Why It's Very Hard to Be in the Hardware Business
In everything from cars to cell phones, the mechanical and physical is losing sway to software and content. And nobody is going to pay up for incremental improvements.
There's a battle raging in Detroit between "smarts" and "steel." At least for the moment. Every day the hardware guys are losing more and more of their share of the actual value in each vehicle as the software and the sensors take over the driver's experience. In terms of getting you where you're going, what's going on inside the car takes on increasing importance and significance compared with what's under the hood. If you wonder why there's so much conversation and noise about the entertainment centers, video displays, cameras, as well as the connectivity being built into the new cars and trucks, it's because pretty soon we'll all just be sitting quietly and passively in a comfy seat while the car takes us where we need to go. And your insurance company will be happy to insure you and your car in the near future as long as they're sure that you're not actually driving it. I'm not really certain at the moment whether I think that smart cars or smart roads (like they're building in Atlanta) are the best bet (see ), but, take my word for it, within three years, some of us won't have to drive ourselves anywhere.
And don't think for a moment that it's only the car guys who are under the gun. Everyone who makes stuff is gonna have to get more aggressively into the content/software part of the game pretty soon or they'll be left behind. If you want to see an early warning sign of the trend, consider that Apple's just reported iPhone 7 sales declined and, while Tim Cook blames it on the advent of the iPhone 8, that seems to me to be only a modest part of the explanation. For a growing part of the population, who religiously buy the latest and greatest, we may be reaching an incremental demand saturation point. That's when good enough is actually good enough and we conclude that there are plenty of other things to spend our discretionary dollars on. It's hard to justify to your CFO that you should purchase an expensive new phone with at best imperceptible functional improvements when the device you have is more than sufficient to get any and every job done that matters. Call me when the battery life actually lasts a full day and I'll be the first in line.
I'm getting the feeling that more and more of us are increasingly focusing on the function rather than the form of so many things. We want the hardware to do its job and get out of the way-- we're tired of celebrating the box and now we're paying far more attention to the beef. Only engineers and designers care about whether the edges of my new phone have disappeared. The camera is definitely the new keyboard and capture/communication device, but I'm into its speed, ease of use, and functionality rather than its good looks since pretty much every phone that matters today looks about as good as the next one coming down the line.
But it seems that a lot of folks apparently haven't gotten the memo yet. It's depressing to watch these slow-mo crashes as they're happening or to see someone who's about to run into a brick wall. My favorite new commercial catastrophe is the upcoming Fitbit smart watch, which is intended to compete with the Apple offerings in that space. Keep in mind that last quarter Apple moved past Fitbit to become the market leader in wearables. Of course, that's not much to brag about and I'm not sure anyone really noticed or cared, especially since Apple doesn't break out stats on the watch. But regardless, winning this category isn't much to write home about; it's a little bit like being Dolly Parton's shoes.
I've already said my piece already about Fitbit and the living dead syndrome (see ), which is how I see its future. And I made my position clear on the Apple watch a while back as well (see ) So right now I feel that FitBit's latest smart watch initiative is anything but smart and it's even more reminiscent of the old college adage that: "when 3 different people tell you you're drunk, it's time to lie down and take a load off." These guys need a prompt and radical pivot, but it seems to me that they're knee-deep in fast-setting concrete and unable to get out of their own way.
The move away from building physical goods for all these guys can't come soon enough. (See .) If you're Apple with a cash hoard exceeding $250 billion, you've got to be looking at how really well your services business (iTunes, Apple Music, App Store, etc.) is doing, and saying, how do I accelerate this part of my business even more rapidly? Just for comparative purposes, Apple's business is almost 3 times the size of Netflix and twice the size of Amazon's AWS. This is the world today--not how fast am I going, but how fast am I getting faster?
Even with Apple's stock setting new highs seemingly every day, you've got to be looking over your shoulder and asking one crucial question: why is Apple getting its ass kicked in streaming media? They're not even on the leader board (along with Facebook which is also not a player yet) while YouTube, Netflix, Amazon and Hulu keep growing their shares. Remember the iPod? These are the guys who made mobile music/media a reality and today - at least for the foreseeable future - they're nowhere.
But things may be starting to change. It looks like yet another iteration of Apple Music (based obviously around branded and bite-sized video offerings) is stirring and we may see the first offerings, already oft-delayed, in the near future. Honestly, I hope so because otherwise the Beats acquisition will continue to look almost as bad as Yahoo!'s purchase of Tumblr, which still holds the decade's dumb buy title. Of course, no one will ever retire Time Warner's lifetime stupidity title for the AOL acquisition.
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