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Interview

a16z Podcast | Apple Has Lock on Luxury Smartphones, But Not Business of TV

a16zBenedict Evans, Michael Copeland
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iPhone Product Cycle and Hardware

  • Apple released a new iPhone model featuring the A9 chip, improved battery life, and a better camera, continuing a steady two-year hardware iteration cycle.
  • Tim Cook noted the product is primarily aimed at upgrading users with iPhone 5s or iPhone 5 devices, who comprise the majority of the replacement market.
  • The device introduces "3D Touch" (Force Touch) to the screen, allowing users to press harder for contextual previews and actions (e.g., previewing messages or zooming images).
  • 3D Touch requires significant hardware engineering integration, utilizing flexible glass technology supplied by partners like Corning, creating a structural barrier for Android competitors to replicate.
  • A new "Live Photos" feature automatically captures one to two seconds of video before and after a shutter press, making every photo a static image embedded with a short motion clip.
  • Selfie capabilities were enhanced with a dedicated chip that triggers the screen as a flash at three times normal brightness in low-light conditions.
  • Apple announced its own iPhone installment plan, effectively converting the device cost into a monthly subscription-like fee (approx. $30/month) bundled with free AppleCare protection.
  • The installment program is outsourced to third-party financing companies rather than appearing on Apple's balance sheet, serving primarily as a retention mechanism to lock users into the Apple ecosystem.

Market Dynamics and High-End Strategy

  • Apple currently holds an estimated 50% to 66% of the high-end smartphone market, a position reinforced by the release of the larger iPhone models.
  • The market is shifting from carrier-subsidized contracts to unbundled installment plans, yet high-end sales have remained resilient despite increased price transparency.
  • Apple's own installment plan creates a "rolling contract" advantage, incentivizing users to purchase the next model as an iPhone rather than switching to competitors like Samsung.
  • Benedict Evans suggests this model positions the iPhone purchase as a recurring membership fee for hardware and services.

iPad Ecosystem and Pro Segment

  • The iPad Air received no upgrades, while the iPad Mini was updated with the same processors as the Air, acknowledging a market shift where consumers prefer buying larger "Plus" phones over Mini tablets.
  • Apple introduced the iPad Pro, a device with a screen size (9.7 or 12.9 inches) designed to compete directly with Microsoft Surface devices and function as a productivity tool.
  • The iPad Pro supports multitasking by allowing two iPad apps to run side-by-side in portrait mode, enabling simultaneous usage of apps like Word and Excel.
  • Accessory support includes a magnetic fold-up keyboard and a new stylus capable of angle-sensitive input, facilitating PDF markup and creative work.
  • The device targets the "post-PC" replacement market, where the traditional laptop replacement cycle (5+ years) has stagnated due to smartphone utility, though the Pro segment remains a niche within a flat market.

Apple TV and Software Platform

  • Apple released a second-generation Apple TV featuring an SDK, allowing third-party developers to build native apps, games, and TV channels, removing the need for Apple to develop each app internally.
  • The device introduces TVML (a markup language) to simplify the creation of custom TV apps for content catalogs and promotional pages without heavy Xcode development.
  • Gaming capabilities are included, utilizing the remote's touch surface and gyroscope for controls, targeting a market of casual gamers similar to the Wii's original demographic.
  • The interface relies heavily on Siri for search and navigation across multiple apps (e.g., Netflix, HBO) without requiring manual text entry, optimized for a narrow domain of voice commands.
  • The device is a standalone computer with a physical remote, explicitly rejecting the Chromecast model of being merely an AirPlay endpoint for a phone.

Strategic Context and Limitations

  • Apple did not announce a disruption to the commercial TV model; existing cable bundles and paywalls (e.g., Comcast, HBO) remain unchanged, and no major carriers or content providers announced deep integration.
  • Apple failed to include the full version of OS X, a recap of the Watch, or retail updates in the event due to a condensed two-hour agenda that merged the iPhone, iPad, and TV announcements.
  • Benedict Evans notes that Apple has not yet overcome the industry-wide incentive structure that keeps TV providers committed to rigid bundles, limiting the potential for a new "TVOS" commercial model.
  • The event confirmed that while the architecture exists for aggregating content (like Comcast's catch-up library), practical implementation depends on third-party partnerships that were not showcased.