be a watch or a pair of glasses or something, or contact lens in the future, but for the time being, it's a smartphone. And so that's limited to, like, like five inches or something that will fit in your pocket. And then you may have another screen.

Today, most of the developed world has another screen. It's probably a shared PC in the family home. Or they may have their own laptop. And that's a market that's flat. And it's a market with a five-year replacement cycle. And more and more people are saying, do you know what? I'm used my smartphone all day.

I'm not going to buy a personal laptop. Or I've got a personal laptop or a personal PC. It's six years old. I turn it on three times a week. It's fine. I'm not going to buy a new one anymore. And so there's this sort of gradual shading of the PC lifespan spreads out and out and out and out. And the usage migrates more and more and more towards a smartphone.

And it seems to me that where 7, 8, 9, 10, or what is this 1.13, 12.9 inch devices fit, is there a big screen you have a home as well as your smartphone? And so whereas, like, 10 years ago, you would have said, do I want a laptop or desktop? today you say, okay, am I going to buy a new large screen device at home, although you wouldn't call it that, but do I need to get a new thing at home? If so, do I get a laptop, a desktop or a tablet? And the answer thus far has been mostly I'm not going to get a tablet.

Well, no, the answer has been, I'm not going to buy a new thing this year. And so that market is basically slowed right down, particularly in consumer space. It hasn't really collapsed, but it's just stopped growing completely. because of, you know, people going, well, I've got a phone. And my PC is fine. It's six years old now. It's still fine. And I'm not using it that much.

And to me, the tablet fits in that space. It's, well, if I'm going to buy one, I might buy a tablet. If you buy a tablet, you'll almost certainly buy an iPad. And there's a kind of another interesting dynamic here, which, again, has been very obvious for, like, three years, which is there's two tablet markets. There is a tablet market for generic black plastic, $100 things, which people used to watch video and play games on SD cards. and then there is a market for like the post-PC replacement

which is what Apple and Samsung and everybody else is trying to play in and Apple has like three-thirds two-quarters has like three-quarters to two-thirds of that and if you look at all the usage stats for online use of tablets Apple is two-thirds to three-quarters so Apple has got that market it's just it's not a big it's not it fits into a PC market that is not exploding and so Apple is taking a chunk of that market but the market that everybody on earth is going to have

the thing everyone is going on the earth is going to have is a smartphone. And so that's the market where you have, you know, real scale. Do you think that this changes the sort of buying cycle then? I mean, are tablets, in theory, on a less than five-year cycle? Well, we don't know yet because they've barely been around for five years. Yeah, that's true. But it's, you know, it's very obvious that, you know, people who've got an iPad 2, even an iPad 2 or an iPad 3, which in hindsight, like the iPad 2 didn't have rent,

know the iPad 3 was really bulky. So if you actually care, you probably would replace one. I wouldn't replace an iPad. I can't even remember what was the one before the iPad air. But by the time it got to the air, there was really no point in upgrading, and there's still really no point in upgrading. So, like, why would you buy a new one? And in the meantime, you've got a phone.

Right. And say, and your phone is doing all this cool new stuff every year or every two years. And your phone, you kind of are upgrading. But your iPad, well, you've got a three-year-old iPad. It's fine. You don't particularly care that the new one is lighter because you sit on the sofa holding it. So it's not really a big deal. You're not putting it in a bag.

But the pro is a different animal. Yeah, exactly. So the pro is an attempt to push out into new use cases. It's an attempt to solve the reasons why it's hard to use Microsoft Office on it, solve the reasons why it's hard actually to do everything you do all day on it, as opposed to just some of it. So, like, if you've got an iPad Mini, it's great to surf the web. It's better than a phone for surfing the web.

It's better for the phone for reading and triaging and going through all your emails. it's not really better than a laptop for writing 5,000 words. Right, right. Well, it'll be interesting to see because I hardly ever see Surface tablets out in the wild. It'll be interesting to see if we start seeing these. So I see Surface quite a lot. I don't necessarily see them being used as laptop substitutes. See them being used in this kind of middle ground of, well, I want to have this big screen and I want to run office.

I'm not writing a lot on it. And so the tablet is sort of, the keyboard is sort of there. in case rather than I'm going to write my novel on it. Apple TV, they came out as they are want to do and said that they have changed television. Have they done that? So to me this is version 2 of the Apple TV. It's not a fundamentally new product. That is to say it's basically the same UI concept. It's basically the same stuff, except that now there's an SDK. So to get HBO onto it, Apple doesn't have to write the

the app to get X or Y or Z onto it you don't have to do a BD deal with Apple now there's an

SDK there's an app store so you can have games on it you can have TV apps

on it but they haven't changed a commercial model of TV right so you know if you're a

Comcast subscriber or Can I'll put a subscriber or whatever your bill doesn't change the bundle doesn't change none of that whole stuff

that everyone was talking about Apple was trying to do deals to change none of that stuff changes at all what does change is you have

have what Apple would argue is better than a Google TV or a Roku or a Voodoo or any of those boxes. It's a Voodoo? I can't remember. They all got anything like that. So they would argue it's better than any of those. And it's the right way of doing that. But it's that. It's not a new thing.

And so, but then when you dig into it, there's a bunch of interesting stuff going on. One of them is that you can run games on it. I mean, it's basically an iPhone without a screen. So you can run it, and it runs iOS. You can write games for it. Obviously, you've got to make a few changes because it doesn't have a touch screen. and you can't tilt it. I suppose maybe you could,

but you've got the right mount. But you can, you can, they showed, you know, with the remote, which has a, yeah,

so the remote has a little touch surface. And a gyro in it, so when you drive your car. Yeah, so there's a bunch of interesting things. So one is, obviously, it runs games.

It's not going to run Xbox-type games, but rather as the question for the Wii was, is there a much, much bigger market for people who don't want Xbox-type games and don't want to spend $500 or whatever it is on the box,

and $50, on the game and have this whole hardcore experience and we'd rather play kind of simpler, you know, more fun games. And that was the argument for the Wii. The problem that we had was it turned out that they were selling games to people who didn't like games and people bought it for the game that was bundled and then never bought any more games.

So we just basically, it looked like this huge success and then it just disappeared. I would suspect that Apple won't have that problem in quite the same way. So there is a game story. There is, then you have, and then you can, obviously, that's part of the NATO app story. Then you have this thing called TVML.

which is basically a markup language for writing apps that we just do TV. So, because obviously you don't need much logic. You know, you need a catalogue and you need, you know, pro-show pages and things. And so you can create your own custom TV channel app of some kind without having to do a bunch of X-Code stuff. When we saw some examples of that from people selling things mostly, honestly. Yeah, exactly. And so there's also, like, there's a Zillow app and there's a Guild Group app and so on.

I don't know. I actually have to think those are probably native apps more than ML apps. But it's interesting to see. the Apple creating this kind of markup language. Of course, there's no web browser. So the question that I have and that everyone has, of course, is that can I play Monument Valley on my television now? Well, no, because I like Monument Valley as a portrait,

and it enrolls touch, and this doesn't have touch. So that's what they've done. Then there's a couple of things to put to dig into. One is they have not said, right, this is going to be an airplay-driven device. So you're sitting in your living room with your iPad or your iPhone. The content that's on your iPhone can be completely. completely different from what's on the screen. So you don't have to install the HBO app on your phone.

You don't install the HBO app on your phone and then throw stuff up on a screen, although you can because it's got airplay. But rather, so they haven't done Chromecast. They haven't said the TV, where there's a little dongle, the TV is dumb glass, it's a remote screen for your phone, you throw stuff up from your phone. You can, but actually they've got a little remote control, an actual physical remote control with like really well designed and so,

but it's a little physical remote control. It's a standalone device. you don't have to have an iPhone at all to use this thing. And there's a bunch of reasons for that. But it's just kind of interesting of it. One is you want to run apps on it. One is you want it to work if the person you started the TV show has to go out and get coffee or whatever.

It's all sorts of practical reasons. But it's just interesting conceptually that they've said, no, no, no, no, there's still a box with it. It's still a computer that's running that. It's not just kind of an endpoint for your smartphone. The UI, I mean, we've been talking about the remote, but much of what they were showing was operating and navigating via a series. Yes. So there's several things here. You can ask Siri. So they don't want you to do any data typing.

Right. So you should just ask Siri, show me the show. And it will search across the HBO app and the Netflix app and any other apps that you've got on your device. And that will surface up the content for you. So you don't have to type. You don't have to fiddle around without remote control as much. Siri should work well here because it's such kind of a narrow domain. It doesn't have to. to deal with any question you could possibly ask. It just got to, like, do voice recognition. Like, I want to watch Guardians of the Galaxy. It's not hard. This is, of course, as in a lot, and I said it's like Apple TV 2. It doesn't change the world.

There's a lot of stuff in here that's in other devices. So like the Amazon TV box has voice search. You know, other boxes have HBO or other boxes have had Netflix. So there's a lot of stuff in there that isn't fundamentally new, but it's much more about just wrapping it up and packaging it nicely, that you're giving in a nicer UI and giving it kind of that smooth experience. The kind of the big question, of course,

is, is there a second ad where Apple gets to do the kind of new commercial model stuff that one would imagine they had wanted to do? It seemed like, so they showed music too, and then they show that you can watch whatever you want to watch, but it did seem like there was a huge piece missing. Yeah, so you didn't have the chief executive Comcast coming onto the stage and saying,

I am delighted to partner with Apple to do this dramatic new way of accessing buying consuming TV they didn't have the head of HP I mean they've had HBO before they didn't like change how TV works right at all really you can buy you buy the thing the content that you're currently available that you're currently entitled to watch you can still watch so I'm a Comcast subscriber I suppose I had a TV I would buy an Apple TV I would open the Comcast app on my iPad I would choose the show I would press Airplay and it would go up onto this this nothing has changed from yesterday we had heard how you know

HBO's app, it was available first and solely on Apple TV. But we haven't heard a lot more in terms of those partnerships. Are we going to, or is it just taking time? Well, so the issue here is that the current structure of the TV industry works really well for the TV industry, and nobody has a big incentive to change it. Now, there's clearly there's a very U.S. specific story here about how expensive TV. is and how rigid the bundles are and how many people would like to break those bundles

apart but also how it's not really in the interest of many people in the TV industry to break those bundles apart and I think that's kind of the wall that Apple has run into is a bunch of people said well but if we did that then we'd have less money and like that why would we do that they've not been able to kind of come up with with with a way of transforming that so you know one could imagine now that said there's a lot of stuff in there so you have Netflix you have Hulu you have HBO what you don't have you know you kind of you kind of you You know, take it one step forward. What you would like to have is to have the Comcast app on that

that has every single show in Comcast's catch-up system for the last seven days. So you could say, I want to watch, I don't know, wheel of fortune from three days ago. And it would have that. You know, that's not in Netflix and maybe isn't in, you know, some of this stuff is in Hulu, but not all of it. And it's like, it's not everything. What you would want is to have the Comcast, the whole lot,

everything you're paying for is all there and you can ask Siri for it. And Apple has kind of built the architecture that would let you do that. They built the architecture that would let Comcast do that if Comcast chooses to do that. But they didn't have it on the stage. Was there anything that was missing that we had expected that was given short shrift? Well, there was clearly a timing issue. It was over two hours. So a lot of stuff must have got cut.

So they didn't like do a recap of the new version of O.O. X, which is launching next week. They did a very, very brief recap of the watch, so they showed us the new bands. They showed us the third-party app. They didn't give, like, the whole full demo again, which in past years you might have expected them to do. Part of that is, I mean, this is, you know, kind of deep into the weeds,

but previously Apple's done two events. So they did an iPhone event and an iPad event. And now it was all one, so they've got, they had less time. So effectively they had two hours instead of three hours or four hours or something. And, you know, so you didn't have a lot of the sort of, you know, developer demos and, you know, stats about how stuff is going and, you know, the video of the store being opened and, you know, I'd heard, someone told me a rumor that

Angela Arrence was going to be presenting about, you know, new retail and ideas in retail or something, which sounds weird, but clearly there was no time for any of that. So there was a lot of, clearly there was a big edit. We, unfortunately, are out of time. So Benedict, thank you as always. Thank you.