Back in February 2012 Tim Cook, CEO of Apple, stated about iCloud, “It’s not just a product, it’s a strategy for the next decade.” He also emphasized that iCloud and Siri were the core product directions for Apple’s future.
While the press consigned Apple’s announcements of the iPhone 5S and 5C and iOS7 to the mostly “ho-hum” category, the announcements were an important step in Apple’s declared major strategic thrust. Of particular interest to this publication is how the announcements reflect on Apple’s intentions regarding the iCloud and the future of cloud-related capabilities.
There was no direct enhancement to iCloud in the September announcement. However, Apple is moving ahead with fleshing out the capabilities of Siri, its voice assistant.
The expansion of SIRI’s functionality is not a minor product extension; it is, in our view, a very significant step and clear indicator of Apple’s long-term strategy.
Siri, with iOS 7, now has access to settings and can alter device and app settings, meaning Siri is now part of the user’s command and control system. The next move for Siri is to become part of beta testing for developers to extend existing apps for use with Siri and create new Apps which interact with Siri.
We believe that the developer community will go absolutely wild with Siri-based and Siri-related apps.
In other words, this announcement may very well open a portal to far greater and sophisticated app development. We view Siri as an integral part of Apple’s iCloud strategy.
Philosophically the next stage in the human machine interface may be from Touch to Dialog, spurred by Siri. Speech is not an end in itself. It is the driver of the mobile cloud, the next great era in IT/communications development.
While Apple’s Tim Cook has telegraphed the company’s strategy to the world, the obsession with device features and wrinkles has absorbed most commentators, so that, in general, most have not appreciated this vital step forward for Siri as being more than just feature enhancement of current iPhones.
Another aspect of Apple strategy, which is indicated by the continued enhancement of Siri, is Apple’s tending to become increasingly somewhat of a service company, complementing its device business.
Apple established early on the proposition that the sale of content was integral to the sale of devices. This occurred with the iPod, long before Apple entered the cellphone market.
In the smartphone business, Apple has clearly demonstrated that apps sell the phone.
Apple is not only a spectacular consumer based technology device story but also a category defying business model in terms of bottom line returns, based both on devices and service/apps/content revenue, as well.
Apple only started breaking out the services business in 2011 GAAP reporting. Prior to these periods services were buried in the major product/device sales accounts. The growth of the services business is reflected in the table. (Revenue in Millions of $).
| Period | APPL Tot. Revenue | Services Revenue |
|---|---|---|
| FY ‘11 | 108,289 | 9,373 |
| FY ‘12 | 156,508 | 12,890 |
| FY ’13 | 170,910 | 16,051 |
The iTunes store and app store sales are the major current elements in this services business, which grew 37.5 % in fiscal year (ended 9/30) 2012 and 25% in fiscal 2013.
While this is still a somewhat modest part of total revenue – about 9.4% for fiscal 2013 – we expect the percentage contribution from services/content/apps to increase over time, with the growth of iCloud and Siri.
Siri, which is free today, can clearly evolve to a tiered paid offering with greater levels of capability. Siri apps can also lead the way to a transactional service business for Apple. The future of Siri is to become a true personal assistant, intimately tied to Apple’s iCloud
APPL is pushing a device that is a portal to a cloud-centric ecosystem that is always with you and enables all kinds of features. This is their declared strategy and this recent announcement is a significant step in this direction.
Other Interesting Aspects of the Announcement
While not as directly related to the core of the Apple iCloud/Siri strategy, there were a number of intriguing elements in the Apple presentation.
In addition to the touch ID, we note four other items: 1) iBeacon (using Bluetooth Low Energy (LE)), 2) M7 co-processor, 3) 64-bit processor, and 4) iWork – free availability.
iBeacon. This is an interesting feature, in line with the discussion above of potential growth of Apple services-type revenues. The new Apple devices and iOS7 are all equipped with Bluetooth LE, the latest Bluetooth standard, which not only uses less power but also is designed for location calculation when in a family of similar devices. Apple calls this feature iBeacon.
The feature could very well be the answer to inside positioning calibration where GPS is not available. An early example of iBeacon adoption has been major league baseball, which announced that the feature will be available at Citi Field, home of the New York Mets.
As with other aspects of the apps and services potential for Apple, with iBeacon’s ability to identify the user by in store location, Apple begins to position itself as being an authenticated point of sale (with the fingerprint ID, or with Siri a voiceprint), billing-capable (iTunes billing, without money or a card), transaction provider (or partner to other parties.)
M7 Co-Processor. Apple has added a co–processor for motion, the M7, to the iPhone. This additional processor, is in recognition of the many sensors that are integral to today’s smartphone.
There are gyroscopes, compasses, gravitometers, accelerometers, etc. all inputting data to the CPU. This could readily be handled by a specifically tasked and designed processor to give filtered, calculated output, to a smartphone CPU and to various fitness, mhealth, situational awareness types of applications. (See our article on the future of the smartwatch and Apple’s likely iWatch strategy.)
While an interesting feature, in and of itself, once again it is another example of Apple stimulating a further level of apps development.
64-Bit Processor. Apple states:
“The move to 64-bit has been years in the making. But we did it because we wanted to put desktop-class processing power in the palm of people’s hands.”
The reason for the 64-bit standard on the device, however, is also for the next step: to achieve an overarching OS across all of the company’s devices. In our view this basic step of 64-bit architecture across all devices is a necessary one for iOS and Mac OS to be one. This step should be viewed also against Apple’s history of implementing the latest 802.11 standard into their devices and thereby, not only enhancing user experiences but also facilitating more iCloud type of transactions. (Post the September announcement Apple’s latest iMAC will have 802.11ac, thereby increasing the WiFi data transfer capability by a factor of at least 4 times.)
iWork Free Availability. Apple is giving away iWork with every iPad, iPhone sale. As the Apple equivalent to Microsoft’s Office suite this is a high value gift to SMB’s and individual entrepreneurs worldwide.
While, we feel this Apple suite, of spreadsheet, word processing and presentation software is often less up to date than the latest Microsoft version, making it available for free on mobile devices is an extraordinary upgrade in global office product penetration.
This gift fits perfectly and integrates seamlessly upon arrival with: iCloud.
Overall, the many-faceted September announcements were fascinating, and a big bet on the platform for the next 10 years of Apple.