Can’t Innovate Anymore, My AI!
The Economist
It feels like The Economist hits all the right points in this clapback on the current wave of Apple backlash:
In short, with its market value down by 10% since mid-December, and Microsoft, thanks to gen AI, vaulting past it to become the world’s most valuable company, sceptics wonder if Apple is now so dominant it has lost its mojo. So jaded is the narrative that many pay little heed to the buzz about the Vision Pro, Apple’s snazzy—though lavishly priced—mixed-reality headset. What hopes they have are pinned on the company’s annual developer conference in June, when they want Mr Cook to announce whizzy gen-AI upgrades proving that Apple can join the chatbot hypefest. That, though, is not how the company does things. Nor should it be.
Go back to the threat from Samsung in Mr Cook’s early days. Back then investors pestered Apple to come up with a bigger phone, just as now they want it to match Samsung’s models with gen-AI bells and whistles. But Apple doesn’t rush things. It wasn’t until the launch of the iPhone 6 in 2014 that it produced a large-screen phone. When it came, it was a smash hit. Its modus operandi remains the same. It is rarely first with a product. It seeks to improve what is already out there, learning from others’ mistakes and eventually trouncing the competition. Of course, that poses a risk. In theory, a scrappy upstart may produce new technology products cheaper and faster, pulling the rug from under the market leader. Perhaps a young company building a killer device for the gen-AI era already has Apple in its sights.
It's easy to forget now, but in those early Cook days, there were a lot of people calling for him to go. That he wasn't Steve Jobs and would never be. Which was, of course true. But, he ended up being perhaps exactly what Apple needed at the time. That is: a logistics expert to expand and scale the product pipeline Jobs put in place. Anyway, it's impossible to argue with the result. Apple was a $300B company when Cook took over. It is now a $3T company.1
All that said, 2024 is a very different time for Apple and the world. Cook was able to grow Apple largely on the back of the iPhone, which is now a $200B business (in terms of yearly revenue), itself. That remains slightly more than half of Apple's overall business. And while Cook and team have also done a great job expanding the Mac and iPad businesses, his only truly meaningful and new contribution to the business has been the expansion of Services, which is now approaching a $100B business. The Apple Watch and AirPods are nice, but even combined (with a slew of other things) they're "only" a $40B business, about 10% of Apple overall.
More importantly, what's next? The Apple Car is no more. The Vision Pro is likely to fall below that of the Apple Watch and even AirPods businesses for quite some time. How large it eventually gets is an open question, but certainly few believe it will one day be an iPhone-sized business. The hope would be that it's in the range of the Mac and iPad (both currently $30B - $40B businesses for Apple), but it's impossible to know for sure given the current price points and market.
Of course, the above is also a bit unfair because it seems likely that nothing will be as good of a business as the iPhone anytime in the foreseeable future. That's less about other products and more about how great of a business the iPhone is and was. Services, in aggregate might get there one day, but it may take more banking services to push it there... Certainly Apple Rings and things won't be enough.
Still, don’t give up on Mr Cook yet. Apple is bound to be working on gen-AI products that do not leave egg on its face—just, as is its way, not in the open. At this stage, the vast sums needed to train AI models favour deep-pocketed incumbents over scrappy upstarts, which will work to Apple’s advantage. You can almost hear Cupertino muttering, “Can’t innovate anymore, my ass!”
Great line aside, WWDC this coming June will be fascinating for how Apple positions their push into AI. All these articles keep mentioning "gen-AI" which, sure, but the overall AI push and message will be key.
All Wall Street will care about is what it might eventually mean to the business, overall. They've rewarded Microsoft handsomely for the OpenAI partnership and early work (though that's getting messier by the day). What can Apple showcase to move the needle (and stock) in a similar way? It's hard to know and see because as mentioned, Apple is not Microsoft. Nor Google, nor anyone else. They're going to approach this space differently. And methodically. Or at least they should! Anything rushed here could be a mistake, the space is simply still too nascent and moving too quickly. So hopefully Apple doesn't completely kowtow to investor pressure here.2 At the same time, now is the time to start. Siri looks and more ridiculous by the day...
And so while Cook may be the one who kicks off such a push, he's probably not going to be the one that sees it through. We're entering a new era for Apple.
1 After the recent sell-off, Apple is technically a $2.7T company. Doomed and all that. But pretty wild that they've fallen an entire 2010-era Apple!
2 Make no mistake, the negative sentiment is building quickly. Microsoft is now worth an Exxon more than Apple! Fun especially given this context.