WWDC: Apple's Big Bet on Content and Services Over Hardware
Apple (AAPL) promises a glimpse of its software future at the Worldwide Developers Conference next week. As my BNET colleague Damon Brown points out, Apple continues its process of moving its iOS operating system, which powers iPhones and iPads, and the Mac OS closer together.
But there's an even more significant shift happening at Apple. It is becoming what Google (GOOG) has aspired to: a company that transparently spans real-world products and online services. In the process, Apple will not only expand the number of devices it sells, as they become conduits for online services. It will also build a paid service annuity through the contributions of tens of millions of customers.
Put the horse before the cart
From early in the company's history, CEO Steve Jobs knew that content -- originally, programs for the Mac -- were necessary to get someone to purchase a machine. For years, Apple's online products were loss leaders; iTunes, for instance, was mainly a hook for people to buy iPods. The App Store became a way to promote the iPhone. And for years, Apple has said that iTunes and the App Store as businesses were just above break-even.
A computer, MP3 player, or smartphone were only vehicles that carried people to content and services. Inadequate design could push off purchases (as the MP3 players that came before the iPod showed so well), but elegance and attractiveness in a product didn't matter on their own. The best designed piece of consumer electronics would get no sales if it didn't offer people access to something they wanted.
Apple -- and most everyone else, for that matter -- thought content horses pushed device carriages from behind. But what they really did was pull. Content drives business, and devices that give access are along for the ride. That's why iCloud is likely to be the biggest product or service announcement at the conference. Apple is taking a step to get people to centrally store everything and use devices as more of a front end to their online lives.
Get out of the way
Apple's developing strategy shows that the company realizes this. As I mentioned early last year, there were indications that Apple would dump the Mac, or at least the Mac OS, in favor of creating a version of iOS that ran on desktops and notebooks. Last fall, Apple showed more of the eventual union by adding iOS-like features to the Mac.
There are many practical reasons why Apple would go this route. It can simplify maintenance by going from two code bases to one, for instance. It can also update the set of patents that cover the Mac as well as other devices, extending legal protection. But as important, if not more so, is the recognition of how services and content have taken center stage.
People want music, video, applications, books, periodicals, images, games: a world of content. They want services, too -- ones that put their content in one place so it's available from multiple places, ones that handle specialized tasks through apps, ones that automate their homes or turn a mobile device into an all purpose service gateway.
When you realize that content is the horse, then you want devices to expedite access. A uniform look, feel, and way of working make every carriage familiar and instantly useful. One form of interface -- iOS -- already runs smartphones, tablets, and even Apple TV. The traditional personal computer is the last major step for Apple to cover all its bases.
Building an annuity
Apple has said that it made little on music and apps, and compared to its hardware revenues, that is correct. But the amounts have been increasing. Citibank has estimated that Apple could sell $2 billion in apps this year, which is about as big as the bank's estimate for all online video advertising. According to rumors, iCloud will be free for one year, and then cost $25 a year. Even if it can get 50 million users (and it has far more consumers as customers of its devices), that's $1.25 billion annually.
Add music, e-books, magazines, and newspapers, all with cuts going to Apple. And as more people cut the cable and satellite TV cord because they can, there are movie and TV video rentals and subscriptions that will only increase.
Will services displace the financial importance of selling devices? Not a chance, as that will be the cash cow for years to come. But as cloud services become more important to individuals and corporations, Apple will have positioned itself well.
Why Google isn't there yet
Google always got the concept of making online the center of how people work. But it has had a different mix of services -- search, apps, email, storage -- that were more oriented to productivity. Although Google seems omnipresent, it depends on ad sales. Apple has succeeded because it actually gets people to pay for the content and services they use.
Although Google has had great success with making Android a popular platform, it really has come late to creating carriages. Given that it has Chrome for desktops, Chrome OS for netbooks, and Android for tablets, smartphones, and TV set-top boxes, Google risks strangling its own efforts with too much variety.
Apple understands that most consumers want their devices to act as appliances that happen to do clever and flashy things. The company gets both the importance of online and design discipline and uniformity. That's what to look for at this WWDC, if you want to see where Apple is really going in the future.
Related:
- Apple Reveals New Offerings to Distract From iPhone 5 Delay
- iCloud: Why Apple Disclosed Cloud Service Early
- Apple iCloud: The Hidden Business Advantage for Your iPhone and iPad
- Apple Wants to Own Software Publishing for iPhones and iPads
- Multi-Touch and an iPad Sensibility Comes to the Mac
- Apple Magic Trackpad: One Step To iOS on Macs Instead of OS X
- Why Apple Will (Eventually) Dump the Mac
- Apple Eying Home Automation, Its Patents Reveal
Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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