Apple is building an Ad (Services) Empire

It’s earnings week and so far the news hasn’t been great. However, Apple of all the tech companies has had a decent result in an otherwise terrible week for across all tech companies (so far). It’s impossible to look at Apple’s performance in a vacuum. 

Image courtesy App Economy Insights

The highlight for me during the entire earnings call was that Services now account for 33% of Apple’s gross profit and the fastest-growing segment in FY22 – up 14% YoY.

I remember hearing Apple is doomed when iPhone used to dominate its gross profit pie. That pie has been shrinking and all eyes are on the services sector.

Keep in mind this segment grew 26% YoY last year.

Image courtesy SixColors.com

Now, Apple does not give us a breakdown on its services revenue and during this call didn’t disclose anything about its advertising revenue either. When asked during the earnings call, Tim Cook simply said it was “not large”. I simply recon for how long though? 

Ekaterina Kachalova on Industry News:

Apple has always styled itself as a paragon of privacy whose profits are not ad-driven. “You are not our product. You are our customer. You are a jewel, and we care about the user experience,” Apple CEO Tim Cook famously said in 2018.

Apple continues to keep privacy in mind. Their push agains third party tracking simply makes it harder to pull personal data from applications. 

And unlike most of its high-profile competitors, Apple seemed to be walking the talk. While Apple’s ad revenue is expected to reach $5 billion this year, it pales in comparison to the ad money Google and Facebook are making. Google earned a staggering $209bn from ads alone last year and Meta crossed the $100bn threshold for the first time, raking in $115bn.

$5 billion is about a quarter of their entire services revenue. In comparison to the money Apple makes, it may not be “large” but Apple is positioned itself to take that number even higher. 

Those figures could be even higher had Apple not launched a sweeping crackdown on tracking last year. Its new privacy feature, known as App Tracking Transparency (“ATT”), required apps to seek users’ permission to track them across other applications and websites, thus making it easier than ever for users to opt out of tracking and personalized advertising — which they overwhelmingly did. Only about 25% of iOS users worldwide now explicitly let apps to track them.

Apple’s push against third party tracking is causing major problems for Meta and Google. 

Apple dealt a blow to the ability of third-party platforms to pull personal data from apps. That data is crucial to targeted advertising which Facebook relies on as its prime source of revenue. Highly personalized ads pay off way more than ads based on a random or less precise set of data, so Facebook is losing money — Apple’s anti-tracking feature is projected to cost Meta $12.8 billion this year.

Meta already has enough personal information which they can use to show ads, but its the extra metadata it gets from the app that allows them to curate this even further. I have spoken to several small business owners who have seen the benefits of facebook ads working for them.

A $12.8 billion hit is just this year but pretty sure there is more to come.

New entrants in the market could also challenge Meta and Google. Apple plans to show ads in their maps starting next year (similar to Google). Digital search is evolving across TikTok, Amazon and Instagram. When you are looking for product you turn to Amazon – that trend has been in effect for some time now.

However, according to this New York Times article TikTok and Instagram is the new search engine for Gen Z:

“In our studies, something like almost 40 percent of young people, when they’re looking for a place for lunch, they don’t go to Google Maps or Search. They go to TikTok or Instagram.”

Just when you thought at least influencers on these platforms will be spared, Apple’s new App Store tax on ads can cause some problems for these platforms as well as influencers. 

Meta’s biggest advertisers won’t feel Apple’s latest squeeze. It will be the individuals who buy one-off boosts in Instagram and Facebook that are affected the most since they’ll have to pay more for the same level of distribution, according to Eric Seufert, a respected ad industry analyst. “By inserting itself into the social media post boosting process and extracting a 30 percent fee, Apple is reducing the effectiveness of advertising spend for small businesses and influencers.”

More scoop on the latest Apple Store Tax on 9to5Mac.

To summarize, keep an eye out for the next few earnings call where you will see the Services pie growing ever so slightly. It won’t take long when the services revenue surpasses the iPhone and becomes the biggest pie.

Apple understands this space very well now after observing it for so many years. And just like the other features they have perfected in the past, they will roll out their ad platform successfully.

Recently Elon Musk published an open letter to Twitter’s advertisers:

I highlight and mention this again:

I also very much believe that advertising, when done right, can delight, entertain and inform you; it can show you a service or product or medical treatment that you never knew existed, but is right for you. For this to be true, it is essential to show Twitter users advertising that is as relevant as possible to their needs. Low relevancy ads are spam, but highly relevant ads are actually content! Fundamentally, Twitter aspires to be the most respected advertising platform in the world that strengthens your brand and grows your enterprise.

I don’t think we as consumers have a problem with ads. We have seen so much advertisement all around that at this point we just want them to be desirable.

More to follow.

Apple (still) exploring iPads with larger screens

The rumor mills are buzzing again at the prospect of iPads getting even larger screen (16″). Last year Bloomberg’s Mark Gurman reported that Apple is working on iPads with larger screen. It was an interesting take but this caught my eye:

But a big iPad would be the perfect device for many people, including me, and would continue to blur the lines between tablet and laptop.

I honestly don’t think we need to bring the macOS to the iPad. We have iPadOS and between the two operating system things can get as blurry as possible and I’m absolutely fine with that but we have to keep in mind that the macOS is built for a precise pointing device like the Magic Mouse and the iPadOS is built for touch.

I had a nightmare when I had to use touch on the Windows OS. Yes people love it, but I have seen them trying to “touch” an area multiple times to get it right.

A bigger iPad can simply be a bigger iPad. I am a serious hobbyist when it coms to photography and I absolutely need my 16″ MacBook Pro when I’m editing my photographs. I occasionally retouch my photographs on the iPad but only when I have to do something quick. I know several people who would love to get a larger screen iPad for the work they do.

In my humble opinion, merging the two platforms would simply be a disaster. There is continuity now between your Mac and iPad; and it works amazingly well! That’s blurry enough for me.

Obviously we’ll have to comply…

Greg Joswiak (Joz) remarks when asked about EU regulations mandating a USB-C port on phones starting at the end of 2024.

Short interview and a good one. But the part where Joz emphasizes the EU regulation is wroth watching. Apple clearly does not like to be rushed. They have built products with so much thought and have been the second one to bring in a feature, but damn they nail that feature.

I remember Samsung phones using NFC chips to share contacts before Apple showed how best to use NFC to make payments and nailed the experience.

Good to see Apple folks at Formula 1’s Austin Grand Prix

It was hard to miss watching Tim Cook wave the checkered flag at the Austin Grand Prix. Also present was Apple’s exec Eddie Cue Which would have prompted that Formula 1 is coming to AppleTV. Unfortunately, ESPN renewed its contract to air Formula 1 through 2025 this weekend.

Apple made its presence felt at Austin Grand Prix as they landed a Formula 1 motion picture directed by Joseph Kosinski, starring Brad Pitt. You could see him watching and understanding what goes into a Formula 1 race, the cars, drivers, et al, from the Mercedes Garage.

New Products from Apple

iPad

We didn’t get to see yet another Apple event in October as expected but we did see new product releases. New iPads and AppleTV were announced, and a short video was perfect to digest what was accounted for each new devices that came out.

The new iPad is now very similar to the iPad Air, with a USB-C port, Touch ID on the power button and the same 12 MP wide camera. It slightly bigger (1 millimeter in l x b x h) and 16 grams heavier when compared to the the iPad Air. So looks like we will continue to see iPad Air in the future. Its more like the bigger version of the iPad mini now.

If you think what you would miss from the iPad Air – its a whole bunch of things – A14 Bionic chip (no M1), no support for the second generate Apple Pencil or the Magic keyboard, wider P3 color gamut, anti reflective coating and finally, the new iPad will not support Stage Manager feature (my guess is lack of RAM).

The surprise for me was that the new iPad even though designed to support the second-generation Apple Pencil, it will continue to support only the first generation Apple Pencil, which means you will need to spend an extra $9 for a dongle to charge it.

Now, for the new iPad we also have a brand new key board accessory – Magic Keyboard Folio. Looking at this product, it feels like its a two-piece design that has a magnetic back – with a kickstand. I’m not a big fan of kickstand as it feels a shoddy solution, compared to the origami cases that just felt natural/organic. The keyboard attaches using magnets too with the smart connector and also has a multitouch trackpad. The case comes in one color – White.

I have a 10 year old and like many other families with kids most of us get the cheapest iPad for them for several things. My kid plays his games, consumes youtube, reads his books and does his homework o the iPad. The new iPad seems to be great, but the accessories aren’t. The dongle, two piece keyboards, and the color are all subject to loosing them or discoloring them within a short time frame. Hope the dongle comes with a warning that says it can be swallowed and keep it away form children.

My favorite update tot his iPad is the landscape oriented front facing camera which is a first for the iPad.

Colors are a good touch as well, as it allows one to personalize the iPad and color is a big part of personalization.

The new iPad start at $449 for the 64GB model.

iPad Pro

Both sizes of the new iPad Pro gets a speed bump with the new M2 processor, support for the faster WiFi 6E protocol and Bluetooth 5.3. Keep in mind with the M2, the iPad gets hardware-accelerated ProRes encoding and decoding.

I am excited about the new “Apple Pencil Hover” mode feature that can detect the Pencil’s height at pt to 12mm above the display and allow the iPad to react to it – it’s like iPad getting a hover state. Once this API/SDK is out apps will be able to take advantage of this to show up options when hovering over with a Pencil or trackpad. Not sure how finger hover will work.

No landscape camera yet, but then no Apple Pencil 3 either. Looks like the iPad Pro is set up for a big refresh next year. 

AppleTV

Significantly cheaper price and simpler configuration. No more 1080P option, and just 4k. Both these models are powered with A15 Bionic chip and support HDR10+, so increased high dynamic range to pictures. They do weigh significantly lighter compared to its predecessor and Siri Remote now has a USB-C charting port but you still can’t locate that remote in your Find My app.

The 64GB model with Wi-Fi only for a lower cost of $129, and a 128GB model that also has Gigabit Ethernet and Thread for $149.

Apple is now gonna be a Bank

Will Feuer at WSJ:

Once users set up their savings account through the Apple Card, future rewards from the card, called Daily Cash, can be deposited automatically into the savings account, Apple said. Users can also add their Daily Cash rewards to an Apple Cash card, which is a digital card in the wallet app that lets users send and receive money, the company said. Users can change the destination for their Daily Cash rewards at any time.

When Apple rolled out its credit card in partnership with Goldman Sachs it was a smart choice. Sometime before the card was launched , Goldman had introduced its High Yield Savings account Marcus – an online only bank account.

I have seen interest rates as low as 0.7% during the pandemic and as high as 2.35% as of this writing.

Interest is compounded daily and credited monthly to your account. Interest is calculated using the daily balance method. This method applies a daily periodic rate to the principal and interest that has accrued in the Account each day. This means that the interest from your Account is calculated every day on a 365-day year/ 366-day for leap years.

Apple is my default payment option when I’m paying by phone which is probably a very large part of my overall transaction. With a bank account now, they are going to make that ecosystem integration even more tighter.

Apple Apps enterprise ready?

Apple announced new features for their messaging platform. While all of us can enjoy editing and unending the messages and complain that Twitter can’t get a simple editing feature; there is something else that no one has mentioned yet.

Even Apple Mail now boasts about Unsend Mail, Schedule Mail and a better search.

With these simple features, Apple Messages, FaceTime and Mail apps are now set up for enterprise use. If you use Apple Gear across your organization (or maybe a higher percentage of users have Apple), you are now looking at using these apps to replace Teams or Zoom as your communication platform.

The secret of the macOS Monterey network quality tool

Dan Petrov found a cool new utility:

It seems that Apple has quietly added a new tool in macOS Monterey for measuring your device’s Internet connectivity quality. You can simply call the executable networkQuality, which executes the following tests:

– Upload/download capacity (your Tx/Rx bandwidth essentially)
– Upload/download flows, this seems to be the number of test packets used for the responsiveness tests
– Upload/download responsiveness measured in Roundtrips Per Minute (RPM), which according to Apple, is the number of sequential round-trips, or transactions, a network can do in one minute under normal working conditions

The capacity is roughly the same metric you could expect from tools like Fast.com from Netflix, or OOkla’s Speedtest.

Go to your terminal on your MacBook running macOS Monterey and type in networkQuality and hit enter and viola:

➜ ~ networkQuality
==== SUMMARY ====
Upload capacity: 1.136 Mbps
Download capacity: 204.729 Mbps
Upload flows: 16
Download flows: 12
Responsiveness: Medium (544 RPM)