Apple and the Ghosts of Companies Past, Privacy at the Expense of Performance, The Cook Question

Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp, and on the other line, Ben Thompson. Ben, how are you doing?

Well, I think last time I analogized myself to Michael Jordan and the Flu Game, and the problem with the Flu Game is that it was actually food poisoning, right? That was why he allegedly had a pizza delivered in the Salt Lake City area that may have been messed with. Low blow by Utah. Sorry, Utah. You deserve to lose.

You have to do what it takes, though, man. I mean, the Jazz were trying to get over the hump.

Well, it was not sufficient. It was insufficient because Michael Jordan overcame. But the good thing about it—have you ever had food poisoning?

I have had food poisoning. There's nothing good about food poisoning except that it's over quickly.

Exactly. It is a horrific experience, but it is over quickly. I think I actually have the flu or some sort of terrible cold, because I have to do a Flu Game again.

It lingers.

Yeah. If Michael truly had the flu, it would have been Flu Games.

Hmm.

So maybe it's just been a misnomer all this time. It was the Food Poisoning Game. It doesn't roll off the tongue quite as cleanly, but it's a more accurate description of what he did. Basically, I'm trying to outdo Mike today.

Yeah.

We'll see how it goes.

So let's all bear with Ben. I actually feel guilty because I'm in a phenomenal mood. In D.C., we crossed the threshold. It's now officially spring.

Oh, nice. Congratulations.

It was about 80 degrees today. Not a cloud in the sky. A lot of grass was touched, and here you are just slogging through your entire day.

It's been a rough week.

Yeah. Well, you wrote about—

No, there's that comic, which my wife and I pointed out yesterday. I can't remember exactly; I'm going to describe this terribly, but it illustrates this very tough guy who could deal with anything, and then the moment he becomes sick, he's just a puddling mess that wants to be away from everyone. I got called out for that yesterday. It's like, “Just stop whining. Deal.”

Pull it together.

I know.

Get off the cross. We need the wood. Yes, I am the exact same way in my house. I rarely get sick, but when I do, boy, oh boy, I am a gigantic baby about it.

So—

I’ve now—

I love the energy you're bringing.

Yes, I've now eaten up 2 minutes of being a baby, so I'll cut it out now and move on.

1. Apple Needs New Leadership

All right. Well, you wrote about Apple's future this week, and I want to begin with a note you ended on. I don't want to discuss the substance of Tim Cook's future with Apple because we can touch on that at the end. But, out of curiosity, it seems like it's forbidden to ask whether Tim Cook is still the right CEO to run things in Cupertino. You almost never raise it.

Gruber's piece a couple of weeks ago, Something Is Rotten in the State of Cupertino, was phenomenal work from Gruber. He hinted at the question but didn't quite go there. So, almost as much a media question as anything else—obviously, I'm coming from sports, where this sort of discussion happens literally every day—why is it almost forbidden to talk about Tim Cook's future? He's 64 years old.

It's a good question. To put the headline, or the conclusion, up front, I do think Apple needs new leadership, and maybe I should have said that more plainly. I think that piece was articulating that. There's a reason I ended on Cook.

Mm-hmm.

I think, number one, just generally speaking, there needs to be a pretty high degree of humility about making such declarations. There's a lot that happens in these companies that you don't know or understand. We don't know what's going to happen with Apple and China and tariffs or whatever, but somehow Apple got excluded again, at least for now. Arguably, Tim Cook is doing better than ever at his most important job, which is balancing the relationship between Apple and China.

Mm-hmm.

So, of all the times to raise these questions, this is arguably the worst.

I mean, yes, and they need Tim Cook the most in these uncertain months.

That's right. Yes. Executive chairman sounds great, or chairman. But there's also, I think, an Apple-specific point. Honestly, I think this has shaped a lot of the mistakes Apple has made over the years.

Apple has always been subject to ridiculous and unfair criticism in many respects. I joke that Apple is not doomed—that's a reference to a certain class of pundit always saying that Apple is doomed.

Mm-hmm.

Apple does things differently from other companies. You can go back as far as the fact that they're an integrated company. Everyone's like, “No, you've got to be like Microsoft. You've got to do it differently.” Apple showed that its way was right.

There's a similarity to all great companies in this regard: They do it their way, everyone thinks it's wrong, and it ends up being the foundation of their strength and dominance. Meanwhile, for a long time—15 or 20 years—there's been this core base of Apple defenders who were basically 100% right in response to the mass market of punditocracy that, again, said Apple was doomed.

To its credit, Apple learned to tune out criticism because it was doing its own thing and going the right way. I think, over the years, that can curdle into everyone is wrong and we are right, and an inability to take legitimate criticism.

All of the criticism goes into the same bucket. That's the problem.

Right. And so I think, as someone who was one of those critics—you feel this from the company. I try to be relatively measured. I'm highly disagreeable, but you're still disagreeable in the personality sense. I'm not going to be persuaded by people pushing me one way or the other, but you do still feel the pushback.

I remember it was a shaping thing early on. A big theme for Stratechery at the beginning was being pro-Apple and saying that the general commentary did not understand this company or its strengths. My intellectual idol, Clay Christensen, didn't get it. That was one of my core things at the beginning: waging war on the idea that disruption theory was incomplete or missing major components.

That's why everyone who follows disruption theory thinks Apple is in trouble, and they're totally wrong. Apple was actually in better shape than you could appreciate and was going to go from strength to strength.

Right.

So, of course, a lot of my early base was that core group of Apple supporters saying, “Yes, finally, someone gets it.”

Finally, someone gets it.

Yes, someone gets it, and they're out here articulating that. I remember the first time I started criticizing Apple, and maybe this was very early on, because within the first year I was critiquing its App Store policies.

Mm-hmm.

In a way, people were like, “Why is he writing about this? Who cares about the App Store? It's not important?”

Right, right, right.

Right?

And those people felt betrayed, yeah. You told that story in the past.

Well, no. You had people in the mainstream saying, “Who cares about the App Store? It's not important?” You had the Apple supporters saying, “Wait, I thought you were on our side. What happened to Ben?”

Yeah, you're supposed to be one of us.

Right.

Yeah.

And so maybe there is an eternal overhang of that. To your point, it's a meta point: Apple has earned a massive amount of the benefit of the doubt, and that extends to Tim Cook. He received a lot of criticism and skepticism when he took over for obvious reasons. He's an operations guy, not a product guy. Who can follow Steve Jobs? It's difficult to argue that anyone could have done a better job of following Steve Jobs than Tim Cook did.

I mean, that's the thing. He's been massively successful, so I understand giving him deference. It's just that, in the entire time I've been working with you for the last 3 years, I don't think I've read anybody say that maybe it's time for Tim Cook to go. Then, in the last couple of weeks, I read Gruber and your piece on Stratechery connecting the dots from what was argued. It was like, all right, at least it's time to have a conversation about a potential transition, but neither one of you said it explicitly. So I was just curious—

I thought I was close to explicit, but you're right.

You were pretty close.

I did not say it explicitly. But the reason I'm coming at that in this context is not that he's done a bad job. This is different from Steve Ballmer. I think Steve Ballmer was a bad CEO all the way through.

I think he did a good job when he was the COO in charge of the business. Steve Ballmer basically invented the subscription model for enterprise software that everyone does. He did a lot of good things, but I think his entire CEO tenure was, by and large, a disaster.

He didn't understand the company. He coasted along on what was built and did not properly position Microsoft for the future, in part because he couldn't let go of the past. He didn't do a good job, and he had to go.

I think the Nokia acquisition is unfairly maligned, just for the record.

Oh.

I'll throw a bat for Ballmer.

Well, that's when—that was my first viral breakout hit. Being in Taiwan was a big advantage because the news broke in the middle of the night in the U.S., and I was up and wrote an article saying, “This is the stupidest acquisition ever.” We can relitigate that if you want.

You said once that Ballmer deserves the Michael Jordan statue in front of the United Center, that there should be a Steve Ballmer Worst CEO statue, given some of the acquisitions that he made. I think Nokia was the worst of all, so that's why it stuck in my mind ever since that conversation.

But where's Tim Cook's disaster? I think Tim Cook has done stuff that I disagree with, but who am I—or anyone—to sit here and say that they or anyone else would have done a better job than he did?

My articulation of this, which we're going to get into, is not so much that he did a bad job. It's that Apple is in a different phase, and the world is in a different phase, and for that reason, I do think it's time for a new direction.

Okay. We will elaborate further on that point later in the podcast. But the logic makes sense: Jobs takes them from A to B, Cook takes them from B to C, but as they need to go from C to D, maybe it's time for somebody else to be in charge and guide that transition.

In terms of the transition, though, and what concerns you about Apple's future, this article was focused not on immediate concerns for Apple necessarily, but where Apple might be in 2035. You highlighted 3 challenges. We're going to do 3 Ben quotes for 3 challenges.

Quote number 1, on privacy and AI, you wrote, “The questions about Apple's privacy focus being a hindrance in AI are longstanding ones. In fact, those fears turned out to be overblown for a good long while. Many would argue that Apple's stance, strategy credit or not, was a big selling point. I think it's fair to wonder, however, if those concerns were not wrong but simply early.”

Can you expound on that? What sort of AI capabilities is Apple potentially missing out on along the way in light of its privacy focus?

2. Privacy Turns Into Religion

The “strategy credit” reference was from an early article I wrote. I can't even remember what the context was now—some aspect of how we do it this way and Facebook and Google do it differently. It's painted as if we're making this tremendous sacrifice because we believe in privacy. No, it's because you make money from selling hardware and they make money from selling ads.

You get to advertise this feature of your company that is a byproduct of your business model.

And you're sacrificing a business that, at that point, didn't really exist.

I feel like what's happened with Apple and privacy—and this is something I am critical of, which is why it's in what is ultimately a Tim Cook article—is that, over time, a strategy credit became a guiding principle that evolved into this unshakable religion where this is the most important thing.

I don't think it's the most important thing, and I don't think it's the most important thing because it can't be the most important thing. This gets to the fundamental nature of computers and how they work.

We've talked about this before. I can't remember the context—maybe some of the Signal stuff or security. At the end of the day, the reality of computing is that you are always trusting someone.

Mm-hmm.

Encryption and all these sorts of things have to have a root. This is 100% a great reason to buy an iPhone. Do you trust the—? I remember this came up years ago with one of my radicalizations against the mainstream media's depiction of tech.

The New York Times ran an article alleging that Facebook was giving your data to Huawei. They painted all these scary things, but what Facebook was doing was putting a pre-installed Facebook app on the Huawei phone. My point there was that every phone maker has access to all of your data. That's the nature of computing. That's how it works.

The reason to get an iPhone is not because Apple has magically come up with a solution to prevent that from being the case, but because you trust Apple. You trust Apple because they're aligned with your interests. They want to sell you a phone. It's in their interest.

Would they fight against the FBI? It's aligned. This comes out of their business model, and it comes out of their overall alignment. It's something that makes sense with their business. That's a great thing from my perspective as a user: I trust Apple.

Even if you go back to when stuff in their cloud was not end-to-end encrypted, or the question of whether it should be, I think I've talked about the uneasy compromise: Your phone is fully encrypted, and Apple is not going to help the FBI break into it. But if the FBI comes to Apple with a warrant and asks for someone's iCloud backup, which by default will include all your stuff in it, then Apple will accede to that.

Mm-hmm.

To me, the reason why I really like that compromise is that it satisfied the societal questions around access to data by the authorities under a warrant from a judge and all those sorts of things. I certainly understand the questions about government abuse and all those sorts of things. This is why I call it an uneasy compromise.

What you can do as a user if you're really concerned about that is turn off iCloud backup and back up to your own server or your own device.

Take your chances, yeah.

Is that hard? Yes, it's hard. Encryption is hard. Even there, if you're doing your own secure environment, you're still dependent on whoever built that device.

Mm-hmm.

That's why I absolutely endorse Apple never compromising on device security but being more fluid with cloud security, because I can choose not to use the cloud. I can't build my own secure enclave. I can't build my own root for a device.

So that sounds like a principle but not necessarily a religion. When does it cross over into problematic religious zeal as far as Apple and its privacy focus?

A good example is where some of the AI stuff comes into play. What's Apple's AI play? Let's assume it all works. We're going to do stuff locally if we can. Okay, that's private. If you want to go to the cloud, then we're going to do this Private Cloud Compute, this very convoluted—

Super-duper secure. Yeah.

Yeah. And by definition, that's going to be an inferior experience because you can't spin up a model of a given size and a memory environment, and all these sorts of things, on a per-user basis that's going to be the equivalent of whatever fleet ChatGPT is running or Google Gemini, where they're operating an always-up, highly parallelized environment. The infrastructure is being utilized constantly by different people using it, dipping in and out.

They're not necessarily being careful about cleaning it all up all the time. You're just going to have to trust us. You can turn off things like whether your chat is saved or not saved, but the reality is that there is a real trade-off between quality, capability, and scalability versus total privacy or whatever.

Mm-hmm.

And I think the revealed preference—and I think this is not surprising—is that what users actually want is a really great experience.

Performance.

A great AI model, right?

Yep.

Everyone kind of knows you're using this, but that's been the internet for a long time. You see this with this ridiculous EU decision this week penalizing Facebook for trying to offer, “Okay, if you don't want personalized ads, then you can pay for the app.” Why is that not a reasonable decision? It seems the problem is that no one wanted to pay for it.

They're happy to say, “Fine, Facebook, take my data.” No one actually cares about this, right? But then you go even further: For the truly hard queries, we're going to have this partnership with OpenAI.

But it’s like you have to jump through hoops to get there, and you have to approve it, and you’re going to OpenAI and all these sorts of things. It’s crossed the line to being paternalistic: We’re going to decide what you can or cannot do.

Mm-hmm.

And if you push forward to what I think would be a huge win for Apple, which is: Imagine if Siri were an API endpoint and you could run the AI assistant of your choice. That locks in the iPhone for a long time to come. Now, of course, you could worry about 20 years from now as opposed to 10 years from now, but why would Apple never do that? “We’re not going to let anyone have that access to our users’ data.” It’s like, let the users decide that.

Mm-hmm.

They can say, “Stick with Siri. That’s the secure one, and it’s built in.” But if a user says, “You know what? I’m going to trust OpenAI,” for better or worse, or, “I’m going to trust Google. I already have all my stuff in Google. Let me use Gemini. It’s tied into Gmail. It’s tied into all these sorts of things.”

Apple’s not going to let you do this, and there’s a bit where it’s crossed the line from this is a reason to choose us to we’re going to restrict you for your own good, even if that makes the experience worse.

Yeah.

And part of the trust—the core of the trust—is that I think Apple’s aligned with me. They want to deliver the best experience, and they’re going to ask me to pay a fair price for it. In this case, they want me to pay a price for a worse experience, and that’s not a betrayal of privacy, but it’s a betrayal of another sort, which is: I go to you because you’re the best, and they’re not the best.

Right.

The top-of-the-line smartphone. Yeah. I mean, you wrote about that hypothetical. The iPhone does have AI apps from everyone, including ChatGPT, Claude, Gemini, DeepSeek, et cetera. The system-wide assistant interface, however, is not open. You’re stuck with Siri.

Imagine how much more attractive the iPhone would be as an AI device if it were a truly open platform. The fact that Siri stinks wouldn’t matter because everyone would be running someone else’s model, in the same way that you choose your search engine, you choose ChatGPT, Claude, Gemini, DeepSeek, et cetera. Everyone’s experience is overnight 10 times better than it was, maybe 100 times better than it was with Siri.

3. Apple Should Open Siri

It’s an ultimate platform play. You’re the foundation for incredible innovation on the model side and how it can integrate with everything. You could just build all these API endpoints into all these interesting bits and pieces.

And not only that, all the pressure that Apple has felt over the last 2½ years to catch up and ship something and impress Wall Street or whatever it may be—

Disappears.

All that pressure is immediately alleviated because you just—

It doesn’t just disappear. It becomes like, “This is amazing.” One of the things about that is Apple could trade on all the user data they have, which they have a lot.

Now, I grant that maybe that’s a bridge too far, but they would have better products if they did that, right? I’m just putting that out there to make this point.

Yeah.

Google is doing that. I think one of the real challenges for Apple is that Apple was the integrated player. They did hardware and software, and they were up against the modular players. You had Windows and PCs, and then you had Android and the phone makers, and that’s the position they’re used to.

In the next paradigm, Google is the integrated player. We’ll see what they announce at Google I/O, but clearly the path is deep integration between the phone operating system, the cloud, and the AI that enables that. If you have all your Gmail in there, and if you use Google Docs and all their services, they’re going to be able to deliver an experience that no one else will because of that integration.

The question for Apple is: Do they want to compete with Google on Google’s turf—

Mm-hmm.

—given they have their hands tied behind their back by their privacy viewpoints? Or do you actually realize that, in this case, we need to change gears and be the modular player?

Right.

We need to build the best platform for AI, for agents, for whatever it might be, and then foster competition on top of that. And guess what? If you want Gemini, fine. Go get an Android phone. Are you an OpenAI user? We talked last time about OpenAI locking people in. Apple should be in the position where, if you prefer OpenAI, of course you get an iPhone. It’s the most incredible experience.

They can basically hitch their wagon to a company that is spending billions and billions and billions of dollars and has a long path to get profitable. Apple doesn’t have to spend any of that money, and they can get the best experience for free.

You sidestep the arms race and let everybody else fight it out, and capitalize on everyone else and their investment.

And you’re actually better.

Yeah.

Right. The reality is, again, you’re competing with Google on Google’s turf. Maybe that would happen, but is something ever going to replace the iPhone? If something ever does, and this is where I talk about the bridges to the future, AI is going to make that new device possible, whatever that new device ends up looking like. It’s going to be—

Mm-hmm.

—because it’s a better AI experience, and over time you’ve incorporated more and more of your stuff into AI.

Now, this could cut for Apple two ways. You could say, number one, by virtue of letting these other services plug deeply into the iPhone, the Mac, or whatever it might be, are they actually making those services more capable, such that they can build the next device that will disrupt the iPhone? That is certainly one argument.

Okay.

The other argument is you’ll be able to hold on longer by shutting them out, but when the break comes, you’re screwed because you weren’t like Microsoft, which, at the end of the day, flipped out about the internet. Even when the internet became dominant, Windows was still where it was because everything ran on Windows, right?

Now, again, the internet enabled the iPhone. That was the bridge to the next device. But Microsoft didn’t miss that because of the internet. If anything, they missed it because they were too Windows-focused. They tried to make a small Windows device.

Apple, I think, runs the risk of being too iPhone-focused. Let the iPhone continue its run. You can extend the run by building these endpoints, and you can put all your future efforts not on trying to make an unnatural extension, but on building what’s next.

Right. And so, just making sure I understand the counterpoints correctly, one threat would—

Sorry, I dropped five opposing points there. My bad.

There are many layers to the discussion here. People can go read your article to make sure they don’t miss any of the layers. We’re not going to be able to cover every layer on this show.

No, I just bounced around to six. Sorry, that’s my bad.

No, but as—

I’m totally cognizant of that.

As far as letting apps integrate deeply into the iPhone, one threat is: All right, you let them build their business, and then eventually they build the next platform that displaces the iPhone. I understand that.

Yep.

Is another threat that, essentially, people become so reliant on the app itself—let’s say it’s ChatGPT—that they become indifferent to the hardware over the long haul—

Yes.

—so whether it’s an iPhone or an Android. Okay.

Which is what happened to Windows, right?

Yeah.

To be clear, just because most of the internet ran on Windows, the rise of the internet presented all the problems that Bill Gates foresaw, like in that memo that I linked.

It was because of the internet that the iPhone was compelling—the internet communicator, right? No one understood what that meant. What it meant was that you had a real computer in your pocket, and that was because the internet existed.

And the Mac is actually huge now, particularly in the consumer market. Microsoft feels they’re behind. Microsoft still sells more devices, but a ton of those are just going into enterprises and things along those lines. Consumers like Macs, and why can they use Macs? Because everything’s a web app when it comes to—

Mm-hmm.

—so it doesn’t matter which device that you use.

Right.

AI absolutely diminishes the lock-in that you have with apps. My argument is that’s going to happen anyway. So are you going to lean into that and accept that, or try to prolong the inevitable by saying, “We’re going to have only our AI, and we’re going to do these App Intents so they’ll tie into us”?

That might preserve your position longer than it might have been preserved otherwise, but it’s going to make the eventual loss of your position much more dramatic and painful than I think it would be if you leaned into, “Actually, no, we’re…”

Our strength is being a platform.

Mm-hmm.

So, if you think from a Microsoft perspective, what Microsoft should have done—and again, maybe this is impossible; that's why I brought it up—but what Microsoft should have done was: We own Windows. The internet is, in the long run, going to break our hold on the application layer. We need to start from first principles: What does this phone look like in this world where the internet is what matters most, not the application layer?

Mm-hmm.

What they did was try to build a phone that extended their application-layer dominance such that it was a crappy internet communicator, and they missed it. And Apple—

Nobody wanted it. Yeah.

Apple came in and was the internet communicator, and then a new app layer was built up underneath it. So, to extend this to Apple, the concern is they're trying to lock in their—

Mm-hmm.

They're doing the exact same thing. They own the app layer. They're trying to extend that dominance into the future. Siri's going to be exclusive to their devices. All these Siri intents are going to be for Siri only, and that's going to carry them into the future. And my takeaway is actually, no: The app layer on the iPhone, just like the app layer on Windows was for Windows only, is for smartphones only. Don't try to extend that.

Mm-hmm.

The bridge is AI. What you want to build is the next device or family of devices, or whatever they might be, that are only possible because of AI, and they're the best at AI. You can only do that if you're trying to accommodate all your apps. So, this is a critique I have of the Vision Pro. People think that it's a positive for the Vision Pro that it runs iPad apps.

Mm-hmm.

I think it's a negative, and it's a negative because it's handicapping it by requiring it to support the old paradigm instead of being fresh and going at the new paradigm. Now, maybe there—because you could argue the Vision Pro really should be a Mac, which is kind of my argument—okay, maybe that one's not quite as clear. I think it's going to be clearer with the—

Mm-hmm.

I mean, remember the discussion I had with Hugo Barra about why Facebook should not build a smartphone? He really convinced me about this, which is: Every affordance you make to support the old paradigm is going to compromise—

Games performance, yeah.

—the experience for the new paradigm, and Facebook's opportunity is to not have to be backwards compatible.

They're not burdened by it.

Right. Right.

Yep.

And that's the thing. Microsoft's culture is to be backwards compatible. And this is not a criticism; it's a tremendous strength that, once something works for them, they're going to support you forever. Apple's strength is supposed to be that they're not like that.

Mm-hmm.

They break stuff and move forward. And I think that's how they need to think about the future and being with AI. Stop trying to be backwards compatible. How would you break things and move forward? I think the way you do that is to let other people build that bridge. AI is like the internet before. Let's jump forward to assuming AI takes over everything: You're still going to need devices. What do those devices look like?

4. Apple Faces A Supply Chain Reckoning

Well, speaking of breaking stuff, supply-chain talk. We don't have to do very much on this point, but quote number 3 from your article: “The Apple that Cook arrived at in 1998 was at existential risk from its supply chain. So is Apple today.” The China risk is sort of self-explanatory at this point, but putting 2035 to the side, in 2025, what should Apple be doing to combat the risk of supply-chain disruption, given everything else that's happening in the world?

This one had to be—it's a little different than the AI. The AI ones are the ones that I'm much more concerned about. I've been wanting to write this article basically ever since the whole AI imbroglio. I wrote that they should be doing an AI platform pivot, but to me—

Mm-hmm.

There are deeper questions, and I had it lined up to write this the week that all the tariff stuff happened. And so I didn't. This kind of dropped out of nowhere. It's just been on my mind. I wanted to get it out, so I got it out.

Well, and it's also a refreshing change of pace from everything else that's happening in the world.

Yeah, exactly. Exactly.

I'd rather think about 2035 and what Apple looks like at that point.

There is a commonality, though: Cook is the commonality. Cook saved the company just as much as Steve Jobs did.

Yeah.

Steve Jobs saved the culture and saved the product portfolio, but none of that would've mattered as long as Apple was drowning in its terrible supply chain, its gazillion models, its inventory problems, all those things that Tim Cook fixed. And remember, I've talked about how Apple was late to China. A lot of the other PC OEMs were already there, and Apple followed them there.

Mm-hmm.

And it saved the company. And then it evolved over time into Apple leading. There's a lot of stuff Apple did here that is a credit to China, and a lot of it is down to Tim Cook and Apple. Particularly, we talk about Apple complaining, “Well, all the components are made in China and XYZ.” Yeah, because Apple built that up. Why? They didn't want to pay the margins to people in the West, right?

Yeah.

Or people in Taiwan.

Other suppliers around the world that are making—

So they would funnel a bunch of—

For Apple.

Yeah, funnel a bunch of money to a Chinese component supplier, get them up to speed, and then go back and say, “Oh, sorry, we got a cheaper one here. What are you going to do?” And, of course, then those suppliers became suppliers for drones, for other smartphone makers, for all those sorts of things. Again, it is what it is. It wasn't—

Mm-hmm.

No one was—We've talked about it a bit over the years, but it sort of is what it is. I'm not going to sit here and critique it, other than to note that Apple's in for a really painful few years in—

Well, that and also—

—starting to unwind this.

It was very consistent within the article because whether it's the privacy culture that has been established over the last 10 or 15 years, or the closed ecosystem that has been maintained pretty aggressively over the last 10 or 15 years, despite a lot of people pushing Apple to loosen the reins a little bit, or the supply chains—I mean, is Tim Cook the right person to undo it if he was the architect of some of that stuff?

No, I don't think so. And that's not even just a Tim Cook thing. It's a culture thing and a symbolic thing. It's—

Mm-hmm.

Again, the 3 threads, as you know: the developer relations; privacy becoming a religion as opposed to a selling point that was based on incentives and alignment; and the total dependence on China. Those are all associated with Tim Cook. And a new CEO signals that we're changing directions on all of them. That's part of the thing.

Again, the reason why, to go back to your initial point, it's not even that he was wrong on these points. I've quibbled with details over time. And again, he's been a great CEO. My feeling here—and the reason to write it—is that maybe I'm writing this late, but I'm writing it late in the way that I was writing in 2013: “Intel needs to build a foundry” was late.

Mm.

In that, in a perfect world, it's late, but relative to when the pain is going to arrive, I do think it's still very early.

Yeah, I mean, that's what I connected with more than anything. It felt like you were channeling the spirit of the 2013 Intel article here, and it all felt a lot more plausible because you were caveating throughout: This isn't going to happen tomorrow for Apple, but they probably need to make some of the changes today if they want to avoid pain in the next 5, 7, 8, 9 years.

5. Intel Missed The Next Platform

So, on the Intel parallels, let me see if I can summarize the parallels here. To summarize the Intel part of the story for brevity's sake, Intel was the company that birthed Silicon Valley and is one of the most successful companies in American history.

Well, do I ever? Every time I talk about Intel, do I just go on for a long time?

Well—

I think that might—

Every now and then.

I think that's probably correct.

It can turn into a 20-minute digression. So, around 2007 and 2008, Apple chose ARM chips over Intel chips for the iPhone, and that didn't matter for a little while because Intel was able to continue making chips for cloud servers, which was a great business as mobile exploded. Eventually, though, they lost the server-chip business as well. And then, compounding all their problems, because they never adapted manufacturing for mobile and never started a foundry, they've lacked the manufacturing expertise to serve a massive market for AI chips. Obviously, they undertook the foundry plans about 10 years after you initially prescribed it.

Is that an accurate summary of the broad strokes? Am I missing anything?

It’s correct in broad strokes. I think the issue is interesting. One of the other parallels—I think I kind of hinted at this—is that Intel is an integrated company. They do the manufacturing and the design.

The problem with the foundry is that it’s a modular business. You’re a customer-service business. You’re building stuff for your customers—their design, what they want to do. Obviously, there’s deep collaboration that needs to happen for that to work, but it’s not trivial to go from being integrated to being modular.

Mm-hmm.

The problem for Intel in missing mobile is that, in the long run, they’re going to miss out on a huge amount of volume. Foundry—just manufacturing—is a volume game. Every time these fabs get more and more expensive, it’s one thing if you’re paying $500 million for a fab. If you’re paying $25 billion for a fab, you need to make an astronomical amount of chips in that fab, right?

You need customers.

Not just that, but that volume also comes from a lot of companies that are invested in your success. Intel’s not just fighting TSMC. Intel is fighting TSMC, Nvidia, Apple, AMD, Qualcomm, MediaTek, and previously Huawei. They’re fighting the entire ecosystem—not in a knock-down, drag-it-out fight, but in a situation where all the money, R&D, and expertise are concentrated in one spot over here, and you’re by yourself over here.

If they had gotten into mobile, it would have been, “Yeah, guess what? We’re still doing it by ourselves, but we do it all, so you’re going to deal with us.”

They would have been swimming in those waters and developing those muscles so that they were better equipped to respond.

Well, that’s part of the thing, and this is maybe the excuse for Intel missing mobile, to a certain extent. Intel’s model was integrated: We do the design and we do the manufacturing. The way Intel would have wanted to win mobile is just like they won PCs: We give you the chips and you don’t ask questions. You get what we give you.

Mm-hmm.

That might not have actually worked in the long run. Maybe, at the end of the day, it had to be that you could finely tune different chips to different things. Maybe it was inevitable that the foundry model would win.

This gets back to Christensen’s theories of modularity and the increased customization and tuning you can do when things are modular versus when you’re integrated. If you’re integrated, it’s take it or leave it.

Right.

Intel always wanted to do a take-it-or-leave-it model. Maybe that was never even sustainable. So, no, it would never have been everyone. It would have meant that everyone’s money was going to Intel, so they would have had way more money, but you wouldn’t have gotten this sort of collective expertise aligned there because Intel’s culture wouldn’t have tolerated that.

Right.

This gets at the story of Intel. It’s not just that they missed mobile; it’s that they carried the integrated approach as far as it could go. At some point, you needed a breakup of that into separating the design and the manufacturing and getting this collective approach.

So anyhow, they missed mobile. They don’t have volume. When I wrote that piece, I said, “Look, you’re in trouble in the long run because of this.”

Mm-hmm.

You’re isolated. You’re not going to have volume. You’re not going to have expertise. You still have the best manufacturing in the world. The reason why that was important is that it was going to be hard to work with Intel because they’re hard to work with.

They had to develop this entire customer-service muscle, which is totally counter to their culture. But as long as they had the fastest process, a company like Apple would deal with Intel. They would figure out how to work with Intel because it was worth it to them to have the absolute fastest and most efficient chips.

Yeah.

Intel obviously did not do that, and then they lost their manufacturing lead. So you fast-forward to today, where they don’t have the lead and they’re also terrible to work with. What reason is there to go to Intel?

The reason this hurts is that we’re actually in an era where people can’t get enough, right?

Yeah.

And even in 2013—

Intel should have had a big, booming business in AI because—

Yeah, even if they were the second supplier—

—the demand is insatiable. Yeah.

That’s right. That’s right. And they’re trying to sell an integrated alternative. NVIDIA would have been a great opportunity. NVIDIA has always tried to second-source. NVIDIA hates being captive to TSMC. They’ve tried to do stuff with Samsung and gone back and forth. Now they’re kind of stuck because everyone is stuck.

Because Intel didn’t do it early enough, when the actual next opportunity arrived, they weren’t ready.

Mm-hmm.

And now they’re floundering and in trouble. This gets at the 2025–2035 question for Apple, right?

Right.

It’s not so much the dangers we can see today that they’re missing out on. It’s what’s going to happen down the road if they don’t make this shift, or this return to being a platform—

What will they miss out on in 8 years?

—that they weren’t ready for? Exactly. Exactly.

Yeah. Yeah. It was gratifying to read the piece, in part because we had that conversation about the Apple Intelligence snafu, I think on a couple of different episodes about that. At the time, there were a lot of people who came out and said, “Look, this isn’t going to affect Apple’s bottom line. They’re not going to sell any fewer iPhones next year.”

Yeah, or fewer.

Yeah, fewer. Thank you. I said that, and I immediately thought, “I think that should have been fewer.” Thank you for the correction. They’re not going to sell any fewer iPhones.

Look, my pronunciation is terrible, but I’m telling you, I think I’m pretty proud of my grammar.

Your grammar is spot-on. I can’t argue with those people, but at the same time, it feels like it should matter that, culturally, not only are they behind on shipping a product that anybody finds compelling, but they also don’t seem to understand where AI is going. They don’t seem all that invested in what feels like a revolution literally everywhere else in tech, and that should probably matter to the bottom line at some point.

Your piece connects the dots for me a little bit in terms of how that might play out. The business wouldn’t necessarily be affected in the next 4 or 5 years, but they’ll be flat-footed at the next paradigm shift, and at that point all bets are off.

Right. And this is why it’s hard to write this piece, right? The Intel thing was maddening. The stock just kept going up year after year after I wrote that piece—up, up, up, up, up, up—and by the end, it just kept going up continually.

I’m sitting here saying, “They’re in big trouble.” By the time TSMC passed them, I was writing these panicking pieces: “This company is screwed,” and their stock just kept going up.

There’s a broader discussion here about stock-market incentives. Generally, I think the stock market actually gets it right more often than not in its push for the short term.

Mm-hmm.

I think managers and fans want companies to live forever. Not all companies should live forever. But there are some companies we need to live forever, like Intel, because the accumulation of knowledge and the learning curve are so difficult to replicate.

It ties into my critique of comparative advantage, in that the theory of comparative advantage does not incorporate the question of the learning curve sufficiently. Maybe it makes sense upfront, but you fast-forward 30 or 40 years, and suddenly you’re screwed, which is what happened to the US.

Right.

By and large, most companies don’t need to live forever. The real capital allocators are not the managers or the shareholders, who could take that money through share buybacks or dividends and put it in another company that was actually doing the next job better. That’s actually good, unless you’re Intel. We actually can’t do that. That doesn’t work that well.

And then, of course, we arrive today, and we can see the problem. When I write about Apple, I’m not predicting anything. Don’t take this as advice to short their stock. If you shorted Intel stock based on my article, you got really screwed.

You’ll get your ass kicked.

It’s also cheating as a pundit. I’m saying, “Look, I’m pulling the 10-year prediction card. You can’t hold me accountable until then.” Which is totally cheating, right?

Who knows where any of us will be in 2035, yep.

The problem, though, is that these are the timelines that actually matter in technology. It’s 5- to 10-year timelines where the critical decisions are made and where they pay off.

Mm-hmm.

And I am pretty deeply concerned about Apple, even as I predict they'll still keep selling plenty of iPhones and make tons of money. What is the AI breakthrough that Intel missed because they didn't make the right decision 15 years ago? What's that going to be? It's going to arrive, and is Apple gonna be ready?

6. Apple Faces A Leadership Transition

Well, on the Cook question and that aspect of the discussion, we're now nearing the end of the podcast. So, just from a logistical standpoint, how would Cook potentially step aside at Apple? Just as a matter of curiosity, I think he has accrued so much goodwill over the last 15 years, it's hard to imagine anybody pushing for him to leave. Would he have to just resign himself?

Yeah. He's accomplished enough and done so much with the company. And, as we noted, he's still critical because of the stuff that's going on. It's almost certainly going to have to be his call.

You also have this situation where Apple's executive team is very old—I think they're in the upper 50s. Their board's ancient, in the upper 60s. I'm not trying to be ageist here. I try to lean into embracing being an old man and the wisdom that comes from that. But I think it's fair to wonder whether Apple has the right perspectives at the most senior levels to be thinking about 2035 questions. Almost everyone involved today isn't going to be there in 2035. That's a big problem.

You're trusting them to make decisions for the future, but it's like a Nico Harrison situation: “I'm gone in 3 to 4 years.” That's where the owner is supposed to stand up and say, “We have fans who are gonna be fans for life. We have to do right by them first.”

We've bought this for 25 years.

Right.

Yeah, exactly.

No, exactly. Apple doesn't have anyone who has that perspective right now on the board or really at the executive level. That's a big problem. So that needs to be fixed generally, but that also accentuates the fact that this is going to be a Tim Cook call. And he deserves that.

Again, this is not a critique. I've had disagreements, but you can't argue with the results. What I think he could do for Apple is stay a part of the company. They need him for this trade stuff. But they need someone new, they need someone younger, and the question is whether that person fully buys into this: We need to limit developers; services revenue is important.

Actually, one more side bit. The whole thing with this services thing ties into the developer bit with the privacy bit.

Mm-hmm.

The focus on services is much more of a betrayal to me of the deal I thought I had with Apple than would be, “Oh, we're going to send stuff to ChatGPT for processing.” They're anchored on the wrong thing. The problem with services is I feel like they're incentivized to give me a crappy amount of iCloud storage so I'll pay them a monthly subscription fee to get more.

Yeah.

Or, it looks like they're making a lot of new noise about ads. Another ad push is coming from Apple. It's not just that they've misinterpreted why I trust them, which is the alignment.

Mm-hmm.

It's that they're actually starting to violate the reason I trust them because of their absolutist—

It is getting pretty bad.

—and fundamentalist approach to their view of privacy. Their view is, “Oh, we care about privacy,” so they feel they can do no wrong anywhere else, and users will always trust them forever.

They're missing, I think, why users—even if users can't articulate it—don't trust Apple because Apple does these incredibly convoluted, crazy things in the cloud. They trust Apple because they love Apple, and it's sort of like—it's just a—

Because they make great products.

Yeah, because they make great products—

I trust Apple because—

—that make me happy. Yeah.

Yeah, exactly.

Apple makes crappy products, I'm not gonna trust them.

Yeah. Well, the privacy rhetoric can be galling when you juxtapose it with some of the behavior we've seen from Apple over the last 4 or 5 years, like nuking everyone else's ad business and then launching an ad business of your own. That really doesn't sit well with me as a user or just an observer of business dynamics.

But, by the same token, they do make great products, and the more that erodes—

They don't make great AI, and increasingly, where the f—

And even the Photos app—there are little things where it's really starting to slip over there.

Oh.

And so, I think a shakeup could be healthy.

Right.

But it's interesting.

How many engineers did they divert to building this failed thing in AI that could have been—They could have been building just a better platform, letting other people do what they're good at.

Exactly. Just build something that makes it really easy for users to plug in Gemini, ChatGPT, Claude, whatever it may be, and you solve the problem that way. It's just so much more effective for users, and you have a bunch of happy customers who are gonna keep buying iPhones in perpetuity.

But that's the thing. Leaning back into developers, reframing how you think about these privacy questions, and, in the most painful bit of all, unwinding or figuring out how we can diversify over time from the—

Mm-hmm.

It's just such a stark departure. This is just the nature of it. Apple's an old company. It's a 50-year-old company. They're coming up on 50 years, I think, next year. This happens in the course of a company: you go—

Yeah.

—in one direction, and eventually it goes too far, and you have to pivot and go in another direction. The person that drove you that way is not the one to turn it around.

And the challenge, right? You'll get, “The Pope just died,” right? And people are like, he was in office for a pretty long time—or office, whatever you call it, the papacy. He appointed most of the popes, right? And so—

Mm-hmm.

With that, you think about, “Who's the next pope?” That's sort of in mind. It's the same thing. Tim Cook's been in charge for 15 years or whatever it is. The organization is molded in his image. You have this old board that is—

Do we trust the board—

—to go the other way?

—to handpick a successor?

Yeah.

Yeah. Well, it occurs to me it mirrors other struggles around society right now—not power struggles, but struggles transitioning power, let's put it that way. There are 65-year-olds and 75-year-olds in power all over American life, and passing the baton to a younger generation—these are pretty serious cultural shifts that are being mooted here. If you put someone in power who's 45 or 50 years old, do they have enough equity to enact any of these changes?

Well, not just that, but do they have equity when Apple is doing, on paper, very, very well? That's the real challenge, right? Satya Nadella could do what he did because Ballmer failed and the stock price was flat for a decade. And this is maybe—

They were out of ideas at that point.

This is probably, yeah. The reality is, and this kind of applies to the U.S. generally as well, you just can't change stuff when it seems to be working to everyone. You might be able to foresee that there are problems in the long run, but trying to change it before the crisis maybe just accelerates the crisis.

Yeah.

Maybe that's the case with companies too. There's a world where Tim Cook does an okay job, but it's super apparent within 5 to 6 years that we need a new product person who is thinking about this on top. Arguably, he was too good at following up on Steve Jobs, and Apple kind of skipped over the Ballmer period, right? Because he was so much better than Ballmer. And maybe they needed their Ballmer first before they could have their Satya Nadella.

No, exactly, and I think about whoever takes over. That probably is pretty messy if they try to implement any of this as well as—

Maybe that's what will happen. He's getting older, and he said he's not going to be there forever. I think he might have said he definitely won't be there by 2030. So, the countdown is on.

Probably someone that we know of now will take over, stuff gets a little messy, and then maybe 2, you know, 3 or 4 years after that, the next generation takes over. That's when Apple is primed and ready to make some of these changes.

And hopefully for their sake, it's not too late.

Yes. Well, time will tell. I want to end with one note from The Information.

Apple TV+ is losing more than $1 billion annually, even though its subscriptions grew to around 45 million last year, according to sources. Neither figure has been reported previously. One of the people said Apple has spent more than $5 billion a year on content since launching Apple TV+ in 2019, but the company trimmed that budget by around $500 million last year as Tim Cook and other executives took a harder line on spending.

Apple shows no signs that it's getting cold feet about the streaming media business. By some measures, the company has found success with Apple TV+. The service currently has one of the buzziest shows in television, Severance, and in 2022 it won a Best Picture Oscar at the Academy Awards for CODA.

But the audience for Apple TV+ remains relatively small. Media measurement firm Nielsen regularly reports that Apple TV+ comprises less than 1% of total viewing each month from streaming services on connected televisions in the US. So, Ben, I read that because you do not consume—

You have some takes. No, I want the takes.

Just a couple service announcements.

I've poured out some of my takes.

Public service announcements to people: You do not consume any pop culture, so it's my responsibility to be the culture correspondent on the podcast.

I am very excited, though. Andor is out this week.

Oh, boy.

Season 1 remains criminally underwatched. There's nothing that makes me more upset than when I recommend a TV show and people don't watch it. I'm like, look, I actually do watch most of the shows.

Talk about getting off the cross because we need the wood.

No, no.

I can confirm.

I watch most of the shows, then I bail after 3 episodes. No, this is awesome. You have to go watch season 1. I can't wait to watch season 2. But beyond that, yes, I have no opinions.

Well, Ben did get all sanctimonious in a group chat earlier this week saying, “Look, if I'm recommending it, everybody should be watching it.”

That's right.

Because somebody was like, “I don't care about watching Andor.”

But I gotta tell you, I am agonizing because at the start of the podcast, I was talking about touching grass and how great spring is. I'm supposed to go see friends on Friday night to watch basketball and smoke cigars, but secretly, all I want to do is sit at home and watch Andor with my wife. But I'm going to try to get out in the world and interact with my community.

It'll still be there when you get home.

Exactly, yeah. I'll get around to it. I second the Andor recommendation, and I'm here to recommend Apple TV+ also.

They should just drop the plus from Apple TV+. It's a bit of a mouthful. We're in a glass house here at Strategery Plus, but it is what it is.

When I first started hosting Sharp Tech, Apple TV+ was considered a punchline. I made fun of Apple TV+ on this podcast a bunch of different times. I'm sure a lot of people still think of it that way.

I have to say, though, in my personal life, they are leading the league by far in shows that my friends and family watch and enjoy, and they're doing it with a ton of different types of shows. For all the money that places like Amazon and Netflix have thrown at original content, Apple is cracking the code on content far better than any of their peers, and they're turning into sort of a new-age version of HBO.

None of these shows are great, mind you, but they're all solid, B+-level television, and they're television for adults. I don't know where any of it leads. Obviously, Apple does not have a massive cable business like HBO had for 30 years.

No, it's interesting. If you were to zoom out, it's what you would predict when you think about it from a product perspective. Apple's going to have the exclusive high-end stuff that elitists like you are going to love.

Then you're going to have Netflix and Amazon with a bunch of slop. That's like the Android of the world, or whatever it might be. What Apple does—spending a lot of money and letting people go nuts on production—is going to be the polar opposite of user-generated content on YouTube and TikTok and all those sorts of things, which is way on the other end of the spectrum.

If you're going to spend money and do stuff and have a glorious fade, there are worse things to spend it on. Give us great entertainment. I think it makes total sense that it's actually working out this way.

And it's funny because initially they were pretty clumsy, but they're really beginning to nail the formula. Of course, they do have the Formula One movie coming this summer. I actually have no idea whether that's going to be good or bad.

I'm nervous about that one.

They've had really mixed success on the movie side. But on the television side, they do look like they're turning into a reliable high-end service, whereas with Netflix, you're getting C+ content. With Amazon, you're getting D+ content. Apple, though: solid B+.

I mean, you sound like a Mac lover in the '90s. Like, “Look, no, it's really better,” and meanwhile, Microsoft's the one actually making all the money. That's Netflix in this scenario, but hey, congratulations. I like the Mac trend too.

Well, I'm just amazed that we're here. Honestly, I didn't understand why they were doing any of this. I still don't really have a good answer, but if nothing else, it's marketing money—

You appreciate it. That's right.

—that is being very well spent, and we'll see how much longer it lasts. But there's my public service announcement. There are about 10 different shows that people can check out.

I'm not a Severance guy, though, and I think that'll probably upset the Apple lover community. That show was just a little bit too tedious for me.

Yeah, I enjoyed it. I got pretty far into that, but I saw people talking about, like... I think I started watching around the time that season two ended, and there was chatter about, “Oh, so it’s just going to be cliffhanger after cliffhanger forever.” I’m like, “Yeah, I actually hate shows like that.” I’m sorry. That was one where I didn’t bail because I wasn’t enjoying it. I was enjoying it, but I’m like, “Am I signing up for just, like, it—we’re never going to get any resolution here?”

I spotted that early.

“That sounds annoying.” Yeah. So, um...

I got 3 or 4 episodes in, and I was like, “Oh, cool, so this is just never going to be resolved.” I'm really happy with my decision not to watch 2 full seasons of Severance, but I will be watching season 2 of Andor.

Ben, on that note, I think you did fairly well, considering that you're battling day 4 of the flu here. Go rest up for the weekend.

That is the lowest of compliments, but I will take it. Thank you very much.

There you go. Enjoy yourself. Don't watch the Bucs.

Oh.

And we will be back next week with a mailbag. We got some good responses when you put the call out for takes on AI companions. So we'll run through that and who knows what else on Monday.

Sounds good. Talk to you later.