Death of the App, Hello Services

April 4, 2019

Like most people, I’ve always been infatuated with Apple. However, you won’t find a single Apple product in my vast collections of electronics and gizmos. Why is this? Simply because I know that better products exist but you have to have the technical knowhow to ultimately reap the benefits. Wait, what?

I remember distinctly in High School getting into heated arguments with people about how their next wave of products are behind the curve. What I was missing at the time, though, was the perspective that technology isn’t what makes something great – it’s the experience. It’s exactly this reason that shifted me away from Computer Science and strictly engineering into Product Management. My curiosity for understanding why people don’t purchase ‘the best performing’ and instead opt for something else entirely.

Why do I lead with this? Because Apple is now venturing into the next age of Digital – pure service offerings.

Let’s Start with A History Lesson – Apps

Back in high school I was cutting edge purchasing an iPod Touch first generation. However, I didn’t purchase it for music and its slick interface – I bought it because I could hack it. At the time jailbreaking took some effort and skill level but it allowed me to install custom applications. This was a big deal at the time because Apple never released the App Store until almost a full year after the initial iPhone release. They didn’t see the initial value. Instead they wanted to focus on hardware – its bread and butter.

A snippet of the Jailbroken Cydia App Store sometime in 2008.

For me, I knew that I could now play Pokemon through an emulator at 10x its normal speed while hiding the super slim device behind a book in my classes. Exactly how I think all coders should start – with an objective in mind. Sneaky but taught me much more than any other class could at the time.

Most importantly, the hacks showcased the value Apple was now able to see. The opportunity for creators to use their platform, iOS, as a building block. By giving the keys to developers Apple effectively spent next to zero capital investment on an ecosystem that would drive consumers to its platform – a vast array of applications that would improve your life or simply give you something to burn time with. The bonus? They would reap some 30% of all profits made through software with that same benefit of continually adding value add towards their already great hardware.

I’ll never forget showing a simple pong game through the Cydia (Jailbroken) App Store to a swim coach of mine at the time and hearing him say, “no one will ever understand what you did. I don’t see any value in this.” Well, how’d that turn out?

Software as a Service (SaaS) and Cloud Technologies

Most people are now familiar with the above technologies. Companies can now effectively spin up IT resources that used to take teams of hundreds of people to manage in the span of a few lines of code. I spent the first few years of my career with GE Digital not only managing legacy architecture but also evolved into helping create a Platform as a Service using CHEF – or simply – code as infrastructure. I’ve seen first hand how a team of roughly 100 people could be replaced by a single intern using off the shelf services at nearly 1/10000th the cost. No wonder Intel just laid off nearly 2,000 IT employees – a trend bound to continue.

However, cost is not everything. Once infrastructure scales it’s not just a matter of cost but a matter of what the technology provides you. In the case of SaaS it’s the ability to create Digital products that can spend more time on building features that meet customer outcomes vs solving for internal technology dependencies.

Case in point, Netflix. Leveraging Amazon’s Web Services Netflix can deliver people around the world content whenever they want to watch it without any added overhead to the business. In a world where you used to plan for 20-60% overhead for times of peak capacity (~5% of total time) you can now rest easy knowing you are only paying for the resources you need and keeping investment with expanding a product’s reach.

Before I move on, it’s important to note that that is only when Cloud technology is used effectively. Perhaps the most laughable use of the tech I’ve seen has been when entire legacy applications are moved to Cloud instances. Instead of removing dependencies your company will actually increase their need for engineering specialists, increasing costs while simultaneously adding more technical debt when the application needs updating – in this case its not technology specialists you need but adept Product Management practices that will reinvent the legacy application within a modern framework. A topic for another time.

Why is Cloud and specifically serverless technology mentioned? Again, because it keeps running digital service costs at an absolute minimum. Companies like Uber, Grubhub and Netflix simply wouldn’t have been able to exist in the legacy IT world of managing services. Cloud has made it so applications are a low overhead cost to businesses to create and scale. IT, effectively, has become a service.

Design Thinking and the Value of Doing Things Where You Already Are

This is where Digital Transformation truly begins to take place. Rethinking a problem at its core root and asking the simple question “why?”

In the case of Apple’s latest service announcements, they’re not offering anything that hasn’t already been done before. However, their main selling point is that only on Apple devices can you experience the service. If you’re already in an ecosystem why leave that to go anywhere else?

There’s already plenty of examples out there like Facebook building games and chatbots into its already popular applications. If 1 billion users are in Facebook Messenger then bring content there rather than having users open another application (friction point).

Hardware Advancements Are Uneventful

I was recently in China with a once major mobile phone manufacturing executive. His problem isn’t that his devices can’t compete on hardware – it’s that everyone else in the industry is essentially on par with them. So how do companies stand out?

The answer is software. Look no further than Google’s own Pixel line of devices. The hardware is vastly behind other manufacturers but its stand out features all come from its software and services that only Google’s massive resources can provide. Alone its camera is no better than devices half its cost, but when paired with its software magic its now consistently rated one of the top devices in the world with market share to prove it.

The other piece of software? Google Assistant. As a headlining consumer feature only Google and these large companies full of data can truly make a stand out product. Samsung Bixby? A joke. Siri? Years behind. Any other company? Why even try to play catch up.

They all look roughly the same, so what makes them different? It’s not hardware.

Apple is no different. The iPhone was once the defacto leader in mobile photography with their hardware advantage. Now that Huawei and
Xiaomi have emerged and  are (more than likely) backed by the government, their hardware is leaps and bounds better at a fraction of the cost. They must focus on this, though, because they still lack the software knowhow to compete with American software engineering – which is only a matter of time before we’re outpaced.

My main message is that outside of hardware obsessed nerds (myself included), consumers will never tangibly experience a game changing reason to switch to other devices based on hardware alone.

Coming Full Circle – Services

For the reasons above I come back to services. Apple is being incredibly strategic by investing CAPEX dollars towards foundations (Media deals, licenses and data) that will be utilized incredibly efficiently through OPEX expenditures on its own native platforms.

By keeping their services locked to their ecosystem they’re encouraging users to use their services through frictionless design. Seamless, synced playback across devices all through software that can be put at the forefront of all their devices.

This isn’t a new concept. Amazon already did this with the Kindle and Google has its own in-ecosystem services like YouTube TV and the Play Store. Where Apple will shine is just like it did when introducing its App Store, bringing people to its already great albeit placid devices but headlining them with services that only they can provide – for now.

If you’re a brand of any physical or digital product you need to evaluate how to do the same. Just because you can’t stream media to it doesn’t mean you can’t provide consumers value on an ongoing basis. The technology is there, the design talent is there – the market is shifting from applications and moving to services. Will you be able to move with it?

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