Apple “crushed estimates” according to the headline of a financial website, and they surely did. In fact Apple turned in what was perhaps the first unabashedly great quarters of tech companies in the current earnings season. iPad sales were slightly below estimates and some analysts thought outlook was less positive than the current quarter, but other than that it was beer an roses.
The obvious question is whether they can keep it up. This is important not only for Apple but for the industry, because if Apple is the face of success then we have to reexamine some of the cherished tech illusions we’ve been reading about.
The Driving Principle of Our Age is that of virtualization. Computer power is cheap and getting cheaper, and its expansion into every aspect of our lives isn’t limited by capital cost but by support or operations. We have to turn the world into as-a-service because the masses can’t be expected to be computer gurus. In this world-view, we should be seeing a dumbing down of local intelligence, a shift toward devices being on-ramps to the cloud.
Which is hardly consistent with Apple’s vision. Apple has three basic value propositions. One is that their stuff is cool and their users enviable. That’s a given. The second is that “their stuff” is something you buy and hold. It’s not virtual, it’s not hosted, it’s not something that is really created on some nameless server somewhere, because that anonymity would make everyone else Apple’s equal. Their game is devices. The third proposition is that sought-after experiences are atomic. Users want something, and that something isn’t much related to other somethings the user wanted or will want. We live in the moment.
Amazon tried to beat Apple, at its own game, with Kindle Fire and their phone, and it didn’t work. It’s very hard to unseat a champion if you agree to abide by all their rules of engagement, after all. Google bought a phone company, arguably, to try their own hand and that didn’t work either. So what would work? Something that eats away at those basic value propositions, and nothing would do that better than a shift to the cloud.
Amazon is the cloud giant, the king of virtualization. They have the tools to make an experience virtual, not tied to cool devices. Such a move would hit at one of Apple’s critical foundations. Google, with Fi, is now taking a mobile service and building layers on it in the cloud and not in the device. Their Nexus 6 initial offering is weak. Could they make their next supported handset an iPhone, perhaps? Suppose they said that any iPhone, even an older model, could be used with Fi. Will that undermine an Apple proposition?
Alcatel-Lucent may be aiming at the third proposition, through service-provider proxies. Their new Rapport promises contextual services, or at least an early form thereof. The more intelligence you draw into giving users what they want, the more costly it is to store all that stuff in the handset or deliver it there for analysis. The network knows, remember? Operators have wanted to break the hold phone providers have on mobile services. Empowered operators, particularly operators inspired by Google’s Fi, might do that.
Context is also the logical solution to the first of Apple’s propositions, the cachet. Every user may strive to display that Apple logo, but more than even that they’d like to display “Her”, the artificial-intelligence companion that sees all, knows all, and when she (or he) speaks draws admiring glances. A companion shares experiences, shares context, which is why we automatically expect smart devices to know what we’re seeing or doing. Can a phone do that sort of thing? With network help, yes. A network can do it with nothing more from a phone than a conduit to the user.
The industry, for a variety of reasons, is moving beyond traditional networking and IT and into a new age, an age where context and personal assistants are inevitable. I think that the signs are already visible. Yes, Amazon has fumbled its own ball. Yes, Google’s Fi is tentative, a wisp of what it could be. Alcatel-Lucent isn’t marketing Rapport to the stars either, and operators confronting a profit crisis and a technology (NFV) that promises to support agile services are instead trying to use it to create the same old crap they’ve sold forever. There will always be under-realization of every new industry trend, but eventually mass pays off. An industry-wide profit-starvation trend has a lot of mass behind it, and urgency besides.
The question for Apple is whether they see this or not. It’s perfectly possible that Cook and his clan have already laid out the Cool Answers to the context-and-services future, that the Apple Cloud offering will eventually just awe everyone into submission. They’re milking their current model while they can, and will spring when it’s necessary. It’s also possible that Apple has stuck its head in the (silicon-based) sand and will hold onto the past too long, like so many others.
The question for competitors is the same, the “do-they-see” question. It’s possible to make a better phone or tablet than Apple, but nobody is going to make a phone or tablet superior enough to overcome Apple’s advantage. To beat Apple you have to write new game rules, rules that favor new innovators. Amazon and Google and even the network operators, perhaps through NFV or Alcatel-Lucent’s Rapport, have a chance. They have a chance to undermine the handset.
And to exalt what, exactly? That may be the problem. The network isn’t the value proposition for the future; it’s getting commoditized just as fast as anything else. If the cloud is the future, what exactly is the cloud? Servers are commoditizing. Is it software? Can we earn massive profits from software alone? What is the engine to create the Big Win that justifies the Big Risk?
If as-a-service is the future then services is the goal. We will likely spend less on hardware and software to support centralized cloud services of any type than we’d spend if we hosted our gratification on local devices. The next level of disintermediation may be aimed less at the network operators and more at the vendors. It won’t kill the market for computers or devices, but it will surely help commoditize it. Unless the vendors start thinking about how they can be as-a-service players too. Does that sound a lot like the dilemma the Internet posed for operators decades ago? It does to me.