Why Apple Is Tripling Down on the Mac
Apple’s Mac line has never been stronger.
Apple’s Mac line has never been stronger. Thanks to Apple Silicon, Apple is pushing the Mac forward with industry-leading power efficiency and hardware redesigns that are resonating with tens of millions of customers. It’s a dramatic turn of events for a product category that seemed positioned to play second fiddle to mobile devices a decade ago. We are seeing Apple place a big bet that the Mac will remain a critical machine for the 1% of users creating content for the other 99% of users. Implications of this bet extend across Big Tech. Competitors have begun to worry as the Mac is increasingly becoming the machine for handling the industry’s “pro” workflows.
In the 2010s, a riveting debate surrounded the relationship between mobile devices and laptops and desktops.
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Big Tech Is Winning Over Wall Street
While Wall Street remains fully engrossed by NVIDIA, there is a story to be told that is flying under the radar.
While Wall Street remains fully engrossed by NVIDIA, there is a story to be told that is flying under the radar. With several key macro headwinds now in the rearview mirror, Wall Street has turned decidedly more optimistic on Big Tech (a bucket that I have long defined as including Apple, Alphabet, Meta, Amazon, Microsoft). Big Tech as a group is up 28% in 2024 while the S&P 500 is up 15%.
Here are Big Tech market caps, with NVIDIA added in for good measure:
Microsoft: $3.3T
Apple: $3.2T
NVIDIA: $3.0T
Alphabet: $2.3T
Amazon: $2.0T
Meta: $1.3T
A couple things jump out at me about those totals.
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Meta’s VR Predicament
With Apple Vision Pro now officially on sale, Meta finds itself in quite the predicament. After initially pooh-poohing Apple’s headset, there are signs of Mark Zuckerberg and company already pivoting to reinvigorate their own headset strategy. Such a change in mindset suggests Meta will be a different kind of competitor than Apple has seen in the past, and yet I don’t have confidence that Meta can compete against what Apple is selling.
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The Next TikTokification Phase Is Here
One of the defining post-pandemic shifts in tech has been unfolding in the social media space. Seemingly overnight, tech giants including Meta and Google found themselves on the ropes, fighting a new kind of competitor: TikTok and algorithm-fueled video timelines. From my vantage point of analyzing quarterly earnings, we are already seeing the next phase of TikTok’s influence seeping through the industry, and the observations make me increasingly worried about where things are headed.
Beginning in late 2021 and coming to a head in early 2022, Big Tech’s layoffs caught many people off guard. Various theories were floating around as to what was going on. Some of the theories came across as being a bit out there – such as Apple ATT being blamed for single-handily bringing down the entire advertising complex and all of the businesses that depend on it to drive revenue. The subsequent rebound (and we are talking in some cases strong rebound) in the advertising giants’ performance puts a fork in that questionable theory.
Instead, macro unknowns and TikTok hit Big Tech’s digital advertising revenue so quickly that management teams had no choice but to cut payroll ASAP.
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Why Tech Feels Tired
We still have two months to go in 2023. A lot can and will likely happen. However, we are already able to point to a few broad tech themes that have come to define the year.
Imagination has escaped the paid video space as companies shift their efforts to improve user monetization. Password sharing crackdowns, ad tiers, and price increases have been leading the industry’s new cycle. Consumers have become somewhat downbeat of what seems like retrogression to traditional cable bundle dynamics on a few fronts in paid streaming.
Generative AI certainly captured this year’s tech hype cycle but most of the consumer-oriented early examples involving the technology fall short on the excitement and intrigue fronts.
EVs remain a very complicated industry with plenty of questions regarding just how much progress is being made.
The consumer gadget recession rages on and has contributed to a wave of HW executive turnover and changing hardware strategies.
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Higher Video Streaming Pricing Is a Good Thing
In what has become something of a quarterly tradition, people are once again sounding the alarm about video streamers raising subscription prices. Disney was the latest company to announce higher prices with Disney+ (with no ads) seeing a 27% price increase and Hulu (with no ads) seeing a 20% increase. Despite drawing anger and frustration, continued price increases end up being one of the better developments for an industry that has been dealing with its fair share of issues and challenges.
A common refrain that has accompanied video streaming price increases is that the cost of streaming is getting close to what the big cable bundle costs. This is then said to indicate failure on the part of streamers to push the video industry forward. A major issue with this line of thinking is that it ignores why the cable bundle was problematic.
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A Luxury Safe Haven
With recession and inflation concerns continuing to build in the tech space, attention has shifted to where pockets of strength will be found. One such pocket may come as a surprise: luxury. At first, the idea of high-priced gadgets and services selling well in a high inflation and slow growth period may seem like a stretch. However, continued supply chain issues and software’s ongoing invasion of new industries bode well for companies playing in the premium sector of the economy.
As inflation trends at close to 40-year highs, the question hasn’t been if households will continue to spend cash in the tech space but rather how they would allocate budgets to make better use of their remaining purchasing power.
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Funding the Next Big Thing in Tech
One takeaway from the just concluded earnings season in tech land is that the giants are not alike. Each is facing its own set of business and financial challenges – both macro and micro. Despite the challenges, each of the giants is determined to fund the next big thing. What had been periodic jitters about ballooning costs and expenses has turned into full-fledged anxiety and concerns on Wall Street.
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The Absurdity Known as the Digital Markets Act
For the past two years, the European Commission has been formulating a series of regulations aimed at curtailing the tech giants in its 27 member states. Last week, the Digital Markets Act reached a finalized draft stage. While additional steps are needed before the end is reached, we are at a point where the major points of contention have been determined with implementation set to begin later this year. We are seeing the equivalent of the tech giants being taken hostage and told to both open their platforms to perfectly capable competitors and ensure that these same competitors don’t abuse their opportunities to harm consumers. It’s absurdity. There is no other way to describe what we are seeing. Customers in the EU don’t stand to benefit from the regulations. And as we will discuss shortly, a good argument can be made that the giants will be able to navigate the legislation without losing much, if any, momentum in the impacted countries.
At the heart of the issue is EU officials viewing the giants, or so called “gatekeepers,” as blocking or preventing smaller competitors from getting a fair shake.
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Tech’s Day of Reckoning Is Being Oversold
Whenever a new calendar year begins, there is an urge to press reset on the news cycle and existing strategies and plans. This doesn’t make much sense considering how, excluding new laws and taxes that may go into effect on January 1, the new year doesn’t usher in changes in marketplace conditions. Nevertheless, there is a psychological benefit found with using the new year to remove oneself from all of the noise and assess the big picture.
In looking back over 2021 to assess the major stories in tech, one topic quickly jumps out at me as having been all-encompassing. It was a very good year for the tech giants when it came to navigating the regulatory and legal landscape. Consider the following developments:
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Measuring Tech’s Diffusion in Society
One of the main drivers behind starting Inside Orchard was analyzing how the lines that have traditionally defined technology are being erased. The “tech industry” is a term with a finite lifespan. We are heading to a point where tech will be so diffused in industry that it will be indistinguishable from society as a whole.
A question that has been raised is how to measure such diffusion. The answer can serve as a valuable tool for knowing which industries have either already experienced such diffusion or are about to undergo significant transformation. Get the timing right, and there are significant financial and product strategy rewards up for grabs.
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The Chip Shortage Was the Canary in the Coal Mine
The economy is in a strange place right now. One can confidently and accurately point to data suggesting the economy is in a good position in terms of customer demand, unemployment, wage gains, and household saving rates. At the same time, however, problems such as unfilled jobs and inflation suggest a perilous state.
When it comes to the good news, people have disposable income and are willing to spend it on goods. The demand picture is so strong that the supply chain infrastructure that was supposed to handle such demand has come to a halt. This brings us to the bad news, which includes signs of higher inflation. For the past 25 years, inflation has been mostly a nonfactor for people in the U.S. It’s one reason why we aren’t seeing as many news articles and online commentary as the topic deserves. Most people in a position to write such stories are too young to have experienced inflation exceeding 200 to 300 basis points. There is little to no recognition that inflation can single-handily destroy an economy (and society).
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The Pivot to Screens and Cameras
In the mid-2010s, the tech industry thought it was onto something. The maturing supply chain from the smartphone revolution had made it easier (and cheaper) than ever to produce small, stand-alone speakers that could be placed in the home. Instead of playing music or talk radio, these speakers would be transformational due to their delivery of digital voice assistants that was made possible by years of cloud and machine learning investments.
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The Future of Digital Tracking
A retailer (Amazon), social media company (Facebook), and information services company (Google) now capture more than half of all advertising spending in the U.S. The Inside Orchard essay “The Advertising Triopoly” focused on how the three were able to reach such a milestone: establish formidable ecosystems powered by not only software, but also customer data. As to where tracking will go from here, change is in the air.
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The Pandemic Isn’t Fueling Tech
With the 1Q21 earnings season coming to a close, we have a good view of how the world’s largest companies performed during the first three months of 2021. Impressive would be the word. Consider the following year-over-year revenue growth figures:
Apple: 53%
Facebook: 48%
Amazon: 44%
Alphabet: 34%
Microsoft: 19%
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The Advertising Triopoly
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The press has come to rely on a very wide net when describing “tech” companies. Some of this is to be expected as tech continues to invade new industries. However, there is something wrong found with using “tech” to describe any company making money one way or another from software and data. My stance on “tech” is that it has lost much of its descriptive meaning when it comes to business models and product strategies.
Instead of lumping today’s corporate giants into one massive “tech” bucket, a different categorization based around advertising is more valuable. For the first time, a retailer, social media company, and information services company are grabbing more than half of all advertising spending in the U.S. The pandemic was the catalyst responsible for pushing the three over the 50% mark.
Wall Street doesn’t see any end in sight when it comes to Amazon, Facebook, and Google and their advertising prowess. Accordingly, the press has taken it upon themselves to be the last remaining force of resistance to the three. It is not a coincidence that massive media campaigns have been waged against Amazon, Facebook, and Google. All three have awful narratives and perceptions if going by press coverage. From my position, much of the press outcry and criticism has become too stretched to be any good. The press made one giant mistake in their quest to go after these advertising giants. By turning every little thing into a massive crisis that supposedly was going to bring their downfall, the press cried wolf too much. The end result was valid criticism being watered down to such a degree that readers and listeners became tired with it all. In a way, the press’ attacks have helped strengthen Facebook, Google, and Amazon.
That’s not to say that there isn’t controversy found with the advertising triopoly. Instead, few are able to correctly point out the actual issues. Another way of describing the advertising triopoly is the data triopoly. Consumer-friendly services, most of which are free, are offered with the goal of grabbing consumers’ attention, and by extension, their data. This data is then used to both enhance the underlying services, which results in better and stronger engagement, and attract brands, which have a never-ending craving to get in front of consumers.
There is nothing inherently wrong with the triopoly giving away services (email accounts, cloud storage, video streaming, music streaming, messaging, reviews, business solutions) for free just as there is nothing wrong or evil found with leveraging customer data to enhance or better the service over time. However, there are two primary problems found with the dynamic:
Companies are not being clear and up front with their customers as to what kind of data is being collected and how the collection process works. The average consumer would be shocked to learn how much of their data is actually being collected. It is no longer good enough to collect data about what consumers’ are doing on your own online property. The goal is now to track customers while they are on other online properties.
Companies are building detailed customer profiles in an effort to better compete against other companies.
A good argument can be made that the two preceding problems end up being byproducts of giving services away for free. If services weren’t free but instead paid, the companies offering such services wouldn’t be in as much of a need to build detailed customer profiles or hide their true data collection intentions. However, this view comes across to me as being a bit too cynical. We have not seen what would happen if the advertiser triopoly was actually up front with customers about data collection while making a concerted effort to curtail data collection in an attempt to enhance customer privacy. It is not a guarantee that their advertising grip would actually weaken in such a scenario. Instead, we are left with a company like Apple, sensing no viable solution to the two preceding problems, taking it upon themselves to address the underlying issues.
As for who stands to be the largest business losers from the advertising triopoly, industries that have essentially become commoditized are high on the list. The demise of local newspapers has been well telegraphed. Less focus has been put on how the advertising triopoly holds complete and total responsibility for its destruction and broader problems found with the entire news industry. It is ironic that two of the three advertising companies that make up the triopoly have been trying to “save” the news industry by throwing money at publishers. Unfortunately, such efforts are too little and too late. The simple presence of the advertising triopoly leaves little to no room for a news industry long supported by advertising. (We are going to see continued consolidation in the news industry, including the online space, which should leave enough room for a pretty decent niche publication scene.)
The music industry has similarly come under pressure from the advertising triopoly, not due to declining revenues from streaming but rather from the art form being used and taken advantage of in pursuit of building up ecosystems. Fears of podcasting and video not being too far behind music are valid. There are then niche industries, or at least industries that would seem to be niche, such as restaurant and product reviews, that have been decimated by the advertising triopoly. While an enduring entrepreneur can take a swing or two at these troubled industries, it will likely take massive capital in an effort to grab users and only then would consolidation seem like the inevitable conclusion.
Turning to the government for help with taming the advertising triopoly is easier said than done. The regulatory issue isn’t actually found with what companies are doing with customer data once it is collected, but rather it’s found with the collection of the data in the first place. Examining data collection practices would then unveil a systemic problem found throughout the corporate world with very few exceptions. Breaking up the advertising giants won’t accomplish as much as regulators think. Instead, competition can be intensified by giving customers more control over their data and the collection process. Focusing on the data itself will end up being the best way of equalizing the situation as it was data that gave power to today’s advertising triopoly.
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Online Product Reviews Are Broken
The premise behind a site like The Wirecutter, bought by the New York Times for $30 million in 2016, may make complete sense on paper. Have an “expert,” who apparently knows everything there is to know about a product category, test out an arbitrary number of products spanning the price and feature spectrums in that product category. Relying on experience and perspective, the expert issues a verdict as to the “best” product to buy - the product that everyone should use without fear of regret or disappointment.
In practice, Wirecutter is wholly disappointing.
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Movie Theater Nostalgia
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Humans love going to places. The idea that we will one day wear a pair of VR googles in the home in lieu of actually going on vacations, visiting family and friends, or just simply going out to social gatherings is a fantasy.
Although humans like going to places, the list of failed social gathering ideas is long and storied. Dance halls, arcades, pool halls, and roller skating rinks once defined culture. Today, these venues are nothing more than relics with a few owners trying to keep the memories alive for the select few willing to pay for the nostalgia.
The list of social gathering places that have lost out to time and technology will only get longer. We see the latest addition before our eyes: movie theaters. Some think movie theaters will be fine postpandemic. Others are convinced movie theaters will go the way of the dodo bird. Reality is found somewhere in the middle. There will be physical movie theaters in the future, but they will look like a shell of their former selves. Movie theaters will become the new arcades - still around if you search hard, but irrelevant.
Most movie theater screens will either meet the wrecking ball, contractor’s hammer and saw (for conversion into something else), or they will be bought by families that feel a calling or duty to keep the nostalgia alive.
Movie theaters aren’t in decline because video streamers are seeing success in grabbing eyeballs. Netflix, Amazon, or Apple are financially able to purchase a movie theater chain tomorrow and give away free tickets to subscribers to watch exclusive films. This may seem like a great idea to some. However, a growing portion of the population would feel differently. Movie theaters face a very difficult future because society is moving on from the idea of traveling outside the home to sit in a dark room to consume video content. It’s telling how everything from reclining chairs to steak and lobster have been used as carrots to get people inside a movie theater. The problem with movie theaters isn’t a suboptimal food selection or uncomfortable seating. Instead, fewer people want to venture out the home, sit in a dark room, and spend two hours watching a movie that began at a time not of their choosing.
As for what is driving this trend:
The rise of on-demand consumption. The thought of needing to pick out a specific time to go somewhere to watch video content will seem as foreign as needing to leave the house to play a video game. It simply isn’t going to register to people.
New-age communication. Turning the smartphone and wearables off for two hours is becoming unconscionable for a growing number of people.
It certainly doesn’t help that the rise of streaming is causing some blockbuster movies to be watched in the home at the same time that they are being watched inside theaters. However, blaming that development for the demise of movie theaters is misplaced. It does little but leave an opening for nostalgia holders to think “if only tech companies would support movie theater operators.”
Unfortunately, these developments aren’t confined to movies. A similar trend is slowly occurring with theaters in general. Don’t let Broadway’s commercialization overshadow what are deteriorating economics found with operas, plays, and other performance art that take place in (large) dark rooms at a time not of our choosing. It’s telling how such activities increasingly need to be supported by cities and states. The logic is that such institutions are part of culture. The real purpose of such funding is to keep the nostalgia flowing.
Movies aren’t going anywhere. Theater isn’t going anywhere. Instead, the way we consume these art forms will change. Selling tools for retrofitting basements into “video consumption” rooms contains more upside than owning a chain of movie theaters.
Nostalgia is a powerful drug. While it is possible to sell nostalgia, one who does is ultimately stuck selling old ideas into a society that is always forward looking.
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Introducing Inside Orchard
I would like to introduce something that I’ve been building. It’s called Inside Orchard.
Ten years ago, technology was a defined sector with recognizable barriers. Ten years from now, there will be little to no delineation between technology and society as the two become intertwined. Inside Orchard (@InsideOrchard) will be home to my unique perspective on technology and its growing influence on society.
The name “Inside Orchard” is a play on the fruit orchards that eventually became Silicon Valley. Given the ease of focusing too much on any one tree in an orchard, “Inside Orchard” also refers to successfully navigating the noise found in the tech news cycle to focus on the big picture.
It’s getting increasingly difficult to find articles about technology that I feel a connection to and enjoy. Inside Orchard is my outlet for publishing ideas and perspectives that I believe in. I’m confident others will also find immense value in the essays and podcast.
Inside Orchard’s business model will be subscriber based. I want to make the site as accessible to as many people as possible while keeping it sustainable for decades. A subscription is just $10/month or $100/year and includes exclusive early access to written essays as well as access to an exclusive podcast. The first 200 subscribers will receive the distinction of being “Founding Subscribers.”
Inside Orchard will sit next to Above Avalon as a home for my perspective and analysis. While Above Avalon will continue to be dedicated to offering the most comprehensive and accurate analysis of the most influential company in tech (Apple), Inside Orchard will be dedicated to the big picture. A bundle consisting of subscriptions for both Inside Orchard and Above Avalon is available here. Above Avalon members receive a 50% discount on Inside Orchard (just $5/month or $50/year).
A big thank you goes out to my wife Jennifer (@jennifercybart) who drew all of the artwork featured on Inside Orchard. Another thank you goes out to Above Avalon members. Above Avalon success is providing the foundation for Inside Orchard. It’s never been a better time to analyze Apple, and the same applies to the broader technology landscape.
Neil Cybart (@neilcybart)
Founder and Author
Inside Orchard