Last week, Tim Cook took the stage and keynoted Apple’s annual Worldwide Developers Conference for the first time. It was another milestone marker at the beginning of the Cook era, and a high stakes one at that. Apple’s new CEO is laboring not only in the shadow of the great Steve Jobs but the millions of fanboys, analysts and investors looking for any signs of a drop-off in innovation, a loss of a step. But the announcements had one core focus: Cook is going on the offensive against Microsoft and Google. Cook and Apple want to set the competitive battle ground on which Microsoft launches Windows 8 and it wants to attack Google mobile OS unit leadership with Android. Here’s how:
Apple’s (AAPL) New MacBook Pro with Retina Display is going after Microsoft (MSFT) Windows 8. With its upcoming Windows 8 launch, its Metro UI and ARM support, Microsoft has a major Windows release that appears well tuned to evolve its mass scale computing platform to a more mobile-centric world. (A new tablet dubbed Surface isn’t likely to hurt either.) Mobile-centric startups, especially with tablet offerings or enterprise focus, should watch Microsoft Windows 8’s launch closely.
Apple’s new MacBook Pro announcement has stolen a bit of a march on Microsoft here. By launching this new MacBook Pro lineup — with Retina Display, a reported 7 hour battery life, at today’s prices — Apple is raising the bar (and likely the BOM costs) on WinTel-based PC manufacturers. Though still a small percentage of unit share in the global PC marketplace, Apple now accounts for the vast bulk (potentially all) of PC manufacturer profits. Maintaining and extending that profit pool leadership against the WinTel PC manufacturers limits Microsoft’s maneuverability on its strongest front, namely its Windows PC business. From Apple, this is a solid jab at Microsoft on Microsoft’s core front, while Apple retains its leadership on its key mobile fronts.
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Apple’s Facebook (FB) integration hits Google (GOOG) Android hard. Apple and Facebook announced that Facebook will be much more deeply integrated into the upcoming iOS6. Users will find it much easier to connect to Facebook from iOS6, making it easier to post a photo or a song from your device to Facebook.
Strategically, this aims right at Google and Android, and the big beneficiary in my view on this announcement is actually Facebook. Facebook has reportedly struggled in mobile, in part because it’s been cumbersome to get stuff from your mobile device onto Facebook. This development appears to address this problem. Also, by opening up Facebook on iOS via an API, iOS developers will get access to the increased social flow that this integration enables. Done well, this move may tighten the vice on Google Plus. With the Instagram acquisition and now this, Facebook has some strong responses to any perceptions that they’re not focused on mobile.
On the Android side, Google’s unit share leadership continues to provide the advantages of being #1, but the ecosystem’s health is questionable. With most developers I speak with, Android struggles to deliver consistent profits and revenue to high value-add developers. Part of this challenge is due to the fragmentation of Android App Stores, form factors, and even different OS versions running on devices. Google is apparently working to address these issues, but material progress has been slow. Google has to turn on the jets here, as Apple’s strategy of having an integrated device, software, and app store ecosystem enables Apple to drive innovation into the marketplace more quickly and more broadly than Google.
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Another key challenge for Android is winning high profit users who today tend to choose iPhones or iPads. On the tablet side, in particular, how often have you actually seen a user with an Android based device in the wild? It’s rare. In today’s PC world, the most profitable users are Mac users; the same dynamic is starting to take hold in the smartphone world.
What do Apple’s announcements mean for startups? Apple’s moves potentially pressure some successful earlier stage companies in spaces such as maps, payments or loyalty programs, but my first take is that Apple is not specifically trying to suffocate these efforts. This may be a contrarian view, as the more common narrative is that tech behemoths, such as Apple, Microsoft, Google, or Facebook copy or buy out good ideas built in their ecosystem and, as a result, stifle innovation.
My perspective is that Apple’s move to extend and improve these areas is the natural order of things for a platform owner managing the innovation of its ecosystem. The platform owner, Apple, has a business interest in enriching its platform, making its platform more functional and more attractive for developers to build against and ideally for users to consume. You can look to any mainstream platform, whether targeting gamers, consumer, social or enterprise — XBOX, Facebook, Google, Twitter, Microsoft Windows Server or Amazon (AMZN) Web Services for example — all expand the footprints and capabilities of their platforms to make them more functional for developers and ecosystem providers, for the purpose of providing a deeper and more useful end-user experience.
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So no startup can stand still. As Apple continues to raise the water line on its platform’s functionality, startups are going to have to continue to innovate or they’ll struggle. And in most (not all) cases, I worry more about the risk of a startup that fails to execute and continue to innovate, than I do a tech giant extending its platform into a space. Keep in mind, Apple’s iCloud was supposed to kill Dropbox, and Apple’s Ping was supposed to crush Pandora (P) or stop a Spotify before it come out. This is not a critique of Apple’s innovation at all; I’m merely saying that startups that execute and innovate can continue to thrive.
Despite my view that the larger risk is a startup failing to execute, how would I analyze these announcements for impacts on specific startup categories? First, I think it’s too early to tell, and what I’ll be watching for is how Apple’s developer terms of service roll out. As we get clearer insight as to what developers can leverage and take advantage of with these new innovations, we’ll have a better sense.
But if I were going to speculate, here’s what I’d say. Apple’s Passbook app is the one that I think will be the big wrecking ball on several early stage startups in the space of loyalty cards and rewards programs. This space has had a whole host of early stage entrants over the past 24 months it seems. A very small number were gaining strong momentum, with 5Stars (loyalty) and ScoutMob (local merchant discovery) probably the two that I see as the private companies that are farthest along. Again, watch what Apple allows these developers to leverage its technology. I’d say that the air in this crowded space got a whole lot thinner. One or two of the cream of the crop will make it, the rest are really exposed.
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For payments and maps, both fantastically large categories, I’m less concerned about high growth leading startups in this space. Partly, this is due to the very fact that the market sizes of these spaces are so large that smart, innovative startups are going to find spots to innovate and attract customers. Also, at least in early reads of developer notes (I’ve not studied these deeply), Apple appears to be expressing relatively developer-centric approaches to maps in particular. And I’d caveat that if you’re a payments or nav company relying on legacy technology and an outdated business model, then I’d say that’s troubling. My perspective here is that Apple won’t own these entire categories, as always innovation is required.
What was missing? The one thing I’d love to hear more about is Apple opening Siri as a platform service. Much was made of the improvements and the doubling down on Siri. This is good, as to date it has seemed as though Siri was a cool demo feature that few actually used very much. Perhaps with the new improvements, more of us will find Siri more indispensable as a service. But despite these announcements, Siri is not yet a platform service that independent developers can take advantage of to extend their apps. I’m sure its hard as Apple would have to constrain tightly what Siri could do in this context. But it does seem a continuing open issue—when will other developers get the chance to build programs to take advantage of Siri? That day will mark the starting point, in my mind, of Siri becoming a mainstream feature.
The bottom line, though, is that WWDC showed a company at the top of its game, a company that is an aggressive and savvy competitor — and one that is pushing its ecosystem forward effectively.
Jay Jamison (@Jay_Jamison), Partner, joined BlueRun Ventures in November 2010 and is based in Menlo Park. He focuses on early stage mobile, consumer and enterprise opportunities. Jay has 12 years of product management and marketing experience in the software and internet industry. Previous experience includes leading Microsoft Japan’s Windows Business Group as Senior Director, and other senior level roles at Microsoft in product management and marketing. Jay also successfully founded and led Moonshoot, a venture-backed online English education service for children.
