Quick Thoughts: Apple is all about the Devs


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–        Unlike past years, WWDC ‘14 had no new hardware, just updates to OS X and iOS that filled competitive holes, tightened cross-platform integration, and added support for developers.

–        The anticipated HealthKit and HomeKit features of iOS8 allow 3rd party apps to work together via APIs under a unified interface, but do not seem real game changers.

–        Apple fixed some major iOS shortcomings, adding support for 3rd party keyboards, bringing iMessage up to date, allowing 3rd party access to TouchID, and improving iCloud storage.

–        The “Swift” programming language, “Metal” graphics booster, broader APIs, improved App Store and new SDK boost Apple’s attractiveness to developers – a key advantage vs. Android

This year, Apple took the title of its World Wide Developer’s Conference seriously, and delivered a package of announcement squarely targeted at its 3rd party software partners. Without a whisper of new hardware, without even a traditional “one more thing” to close off the kick off keynote, Apple CEO Tim Cook and his lieutenant, SVP of Software Engineering, Craig Federighi, plowed through a detailed nerd-fest of upgrades and enhancements to the company’s two primary software platforms – OS X and iOS. The only tip of the cap to the fanboys was using a new OS X feature to use a Mac to call Apple’s newest employee, Dr. Dre. Still, not a further peep about how the company plans to integrate its $3B acquisition into the mothership.

No, the WWDC would be about developers, in a way that it hadn’t been for many years. Perhaps Apple is on alert that, after many years of an almost universal “iPhone first” attitude amongst the software startups building the apps that has been so crucial to its smartphone and tablet success, many developer heads have been turning toward the massive installed base that Android has been building. Apple wants to give these 3rd party programmers good reasons to get back in line behind the iPhone (and the Mac). To that end, Apple is ready to be more open – giving developers access to elements of the iPhone that it hadn’t before by publishing APIs for 3rd party keyboards, for its TouchID fingerprint scanner, for its integrated cameras, and for apps to interact directly with other apps on a phone, including some of its own default features.  Apple is also more willing to address perceived shortcomings of its platforms, announcing a big revamp to its iCloud storage service, modernizing iMessage to be more like its fast growing rivals (like recent Facebook acquisition WhatsApp), and offering “widgets” on its notification page. Finally, Apple is looking to deliver value directly to developers, announcing a new graphics engine (Metal) for game developers, a new programming language (Swift), free hosting (CloudKit) for some partners, a new software developers kit (SDK), and improvements to help discovery in the App Store. The developers in the audience ate it up.

Tim Cook kicked off the OS X portion of the keynote with some stats and took a swipe at Microsoft comparing user adoption rates between the latest versions of Mac OS X and Windows. Apple’s high penetration of course is explained by the fact it gives away OS software now for FREE. Taking over for Cook on stage, Craig Federighi unveiled the latest Mac OS X. Having run short of big cats to name its OS, Apple decided last year to change its naming convention to places in California, and named the latest OS X release after Yosemite. After somehow inserting a “weed” joke into the presentation, Federighi got into the details of OS X Yosemite, which aside from tweeks to look and feel, offers a few minor enhancements like an improved spotlight search tying contacts to documents, new widgets, a DropBox-like iCloud Drive feature, and faster version of Safari. The most notable feature though with this version of OS X is closer integration with other iOS devices. Airdrop now works between Mac and iOS devices and users can revert between documents on devices via a feature called “Handoff.” Yawn.

Turning to iOS, Cook took another swipe at a competitor, this time Google, with user statistics on version adoption in mobile devices comparing iOS 7’s 89% penetration of Apple devices versus Android’s 9% penetration of KitKat in its own ecosystem. Apple makes no secret of its desire to update most of its user base with the latest software, even grandfathering in older models albeit without some enhancements. The new iOS 8 also offers some enhancements such as improved notifications that allow interactions without opening apps, e.g. a like button on a Facebook notification, quicker access to contacts via task switching, and improved email that allows for working between multiple messages. Also featured was a spotlight enhancement similar to the one featured in OS X Yosemite as well as an improved iMessage that allows for location sharing and managing group messages. Again Yawn. In the detailed portion of the iOS presentation, Federighi did briefly mention “HealthKit,” a widely expected play for health and wellness that centralizes a users health data to the device, but little was shown other than a Mayo Clinic app as the functionality still needs to be developed. The new iOS 8, as presented, is merely an incremental update.

Perhaps the most interesting part of the keynote was the series of backend enhancements made for developers. After all, WWDC is still the company’s developer conference and apps remain the lifeblood for those in attendance. The crowd at the Moscone center erupted in cheering when Cook and Federighi announced App Store enhancements like app bundling and enhanced search features, the new programming language called “Swift,” and software improvements to graphics processing. App distribution has been a key issue for many third party developers as differentiation and discovery is difficult in Apple’s crowded App Store of 1.2M apps. Many developers face an uphill battle promoting their apps as the ecosystem is concentrated with the top 500 apps representing 80 percent of downloads. Aside from improving the distribution of apps, Apple took some strong steps to further open its ecosystem to third parties.

Until now, third party apps have not been able to talk to each other. With Apple’s new extensions and APIs, developers can now take advantages of building upon and integrating with existing apps as well as use hardware that was previously locked, e.g. TouchID and the cameras. Promising some 4,000 new APIs, Federighi previewed several APIs like HomeKit and CloudKit. HomeKit is essentially a common network protocol for home automation and smart devices. With no home hardware of its own released, Apple is relying on third parties. Apple is also giving developers some level of hosting for free with CloudKit. By keeping its developers happy, Apple wants to maintain a vibrant app ecosystem that will have users return to buy more devices.

All of these announcements will give developers warm and fuzzy feelings, and should help to keep iOS first on the release roadmap for new apps for a while longer. Still, the impact for most consumers of these features will be minor. Given this, and the history of stock drops after Apple’s WWDC keynotes (buy the rumor, sell the news) I was expecting more of a buying opportunity in the wake of this particularly lackluster presentation. Still, after Eddie Cue’s bombshell comment at last week’s Code Conference implying that Apple’s second half announcements would be bigger than the iPhone or iPad, investors will be buzzing with new product anticipation all summer. With this and a super easy compare for the June quarter, Apple may well be worth a trade here, particularly if WWDC disappointment hits the stock over the rest of the week. Of course, longer term, I remain very skeptical that Apple will be able to sustain meaningful earnings growth without substantial strategic change.

For our full research notes, please visit our published research site.

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