To Ship or Not to Ship, Headset Edition

Monday, 13 March 2023

Patrick McGee and Tim Bradshaw, reporting for The Financial Times, under the headline “Tim Cook Bets on Apple’s Mixed-Reality Headset to Secure His Legacy” (archive link, just in case your FT login credentials aren’t working):

The stakes are high for Cook. The headset will be Apple’s first new computing platform to have been developed entirely under his leadership. The iPhone, iPad and even Watch were all originally conceived under Apple’s co-founder Steve Jobs, who died in 2011.

It’s unfair, I say, to put Apple Watch in the “developed under Steve Jobs” column. Apple certainly might have been talking about a watch while Jobs was still alive, but it wasn’t announced until three years after he died. Apple Watch is a Tim Cook product. (In the early years of Apple Watch, when conventional wisdom was bizarrely of the mind that it was a flop, I recall numerous wags claiming that Apple Watch was proof that Apple couldn’t create great all-new products without Steve Jobs. Now that Apple Watch is undeniably a massive hit, it’s a retcon to give Jobs credit for it.)

Apple’s growth during Cook’s tenure has been spectacular, growing its market capitalisation from around $350bn in 2011 to around $2.4tn today. But despite the twin hit launches of Apple Watch in 2015 and AirPods a year later, which have helped turn its accessories division into a $41bn business, the company has been accused of iterating on past ideas rather than breaking new ground.

Apple hasn’t produced any great new products other than the great new products they’ve produced.

The timing of the launch has been a source of tension since the project began in early 2016, according to multiple people familiar with Apple’s internal discussions. Apple’s operations team wanted to ship a “version one” product, a ski goggle-like headset that will allow users to watch immersive 3D video, perform interactive workouts or chat with realistic avatars through a revamped FaceTime.

But Apple’s famed industrial design team had cautioned patience, wanting to delay until a more lightweight version of AR glasses became technically feasible. Most in the tech industry expect that to take several more years.

In deciding to press ahead with a debut this year, Cook has sided with operations chief Jeff Williams, according to two people familiar with Apple’s decision-making, and overruled the early objections from Apple’s designers to wait for the tech to catch up with their vision.

Just a few years ago, going against the wishes of Apple’s all-powerful design team would have been unthinkable. But since the departure of its longtime leader Jony Ive in 2019, Apple’s structure has been reshuffled, with design now reporting to Williams.

The design team was never all-powerful. Jony Ive, personally, was perhaps nearly so. But even Ive reported to, and by several accounts occasionally clashed with, Tim Cook.

The FT’s reporting here is certainly interesting, but I wouldn’t read too much into it because it’s obviously incomplete. It’s also seemingly being misinterpreted to some degree. MacRumors’s recap is under the headline “Report: Apple CEO Tim Cook Ordered Headset Launch Despite Designers Warning It Wasn’t Ready”. That’s not what the FT is reporting. The FT isn’t reporting that Apple’s design team thinks the mixed-reality goggles aren’t ready yet — they’re reporting that the design team didn’t want to ship mixed-reality goggles at all. They’re not saying the design team advised waiting until the goggles got a little better — they’re saying the design team advised waiting until AR glasses — an entirely different product — were feasible.

But more importantly, the FT’s reporting makes it sound as though this decision was solely between the industrial design team and Jeff Williams’s operations team. That’s not how Apple works. Left out of the FT’s reporting are both Mike Rockwell’s AR/VR team within Apple (more of a division than a mere team — at least 1,000 software and hardware engineers, designers, and AR/VR content creators), and Greg Joswiak’s product marketing division. Rockwell has been leading Apple’s entire foray into both AR and VR for 8 years. (He was my guest at the live-on-stage WWDC episode of The Talk Show 5 years ago.) Out of everyone in the entire company, his opinion on what AR/VR hardware Apple ought to ship and when is the one I’d consider most salient. And as I’ve long said about Apple’s “product marketing”, the operative word is more product than marketing. The role Phil Schiller carved out, and which Joswiak now holds, doesn’t start when a product is finished and needs to be packaged and advertised. Apple product marketing is deeply involved in all phases of product development from conception onward. (It was Schiller, to name just one example, who came up with the idea for the iPod’s click wheel.) Does Joz think this imminent headset is a product Apple ought to ship? The FT is silent.

This is akin to talking about the decision to greenlight a movie and including only the opinions of the studio executives (in this case, Cook and Williams) and, say, the special effects/cinematography team (in this case, industrial design) — with no mention of the screenwriter (product marketing), the actors (engineering), or the director (Rockwell?). Or maybe the design team is the actors and the engineers are the special effects/cinematography team — it doesn’t matter. What matters is that, like moviemaking, product-making and platform-building are profoundly multidisciplinary endeavors, and Apple’s internal culture is deeply collaborative across those disciplines. Apple’s industrial design team is deservedly renowned and undeniably highly influential, both within and outside the company, but they’re relatively tiny headcount-wise. There are at least 1,000 people who’ve been working full-time for years on Apple’s upcoming mixed reality platform.

I’m not faulting the Financial Times here — you take the sources you can get, and seemingly they have sources from within Apple’s tight-knit design team. (Or, perhaps more likely, from former members of the team.) It is fascinating, if true, that Apple’s design team didn’t want to ship a mixed-reality headset at all, and wanted Apple to wait for full AR glasses — technology which, at a minimum, is years away. (High quality all-day AR glasses may well be a decade or longer away.) And the whole thing plays right into my intense curiosity regarding just what the intended use cases are for this product.

What I don’t buy, though, is the angle that Tim Cook is fast-tracking the product because he sees it in any way as essential to bolstering his “legacy”. First, Cook could announce his resignation tomorrow and his legacy would be gold: he guided the company past Steve Jobs’s tragic, far-too-young death; the company’s market cap has increased nearly ten-fold under his leadership; he oversaw the construction and opening of Apple Park; he turned Apple into a services juggernaut in addition to maintaining its position as the most profitable hardware company in the world; and product-wise, under his leadership Apple has launched Apple Watch (the most popular and profitable watch and fitness tracker in the world), AirPods (the most popular and profitable augmented reality devices in the world), and overtaken Intel as the premiere silicon design company in the world. Nor does it seem like he’s going anywhere soon. Furthermore, even without the above litany of accomplishments over the last decade, Tim Cook just does not seem ego-driven in the least. If he thinks Apple should launch a mixed-reality headset this year, it’s because he thinks doing so is in the best interest of the company, not his legacy. And by the “who should get credit for what” accounting in this same article, Cook should get credit for Apple’s XR platform even if the first devices don’t launch until three years after he retires.

But let’s say for the sake of argument that Cook is preoccupied with thoughts of his legacy. If that’s true, he’d likely be overly cautious about launching this new platform, not rushing it out the door against staunch internal opposition. I say “John Sculley”, you hear “Newton”. Launching a high-profile expensive dud would cause more harm to Cook’s legacy than launching a successful headset would do it good. He can stand pat with his accomplishments to date and surely be remembered for decades as one of the best CEOs not just in technology history, but business history. In a certain sense, Apple under Cook is undefeated. Launch a Newton-like bust on his way out the door, however, and that might prove an indelible stain on a heretofore impeccable record.

Regarding Sales Figures

On another front, the FT reports:

Apple is only expecting to sell around a million units of its headset in its first 12 months, according to two people familiar with its planning, fewer than the first generations of the iPhone or Apple Watch did in the year following their launch.

The complex device, which will contain an array of cameras and high-resolution screens, is expected to cost around $3,000, triple the price of Meta’s Quest Pro, potentially limiting its appeal. Generating even $3bn in annual sales would be a tiny fraction of Apple’s revenues of around $400bn last year.

The modest target might give the impression that Apple is expecting a dud. But Apple also has a long history of starting slowly when it enters new product categories, then taking the market by storm within a few years. People close to Apple say that despite the modest sales target, the company is preparing a marketing blitz for the new product.

To their credit, the FT illustrates with a nice chart how with the iPhone, Apple Watch, and especially iPod, unit sales didn’t hit their stride until the third or fourth generation products. But it’s also worth comparing to the market as a whole. When he introduced the original iPhone in January 2007, Steve Jobs said that Apple’s goal was 1 percent of the world market for cell phones by the end of 2008. There were 1.2 billion phones sold in 2008, and with just under 20 million iPhones sold that year, Apple exceeded that goal.

What would 1 million Apple headsets be as a percentage of the global market? IDC, in a report just a few days ago, estimates a total 8.8 million AR/VR headsets were sold globally in 2022. The NDP Group put the number at 9.6 million. So one million headsets in the first year would give Apple roughly 10 percent of the global market, right out of the gate. That same NPD report pegged U.S. (not worldwide) revenue from headset sales in 2022 at $1.1 billion. If this thing really is going to sell for $3,000 (I remain deeply skeptical of that price, but The Financial Times reiterates it), Apple would need only sell about 400,000 units in the U.S. to take a majority share of U.S. headset sales by revenue. One million total units and $3 billion in revenue would likely give Apple a majority share of worldwide revenue. Modest indeed.