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Interview With Horace Dediu: What To Expect When Apple's Expecting

This article is more than 9 years old.

I always enjoy talking with Horace Dediu of Asymco. With September just around the corner, that means exciting Apple (AAPL) iPhone announcements and probably much more.

I asked Horace to answer a few questions about what he's expecting from the new product announcements and more questions about Apple's current strategic trajectory.

I thank him for his thoughtful answers.  He did not disappoint.  This interview is vintage Horace. So much to think about in so few words. Enjoy.

Q: How has your summer been?

I knew this would be a tough interview. This is one of those trick questions isn't it?

[Next time, I'll ask his greatest weakness as a blogger and he won't be allowed to answer that he works too hard.]

Q: This year – from an Apple perspective – has been waiting for the new products expected over the coming weeks.  What is your best guess of what we will see from Apple before the holidays?

New iPhone(s), new iPads, new iPods, new Apple TV. Possible new Macs as well. iWatch is very likely though not sure on timing. I expect everything to run iOS except the Mac.

Q: You often say the best way to predict the future is to look at what’s gone on in the past. What does this mean in relation to the idea that Apple will launch two versions of the new iPhone?

It's just Occam's razor. Apple has shown gradual expansion of their portfolio and I expect that to continue. The next logical step is to introduce a new model this year to stand along the standard and mid-range models. I expect there will be a new slot opened above the standard. Perhaps a more "premium" slot.

(Photo credit: Wikipedia)

Q: Do you expect to see a sapphire cover on the new iPhone(s)? Is that material significant?

I expect Sapphire will become a signature feature across many products. I don't know if they will have capacity to deploy on iPhone this year but on a watch it's essential. Here's a clue: if the screen has any curvature, especially around edges, it needs to be sapphire as glass can't take strain in that shape. The scope of the plant they are building with GT implies that they will have massive volume potential with at least one major iPhone model using the material. It's a significant material because it allows design freedom in new directions, especially curved (concave) touch surfaces that retain a jewel-like feel. This has Jony Ive all over it.

Q: Is it fair to conclude now based on the 5C and 5S that Apple will never launch a “cheap iPhone”?

Oscar Wilde said a cynic is someone who knows the price of everything and the value of nothing. When I see the word "cheap" I never know if it refers to price or value. And even when we talk about price, an iPhone is cheaper than buying all the things it replaces so it's always been a low end disruptor in my mind. (I saw a tweet with an image of a Radio Shack ad from the 1980s and every single item available on that page is now a part of the iPhone. It would have cost thousands to buy all those things back then--and dollars were worth a lot more.) Furthermore, I think Apple holds a black belt in pricing. They seem to define their position in the market by anchoring certain prices and "owning" them. Given all that I would say that Apple is not going to move their price points much. They will expand the portfolio and offer some iPhones at $300 but they will be older models. The average selling price (ASP) I expect to remain constant on a year-long average.

Q: In the past, Apple critics were quick to dismiss the new iPad and 5C iPhone as failures upon their introduction.  You never judge. You just report the facts and data.  That said, is there anything about past new Apple products launches that we should look at as a predictor of how a new iWatch might be received by customers?

When the iPad was imminent the great debate was over whether it would run iOS or OS X. Many imagined a touch-based Mac rather than the "big screen iPod touch". It was a tough call and one which Microsoft could not and still does not make. Therefore, the interesting question for me with respect to iWatch is: What OS it will run? I will be shocked to the core if it does not run iOS. It is my opinion that making iOS work on it is the entire reason Apple is sweating this segment. They are in it because they are trying to make a platform product with a novel user experience and all the power of an ecosystem run on a wrist. It's as big a problem as getting a phone-sized device to run a touch UI was in 2007. That is the crucial contribution that Apple is making to this next generation of computing. Now you might ask what users are asking for in this segment. The answer is nothing. Nobody is asking for this. As nobody asked for the iPhone (or the Mac or the iPad). It's a new computer form factor and how it will be used will be determined by the apps written for it. But it will work and be magical out of the box in version 1. This is in contrast to the single purpose or accessory model of wearables we see to date.

Q: What is your interpretation of the recent plateauing of iPad sales (at least compared to the iPhone)? Do you believe that was what was behind the recently announced partnership between IBM and Apple to find more enterprise uses for the iPad?

The iPad plateau is my biggest surprise in the last year. I still don't understand what is happening. When you look at penetration data, the tablet product is the fastest growing new technology in the history of consumer technology. It went to 40% penetration in what would be an instant. To have that stop dead in its tracks is unbelievable. It's not the way logistic or diffusion curves behave. We might be seeing a plateau due to improvements in the smaller screens and substitution of large phones but I'm not yet convinced. The market is also bifurcating as Cook noted. The enterprise will help as iPad goes from skimming to penetrating that segment. However I caution that Enterprise is a slow channel to fill. Once filled it's slow to be replaced, as evidenced by Windows/Office. However it may not move the needle for quite some time. The really big question is whether tablets are a must-have device for every household or for every individual or for only a subset of both.

Q: As a student of disruption, where is Apple most vulnerable to being disrupted?

Apple is a new market disruptor but much of what is put forward as a threat to it is low-end disruption. I think Apple knows enough about how that happens that it can manage its way around it. The strategy they employ is one of attrition. If you wait long enough a low-end threat tends to wear itself out as it starves of profit and is constantly gnawed-at by alternatives. (You see, if the disruptor cannot manage a profit then they cannot climb up the trajectory to get on top of the incumbent. Being profitable is a key requirement for successful disruption in the long term.) The attrition strategy works as long as you have the fortitude to hold out and the deep pockets to keep improving your product as alternatives flame out. It is my belief that Jobs made sure that thinking is inculcated in the company. So if not low-end is the company vulnerable to new-market disruptors? This is more subtle and the threat here is what Google/FaceBook/Amazon and the other ecosystems are all about. It's creating new usage models and shifting where consumers place brand value. I think this is more what keeps Apple's management awake at night. They are not standing still however. iTunes and Software and Services (now with Beats on board) is the way they are staying on top of that threat.

Q: I recently tweeted that I’d love to see Tim Cook do a two hour podcast with either you, John Gruber, Ben Evans or Ben Thompson. I think it would be far more detailed than a conversation with Kara Swisher and Walt Mossberg (although I love their interviews). Lots of  people seemed to agree with me but of course I had many saying Cook would never do that because he/Apple would just be sharing their secrets with competitors. (1) What sorts of questions would you love to ask Cook on a podcast and (2) do you agree that Cook would see that kind of discussion as too risky with no reward for Apple?

My questions would center on two areas:

1. How are employees at Apple motivated and retained? My concern here is that with the vastness of opportunities in technology, how can any company retain its most important resource. I consider talent far harder to obtain than capital. We are obsessed with allocating capital (which is over-abundant and should be squandered) while we treat the sources of ideas as commodities (which they are not as they are scarce and should be hoarded). I hope management can be forthcoming about what they are doing to really touch the employee's creativity buttons as a means to keep them.

2. How is the company structured for a creative and innovation business model? I'd like to get deeper into the functional/divisional org structure dichotomy. If you look at Apple, their functional org is striking but I suspect there is much more to it than that. Functional does not scale to where they are so how do they do it? Is the org structure actually a key to the first question? Is it actually the secret sauce? I'd love to hear him compare and contrast with Pixar, especially given what Ed Catmull wrote in Creativity, Inc.

I hope that this would not be seen as too risky. I think Cook loves his employees and is preoccupied with these questions so I hope he can open up more about it. My guess is that even if it's all laid bare, almost nothing can be replicated by a competitor.

Q: Music as a percentage of iTunes revenues has been shrinking sharply in the last two years. Was this behind the Beats deal in your view?

Yes. I believe Beats is about re-building iTunes Music into a new franchise. Perhaps a new brand, new experience, new job to be done. In saving iTunes they might also save the Music business (again.)

Q: Is “open Android” the biggest threat to “closed Android” (more than iOS)?

It's hard to say because so much depends on the governance of Android by Google and understanding Google and their motivations is harder than Kremlinology ever was. At least with the USSR there were some ideological assumptions. Google's ideology seems to be shifting and its love/hate relationship with its own business model makes it impossible to analyze. Who knows, maybe Chrome is Android's biggest threat.

Q: What can we expect from you, Horace, over the next 6 months?

More of the same however I'm probably going to double down on theory development, podcasting and more traditional publishing outlets.

Thanks, Horace.

[Jackson was long GTAT at the time of this interview]