Stipulate that iTunes is a pioneering retail service that operates at massive scale and generates billions of dollars of revenue.   The title of this article is thus surprising, but I’m not talking about digital retailing.   Apple has nailed that as their billion credit card accounts attest to.

I’m talking about the kind of services that Amazon and Google are excelling at; taking big data, inferring things about you, delivering experiences tailored to your needs, and monetizing it through advertising or in the case of Amazon, through its close cousin retail recommendations.

I’m also talking about speech recognition, intent recognition, social services, online advertising, and most other “modern” services.   Apple is falling behind, and will continue to do so.

“But wait – Siri!” you say.

Yes, Apple pioneered the intelligent assistant market, but let’s think carefully about Siri:

  • It was the first, launching long before Alexa, Google Now, and Cortana. It was not developed internally, but acquired externally (and then extensively improved upon).
  • They chose to not invest in Speech recognition – arguably the hardest problem – and “rent” that capability from Nuance.
  • They used it extensively to market the iPhone 4S, launched in 2011.
  • Since then, improvements have been highly incremental, adding specific scenarios and rudimentary context awareness between utterances.

Since then, the competition has become fierce and Apple’s capabilities have fallen behind, especially vs. Google who do everything in house and own their stack from top to bottom.

My summary of the Siri lesson is as follows:   Apple shipped it as a feature to sell iPhone 4s, poured a lot of love into V1, but by iPhone 5 had moved on to another marquis feature (tall screen!) and moved resources away from Siri.   It’s now falling behind.

Why has this happened?   Certainly not because Apple lacks the money to hire more Ph.D.s and Data Scientists.    They’re on an acquisition spree in machine learning.

A Law of Business

I believe the answer lies deep in the Apple DNA; it’s almost a law of business:   Companies excel where their business is, and don’t where it’s not.   Apple doesn’t make money from services.   Take a look at Apple’s most recent quarter’s data, in millions of dollars (profit margin per business are my informed estimates, everything else is from Apple’s financial filings):


Services are noise in this picture – less than 2% of profits.  If you are Tim Cook, and you’ve got a new iPhone launch coming up, which team that’s clamoring for more precious developers do you listen to?  The ones that are working on the new iPhone, and on the features that will be marketed as a reason to upgrade.

Sure, those data scientists in Eddie Cue’s org are all screaming about the need to invest a lot into infrastructure for machine learning and telemetry, but you’ve got to make tough choices.

Compare this to Google.  Google’s money engine is search advertising, which is eternally fed by better data, better algorithms, and more engagement with Google.   If you’re Sundar Pichai, you eat, breath, and think these every day.  Your CFO can calculate the direct impact of 1% better ad targeting, and the number has lots of zeros after it.  You are going to cut everything else – those crazy Nest guys, the Loon project, self-driving cars, Android engineering – to make sure that money engine keeps churning.

And compare to Amazon.    Bezos can measure every day the minute impact on retail sales of slightly better recommendations, deeper engagement in services, faster and more convenient product searches in more places.

Both of these companies will continuously work day after day to have better speech, better understanding of their customers, more data on your behavior.

I think Apple knows this.   Apple has brilliantly tried to perform Ju Jitsu here by turning a weakness into a strength by marketing privacy as a premium feature.   They won’t analyze your data and track you.   They won’t learn about you and sell you to advertisers.   They won’t even allow themselves to access your data – or the FBI!   You can see this in iOS 10, which is brimming with a limited sort of local intelligence.   This customer focus is a strength; Apple has the freedom to focus on delivering great experiences without the confusing influence of other customers like advertisers.

But it’s also limiting.   Apple has a ton of machine learning experts, via hiring and recent acquisitions, but I’m pretty sure they cry a little bit every time Tim Cook promises not to profile you, not to access your health and location data.   They have lots of cool ideas that they can’t build.

The engineers at Google and Amazon live under no such restrictions.   Over time, as a user you may come to feel a little bit like the product instead of the customer, but you will also get access to features Apple is unlikely to deliver.