Apple’s Biggest New Product Under Tim Cook? Your Privacy (Premium)

Apple became the world’s first trillion-dollar company because of the quality of its hardware. But its next major leap forward will most likely be the result of the relationships that Apple’s customers have with the company.

We can see this, in part, through Apple’s services business, which I observed a year ago was “the firm’s next big product after the iPhone.” More recently, Apple Watch has seen some success because Apple pivoted from the device’s original mission as a luxury accessory and belatedly focused on health and fitness monitoring.

In some ways, that pivot is reminiscent of Apple’s earlier reset on iPhone; after sales went nowhere in the wake of that device’s 2007 launch, Apple lowered prices repeatedly and, as important, rejected its original plans to keep the iPhone a locked box: In 2008, Apple opened up the App Store, assuring success for the then-nascent platform.

Today, it’s clear that Apple Watch, like iPad, will never supplant the iPhone as Apple’s biggest business. But that’s sort of beside the point. Customers need an iPhone before they can buy an Apple Watch. And in that sense, the Watch more closely resembles Apple’s services business than it does the iPhone or iPad. That is, it exists to feed off of the trust and loyalty that iPhone users feel for the company. It’s a virtuous cycle.

The iPhone, of course, is boring. But that, too, is beside the point: Apple has only issued four major iPhone designs over the device’s 11-year lifetime, but that fact is part of the appeal: No one using an iPhone 6 in 2018 will feel embarrassed that their phone looks out of date. And those who do upgrade to newer models will benefit from years of refinement to the hardware and software.

Too, while Apple continues to deliver stellar financial results, and continues to sell an ungodly number of iPhones, the firm’s position in the smartphone market continues to fall. In the U.S. Apple holds roughly 50 percent of the smartphone market, but worldwide that number is just 11.5 percent. And it’s falling.

The thinking here is that Apple is vulnerable because the iPhone is such a huge percentage of its profits and revenues. In the most recent quarter, the iPhone accounted for 56 percent of Apple’s revenues. But if you add in its services business, which exists almost solely to serve iPhone customers, the figure jumps to 74 percent. Apple is, in many ways, iPhone Inc.

And as Apple falls further and further down the smartphone charts, companies from China are the biggest beneficiaries. In the most recent quarter, Huawei overtook Apple to become the number two smartphone maker by volume worldwide. And two other China-based handset makers, Xiaomi and OPPO, could surpass Apple as soon as the coming year.

And you know what? None of this matters.

Apple has two primary advantages over its competitors. And they should seem familiar to long-time industry observers, as they are the same advantages that Apple had when Mac v. PC was the central burning issue in personal computing: Apple’s products are fantastically profitable where those of its competitors are not. And Apple’s fans trust the company because of years of positive experiences, and they are more likely to stay within the Apple ecosystem. In the Android world, as with PCs, switching to a different hardware maker is easy. There’s a lot less brand loyalty.

Apple’s virtuous cycle thus extends to products that could never exist or be successful elsewhere. Devices like the Apple TV, Apple Watch, and HomePod, and services like Siri, would be laughably unsuccessful if launched by Samsung, Google, Microsoft, or whatever other company. But in the insular—and large—Apple community, these products are, in fact, quite successful.

Part of that is because Apple’s audience is loyal. But it’s also because they tend to be better off, financially, than those on the Android side of the fence. Apple may have a smaller audience overall. But it’s also a higher quality audience, if you will, from the perspective of a company that’s trying to eek out as much money as possible from each. Consider the issues Microsoft has trying to monetize its Windows 10 users to see what the opposite situation looks like. An unengaged audience is not lucrative.

Like many of you, I’ve spent a lot of time wondering when or if Apple will have another iPhone-level success. But it’s occurred to me recently that it doesn’t really have to. Apple revealed in September that it has sold 2 billion iOS devices overall in the past 11 years. And earlier in 2018, it said that there were over 1.3 billion active iOS devices worldwide. As noted, those users are loyal, and engaged, and are often quite eager to throw money at the company. So all Apple really has to do is keep them in the fold—which it is expert at—and monetize them in new ways going forward. Which, again, it is also expert at.

And the key to these initiatives is trust.

When Mary Jo I were in Dublin, Ireland last week, we recorded a live episode of Windows Weekly and we took questions from the audience. One of the questions regarded which of the big U.S. technology firms would be most likely to run afoul of the EU’s General Data Protection Regulation (GDPR) laws first. Mary Jo and I both agreed that it was Google.

I assume this exchange is available in the podcast episode recording. But to my memory, we were about to move on when I had a follow-up thought: Which major U.S. technology firm would be the least likely to run afoul of the EU and GDPR?

Apple, of course.

Apple has made user privacy a primary and overt thrust of its strategy. It has been very vocal about criticizing its direct competitors, like Google, as well as other industry giants, like Facebook, for trampling all over the privacy of their customers.

We’ve all heard the phrase “if you’re not paying for something, you’re not the customer; you’re the product being sold” (or similar). Apple has made it a mantra, a mission statement. And in this way, it is much like Microsoft used to be. I’ve always respected the notion that you charge for something you make, and that customers get value in return. Apple charges a lot of money for its beautiful hardware. And it charges reasonable amounts for the services that require that hardware. Money exchanges hands. Value is had.

Just this week, Apple CEO Tim Cook appeared in Europe—not coincidentally—and reiterated these claims.

“The desire to put profits over privacy is nothing new,” he said. “Today …our own information, from the everyday to the deeply personal, is being weaponized against us with military efficiency. These scraps of data … each one harmless enough on its own … are carefully assembled, synthesized, traded, and sold. We shouldn’t sugarcoat the consequences. This is surveillance. And these stockpiles of personal data serve only to enrich the companies that collect them.”

He’s right, of course. But regardless of your feelings about privacy, it’s clear that Tim Cook, who has none of the product genius of his predecessor, Steve Jobs, has finally found a product he can call his own. Something he can be passionate about. Something he can be right about.

Under Cook, Apple’s dedication to a user’s inherent privacy rights is so strenuously enforced that the firm actually limits the capabilities of its products and services compared to those from Amazon, Google, Samsung, and others. There are mitigating factors here, of course: Apple’s A-series processors are widely considered to be generations ahead of its competitors and have incredible on-device AI and machine learning capabilities. But the fact remains. Apple, thanks to Cook, is serious about this. It will not back down, even when the debate of the day is about breaking into a terrorist’s iPhone.

Apple is the one firm that will examine the requirements of the GDPR, and then exceed them. And do so worldwide, and not just in the EU. Compare that to Google’s recent response to its Android antitrust charges, which will apply only to the EU and not worldwide. And to Google’s recent assertions about reentering the Chinese search market even if it means aiding and abetting state-sponsored surveillance. Apple and Google couldn’t be further apart on privacy.

And to be clear, I write this as someone who is perhaps a bit too sanguine about privacy. I live much of my life openly and transparently, and I have long believed that people who have nothing to hide have nothing to fear. But this attitude, increasingly, is both dangerous and stupid. That there is a company, perhaps only one company, that is standing up to the privacy norms of today isn’t just interesting, it’s laudable.

And while I will continue to criticize Apple for its faux humility and hubris, I respect its stance on privacy. And I credit it all to Tim Cook.