Marcus Johnson:

Hey, gang, it's Monday, May 4th. Yuri, Jacob, our listeners, welcome to Behind the Numbers Marketer podcast. I'm Marcus, and join me for today's conversation. We have principal analyst living in New Jersey, Yory Wurmser.

Yory Wurmser:

Hey, Marcus, how are you?

Marcus Johnson:

Hey, fella. Very good. Good to see you. We're also joined by an analyst living in California. Covers technology and AI for us, is Jacob Bourne.

Jacob Bourne:

Hey, Marcus. Thanks for having me today.

Marcus Johnson:

Hello, sir. Of course. Chase fact.

Who invented the seatbelt? I might have done this one already.

Yory Wurmser:

Really?

Marcus Johnson:

Long time ago. Oh, God, just recycling through old material. I don't think I have. Even if I have, I have more to add. Okay?

Yory Wurmser:

I'm going to say Henry Ford.

Jacob Bourne:

Right. Who else could you possibly guess?

Marcus Johnson:

That's a fair guess. So it's Nils Bohlin, Swedish engineer. Well, I'm guessing he's Swedish based on his name, and the fact he worked for Volvo. They're probably Swedish. He designed the modern three-point safety seatbelt. He was the one who perfected that. The actual seatbelt, I guess, could have gone across your lap. Maybe single strap? I don't know, but somebody else. But the three-point one that we use in cars today, 1959. And that's not even the... I mean, that is the best bit, but additionally, he gave the patent away to the world for free.

Jacob Bourne:

I have to think that back in the days of horse and buggy, somebody had some type of seatbelt.

Marcus Johnson:

Something harness must have existed first. Every year, this is what makes it so incredible, of all the things people have invented in life, few can probably say they've had as much of... I mean, maybe if you invented penicillin, so fine. So every year seatbelts save around 15,000 American lives.

Yory Wurmser:

Wow.

Marcus Johnson:

Every year, according to National Highway Traffic Safety Administration, just in the US. Study looking at how many lives they saved by vehicle technologies found 1960 to 2012. So that's 52 years. Seatbelt saved around 330,000 lives more than any other vehicle technology, combined. More than all the others combined. Airbags, electronic stability, control, all that stuff. Amazing. In 2024, seatbelt usage statistically unchanged from the year before. 91% of Americans wear a seatbelt. Ah. National Safety Council. What's happening?

Anyway, today's real topic. Where Apple goes next.

All right. So, as Ian Bogost of The Atlantic writes, Apple's CEO, Tim Cook, is stepping down after 15 years in the role. He's been running this company. I nearly said country, pretty much. Big enough, having succeeded the visionary co-founder of Apple, Steve Jobs. Jacob, I'll start with you. 15 years, what will be Mr. Tim Cook's legacy at Apple?

Jacob Bourne:

Yeah. I mean, in addition to the duration, I think it's the financial transformation that he led Apple during that time. I mean, he massively grew the services segment, which has become kind of a revenue lifeline for Apple. He diversified Apple's supply chain away from overreliance on China, which was a necessary move. I think he also effectively navigated some pretty tough headwinds for the iPhone in China. So I think those are just kind of a taste of what he's done. I think the share price increase during those 15 years speaks for itself, nearly 2,000% increase. So I think those are the big ones.

And I think there's one aspect that's still kind of yet to be written, and that's Cook's maybe cautious approach to AI after Chatgpt debut in fall of 2022. I think that there have been some advantages and disadvantages to that decision, and that bet will play out longer term, and probably will be a defining feature of Ternus's position once he takes it.

Marcus Johnson:

Yeah. Yeah. There's too much to choose from. Well, if you'd asked me before I was doing this research, I just said, "I guess they released a few things in between the iPhone and now." But I mean, Jacob pointed to a few of them, I want to hammer home some of those points. Apple's financial success. He said market value grown by over 2,000%, as Jacob mentioned. That's taking the market cap from 350 billion to four trillion, making them one of the highest value companies in the world at different points of the last couple of years. Annual sales risen from a hundred billion a year to 400 billion. Profits, they're just outrageous. The services business, which Jacob mentioned, now a hundred billion dollar business in annual revenue, that's Apple Music, Apple TV Plus, Apple Pay, et cetera. Yuri, what do you go for? What do you reach for when you think about Tim Cook's legacy?

Yory Wurmser:

Well, I mean, I think there are all of those factors that Jacob brought up, but I think there's just a bigger thing that he didn't screw up. He didn't screw up the legacy. And it sounds incredibly passive to say that, but so many times a visionary leader leaves a company and a company stagnates or backtracks. You saw it when Jobs left the first time, you saw it a bit when Gates left Microsoft, you saw it in Intel, you've seen it over and over again, where a successor has taken on a company in a premier position, and it's lost momentum, it's lost steam. And it can still grow, it's done okay.

But he has not just kept it coasting. He's expanded to new markets, to new products. And he's really worked to build all of the infrastructure needed for going worldwide and building the Chinese market. Everything that we've talked about so far, he built the infrastructure for that. So I mean, that in itself is just a huge achievement.

Marcus Johnson:

Yeah. Yeah. They just kind of stabilized things. He's growing it into an adult company that runs very, very well. His strength wasn't flashing new products. It was supply chain, and stuff that isn't that attractive, but really is the bedrock of any successful business. That said, he did come out during his tenure with a few new successful product lines, Apple Watch and AirPods as well. Mark Ritson of ADWEEK writing the Apple Watch, clever, profitable, and Apple sells more watches than Switzerland. And he says, "But it's a health device masquerading as a fashion item." It didn't redefine a category the way the iPhone redefined everything. AirPods were a solid hardware play, arguably Apple's most culturally sticky product of the Cook era, but wireless earbuds were already a category. So very successful products, but nothing has redefined a sector. Some obviously didn't work. The Apple Vision Pro, three and a half thousand dollars spatial computing headset, maybe it will down the road. HomePod, smart speaker, things like that.

Yory Wurmser:

Marcus, I disagree that he didn't redefine a sector. I think the Apple Watch did redefine the sector. It just wasn't as important a sector as the iPhone and the mobile phone sector, but it totally transformed the smartwatch category.

Marcus Johnson:

Yeah, victim of their own success, perhaps.

Yory Wurmser:

Yeah.

Marcus Johnson:

Once you've created the iPhone, even if you create something at 50%, 20% the size of that, it's still massive, but pales in comparison.

The other thing I think was interesting is which Mr. Ritson of ADWEEK was pointing out, he put privacy at the core of Apple's offer.

Jacob Bourne:

Yes, absolutely.

Marcus Johnson:

Right?

Jacob Bourne:

I think that was huge too.

Marcus Johnson:

Please.

Jacob Bourne:

Well, I mean, I think in addition to the novelty that we're talking about, it's also, I think Apple has successfully convinced consumers over the decades that it has their best interest at heart. And I think privacy is one of the areas that really has sent that message effectively. I think also just device longevity, user-friendly design, all these things kind of support that message. And I think that blossomed under Tim Cooker continued to blossom. I think Apple is also at a bit of a risk of losing that edge, I think, that sort of good guy status among big tech. And so I think that's one of the challenges it's going to face, is really continuing to convince consumers that it still has their best interests at heart.

Marcus Johnson:

Yeah. Yeah, good guy status is a good way of putting it. Mr. Ritson saying that he put them on the right side of privacy at a moment when the tech industry's relationship with consumer data was becoming toxic. He made privacy a genuine differentiator. So yeah, I think that's a good one.

And then the last one from me quickly is just he turned Apple into the sixth-largest digital ad company in the US. So expected to make $9 billion from ads. This year we talked so much about Meta and Google and Amazon, now TikTok and Microsoft, but in sixth place right behind all of them is Apple with a $9 billion business in advertising, digital advertising this year according to our forecasting team. So, no small feat there.

Yory Wurmser:

And yet, I mean, in general, his whole strategy of building up Apple services has been super successful, but it does threaten the last thing that Jacob said, which is that edge on privacy. You start using the data for targeting, or you start preferencing your own services over others using the type of data only you can see as Apple, I think opens it up to some challenges as well.

Marcus Johnson:

Yeah. We talked a bit about some of the products that have come out post iPhone. Obviously, they had the iPhone, they created the tablet world, they've had obviously the iPod, we've got the AirPods, the... I'm blanking on the, what did I just say? The Apple Watch. Do they need another big product? Because there was an article from Ian Bogost of The Atlantic saying Apple is now boring. And so the question becomes, Jacob, does it need another iPhone moment?

Jacob Bourne:

Yeah. Well, I mean, the answer to that question simply is absolutely they do. To be fair about the boring part, I mean, it's a 50-year-old company. What company reaches 50 and doesn't become a bit boring? I mean, the iPhone helped make Apple become the cultural icon that it is, and it continues to be Apple's biggest revenue driver as well. But you think about it, I mean, younger generations have grown up only knowing a smartphone in their lives. The iPhone has always been there for them, so it's not some new thing.

I think to really not become boring, you have to continually hit that novelty edge a bit. And so I think Apple does need an iPhone moment. And I think especially because all these other tech competitors in the AI era are really trying to come up with this killer new consumer device, this AI-enabled product. And so I think Apple has rising competition on the consumer hardware front due to AI. And so I think the key strategy for Apple really developing that killer new product is going to be to not try and sell AI, but to try and use AI to craft a product that sells well to consumers.

And I think it's probably best positioned to do that for a lot of reasons. And then there's a whole side of it that where I think it's a little bit behind, which I'm sure we'll get to. But yeah, I think it's absolutely what Apple needs to do.

Marcus Johnson:

Yuri, does Apple need another iPhone moment in your opinion?

Yory Wurmser:

Jacob a little bit stole my thunder because I was going to say... Yeah, I know, right? Apple, I would say, needs more of an App Store moment than an iPhone moment, in the sense that they need to figure out a way to turn Apple Intelligence and Siri into a platform that integrates all these other AI services into a seamless product. So revolutionizing their smartphone into a different device, but more on the software side and on the AI side than on the actual hardware side. So, I think that's definitely something they need to do.

In terms of hardware, it's hard to see what the next big hardware is going to be. Smart glasses could be, I think, something along the lines of a smart watch type of breakthrough. I think it's got a ton of potential, and there are going to be tens or even hundreds of millions of consumers that'll be interested in a revolutionary form of smart glasses. I'm not sure you're going to see a billion, a couple billion people buying them. Cars, too many other competitors right now trying to own that, especially from China. And these AI devices, I just don't see as being transformative in the same way as an iPhone. I think the way to make a huge splash is to create an Apple intelligence that really lives up to its promise, and integrates other services into a seamless experience.

Jacob Bourne:

Yeah. I mean, I do agree with that, Yuri, in the sense that there's not an infinite supply of consumer form factor ideas out there that will be able to be competitive with the iPhone or the smartphone in general. But I think that with the amount of money going into this killer new product development from a number of companies, I think that there will be maybe something not altogether different from what's already there, but certainly new variations that I think Apple will need to stay competitive with, whether it's a foldable phone that Apple already has slated for this fall, or some other type of wearable device that we haven't quite seen yet.

Marcus Johnson:

Yeah. Yeah, they've got a lot of potential home runs. We'll see how they play out, but it seems as though they're kind of doubling down on hardware to a certain extent. They've got the foldable phone, which we just mentioned, the folding iPhone coming, a dedicated smart home hub, and also smart home glasses. Smart, maybe you just wear them at home, but smart glasses as well. And maybe this shouldn't be as much of a surprise given who they appointed to replace Mr. Cook. So, John Ternus will replace Tim Cook as CEO in September with Cook staying on as executive chairman. Mr. Ternus is currently Apple's SVP of hardware engineering, having worked at Apple for 25 years, basically his entire career. He joined as a mechanical engineer in 2001, joined the leadership team in 2013, and he oversaw the development of the AirPods, later the iPhone, Apple Watch.

As a rule for Winkler of the journal notes, Ternus will follow two corporate legends. Steve Jobs developed the most lucrative product in history, the iPhone; Cook squeezed trillions of dollars of value from the smartphone thanks to supply chain he built, and the services and ancillary products that he rolled out. If Jobs was a product visionary and Cook was a supply chain guru, Ternus is a hardware savant who exists somewhere in the middle. Yuri, what did he make of this appointment, and what do you think is going to Mr. Ternus's number one priority as the incoming Apple CEO?

Yory Wurmser:

It seems like a good appointment. I don't know a ton of details about what his vision is going to be. His track record of hardware success is great, and something that could revitalize that part of Apple. I think the highest priority right now though is to figure out AI, figure out how to, first of all, get Siri working like a real AI assistant, and then integrating the whole operating system around that. Not just Siri, but throughout all of the Apple software products, infusing it with AI and getting it to work as an integrated system. If he can do that, that I think is going to be a huge success for Apple. It'd be great to see him create some new form factor too, but product form factor, but that's to be determined.

Marcus Johnson:

It seems as though that's what investors are holding their breath and waiting to see from Apple. Jacob, Wall Street Journal's Nicole Nguyen were saying Tim Cook is leaving an AI shaped hole in his wake, and Apple's strategy is to use Google's Gemini to help Siri get smarter later this year. Is this his number one priority?

Jacob Bourne:

Well, I think that my answer's a bit nuanced. I think that there's going to be some tension between what Ternus needs to prioritize and what he's pressured to prioritize. I think in terms of keeping investors pleased, it materializes on a quarterly basis. And I think Apple really needs to think longer term than that. I mean, I think the pressure's going to just be to continue oiling Apple's financial machinery, which is fine and great, but I think for Apple to have the kind of success that it's seen over the past 50 years for the decades to come, it really needs to maintain its iconic cultural status rather. And I think at its heart, it continues to be a consumer hardware company. And so it needs to continue to sell products that consumers want to buy. That's where its revenue comes from. And it really, I mean, it ties back to its app store success too. That success is really contingent upon the success of its consumer devices.

So, I think the challenge on that front is really going to be that the consumer electronics industry in general is going through a pain point right now with the memory chip shortage that's being driven by demand for AI data centers. So, all this money that's going to AI data centers is really kind of hindering these efforts to develop and supply these next generation consumer devices. And so I think it's going to be a tough challenge for Apple, maybe less so than some of its smaller competitors, but I think it's what Apple really needs to maintain its status.

Marcus Johnson:

Here it's a bit of a dilemma, because the economist pointing out Apple, they say Apple must get their AI act together, but on the other side of things, avoiding model making has mostly kept it out of the $3 trillion data center binge, which may end in huge losses. So, it does seem as though they're on the sidelines trying to figure out, are we going to be getting into this game and spending billions and trillions, or are we going to pay someone like Google to hitch our wagon to that, and use that to fuel our power AI in our devices?

Yory Wurmser:

I mean, I think their bet is that these models are getting commoditized, that you can switch from one to the other down the line as they get more advanced. At some point, they'll probably build their own model. I think they're probably counting on things being a lot cheaper when they do that. They're not clearly not investing in the chips and in the model, the talent that the leading model makers are at this point. But I mean, I think that the challenge for them, even beyond keeping up with AI is being willing to disrupt itself. I mean, that's what the thing that Jobs was really amazing at doing was taking an incredibly lucrative iPod and killing with the smartphone. And they're going to have to be willing to do that on some level, just killing some of their great products with the next generation. And I think that's a really hard thing to do for a company.

Marcus Johnson:

Yeah. Yeah, I mean, we shouldn't be surprised that they've not jumped into this headfirst because they buy their time. They always do that. They don't necessarily invent the product, but they make it way, way better, and way more user-friendly. They're kind of like, for the NBA fans, the LeBron James of playoff basketball, he always takes game one of the seven game series to just feel it out and figure things out. It's going to feel out game, and then destroys the opposition in the rest of the games because he's figured out the strategy of how to do it the best. And it seems as though they're taking a similar approach. They're also, we should mention, they're making about a $900 million. So GenAI apps paid Apple nearly $900 million in app store fees last year according to AppMagic. So they're making some money from AI if it's not in the conventional way that others are.

Yeah, it's hard, because they've got this multi-billion dollar space in the smartphone industry, and they don't want to disrupt that too much because it's a heck of a cash cow, but there is this pressure to, okay, eventually people are going to want something else, or maybe someone else is going to come along and make something else. There was obviously Johnny Ive, the ex design chief of Apple, he's working on a device for OpenAI. Wall Street Journal reporting that's not a phone, because they want to help users wean users off of screens. And so yeah, it'd be interesting to see what that is and if that does force Apple's hand.

Yory Wurmser:

Yeah. I mean, it sounds like some sort of AirPod color or attempted AirPod color. We'll see what happens.

Marcus Johnson:

Yeah.

Jacob Bourne:

Yeah. My guess is they haven't fully decided what it's going to be. But I think on the AI risk front for Apple, I think its caution on AI makes complete sense. Because most of its revenue comes from consumer hardware, it hasn't felt the kind of urgency that Google and Microsoft felt to act aggressively on AI. I think also Apple correctly read the T leads in terms of sensing that consumer sentiment on AI wouldn't be altogether positive. And so it has correctly not tried to sell AI as a product, and I think that that has been spot on.

I think the problem for Apple is a longer term one, because it doesn't have the same urgency as the other tech giants on AI, I think it's translating into a lack of investment that's going to, I think, come back to haunt it down the road on the consumer product front because I think that in addition to... Well, I mean, AI is not a product, but I think it is an engine for innovation in terms of things like electronics engineering, and material science, and on device inference, and all these things that come into play or increasingly will on the consumer device front.

And a lot of the talent that's driving those innovations are going to companies that are developing frontier AI models. And so I think that Apple has and will probably continue to offload some of that innovation onto its AI partners like Google, and maybe even some manufacturing partners. But I think the long-term risk is that it erodes its innovative muscle and risks letting a player like OpenAI or Google really own that consumer interface layer, which I think has been so crucial to Apple, and it will continue to be.

Marcus Johnson:

Yeah. Yeah. So tough balance, because they are hardware. They have obviously services, which is about a quarter of, I think it's at least a quarter of their business now, and some advertising as well, but they are hardware. And so making sure that they are still churning out money with new iPhones, new Apple watches, new whatever tablets. They're also rolling out the $600 MacBook, Neo aimed at low budget shoppers reportedly sold out in April. So they've got to try and balance that with how much do we get involved in AI, so we aren't left behind. But as a really good point about the positioning of it, Jacob, because it's called Apple Intelligence. It's not called AI anything. And to your point done on purpose, it would seem to not scare people away.

Yeah, I think I'll leave you with this. I thought this was a really good take, which is kind of what, Yuri, what you were saying about Tim, I think you were saying about Tim Cook, which is just don't crash the car. And I think if you do that, you'll be fine. Veteran Apple analyst, Horace Dediu, I think is how you pronounce it, thinks that if Mr. Ternus does nothing but keep the ship on course, he says, Apple could almost double its number of devices from 2.5 billion globally to 4.5 billion globally over the next 15 years, the similar length of term that Mr. Cook had at Apple's helm, a huge platform on which to run and monetize AI apps, he writes.

That's where we'll leave the conversation for today. Thank you so much to my guests for hanging out with me today. Thank you first to Yuri.

Yory Wurmser:

Great to be here as always.

Marcus Johnson:

And of course to Jacob.

Jacob Bourne:

Been a pleasure, Marcus. Thanks.

Marcus Johnson:

Yes, indeed, Gents, thank you. Thank you. Thank you to the production crew. We have Lance helping us out with this one. And to everyone for listening into Behind the Numbers New Marketer podcast. Susie, we'll be here on Wednesday with the Emerging Retail Show, and I hope to see you on Friday where we'll be talking all about the three big questions surrounding Google at the moment.