WWDC 2014 from a shareholder's perspective

WWDC 2014 from an AAPL shareholder's perspective

After WWDC 2014's keynote I went to sleep feeling quite optimistic about AAPL's future. The stock market didn't seem to share my enthusiasm, but as an investor I could hardly care about the short term opinions of Wall Street. I think that to successfully invest in a stock like Apple you need to adopt the same long term thinking that the management team does. You can't get stuck worrying about this quarter's results or the next particular hardware release.

So this morning I woke up and read a comment from a smart investor friend of mine. He was frustrated at Apple referring to new icons and transparent sidebars as "magical", which is fine. I get that. It's Apple's somewhat hyperbolic style and it turns some people off. But more to the point, he didn't see how anything Apple announced would increment their market position.

That's the point of view that, if shared by Wall Street, has me excited about being a shareholder. Why? Because I believe the comment is wrong and that shareholder value will be enhanced in the years to come as the iOS 8 and OSX Yosemite features unlock more profit potential.

Airdrop between iOS and OSX seems like a no brainer, but it's the kind of feature that will further enhance the stickiness of the platform. The same argument applies to much of the iCloud integration that Apple announced yesterday. Heck, even if you are not a Mac user the iCloud stuff will likely keep you hooked on Apple. But if you are a Mac user you're (hopefully happy to be) stuck with them. You'll be hopelessly addicted to getting SMS on your Mac and using many of the other continuity features such as taking over an email draft on your Mac when you walk into your office, or using the Mac as a speakerphone.

I've been testing out Android for several months, and I'm also a Chromebook user. I have to say that there isn't anything compelling me to stick with Android at this point. All of the Google features I love are available on iOS and none of the awesome OSX integration is available on Android.

Feature-wise, I think Apple did a great job of showing the world why they should continue to be willing to pay a premium for their brand. As Rene said yesterday, "iOS was secure and Android was flexible. Now iOS is secure and flexible." Apple very much appears to be willing to open the doors to new flexibility features like widgets, actionable notification and third party keyboards. Apple just killed a whole bunch of reasons that some Android lovers might not want to use their products.

But beyond features, Apple also launched a whole new programming language (Swift) that can seamlessly work alongside old code (Objective C) and they implemented a new graphics rendering technology called Metal. These two initiatives promise to make it easier and faster to program for iOS while also letting console-class games run on the Apple's mobile platform.

Last week at the Code Conference (put on by re/code) Mary Meeker unleashed her "Internet Trends" report for 2014 and one key point she made was about how mobile platforms are heavily monetized by apps. Apple just dropped a ton of new stuff on developers to that will probably have many of them continuing to code for iOS first. Ultimately, this is good for shareholders.

Beyond apps, I also have to wonder when or if Apple will start to monetize mobile search. They're already disintermediating Google with Siri, and the new Spotlight search suggestions tell me that Apple is pushing deeper into offering up alternatives the old fashioned Google search. Could Apple sell ads directly here? Or monetize search in some other way? Of course they can. Will they? And what form will it take? I don't know. I'm curious.

As a shareholder I was very pleased by Apple's keynote announcements. As a customer I'm anxious to get my hands on iOS 8 and OSX Yosemite. I feel like my time as an Android user has gone on long enough.

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Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Reader comments

WWDC 2014 from an AAPL shareholder's perspective

14 Comments

It's good to be able to see what other investors cannot, because it's an opportunity to make good investment. The stuff that came out of WWDC is fantastic, and as you mentioned, will really drive ecosystem lock-in. Once you answer a phone call or return a text from your mac for the first time, or seamlessly pick up an email draft from on your mac that you started on your iPhone, you're never going to want to go back. And it's not going to be a trivial undertaking for Google to replicate these features in a seamless manner. Microsoft has a better shot at it, but they aren't the most nimble company at the moment.

If Apple launches a larger iPhone in the fall, which I really think they should, there isn't going to be much for Google or WP to lay exclusive claim to anymore. Then iOS will offer near feature-parity with the other big platforms while also touting best in class product integration, top-notch hardware, the best app store, and excellent customer service. It's a recipe for industry domination.

Which all sound nice and dandy till you realize that at Apple's price levels, their influence will never reach all that far. Sure, the platform may integrate in the future. But who cares if people own, and can afford to own, only a single Apple device? The Mac is a niche product that no-one uses in practice save the die-hard Apple fan base. I do not know any Mac owners, and am the only person that I know of who owns more than a single Apple product (iPhone, iPod nano.) What people do use, though, is a mix of Android devices along with an iPhone. These users got nothing, and not a thing was announced that would impel them to spend more money on Apple. And saying, now they can go an get a Mac, too, is not an answer: These people have never heard of Macs, and, at any rate, would not consider peying so much for a PC anyway.

Since Cook too over, Apple has been only playing defensive moves, dispensing with the initative it once had. It is now contending to defending itself against nimbler competitors. Apple makes money by selling devices. What was announced yesterday did nothing to compel people to buy _more_ devices or new customers to buy Apple. The announcement only granted benefits to those already deep in the Apple ecosystem. It means Apple is trying to prevent its users from jumping off, obviously. But Apple should, instead, do things that attract people to jump in. But this has been Cook's strategy since he took over: No new products, no initiatives. Only safe defensive moves. History teaches that companies adopting such a straegy inexorably fail in the long run. And seeing how the iPad and iPhone market share numbers are developing, Apple is going down that same way.

Cook has been palying the catch-up game for years now, answering to competitors' initiatives and innovations. When will Apple try to do something that puts it ahead instead of keeping "close behind?" Fitness, perhaps? Smartwatches? Anything? But quarter after quarter, nothing.

I don't know where you live or who you hang around with, so this is NOT a judgement on what you said or a claim that you're wrong. You know best what you see among your friends. But I can tell you that when I go to Starbucks here in North Toronto where I live the people practically all use Macs. PCs are less common when I glance around the cafes.

Among friends, a large number now use Mac. Those who don't would love to but feel they're a bit expensive (that's fine, they always will be).

Personally, I just upgraded to a 15" MBPr and I'm blown away at how much I love the display. I thought I'd not care at all about retina. Wrong. It's crazy good and the laptop was worth every darn penny. It's my work life, and it's an unbelievable machine.

The problem with Wall St. and the analysts is that some of them don't even use Apple devices. If they do some don't know the pain points. If they did they would understand how much these things are going to change the game. Look at iOS 7 adoption it's amazing. Now consider something that users have wanted for years actionable notifications. This alone will be a huge motivator for users to upgrade. The fact that iOS 8 no longer supports the iPhone 4 means there will be users with that hardware or older looking to upgrade to an iPhone 5s or the iPhone 6 when it's out. Then if the iPhone 6 comes with the larger screen as rumored that will be something that pulls a lot of users to upgrade. These are just a tiny fraction of what is coming and already that is a huge difference.

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Add me to the happy shareholder and pleased with the announcements group.

I have an iPhone and a rMBP (hope to win an iPad in one of the future giveaways). What I like the most and looking forward to are the Continuity features in OSX and the Health app with Epic systems integration in iOS.

Umi . . I thought you were a BlackBerry kind of guy? Maybe its just because that's where I first started reading your analysis . . keep up the good work!

Thanks! Yeah, I was a BB guy for a long time. I switched to Android almost a year ago to get a handle on the platform. I knew BB and iOS very well, but had practically no experience with Android. Overall, I loved it because of two things compared to BlackBerry: 1) App selection; 2) Google services. So much of the rest of Android bugs the crap out of me. I find multitasking slow. I hate how it keeps asking me which third party app will be used for a task, or how my third party keyboard (to replace the total crap that is the Samsung keyboard) keeps de-activating for no reason. Or how buggy the email system is (it will hold onto no more than a week of email). There is absolutely no question in my mind that any consumer would be better served by going Apple.

It no longer concerns me how Wall Street thinks of Apple. In my opinion and seeing the monetary gains I've made, I'm satisfied with how things are going. What I really don't understand is why Wall Street sees Google as a better company worthy of a P/E of 30 or so. I don't see Google Glass making Google a fortune in the future nor do I see Google's driverless vehicles selling in the millions of units within the next ten years or so. I don't understand Wall Street always betting heavily on future earnings when the future is so cloudy to me. I see Apple being able to translate its new products into profits very quickly because that's normally what they do. Wall Street seems to somewhat ignore Apple saying things like the company has lost its innovation based on some standard only Wall Street completely understands. I'm simply going to continue investing in Apple and reap the rewards whether Wall Street likes the company or not.

"It no longer concerns me how Wall Street thinks of Apple."

It no longer concerns me how, or what, Wall Street thinks. Period.

Apple monetizes search already in the payments that Google, Bing and others like Yelp pay Apple for placements or linking. For Apple, it's a nice add-on bonus for providing a service to its users. That's why nearly everyone missed when Google stopped providing service to the Apple MAPS app because they didn't want SIRI to look too good - Google actually loses - their map searches drop from 100% on IOS to around 25% (last time I saw stats). Of course, in this case, Apple had to spend more money beefing up maps but they can afford it and they lessen their dependence on Google - now that they brought maps over to OSX, now less map searches on Google maps. Apple is simply marching ahead, Google is simply trying to figure out how to "mobile-ize" their desktop market share and Apple is putting a huge crimp in that not only with the huge success of IOS but also because Google thought they could outsmart Apple.

"But more to the point, he didn't see how anything Apple announced would increment their market position." I'm gobsmacked. If they are that ignorant they have no business in investing in tech.

To play devil's advocate, counterpoints:

- most of the new consumer facing phone-only features are adopted from other platforms. We may be excited for actionable notifications and Swiftkey, but analysts and customers have seen them on other platforms have had them for years.

- Rene is mostly right - iOS is certainly *more* flexible than before, but still not nearly as much as Android. Most people will not care about the difference, but that is precisely the point. For this to have any impact on your share value a significant number of customers would have to view this flexibility (and specifically, the delta features Apple introduced) as a deciding factor when purchasing. That is unproven, at best.

- Swift (and Metal) look interesting, but it remains to be seen if it drives killer app development. Apple has been saying "unique on mobile" and "console-class" literally every year since Super Monkey Ball without it making the slightest dent in Android's market encroachment; is it that surprising analysts are skeptical this time will be different? These language advancements could be Apples DirectX in terms of developer lock-in, or it could be their Scala or F# - undeniably cool, but not a platform mover.

- the iCloud and iOS/OSX integration is interesting, but at the scale iOS operates, is better integration with a shrinking (yes, rising relative to Windows, but not overall) platform going to move the needle that much.

I like much of what I saw, but I already own several iOS devices and several Macs, so I'll make use of them. I'm not a new customer, though - Apple already has me. If Wall Street is tepid, it is because they saw a lot of features existing customers will love, but not enough to drive massive numbers of new ones.

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