Apple WWDC 19 – Nice but dull.

Apple inches its ecosystem forward.

• Beneath the pomp and the adoring crowd was a series of updates to its core platforms which inched the iOS ecosystem forward but, in reality, did very little other than keep pace with its competitors.
• The main updates included:
  • First, iPadOS: This sounds like a fork of iOS, but it is the same code with some extra functionality that comes to life only in this product category.
  • This functionality includes improvements to slide over, split view and a new easy way to copy, paste and undo.
  • It also enables thumb drives and cameras to be connected via the USB C socket.
  • However, it stopped short of mouse support and full-fat Office meaning that to get real work done, laptops and PCs will still be required.
  • Second, iTunes: which is being split up due to the fact that it has grown so large that it has become somewhat cumbersome.
  • This will be split into Apple Music, Podcasts and Apple TV with device syncing being affected via Finder on the Mac.
  • This will result in a small change for a few users as syncing to Macs is fairly rare these days and does not represent the seismic shift that many articles are implying.
  • Third, Mac Pro: Apple spent a lot of time launching a hugely expensive computer that almost no one is going to buy.
  • The new Mac Pro is a hugely powerful beast aimed at professional film and music makers that starts at an eye-watering $5,999.
  • The crowd loved it but its relevance to advancing the appeal of the iOS ecosystem over its competitors is zero.
  • Fourth, cross-device: was pretty much the only improvement that will improve the appeal of the ecosystem.
  • Here Apple launched a series of improvements to AirPods, HomePod, Siri, Apple Watch and the App Store that improve the ability of Apple devices to work together.
  • For example, the App Store has been extended to the Apple Watch and audio sharing has been enabled across different Apple devices that can play music.
  • Fifth, privacy and security: Apple did not miss a trick in banging this drum much to the delight of the crowd.
  • However, whether real users really care remains an open question.
  • Siri now has the ability to recognise different users and surface their preference in tvOS, on HomePod or Apple Music but the computation is done on the device and not in the cloud.
  • HomeKit functionality has also been extended to routers which secures smart home device from attack and also ensures that any security camera footage that is stored in the cloud is encrypted and invisible to anyone but the user.
  • This is of some value to iOS ecosystem users, but the evidence so far suggests that most users do not care that much.
  • Facebook has suffered a large number of breaches and scandals in the last 18 months but Q1 19 results show that users have not deleted their accounts and advertisers are still using the platform to sell their wares.
• Taken into context with the developer conferences of Google, Facebook and others, it is clear that innovation is rapidly slowing down.
• Many of these updates merely keep pace with where its competitors have gone, but crucially Apple can enable them for the vast majority of its users very quickly.
• It takes about 90 days for Apple to update all of its ecosystem devices to the latest version but Google needs 6 years or more to accomplish the same feat.
• This is a major reason why the user experience on iOS remains more consistent and of a higher quality, underpinning Apple’s ability to charge a big premium for its devices.
• With Google unable or unwilling to meaningfully fix this problem, Apple’s ability to continue earning that premium remains unchallenged.
• Hence, the outlook for cash generation and margin remains very good leaving growth as the only real problem.
• It is this outlook that has weakened the share price and the valuation which makes it a much better place to invest as opposed to the very exciting but clearly overvalued new listings like Uber and Lyft.