USAToday Column

September 10, 2015
The next version of Apple? It’s all about services

By Bob O'Donnell

FOSTER CITY, Calif. — Trying to imagine the Apple of the future has always been an interesting, though challenging, exercise.

The company has always seemed to come up with new variations on a theme — as well as the occasional new themes — that have kept industry watchers, like myself, on our toes. (A polite way of saying, yeah, over the years, we’ve missed a few things.)

But after watching yesterday’s Apple extravaganza at the Bill Graham Civic Auditorium in San Francisco, I’m increasingly convinced Apple is on the cusp of a new era that’s going to be driven more by services than hardware.

It’s not that there’s a problem with its hardware. In fact, the problem is Apple hardware has almost gotten too good. Apple no longer has to really worry about competing with Samsung and other players. Like them, Apple now has to basically compete against itself, and it turns out that’s hard to do.

Look at yesterday’s announcements. Between the iPhone 6S, the iPad Pro (complete with its optional smart keyboard and Apple Pencil stylus), the updated Apple TV box and even the watchband and color enhancements for Apple Watch, the company offers a range of highly refined, high-quality products that many companies would love to have.

Making improvements to products that are already considered at the top of their class by many consumers is a non-trivial task, even for Apple. As improvements are made, they tend to be less substantial, which makes them less compelling overall. As a result, many people do not feel as motivated to upgrade with every new generation.

This, in turn, is feeding a larger trend impacting all hardware companies, including Apple: market saturation. Starting with the PC, then the tablet and relatively soon, smartphones, both the U.S. and worldwide markets for these categories have leveled off, creating new challenges for everyone involved. Sure, there are things like wearables, smart home accessories and so on. But taken together, these new devices are only a tiny percentage of even one of the main hardware categories, let alone all of them.

So, much of the new revenue opportunities for tech-related companies moving forward are going to be related to services.

Apple, unlike many other tech giants, already has started to build up its services business (iCloud, Apple Music, etc.). Even though these types of revenue streams currently make up a small, single-digit percentage of Apple’s total revenues, this head start — and the company’s awareness of the importance of these opportunities — gives them a leg up over much of their hardware brethren.

One announcement that Apple did not make at yesterday’s big event was anything related to video services — something analogous to Apple Music but for TV and video. It’s been widely reported the company is indeed working on just such a thing, but given the difficulties in negotiating rights contracts with major networks and studios, the service’s launch has likely been moved into next year. When it does arrive, however, expect Apple to make a big push in this area.

Of course, one of the challenges for Apple moving forward is that many of these kinds of services may involve more public partnerships than the company has traditionally done. Apple tends to be a more insular company with a lot of its thinking focused inwards at its Cupertino, Calif., campus, but it’s going to have to start doing more outside of its normal comfort zone in order to make these partnerships happen.

(For that matter, if they extend their product thinking to things like cars at some future date, that’s likely to require a lot more outside involvement as well, but that’s a story for another day.)
While many tend to think of Apple primarily as a great gadget-making hardware company — and they certainly have been — the truth is Apple is really a user-experience company.

If the company can extend these experience skills into the burgeoning world of services, they have an opportunity for a future that’s been as bright as their past.

Follow USA TODAY columnist Bob O'Donnell on Twitter: @bobodtech

Here's a link to the original column: http://www.usatoday.com/story/tech/columnist/2015/09/10/next-version-apple-s-all-services/72007940/