Apple Is Becoming A Very Different Company

Tim cookREUTERS/Stephen LamApple CEO Tim Cook greets the audience during an Apple event announcing the iPhone 6 and the Apple Watch at the Flint Center in Cupertino, California, September 9, 2014.

Apple prides itself on constantly re-imagining the future, but even the world’s leading gadget-maker likes to dwell on the past too. Thirty years ago Steve Jobs commanded the stage at the Flint Centre for the Performing Arts near Apple’s headquarters in Cupertino to show off the new Macintosh computer.

On September 9, Jobs’s successor, Tim Cook, held a similar performance in the same location to thunderous applause. Those invited were given a chance to play with the gadgets presented on stage: two new iPhones and a wearable device, called the Apple Watch.

“This is the next chapter in Apple’s story,” he said, sounding much like the young Jobs in 1984.

It may well be true – but not for the reasons most people might think. Consumers, analysts and investors have been howling for proof that Apple can still do the magic tricks of the Jobs era; iPad sales have weakened in recent quarters and the iPhone, launched a tech aeon ago in 2007, still generates more than half of the firm’s revenues.

Yet lost in the maelstrom of snazzy new gadgets, applause and photos was an important shift: this week’s announcements showed that Apple’s future will be less about hardware and more about its “ecosystem” – a combination of software, services, data and a plethora of partners.

If Apple were simply a hardware-maker, there would be reason to worry. It is losing market share to rivals such as Samsung of South Korea and Xiaomi of China, which make cheaper devices, and to Google’s Android operating system, which runs on 71% of the world’s smartphones.

Apple’s average selling price is $US609, compared with $US249 for smartphones worldwide, according to IDC, a market-research firm. That is good for profits, but it makes Apple increasingly a niche player, somewhat like a luxury-goods firm, says Colin Gillis of BGC, a stockbroker.

As with Apple’s existing products, much effort went into the watch’s design. Its backplate contains sensors that measure the user’s vital signs; and people can send their heartbeat to other watch-wearers–as a new sort of expressive message.

But starting at $US349, and only usable in conjunction with an iPhone, it looks unlikely to be a serious competitor to other expensive watches (see “Swiss watches and the Apple Watch: It’s not about time”).

Still, many are likely to stick with their iPhones and even plunk down the money for an Apple Watch, because of the firm’s ecosystem. Apple is considered a laggard in online offerings, especially since it bungled the launch of its map service. Its services and apps can be maddening.

But iTunes, Apple’s media store, now boasts more than 800m active users, three times as many as Amazon’s. Apple’s software and services category, which includes iTunes, its Apps Store, revenue from warranties and other businesses, brought in sales of more than $US16 billion in 2013 and is growing steadily (see chart).

Apple’s watch is supposed to help the firm expand into new areas. One example is a mobile wallet. It aims to replace swiping credit cards with the tap of an Apple watch (or an iPhone) on a device connected to a retailer’s cash register. Apple’s new health and fitness applications help people monitor their workouts. The firm’s new operating systems, due out soon, will allow its devices to work together seamlessly: an email started on an iPhone can be finished on an iMac.

For Ben Wood of CCS Insight, another market-research firm, Apple’s plan is to be even more like the Hotel California (as in the Eagles’ song), “where you can check out any time you like, but you can never leave”.

The more Apple-gadget owners store their data in them, from photos to health information, the more they are locked in, and must stick with Apple.

At the same time, Apple is trying to become more open to partners – a big change for the firm.

“There has always been a huge tension between keeping control and opening up” at Apple, explains Michael Cusumano of MIT’s Sloan School of Management. Mr Jobs saw Apple products as complete works of art and never wanted them unbundled.

Only after the executive team rebelled, for instance, did he relent and in 2003 let iTunes become available on Windows–a move that dramatically increased sales of the iPod.

Three years after Jobs’s death, Apple seems to be ready to go further, hoping to entice other firms to contribute to its ecosystem and make it more attractive. Earlier this year Apple announced a partnership with IBM, as well as changes that make it easier for outside developers to design apps for the iPhone. And Apple’s watch will have third-party apps from the start. The iPhone launched without the app store; it opened only a year later, after many outside developers had hacked the device, allowing them to write apps for it.

The new openness does not only apply to technology. Cook has let outsiders join his inner circle, hiring executives from retail and other industries to expand Apple’s expertise. He has also overseen the largest acquisition in Apple’s history, the $US3 billion purchase in May of Beats, a headphones and music-streaming company.

For its new payment system it teamed up with big retailers, such as Whole Foods and Walgreens, and credit-card firms, including MasterCard and Visa.

Apple PayREUTERS/Stephen LamEddy Cue, Apple’s senior vice president of Internet Software and Service, introduces Apple Pay.

This opening-up may need to go further, to keep up with Google’s ecosystem. The internet giant’s services still beat Apple’s. And it not only lets device-makers modify Android, but also gives it away (albeit with conditions, such as the requirement to carry Google’s services).

“Apple v Android” could still end up a repeat of “Apple v Windows”: in personal computers, Apple lost the battle against Microsoft because it refused to licence its operating system to other hardware-makers.

Umberto Eco, an Italian novelist, once compared Apple’s platform to Catholicism and Microsoft’s to Protestantism. The Macintosh, he wrote, “tells the faithful how they must proceed, step by step”. By contrast, Windows “allows free interpretation of scripture…and takes for granted the idea that not all can achieve salvation.”

This still rings true today, but Apple is clearly going through a Reformation.

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