A short conversation today crystallized the unease I feel around the whole “Apple” phenomenon. I can already hear the barricades going up. But hear me out for a moment. Keep that drawbridge open a crack. I am here to parlay.
I am not slagging Apple’s (incredible) products or (even more incredible) profits. What gives me pause is the closed nature of its community.
There are too many fish swimming in the Apple lake with no apparent idea that many others swim in a (much larger) ocean just down the river… Their whole world is the lake. The ocean is beyond their ken.
A friend of mine started describing “Google NOW” to me as if it was something new and interesting. It was. To him. Its old news out here in the ocean. This is an incredibly bright and switched on guy who follows tech. It had simply escaped his focus for that long. Along with a lot of other Google services. Why? Because his entire personal tech ecosystem is based on Apple. As are his neighbors, friends, and colleagues. He’s a busy guy. Its tough to get out of the bubble sometimes.
The line dividing Apple and non-Apple users is a class boundary. The top 10%-15% of the income distribution is almost all-Apple. Not just in the US but worldwide. The next layer down is a lot-Apple – based on aspiration.
This is a great economic strategy for Apple. Where Apple’s persistent, incredibly profitable, price premium comes from. The top 10%-15% have all the money these days. And they are incredibly grateful for the “it just all works” promise behind signing your life over to Apple. They will gladly trade money for time.
The bottom 15%-25% (of that to quarter) aspire to be like the top – so they dig deep to have their own little shiny rectangular entree into that world. That class dynamic is where my unease creeps in.
- Personal Projection and Consequent Bad Analysis: I do think Apple’s price premium is at risk. The reliable reply is “It isn’t a concern, people will gladly pay a premium for convenience.” This reliably degenerates into an argument about class. It seems obvious (to me) the convenience argument fades as you go down the disposable income ladder. A lot of people seem to think that it holds true across the board. Which seems to mostly stem from not having a particularly solid grasp of their own privilege vs the checkout gal at TARGET. The whole “I make $250k a year and I barely feel middle class” mindset.
- Beware the Wile E. Coyote Moment: Not for the top 10%, but for those on the aspirational margin. The argument isn’t that a non-Apple lifestyle is “better.” OK, there are some cool things like Google NOW, but Apple mostly does work better. The alternative is about “good enough.” And a whole heck of a lot cheaper. The revelation for me was the unlocked $179 Moto G I bought in 2014 for travel. It wasn’t spectacular, but it was more than “good enough.” It just faded into the background of my life. I could have kept using it after I got home without ever really noticing.
- $179 is a lot less than $600. 18 vs 60 hours at Wal Mart’s new $10 minimum wage. A larger, robust ecosystem selling at prices moving toward 50%-70% cheaper would seem to put the onus on the Apple fan base (oops! “investor base”) for why (and how) that premium continues. What I get from most Apple fans/investors is basically a catechism of faith. The next (real) line of defense is “well its worked well so far…” Which is inarguably true, but completely beyond the point.
Scenario 1: The Davos crowd keeps buying Apple, but their baristas don’t. Apple slows with a whimper, not a bang. The aspirational margin moves back UP the income curve. Apple starts fighting a rear-guard action on price. This starts to cheapen the brand and the shift speeds up. How many people bought the cheap plastic iPhone 5c? It screamed “I’m a wannabe loser! Not really in the club!” The low end buyers knew enough to stay away. The air slowly leaks out in lower volumes, lower prices, and slower refresh rates.
Scenario 2: Apple becomes demonized as “the Davos phone” and the Baristas flee. Apple just needs one solid Marie Antoinette moment (“let them eat cake“**) to become a tarnished brand. The mega-dollar gold Apple Watch looks like a risk in this light. I’ll admit my animus toward Apple stems partly from its role as a class boundary. For me, Apple has become a symbol for the inequality gap that’s clearly gumming up the world economy. A gap that poses great risks to “us” if we don’t do something about “them.” Something many of “us” want deeply to ignore. I am hardly representative in that view, but the world is a few memes away from re-narrating the brand that direction.
Scenario 3: Apple just keeps chugging along. This is the consensus and possibly the most likely scenario. But much less fun to think about (grin). And even so, that stark class distinction remains. So this view implicitly forecasts “more of the same: in terms of global inequality. Which I think is dangerously complacent. And dangerous in its own right.
I don’t see this as particularly actionable investment-wise, mostly because any shift will come as a long-delayed surprise to the investor class (who are solidly in that top 10%). It probably comes as part of a further shift in the inequality debate. Investors will work hard to ignore that too. You’d hope they’d notice when/if their Barista or artisinal pickle-maker started sporting something new. But most of us are too busy pecking at our phones to really notice that person behind the counter…
And no, I won’t hold it against you if you buy that $69 Apple TV (**marked down from $99!!!!**) instead of that $39 Google Chrome stick. But at least take a look at the salt-water version of the world before diving back into the lake.
As for myself? I just signed up for Netflix’s DVD service – whoo hoo! Actually a rational choice. I’ve got a lot of content to catch up on that isn’t on streaming due to the insanities of digital rights agreements. Been a whirlwind few weeks of re-connecting with the investing world (fewer bright sparks, dominated by the Apple-class, and shorter-term than ever). Also rediscovering the joys of flat pack furniture (IKEA is an incredible mix of high and low quality, with no apparent correlation to price). And generally feeling my way into life as a single guy with its associated its pros and cons. But I digress…
** Marie Antoinette was actually making an insightful point with the whole “let them eat cake” comment. Basic bread prices in France were subsidized and fixed. To ensure adequate production, the law stated that “cake” (un-subsidized goods) had to be sold at cheap subsidy prices if the baker didn’t bake enough subsidized loaves. So in theory, the starving peasants should have been able to eat cake if there was no bread. So much for nuance…