Apple and the Ghosts of Companies Past, Privacy at the Expense of Performance, The Cook Question
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Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how 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 it was actually food poisoning, right? That was why allegedly a pizza delivered in the Salt Lake City area may have been messed with.

Low blow by, you know, sorry, Utah. That's true. You got 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. Exactly. It is a horrific experience, but it is over quickly. I think I actually have the flu or some sort of terrible cold.

Cause I have to do a flu game again. Yeah. If, if, if Michael had truly had the flu, it would have been flu games. So maybe it's just been a misnomer all this time. It was the food poisoning game. Doesn't roll off the tongue quite as cleanly, but a more accurate description of what he did. Basically. I'm trying to say I'm trying to outdo Mike today. So we'll,

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 DC. We crossed the threshold. It's now officially spring. It was like 80 degrees today. Yeah. Not a cloud of the sky. A lot of grass was touched and here you are just slogging through. It's been a rough week. It's been a rough week. Yeah. Uh,

Well, there's that comic, which 100% my wife and I played out yesterday. I can't remember. I'm going to describe this terribly, but it's like talking about like it illustrates this very tough guy could deal with anything, blah, blah, blah. And then the moment he becomes sick, he's just like this puddling mess that just wants to be from everyone.

I got called out for that yesterday. It's like, just stop whining. Deal. Pull it together. 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 anyhow, I've now eaten up two minutes of being a baby, so I'll cut it out now and move on.

All right. Well, you wrote about Apple's future this week, and I want to begin with a note you ended on. And 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 just 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. Phenomenal work from Gruber. He hinted at the question, but didn't quite go there. So almost as like a media question, as much as anything else, obviously I'm coming from sports where this sort of discussion happens literally every day. But why is it almost forbidden to talk about, you know, Tim Cook's future? He's 64 years old.

It's a good question. I mean, I think, you know, 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 that piece, that's kind of what it was articulating. There's a reason I ended on Cook. I think, number one, just generally speaking, a pretty high degree of humility about making such declarations. There's a lot that happens in these companies. You don't know. You don't understand. We're coming off.

I don't know what's going to happen with Apple in China and tariffs or whatever, but somehow Apple got excluded again, at least for now. And arguably Tim Cook is doing better than ever at his most important job, which is balancing the relationship between Apple and China. So of all the times to, to raise these questions, this is arguably the worst. I mean, yes. And they need Tim Cook the most. That's right. That's right. Certain months. Yes. Executive chairman sounds great or, or chairman, but the,

There's also, I think, an Apple-specific point, which is... And honestly, I think this has shaped a lot of mistakes Apple has made, actually, over the years, which is Apple's always been subject to ridiculous criticism and unfair criticism in many respects. Whether this be Apple... I joke about Apple is not doomed. That's a reference to a certain class of pundit always saying that Apple is doomed. And the...

you know, Apple does, does things differently than other folks. Like go back as far as the fact that they're an integrated company. Everyone's like, no, you gotta be like Microsoft. You gotta be, do, do it differently. And Apple showed that they, their way was right. And they, you know, there, there's a similarity to all great companies, this regard where they do it their way. Everyone thinks it's wrong. And it ends up being the foundation of their strength and dominance. And because of that,

There is an Apple. Meanwhile, so a long time you go back like, you know, 15, 20 years, there's this core base of like Apple defenders that were basically 100% right in response to the sort of mass market of conduct punditocracy that, you know, is always again, Apple is doomed. And there is a bit where Apple to its credit learned to tune out criticism because they were doing their own thing and going the right way. I think over the years,

That can curdle into everyone is wrong and we are right in an inability to take legitimate criticism. All of the criticism goes into the same bucket is the problem. Right. And and, you know, and so I think my part of being one of those critics who.

And you feel this from the I try to be relatively, you know, I'm highly disagreeable, but, you know, you still you still disagreeable like the personality sense, like I'm not going to be persuaded by people pushing me one or the other. But you do still feel feel sort of the pushback. And I remember it was sort of a shaping thing early on.

a big theme for Stryker at the beginning was being pro Apple saying the, the general commentary does not understand this company. They don't understand their strengths. And my intellectual sort of idol, Clay Christensen doesn't get it. Like that was one of my core things at the beginning. And, and,

waging war on this. Actually, disruption theory is incomplete or it doesn't, it's missing major components. That's why everyone who follows disruption theory thinks Apple is in trouble and they're totally wrong. Apple is actually in better shape than you can appreciate and is going to go from strength to strength. And so, of course, a lot of my early base was like all that core group of Apple supporters like, yes, Apple,

Finally, someone gets it. Yes, and they're out here articulating that. And I remember the first time I ever started criticizing Apple, and maybe this was actually fairly on because within the first year, I was critiquing their App Store policies. And in a way, people were like, why is he writing about this? Who cares? Right, right, right. And those people felt betrayed. Yeah, you've told that story in the past. People in the mainstream, that's like, who cares about the App Store? Not important. You had the Apple supporters are like, wait.

Yeah, I thought you were on our side. Like, well, what happened to Ben? There's supposed to be one of us. Right. And so there is – maybe there is like an eternal overhang of that to your point. It's a meta point where Apple has earned a massive amount of the benefit of the doubt that extends to Tim Cook, received a lot of criticism.

or skepticism when he took over for obvious reasons. He's an operations guy. He's not a product guy who can follow Steve jobs. And 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, it's,

in the entire time I've been working with you for the last three years, I don't think I've read anybody say that maybe it's time for Tim Cook to go until the last couple of weeks, reading Gruber and then reading your piece on Stratechery, connecting the dots for...

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. And so I was just curious. I thought I was close to explicit, but you're right. I did not say it explicitly. Yeah. But the reason I'm coming at that

in the context of not that he's, this is different like 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. Like Steve Ballmer basically invented like the subscription model for enterprise software that everyone sort of does. Like 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, you know, 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. And so like that, he didn't do a good job and he had to go. I think the Nokia acquisition is unfairly maligned just for the record. I'll put a bat for Balmer.

Well, I mean, that was my first viral breakout hit. I mean, that was where being in Taiwan was a big advantage because the news broke sort of the middle of the night in the U.S. And I was up and I wrote an article saying this is the stupidest acquisition ever. So we can re-litigate that if you want. You know, 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. And I think Nokia was the worst of all. So that's why it's stuck in my mind forever since that conversation. But the, but where's Tim Cook's? I think Tim Cook has, he's 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 in this, which we're going to get into is not so much that he did a bad job of

other than 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. Um, and we will elaborate further on that point later in the podcast, but yeah, 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. Um,

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. And so you highlighted three challenges. We're going to do Ben quotes, three Ben quotes for three challenges.

Quote number one on privacy and AI, you wrote, "...the questions about Apple's privacy focus being a hindrance in AI are long-standing 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."

So can you expound on that? What sort of AI capabilities is Apple potentially missing out on along the way in light of their privacy focus? Well, so the strategy credit reference was that was an early article I wrote. That's basically like Apple was highlighting. I can't even remember what the context was now. Some aspect of how we do it this way. Facebook and Google do it differently. It's like,

it's like painted as we're making this tremendous sacrifice, but because we believe in privacy, it's like, no, it's because you make money from selling hardware and they make money from selling ads, right? Like you, you get to advertise this feature of your company that is a by-product 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, I am critical. This is, I mean, this is why it's in, in what is ultimately a Tim quick article over time.

It was a strategy credit that became a guiding principle that has evolved into this unshakable religion where this is the most important thing.

And I don't think it's the most important thing. And I think it's not the most important thing because it can't be the most important thing. And this gets to the fundamental nature of computers and how they work. We've talked about, I can't remember the context where we've talked about this, maybe some of the like the signal stuff or security, all that sort of thing. At the end of the day, the reality of computing is that you are always trusting someone.

encryption, all these sorts of things. It has to have a root. And 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 depiction of tech was the New York Times ran this article saying,

alleging Facebook is giving your data to Huawei. And it's like they painted all these scare things. And what Facebook was doing was there was a pre-installed Facebook app on the Huawei phone. And my point there was every phone maker has access to all of your data. That's the nature of computing. That's how it works.

And the reason to get an iPhone is not because Apple magically has come up with a solution, not for that to be the case, but because you trust Apple and you trust Apple because they're aligned with your interests. They want to sell you a phone. It's in their interest. Like, like, would they fight against the FBI? Like, like it's a lot. This is ridiculous.

coming out of their business model. It's coming out of their overall alignment. And it's sort of something that makes sense with their business. And that's a great thing from my perspective as a user is I trust Apple. And even you go back to the when stuff in their clouds was not or ended encrypted or the question of it should be or not. I think, you know, we had I've talked about the uneasy compromise where Apple

Okay, your phone is fully encrypted. We're not going to help the FBI break into it. But if the FBI comes to us with a warrant and asks for someone's iCloud backup, which by default will include all your stuff in it, then we'll accede to that. And to me, the reason why I really like that compromise is

is it sort of satisfied the societal questions around access to data by the authorities under from a judge and all those sorts of things. You know, I certainly get the questions about government abuse and all those sorts of things. This is why it's an, I call it uneasy. It's an uneasy compromise. But what you can do as a user, if you're really concerned about that, is you can turn off iCloud backup and you can back up to your chances to your own server or to your own device. And 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. And that's why I absolutely endorse Apple never compromising on the device security.

but being more fluid with the 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. So when does it cross over into problematic religious zeal as far as Apple and their privacy focus? Well, I think a good example is probably something, and this is where some of the AI stuff comes to play,

where, okay, what's Apple's AI play? Let's assume it all works. So 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 sort of convoluted. Super duper secure, yeah. And by the way, that by definition is going to be an inferior experience because you can't spin up a size of model and a memory environment and all these sorts of things

on a per user basis that is going to be the equivalent of whatever fleet a chat GPT is running or a Google Gemini where they're operating and always up highly parallel environment where the infrastructure is being utilized constantly by different people using it, dipping in and out. And, and they're not being careful about necessarily cleaning it all up all the time. It's sort of like, you're just going to have to trust us and you can turn off like

you know, is your chat saved or not saved? But the reality is, is there is a real trade-off between quality and capability and scalability versus total privacy or whatever. And I think the revealed preference, and I think this is not surprising, is what users actually want is a really great experience.

is a great AI model, right? And that it works well. And everyone kind of knows you're using this, but that's been the internet for a long time. People like you see this with this ridiculous EU decision this week, penalizing Facebook for a, you know, the, that they tried to offer. Okay. If you don't want personalized ads, then you can pay for the app. Well,

Why is that not a reasonable decision? It seems the problem is no one wanted to pay for it. They're happy, fine, Facebook, take my data. No one actually cares about this, right? But then you even go further, like, okay, 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. And it's like it's crossed the line to being

Like paternalistic and like we're going to decide what you can or cannot do. And if you push forward to what I think would be a huge win for Apple, which is imagine if you could just if Siri was an API endpoint and you could run the AI system of your choice.

Like that locks in the iPhone for a long time to come. Now you can, of course you can worry about 20 years from now as opposed to 10 years from now. But why would Apple never do that? Oh, we're not going to let anyone have that access to our users data. It's like what the users decide that they can say, Apple can say, stick with Siri. That's the secure one. It's built in. But if a user says, you know what? I'm going to trust. Oh,

Open AI for better or worse. I'm going to trust Google. I already have all my stuff in Google web. Use Gemini. It's tied into Gmail. It's tied in all these sorts of things. Apple's not going to let you do this. And there's a bit where it's, it's crossed the line from, this is a reason to choose us to, we're going to restrict you for your own good. And even if that makes the experience worse, and,

And part of the trust, 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 it'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. 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 like you choose your search engine, you choose ChatGPT, Claude, Gemini, DeepSeek, etc. And everyone's experience is overnight different.

10 times better than it was, maybe 100 times better than it was with Siri. It's an ultimate platform play. You're the foundation for incredible innovation on the model side and how it can integrate with all. 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 two and a half years to catch up and ship something and impress Wall Street or whatever it may be.

all that pressure is immediately alleviated. It doesn't just disappear. It becomes like, this is amazing. It's like Google's over here saying, you know, so one of the things, but there's Apple could train on all the user data they have, which they have a lot.

Now, I grant, okay, maybe that's a bridge too far, but they would have better products if they did that, right? I just put that out there to sort of make this point. Google is doing that. And you have this, I think one of the real challenges for Apple is Apple was the integrated player. They did hardware and software.

and they were versus the modular players. You had Windows and PCs and then you had Android and the phone makers and that's the position that they're used to. In the next paradigm, Google is the integrated player. We'll see what they announce at Google I.O., but the

clearly the path is you have deep integration between the phone operating system and the cloud and the AI that that enables. And if you have all your Gmail in there, if you use Google Docs, if you use 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

given they have their hands tied behind their back by their privacy viewpoints? Or do you actually realize in this case, we need to change gears and be the modular player. 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 open AI user? We talked about last time, people open eye locking people in.

Apple should be in the position where if you prefer open AI, of course you get an iPhone. It's the most incredible experience. Like they can basically hitch their wagon from,

To a company that is spending billions and billions and billions of dollars and has a long path to get profitable. And 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. You're actually better. You're actually right. The reality is, you know, these companies, you're.

Again, you're competing with Google on Google's turf. Maybe that would happen, but is something going to ever replace the iPhone? Like if something ever does, and this is where I talk about the bridges to the future, right?

AI is going to make that new device possible, whatever that new device ends up looking like. It's going to be 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, will Apple, by virtue of letting these other services plug deeply into the iPhone ecosystem,

or into the Mac or whatever it might be, they're actually making those services more capable such that they can build the next device that will disrupt the iPhone. That is certainly one argument. 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 that at the end of the day, they flipped out about the internet and

But 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 like 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. And Apple, I think, runs the risk of being too iPhone focused.

Like 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, sorry, I dropped like, like five opposing points there. My bad. There, 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. No, I just bounced around to like six. Sorry. That's my bad. No, but as far as letting apps integrate deeply into the iPhone, we're,

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. 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. So whether it's an iPhone or an Android. Which is what happened to Windows, right? Like, to be clear, just that Windows, just because most internet ran on Windows, they...

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, like the Internet communicator, right? Like no one understood what that meant. What it meant was you had a computer, real computer in your pocket. And.

And that was, but that was because the internet existed and the Mac is actually huge. Now, like particularly in the consumer market, Microsoft feels they're behind, you know, Microsoft still sells more devices, but a ton of those are just going into enterprises and things along those lines, like consumers like max. And why can they use max? Because everything's a web app when it comes to, so it doesn't matter which device that you use. So yes, AI, absolutely. It diminishes your lock-in that you have with apps, right?

Right. My argument is that's going to happen anyways. So are you going to lean into that and accept that or try to prolong the inevitable by, oh, we're going to have only our AI and we're going to do these app intents so they'll tie into us. And 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 that

Actually, no, we're we're our strength is being a platform. So, you know, if you think about 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 of what does this phone look like in this world where the internet is what matters most, not the application layer. What they did is they tried to build a phone that extended their application layer dominance such that it was a crappy internet communicator and they missed it. And Apple came in and was the internet communicator. And then a new app layer was built up

Under underneath it. So to extend this to Apple, the concern is they're trying to lock in there. They're doing the exact same thing. They own the app layer. They're trying to extend that dominance into the future series going to be exclusive to their devices. All these Siri intents is 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 just like the app layer on windows was for windows only. You couldn't extend that. The app layer on the iPhone is for smartphones only. Don't try to extend that. The bridge is AI. What you want to build is the next generation.

device or family of devices or whatever they might be that are only possible because of AI and they're the best at AI. And you can only do that if you're trying to accommodate all your apps. 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. I think it's a negative and it's a negative because it's handicapping it to needing to

support the old paradigm instead of being fresh and going at the new paradigm now maybe there because you could argue vision pro is really should be a mac which is kind of my argument okay maybe maybe that one's not quite as clear i think it's going to be clear with with i mean remember the discussion i had with yugo bear about why facebook should not build a smartphone and he really convinced me about this which is every affordance you make to support the old paradigm

Is going to compromise the experience for the new paradigm. And Facebook's opportunity is to not have to backwards. They're not burdened by it. Right. And that's the thing. Microsoft's culture is to be backwards compatible. This is not. It's a tremendous strength that you want. Something works for them. They're going to support you forever.

Apple strength is supposed to be, they're not like that. They break stuff and move forward. And I think for 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 let other people build that bridge.

AI is like the internet before, and we're going to jump forward to assuming AI takes over everything. You're still going to need devices. What do those devices look like? Well, speaking of breaking stuff, supply chain talk, we don't have to do very much on this point, but quote number three from your article, the Apple that Cook arrived at in 1998 was at existential risk from its supply chain. So was 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. Like 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. Like I wrote about that they should be doing an AI platform pivot. But to me, there's like deeper questions. And I was, I had it lined up to write this the week of all the terrible stuff happened. And so I didn't. And so that's why this kind of dropped out of nowhere. It's just, it's been on my mind. I wanted to get it out. So, so I got it out.

Well, and it's also a refreshing change of pace from everything else that's happening in the world. I'd rather think about 2035 and what Apple looks like at that point. There is a commonality, though, and Cook is the commonality. Like, Cook saved the company just as much as Steve Jobs did.

Steve jobs, save the culture and save the product portfolio. But none of that would have mattered as long as Apple was drowning in its terrible supply chain. It's gazillion models. It's it's inventory problems, all those things that Tim cook fix. And remember I've talked about Apple was late to China. A lot of the other PCOMs were already there and Apple followed them there and it saved the company. And, and,

and then it evolved over time into Apple leading. And there's a lot of stuff Apple did here. That is a credit to China. And a lot of it is down to tip cook and Apple, particularly like we talk about the Apple complaints. Oh, all the components are made in China. Next one. Yeah. Because Apple built that up because,

because why? They didn't want to pay the margins from other, from people in the West, right? Yeah, other suppliers around the world. So they would funnel a bunch of, they would funnel a bunch of money to a Chinese component supplier, get them up to speed and then go back and say, I'm sorry, we got a cheaper one here. What are you going to do? And of course, then those suppliers then became suppliers for drones, for other smartphone makers, for all those sorts of things. Like, like the, the, the,

Again, it is what it is. It wasn't, no one was, you know, we've talked about it a bit over the years, but it sort of, it 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 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 a, it's not even just that it's a Tim Cook thing.

It's a culture thing and a symbolic thing. It's, again, the three threads, as you know, like the developer relations, the privacy becoming a religion as opposed to a selling point that was based on incentives and alignment, and the total dependence on China, right?

Those are all associated with Tim Cook. And a new CEO signals that we're changing directions on all of them. And that's part of the thing. And again, the reason why, to go back to your initial point, it's not even that he was wrong on these points. Again, I've quibbled with details over time. And again, he's been a great CEO. My feeling here is...

And the reason to write it, there's a sense I do have that maybe I'm writing this late, but I'm writing it late in the way I was writing in 2013 that Intel's Bill of Foundry was late. 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, like, 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 five, seven, eight, nine years. So, yeah,

on the Intel parallel's

Let me see if I can summarize the parallels here. Intel was the company that birthed, or at least 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 the American history. Do I just go on a long time? 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 also, and then compounding all their problems because they never adapted manufacturing for mobile and they never started a foundry. They have lacked the

manufacturing expertise to serve a massive market for AI chips. And 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? I mean, it's broad strokes, correct. I mean, I think the, the, the issue with the issue with, um,

It's interesting. One of the other parallels, I think I kind of hinted at this, but Intel is an integrated company. They do the manufacturing and the design. And the problem with the foundry is 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. And obviously there's deep collaboration that needs to happen, you know, for that to happen. But it's not trivial to go from being integrated to sort of being modular. And the problem for Intel Missing Mobile is...

In the long run, they're going to miss out on a huge amount of volume. And foundry is 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? And not just that, but also that volume comes from a lot of companies that are invested in your success. Intel's not just fighting TSMC.

Intel is fighting TSMC and NVIDIA and Apple and AMD and Qualcomm and MediaTek and previous Huawei. They're fighting the entire ecosystem and not in a knock down, drag it out fight, but in a all of the money and R&D and expertise is all concentrated in one spot over here.

And you're by yourself over here. And so once if they would have gotten 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. And 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, which is they they

Intel's model was integrated, which is we do the design and we do the manufacturing. And the way Intel would have wanted to win model is just like when mobile is just like they won PCs where we give you the chips and you don't ask questions like you get what you get what we want. And that might not have actually worked in the long run. Maybe in the end of the day, it had to be.

you can finally tune different chips to different things. And, you know, maybe it was inevitable. I mean that the foundry that just because, and this is sort of, this gets back to Christensen, his theories of modularity and the increased customization and tuning you can do when things are modular versus if you're integrated, you it's take it or leave it. And right. Intel always wanted to do a take it or leave it model. Maybe that was never even sustainable. So no, so it would have never been everyone taking,

It would have been everyone and 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. And so this gets at like a story of Intel's not just they miss mobile. It's that they carried the integrated technology.

as far as it could go. But at some point, you needed a breakup of that into separating the design and the manufacturing and getting this collective approach. So anyhow, they miss mobile. They don't have volume. When I wrote that piece, like, look,

you're in trouble in the long run because of this. You're isolated. You're not going to have volume. You're not going to have expertise. So you need to get in. You still have the best manufacturing in the world. And the reason why that was important is 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. 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. And so 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 crap to work with. So like what reason is there to go to Intel? And the reason this hurts is because

We're actually in an era where people can't get enough, right? And even in 2013... Intel should have a big booming business in AI because demand is insatiable. That's right. And they're trying to sell an integrated alternative. They should... Like, NVIDIA would have been a great

NVIDIA has always tried a second source. NVIDIA hates being captive to TSMC. They try to do something with Samsung and back and forth. Now they're kind of stuck because everyone is stuck. But, you know, because they didn't do it early enough, when the actual next opportunity arrived, they weren't ready. And now they're floundering and in trouble. And 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 if they don't make this shift or this return to being a platform, if they like what's going to happen down the road, what will they miss out on that? They weren't ready for. Exactly. Exactly. Yeah.

Yeah, well, and I mean, I honestly, it was gratifying to read the piece in part because we had that conversation about the Apple intelligence snafu. I think a couple different episodes about that. And 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 less iPhones next year. Yeah, or fewer. And I...

Yeah, I'm fewer. Thank you. I said that and I immediately was like, I think that should have been fewer. Thank you for the correction. They're not going to sell any fewer iPhones. My pronunciation is terrible, but I'm telling you, I think I'm pretty proud of my grammar. Your grammar, spot on.

So 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 why.

where AI is going, and 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. And so your piece connects the dots for me a little bit in terms of how that might play out, where the business wouldn't necessarily be affected in the next four or five years, but they'll be flat-footed at...

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? Like the Intel thing was maddening that the stock just year after year, after I wrote that piece up, up, up, and by the way, just continually. And, and I, I, I'm just sitting here saying like,

They're in big trouble. Like they're like, by the time TSP passed them, I'm like writing these panic take piece. This company is screwed. And their stock just kept going up. And they're like the, the there's a broader discussion here about the stock market incentives. And generally I think the stock market actually gets it right. More often than not in, in its push for a short term. Like I think managers and fans want companies to live forever. Not all companies should live forever, but,

but actually some companies we need to live forever like an intel because the the the the accumulation of knowledge and the warning curve is so difficult to replicate it it sort of ties into my critique of comparative advantage in that comparative advantage the the theory does not incorporate the question of warning curve sufficiently and so yeah maybe it makes sense up front but you fast forward 30 40 years suddenly you're screwed which is what happened to the us

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, share buybacks or dividends and put it in another company who is actually doing the next job better. That's actually good.

Unless you're like an Intel. Actually, we can't do that. It doesn't work that well. And then, of course, we arrived today. We can see the problem. When I write about Apple, it's like, I'm not predicting. 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. And it's also cheating as a pundit. I'm like, look.

I'm pulling the 10 year prediction card. You can't hold me accountable until then. Like, which is totally cheating, right? Who knows where any of us will be in 2035. Yep. The problem though, is these are the timelines that actually matter in technology. It is five to 10 year timelines that where the critical decisions are made and where they pay off. And I am pretty deeply concerned about Apple because,

Even as I predict, they'll still keep selling plenty of iPhones and make tons of money just because 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 going to be ready? Well, so 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 like pushing for him to leave. So would he have to just resign himself? Yeah, I mean, yeah, he's accomplished enough and done so much with the company. And by the way, as we noted, it's still critical because of the

the stuff that's going on, it's going, it's almost certainly going to have to be his call. And you also have this situation where Apple's executive team is very old and

Like I think in the upper fifties, their boards ancient, like upper sixties there. I think there is, you know, I'm not trying to be ageist here. I'm, you know, I try to lean into it, embracing being an old man and the wisdom that comes from that. But I think it's fair to wonder, does Apple have the right perspectives at the most senior levels to be thinking about 2035 questions? Like almost everyone involved today is not going to be there in 2035. Yeah.

That's a big problem. Like you're trusting them to make decisions for the future, but you're like a Nico Harrison situation where I'm gone in three to four years. That's where the owner is supposed to be referring to the Dallas Mavericks. The owner is supposed to stand up and say, we have fans who are going to be fans for life. We have to do right by them first. We bought this for 25 years. Right. No, exactly. And Apple doesn't have anyone that has that perspective right now at the board or really in the executive level. That's a big problem. So that needs to be fixed generally because

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. And 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 and they need someone younger and they need someone that... And the question is,

Are they someone that fully buys into this? Like we need to limit developers. Services revenue is important. Actually, one more side bit. The whole thing with the services thing, and this ties into the developer bit with the privacy bit. The focus on services is much more of a betrayal to me of the deal I thought with Apple.

Thought I had with Apple. Then would be. Oh we're going to send stuff to chat GPT. For processing. Like they're anchored on the wrong thing. The problem with services is. I feel like they're incentivized. To give me like.

a crappy amount of iCloud storage so I'll pay them a monthly subscription fee to get more. Or they're going to start, they make 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. It's that they're actually starting to violate the reason I trust them because of their

their absolute fundamentalist approach to their view of privacy and their view because we care about privacy. Thus, they feel they can do no wrong anywhere else and users will always trust them forever. They're missing, I think, why users at...

even if you just can't articulate them, they don't trust Apple because Apple does these incredibly convoluted, crazy things in the cloud. They trust Apple because they love Apple. It's sort of like a... Because they make great products. Because they make great products that make you happy. Yeah, Apple makes crappy products. I'm not going to trust them. Yeah, well, and I mean, the privacy rhetoric can be galling when you juxtapose it with some of the behavior we've seen from Apple over the last four or five 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

But by the same token, they do make great products. And the more that- They don't make great AI. And then like, and increasingly like- And even like the Photos app, there are little things where it's really starting to slip over there. And so I think a shakeup could be healthy. Right. 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 when 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. And it's just so much more effective for users. And you have a bunch of happy customers who are going to keep buying iPhones. 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, like unwinding or figuring out how we can diversify over time from the, it was not going to happen overnight, but you know, we need to figure this out, this China sort of issue, uh,

Mm-hmm. It's just such a stark departure. And this is just the nature of... Apple's an old company. It's a 50-year-old company. They're coming up on 50 years, I think, next year. Like, this happens in the course of a company, is you go in one direction, and eventually it goes too far, and you have to pivot and go in another direction. And the person that drove you that way is not the one to turn it around. And the challenge, right? Like, you'll get, like, the Pope just died, right? And people are like, you know...

he was in office for a pretty long time or office, whatever you do, the papacy, like he appointed most of the popes. Right. And so like that, you think about like, who's the next pope that sort of in mind, it's the same thing. Tim Cook's been in charge for 15 years or whatever it is. Like the, the organization is melded in his image. You have this old board that is, you know, the worry and concern is even if cook,

you know, I've had a good run. I'll be a step back and be chairman of the board and, you know, manage the politics of the situation. How do you get the right person to, to, do we trust the board? Yeah. Yeah. Well, and not only that, it occurs to me, it mirrors other power struggles around society right now, not power struggles, but just struggles transitioning power. Let's put it that way. Um,

There are 65-year-olds, 75-year-olds in power all over American life.

And passing the baton to a younger generation, I mean, these are like pretty serious cultural shifts that are being mooted here. And 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? Like it's...

Satya Nadella could do what he did because Balmer failed and the stock price was flat for a decade. And this is maybe... They were out of ideas at that point. Yeah. Like, the reality is, and this kind of applies to the U.S. sort of generally as well, right? You just, you can't change stuff when it seems to be working to everyone. You might be able to foresee that there's problems in the long run, but trying to change it before the crisis...

maybe just accelerates the crisis. And, you know, and maybe that's, that might be the case with companies too. Like, yeah, there's a world where Tim Cook does an okay job, but it's super apparent within like five to six years that we need a new product person that is thinking about this on top. There's arguably, he was too good at following up on Steve jobs and that, and Apple kind of escaped, went over the,

The Balmer period, right? Because he was so much better than Balmer. And maybe they need their Balmer first before they could have their Saiyan Adela. No, exactly. And I think about whoever takes over, it probably is pretty messy if they try to implement any of this. Maybe that's what will happen. He is 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 23 or four years after that, then that's when the next generation takes over. And 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 Plus 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 Plus 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 Plus remains relatively small. Media measurement firm Nielsen regularly reports that Apple TV Plus comprises less than 1% of total viewing each month of streaming services on connected televisions in the U.S. So, Ben...

I read that because you have some takes. I want the takes. Just a couple service announcements. Public service announcements to people. You don't 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 one remains criminally under. 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, if I actually not only... Because I actually do watch most of the shows. Oh my God, talk about get off the cross. No, no. I can confirm. I mostly watch most of the shows and I bail after like three episodes. No, this is awesome. You have to go watch season one. I can't wait to watch season two. But...

Beyond that, yes, I have no opinions. Well, and Ben did get all sanctimonious in a group chat earlier this week saying, look, if I'm recommending it, everybody should be watching it because somebody was like, I don't care about watching it. But I got to tell you, I am agonizing because at the start of the podcast, I was talking about touching grass, 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 come home.

Exactly. Yeah, I'll get around to it. But I second the Andor recommendation. And I'm here to recommend Apple TV Plus also. They should just drop the plus from Apple TV Plus. It's a bit of a mouthful, but we're in a glass house here at Stratechery Plus. So it is what it is. But...

When I first started hosting Sharp Tech, Apple TV Plus was considered a punchline. I made fun of Apple TV Plus 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. And 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 like solid B plus level television and their television for adults is.

And I don't know where any of it leads. Obviously, Apple does not have a massive cable business that HBO had for 30 years. No, it's interesting. If you were to zoom out, it's kind of what you would predict where you think about from a product perspective. Yeah, Apple is going to have the exclusive high end stuff that elitists like you are going to love.

Then you're going to have like Netflix and Amazon with a bunch of slop. That's like the Android of, of like the world or, or, or whatever, whatever it might be. And then also, uh, 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 and YouTube and Tik TOK and all those sorts of things, which is like way on the other end of the spectrum. They're actually, if they're going to do entertainment and by the way, if you're going to spend money and do stuff and like have a glorious fade, uh,

worst 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. And of course, they do have the Formula One movie coming this summer. I'm not going to. I actually have no idea whether that's going to be good or bad.

And 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 Netflix, you're getting like C plus content. Amazon, you're getting D plus content. Apple though, solid B plus. And as far as Apple in 2035- I mean, you sound like a Mac lover in like 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'm just amazed that we're here. I honestly didn't understand why they were doing any of this. Still don't really have a good answer. But if nothing else, it's marketing money 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. But I couldn't.

That show was just a little bit too tedious for me. Yeah, I enjoyed it. I got pretty far in that. But I saw people talking about like, I think I started watching around the time that the season two ended and there was like chatter about, oh, so just going to be cliffhanger after cliffhanger forever. I'm like, yeah, I actually hate shows like that. That was 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, we're never going to get any revolution. Yeah. So, um, I got, I got three or four episodes in. I was like, Oh, cool. So this is just never going to be resolved. Um, so I'm really happy with my decision to not watch two full seasons of severance, but I will be watching season two of and, or, uh, Ben on that. No, I think you did fairly well considering that you're battling like day four of the flu here. Um,

and go rest up for the weekend. That was the lowest of compliments, but I will take it. Thank you very much. There you go. Enjoy yourself. Don't wash the box. 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 Companion. So we'll run through that and who knows what else on Monday. Sounds good. Talk to you later.