Jony Ive, Jeff Williams, and a Larger Apple

One question that continues to plague Apple is the company’s ability to grow. Wall Street and Silicon Valley are unsure of the company’s business strategy and ability to foster innovation. The press thinks Apple is turning into a different kind of company in an effort to chase additional profits.

Thrown into this volatile and polarizing cocktail of opinions, the recent Jony Ive and Jeff Williams news has been met with mixed reactions. The leadership changes neither signify a company moving away from design or hardware nor suggest that management is facing some kind of growth crisis. Upon closer examination, the Jony Ive and Jeff Williams news are byproducts of Apple evolving into a much larger design company.

Growth Narratives

There have been three broad narratives regarding Apple’s growth strategy, and each has been distinctly negative.

Wall Street (Unit Sales)

Instead of focusing on Apple’s long-term prospects, Wall Street has historically centered on quarter-to-quarter fluctuations driven by unit sales. This would partially explain the severe pushback Apple management received when it moved away from disclosing unit sales. The decision forced observers to take a longer-term view of the company although many analysts still remain focused on unit sales.

As shown in Exhibit 1, iPhone unit sales clearly plateaued prior to the recent sales troubles in China. The warning signs for this dynamic were apparent as early as 2016 as highlighted in the Above Avalon article, “iPhone Warning Signs.” The combination of a slowing upgrade rate, Apple running out of premium users at the high end of the smartphone market, India challenges, and high smartphone saturation rates led iPhone sales to trade in a range of 180M to 220M units per year.

Exhibit 1: iPhone Unit Sales (TTM)

Silicon Valley (Data)

While Wall Street looks at Apple’s growth story in terms of unit sales, Silicon Valley thinks in terms of user data. The companies collecting the most user data are considered to have the most formidable business models and growth prospects. The list includes not only giants such as Amazon and Google, but also content distribution plays like Spotify and Netflix. Simply put, Silicon Valley’s concern with Apple is that the company will find itself at a major disadvantage due to its privacy stance pertaining to user data.

Press (Internal Drama)

Nearly every news article written about Apple now contains boilerplate language about slowing iPhone sales causing management to become desperate for new growth options. This narrative is characterized by assertions that management is becoming more focused on maximizing profits. At the same time, the picture painted is one of a company suffering from an identity crisis. Countless articles describe Apple as becoming a services company since services are said to represent the company’s only viable growth story going forward.

Enter Jony Ive and Jeff Williams

Three weeks ago, Apple announced that Jony Ive would form his own design company, LoveFrom, with Apple being his first client. As part of the move, Jeff Williams was officially given leadership over the design team.

It should come as little surprise that most reactions to this news reflected existing viewpoints. Those who thought Apple was becoming a services company viewed Jony’s departure as evidence of such a trend. For others, Williams’ expanded role over product development was viewed as a sign of Apple shedding its design skin to become more of an operations-oriented company, whatever that means. People unconvinced of Apple’s ability to innovate looked at the changes as Apple’s latest attempt to try to achieve innovation post Steve Jobs.

The common theme found with the reactions was a narrative that Apple finds itself in trouble and dramatic changes to the Apple machine are needed to reinvigorate growth. There was no better symbol of this than the WSJ’s article on the subject. The article, written in the form of an insider tell all tale, was a narrative-driven attempt to connect a series of unrelated dots, some inaccurate or grossly mischaracterized, to paint a picture of a company on the brink. The article was so off the mark that Tim Cook responded to the article - something that just doesn't happen often.

A Different Perspective

My approach to analyzing the Jony news was to look at his evolving role within Apple over the past eight years beginning with Apple Watch development. Doing so revealed that this latest news wasn’t in planning for years, contrary to popular opinion. Instead, there was evidence of Jony and Apple working to find a more sustainable path forward. (My complete analysis regarding Jony’s evolving role is available for Above Avalon members here and here.)

What drove this search for sustainability?

Apple’s immense growth over the years had become a burden on Jony.

Instead of measuring Apple’s growth using unit sales or revenue, metrics ultimately impacted by a product’s upgrade cycle and average selling price, a better approach is to track the total number of users in the installed base. This ends up reflecting the significant impact the gray market has had on Apple’s growth story in recent years. Apple may not be selling more iPhones each year, but the gray market has led to more people using iPhones.

Exhibit 2: Apple Installed Base

Apple’s installed base looks nothing like it did when Jony began Apple Watch development in late 2011 or even a few years ago when he was promoted to Chief Design Officer in 2015.

Having the Apple installed base grow by more than five times in just eights years contains various implications for Jony and Apple.

  • There is an undeniable larger thirst for tools capable of changing people’s lives. Instead of selling 170M devices per year in 2011, Apple is on track to sell 320M devices in 2019.

  • The days of focusing much of the company’s top talent and resources on one major new product initiative are in the rearview mirror. Apple now finds itself having to lead multiple massive teams pursuing different paradigm shifts at the same time.

The leadership changes Apple announced three weeks ago weren’t driven by any one product. Instead, the changes amount to a recognition of how much Apple has grown over the years. Not only has the overall design team grown, but the expectations placed on Jony had continued to increase. For a creative like Jony, having a company with a billion users depend on your every decision ends up being a burden. Expectational debt can be toxic to a creative. We are seeing management make changes to the Apple machine to let it operate as originally intended.

The Apple Machine

The Apple machine describes the process powering the company’s design-led organization that leverages the power found with small groups. By ensuring that collaboration exists between multiple disciplines and viewpoints in this small group structure, Apple is able to keep the user experience the priority during product development.

Jony and Steve didn’t build this machine to be dependent on either one of them. Such a machine would be inadequate and unsustainable. Instead, the machine was designed to take on a certain level of autonomy in order to instill Apple’s values in all employees. Over the past 15 years, most of the leadership changes within Apple have occurred in order to let the machine operate as intended. Any obstacles or perceived threats to the machine have been removed.

Changes to the Machine

Fifteen years ago, Apple did well with a management structure that included having one curator oversee most product decisions. However, Apple was a much smaller company in the early 2000s.

Apple now finds itself doing a whole lot more.

  1. The company is embracing a dramatic change to product strategy in which management is pushing all major product categories forward at the same time. This has never occurred before.

  2. Apple is moving deeper into content distribution services that include coming up with original content. The company thinks it has something to add to the mix in terms of data privacy and curation that other companies don’t have as much of an incentive to uphold.

  3. Apple’s annual R&D expense has grown by nearly seven times in just the last eight years, reflecting a company investigating many more ambitious ideas and technologies.

The takeaway from the Jony and Jeff Williams news, and this is something that I did not fully contemplate up until two weeks ago, is that the Apple machine is operating at such speed and scale, it’s not realistic to think one person can control or run the machine. Instead, we see Apple fine-tuning the machine to allow for greater autonomy.

Simply put, the Apple machine’s ability to automate has been grossly underestimated over the years while the idea of any one individual needing to oversee the machine 24/7 has been overestimated.

An example of this autonomy is seen with the structure involving Jeff Williams and Apple design. At first, giving Williams control over the design team seems like a formidable task based on size and scope. However, the structure makes more sense when considering the degree of autonomy that exists in design and other teams at Apple. It’s not that Williams is moving into some kind of product czar role and that every decision has to be run by the same gatekeeper. Such a structure isn’t sustainable given Apple’s size. Instead, designers of various disciplines have been given greater say over the user experience while Williams works with Evans Hankey and Alan Dye to ensure everyone remains on the same page.

Apple’s Growth Story

The clearest piece of evidence that the latest leadership changes aren’t being driven by some kind of growth crisis is that Apple already has a working growth story.

  • Position the iPhone and iPad as the strongest sources of new users into the ecosystem.

  • Position wearables as alternatives to the iPhone and iPad.

  • Come up with services that add value to Apple hardware and the broader Apple ecosystem.

Apple will likely add approximately 50M people to the iPhone installed base in 2019 despite unit sales being down by about 14%. A large opportunity for Apple is appealing to the 40%+ of its installed base that still only use one Apple device: an iPhone. The iPad installed base will grow by about 30M users in 2019. Apple is unveiling its most aggressive Services rollout to date. Apple’s wearables platform has strong momentum.

The Jony Ive / Jeff Williams news doesn’t amount to Apple building an entirely new machine powering product development. Instead, Apple continues to rely on the existing machine, but modifications are being made to let it operate more efficiently. Additional brackets and supports have been added, and parts have been swapped out for improved components. Apple is betting on its existing machine in an effort to remain a design company focused on coming up with tools that people love.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.

Above Avalon Podcast Episode 149: Letting Go of the Rope

Despite there being no discernible change to the grand vision behind Apple’s product development, there does appear to be a noteworthy change in strategy. Episode 149 is dedicated to discussing how Apple’s product strategy has changed from a pull system to a push system. Additional topics include product-related implications raised by Apple’s revised strategy, the Grand Unified Theory of Apple Products, and why I’m hesitant about some aspects of the change.

To listen to episode 149, go here

The complete Above Avalon podcast episode archive is available here

Apple's Product Strategy Is Changing

This year’s WWDC felt different. While every WWDC keynote is filled to the brim with new features, this year’s announcements included highly anticipated items like a new Mac Pro and differentiated iPad software features. In addition, there were some genuine surprises such as SwiftUI (a big deal with wide-ranging implications for Apple’s ecosystem). Despite there being no discernible change to the grand vision behind Apple’s product development, there does appear to be a noteworthy change to strategy.

The Past

Apple had been following a product strategy that can be thought of as a pull system. The company was most aggressive with the products capable of making technology more relevant and personal.

One way of conceptualizing this product strategy is to think of every major Apple product category being attached to a rope. The order in which these products were attached to the rope was determined by the degree to which technology was made more personal via new workflows and processes for getting work done. Accordingly, Apple Watch and iPhone were located on the end of the rope held by Apple management. Meanwhile, Mac desktops were located at the other end of the rope while iPads and Mac portables were somewhere in the middle.

As Apple management pulled on the rope, the Apple Watch and iPhone received much of the attention while the Mac increasingly resembled dead weight.

The preceding exhibit may make it seem like all of Apple’s product categories moved in sync with each other as Apple management pulled on the product “rope.” In reality, the quicker Apple pulled on the rope, the more chaotic the end of the rope moved. The following exhibit does a better job of demonstrating the chaos found at the end of the rope.

The Apple Watch and iPhone were Apple’s clear priorities while the iPad, Mac portables, and Mac desktops ended up facing a battle for management attention. The iPad seemed to have the clear advantage in that battle, at least when it came to capturing mindshare among Apple’s senior ranks. Recall Tim Cook’s comment about the iPad being the clearest expression of Apple’s vision of the future of personal computing.

Today

Over the past two years, we received clues that a major change was beginning to take hold in Apple’s product strategy. This change was on display during this year’s WWDC. Consider the following announcements:

  • The Apple Watch continues to gradually gain independence from iOS and the iPhone with its own App Store and the ability to create watchOS apps without an iPhone app.

  • iPadOS is a promise from Apple that iPad will be given unique software features versus iPhone. Features like multitasking and Apple Pencil support give iPad differentiation from its more popular sibling (iPhone).

  • The new Mac Pro is clear evidence of Apple industrial design, along with the engineering and product design teams, attempting to come up with a long-term solution for the most powerful computer in the product line.

  • SwiftUI is the kind of foundation Apple needs to properly leverage a thriving iOS developer ecosystem in order to benefit other product categories.

Apple no longer appears to be relying so much on a pull system when it comes to advancing its product line. Instead, a push system is being utilized, and every major product category is being pushed forward simultaneously. The change was designed to reduce the amount of chaos found at the end of the “rope” that Apple was pulling. Accordingly, the primary benefactors arising from this new strategy are the iPad and Mac. This explains why this year’s WWDC announcements felt more overwhelming than those of previous years. Apple was able to move its entire product category forward at the same time.

This revised strategy ends up supporting a core tenet of my Grand Unified Theory of Apple Products - a product category's design is tied to the role it is meant to play relative to other Apple products. (A deep dive into Apple’s product vision and the Grand Unified Theory of Apple Products is available here for Above Avalon members.) By pushing the products geared towards handling the most demanding workflows, Apple has a greater incentive to push the products capable of making technology more personal and relevant.

It’s not that every product category in Apple’s line is now on equal footing in terms of importance and focus. Some products will receive updates every few years while others require more attention due to needing annual updates. In addition, Apple’s revised product strategy likely won’t change the sales ratios between product categories (iPhone outselling iPad by four times while iPad outsells Mac by more than two to one). Instead, the change from a pull to push system manifests itself with each product category being given a defined and unique role to handle within the Apple ecosystem.

  • Wearables are tasked with handling entirely new workflows in addition to a growing number of workflows that had been given to iPhones and iPads.

  • The iPhone is the most powerful camera and video player in our lives.

  • iPads and Macs are content creation tools.

Implications

There are a number of product-related implications arising from Apple’s revised strategy:

Mac Desktops. Despite being in the post-PC era, desktops are experiencing some kind of renaissance. Some of this isn’t entirely surprising given how the desktop has always been viewed as an antidote to some of the ideals found with mobile. However, what is new is the realization of the desktop’s role in the AR era. Mac desktops are niche in terms of the number of users relative to other Apple product categories, albeit a very powerful and crucial niche.

Mac Portables. It is time to take Apple management at its word when it says the Mac is important to Apple’s future. Mac portables will likely retain a place in Apple’s product line for the foreseeable future. A few years ago, low-end Mac portables seemed to be on a dead-end path thanks to iPads. There is no longer any evidence that such thinking is widely held in Apple’s senior ranks. An ARM-based Mac portable seems inevitable at this point.

iPad. Just a few years ago, some in the tech pundit world thought the iPad lacked a future. Such thinking was due to slowing iPad sales combined with larger iPhones being able to handle many of the use cases originally given to iPad. While the iPad has always been viewed as the future of computing within Apple, we are starting to see that vision materialize. iPad sales are now routinely surprising to the upside as Apple adds a “pro” layer to the iPad category in terms of powerful hardware and software.

iPhone. The iPhone as a product category continues to mature, as seen with a longer upgrade cycle. Going forward, the iPhone will primarily be known as the most powerful camera in our lives and a video consumption device. Many of the less intensive use cases and workflows currently given to the iPhone will naturally flow to wearables over time.

Wearables. Apple is the wearables leader. Fitbit would arguably be the closest from the perspective of unit sales but even then, the company is quickly losing momentum. Lessons that Apple learned with iPhone and iPad are now giving the company a wearables advantage that is likely at least five years. An independent Apple Watch not requiring an iPhone to set up is inevitable. The move would increase Apple Watch’s addressable market by three times overnight. In addition, Apple is well on its way to establishing a wearables platform as it competes for prime real estate on our wrists, in our ears, and in front of our eyes.

Will It Work?

Is Apple making the right product strategy decision moving from a pull to push system? It’s too early to tell. At first, the revised strategy may seem like a no brainer as each product category ends up benefitting from more attention. However, it’s not a given that such a dynamic is in Apple’s best long-term interests.

The source of my hesitation in Apple’s new product strategy is that the company’s long-term success is dependent on one item: making technology more personal. Anything that takes away from that goal ends up being a hurdle. Is Apple supporting legacy workflows to the detriment of Apple’s long-standing mission of making technology more personal and relevant?

One reason Apple decided to change product strategies in the first place was to avoid an all-out uprising among the 1% of the user base creating content consumed by the other 99%. The mistake Apple made over the past few years was pulling the product “rope” too fast and in the process, leaving many of its pro users, defined by the workflows needed to be supported, behind.

For a company that is resource constrained when it comes to time and attention, there is no guarantee that Apple’s functional organizational structure and design-led culture can realistically scale to push an endless number of product categories at the same time. This was the key benefit found with Apple’s pull system. The focus was to advance the products capable of making technology more personal and relevant while trying to bring as much of the broader product portfolio along for the ride. The move to a push system is inherently more complex. Apple finds itself doing a whole lot more that it did just a few years ago.

Some will push back at the claim that Apple is resource constrained considering the company has $113 billion of net cash on the balance sheet. However, such a view doesn’t take into account how Apple functions. Apple could have thrown together some components in a big box and shipped a new Mac Pro shortly after realizing that the previous Mac Pro design was a dead end. Instead, Apple’s industrial designers, working in close collaboration with various teams, took a little over two and a half years to come up with what is marketed as a long-term solution for handling the most demanding content creation workflows. Similar questions now plague Apple pertaining to its approach to “pro” Mac portables.

My concerns regarding Apple’s revised product strategy would be alleviated if Apple came up with a plan to push legacy platforms forward by doubling down on future initiatives involving making technology more personal. This is why SwiftUI is intriguing. Apple is positioning SwiftUI as a way to improve a developer's productivity by requiring less code, resulting in better code. What if that is only scratching the surface as to Apple’s ultimate objective? What if the Mac is being repositioned as an AR creation platform while iOS is gradually positioned as a platform for developing wearables apps? Using a billion iPhones to develop apps consumed on billions of wearable devices is the type of goal that would require years of work, foundation building, and periodic changes to product strategy.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.

Above Avalon Podcast Episode 148: Apple's Billion Users

Apple has reached a level of ecosystem strength that still hasn’t been fully digested by the marketplace. In episode 148, we discuss Apple’s ecosystem ahead of the company’s developers conference. Additional topics include how I estimated the total number of Apple users, various revenue per user figures for different parts of Apple’s user base, the difference between Apple in 2019 and the 1990s, and how wearables represent one of Apple’s key growth opportunities.

To listen to episode 148, go here

The complete Above Avalon podcast episode archive is available here