The Just-Buy-Our-Devices Model

Tuesday, 25 October 2011

Tim Bajarin, “Why Google and Microsoft Hate Siri”:

Yes, Siri is an important product for enhancing our user interface with the iPhone. But Siri is in its infancy. When it grows up, it will be the front end to all types of searches conducted on iPhones, iPads, Mac’s and even Apple TV. And, if I were Google or Microsoft, perhaps I too would be playing down the impact of Siri since they know full well that it is not just a threat to their product platforms, but to their core businesses of search as well. In fact, they should be quaking in their boots since Apple is taking aim at their cash cow search businesses with their technology and could very well impact their fortunes dramatically in the future.

I think it’s a stretch to call search one of Microsoft’s “core businesses”. They’re still losing money — a lot of money, consistently, quarter after quarter — in their online services division. But they wouldn’t be sticking with it if they didn’t see it as a future core business.

For Apple’s investors, the call for them to start paying dividends on their cash hoard is too short-sighted. Instead, they should be encouraging Apple to start buying up as many databases and services they can and begin the process of entrenching Siri’s role as the first line of offense when searching for a product and service and get the search ad revenue from this for themselves. I believe that if they do this, they could probably add another $3-$5 billion in quarterly revenue to their already healthy business model within three years, as search becomes another profit center for Apple.

I think Bajarin is correct that Siri is a huge deal, and that if it truly thrives, it will adversely affect traditional web search like Google and Bing. But I can’t see Apple monetizing it through advertising. That’s tacky.

I see Apple “monetizing” Siri simply as a way to sell more devices — more iPhones now, more iPads (and who knows, maybe Macs?) in the future. Siri could be the interface to future products, like tiny little Nano-sized devices, or home entertainment systems. Google’s ad-driven model disrupted Microsoft’s pay-for-software-licenses model. Apple’s just-buy-our-devices-and-look-at-all-the-cool-shit-you-get-with-them model could disrupt Google’s ad-driven model.

Microsoft’s model was: you’d buy a device, then pay for licenses for Microsoft software. Google’s disruption was: hey, you don’t need to pay for Microsoft software if you’re willing to put up with our non-blinking mostly-text ads. Apple’s model is: you don’t even need to see those ads, just buy your devices from us. (Although you could argue that with the App Store, Apple is circling back to the pay-for-more-software model. But that’s not really a profit center for Apple.)

Siri doesn’t need to lead to advertising in order to add to Apple’s bottom line. Consider iCloud — Apple now offers free-of-charge online services ad-free. It’s a sunk cost in the name of the overall experience for Apple device buyers.