Why the Cloud and Privacy Put Apple at a Structural Disadvantage
Data is king as devices get abstracted-away
In response to a lot of reader feedback, I wanted to consolidate some of my analyses into this one piece, because these observations are fundamental to my framework for understanding the immediate future of tech.
Charles Wiltgen illuminated exactly why I harp on Apple’s iCloud as an Achilles Heel: “CPU design,” “AI,” and other random buzzwords of the future are not as relevant to the next wave as are cloud services. After all, ambient computing runs on the cloud; and that’s about data, not devices…
First, Moore’s Law has officially ended, so the path to exponential tech progress is no longer predicated on increasing the efficiency of transistors; the path is now predicated on increasing the scale of the cloud.
That dove-tails neatly with hardware’s inertia: when you shrink the form-factor, remove the screen, go hands-free, and/or abstract-away the device entirely, cloud becomes even more important.
So, Charles inadvertently proved my point for me and answered Sceptical Meerkat’s question for him: Apple is at a structural disadvantage to Amazon and Google because cloud — being preeminent in the immediate future — is not a synergy or natural byproduct of its core business.
That’s my first important observation. Yes, scale does matter, and yes, Apple has many kinds of scale; Google also has scale; Amazon does too. The difference is that Apple doesn’t have competitive scale in the cloud department. That’s crucial, because Google/Amazon’s cloud scale creates a virtuous cycle: as their core businesses (search/ecommerce) grow, so don’t their own, operational cloud storage and computing needs. Accordingly, they reach ever-increasing cloud scale organically, which improves economies of scale; which allows them to lower pricing for 3rd party cloud users; which lowers the operating expense associated with their own core business’ cloud needs; which provides more cash flow for increasing cloud scale.
It doesn’t matter how much cash Apple has to ‘pay experts’ and ‘build whatever it needs’ to compete in cloud from a standing-start. That’s a popular refrain. It doesn’t matter because Apple doesn’t have that virtuous cycle — its own business doesn’t benefit from cloud scale.
Here’s Apple’s business description:
“Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers…”
Apple sells hardware and devices; it’s not a data business like Google or Amazon. No matter how big Apple’s Services segment grows, it will never generate enough data (stock and flow) to catch-up with Google or Amazon.
Finally, that’s why I praised Apple’s tactics with ARKit. Whether conscious or not, it’s an impressive attempt to stave-off the voice interface for which the data-intensity handcuffs Apple. Regardless, it’s unlikely to turn the tide on the nascent audio epoch:
“With ARKit, Apple has accelerated the flywheel again, as it is wont to do historically. Not only can augmented reality move the conversation away from voice toward the next next big thing, but it can also leverage Apple’s device advantage. It further warrants that $2,000 buy-in and tries to assure that screens still have a place in a screenless epoch. But, it doesn’t change the fact that audio is the next big thing. Like mp3’s beating video to the punch a generation ago, culminating with iTunes’ proliferation, we’re just not equipped for a visual-first experience yet today. Audio already has the pieces in place to enable a more frictionless experience; Google Glass, Snap Spectacles, and iPhones aren’t sufficiently simple vehicles for video delivery.”
— Anthony Bardaro, “Apple’s HomePod: Threading a Needle”