OpenAI and Jony Ive Discuss HW Venture, What Is AI Hardware?, Humane Provides First Look At Ai Pin

Hello everyone. Yesterday, we talked about live events. Today, we talk about AI hardware. Let's jump right in.

OpenAI and Jony Ive Discuss HW Venture

Here’s the Financial Times:

“OpenAI is in advanced talks with former Apple designer Sir Jony Ive and SoftBank’s Masayoshi Son to launch a venture to build the ‘iPhone of artificial intelligence’, fuelled by more than $1bn in funding from the Japanese conglomerate.

Sam Altman, OpenAI’s chief, has tapped Ive’s company LoveFrom, which the designer founded when he left Apple in 2019, to develop the ChatGPT creator’s first consumer device, according to three people familiar with the plan.

Altman and Ive have held brainstorming sessions at the designer’s San Francisco studio about what a new consumer product centred on OpenAI’s technology would look like, the people said.

They hope to create a more natural and intuitive user experience for interacting with AI, in the way that the iPhone’s innovations in touchscreen computing unleashed the mass-market potential of the mobile internet.

The process of identifying a design or device remains at an early stage with many different ideas on the table, they said.

Son, SoftBank’s founder and chief executive, has also been involved in some of the discussions, pitching a central role for Arm — the chip designer in which the Japanese conglomerate holds a 90 per cent stake — as well as offering financial backing.

Son, Altman and Ive have discussed creating a company that would draw on talent and technology from their three groups, the people said, with SoftBank investing more than $1bn in the venture.

Discussions are said to be ‘serious’, but no deal has been agreed, they cautioned, and it could be several months before a venture is formally announced. Any resulting hardware product is likely to take years to bring to market.”

The most surprising part of this news may be that it leaked in the first place. It’s tough to see Jony being thrilled with this kind of attention being placed on him and his design company. It's one thing to put information out there in hopes of garnering friendly press coverage which can then be used for employee hiring and other financial considerations. It's another to begin fueling high expectations that will become difficult to beat.

Upon hearing this news, my first impression was that

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Apple to Drop “Head of Industrial Design” Role, Jeff Williams and Design, My Updated Apple Earnings Model (Daily Update)

Hello everyone. In today’s update, we will focus on a news item related to Apple design that came out the same day that Apple reported 1Q23 earnings. We conclude with Neil’s updated Apple earnings model and how the model changed following Apple’s 1Q23 results and 2Q23 guidance commentary. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost. Let’s jump right in.

Apple to Drop “Head of Industrial Design” Role

Over at Bloomberg, here’s Mark Gurman:

“Apple Inc. has decided against naming a new executive to replace its departing top product designer, marking a stark shift for a company long celebrated for the look and feel of its devices.

The iPhone maker’s vice president of industrial design, Evans Hankey, won’t be replaced when she leaves the company in the coming months, according to people with knowledge of the decision, who asked not to be identified because the deliberations are private. An Apple spokeswoman declined to comment.

Instead, the company’s core group of about 20 industrial designers will report to Jeff Williams, Apple’s chief operating officer. The company will also give larger roles to a group of Apple’s longest-tenured designers. Hankey has reported to Williams since taking the job in 2019, when top designer Jony Ive left to start his own firm.”

Gurman has spent months crafting an off-the-mark narrative that turnover in Apple’s industrial design group (ID group) is hurting Apple’s attempts to find a successor to Hankey. As we will discuss shortly, there is good reason to be skeptical of such a claim.

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Apple’s Head of Industrial Design to Leave Company, Revisiting Apple Design Turnover, Apple Industrial Design Succession (Daily Update)

Hello everyone.

This is shaping up to be a busy week. Apple reports FY4Q22 earnings (results from July to September) on Thursday. As with previous quarters, Apple’s earnings release timing will result in Thursday’s daily update being pushed to Friday.

Here is how the daily updates schedule looks:

  • Monday: Regular update

  • Tuesday: Apple earnings preview

  • Wednesday: Regular update

  • Thursday: No update

  • Friday: Apple earnings review

Let’s jump into today’s update.

Apple’s Head of Industrial Design to Leave Company

Over at the WSJ, here’s Sarah Needleman:

“Apple Inc.’s head of industrial design is leaving the company, marking another significant loss in the department responsible for the iconic look and feel of its iPhones, Macs and other popular consumer products.

Evans Hankey took over leadership of the group three years ago, filling a void created after longtime chief design officer Jony Ive departed to start his own design firm in 2019.

An Apple spokesman said the company is well equipped to continue onward without Ms. Hankey, who will temporarily stick around as it works through the change in leadership.

‘The senior design team has strong leaders with decades of experience,’ the spokesman said. Bloomberg earlier reported the news of Ms. Hankey’s departure.”

In a sign of how few people are familiar with Apple design and its leaders, a number of inaccuracies have been circulating online about this news.

A few publications, including the WSJ, claimed Evans Hankey was departing Apple after just three years. That is false. Hankey has been part of Apple’s industrial design group for nearly two decades.

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The Mac's Graduation

The iPad is seeing more than twice the number of new users as the Mac. Within two years, the number of people wearing an Apple Watch will equal the number of people owning a Mac. Approximately 90% of Apple users don’t use, and probably never will use, a Mac.

It’s tempting to look at the preceding statements and think that the Mac has lost its luster. However, 2020 was a record fiscal year for the Mac in terms of revenue and the number of new users was near a record high. How does one reconcile such different worlds? The Mac is seeing momentum by being true to itself instead of trying to be something that it’s not. With a transition to Apple Silicon, the product category is now benefiting from lessons Apple learned from more popular devices aimed at the mass market.

Apple Silicon Transition

This past June at WWDC, Apple unveiled the Mac’s multi-year transition to Apple Silicon. Last week, Apple’s “One More Thing” product event focused on the first wave of Mac hardware to take advantage of Apple Silicon. Three models saw updates:

  • 13-inch MacBook Air

  • 13-inch MacBook Pro

  • Mac mini 

One of the more interesting takeaways from WWDC and last week’s event ended up being subtle. While Apple technically announced a Mac transition, the Mac ended up taking a back-row seat to the sheer power and capability found with Apple Silicon and Apple’s decade-long bet on designing its own chips.

A Graduation

The MacBook Air, Apple’s best-selling Mac, was included in the first wave of hardware transitioning to Apple Silicon. The well-known model had one of the more memorable unveilings in Apple history when it was pulled out of a manila envelope by Steve Jobs onstage at Macworld 2008.

"Thinnest Notebook"-There is something in the air, it is the MacBook Air.

The MacBook Air’s design was industry leading. Jony Ive and Apple’s industrial design group had utilized a new unibody architecture that was eventually brought to the entire Mac portable line. Twelve years later, the MacBook Air still feels refreshing.

While the MacBook Air’s thinness was the top feature in 2008, a MacBook Air powered by Apple Silicon is all about performance, longer battery life, and quietness. (The 12-inch MacBook that Apple unveiled in 2015 and discontinued four years later was ahead of its time.)

It is telling that Apple didn’t see the need to change the MacBook Air’s design despite the fact that it is being powered by Apple Silicon. This is evidence of the Apple Silicon transition being akin to the Mac graduating and entering a new phase in life.

A graduation is an acknowledgment of someone acquiring a certain amount of knowledge and experience. Such knowledge can then be used to solve future problems. A similar dynamic is found with Macs powered by Apple Silicon. The Mac now has a new toolset that it can rely on to tackle future problems.

Grand Unified Theory 

Prior to this year’s WWDC, reaction in some tech circles was cool towards the idea of Apple transitioning the Mac to its own Silicon. Many were skeptical that Apple would want to face any risks and trouble that could be found with such a transition. Others figured the Mac wasn’t important enough to receive that kind of attention from Apple.

In reality, the Apple Silicon transition was always a question of when, not if. The transition would not only give Apple the kind of control over the Mac that it yearned for, but more importantly, Apple Silicon would open new doors to push the Mac forward in ways that simply weren’t possible with Intel.

With Apple Silicon, Apple took lessons learned from personal devices such as Apple Watches, iPhones, and iPads to help push less personal devices, like the Mac, forward. This is a core tenet of The Grand Unified Theory of Apple Products. We saw early iterations of this with Mac features such as the Touch Bar, Touch ID, and T1 / T2 chips. These additions were the clues that an eventual transition to Apple Silicon would take place.

 
 

What’s Next?

The Mac, having graduated thanks to Apple Silicon, is now in a much stronger position to navigate a world being overrun with iPhones, iPads, and an expanding line of wearable devices designed for different parts of the body (wrists, ears, and eventually eyes).

Based on my installed base estimates for various Apple product categories, as of the end of FY2020, it’s clear that the Mac hasn’t been for everyone: 

There are 7x more people using iPhones than Macs. There are 2x more people using iPads than Macs. Some think that Apple Silicon will dramatically change these ratios by increasing the Mac’s addressable market. Caution is needed in running too far with such thinking.

The value found with Apple Silicon isn’t that it will turn the Mac into a fundamentally different product. We should not assume Macs will become touch-first devices. Apple already sells touch-first or touch-based computers; they are called iPhones and iPads.

For Apple, the goal isn’t to take fundamentally different product categories and form factors and converge them for no other reason than that they can. A far more challenging endeavor is to resist such calls from users, often the most loyal ones, and instead stay true to a form factor’s design.

When thinking about workflows, Apple’s iOS / iPadOS / macOS product lines are designed in such a way that some products do a better job of handling personal workflows than more demanding workflows. As shown in the following exhibit, macOS devices are designed to handle some of the most demanding workflows while iOS and iPadOS is geared toward handling more personal workflows. However, there is overlap between iPads running iPadOS and Mac portables running macOS when thinking about some workflows.

Since a MacBook Air and iPad Pro can handle some of the same workflows, some people think both devices will eventually merge into one another. The iPad Pro’s Magic Keyboard is positioned as a sign of this upcoming merge while touch-based Macs are said to be inevitable.

There are a few holes found in the logic of such thinking.

Even though Mac portables and iPads may handle many similar workflows, that doesn’t mean that both devices should lose their core identity. The iPad doesn’t move away from being a touch-based computer simply because a keyboard can be attached to it or an Apple Pencil can be used to take notes and sketch a drawing. A MacBook Pro doesn't embrace a touch-first interface just because Big Sur has similar elements to iOS and iPadOS.

Instead, we should expect Apple to take what makes the Mac special for 130 million people and accentuate those items, namely, a screen that tilts while always being attached to a dedicated keyboard. While both the screen and keyboard will likely see their fair share of changes in the future, including possibly sharing a foldable display, the dynamic found with using a keyboard permanently connected to a screen would remain.

While iPads would remain touch-first computers with a range of productivity accessories like dedicated keyboards, Macs powered by Apple Silicon could embrace multi-touch and foldable displays but in a dedicated area of the machine where one’s fingers are likely to always be found (think the area between the Touch Bar and the lower fifth of the screen). A good argument can be made that Apple should pursue flexible displays for Mac portables so that the entire area between the Touch Bar and vertical screen can be usable.

Such a product may seem underwhelming to some. The word “legacy” probably will come to mind for others. There is nothing inherently wrong with a product being classified as legacy as long as the product doesn’t jeopardize Apple’s ambition and efforts with new platforms and paradigm shifts. This risk was described in detail in the Above Avalon article titled “The Mac is Turning into Apple’s Achilles’ Heel.”

Apple management has spent the past few years trying to convince Mac users that the Mac’s future has never been brighter. Some pro users may end up disappointed with where Apple will, and won’t, take the Mac. However, it is a positive sign that Apple remains focused on pushing forward with new platforms aimed at lowering the barrier between technology and people while allowing the Mac to be true to itself.

Listen to the corresponding Above Avalon podcast episode for this article here.

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Apple Watch Momentum Is Building

In a few months, the number of people wearing an Apple Watch will surpass 100 million. While the tech press spent years infatuated with stationary smart speakers and the idea of voice-only interfaces, it was the Apple Watch and utility on the wrist that ushered in a new paradigm shift in computing. We are now seeing Apple leverage the growing number of Apple Watch wearers to build a formidable health platform. The Apple Watch is a runaway train with no company in a position to slow it down.

Mirages and Head Fakes

We are coming off of a weird stretch for the tech industry. As smartphone sales growth slowed in the mid-2010s, companies, analysts, and pundits began to search for the next big thing. The search landed on stationary smart speakers and voice interfaces.

Companies who weren’t able to leverage the smartphone revolution with their own hardware placed massive bets on digital voice assistants that would supposedly usher in the end of the smartphone era. These digital voice assistants would be delivered to consumers via cheap stationary speakers placed in the home. Massive PR campaigns were launched that attempted to convince people about this post-smartphone future. Unfortunately for these companies, glowing press coverage cannot hide a product category’s fundamental design shortcomings. 

At nearly every turn, Apple was said to be missing the voice train because of a dependency on iPhone revenue. Management was said to suffer from tunnel vision while the company’s approach to privacy was positioned as a long-term headwind that would lead to inferior results in AI relative to the competition. Simply put, Apple was viewed as losing control of where technology was headed following the mobile revolution.

There were glaring signs that narratives surrounding smart speakers and Apple lacking a coherent strategy for the future were off the mark. In November 2017, I wrote the following in an article titled, “A Stationary Smart Speaker Mirage”:

“On the surface, Amazon Echo sales point to a burgeoning product category. A 15M+ annual sales pace for a product category that is only three years old is quite the accomplishment. This has led to prognostications of stationary smart speakers representing a new paradigm in technology. However, relying too much on Echo sales will lead to incomplete or faulty conclusions. The image portrayed by Echo sales isn't what it seems. In fact, it is only a matter of time before it becomes clear the stationary home speaker is shaping up to be one of the largest head fakes in tech. We are already starting to see early signs of disappointment begin to appear…

I don’t think stationary smart speakers represent the future of computing. Instead, companies are using smart speakers to take advantage of an awkward phase of technology in which there doesn’t seem to be any clear direction as to where things are headed. Consumers are buying cheap smart speakers powered by digital voice assistants without having any strong convictions regarding how such voice assistants should or can be used. The major takeaway from customer surveys regarding smart speaker usage is that there isn’t any clear trend. If anything, smart speakers are being used for rudimentary tasks that can just as easily be done with digital voice assistants found on smartwatches or smartphones. This environment paints a very different picture of the current health of the smart speaker market. The narrative in the press is simply too rosy and optimistic.

Ultimately, smart speakers end up competing with a seemingly unlikely product category: wearables.”

Three years later, I wouldn’t change one thing found in the preceding three paragraphs. The smart speaker bubble popped less than 12 months after publishing that article. The product category no longer has a buzz factor, and despite the hopes of Amazon and Google, people are not using stationary speakers for much else besides listening to music and rudimentary tasks like setting kitchen timers.

The primary problem found with voice is that it’s not a great medium for transferring a lot of data, information, and context. As a result, companies like Amazon have needed to dial back their grandiose vision for voice-first and voice-only paradigms. Last week’s Amazon hardware event highlighted a growing bet on screens – a complete reversal from the second half of the 2010s. 

Betting on the Wrist 

As companies who missed the smartphone boat were placing bets on stationary speakers, Apple was placing a dramatically different bet on a small device with a screen. This device wouldn’t be stationary but instead push the definition of mobile by being worn on the wrist.

Jony Ive, who is credited with leading Apple’s push into wrist wearables, referred to the wrist as “the obvious and right place” for a different kind of computer. 

When Apple unveiled the Apple Watch in 2014, wearable computing on the wrist was more of a promise than anything else. Apple created an entirely new industry – something that isn’t found much in the traditional Apple playbook. 

After years of deep skepticism and cynicism, consensus reaction towards Apple Watch has changed and is now positive. Much of this is due to the fact that it’s impossible to miss Apple Watches appearing on wrists around the world. According to my estimates, approximately 35% of iPhone users in the U.S. now wear an Apple Watch. This is a shockingly high percentage for a five-year-old product category, and it says a lot about how Apple’s intuition about the wrist was right.

Apple Watch Installed Base 

The number of people wearing an Apple Watch continues to steadily increase. According to my estimate, there were 81 million people wearing an Apple Watch as of the end of June. According to Apple, 75% of Apple Watch sales are going to first-time customers. This means that 23 million people will have bought their first Apple Watch in 2020. To put that number in context, there are about 25 million people wearing a Fitbit. The Apple Watch installed base is increasing by the size of Fitbit’s overall installed base every 12 months. Exhibit 1 highlights the change in the Apple Watch installed base over the years. 

Exhibit 1: Apple Watch Installed Base (number of people wearing an Apple Watch)

(The calculations and methodology used to reach my Apple Watch installed base estimates is available here for Above Avalon members.)

Deriving Power

From where is Apple Watch deriving its momentum? The answer is found in The Grand Unified Theory of Apple Products. 

 
 

One of the core tenets of my theory is that an Apple product category's design is tied to the role it is meant to play relative to other Apple products. The Apple Watch is designed to handle a growing number of tasks once given to the iPhone. Meanwhile, the iPhone is designed to handle a growing number of tasks given to the iPad. One can continue this exercise to cover all of Apple's major product categories.

Apple Watch is not an iPhone replacement because there are things done on an iPhone that can't be done on an Apple Watch. This ends up being a feature, not a bug. The Apple Watch’s design then allows the product to handle entirely new tasks that can’t be handled on an iPhone. This latter attribute goes a long way in explaining how Apple Watch has helped usher in a new paradigm shift in computing. Apple Watch wearers are able to interact with technology differently.

(More on The Grand Unified Theory of Apple Products is found in the Above Avalon Report, “Product Vision: How Apple Thinks About the World,” available here for Above Avalon members.)

A Health Platform

In January 2019, Tim Cook surprised many by saying Apple will be remembered more for its contributions to health than for any other reason. Here’s Cook: 

“I believe, if you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ it will be about health.”

Many assumed that Cook’s comment hinted at Apple unveiling a portfolio of medical-grade devices that would go through the FDA approval process. Such thinking was based on a fundamental misunderstanding of Apple’s ambition and approach to product development. 

Apple’s health strategy is based on leveraging hardware, software, and services to rethink the way we approach health. This means Apple wasn’t going to just launch a depository for our health data – something that is needed but which ultimately falls short of being truly revolutionary. In addition, Apple wasn’t going to just offer health and fitness services that amount to counting steps or keeping track of miles run. 

By the time Cook gave his bullish comment about health, Apple had already placed its big bet on health four years earlier by unveiling the Apple Watch. In what ended up being one of Apple’s best decisions, the company avoided going the route of medical-grade devices requiring government agency approval to reach consumers. Instead, Apple framed its health platform as a new-age computer that ultimately is an iPhone alternative.

Health monitoring is one of the key new tasks that the Apple Watch, not iPhone, handles. To be more precise, Apple Watch is handling the following four health-related items: 

  1. Proactive monitoring (i.e. heart rate and blood oxygen)

  2. Well-being assistance (i.e. sleep monitoring including the runup to sleep)

  3. Fitness and activity tracking (i.e. Activity and Workout apps)

  4. Fitness and health activity (i.e. Apple Fitness+)

With Apple Fitness+, Apple didn’t just release a virtual fitness class service. Instead, Apple Fitness+ is an Apple Watch service.  In some ways, Apple Fitness+ reminds me of Apple TV+. A future in which Fitness+ workouts are available on third-party gym equipment displays including on treadmills and stationary bikes is not a stretch. In addition, classes from other companies such as Nike could further elevate Apple Fitness+. 

Competition

If the Apple Watch is a runaway train, there is no obvious candidate in a position to stop or even slow the train. While other companies are slowly waking up and seeing the momentum found with Apple Watch, there is still much indifference, mystery, and misunderstanding as to why people are buying wearables. Too many companies still think of wearables as glorified smartphone accessories. Such thinking makes it impossible for competitors to see how Apple Watch is ushering in a paradigm shift in computing by making technology more personal in a way that other devices have failed to accomplish or replicate.

One of the main takeaways from Apple’s product event earlier this month is how Apple is its own toughest competitor. The Apple Watch’s most legitimate competition is found with older Apple Watches and non-consumption (i.e. empty wrists). While this introduces its own set of risks and challenges, there is still no genuine Apple Watch competition from other companies after six years. This is an indication of the power found in controlling your own hardware, software, and services in order to get more out of technology without having technology take over people’s lives. 

Listen to the corresponding Above Avalon podcast episode for this article here.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members in both written and audio forms. To sign up and for more information on membership, visit the membership page.

For additional discussion on this topic, check out the Above Avalon daily update from October 1st.

Above Avalon Podcast Episode 150: A Larger Apple Machine

The recent Jony Ive and Jeff Williams news has been met with mixed reactions. In episode 150, we discuss why the leadership changes neither signify a company moving away from design or hardware nor suggest that management is facing some kind of growth crisis. Upon closer examination, the Jony Ive and Jeff Williams news are byproducts of Apple evolving into a much larger design company. Additional topics include the various growth narratives facing Apple, the growing Apple installed base, and the Apple machine.

To listen to episode 150, go here. 

The complete Above Avalon podcast episode archive is available here.