As AI Plants Itself Within Apple...

Services, Sales, Solo Loops, & Scrutiny
Apple’s Devices Are Lasting Longer, Making AI Strategy Even More Critical
Apple’s strategy to make its devices last longer will mean AI and software are even more important to its business. Also: Apple Intelligence is in the works for the Vision Pro; iOS 19 is already in development; why the company isn’t discussing an AI deal with Meta; and the driving force behind Apple Pay Later’s demise.

A few elements in Gurman's newsletter this week worth mentioning. First, on the topic of Apple needing new drivers to entice users to upgrade devices:

The slowing pace of hardware upgrades also will force Apple to rely more on services fees and subscriptions to fuel sales. If you’re wondering why Apple is fighting so hard to keep every penny it can from the App Store — despite scrutiny from regulators — it’s because this category is so important to future revenue.

Yes. Apple obviously cares about the privacy and security elements of their spiel, but there's a very real business reason to not simply roll over to what Brussels wants (assuming they can discern what exactly that is, eventually), as I wrote back in March:

I, along with many others, have long wondered why Apple didn't simply get ahead of a lot of these complaints and eventual cases by proactively making changes to the App Store, which would have undoubtedly alleviated some, if not all of the current pressure. At the very least, such changes could have ensured that the all-important developer community stayed in their corner for such fights. But looking back at it now, I think there is one very clear reason why Apple hasn't done some of the obvious things to control the narrative, if not the regulatory winds. They can't afford to. I mean that quite literally. Services, which are primarily driven by the App Store, are the only real avenue of growth Apple has left right now.

We subsequently heard this more directly during Apple's latest earnings report in May. Services. Services. Services. The changes the EU are (vaguely) demanding, go right after those. It's not as direct an assault on Apple as it is on Meta, but it matters – especially when again, that's the only vector of growth right now. We'll see how well AI is able to upsell devices this year (my guess would be that it has a bigger impact next year, when more of the AI features are actually live.)

Next, in noting that Apple is working on getting Apple Intelligence working on Vision Pro – another feature that could help move hardware, obviously – Gurman also mentions tweaks to the Apple Stores themselves to help with demos of the device:

Lastly — and this went into effect Friday globally — Apple has changed the default headset band for the device during demos from the Solo Loop to the Dual Loop. It seems that the Solo Loop, which only wraps around the back of a person’s head, hasn’t been comfortable enough for potential customers.

All these months later, it's sort of wild to me that Apple shipped the device with both the Solo and Dual Loop bands. Per the above, the Dual Loop is so much better when it comes to making the Vision Pro at least somewhat comfortable to use. It seems pretty clear that Apple developed the Solo Loop, which is clever and beautiful, and didn't want to ditch it entirely even though it clearly wasn't going to work for most people – if anyone. That was silly. What they should have done was created a new hybrid band of the two. But that would have undoubtedly required a delay of the whole project. Which Apple also probably should have done!

Lastly, on the topic of the strange, fast shutdown of their 'Pay Later' service:

Earlier this month, Apple announced plans to shut down Pay Later — its Affirm competitor — only about a year after the service debuted. There were several plausible reasons behind this move: People weren’t paying their bills; Apple realized that being closely associated with such services was bad for its reputation; or the company was struggling to go international with the offering.

But a big driving force I didn’t mention last week is regulation. In May, the Consumer Financial Protection Bureau announced increased scrutiny of “buy now, pay later” services, saying providers would need to follow the same regulations as credit card companies. That includes the way they manage disputes, offer refunds and handle billing statements. The increased regulation wasn’t something Apple wanted to deal with, I’m told, and the company is happy to hand off the service to third parties instead.

As I wrote last week, so much for that Apple Bank. Though if they need to keep growing Services revenue...