Steve Jobs had a well documented 2008 tirade where he fired the MobileMe leadership team for their terrible product rollout. A good quote: “Can anyone tell me what MobileMe is supposed to do? So why the fuck doesn’t it do that?” This reminds us that Apple’s struggles with server side cloud services (MobileMe, email, iCloud, maps) far pre-date Jobs’ departure. People comment on this all the time. For example in this recent episode of the Accidental Tech Podcast Marco Arment, Casey Liss and John Siracusa repeatedly ask why Apple is so notoriously bad at services. They don’t reach any conclusions. I’ll argue Apple’s problems with services should be expected. Why? Because Apple pays a strategy tax on them.
Let’s start by recalling a strategy tax is defined as hindering one product in order to strategically further another. For example Microsoft Office is hindered in not being allowed to run on certain platforms to further the cause of Windows. So what product is constraining, say, iCloud? My answer: Apple’s approach of selling integrated systems limits iCloud, albeit indirectly.
To see why, let’s look at two keys to great services:
- Crossplatform. You want dropbox on all your devices and in every browser. And all operating systems. Similarly for email, maps, etc. And for developers the same. The best services are horizontal. This makes it easy for developers to support multiple clients for applications like Instapaper or Evernote.
- Corporate Priority. Services are very hard. Very few companies can do them at all, and only a handful can do them well at scale. Companies that do them well have to prioritize services above all other goals and align their culture and incentives accordingly. It’s not an accident that Google publishes search response times with every result. The response time is of course useless to users. It’s not placed there for them. It’s placed there to yell at every Google employee every single day about what’s important.
To be clear, for point #1 I’m not a partisan on open/closed in the Cathedral and the Bazaar sense. Likewise I think integrating up the stack and selling unified systems versus selling services horizontally is a market decision. Depending on the particular company, culture, business strategy and product, you need to pick the right approach for the job. What matters is that in this particular use case, services fit the crossplatform model better than Apple’s integrated one. This is arguable for any particular service, but broadly holds. Point #2 is a real issue for Apple from a company culture and execution point of view, though I’d concede it doesn’t fit exactly into the strict definition of a strategy tax. Nonetheless I think calling Apple’s problems with services a strategy tax fits well enough to justify the term, though you could arguably describe it as a problem of corporate and market alignment instead.
What’s important here is Google is fiercely aligned on both points above. Their entire business is built on selling ads and is directly aligned to top flight services. But of course Apple has their own strength. When you sell systems, all the parts add up to more than the whole. That’s a massive plus to the integrated model. With that said we should not be shocked to find Apple’s services stand alone are lessor than those of a company focused exclusively on doing services for a living. People should stop being surprised about Apple’s difficulties with services. It’s inherent in their business model. Some would argue that with enough cash on hand you can do everything. But in software development I’ve never had that experience. To do great work you have to prioritize and battle battle battle.
So what does Apple’s strategy tax on services mean long term? There are a couple of bear stories which John Gruber takes on and dismisses in a recent post. One is the old Steve Jobs is gone trope, so Apple can’t design or innovate anymore. I’m too tired to argue that again, but you can go read Gruber’s post. The second bear argument is more interesting, where smartphone design has reached “good enough” already. Gruber cites Ben Thompson’s post pointing out that when selling to consumers (unlike businesses) your experience can never be good enough. Completely agree. In short Apple’s doing fine. Their strategy tax on services is not going to hurt them as much as their strength at the system level helps them. Apple will obviously dominate the premium phone market for the next few years.
But longer term, say 5, 10 or even 15 years, the Apple services strategy tax creates a third possible Apple bear story. Phones are becoming more and more about services. Let’s say the phone-services split was 90-10 for the first iPhone. It was primarily about what you held in your hand, not what’s in the cloud. Let’s say it’s now at 50-50. You can see where this is going. It’s possible that in a world where the phone-services split is 10-90 the other way, a company which focuses exclusively on services could wind up with a better overall premium phone experience than a company which focuses on complete systems. The strategy tax could actually dislodge Apple from the premium end of the market. Clearly this is a long term speculative scenario, but it’s a plausible future. Especially if you segment the market, where segments focused more on services will reach their tipping point earlier.
Let’s use a couple of examples to make this more concrete. After I drop my kids off in the morning I use Siri to send a hands free text to my wife while driving. Typically it’s just a “drop off went fine” message. About 1/5 of the time the message gets messed up or I get a Siri not available. Using Siri to hands free text is a great feature all things considered, but I’m always double checking it. Another example. My son told me after watching Star Wars that the evil emperor Palpatine was also called Darth Sidious. I wasn’t so sure of his Sith name. Using a voice search on my phone should have been faster than thumb typing so we tried it. Compare the results below between Apple Siri and Google Voice Search.
I picked voice interaction as my example for a reason. Apple and Google are hugely ambitious, and skating to where the puck is going to be in 5-10 years, not where it is today. The strategic importance of voice interaction for phones can’t be overstated. By analogy, the Higgs boson was called the “God Particle” by journalists because of it’s importance (though particle physicists generally disliked the phrase). Long term, sometime in the next 5-15 years, I think voice interaction will become the “God Particle” of mobile. See more detail on the rational for voice’s huge upside in my previous post. Normal human beings who struggle with computers, even modern touch interfaces, would love the experience of workable voice interaction. People would connect with their phones on a visceral emotional level. If Google maintains their lead in voice, and voice interaction becomes as common as I expect, then Nexus Android becomes the de facto premium phone. Voice interaction as the “God Particle” of mobile is explicitly clear to anyone who talks to Google about it. Apple knows this of course. We should never expect Apple to be best in services across the board. Rather we should ask if Apple can overcome their general strategy tax on services to make an exception for voice interaction, making it competitively first class. It’s certainly possible. But it would require overcoming a structural weakness that currently shows no signs of easing. Bucking the strategy tax for Siri might require someone similar to, well, Scott Forstall. If I had to guess, it might turn out like maps, where Apple’s version is second best, but not by a huge enough margin to swing the complete experience. How big the market segment is that finds the premium service experience on Android decisive, especially around voice, only time will tell.
By the way, another aspect of living in a world where voice interaction is commonplace is Google will take back from OEMs a central interaction (and related advertising opportunity) of everyone using a stock Android device. Especially for the demographic that’s computer averse. What do you call it when people ask their phone “What’s the best used car?”, and get all the way to purchase decision just by talking? God particle. Competition in voice interaction will be fierce and fascinating to watch over the next decade. Plus, you know, talking to your phone and getting an answer right back is pretty awesome.
Praxtime by Nathan Taylor 
I do agree about the voice interface. Always loved it on Star Trek.
A bit long-winded, but I’m glad you finally agree with me. As to this tax you’ve discovered, an interesting question is why are none of Apple’s services outsourced. I mean why impose this strategy tax on yourself; there’s little stopping Apple from using Google’s voice recognition software and visa-vera. In fact, the FCC asked them to play nice. ( http://online.wsj.com/news/articles/SB124908121794098073 ) There’s more to explain what’s going on. Perhaps something to do with brand protection, arrogance, or some strange need to never give any credit to anyone else?
Let me see if I understand by repeating a short winded version of your point:
Step 1: Apple become Samsung
Step 2: ?
Step 3: Profit
1. Close, but you are taking it too far. Samsung doesn’t do an os OR any apps, while Apple allowing google voice full access (instead of being crippled in a reverse strategy tax=strategy tariff fashion) still allows them to do a lot (iOS) and even Siri too.
3. No. As I understand, I think we both agree: Apple’s strategy tax is PROBABLY hurting their long term profits, not helping. I mean, don’t you get upset at the fact that google voice on iphones can’t send smses? Doesn’t that make you want to go android? How about the fact that apple is a walled garden? I know a few people who like total electronic freedom. They totally hate on apple products.
You’re “delta” seems pretty good. (Related story @ http://www.itnews.com/internet-based-applications-and-services/70564/apples-siri-chief-now-building-connected-device-platf?page=0,0&source=ITNEWSNLE_nlt_itndaily_2013-11-11
Representative quote: “It’s something Samsung doesn’t know very well today, because Samsung is a hardware company. But we want to enter the space, and offer something different from iCloud,” he said.”)
Re 1. I spoke too late. Tizen is Samsung’s new Android/iOS. http://crave.cnet.co.uk/mobiles/samsungs-tizen-drives-cars-cameras-as-well-as-phones-50012730/
You youngsters amuse me. Take the idea of “strategy tax” for example.
This is nothing more than the ages-old economic concept of Opportunity Cost. But some young person who knows nothing of economics came up with the idea of “strategy tax”, and thought it was new and clever.
(How do I know whoever it was knew nothing about economics? Because if they had, they would have already known what an Opportunity Cost was, and would not have to had to “invent” it all over again.)
You old people aren’t that funny.
There is a clear difference between an opportunity cost and a strategy tax. The opportunity cost comes into play when there are limited resources and you are forced to choose between them. As the phrase implies, the choice is based upon cost.
With a strategy tax, there is not necessarily scarcity of resources, but of conflicting business purposes. Microsoft can produce a full-featured version of Microsoft Office that runs on OS X and Linux (actually, they probably have) without a consideration of the expense but they choose not to because of strategic considerations. The choice is not based on cost, but on business strategy.
There are opportunity cost associated with producing a full-featured version of Microsoft Office that runs on OS X, but I can virtually guarantee you that Microsoft did not make this decision on that basis. Suppose they ran the numbers and realized that they could make more money as a company, in the current year if they sold a fully-featured version of Microsoft Office on Mac OS X. Do you think that they would do it? No, they wouldn’t. Because year over year, those sales would disrupt their core business of selling Windows.
I’m actually an oldster myself :). Though I obviously like the strategy tax frame. Perhaps it’s best not to get caught up in the terminology. The key point is precisely the one David Heinemeier Hansson (inventor of Ruby on Rails) quoted when linking to this article on twitter:
Nathan — great post! Ben Thompson notes that as a horizontal services provider, Google wants to be everywhere, including on iPhones. Google Now is already available for the iPhone.
I guess my question is, if Google follows a horizontal strategy and makes all Google services available to Apple, then is the strategy tax you discuss really that relevant, even over the very long term? Google is trying to maximize reach regardless of who makes the device, so it seems fairly certain they’ll always willingly provide Apple with Google services. Google is not going to walk away from Apple. That means that Google services (whether it’s Google Now or something else) may not be a big product differentiator in terms of the quality of the overall user experience. Google wants the user to have good, easy access to Google services — and a great user experience — regardless of whether its Android or iOS.
So if Google wants a high quality user experience across all devices (to maximize reach and gather the data needed to drive quality search and advertising revenues), then that means the hardware itself — and the convenience, ease of use, and seamlessness of the hardware ecosystem — may be the most important differentiator. And that’s where Apple is strongest, in terms of vertical integration, design, aesthetics, look/feel, etc.
The broader ecosystem may be the most relevant thing to consider, rather than the individual device or the top-of-stack service. People want things to “just work,” and with the proliferation of tablets, phones, and in the future wearables and Apple/Android set-top boxes, the performance of the overall ecosystem is going to be more important than the performance of any single piece of hardware or any single service.
In this kind of multi-device environment, people are going to want devices that automatically communicate with each other — easy device set-up and easy device linking/communication will be priorities. Excellent user interface design and hardware design will be needed to create this kind of experience. Companies that excel at design, and companies that are vertically integrated (such as Apple) will have an advantage.
I’d also argue that not all users want to be funneled (arguably coerced) into proprietary Google services. They want a more neutral app platform. And because Apple doesn’t have a data driven, ad-based business model, they’re better positioned to provide a more neutral third party app platform, which generally enhances the overall user experience. Users can choose Google services, but they’re not coerced into doing so.
On my iPhone I can use Siri voice control to send a text, but not Google now. In the car, it’s easy to use Siri to get directions, but Google Now integrated with Google maps is clunky and not hands free. So the key here is to do voice well it has to be deeply integrated to the OS level to have the power to do all the actions you want. Think your points are valid. Apple phones will do fine running Google service just like they do now. It’s just the counter argument is that voice is “special” as a service in a way that other applications are not.
Thanks much for response Nathan, and keep up the great work!
You confusing voice recognition with voice interaction, you need recognition before interaction. Your example shows google being better at VR not VI.
VI requires 3 steps:
1) Understand what was said, this is VR.
2) Work out what was meant.
3) Work out the best response.
Siri was bought for steps 2 & 3, you haven’t demostated that Google is better at those steps than Apple or explained why Apple can’t catchup with step 1.
As for maps, one simple points to China (not in China) where Apple maps is much better. Basically you case falls down because of confusion and bad examples.
Given that Apple are now slowly moving iPhoto / Photos and iTunes / Music to subscription based services, and will therefore start to generate revenue (something that Apple cares very deeply about!), I wonder if you think that their direction is changing slightly?
While I don’t think that Photos will ever be as powerful as the new Google Photos given it’s reliance to local processing, Music certainly has the opportunity to grow into something quite powerful. Siri, IMO, also seems better that it did last year, spurred perhaps by the launch of the Apple Watch – a device that’s crying out for good voice control.
I would imagine that if _some_ of these services are generating profit then the *whole* service layer at Apple benefits by receiving more attention from the board.
Great post! Very innovative and informative to say the least. Keep up the good work