Towards Hollywood?
Apple recently announced that it has put the billionth iPhone into the hands of consumers. If we also consider iPads and Macs, the nation of the bitten apple begins to undermine the demographic primacy of India and China. Other than making calls, the iPhone is a superb tool for pumping all known forms of content to consumers, who love the tool. Furthermore, the Apple ecosystem is designed in such a way that it is self-powered without wasting energy like a car battery.
Now it happens that iPhone sales have a few more problems growing at the pace we are used to. What's more, with no Jobsian product in Apple's pipeline, at least as far as it appears, there is some strange talk about the possible developments of the most capitalized company in the world. Apple's men talk more and more about content, services and media and less and less about hardware. Recently Tim Cook first and then Luca Maestri, the Italian CFO much listened to on Wall Street, declared that Apple is starting to become a media company. Oh, that Apple is becoming like Google changing the definition of its business every year? Certainly not, but we are faced with an astounding statement that, initially, amazed observers who saw in it a way to take the subject away from the problems of the iPhone, which, moreover, does not seem to have outside of China.
Yet, in presenting the record results of the fourth quarter of 2016, Apple has shown that the average company is not a random project, but something that is already in advanced construction. In Apple's accounts, the content and services let out a roar that was heard loud and clear and that blew away many chuckles. In early 2017 Buffett, who stays away from technology, doubled the shares of Berkshire Hathaway in the apple. In fact, services and content grew 24% over 2016 and now account for 15% of all Apple revenues. After the iPhone, they are the sector that contributes the most to its turnover, as well as growing at the pace typical of the iPhone.
However, one wonders if Apple is really prepared, in terms of management, mental predisposition and culture for this leap from Silicon Valley to Hollywood and New York?
Looking at what they've done with ebooks, the answer is no, they're not ready. That of ebooks is the story of a resounding failure. They were much better with music and applications, but these are services that come from afar in which Apple was already the market leader having practically invented them. But where there are valid and well-structured competitors, is Apple able to replace them or, more simply, compete as equals? This is the question and for now it remains unanswered.
The ebook operation was born with too many critical issues
goWare, the new publishing startup that maintains this blog, at some point decided to divert its business from applications to ebooks. It did when Steve Jobs unveiled the iPad on January 27, 2010 at the San Francisco Museum of Modern Art in the Yerba Buena area. On that occasion Jobs, for his part and comfortably seated on a black sofa, showed the great potential of the new sister store of the AppStore, the iBookstore, also speaking of the agreements entered into with book publishers and in particular with four of the big five. In fact, on the iBookstore it was possible to distribute and have books purchased in digital format that buyers could read on the iPad …but not on the iPhone. And this was the first anomaly that he already invited us to reflect on.
Together with the iBookstore Jobs also presented a new application from Apple, iBooks, to be able to download them from the store (accessible only from the app, ouch!), store, read and annotate them. It was an extraordinary application because it made it possible to transform reading into an interactive experience very similar to that of the applications present on the AppStore. And on the AppStore, the “books” category, by number of downloads, was second only to video games. A clear sign that the law read on the screen and paid for it. But here comes the second anomaly. iBooks did not come pre-installed on the iPad like other Apple apps, but had to be downloaded from the AppStore on its own. What choice was this? Here, too, was a hint that a good analyst should have picked up on as a serious problem.
Third criticality: unlike the AppStore, where all adult developers (cost 80 dollars a year) could submit an application and participate in the frenetic competition that took place there, bringing and selling an ebook on the Apple library was a great pain head for anyone who wasn't a publisher with a very zero turnover. Medium-large, medium and small publishers, as well as independent writers, were required to go through an intermediary, a so-called registered aggregator (there were just four when the iBookstore was launched). The latter sent the ebook to Apple, which subjected it to a not only technical review, and finally, if it ended up on the store, it was the aggregator that collected the sales data and product revenues which arrived, both, deferred to the 'publisher. The latter was in the unfortunate situation of verifying a lag between market reactions and the necessary marketing actions. Furthermore, the cost of the intermediation had to be added to the cost of the Apple service. A byzantine mechanism, irritating and unnecessarily complicated, when Amazon took everyone without distinction, it was enough to spend five minutes filling out an online application form for its program with the uninspiring name of KDP which could be confused with KGB. The iBookstore resembled a club for the rich and famous only. So?
Patience! Apple had accustomed us to eccentric choices and to trusting what it was doing which generally made sense even if at the time you couldn't guess which one. So no one paid attention to these critical issues.
iBookstore, an anti-Amazon club
The general feeling, like that of the goWare team (the new publishing start-up that runs this blog), was, however, that there were all the premises for Apple's new creature to become an instant success such as to upset the balance of the market. Mistake! The iBooks operation was defensive, because it was born to maintain the balance of the market and not to upset them since Amazon had taken on this task without too many compliments. Precisely for this reason, Jeff Bezos' company had become, in the meantime, public enemy number 1 of the big publishing cases and great authors. And their impression was that no one but Apple could effectively counter Amazon. In fact, Amazon was doing something unimaginable and demolishing: to promote the Kindle ecosystem, it wildly discounted ebooks - to the point of losing money - so that readers preferred them to books. And that was exactly what was happening. The price of ebooks was the vehicle through which he was disrupting the market. A prospect that was beginning to rob the sleep of the incumbents, i.e. the large media conglomerates that had a serenely stabilizing business on their books.
Steve Jobs, who said more times "no" than "yes" and thought this was the secret of leadership, didn't want to know about putting books in the Apple carnet, they weren't a priority. There was no convincing him. He considered it more important to do other things in the field of culture, for example making the iPad a didactic tool through which to convey new and low-cost content towards the training system. But faced with the insistence of the publishers and of Rupert Murdoch himself - owner of one of the big five -, with whom Jobs often spoke also for other things, the head of Apple commissioned Eddy Cue, one of the senior managers, to investigate the matter with the precise mandate to bring all five of the big five on board; otherwise he would have done nothing. A few weeks before the launch of the iPad, Cue signed up to Jobs from four of the big five, with the promise of the fifth to join soon. It was then that it was decided to launch the iBookstore. Decisions in extremis proving that there wasn't that paranoid commitment that Jobs put into the initiatives that he chose. And this underground state of affairs was fully manifested in the three critical points mentioned above.
Loss operation
Despite these premises, which became known later, the iBookstore set off with the wind in its sails, as the experience of goWare also proves. The goWare ebook sales graph shows that in 2012 the iBookstore accounted for 60% of sales against 40% for Amazon. Even in 2013, the Apple bookstore was confirmed as the largest sales vehicle with a share of more than 40%. There has been a dizzying decline since 2014 and today the iBookstore for goWare represents a humiliating and embarrassing 1%. 85% of goWare sales go through Amazon. What happened to the Apple store that now looks knocked out like a jaded boxer about to throw in the towel, at a time when a consumer-reader is about to win the billionth iPhone.
Incidentally, because we will return to the third part of this post, it is not true that people do not read books on the iPhone. Reading is one of the main dishes of the media diet of those who immerse their heads for hours in the small device they hold in their hands.
It so happened that Apple's ebook business received three deadly jackpots. The first was launched by the Department of Justice which sentenced it in two levels of judgment for violating the anti-trust law in relation to the price of ebooks and forced it to compensate the consumers gathered in a class action with 400 million dollars. The second pillar, even more deadly, came from the publishers who had dragged it into this operation, who decided to sacrifice ebooks for books without much concern for those subjects who had ridden the wave of ebooks. The third pillar came precisely from Amazon which took all the residual slice of ebooks, that of self-published and independent, not reachable by the bear's hug of major publishing. This is a pretty big and doughy slice given that today it represents 15% of the entire book market, all the prerogative of Amazon. The iBookstore, the club of the rich and famous, was unable to intercept this market and collapsed like a house of cards dragged down by the collapse of the ebook market of traditional publishers (-25% in 2016).
There are also other less exogenous factors to consider. How: the inadequacy of the iBookstore management, the marginality, at least so far, of ebooks in Apple's media strategies and finally the organization and ratio itself of the online library which is a clone of the AppStore, as if a library could be built modeled on a successful toy store. Let them learn from Amazon! But perhaps Jobs's reality distortion field is still active. When informed by Diego Piacentini of his decision to leave Apple for Amazon, he couldn't understand why a person of his worth could prefer a job in a supermarket to the one that had in Cupertino. But the argument that convinced John Sculley to leave Pepsi Cola for Apple, namely "Do you want to continue selling soda or do you want to change the world?" it hadn't worked with Piacentini. And the latter was right, in some ways Amazon's frugality is better than Apple's royalty.
We will deal with these issues and their deadly consequences on Apple's ebook business and on that of those who had invested in it in the second part of this post, next week.
