The Car's "iPhone" Moment

The iPhone has never stood out for its voice calling capabilities. A feature phone from 2005 is able to make just as clear of a voice call as an iPhone 6s. Instead, the iPhone went on to do something much more profound than just improve the voice call. The iPhone showed the world that there was another way to think about the phone. Fast-forward nine years, and there are questions about whether the auto industry will experience its own "iPhone" moment. Will a new product or service come along that changes our perception of a car? Is autonomous driving the technology that will ultimately change how we think about cars? Will Uber and other ridesharing companies be able to rethink personal mobility? Does Apple think it has an answer for rethinking the car? Did Elon Musk already change the car's definition with Tesla? The journey to find all of these answers begins by looking at how Apple rethought the phone with iPhone.

Rethinking the Phone

The iPhone was born from a different kind of inspiration. Instead of looking at Blackberries and Motorola RAZR, the most popular phones at the time, Apple used the iPod as an example for what it wanted to achieve with its own phone.

While Blackberry, formerly called Research in Motion, was seeing remarkable success in enterprise by selling a smartphone with a keyboard that gave each letter its own dedicated hardware key, Apple looked at such a feature as a drawback. A smartphone's dedicated hardware keyboard ended up holding back the smartphone's potential. By taking multi-touch technology originally targeted at a large screen and seeing if it could work on a smaller screen, Apple ended up changing the smartphone's trajectory by not just removing the hardware keyboard but replacing it with an alternative that helped to rethink our perception of a phone. 

Of course, the iPhone didn't just add chaos to the smartphone industry because of its hardware design. Apple's existing capabilities when it came to software turned what was a phone in our pocket into a computer. In addition, working exclusively with AT&T gave Apple the flexibility to think outside the box. Even though the strategy was not looked at as a strength in 2007, Apple's control over phone hardware and software made it possible to rethink the phone.

Cars Are Like Phones

Given the iPhone's level of success, it is has become too easy to look at everything through an iPhone lens. Taking what worked with the iPhone and then applying it to other products and industries is a recipe for disaster. However, there are a few reasons that the automobile industry is much more similar to the smartphone industry than what first meets the eye. 

Using a smartphone and sitting in a car both revolve around a relationship between the user and product. For a smartphone, this relationship is straightforward: interacting with hardware in order to utilize software. The feel, look, and sound of a smartphone matter to the user. The car contains many of these same attributes. By simply sitting in an automobile, we are taken into a different environment in which a number of our senses are driven into overload including smell, touch, sight and sound. Both a smartphone and car are capable of containing and fostering unique experiences. Accordingly, it is possible to improve or alter the product in an attempt to create a better experience.

Tesla's success can be attributed to the relationship consumers have with their Model S and the broader experience of buying and driving an electric car direct from Tesla. Uber's success is a result of the experience created by easily getting from Point A to Point B in a safe and comfortable vehicle.

Similar to how hardware and software come together to contribute to a smartphone's experience, a similar dynamic is beginning to take over the auto industry. While it is difficult to call today's car dashboard experience pleasant, products such as CarPlay help to alleviate some of the friction points while autonomous features like Tesla's AutoPilot only exemplify the significant role software and hardware have to play in the car's future.

Rethinking the Car

Since cars and smartphones share a few important characteristics, the best way to discover the car's "iPhone" moment, or a new product or service that changes the long-standing perception of a car, is to look at our relationship with the automobile. What aspect of today's modern car has the potential to fundamentally change how we perceive and think about cars? 

Internal Combustion Engine? Replacing an internal combustion engine with an electric powertrain seems like a good way to improve various aspects of an automobile. Not only are we able to help the environment, but using battery power for propulsion leads to fewer moving parts to maintain on a regular basis. However, an electric powertrain by itself doesn't rethink the car. As the Model S and X have shown, while an electric car is capable of providing a much more enjoyable driving experience than many gas-powered cars, at the end of the day, it is still a car, albeit one of the better cars on the road. The primary reason electric powertrains are being positioned for a comeback is that the price of batteries continue to fall, making electric cars much more economical. 

Human Driver? Having software control a car will certainly change how we use cars. However, people have been sitting in the back seat of cars and having someone else drive them around for a very long time. Uber and the broader taxi industry serve as prime examples for why autonomous driving doesn't fundamentally alter a car's definition. Similar to electric powertrains, autonomous driving features may lead to a better car experience, but more is needed to actually rethink the car. 

Dashboard? Many have positioned a car's dashboard as the modern day version of a Blackberry keyboard - a collection of overly complicated buttons and switches that take away from the experience of driving or simply sitting in a car. Following this thought through, some have argued that allowing our smartphone to integrate with our car's dashboard will provide the familiarity that consumers demand. Unfortunately, improving a car's dashboard does not change our perception of a car.

At a fundamental level, the dashboard is an interface used to control a car. Simplify a car's propulsion system by replacing an internal combustion engine with an electric powertrain, and the need for a complicated dashboard is instantly reduced. Go further and add software that handles everything from autonomous driving features to cabin temperature, and the result is the Tesla Model 3. Replacing a complicated assortment of dashboard buttons with one large tablet screen marks a milestone for the car. However, a self-driving, electric car with a tablet as a dashboard does not fundamentally transform how we think about a car. It is still a box, albeit a much smarter box on wheels that gets us from Point A to Point B.  

The Car's Friction Point

If electric powertrains, autonomous driving, and software dashboards don't change how we perceive a car, it would appear that the auto industry may lack an iPhone moment in the traditional sense of the term. That is unless the answer has been literally sitting beneath our noses for decades. 

While it may seem like of one the most boring parts found in a car, the seat represents the biggest barrier to rethinking the car. If a company can rethink the car seat, our perception of a car will change, and ultimately, the entire auto industry will be impacted. The car seat is the car's version of the smartphone hardware keyboard. 

Seats play the largest role in our in-car experience. Everything from how we feel to where we are looking and what we are doing is determined by a car seat. Given these important roles, it is shocking that the car seat has seen very little change over the years, as depicted in the following pictures.

If cars are nothing more than boxes on wheels, the primary way to rethink the car is to change how we think about the "box." Similar to how the iPhone was inspired by the iPod and not the leading smartphones at the time, the best inspiration for rethinking a car's passenger compartment comes from the mobile products in our pockets and on our wrists, not the best-selling cars on the road.

Smartphones, tablets, and wearables are all about personalization. We want our iPhones and Apple Watches to be specifically suited to our personalities. Both hardware and software help accomplish that goal. With cars, the same type of personalization is nowhere to be found. The average car buyer has a finite number of options available to create an experience specifically suited to them. Once a car is delivered, future modifications and changes are pretty much nonexistent. What if there was a way we could rethink what it means to personalize our car experience? 

It all begins with the seats. By no longer thinking of seats as stationary benches facing forward, we can begin to come up with a way of creating different experiences inside a car based on our mood or merely the time of day. Of course, we have seen examples of this in the real world when it comes to the family car, such as the 2008 Dodge Caravan (pictured below).

However, there is a reason why consumers never embraced this type of setup in numbers: It was clumsy and aggravating to set up, and it was far from personalized. What if there was a way to create a certain kind of car compartment layout for one situation but then be able to switch layouts with an iPhone or even Apple Watch? Or how about creating a seating arrangement on our iPhone for one car, saving it, and then loading that same arrangement in a different car? The way we perceive a car will change. Instead of being just a box on wheels, the car will become a room on wheels. 

By relying on software to create our own unique experience and then taking that experience from car to car, we would have essentially recreated an iPhone-like experience on wheels. 

Competitive Landscape

There are very few automobile companies in a position to combine hardware and software to rethink the car seat. Ironically, the cars that have historically been the closest to delivering this kind of vision have been either large boxes on wheels like Dodge Caravans or an ultra-luxury car like a Rolls-Royce. Even then, the offerings still pale in comparison to what can truly be accomplished with software. 

Despite very high customer satisfaction rates, Tesla doesn't seem close to moving in this direction as it continues to position performance as the primary reason to buy a Tesla Model 3. In fact, the inside of a Tesla is often regarded as the vehicle's weak point. Meanwhile, the Model X internal compartment design is very conservative. This leaves Apple and Project Titan.

Project Titan

It is no secret that Apple's strength is not just hardware and software integration but the design behind the experience created from combining the two. Along those lines, while very little has been said about Apple's rumored electric car project, there are a number of clues to suggest where Apple is likely looking. Marc Newson, the newest member of Apple's industrial design team, has tried his hand at seemingly everything at least once, but one of his most well-known designs was a concept car for Ford commissioned back in 1999 (seen below with orange seats). While the car has ended up being quite a polarizing object over the years, the takeaway from his design was the importance of rethinking conventional wisdom all the way down to how we would enter or exit the car. 

In addition, a company reportedly attached to Project Titan shipped a 1957 Fiat Multipla 600 (the yellow car below) to the U.S. in 2014. Don't focus on that exact car. Instead, consider how the internal compartment would certainly mesh well with the concept of rethinking car seats and turning a box on wheels into a room on wheels. 

In fact, Marc Newson has a pretty extensive history of turning boxes into rooms. He designed the internal compartment of a private jet interior as well as a Qantas A330. 

Add it all up, and it would look like Project Titan has the resources to spend much more time rethinking a car's interior than an electric powertrain or driving performance. 

The Car Seat Opens Doors

If a company can rethink the car seat and the kind of experience possible inside a car, our definition of a car wouldn't just change, but we would be able to fully utilize car features like electric powertrains and autonomous driving.

If a car becomes fully autonomous, what happens to the driver seat? Does it make sense for everyone to face forward when the car is moving? These types of questions don't have clear answers if the car seat isn't rethought. Instead, we are merely occupants in a box that drives itself. Bring in the topic of ridesharing and being able to "load" our individual car compartment settings for a car just about to pull up to our pickup zone, and the possibilities created by rethinking the car seat begin to materialize. While it may seem like safety regulations and state laws may curtail the possibilities in this area, rethinking the seat may actually end up improving safety inside moving cars. The main reason why car companies have not embraced new ideas for the seat is limited customer acceptance. However, instead of it being a roadblock, it should serve as an opportunity for new companies to approach the problem from a different angle. 

The car's "iPhone moment" will likely end up being an idea - thinking of cars as extensions of our homes - personalized rooms on wheels. While most think the way to build such a product is to simply add software to a car dashboard, the answer is actually found by rethinking the most important part of a car - the seat. 

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Examining Apple's Dividend Strategy

Apple's board is expected to authorize an increase in the company's quarterly cash dividend later this month in conjunction with 2Q16 earnings. Ahead of this event, I examined Apple's dividend strategy. All signs point to Apple relying on a stable dividend policy in which dividend expense follows an existing long-term growth trajectory rather than near-term earnings volatility. By finding this dividend growth trajectory, it is possible to for look subtle shifts in trajectory going forward. These shifts will provide clues as to how management views long-term business prospects and profit opportunities. 

Dividend Growth

In order to find Apple's future dividend growth trajectory, we must first take a look at the company's historical dividend growth rate. After a 17-year hiatus, Apple reinitiated its quarterly cash dividend in 2012. Since that time, Apple has paid out $42 billion ($6.84 per share) of dividends while the share price increased approximately $26. Accordingly, the dividend has been responsible for approximately 20% of an AAPL shareholder's total return.

Apple has increased its quarterly cash dividend annually beginning in 2012:

• 2012: $0.38
• 2013: $0.44 
• 2014: $0.47
• 2015: $0.52

In order to calculate Apple's historical dividend growth rate year-over-year, we take quarterly cash dividends per share and convert them into an annual total, keeping in mind that Apple increases the quarterly dividend midway through its fiscal year: 

• 2013: $1.64
• 2014: $1.82
• 2015: $1.98

We can now calculate the year-over-year growth rate for total dividends per share paid on an annual basis: 

• 2014: 11%
• 2015: 9%

Apple discloses in its financial filings that it intends to increase the quarterly dividend annually. It would appear from looking at 2014 and 2015 growth trends that Apple management is on a trajectory in which it will increase its quarterly dividend by approximately 10% each year. However, there is more to the story. 

Apple's share buyback is playing a significant role in defraying the total cost of these 10% dividend increases. As Apple buys back its shares, the number of shares outstanding is reduced. This leads to Apple paying out fewer dividends, all else equal. As long as Apple buys back shares, management will continue to have greater leverage when it comes to raising the quarterly cash dividend. Said another way, current shareholders are seeing an indirect benefit from the share buyback by receiving higher dividend payments per share.

To see how share buybacks have made it cheaper for Apple to pay higher cash dividends per share, consider the amount Apple spends on cash dividends annually:

• 2013: $10.6B
• 2014: $11.2B
• 2015: $11.6B

Since these totals exclude the impact from share counts, we can calculate the growth rate in Apple's annual dividend expense: 

• 2014: 6%
• 2015: 4%

Even though the Apple board has been increasing the quarterly cash dividend by approximately 10% over the past two years, the total growth in Apple's dividend expense has actually been only approximately 5% per year. The reduction is due to a lower share count produced by Apple's share buyback. We can now use this 5% dividend expense growth rate as the base line when plotting Apple's future dividend growth trajectory. However, we first need to measure Apple dividend sustainability.

Dividend Sustainability

In order to judge how sustainable it is for Apple to increase its dividend expense by 5% each year, we need to look at Apple's dividend payout ratio. As the name implies, a dividend payout ratio shows the percentage of a company's total net income that is paid to shareholders in the form of cash dividends.  

Apple's dividend payout ratio (dividends / net income) has been trending down:

• 2013: 29%
• 2014: 28%
• 2015: 21%

The declining dividend payout ratio is a sign of improving dividend sustainability because it suggests Apple has remained conservative with its dividend growth policy even in the face of strong earnings growth. When compared to industry averages, Apple's 21% dividend payout ratio is only marginally higher. This is a byproduct of Apple following a stable dividend policy in which the company strives to maintain a certain level of consistency when it comes to dividend expense growth. Even though Apple saw a boost in earnings in 2014 and 2015, management will likely follow its existing strategy of running with a modest 5% increase in dividend expense. There are a few reasons to do this with the main one being that investors value predictability. Apple avoids having to make sudden dividend swings in the future, including cutting the dividend when earnings slow. 

The primary takeaway is that future Apple cash dividends will not be determined solely by the company's earnings. Instead, Apple dividends will be based on a stable growth policy in which management targets a consistent dividend growth rate that does not follow the cyclical nature of its business. By selecting a dividend that appears to be well within their capability of paying, management is indicating they are comfortable increasing their dividend expense by 5% each year. Going forward, management can use the dividend payout ratio as a periodic check to make sure that the company is not playing it too safe with its dividend or vice versa, putting itself in financial distress. 

Charting Apple's Dividend Trajectory

Since we now have a sustainable, dividend expense growth rate in hand, it is time to plot Apple's future dividend trajectory. We assume Apple maintains its 5% growth rate in dividend expense going forward (represented by the blue line in Exhibits 1 and 2) because of Apple's stable growth dividend policy. In addition, two other dividend expense growth scenarios are plotted in Exhibits 1 and 2, including a more robust 10% growth trajectory (green line) and a weaker 2% growth trajectory (red line).

Exhibit 1: Apple Dividend Expense Trajectory ($ billions)

Exhibit 2: Apple Quarterly Cash Dividend Trajectory (Per Share)

Assuming Apple increases its dividend expense by 5% each year and the current pace of share buyback is maintained, we now have five years of expected dividend expense:

• 2016E: $12.2B
• 2017E: $12.8B
• 2018E: $13.4B
• 2019E: $14.1B
• 2020E: $14.8B

Converting these totals into quarterly dividends per share (keeping in mind share buyback will lower the share count as time goes on), we arrive at: 

• 2016E: $0.58
• 2017E: $0.63
• 2018E: $0.69
• 2019E: $0.75
• 2020E: $0.82

This would suggest that when Apple announces a dividend increase later this month, my expectation is for a 12% increase to $0.58 per share per quarter. When converting these quarterly dividends into annual totals, we get: 

• 2016E: $2.20
• 2017E: $2.42
• 2018E: $2.64
• 2019E: $2.88
• 2020E: $3.14

Trajectory Shifts

Of course, a company's dividend strategy does not operate in a vacuum. If the business environment changes, management will need to reassess whether or not the change will result in a permanent increase or decrease in industry attractiveness and profitability. A weaker outlook may lead management to cut its dividend growth trajectory in order to conserve operating income. Vice versa, a stronger outlook could give management room to increase its dividend which would benefit current shareholders, including Apple employees. 

This is where we can use Apple's likely dividend growth trajectory to our advantage by monitoring whether or not management veers off its current course (blue line). Exhibit 3 highlights how a shift in dividend growth can be either classified as a positive trend (green shaded area) or negative trend (red shaded area).

As an example, if Apple reports dividend expense between $12.8 and $14.0 billion in FY2017, then it would fall in the green positive trend area and indicate that Apple management has increased its dividend expectations. If dividend expense is between $12.0 and $12.8 billion, then Apple reduced its dividend expectations. Apple could certainly report dividend expense that is above and below even the shaded regions, which would obviously indicate somewhat major shifts in management attitudes toward Apple's prospects. 

Exhibit 3: Apple Dividend Expense Trajectories

Dividends Matter

Wall Street understands that Apple's earnings are volatile. It is rational to assume that over time, there will be earnings peaks and troughs depending on Apple's current product line at any given moment. Given this volatility, Apple's dividend strategy is aimed at adding a bit of continuity and predictability to the mix. This is just another reason why it is in Apple's best interest to maintain a steady dividend growth rate that can survive the ups and downs of Apple's product line.

While paying a small $0.58 per share quarterly dividend may not seem like a big deal, if Apple grows its dividend expense by 5% each year and continues to buy back shares, Apple will pay nearly $3.15 of dividends per share annually by 2020. At Apple's current stock price, this would equate to a very attractive 2.8% dividend yield. If we assume Apple maintains its current 1.9% yield, Apple's stock price would trade at $165 per share. These two examples show the power behind a dividend, even if it experiences modest growth from year to year. Apple dividends are going to matter much more than many people think.

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Apple Watch's Future Will Include Smart Watch Bands

Expectations surrounding Apple Watch continue to decline. Given slowing sales growth at some of the leading wrist wearable companies, including Fitbit, there is a feeling that the wrist wearable category has been one giant head fake, a fad that just doesn't contain much potential beyond tech enthusiasts. This view not only ignores reality given the number of Apple Watches sold to date, but also fails to understand the path wrist wearables will follow. The Apple Watch's future will not be found just with better Watch cases updated on an annual schedule like an iPhone. Instead, Apple Watch bands deserve more attention going forward as they begin to incorporate technology and gain additional importance for wearable computing. A smarter Watch band will play a crucial role in Apple Watch's future as a personal technology device.

Apple Watch's First Year

Apple sold approximately 10 million Apple Watches during the first eight months on the market, placing the Watch as the second best-selling new product category in Apple's history. For perspective, Apple sold 15 million iPads during its first three quarters on the market. The majority of Watch sales occurred in the U.S., and the lowest-priced Watch Sport collection, which was responsible for a majority of the sales, had seen significant customer interest around the holidays given Best Buy and Target sales promotions. In terms of Watch bands, the Sport Band has proven to be the clear choice with consumers. 

The Apple Watch has undergone an expectations reset over the past year. The device was initially positioned as a mini iPhone on one's wrist. The expectation was that we would use a series of apps positioned in a honeycomb pattern on a small piece of glass worn on our wrist to get through our day. After only a few weeks of use, it became clear that this vision was not going to be the primary use case for most people. The introduction of watchOS 2 in September didn't change the trajectory. 

Apple contributed to these initial Watch expectations in the way they unveiled the device in September 2014 and yet again in March 2015. While Apple's positioning of the Watch as a great way to display small amounts of text and information was on point, management's broader focus on third-party apps hasn't materialized. While some may attribute lackluster developer interest as the primary reason app usage has trended differently than expected, the much bigger reason was that Apple likely tried overselling the Watch. In reality, consumers saw value in a few simple daily tasks like receiving notifications from their favorite apps. Instead of involving searching and then interacting with apps like we would on an iPhone, the Watch required a new, much simpler way of interacting with apps.

The Watch's future is not found by simply taking the way we use our iPhone and putting it on a smaller screen on our wrist. Instead, the Watch will gradually handle tasks we used to give to our iPhones. We already see this taking place in terms of sending and receiving messages and paying for things in stores. In addition, the Watch is beginning to handle new tasks like tracking our health. The commonality among all of these tasks is the need for evolutionary updates and improvements in order for Apple Watch to be positioned to handle many more tasks as time progresses.

Apple Watch Bands

While Apple Watch app usage has trended differently than Apple initially positioned, watch bands were one aspect of the Watch that Apple seemed to get right from the beginning. The wide variety of available Watch bands has contributed significantly to Apple Watch's success. As it is a personal device worn all day, every day, the ability to add personality to one's Watch with different bands has proven popular. Tim Cook recently pointed out that one third of Apple Watch owners regularly change their Watch bands. This amounts to more than three million people buying at least $150 million of what amounts to an Apple Watch fashion accessory. While this may pale in comparison to revenue from Apple's other products, early trends contain much promise. 

As a sign that Apple expects Watch bands to play a crucial role in Apple Watch's future, Apple had a new range of Watch bands ready for sale only five months after launching Apple Watch. At the same time, the Hermès partnership was announced, positioning luxury leather bands as the centerpiece of a new Watch collection. Last month, Apple unveiled additional Watch bands for its "Spring collection." The motivation behind these moves was clear: New Watch bands add a sense of freshness to the product category. A new phenomena developed and instead of buying different Watches from more than one collection, consumers were buying multiple Watch bands and switching them on and off depending on the occasion. It was difficult to miss Jony Ive coordinating his Watch band selection with whatever he was wearing at various Apple keynotes and events. There was something with Watch bands that caught consumers' attention much more than even the Watch cases themselves.   

My Experience

Over the past 12 months, my Apple Watch experience has reflected many of these larger themes that sum up Apple's entry into the wrist wearable category. The Watch's value proposition has revolved around three primary items for me: notifications, timekeeping and fashion. 

1. Notifications. Apple positioned sending and receiving notifications as a key Apple Watch attribute from the start and with only a few exceptions, this has largely proven true. There is value and convenience in being able to easily see iMessages, incoming phone calls, tweets, and other short reminders without having to retrieve my 5.5-inch iPhone 6s Plus from a pocket or nearby room. 
2. Timekeeping. Even though it sounds comical, I use my Apple Watch for timekeeping. As there is convenience found with receiving notifications on my wrist, there is value in not needing to find my iPhone to see the time. However, as a sign that Apple Watch is something more than just a watch, I never used my traditional watch to tell time. This may be attributed to the fact that I prefer Apple Watch faces over a traditional watch face.  
3. Fashion. There is no question that the only reason I wear my Apple Watch every day is because of the Sport band. There is value in forgetting I am actually wearing the Watch thanks to the Sport band's comfort and design. Watch bands play an important role in positioning Apple Watch not just as a personal technology device, but also as a fashion accessory. This was the primary reason I previously wore a traditional watch - not because of its usefulness, but to simply put something on my bare wrist. 

When combined, these three use cases help show not only how effective the first edition Apple Watch has been in serving as an iPhone accessory, but also where Apple can push to bring the device to the next level. One obvious next step involves looking beyond just the Watch case and instead, thinking about my entire wrist. 

It's All About Wrist Real Estate

After looking at my three primary Watch use cases, a few things stood out to me. I enjoy having some type of display on my wrist that is capable of showing me more than just the time. Simple plastic wrist bands or pieces of smart jewelry not having the capability to display text, pictures, and yes, even emoji, don't represent the future of wearable computing. Instead, these devices will forever remain accessories to other screens in our lives. 

The need for some type of display with a clear line of sight means Apple Watch's rectangular display sitting on top of the wrist will remain for the foreseeable future with periodic updates that include faster processors, improved sensors, and evolutionary design changes. I think the Apple Watch case is still a bit thick. The eventual inclusion of GPS and cellular connection will likely represent significant shifts in trajectory for Apple Watch adoption.

Expectations currently point to the first major Apple Watch case revision being unveiled in September. However, instead of looking at these periodic Watch case changes as the extent of Apple Watch's future, there is actually more potential found with Apple Watch bands.

Success for wrist computing involves taking the finite amount of real estate on our wrists and using it to make technology more personal. This doesn't mean just taking technology and putting it closer to our bodies, but rather it means using a device's design to introduce new capabilities. Wearables make it possible to extract additional power from technology without having it take over our lives. One example is paying for an item in a store by using Apple Pay with just an arm swing and double press of a button. Another is turning a gentle tap on the wrist into a form of communication. This quest for making technology more personal has been Apple's singular mission over its 40-year history. 

In terms of wrist real estate, as shown in the picture below, the Apple Watch Sport band takes up nearly four times as much wrist area as a Watch case.

The M/L Apple Watch Sport band takes up four times as much area on the wrist as the Watch case. 

Obviously, this ratio will change depending on the user, but the primary point is that simply utilizing the top of our wrist is not optimal for wrist wearables. While the top part of the wrist is ideal for viewing data, the rest of our wrist can still be used for other purposes.

Including additional sensors, battery volume, and other components directly into Watch bands will better utilize wrist real estate. Instead of having the Watch case be the only "smart" piece, Apple will likely begin selling Watch bands that go much further than just representing pieces of fashion. The fact that thinner Watch cases would seem to stand at odds with the need for additional battery space and the eventual inclusion of GPS and cellular connection may further stand as motivation for pushing certain components into Watch bands.

We likely got a glimpse of this future when looking at the New Yorker's profile of Jony Ive which mentioned that he admitted much of Apple's Watch R&D was focused on the bands and not the rectangular Watch case. 

There are a number of ways Apple could incorporate technology into Watch bands, including even a modular approach, which Apple has patented. One real-world example of this type of setup is consumers' ability to swap out Watch bands for ones with built-in battery, extending the Watch's usability. The user would then be able to further refine the band, adding or removing links containing extra battery. The same can be done for health-related bands containing certain sensors that require a cuff-like product to work properly. This is where Apple could theoretically apply for FDA approval for specific Watch bands marketed to treat or diagnose various diseases and conditions. In this scenario, Apple would avoid putting the entire Apple Watch through the FDA approval process. 

Sales and Price Implications

The addition of smart Watch bands will have major implications for Apple Watch financials. One likely scenario is that customers will use Watch cases for an extended period of time. Meanwhile, smart Watch bands would be positioned as items worth upgrading more frequently. In fact, Apple has already begun positioning Watch bands as something worth purchasing multiple times a year based on the season.

This would suggest that the number of Apple Watch users would be a much more important metric to track than the number of Apple Watches sold. As the number of Apple Watch users increase, the addressable market for various smart Watch bands will expand. In a few years, selling a $199 smart Watch band into an Apple Watch installed base of 30 to 40 million users will lead to much success even if a small fraction of Watch owners buy the band.   

In terms of pricing, instead of highlighting three Watch collections based on Watch case materials (aluminum, stainless steel, gold), Apple could position Watch bands as the primary pricing variable. It appears Apple is already moving in this direction based on their new Watch interactive gallery available on Apple's website (shown below) where there isn't much distinction between the Sport and Watch collections. 

Apple's New Apple Watch Interactive Gallery.

Product Implications

While a rectangular piece of glass sitting on the top of the wrist is an adequate way to to display data today, the Watch band itself will likely one day be able to display data. Over time, Apple Watch could be nothing more than a smart wrist band with a flexible AMOLED display containing a mix of personal technology and fashion. As with its Hermès partnership, Apple could work with existing luxury companies to build Watch bands that contain precious metals and minerals. If watch manufacturers were already concerned about Apple Watch, the move away from dedicated watch cases and to flexible bands capable of displaying information would represent even greater anxiety.

A Hybrid Approach

It is easy to think of Apple Watch case development in terms of iPhone and iPad. Each year, or in the case of iPad, approximately every 18 months, Apple releases an evolutionary update containing various amounts of hardware and software improvements. However, the iPod may end up serving as a better example for how Apple Watch bands will evolve. Comparing the very first iPod released in 2001 to today's iPod touch conveys the message that the product saw not only incremental design changes, but also fundamental shifts in feature sets based on new technology. This would suggest Apple Watch will likely take the hybrid approach. Watch cases will retain much of their familiarity and see more evolutionary changes while Watch bands will become much smarter over time and capable of eventually replacing even Watch cases. While the Apple Watch continues to be underestimated, Watch bands rather than Watch cases will prove to possess the larger amount of surprise. 

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iPhone SE Is Apple's $30 Billion Bet on 4-Inch Screens

Instead of representing a seismic shift in iPhone strategy, the iPhone SE is a byproduct of Apple's current screen size differentiation strategy. Apple has given the iPhone SE a very specific mission: succeed the iPhone 5s and entice a portion of the 240 million iPhone users still using a small screen iPhone to upgrade to newer hardware. Apple is placing a $30 billion bet that a 4-inch iPhone with a four-year old design, updated with newer components, will help accelerate the iPhone upgrade cycle. The iPhone SE is a "special" opportunistic bet set within Apple's existing strategy to expand the iPhone line. 

Background

The best way to understand why Apple introduced the iPhone SE is to look at the iPhone business over the past few years. In September 2014, the iPhone 6 and 6 Plus not only kicked off Apple's entry into multiple screen size iPhone development (4.7-inch and 5.5-inch screens), but also began a global sales bonanza as pent-up demand for larger iPhones, combined with the iPhone rollout at China Mobile, resulted in strong 37% year-over-year growth in iPhone sales for FY2015. 

However, in recent months, a few negative developments began to appear in the iPhone business. While Apple was still bringing new customers into the iOS ecosystem at a steady clip, the rate at which existing iPhone users were upgrading to newer iPhones was beginning to slow. Specifically, 3.5-inch and 4-inch iPhone users were showing hesitation towards getting larger screens. While the reasons for this hesitation vary with some preferring smaller screens and others simply being content with their current small iPhone, Apple had a growing dilemma on its hands: how to get these users to upgrade to newer iPhones. The motivation isn't just found with hardware profits, but also with services revenue since roughly 40% of the iPhone user base is using an iPhone that does not support Apple Pay in retail stores. 

To make matters worse, Apple stopped selling its low-cost iPhone 5c (an OK seller) this past September, which meant the iPhone 5s was Apple's last remaining 4-inch screen iPhone. With the device getting long in the tooth and its third anniversary quickly approaching, Apple would need to make tough choices regarding not just the iPhone 5s, but also its broader 4-inch screen strategy. It was time for Apple to place a few bets. 

The Keynote

Apple VP Greg Joswiak had one objective when announcing the iPhone SE: explain to the press why Apple is selling a new 4-inch iPhone when the trend had been towards larger screen iPhones. Obviously, he couldn't say that Apple needed a way to get existing 3.5-inch and 4-inch iPhone users to upgrade, so instead he framed the narrative that small screens were still popular among iPhone users in addition to serving as an iOS entry point for new users. Specifically, Joswiak pointed out that 13 percent of iPhones sold in 2015 (more than 30 million units) were 4-inch iPhones. Since Apple sells more than 200 million iPhones per year, even a small sales percentage like 10-15 percent is a significant number of iPhones. 

After saying that people (current iPhone users) asked and pleaded with Apple to keep a small 4-inch iPhone in the lineup, Joswiak spent the rest of his time on stage explaining that Apple was going to do just that. Instead of facing the prospect of the 4-inch iPhone form factor possibly becoming extinct in a few months, Apple would take an iPhone 5s and future proof it by adding some of the latest technology to the same "beloved aluminum design" familiar to hundreds of millions of customers. 

Slide after slide, Joswiak ran with the message that the iPhone SE was better than the iPhone 5s. Specifically, Joswiak focused on the features that would matter most to existing iPhone 5s users thinking of upgrading, discussing how the SE was faster than the 5s, had better battery life, included better cameras, and of course, supported Apple Pay.

Apple spent most of the iPhone SE slides comparing the device to the iPhone 5s. 

The message couldn't be clearer. Apple is positioning the iPhone SE as a "special edition" model targeting the 240 million existing iPhone users still on smaller screens. If the SE ends up also appealing to feature phone users or Android users in emerging markets, then the model will have done even better than expected, but this is not Apple's primary target. 

Within just five minutes, Joswiak was able to explain the iPhone SE. The presentation's brevity was due to the device being an iPhone 5s with some 6s internals. The iPhone SE isn't quite an iPhone 6s in smaller form factor as it contains the same screen and home button as the 5s resulting in no 3D Touch or second-generation Touch ID. Meanwhile, the front-facing camera is the same one included in the iPhone 6 and 6 Plus. Instead, Apple picked a component set that would not only appeal to existing iPhone users, but also be able to last for an extended period of time in an iPhone line that would see updated components in six months with new flagship iPhones.  

Future-proofing the iPhone SE.

Price

From Apple's perspective, having 30 million people buy a 4-inch iPhone in 2015 suggested that smaller iPhones still had a future. However, a key question remained. How much of this small iPhone demand was due to the iPhone 5s (and 5c) having a small screen or low price? During the first nine months of 2015, Apple sold the iPhone 5c for $450 while the iPhone 5s went for $549, followed by a $101 price reduction this past September. The fact that a greater percentage of smaller rather than larger iPhone sales went to first-time iPhone users didn't do much to answer the fundamental question concerning screen size versus low price. 

Apple was very deliberate in choosing the iPhone SE's $399 price. The device is not priced as a cheap iPhone 6s, but as an iPhone 5s successor. This means that in a world where a year-old 4.7-inch iPhone retails for $549, a 4-inch iPhone with a four-year old design needs to be priced aggressively to appeal to existing small iPhone owners. 

Pricing a new iPhone at $399 is a significant change for Apple because for the first time, a consumer could own the latest iPhone technology at a 40% discount from the traditional $649. However, instead of this change being a transformational shift in Apple pricing strategy, the move is actually based on Apple's screen size differentiation strategy kicked off in 2014 with the iPhone Plus. Apple has been positioning screen size as a way to determine an iPhone's price. The iPhone SE is the first 4-inch model to go through this differentiation strategy. As seen in Exhibit 1, the iPhone SE is positioned within the iPhone line as Apple's less expensive 4-inch iPhone 5s successor. Come September, the iPhone SE will have year-old technology and be in line with year-old $549 4.7-inch and $649 5.5-inch models. 

Exhibit 1: The iPhone SE's Place Within the iPhone Line (September 2016) 

Similar to how an iPhone Plus is priced at a premium to the flagship 4.7-inch model, a 4-inch model would be priced at a discount to the flagship iPhone model. The iPhone SE's borrowed iPhone 5s design allowed Apple to hit this $399 price without destroying profit margins. In addition, the iPhone SE is still priced at a premium internationally, similar to other iPhone models, suggesting Apple is not looking at the iPhone SE as its "cheap iPhone" emerging markets trojan horse. Instead, the iPhone SE is a special edition 4-inch model geared toward existing iPhone users that crave small iPhones.

The $30 Billion Bet

Apple is making a significant bet with the iPhone SE as billions of dollars in revenue are put at stake by discontinuing the iPhone 5s and positioning the iPhone SE as its only small iPhone. 

Over the next two years, Apple thinks it will be able to use an updated iPhone 5s to entice a certain percentage of the 240 million iPhone users still using small iPhones to upgrade. From a sales perspective, if the iPhone SE can continue to grab the same sales share as the iPhone 5c and 5s in 2015, then the device will bring in $7 billion of revenue in FY2016 (two quarters remain), as shown in Exhibit 2.

However, with the iPhone SE displaying qualities characteristic of a model that will stay around in the lineup for a while, Apple's bet could escalate to $30 billion of revenue over the span of the next two years. Of course, it is conceivable that at $399, the iPhone SE will sell even better than Apple expects and represent as much as 25% of iPhone sales, which would contribute nearly $40 billion of revenue to Apple's top line over the next two years. On top of it all, much of this revenue would be related to iPhone sales that may not have occurred if it wasn't for a new 4-inch model. 

Exhibit 2: Potential iPhone SE Unit Sales and Revenue (FY2016 and FY2017)

If the iPhone SE sells well at $399, then Apple will gain confidence with future 4-inch screen pricing strategy, especially for a completely new 4-inch screen iPhone (likely priced at $499). This pricing strategy would largely be based off of Apple's ongoing screen size differentiation strategy in which larger iPhones are sold for more while smaller iPhones are sold for less. 

A poor performing iPhone SE at $399 will provide even greater insight to Apple. If the iPhone SE doesn't sell well, then Apple knows consumers likely prefer a completely revised iPhone and not just an older iPhone with newer components. The fact that 240 million are still using small iPhones despite being able to upgrade to newer, larger models, suggests there is some level of demand for a small iPhone, even if it represents only 10-15% of the iPhone user base (translates to an eventual 50 to 100 million users).

Apple's iPhone Strategy

Apple employs a business strategy of selling a select number of iPhone models at significant volumes and premium prices in order to maximize profit. Beginning at the high-end, Apple squeezes as much profit out of the smartphone market as possible, gradually working down market, grabbing whatever profit is available at each subsequently lower price tier. The end result is that Apple holds 90 percent smartphone profit share but 15 percent sales share. 

Historically, $649 was the lowest price at which Apple was willing to sell the latest iPhone technology. Meanwhile, older iPhone models with dated technology were offered at $450 and $549. However, these prices were for an iPhone line that lacked screen size diversification. As the iPhone line matures and Apple embraces multiple screen sizes, larger iPhones are priced at a premium while Apple is pricing newer, smaller iPhones at a discount. This dynamic is now taking place with the iPhone SE.

Heading into last week's keynote, expectations were for the iPhone SE to be priced at $399 or $449, so its $399 price is not so much a shock, but rather a sign that Apple is confident it can manufacture the device quite efficiently. Given its four-year old "beloved" design and the fact that all of its components are already being produced at scale and will be included in nearly 200 million iPhone 6s and 6s Plus units sold in FY16, Apple is able to sell the iPhone SE at $399 and still retain respectable profit margins.

Apple is essentially utilizing screen size differentiation as the next step in its long-standing iPhone strategy of maximizing profit by moving downmarket. At $399, Apple would be pushing consumers in the $199-$299 price range to move up and purchase the iPhone SE. This moving up process results in value creation within the smartphone market as consumers are willing to spend more on an iPhone - a byproduct of Apple's existing strategy.  

While the iPhone SE is fundamentally different than the iPhone 5c, both devices share a few characteristics. Instead of each representing a fundamental shift in iPhone strategy, the 5c and SE are targeted Apple bets aimed at addressing friction points within the iPhone business. The iPhone 5c served as a way to sell iPhone 5 technology in a less expensive shell and also differentiate the more expensive iPhone 5s. With the iPhone SE, Apple is answering the dilemma posed with aging iPhone 5s and iPhone users still showing interest in a 4-inch screen. There is no question that the iPhone SE is a different kind of iPhone, but being different does not automatically suggest a fundamental shift in strategy. 

The iPhone SE's Future

It's too early to determine the iPhone SE's future. Since the "special edition" nomenclature denotes the device's goal of bringing in iPhone upgraders, the iPhone SE's popularity may ultimately play a factor in how long Apple keeps the SE on the market and at what price. It would seem likely that the iPhone SE will continue to be sold beyond September when Apple introduces new iPhones. There is no indication that Apple will begin selling another 4-inch iPhone at that time. This would serve as another piece of evidence that the iPhone SE is not a shift in iPhone strategy, but rather a targeted bet. If Apple continues to sell the iPhone SE well into 2017, it is not unfathomable that we would eventually see a $50 or $100 price drop as the device would then be based on a five-year-old design and year-and-a-half old technology. 

Given the iPhone's increased role in people's lives, there will likely be demand for iPhones with a compact design meant to be used differently than larger iPhones. The iPhone SE is essentially Apple's first step with smaller screens set within its screen size differentiation strategy. Eventually, this strategy will create a space for Apple to introduce new smaller iPhones alongside larger siblings. These smaller iPhones would then retain the iPhone SE's low price relative to larger models. 

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A Facebook Experiment

I deleted Facebook off of my iPhone six months ago. I had one simple reason in mind: I thought I would be able to analyze Facebook more accurately and completely by not using it or its companion apps, cold turkey. Purchasing an iPhone 6s Plus at launch gave me the perfect opportunity to begin my experiment. My initial assumption proved true. In just the first eight weeks, I learned more about Facebook, Instagram, WhatsApp and Facebook Messenger, than the last eight years. I've reached a number of observations over the past six months on Facebook's value and vulnerabilities and a definite answer to what was once a seemingly difficult question: Are Facebook and Apple becoming competitors? 

Observations

I had five overarching observations from not using Facebook properties for the past six months: 

1) Facebook is a habit, not an addiction. Within a few hours of not using Facebook, it was easy to see how much time I had been dedicating to Facebook. I began grabbing my iPhone but not knowing what exactly to do with it. Typically, I would open the Facebook app and waste a "commercial" amount of time - a minute or two of taking in random content from friends. Instead of downloading a few iOS games to keep my attention, Facebook had become my go-to game. If I was at a doctor's office waiting to be seen, Facebook would serve as that perfect attention filler. I now needed to find something else to occupy my time.

During the first few weeks of my Facebook experiment, I did have an urge to find my old iPhone 5s (which still had the Facebook app installed on it) and take a quick peek at my News Feed. However, this desire never got to the point of interrupting my daily routine, a prerequisite for a form of addiction. Instead, I realized Facebook had become a habit. As time went on, the solution to handling my Facebook habit was simply to find other apps that would fill my time. Those apps turned out to be Apple News and Twitter (and eventually Slack). Each one of those apps would offer different forms of content capable of grabbing my attention. 

2) Facebook is no longer a social network. Facebook stopped being a social network years ago. Up until this past September, I had used Facebook daily for more than 10 years. I was among one of the early Facebook users relying on the site to literally see who lived next door. As the years went by, my Facebook wall became a News Feed and with the change, Facebook changed from being about what my friends and I were doing to what my friends thought was interesting around the web. I discovered that those two things produce very different kinds of content. Facebook lost all resemblance of a social network with the presence of brands, ads and algorithms. 

3) My core communication was never on Facebook. After I stopped using Facebook Messenger, I wasn't sure if my communication with family and friends would deteriorate. Instead, I discovered that my most important communication channels were never on Facebook properties to begin with. I still used the phone app on my iPhone for most communication while iMessage also continued to play a significant role. For other forms of communication that were indeed found with Facebook, I reverted back to relying on word of mouth. The events and occasions that I needed to know I ended up finding out about, just through a third-person. The type of communication that did suffer by not using Facebook was the email variety, or messages to acquaintances with little real-world connection.  

4) I'm less informed of the local world around me. There is no denying that I am less aware of what is going on around me in terms of random daily news and events by removing myself from Facebook. I am still keenly aware of global news thanks to Twitter and apps like Apple News. In fact, I've had more time to follow those kinds of news stories since deleting Facebook. However, I have lost touch with much of the local news likely to impact my daily routine. Facebook had turned into my local paper, all the way down to nearby high school sports scores and recaps. Instead of reporters relaying the information, parents would upload pictures and stories of how their children did at the game. Not having access to that type of news makes me feel a bit more disconnected to the community around me since there is no other app or source capable of recreating that news medium other than a traditional paper or news periodical sent through the postal mail (which is still the only way I know the bare essentials of what is happening around me). 

5) Facebook's success is dependent on my time. I used to think that Facebook's success was dependent on me being an active participant by uploading content or sharing links. Instead, Facebook simply needs me to open a Facebook property for the company to remain relevant. With news organizations and other content sites now relying on Facebook for traffic, I turned from an active participant uploading content daily to a passive observer that paid Facebook with my time (and data). Facebook's transformation from a site that required me to spend time and energy to create a profile and engage with others to an app that fed me content from around the web without me needing to do much is why Facebook has become so quintessential to so many people.

Takeaways

After not using Facebook for six months, I was able to clearly see why Facebook is so incredibly popular around the world, the guiding motivation behind Mark Zuckerberg's actions, and where the company is headed tomorrow. 

What is Facebook? Facebook is a curated version of the web. Having 1.6 billion people participate in building this new version of the web is ultimately why Facebook had become a habit for me and so many other people using smartphones. There is literally a never-ending stream of information and content to consume. Talk about the advantages of having massive scale. Using the Safari or Chrome app on a smartphone to surf various websites is a pain, not to mention energy-consuming, which explains Facebook's aggressive moves in recent years to bring even more content into the News Feed. If Facebook wants to turn habits into addictions, they need to include the most sticky portions of the web including news, videos, and eventually live sports and make it remarkably easy to consume content. This explains the motivation behind Instant Articles and marketing the feature as accessing and reading news quickly and effortlessly. 

There is one very important takeaway from Facebook being a curated version of the web. Some people won't be interested in consuming this version of the web, and as I have shown by having not used Facebook for the past six months, there are other versions of the web available. Creating a non-Facebook version of the web involves more effort and dedication, but it is possible. I have found a handful of apps and websites (Apple News, iMessage, Twitter, Slack) that have contributed to a new curated version of the web. This helps explain why the 50% of the connected world that is not on Facebook can get by just fine without it and probably will not be embracing Facebook's version of the web anytime soon. If there is still any mystery as to why Facebook cares so much about connecting the rest of the world's seven billion people to the internet, look no further than those people representing Facebook's growth engine where additional users leads to a stronger version of the web and consequentially more advertisers.

The reason Instagram has become so incredibly popular is similar to how the News Feed offers a curated version of the web within the traditional Facebook app. Instagram is moving down the same path only with pictures. This opens so many more doors since photos and cameras have played an integral role in the smartphone boom. We now use our smartphones as tools to capture and interpret the world around us. Taking these photographs and then using the massive scale with hundreds of millions of users produces another version of the web that is even easier and more enjoyable to consume than compared to the traditional Facebook News Feed. 

Messaging Apps. Once the iOS versus Android war matured to a point where there were no longer the same fierce battles between the two platforms, many tech pundits and analysts turned to messaging as an answer for where consumer tech trends and interest were headed. For Facebook, both Messenger and WhatsApp were positioned as potential threats not only to iOS, but also to Android. Grandiose visions of everything and anything being put into Facebook Messenger and then crowding out competing platforms ended up being the subject of countless blog posts around the web. In reality, this messaging vision has been grossly exaggerated and like much of the tech analysis, void of reality. While 800 million people use Facebook Messenger and a billion people use WhatsApp, we rely on multiple communication channels throughout the day. The simple fact that many (most) young people are addicted to Snapchat shows that there is room for multiple messaging apps since we segment our communication channels according to our social network. And we haven't even discussed the Lines and WeChats of the world.  

When I stopped using Facebook, it became clear that iMessage, not Facebook, was the place I kept 100% of my family communication. This trend has only intensified in recent years as additional family members have purchased iPhones. While messaging will indeed continue to advance and be able to handle much more in the way of delivery content and utility, the industry is not a winner-take-all, but rather a handful of winners with the possibility of new start-ups coming in and also becoming a winner in terms of communication (hello Slack). 

Facebook vs. Apple. Facebook and Apple are unequivocally not competitors. In fact, Facebook and Apple are partners. Facebook's curated version of the web requires hardware, and Apple is a key player selling smartphones, tablets, and laptops/desktops. Instagram's growth has been fueled by smartphone camera innovation, which Apple has played a major role in. Add in Messenger and WhatsApp, and it's clear that Apple's 640 million iPhone users play a role in Facebook's success (and vice versa as many Apple consumers enjoy using Facebook properties on their iOS devices). 

However, it would be incorrect to assume the degree of competitiveness found within this Facebook and Apple relationship has remained static. Upon closer examination, Facebook and Apple are increasingly chasing similar goals. For both companies to remain relevant over time, they will need to occupy a greater share of our time and attention. Up to now, both companies are able to accomplish this goal without harming the other. A user reading an Instant Article in Facebook on his or her iPhone 6s Plus would be considered a win for both Facebook and Apple. However, listen to Mark Zuckerberg's vision for Facebook, and it's not difficult to see Facebook competing more directly with Apple. 

At first glance, Mark Zuckerberg's ideas on Facebook and virtual reality (VR) seem far-fetched, but when considering how Facebook is a curated version of the web, wanting to deliver immersive video content to users makes plenty of sense. According to Zuckerberg, instead of using our smartphone or tablet to open the Facebook/Instagram app and scrolling through a timeline of content, we can put on a pair of glasses/goggles to get a much more engaging and encompassing view of the world through VR. In essence, we would be able to see the world through other people's eyes. I still hold an incredible amount of hesitation and doubt that we will be willing to wear computers on our face throughout the day, but there is no denying that Facebook is betting big on a future beyond using Facebook on a smartphone.

The key development in Facebook's virtual reality bet has been its Oculus acquisition. With Oculus, Facebook entered the difficult world of hardware development, placing itself that much closer to taking on Apple as a more direct competitor. Of course, hardware is notoriously difficult, and I am skeptical Facebook's culture meshes well with prerequisites needed to succeed in hardware. While things are extremely early, a world where Facebook-branded VR glasses begin to take up users' time instead of iPhones or iPads would obviously mark a new type of competition. However, Apple isn't standing still and is not only investing in VR, but also showing interest in moving into entirely new categories such as personal transport and jewelry.  

While one of Apple's biggest competitors is itself (an iPhone's greatest competition is its year-old sibling), any company that is trying to build an experience out of the combination of software, hardware and services needs to be monitored. Facebook as of today does not meet the criteria for being classified as a formidable Apple competitor. However, a world in which Facebook continues to invest in hardware (much easier said than done) and begins to embrace ideals that go beyond software and hardware would certainly keep Apple executives up a few more nights.

Facebook Success

Mark Zuckerberg didn't position Facebook to replace the web. We don't use Facebook to search for something akin to a traditional Google search. Instead, Zuckerberg was interested in creating a new version of the web based on a different kind of search, one initially powered by our social fabric. For now, Wall Street and Silicon Valley seem to think both Facebook and Google can coexist peacefully despite what seems like obvious overlap in capabilities and ambition. Google's new corporate identity built around Alphabet certainly plays a role in showing that Google is looking for a future beyond search.

The primary takeaway from my Facebook experiment over the past six months is that while Facebook's popularity is unmatched on the web, the company is not invincible. Facebook's success will depend on its ability to deliver a compelling content consumption experience to its 1.6 billion users. As long as Facebook can occupy users' time, the company will do well with advertisers, helping to fund future endeavors. However, there continues to be a world outside of Facebook where billions of people live and enjoy technology with no regrets of not using a Facebook property. This world remains a vibrant place for both innovation and different ideas, leading to startups like Snapchat and Slack which begin to attract a growing amount of time and attention once given to Facebook. All the while, Apple's quest to embrace a new form of luxury will likely cap any potential near-term rivalry between Facebook and Apple. 

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