Apple last week signaled its future direction with its latest round of product launches. It hopes to engage the family around the living-room TV with gaming and entertainment content; disrupt the TV broadcasting industry with third-party development of apps; capture business users and eat into laptop markets with its revamped iPad tablets; and win over phone users from traditional carriers.
However, the company faces challenges in developing an “ecosystem around total privacy” and low-cost suppliers around the world, according to experts at Wharton and elsewhere.
During its announcement, the firm highlighted its new Apple TV, a set-top box with apps to access Netflix, Hulu and iTunes and the ability to subscribe directly to HBO and Showtime, bypassing cable or satellite service providers. It includes nascent gaming features, and with enhanced search, its upgraded voice-activated Siri feature allows users to pull up favorite movies or instruct it to forward or rewind. Apple is also offering its TV platform and operating system, “tvOS,” to third-party developers, which means more games and video apps are on the way.
According to Wharton marketing professor Jerry (Yoram) Wind, “Apple is the leader in disruption — it took over the music industry, the computer industry and the phone industry.” Wind is also the director of Wharton’s SEI Center for Advanced Studies in Management. He described the company’s move to enlist third-party apps developers as “a brilliant move” in open innovation.
“Apple TV was by far the most interesting technology they introduced,” said Richard Dasher, director of Stanford University’s U.S.-Asia Technology Management Center. With apps from third-party developers, Apple could carefully manage the growth of an ecosystem with TV as the access point for home internet, he added. “[That] ecosystem will probably have control over most of the things in your house and would possibly follow you around wherever you are.” (Dasher discussed Apple’s strategies on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. Listen to the podcast at the top of this page.)
“We’ve been waiting for [Apple] to announce this long-rumored streaming video service, and do for TV what they did for music.” –Hayley Tsukayama
“Apple has been an ecosystem company, and not a hardware company, for some time,” said Wharton professor of operations, information and decisions Eric K. Clemons. “I would not expect the new iPad, the new TV, or the new watch to be game changers by themselves.” However, “it’s possible that Apple TV will integrate so well with the iPad or the laptop that it starts a new ecosystem, one in which my personal videos and all the contents of the web are equally accessible from my TV, along with all the public and premium channels I want to pay for,” Clemons added.
The most compelling aspect of Apple’s latest launches is “what they signal for the future,” said Hayley Tsukayama, who covers technology for the Washington Post and who also spoke on the Knowledge at Wharton radio show. Among those signals is how Apple could boost its TV offering. “We’ve been waiting for [Apple] to announce this long-rumored streaming video service, and do for TV what they did for music,” she noted.
Disrupting Pricing Models
As Dasher saw it, Apple TV could disrupt the pricing structure in its industry. “The whole TV payment system and having to subscribe to premium channels and so forth is probably on the way out,” he said. “This new TV would help it be on the way out.”
He added that already, many young consumers are selective in their viewing habits and watch TV shows on demand. “Apple TV is one step beyond that,” he said. “You have a big company which is very carefully moving into the next generation of … seamless, transparent interaction of people with their information technology.”
Tsukayama noted that while Apple has all along controlled the hardware and software of its products, its latest “leap into content” is an interesting new move. A foray into streaming video services will also open up other revenue avenues, she said. “Internet video advertising is starting to make a dent into TV advertising,” she added. “It seems like Apple wants to be at the front of it.”
According to Dasher, the biggest challenge Apple faces on this front is in striking deals with content providers; its current offerings are limited. However, the “tvOS” platform will help it hedge its risks with Apple TV by positioning it also as a gaming device with games from third-party developers. The gaming business “is huge,” said Wind. “With open innovation in this area, Apple will again be a disruptor.”
Yet another potential game changer was Apple’s announcement of an iPhone upgrade program that enables users to get new models every year, bypassing carriers like an AT&T or Verizon. With installment payment plans starting at $32 a month, users get an unlocked phone, annual upgrades, and the ability to choose their carrier. Carriers typically offer two-year plans for the phones they support, making it hard for users to switch their phones annually.
“I keep waiting for Tim Cook to make the next ecosystem move about complete and total privacy. That would be a game changer.” –Eric K. Clemons
“Apple is now deepening and leveraging its relationship with consumers who don’t like their carriers,” said Wind. “It’s a great move, and it is consistent with Apple’s strategy of being an innovative and disruptive firm.” Tsukayama noted that “many people don’t like their carriers so they may prefer to deal with Apple.”
With the iPhone upgrade plan, Apple is moving towards a service-based business model, said Dasher. “Carriers always offered upgrade plans, but now that Apple offers one itself, it is taking more control of the business away from the carrier,” he added. “This is new for a phone maker to do this. We will know in the next six months if this takes off.”
Business on Tablets
Apple’s other major launch — the iPad Pro — is “the biggest thing outside of Apple TV,” said Dasher. “This may be a sea change” in how it could expand the market for the tablet by attracting business users of such devices, he noted. The iPad Pro offers a larger display than many laptops. It is also lighter, and it packs a 10-hour battery life. Repositioning the iPad Pro to attract business and laptop users makes sense because “everything is converging,” said Wind.
At the launch event, Apple got Microsoft and Adobe executives to demonstrate how their products like MS Office and other work-related software function on the iPad Pro. It comes with a stylus called the Apple Pencil, and a keyboard connector — following Microsoft’s Surface tablet with the latter feature.
“It would be interesting to see if [the iPad Pro] replaces the laptop,” said Dasher. He recalled that many who bought the first generation of iPads were disappointed because they did not have the functionality of laptops. Tsukayama noted that Apple CEO Tim Cook has been working to make the tablet more of an enterprise or a business device, and she cited the company’s partnerships with IBM and Cisco for developing such uses.
Apple’s other launches included the iPhone 6S and iPhone 6S Plus with larger screens, an improved camera with 12-megapixel resolution and a new “3D Touch” feature that allows users to call up different options by pushing harder on the screen. The phones come also with higher data speeds and are more compatible with data services in foreign countries.
The Power of Big
Only a big company like Apple could carry off all those experiments, said Dasher. “There is a lot of focus now on startup innovation, but it takes a powerhouse like Apple that knows how to deliver content and services as well as a variety of hardware and be able to link those,” he added. “The glue that holds all this together is where their value-added is going to come from.” Google is another company that could execute similar strategies, Dasher noted.
“If I were Apple, I would not just sit there and relax.” –Jerry (Yoram) Wind
Apple and other members of the so-called AGFA (Apple, Google, Facebook and Amazon) group have huge cash reserves they could use for acquisitions, Wind pointed out. “Of all the companies around, Apple is the one with the best track record in innovation,” he added. He noted that Google could gain a dominant position in specific markets, like with its self-driving car. “But Apple is capturing one domain after another in a systematic way – computers, phones, gaming, etc. — in providing ecosystems that consumers need.”
The Road Ahead
“The next ecosystem play for Apple will be the total privacy that Tim Cook talks about,” said Clemons, referring to an interview Cook had with Charlie Rose a year ago. “Perhaps many of us will also abandon the Google ecosystem for an Apple ecosystem if Tim Cook wants to stress complete privacy.”
Clemons noted that many users were willing to pay more for an operating system that was easy to use and secure from most hackers, even if it meant abandoning Microsoft’s Windows. “I keep waiting for Tim Cook to make the next ecosystem move about complete and total privacy. That would be a game changer. A safe, secure, private and easy-to-use approach to computing would change everyone’s platform preference.”
Apple has to also contend with challenges, especially since its dominance is largely in affluent markets, said Wind. “New technology could come from somewhere else,” he said. “With seven billion people [the world’s current population], who knows what challenges there will be from Chinese companies and others that dominate billions of customers? If I were Apple, I would not just sit there and relax.”