Your car, your home, your TV, your health, your payments and your personal assistant all connected through your iPhone; that is the expanded vision that Tim Cook sees for Apple. Properly executed, this new strategy could push the company to a $1 trillion market cap, says tech analyst Ben Thompson of Stratechery in a recent post. By this account, the success of the iPhone 6 is not a lucky fluke, but the rise of what Tim Cook has called Apple’s “mega-ecosystem.” UBS analyst Steven Milunovich also floated the trillion number as he upped his 12-month price target on Apple stock from $130 to $150. “Although Apple the device company took the market cap to $700 billion,” he explained, “Apple the platform company may take it to $1 trillion.”
This distinction between a “device company” and a “platform company” is misleading. Apple is a product company—arguably the world’s best. “None of us wants to have different platforms in different parts of our lives,” Cook said at last week’s Goldman Sachs Technology & Internet Conference in San Francisco. “We want one, seamless kind of life. And so I think that is huge for our future.” The product that has unified this platform is the iPhone, but Apple is not stopping there. Watches, TVs, home automation and maybe even cars are on the horizon.
Although Apple has always had imaginative side projects, Tim Cook’s ambitions are different from those of Steve Jobs. As a company, Apple has shifted from trying to make the best version of something—a computer, a music player, a smart phone—to trying to make the best version of everything. Making products that integrate into Cook’s “seamless kind of life” is not a monolithic business. As Thompson points out, Apple has succeeded through increasing both its modularity and its integration. “Apple products have many modular components wrapped inside an integrated experience,” he explains with a hand-drawn sketch (recreated in my own style below).
The genius of Apple has become its appeal to both consumers and other major brands. As I wrote recently about Apple’s moves in TV, the company “has become a brand of brands.” The success of the iPhone is the result of mobilizing hardware suppliers to deliver components on breakneck schedules. But Apple has also convinced media providers and developers to make the best content and apps available on its platform, and this has radically increased the value of its products. The iPhone has made Tim Cook’s vision possible, but will not sustain Apple’s full growth potential. For that, it is looking elsewhere, in the home, on the road—even in the beating of our hearts. Jobs said that “a computer has always been a bicycle for the mind.” Thompson continues the thought, “That bicycle is now with us every where we go; what Apple is building are new paths.”
I would look for Apple to build and market only those products that are necessary to deliver these services, but no more. Thompson lists the “five foundational services” that Apple is creating to make this all possible: HomeKit, CarPlay, Apple Pay, Siri and HealthKit. He writes, “each of these services follows a similar model to the one Apple uses for the iPhone itself: Apple isn’t creating the furniture for HomeKit, the cars for CarPlay, the banks or retailers for Apple Pay, or information services for Siri. Instead they are leaving that up to the market in a modular fashion; the only integration is the actual interaction between the Apple layer and your iPhone.”
The important point is that Apple is not selling these services, but using these services to sell devices that manage this interaction layer. It is a critical distinction in human psychology that we have two different value systems that are not always in accord. As Daniel Kahneman has formulated it, we contain both an experiencing self and a remembering self. Although we think about Apple as a user experience company, it commands its outsize profit margins by appealing to our remembering selves. The experience of getting a new iPhone with some magical capability that the previous one lacked, that is what we remember. That is what drives us to buy the next one.
Memorableness is the stark difference between Apple and Google. In terms of our minute-by-minute experience, Google clearly delivers far more direct value than Apple. Imagine life before the iPhone (or smartphones, in general). Now imagine life before Google search. It’s harder, right? But Google is so ubiquitous that we almost don’t see it anymore. Google releases new services all the time that improve our immediate enjoyment of information, but it has not succeeded in selling products. Just as we value things in retrospect, we value goods more than services, and this gives Apple a decided advantage over Google. And the direction of their stock valuations reflects that.
