Analysis: Apple WWDC Keynote – Punishing the Wizard, Part Two

Some time back, I wrote a post where I asserted that Apple (and Steve Jobs) has done such a good job of teaching us to expect magic that when they merely execute, we hammer them because…well it isn't magic.

I called this knee-jerk response, "Punishing the Wizard" since, where I come from, discipline, execution and proof of same are to be celebrated (what's not to like about -- Step One: make great products; Step Two: wow your customer/developer base; Step Three: print money; Step Four: repeat Step One?), but that's not how we think when it comes to Apple.

Thus, it is with little surprise that I find myself dubbing today's keynote, "Punishing the Wizard, Part Two." 

Consider the general tenor of blogosphere analysis on today's event, which ranged from "F-ck AT&T" (well-deserved, IMHO) to "Yawn" to "Uh, oh, where was Jobs?" 

Now to be fair, part of this is simply our culture of "buying on the rumor" and "selling on the news," which is to say that today’s announcements (essentially, Snow Leopard, new MacBook Pros, iPhone OS 3.0, iPhone 3GS, $99 iPhone 3G) had largely been discussed, disseminated and re-assembled into a series of plausible best guesses well in advance of the event, so the shock and awe was less than it might otherwise have been.

Hence, some of this disappointment is akin to reading a "spoiler" in a movie review immediately before watching the film; gums up the element of surprise.

But, there are several nuggets from today’s keynote that underscore strategic narratives worth pondering in the days, weeks and months ahead:

1. Apple is Playing Block the Kick with Focused Intensity: iPhone is the unquestioned leading device platform and ecosystem in terms of delivering a best of breed Mobile Broadband experience, albeit with Palm Pre and Google Android offering their own bits of goodness and differentiation.  By preemptively: A) Upgrading iPhone OS 3.0 and SDK (see my analysis HERE); B) Replacing iPhone 3G as the flagship with iPhone 3GS (faster CPU, adds video support, better camera); C) Dropping the price of iPhone 3G to $99 to capture the low-end of the market; and D) Adding the ability to purchase movies, TV shows directly from iPhone to better leverage its iTunes Media portfolio (versus requiring download & sync from Mac/PC, as is the case currently); Apple is doing everything humanly possible to remain on offense, and prevent the competition from finding its footing; namely, a market wedge/niche that can serve as the beachhead to slow down Apple's momentum. Plus, the $99 entry point on 3G appears to be the lower margin product that Apple had alluded to months back in discussions about not leaving a pricing gap for the competition to outflank them.
2. Pushing OS X Snow Leopard as a $29 Upgrade is Recognition that its 'Halo Effect' Opportunity Window (may be) Closing: Vista has been a debacle for Microsoft, and it has opened a door for Apple to grow OS X powered systems from 25M users in 2007 to 75M this year (inclusive of iPhone/iPod touch devices). But, Windows 7 is getting closer to release (October 2009), and in the interim, Microsoft is intelligently bifurcating their strategy and messaging between being the enterprise standard (we support everything, we're legacy, legacy never goes away, there is no "serious" enterprise alternative) and the consumer standard (we're cheaper than Apple, ubiquitous and "good enough") as a way to stop the bleeding. My guess is that Apple sees their ability to meaningfully differentiate on the desktop as a window that is closing, and as such, need to make Snow Leopard ubiquitous, presumably both to drive converts (esp. as the economy improves) and as part of a push to go after securing new Mac developers before Windows 7 ships (iPhone developers not currently developing for the Mac represent the low-hanging fruit).
3. AT&T and Apple – This Can’t End Well: While there is no question that the exclusivity deal with AT&T provided the launch pad for Apple to create the afore-mentioned wizardry with iPhone, and of course, the rich subsidy is heroin for consumers and Apple alike, there is also no question that the relationship can't end well (or is highly unlikely to). Why? One, today's announcement spotlighted the liability side of the AT&T relationship; namely, a great phone on a crappy network with an iffy track record of customer care, not to mention, a carrier and supplier who are at strategic cross-purposes. Case in point, the audience booed the moment they realized that a touted tethering feature, which allows you to seamlessly use your iPhone as a broadband modem for your Mac/PC, won't be supported by AT&T; and another feature, MMS support, will ship later than with other carriers. Two is the simple fact that the way people buy mobile devices is through their carrier, and as long as Apple is selling exclusively through AT&T, that means that the Verizons, Sprints and T-Mobiles of the world have to sell something other than iPhone, which is the number one way Android and Pre will find its initial market. As was the story with the PC, at some point, mobile becomes a units game, so Apple must counter this one as soon as humanly possible, lest the volumes accrue to the carrier independent device makers.
4. The (Hardware) Matrix is Coming: What is The Matrix? Envision a world where the Mac, Apple TV, iPhone, iPod touch, iPod HD Tablet (rumored) and iPhone Nano (rumored), respectively, can leverage a common SDK, plug into the App Store and integrate with Mobile Me (in addition to iTunes), and you understand that this implies all sorts of hardware abstraction decisions. No less, this implies Apple partitioning the platform that supports these form-factors between device-specific functions, open PC-like layers (i.e., download apps from anywhere), and managed/closed runtime layers (App Store is THE marketplace with a singular SDK, APIs, etc.). This is The Matrix, a potential hornet's nest of technical, user experience and ecosystem decisions. Connecting the dots, I believe that Snow Leopard is the conduit OS where these things converge, but that's a total guess, based on the assumption that derivative form-factors are a given; that App Store and iPhone SDK are the best practices approach with the biggest developer ecosystem; and that Apple's best way to win in the Mobile Broadband Era is by making their products work together in a unified, but more than the sum of the parts, fashion. This would be another reason to push Snow Leopard NOW at $29; namely, so that when The Matrix emerges, and there's a requirement that all interconnecting devices run Snow Leopard to work together seamlessly, it's less disruptive of a proposition than it might otherwise be. And more to the point, it offers developers the largest potential installed base to develop for (i.e., the 40M iPhone/iPod touch owners PLUS the ~35M OS X powered Mac owners).

Looked at from this perspective, today's keynote may come to be known (with the benefit of 20/20 hindsight) as the keynote that was The Calm Before the Storm.  Stay tuned.

Related Posts:

1. Punishing the Wizard: On Apple and Jobs
2. ANALYSIS - iPhone 3.0 Developer Preview: Block the Kick Strategy
3. PC 1.0, iPhone 3.0 and the Woz: Everything Old is New Again
4. Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon
5. iPhones, App Stores, Ecosystems: On Recipes for Successful Developer Platforms
6. Holy Shit! Apple's Halo Effect: How and why gravity has become Apple's friend

Comments

[kevin]

Thanks again for excellent insight. Some nits/other points:

1. I think the 75M OS X users includes the 40M iPhone OS users. Apple has only sold about 20M Macs over the last 2 years, and many older Macs have been retired/replaced.

2. You're right on that Apple is going for market dominance (50%?)for its iPhone OS platform. Apple set up the best supply chain, and invested to get the best prices on flash RAM, so that they could be the first quality smartphone at the $99 price. That price will give them even more volume, which will drive even more developers, and more apps, and more device sales. (Apple must really grok that system-thinking stuff from The Fifth Discipline folks.)

3. I would raise the importance of MobileMe (alongside iTunes) in this intertwined Apple system. Right now, my take is that MobileMe is used to get/hold MY stuff, and iTunes is used to get/buy stuff from OTHER people. Besides the "find my phone" feature, it's been reported that iDisk is back in MobileMe for storing/accessing my documents from an iPhone. Little features keep trickling in.

[Howie]

Mark, Great summary. I felt the announcements addressed many strategic elements of Apple's holistic consumer strategy from hand held mobile devices, Macbook's, the all important OS, and the inevitable cloud; MobileMe. What I love is they didnt mess with the form factor of the iPhone. Instead they took what was already a success and made it better. They did the same thing with Macbooks, leveraging the new unibody designs and battery technology and being responsive to consumers with SD cards and adding back firewire and allowing smaller devices to add muscle (memory & disk).

What I don't understand is AT&T. It's clear that Apple is stuck in an arrangement that even the Godfather can't unravel. What I don't get is why AT&T is so quiet. They're partner with the best consumer mobile device and they virtually have nothing to say to the public or for that matter to their consumers. They should be proud to be standing in the same room with Apple, yet they hide in the dark. I think Apple has handled the situation brilliantly, moving forward with the carriers that are ready today.

[jimerl]

maybe it's because i'm not a mobile addict or that i'm a hardware geek or that i'm really old but i'm a bit more forgiving of att than the audience was. sue it's disappointing to be here and not get all the greatest features first. you can already tether w att and not need an iphone, right? there's nowhere i go that i havent found wifi. they could've opened up mms in a gradual rollout to be first but would anyone really be happy w that. ok i was fishing in a lake in a rural valley and only had 1 bar but jeez how connected do i want to be while fishing?
anyway i am totally on board against punishing the wizard if they deliver insanely greatness instead of the inconceivable. after all, it is still reality based.

[Mark Sigal]

@Kevin, thanks for the correction on the 75M unit count. I have corrected in the post. What's amazing about Apple's level of systems thinking both from a product execution perspective and supply chain perspective is these were absolute Achilles heels for the company back in the 90s. Acknowledge, fix, move on, which speaks to their own internal reality (un)distortion. Re MobileMe, I like your phraseology and will ruminate on a bit further. I have big plans for MobileMe, if only I could get Apple to listen to me. :-)

Thanks again for the great comments.

Mark

[jack black]

Windows 7 is slated for an October release of 2009 ... officially from Microsoft.

[Mark Sigal]

@Howie, thanks for the comments, and we are looking through the same lens wrt Apple not breaking what isn't broken but also not resting on its laurels.

As to AT&T, I am actually fairly sympathetic to them. They are doing a major subsidy on premise that they can make it up on the back end.

Right or wrong, they have underwritten this in a way that they feel needs to generate cash a certain way. Plus, they are probably beginning to chafe at Apple's independence, all of which is understandable from carrier's perspective, especially a goliath like AT&T. Unfortunately, they almost have to hope that a would-be iPhone slayer materializes soon enough so that they can diversify away from their iPhone dependence, but not so soon that they kill the goose that lays the golden eggs.

[Mark Sigal]

@jimerl, agreed. AT&T is in a precarious position, in that they look like the bad guy for not deeply subsidizing phones bought a year ago, when the practice is pretty uniform. At the same time, they need some lock-in incentive for users not to switch when iPhone inevitably pops up on Verizon, et al.

@Jack Black, thanks for the corrected date. It is updated.

[kevin]

Mark, your comment about "Achilles heels" and internal reality (un)distortion lead me to wonder what are Apple's Achilles heels today? Is it partnering with AT&T? Verizon is the obvious fix. What other options does Apple seem to be considering for this? Does the PA Semi acquisition and Papermaster hiring aim to fix another heel that wasn't obvious on the outside? What about Apple investing in OS X as a differentiator, when we're supposedly in a cloud computing world - is it a weakness?

I'm sure it would be quite interesting if you had a piece on Apple's perceived weaknesses.

[Mark Sigal]

@kevin, thanks for the thought. My knee jerk as to biggest Achilles heel is the reality that as Apple starts forking between form factors, and presumably extends its iPhone SDK, App Store, iTunes and Mobile Me sandbox to iPhone 3G, iPhone 3GS, iPod touch, Apple TV, Mac, Tablet (rumored) and Nano (rumored), you can see how realization of this path will bring with it all sorts of lowest common denominator vs. highest common divisor trade-offs, which is point of my note on 'The Matrix is Coming' in the post.

How they navigate this one is a big decision, and one of the reasons that I see the Tablet as the fork point since it's the obvious hybrid between iPhone/iPod touch and Mac (Apple TV is the other logical forking point but still a hobby so less the game changer at present).

I am baking a post on Tablet, which will incorporate these themes so I appreciate the perspective.

btw, here is a good post by The Silicon Alley Insider that looks at how hardware differences between 3G and 3GS potentially splinter the App Store:

http://www.businessinsider.com/will-new-iphone-3g-s-splinter-the-app-store-2009-6

Mark

[Foo]

Thanks for outlining the big picture. Nice blog. I'm a fan now.

[Foo]

"Punishing the Wizard"? Is that like "Flogging the Dolphin"? ;^)

[Shrini]

Jobs is in poor health and is suffering from Cancer, Him not being at the Keynote can be a personal issue - so why pile even partial blame on him. Its not that he is the evil director running the show in the background.

IMHO Windows 7 is toted as the new XP - which is kind of debatable. The need of raw OS power and the charm of the desktop is fast moving out. You end up doing most of your activities on the browser and that is where the potential lies. One must analyze, based on success of the iPhone, what a $699-899 Apple netbook running a lighter snow leopard can do? It could potentially kill the market Windows has for netbooks. Think about it!

[Eric Chang]

RE: Snow Leopard
I like the observation about Microsoft split marketing for enterprise and consumer. I agree with your take on Apple's move to get people into the 10.6 fold before greater changes ahead. Isn't there a window to create an OS that is really unified between work and "play"? Apple as never really done well to push into enterprise, but as far as I'm concerned, data is agnostic, and although work data has $$ attached, peoples' lives would better be served by a convergence of hardware that has software that allows enterprise life and consumer life to marry. Microsoft seems to have found a temporary marketing solution, but created an ideological split while the trend is toward unification (i.e. - cloud computing).

RE: AT&T
It seems like AT&T is lying down, like it's the last year of a contract between a disgruntled player and sports team. With LTE on the horizon (one two-year cellphone contract away), and the likelihood of Apple's multi-carrier defection once that arrives, I can't see how they might figure out an exclusivity deal. (The only activity that seems to contradict my point is the 7.2 HSDPA upgrade, which may have already been stipulated within the exclusivity contract.) So, they're milking the cow by beating a dead horse?

RE: Matrix
Only two fears. 1. Apple bites of more than it can chew, and consumers don't buy in. 2. Systemic malware disasterizing all our iDevices. Ok. So one sounds pretty paranoid. Perhaps I can tack on a third...SJ check off this planet, and Apple goes humpty-dumpty. Really, though, it seems they have the management team in place, so that's handled probably at least as well as can be.

Thanks for another good blog.

[Mark Sigal]

@Foo, flogging the dolphin is sure to run afoul of the ASPCA. :-)

@Shrini, I think that folks that point to netbooks as basically a device for better browsing forget that what supercharged the iPhone was it's platform-ification; namely supporting native apps as opposed to Apple's original stated plan of record, which was getting developers to build mobile web apps. Whatever tablet Apple builds will surely leverage the native app goodness.

@Eric Chang, Snow Leopard, it sure feels like if Apple could ever get MobileMe to embrace and extend Apple's original mantra of Exchange for the Rest of Us, they might find a bigger wedge in small enterprises. Re AT&T, the subsidy business is what it is, and AT&T is not unique there nor are they unique in being somewhat myopic in their approach towards customers. On some level, they are damned no matter what they do, and Apple seems to recognize best path is to let AT&T fall on its own sword. Re the Matrix, that one scares me most for the reasons you flag. Working on a post re that one. Thanks again for the thoughts.