The a16z Show - 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. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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 yeah 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 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 six 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 a 9 we're up to yeah exactly better camera etc etc 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 and 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. 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

it's a classic example whether it's good or not it's a kind of thing that's very 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 or 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, actually, the really interesting thing is they have this thing called live photos. And what that, 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, but press the shutter and a second or two afterwards as well, 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 therefore you're, 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. 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 a photograph, in a sense, is now a still from a video when you're shooting at 4K, 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,

not just do a digital version of a film camera. Do you know what it took to make this 3D touch, this force 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, 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, and 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 and 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. Right. 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 Apple, 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. phone. And the disadvantage, though, is that like that rolling contract could mean 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 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 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 like Apple's 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 with a low margin business and all the margin was actually coming from the finance thing. I don't think Apple are doing that here and we want to have to kind of

carefully analyze the TCA, but it's, you know, to me it's, it's really a way of driving phone cells and driving, driving, driving stickiness 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 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 6. 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 reportedly leaked quite a lot.

and it's both is and is not a Microsoft surface. Explain. There's a keyboard we saw, which actually looks very surfacy. 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 stylists, style I, I think. I mean, people always show you drawing and people creating beautiful illustrations and I think fine, what about the

other 7 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 those, so there's a plug on the 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, you know, 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 can view a, 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, is 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 PPA goes into the PC market. My initial reaction, and I haven't had this with tablets at all, was that like, wow, this is a laptop that I could like. Exactly. You know, it's a little bit like the same. 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 hate 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, 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 using 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 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-pocket. 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 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 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 retina, 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 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. thousand words. Right, right. Well, it'll be interesting to see because I hardly ever see surface tablets out in the wild. It'll be starting, it'll be interesting to see if we start seeing these. So I see surf. 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. TV, they came out as they are want to do and said that they have changed television. Have they,

have they done that? So, so to me this is version two of the Apple TV is 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 app. To get X or Y or Z onto it, you don't have to do a BDA 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 Purs subscriber or whatever, you know, 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 what Apple would argue is better than a Google TV or a Roku or a Voodoo or any of those boxes. It's a VD? I can't remember. They all got things like that. Yeah. 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, 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 touchscreen and you can't tilt it. I suppose maybe you could. You've got the right, you've got the right

amount. But you can, you can, they showed, you know, with the remote, which has a touch. 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 on 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, 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. 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 TV channel app of some kind without having to do a bunch of Xcode stuff

and 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 MLML apps but it's interesting to see Apple creating this kind of markup language of course there's no web browser one

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 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, 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, 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, you know, 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, assuming TV. They didn't have the head of HBO. I mean, they've had HBO before. They didn't like change how TV works 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, it's based I had a TV. I would buy an Apple TV. I would open the Comcast app on my iPad. I would choose a 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 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 that. 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 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 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 OSX, 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 a 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 they say 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.