AirPods, Apple's vertical integration and the future of wearable AR

Apple's October 30 "There's more in the making" event appears to be focused on new iPad and Mac models, but may also introduce a newly refreshed version of the company's popular AirPods. We actually know less about what Apple will release than previous events, largely because Apple is increasingly doubling down on security and creating more of its "magic" internally via vertical integration right down to its own custom silicon.

In the last eight years, Apple has invested a ton of money into audio, including its largest-ever acquisition of Beats, its development of custom W1 silicon, advanced new speakers systems in everything from its MacBook Pros to iOS devices and even Apple Watch, the introduction of HomePod in an ostensibly saturated market for "voice-equipped smart speakers," and its most recent major acquisition of Shazam — while most of its competitors have largely focused their future sights on video-centric VR.

VR hasn't been excessively hyped just over the last couple of years. Kevin Kelly, the executive editor of chief VR cheerleader Wired said in 1989 that he thought that VR would take five years for ubiquity. In 2016 he was asked when does something like Magic Leap become as ubiquitous as smartphones. He answered "fifteen to 20 years."

Walking into a run

You'd think it would be obvious to observe that immersive VR — used to create experiences that one can enjoy for up to about 15 minutes at a time, on occasion, while tethered up within an area of 4 square yards — would be far less commercially significant than the broader market of AR. The best AR implementations exist in various forms that remain captivating for long periods of time, works virtually anywhere and across an installed base of nearly a billion iOS devices, has immediacy practical applications in the enterprise, and which a broad swath of people will actually pay something to use.

Yet, when Apple's chief executive Tim Cook stated that Apple viewed AR as a bigger opportunity than VR, a lot of people seemed to step back and ponder the puzzle of how this could really be the case, given that anyone and everyone buzz-worthy had been publicly focused on grandiose VR projects for some time now.

The tech media had announced that VR was the next big thing. How could all the people who are always wrong about everything be wrong again?

In 2016 Cook told analysts "AR can be really great. We have been and continue to invest a lot in this. We are high on AR for the long run."

That was a few months after Facebook's Oculus founder Palmer Luckey had ridiculed Macs for not being "good enough" to participate in the hype surrounding Oculus VR helmets tethered to a PC with monstrous GPU power.

Rather than cowering to Facebook's taunts and its muddled strategy that has produced a series of mega-flops from Facebook Home to various Facebook Phones and other ineffectual copycat stabs into hardware, Apple pursued its own ideas.

Early into 2017, Cook compared the potential of AR to iPhone itself.

"The smartphone is for everyone," Cook said. "I think AR is that big, it's huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining."

"We think if we get the experience right, revenue and profits will follow," Cook said at the end of 2017. "We're very much focused on the experience right now."

AR and VR aren't really competitors. In fact, Apple's ARKit development framework, first unveiled in 2017, broadly targets a variety of technologies that can be used to enable both AR and VR experiences. AR is actually more sophisticated in that it requires syncing a VR world of computer graphics to a camera's live video feed in real time, using precise motion sensors and sophisticated software that perform Visual Inertial Odometry.

Apple's approach with ARKit immediately gave developers a huge installed base to target, effectively forcing Google to once again abandon its own internal efforts while scrambling to copy what Apple had done, a Project Tango deja vu recalling its original about-face with Android.

Yet on top of correctly identifying AR — focused initially on handheld navigation of a CGI scene synched up with live video, in six degrees of freedom — as being a better, smarter investment than building yet another way to strap a smartphone to your face, Apple was also nearly two decades deep in popularizing iPod as a way to perform what you might call audio AR: the ability to add a music soundtrack, a podcast, or other audio on top of what you were hearing.

Rather than launching out a series of pundit-arousing trial balloons that couldn't ultimately fly, the modern Apple has built a solid history of selling what's feasible today, and making enough from that to pay for what will be feasible tomorrow— and then not attempting to launch that until that tomorrow actually arrives. So from that lens, Apple's work in immersive audio and sophisticated sound is effectively the prerequisite walk necessary before running into the future of AR and VR.

This wasn't always the case; the teenage Apple Computer corporation of the early 1990s kept itself busy excitedly showing off impressive but impractical beta-demos of hardware products and software initiatives, from Newton mobility to its rumored-to-be-good Copland OS to the flashy QuickTime VR.

Today's Apple appears to have learned from its earlier crashes and indiscretions in ways that today's teenage corporations haven't yet. Google, Amazon, and Facebook seem to be on the maturity level of Apple 1994, arrogantly coasting on their early success without any humility or maturity, and achieving the same kind of results with their hardware, OS and platform concepts.

Today, the fact that nobody else in the computing or mobile market outside of Apple is performing well in the areas of personal audio and advanced hardware manufacturing at massive scale; global streaming services; advanced dedicated silicon; and so on should drop a hint at what will happen when the game steps up a level to involve even more complexity.

The Apple Dynasty of Personal Audio

Apple didn't invent mobile sound playback. Back in the late 70s when Apple was developing its first personal computers leading up to Macintosh, Sony was shifting society with its Walkman, making it possible to listen to audio cassettes anywhere. Yet when the world of personal computing began running into the world of personal audio around 2001, Apple's new mobile computer pod, specialized to play music from its hard drive, blew away a series of attempts by Sony to enter the digital age with its various DAT, MiniDisc and ATRAC players.

Since then, Apple has held on to the reins of the music industry as it shifted from ripped CDs to paid downloads and then into streaming, and as dedicated MP3 players began melding into smartphones. At every turn, Apple was supposed to get Disrupted or out-innovated or beaten by a collective of rivals, but despite billions of dollars in efforts, Sony, Microsoft, Samsung, Google, and many others have failed to capture any more ground from iTunes and Apple Music than the various competitors to DOS, Windows, Office and Google search ever achieved.

The difference is that nobody ever pretended that Windows or Office wasn't important, or that Google search wasn't virtually impossible to dethrone. When Apple was on top of the hill selling iPods, there was only ever some begrudging acknowledgment of the fact while pundits unanimously predicted a future where other mobile phones (or perhaps Microsoft's Zune, or Samsung Galaxy Player) would steal that business away.

And when that didn't happen— and as rivals' efforts to copy iTunes continued to fail in tandem— the new media narrative was that perhaps audio wasn't that important after all, sort of like how tablets were super important right up until everyone but Apple failed at making them, after which pundits stopped talking about them unless they could contrive a subset of tablets that Apple didn't own: "detachables" or the K12 schools that had partnered with Google to get virtually free hardware.

As iPods began to decline in importance, their functionality and audience moved to iPhones and created new categories of wearables including Apple Watch and AirPods. All the while, Apple retained control of the digital music ecosystem that iPods had helped to build.

While there are more counted users among Spotify, and possibly more streams played by YouTube, Apple remains in a powerful position in music because (just like in apps) it generates more money for content producers than anyone else pays in. And in hardware, it makes the same outsized proportion of the industry's profits. That was the case in music players, and it's now becoming the case in audio playback devices, including AirPods, Beats headphones, and HomePod.

The technical defeat of commodity

Particularly since 2000, Apple has proven to be quite exceptional at identifying individual technologies it can leverage to sell a new device. Rather than trying to deliver "uncompromising" do-it-all products that tick every checkbox— as virtually all of its competitors struggle to do— Apple's history of incredible growth since 2000 has been fueled by relatively simple products with a clear, limited focus.

You might call it a strategy Apple borrowed from the Unix philosophy: a set of minimal tools that each seek to do something really well, and which work together with other tools to build a rich ecosystem of functionality. The notable exception to that has been the monstrous iTunes, but even there, Apple has been increasingly dismantling its sprawling feature set to instead focus on integration between its products, most notably in the individual apps of iOS.

As personal computing has spread from desktop PCs to laptops to mobile devices and toward wearables, the value of Apple's increasingly vertical integration continues to increase. That's particularly evident in the difficulty of competitors to replicate the success of Apple's newest products. While everyone eventually copied iPhone and iPad was met with a sea of tablet alternatives, Apple Watch turned the story around, effectively erasing virtually all smartwatch production and potential— and even fewer are making a viable, sustainable competitor to AirPods or HomePod.

Apple's vertical approach to design blurs the integration of hardware and software, from hardware chips to the firmware running on them to the way the operating system manages various custom components. By increasingly building the entire product, Apple can optimize integration on many levels. And more importantly, because Apple is developing a vertical series of proprietary technologies, from custom silicon to specialized sensors and software frameworks, it can leave competitors behind because the task of catching up is simply too difficult, just like it was impossibly complex to quickly build alternatives to Office or Google search.

Note that Apple isn't trying to build everything. It backed out of server equipment and WiFi routers and doesn't even attempt to compete in low-end devices at all. Yet in the areas where Apple chooses to compete, it nearly always obliterates its competitors. And it chooses those categories because those are the most profitable opportunities. Identifying these are hard, which is why the industry is largely just collectively copying Apple, apart from a few dead-ends they tried on their own: bent smartphones, 3D displays, netbooks, e-ink readers, tweener tablets, and VR headgear.

Why AirPods?

Tomorrow, Apple is expected to introduce new Macs and iPad models, hinted at in new regulatory filings. But it's also likely that Apple will be unveiling a new wearable in supporting role. Just as new iPhones got paired with the new Apple Watch Series 4, new computers are likely to be introduced with revamped AirPods.

The initial release of Apple's new wireless headphones under the AirPods brand didn't seem like a game changer. The new product was largely passed off as an excuse for (or perhaps conspiracy involving) the removal of the analog headphone minijack on iPhone 7.

Some of the same critics who had been incessantly complaining that new iPhones weren't getting material case changes— while vehemently demanding to see "innovation" from Apple— turned around and insisted that the removal of a relatively large, legacy audio connector popularized by Sony's Walkman back in the 1980s was "user-hostile and stupid," at least until everyone else in the industry followed suit.

Just as with SD Card storage before it and the iPhone X Notch that followed, once the manufactured outrage over Apple's decisive "courageous" strategy failed to stick, the leading critics turned into apologists making excuses for the same headphone jack removal on Android.

Yet while Apple's competitors have virtually all followed suit in removing their own headphone jacks, they haven't similarly copied the usability and attraction of AirPods. Removing the jack turned out to be really easy while building a good quality, effortless to pair, affordable set of wireless headphones was not.

There was something special about AirPods: they didn't just work, they make you happy to use them. It was the kind of product that made you wonder why nobody had thought of it before. Of course, it wasn't that nobody had contemplated the idea. It was that the AirPods experience was complicated to deliver.

Hardware design is hard

Apple's ability to deliver AirPods was due in part to its hardware design savvy, funded by its ability to sell large volumes of the products it makes. Other companies can similarly spend large budgets on design, but don't have a historical pipeline of selling what they design in volume, taking advantage of vast economies of scale.

Andy Rubin's Essential provided an example of how much money you can destroy by investing in a product you can't ultimately sell. Palm's webOS, Windows Phone, and Windows RT had already demonstrated that putting lots of money into something doesn't result in automatic success if you can't sell it.

Microsoft's take on iPod, Samsung's version of iPhone, Google's response to iPad, and the efforts of all three to produce some sort of wearable all turned out to be largely wasted efforts that could have been better invested into cloud, components or ad-tech. Apple, on the other hand, has sold millions of units of virtually every product it has ever introduced, in part because it is very selective about what it chooses to invest in.

Product flops at Apple are so rare that clickbait articles have to dig back into the 80s to fill out even a short listacle of mistakes. For Microsoft, Samsung and Google, it's about equally as hard to identify a short list of specific hardware successes across their past few decades, at least if you're being honest rather than just repeating PR and Gartner white papers under the pretense that they are anything other than wishful adoration of the nude emperor's fine threads.

Microsoft's Surface is now "the fifth largest PC maker in America," if you ignore the fact that PC sales are tumbling and the top four are way ahead of the not-impressive volumes of that number five (602,000 units!).

This sort of vapid adulation didn't help Windows Phone, and it doesn't solve the problem of Surface going nowhere for the last eight years, either.

Reality doesn't care whether think-tanks push out PR designed to make a fifth-rate maker of netbook-tablets sound impressive while simultaneously inventing various techniques of contrivance intended to make the world's largest tablet maker— by far— sound like a not very interesting business that probably isn't very important and won't last long. Hardware remains hard, and the phony cheering/booing section of "market research firms" provides no exception to that fact.

Protocols and silicon

At the same time, AirPods weren't just a hardware design project. The development of AirPods involved creating new wireless protocols and technology that leapfrogged the communal development occurring within the Bluetooth consortium.

The product also involved custom silicon design to build a highly integrated, task-optimized W1 chip providing a big jump in quality, reliability and battery efficiency in one leap— effectively the firmware embodiment of that wireless technology.

There was also a third broad factor of expertise required: audio design, acoustics, and sound processing. Audio technology continues to rapidly improve in the shadows. While it gets a lot less attention than processor clock rates or memory chip storage capacity or the pixel density and color accuracy of displays, the technology used to reproduce sound efficiently and in high fidelity is also moving rapidly.

The future of AirPods will clearly leverage new technology that's emerging in the areas of psychoacoustics and digital audio processing that not only reproduces sound but sculpts it to make music, conversations and other audio more enjoyable. That's particularly important among aging users, as our ability to hear specific frequencies is damaged over time. That, in turn, makes it harder to focus on a specific speaker in a noisy room, for example.

There are entire companies devoted to building speakers and headphones that can apply digital signal processing to boost the performance of audio playback, remove background noise, increase the clarity of voices, or enhance the directionality of sound sources on the virtual soundstage.

As Apple plows forward, these minority firms of audio expertise are often turning into patent licensing agencies because they can't keep up with Apple's mass market machinery for bringing new technology to consumers. The same way that early computers killed typewriters, or that iPhone all but erased the market for handheld camcorders and point and shoot cameras, or that Apple Watch has pulled the oxygen out of the room for mechanical watchmakers and other fitness bands, AirPods are increasingly occupying the sweet spot for affluent, mobile music lovers who want to be bathed in tunes, while leaving less on the table for the rest of the industry. Like iPod's white earbuds from a decade ago, AirPods are also turning into an iconic status symbol, despite the affordability of their luxury.

Combined with its Beats subsidiary using the same W1 silicon technology, Apple has rapidly become a leading seller of consumer audio equipment, despite only recently getting into the market; it acquired Beats in late 2014. Yet when Apple launched AirPods at the end of 2016, it could already claim a leading share in the industry with a quarter of all U.S. headphone shipments by units. In dollars, it was collecting half of U.S. revenues.

Nobody needs to make up statistics to make Apple and Beats sound impressively "fifth-place." And nobody is spending much time pointing out that Apple has gobbled up the profits in personal audio headphones in less than four years of trying, in free and open competition with established and apparently competent rivals.

Isn't it funny that critics applauded Google's $12.5 billion acquisition of Motorola and Microsoft's $7.6 billion acquisition of Nokia— both of which ended in disaster— while naysaying Apple's $3 billion acquisition of Beats, a deal that rapidly gave Apple both a competitive music streaming service and made it a leading producer in profitable audio gear?

Siri leads sales

And for all the talk about Alexa and Google Assistant over the last year, the truth remains that real money is being earned in hardware sales connected to Siri: AirPods, Apple Watch, premium iPhones and high-end HomePods. There isn't any similar volume of profits being generated by some other business model, whether that involves retail, social graphing or surveillance advertising.

Have you noticed that the same people who were saying in the 90s that Windows was "good enough" to outsell the Macintosh are now arguing the opposite: that Siri isn't "good enough" and consumers really want an extremely powerful, multiuser voice assistant platform, just because that's what Amazon and Google have to offer? It's not even remotely true, however.

Alexa Echo is a loss leader that isn't actually driving Amazon's online retail sales as it was designed to do back when it debuted as a Fire Phone feature, and again when it was recycled as a WiFi microphone as the voice-based equivalent of "Dash buttons." No number of partner announcements changes the fact that people are almost entirely using voice assistants just to listen to music.

And nobody knows that better than Apple itself because it has handled the vast majority of all of the voice requests made by people around the world since Siri launched back in 2011. With all the data that Apple has on voice assistant use, it decided to sell a premium HomePod and integrate Siri for navigation features into AirPods and CarPlay, not copy Amazon's Fire-sale approach.

The media's incessant evangelizing of voice assistance— and particularly the thrall devoted to making complex queries issued in conversational structures— really just demonstrates that these writers don't have real data on what people actually want and how people actually behave, and instead are just being fed what to think by the people trying to sell something that isn't really popular or valuable.

The same people who wrote excitedly about voice were also super excited about chat-bots and VR headgear. I could write an entire article just listing all the technological dead-ends that have managed to whip the tech media into a frenzy before ultimately going nowhere and fizzling out. Absent from such a list would be Apple's iPod, iPad, Apple Watch and now HomePod, each of which was greeted with lots of concerns and doubtful criticism from those same people.

Google's me-too Assistant may be great at answering questions, but who is asking? Unlike Siri, it isn't similarly moving hardware sales, whether high-end Pixel phones, Google's Pixel Buds that were portrayed as being useful in foreign language translation, or Android WearOS watches. Even the Home Max speaker Google rushed into the channel ahead of Apple's HomePod— despite claiming to be louder, larger and more conversational— had just half the installed base of Apple's Siri-based HomePod by the end of this summer.

It's pretty clear that about as many people care about Assistant as buy a Pixel phone, which is far less impressive commercially than even the fifth-place Surface.

Siri as an assistant doesn't deserve wild accolades. It still remains behind its competitors in various features ranging from identifying a unique speaker to providing useful answers to many kinds of questions. However, the very value of voice assistants has been wildly overestimated by the tech media, which has largely been parroting Amazon's marketing fluff more than honestly evaluating what real value Alexa is delivering and who is capturing it.

Alexa isn't driving sales of any wearable headphone product. In contrast, AirPods are selling as fast as Apple can make them "despite" their integration with Siri and all of its weaknesses. It will be easier for Apple to enhance Siri than for Amazon, Google and perhaps Microsoft to learn how to build desirable hardware they can sell at a sustainable profit (or develop any other successful business model to monetize their voice platforms).

Saying Alexa is important in selling products is like saying computing devices need Windows in 2018. It might sound right, but it simply isn't supported by facts. The largest and most profitable producer of laptops and tablets is doing very well without Windows— or Alexa, while Windows and Alexa are not similarly fueling huge profit gains anywhere anymore.

If it seems like virtually everything being stated about consumer technology is just totally false, remember that's why Apple does its events in the first place: it's a technique to break past the orifices of the corporate media gatekeepers and deliver the message Apple wants to communicate right to the consumers who tune in to watch its theatrical introductions.

Tomorrow, Apple will cut through the noisy praise Surface and Alexa; the assurances that "surveillance advertising is good" and nothing to worry about; and the normalization of theft by commodity counterfeit innovators among Android licensees. While everything Apple does deserves to be critiqued, at least it isn't just phony invented claptrap. It's an insight into the future from the distant leader of the consumer technology industry.

And that's why Tuesday matters beyond just a new Mac mini, or iPad Pro. Apple is a hot 42 and killing it.