Some reflections on the new Apple Event

Tim Cook has come under pressure and criticism from many for riding the coattails of the line-up crafted by Steve Jobs. The new products, the new open approach to press and communicating with the world, and picking the venue where the original Mac was introduced, Tim Cook in his own subtle way is communicating to the world — a brand new era for Apple. U2’s Bono called him the “zen master” and perhaps that is an ideal description of the man who will need a lot of zen to keep this increasingly complex company on track.

Cook, deserves a lot of credit for holding and nurturing Apple through the four three years since Steve’s passing and yesterday, he indicated to the world, the grieving is over. This is Cook’s Apple. I do believe, the company will miss the ruthless editing and polish of Steve Jobs. The magic and ability to mesmerize is fading, despite the whiz bang but in the end it is really about making “lifestyle” products the — Apple way. I shared some of these thoughts with Emily Chang on the evening edition of Bloomberg West show earlier this week.

Bigger is Bigger: iPhone 6 and iPhone 6 plus

  • While a lot of people are going to focus on VoLTE, for me the killer feature is something I have always been a big fan off — voice over wifi, which is a new variation on a technology first introduced to us as UMA. It has taken six years since we first talked about it. Finally the new iPhone 6 will have that capability and the network to bring us that – T-Mobile who first introduced it as a special Blackberry. It is part of new enhancements to the phone that have further eroded voice and voice’s role as the primary driver of the phone ecosystem. To call it an iPhone doesn’t really make sense anymore.
  • iPhone 6 and iPhone 6 plus are truly a step forward and they are a symbol of what Apple does well. They are going to sell well, especially in Asia. I would be a net buyer of Apple, just on the release of these devices. The first day orders despite the hiccups in the online ordering system and long wait times are a sign that Apple has yet another winner.
  • If you compare iPhone 6+ with some of the larger Androids out there, it is not only competitive, it is quite simply the best large phone in the market — on features and quality of build, not to mention the capabilities. The iOS 8 gives it even more parity with Android. (If you are an Android person, my money is on One+, probably one of the most gorgeous devices in the Android ecosystem.)
  • iPhone 6+ is truly magical. The size, the weight and the display are enough for me to say goodbye to the iPad Mini. I think it will cannablize the iPad Mini sales. Say hello to even bigger-larger iPad Airs.
  • The iPhone 6+ will have a big impact on app design. (My buddy Ed Aten writes about new things he had to factor into designing his new app Merchbar.

What Chips Tell

Apple’s technical capabilities of making and integrating great technology — material sciences, chips, bringing new optical technologies, displays and amazing capabilities to marry sensors and network silicon is truly in a class of its own. Marrying them to leading edge manufacturing technologies is what makes Apple different from all its rivals. Hardware is core to its DNA and the efforts put into these areas are a good testament. I am always impressed by what they do under the hood as much as I am by their ability to pilfer my pockets.

  • The iPhone 6 and 6 Plus come with 8MP iSight camera. The iPhone 6 has “digital” image stabilization & the 6 Plus has optical image stabilization.
  • The new A8 Processor: Built on 20 nanometer process, the chip is 17% smaller than A7. It has 2 billion transistors versus 1 billion transistors in A7 processor. It has 25% faster CPU and 50% faster graphics processor unit (which translates into massive gaming gains.) It is rumored to have a clock speed of 1.4 GHz versus A7 which ran at 1.3 GHz. The A8 processor is a sign that Intel is falling behind in mobile and the gap between Apple and Intel is getting wider.
  • There are 50% faster LTE modem speeds.
  • Apple introduced the new M8 motion co-processor. It includes a barometer sensor that allows the device to calculate distance and elevation by measuring air pressure changes.
  • Apple Watch is powered by a single system-in-a-package chip, S1. Still waiting to find out the details of this chip since the watch isn’t really available for quite sometime.

Apple Pay

From the minute I saw the demo, it was clear to me that Apple Pay probably was the biggest news of the day that is going to get pushed into the background by all the hoopla around Apple Watch. And I was right — most of the attention has been around the watch, but to me, this is a game changer. In my chat with Emily Chang on Bloomberg, I pointed that out and I believe this materially will change the game. “What apple has done is given the mobile payment system a massive jump start by just being a player in the marketplace,” is what I told Emily.

Tim Cook, in an interview with USA Today said, “Apple Pay takes a five-decade-old (credit card) technology and blows it up.” That is the key point. It is not the first attempt, but what it is a well done attempt that redefines our expectations of how to pay for things. It doesn’t do too much, but it does it differently enough that makes it different and unique. The iPod changed how we interacted with music. iPhone introduced us to touch and sold us on the idea of simple, easy and pocketable anywhere Internet. The iDevices introduced simple yet radically different behaviors. iPhone paved the way for others. Apple Pay does precisely that.

  • Quite a few articles have emerged that speculate on all sorts of financial agreements Apple has been able to make with banks. One article in the FT points out that banks and financial institutions will pay 15 cents per $100 to Apple. You can see if Apple Pay works, this could be one big money machine for Apple.
  • Banks are happy to pay as they are still relevant in this whole scheme.
  • Payment+biometric chip level security is a pretty big deal and I think we have entered the future.
  • Big and much needed boost for NFC.
  • Android ecosystem also benefits from this and so does the idea of mobile payments.
  • This is a net positive for the entire “money” ecosystem as it will start to refocus average people on how to pay. This is a case where 1+1 = 11
  • Paypal will come to its own destiny.
  • Square will have to focus on becoming the Amazon Web Services for real-world businesses — starting with the point of sale system, and building a massive backend system that captures everything from inventory, ordering to bookings and business management. It might not be sexy, but it can be profitable — very profitable. No surprise they raised a ton more money recently. In April 2012, then Square COO Keith Rabois was not a NFC fan, and was very blunt when he said: “We are waiting for folks to come up with compelling NFC apps. And if NFC does become popular, we can bake it into our product as well.” Apple just gave them a reason to embrace NFC.
  • “We are not in the business of collecting your data. So, when you go to a physical location and use Apple Pay, Apple doesn’t know what you bought, where you bought it, or how much you paid for it. The transaction is between you, the merchant and your bank. It’s fast, it’s secure and it’s private.” Eddy Cue, Senior Vice President, Apple.
  • Apple Pay API should make one touch shopping possible from anywhere on the web. I think this deserves a lot more attention and could be disruptive in its own unique way.
  • There are some retailers who are touting NFC costs as reasons to not support Apple Pay. Eventually they will change their tune — I think they will be forced by the consumers.

There have been some public reports on how Apple Pay works. I don’t have first hand knowledge. But based on reports on other publications, it seems that each credit card is entered into Apple Pay gets a token (known as a Dynamic Account Number) which is stored on the “secure element” a new chip that works in tandem with biometric Touch ID. At time of transaction, you press Touch ID.

According to Bank Innovation,

[Touch ID] authentication prompts the “secure element” to send the token and cryptogram to the merchant. The network decrypts the cryptogram and determines whether it is authentic or not. If it is deemed authentic, the network will pass it along to the issuer (i.e. the bank), which then decrypts the token. In other words, every party to the transaction decrypts something. Once the issuer decrypts the token and determines that it is authentic, the issuer/bank authorizes the transaction. Money is then credited to the merchant and marked as an amount owed by the cardholder.

This process makes me ask some key questions about the customer-retailer relationship. From what I can understand is that this transaction will take away retailers ability to store any personal data in their systems and do data mining. The only way for retail giants to get to know their customers and their shopping habits is through data mining their credit card transactions and all the data that comes with it. Apple Pay it seems comes in the way of them getting granular information on their customer and in the long run will disintermediate them totally. Just as iPhone turned carriers into dumb pipes pretty quickly, Apple Pay will turn retailers into dumb retailers as well. Again this is my conjecture and if you know how this will work, or know someone who might know how this whole thing works from a merchant’s perspective — please get in touch so I can understand this and correct my speculation and conjecture.

Some Final Thoughts

  • Apple is now a lifestyle and not a computer-tech company.
  • The wearable device ecosystem should be on notice and know they have a brand new and a fierce competitor.
  • Cook is finally showing to the world what he is made of. I think he is one of the best CEOs in the business.
  • Apple’s event raised the stakes for Amazon which is still in the toddler stage of its device strategy.
  • The announcements were net-neutral for Google, and not so great for Samsung.
  • Xiaomi has something new to copy, so they must be popping bottles.
  • Great news for the mobile payments.
  • Apple gets a solid A with this new line-up which will only rev-up the machine to further grow $173 billion in revenues.
  • Bottom line from my stand point of this event was that whether it was the iPhone 6, Apple Watch or Apple Pay, you can clearly see that the company’s innovation engine that focuses on industrial design and underlying core technologies is purring like a fierce big cat. It remains miles ahead of everyone else. However, from a software-inside and services, I see some gathering clouds.
  • There is one aspect of Apple people aren’t really talking about right now — Operational Risk! The company has multiple product lines and in multiple flavors. The inventory risks have gone up. It is not just iPhones and iPads, but Beats and Apple Watch are adding the risk. While it is easy to say that this field of operations is Cook’s greatest strength, we know that in the fashion and lifestyle businesses, demand from mainstream (if somewhat elite) audience is a fickle mistress.

  1. Apple Watch merits a whole separate entry, so stay tuned for that.
  2. It is great to not write on a deadline.

A letter from Om

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