Alexa, Blow My Mind
Last week I received several calls from media asking for comments on what has become the Mecca of innovation, Apple’s Special Events, where they announce the accessories of the global wealthy. If you think you’re buying into a differentiated ecosystem or technology, think again — the Galaxy and Android are pretty damn close. You’re buying into a cohort, the global affluent, and the entry fee is the monthly disposable income of a household in Hungary. An Android phone can be had for free, with a contract, but will molest you for data, pulling 10x more data points than iOS.
iOS maps are a global heat map for the wealthy and influential. Show me someone with a second home, 10K+ Instagram followers, or a graduate degree, and I’ll show you an iOS customer. Apple’s stock is a measure of the value of a luxury brand posing as a tech firm, but even more so it’s a metric for the economic well-being of the global affluent. So, yes, the global rich are doing about as well as they’ve done, ever — an all-time high. The Financial Times called and asked which product launch would inspire bigger lines this weekend: Apple’s iPhone XS or the new Adidas Yeezy Boost 350. I tried to provide a thoughtful reason why Adidas would generate more heat, but truth be told, I just don’t care.
For the first time in a while, I didn’t pay much attention to the Apple event, as I knew what was going to happen: Tim Cook would say, “You’re not going to believe what we’ve done. We’ve built an even better phone!” Think of it, a better phone. For the first time in a while, I think Apple’s phenomenal run may be experiencing hyponatremia (note: not sure what that word means, but it sounded cool, and it happens toward the end of an ultramarathon).
Purchase intent for Apple products is the lowest it’s been since 2015 (this could be the tick in their tock cycle, given it’s an S release). On top of that, they made the mistake of anointing as co-star a product that, in my view, is the wrong Ricky to Lucy — the Apple Watch. I believe the Apple Watch is the US in Southeast Asia in the sixties: going to lose, but not before dropping a whole lot of napalm on the sector. The luxury watch industry has shed all its expected growth to what is, just several years after launch, the number-one timepiece in the world. It’s a lame product that ignores a pillar of consumer behavior: take pain out of the process vs. making it harder. The Apple Watch needs to be charged every night.
The costar in my view is the AirPods. These are genius. AirPods are not a listening device but the most aspirational set of transgender jewelry in history, $200 porcelain-plastic earrings that the most interesting men and women wear globally. The AirPods are what we’d like to think Caitlyn Jenner is, an inspiring transgender symbol. No, she’s an asshole. However, the AirPods, they are inspired. But I digress.
So, bereft and bored, I turned elsewhere. And then, mind blown. The unscheduled Amazon hardware event yesterday. I predicted Apple, the most innovative firm in the world, was going to introduce a refrigerator (#wrongagain). However, big tech’s invasion of the most important room in the house has a surprising marauder: Amazon. Amazon announced a microwave. Ok, not that big a deal. Yes, it is. The Internet of Things and smart appliances were supposed to be the next thing. They weren’t, but they were. Ends up there is one way to describe both these categories that were obviously going to catalyze hundreds of billions, if not trillions, in stakeholder value: Alexa.
The flag Amazon is planting in the kitchen is a device that is both instrumental, yet difficult to operate — there are no standards. Show me a microwave I’m not familiar with, and I’ll show you a latte that remains lukewarm. A voice-compatible microwave establishes a beachhead in the largest platform in the world — stay with me on this. US grocery is the largest consumer category in the world, registering $641B/year in value. The platform is the kitchen, and the Seattle firm is about to molest it with media (Echo Show), recipes/information (Alexa), and heat (AmazonBasics Microwave with the new Alexa Connect Kit). The kitchen was the end zone, and Amazon got there first.
In addition, Amazon announced a plethora of items that explain one freakishly hard to believe piece of data: Amazon’s Alexa group has had more open job positions than all of Google.
Put another way, the brightest young minds in the world aren’t working at Instagram, the NSA, NASA, or Bottega Veneta, but at Alexa. Powered not by AI, but the cheapest capital in history, today’s Amazon hardware event made Apple look flaccid. How can this happen? Is Amazon now more innovative? Maybe, but more than that, a fanatical investor base has let Amazon defy gravity and become the (near-) most valuable firm in the world without being nuisanced with profitability. So, if you can reinvest 98 cents on the dollar, vs. 76 cents, given Apple’s operating margins of 24%, you don’t need to be better, just there. Over time, you will win. And win they did yesterday.
It is 12:16 am on Friday, and the following predictions will not be changed, unless they are so insufferably wrong my fragile ego will force me to delete these as I just can’t handle a financial analyst from Richmond sending me pedantic emails about what an idiot I am. Anyway, what I believe will happen over the next 30 days:
— Amazon will add the value of Ford and Tesla to its market cap ($90B).
— Apple will underperform Amazon (over the next 12 months) as investors begin to realize Amazon is starting to land body blows on Apple, and the baton has been passed from Apple to Amazon for the most important product of our age.
— Sonos (great company with a great CEO) loses 5%+ of its value as the Great White Shark is clearly coming for them.
— ADT will gain 10% ($500M), as Amazon is partnering with ADT. Memo to ADT: Amazon partners with firms the way a a virus partners with a host.
— Amazon’s value will surpass Apple’s in the next 60 days and will be 30% greater by end of 2019.
— Home automation company Control 4 (NASDAQ: CTRL, small cap) loses 20% of its value in next 30 days.
— EU Commissioner for Competition Margrethe Vestager’s warning to Amazon that she’s about to kick the firm in the groin is rolled over by excitement and incremental market cap. Amazon will add $90B in value over the next 30-60 days. “So, yeah, go ahead fine us $10B … so what,” said Amazon.
Speaking of Apple, cooler heads prevailed, and Trump announced, after a compelling case presented by Tim Cook, that the Cupertino firm would be carved out of POTUS’s tariffs on $200B of Chinese goods announced this week.
“Thank God,” gasped all media. On Good Morning America, the impossible-not-to-like Mr. Cook said, “I don’t want to speak for [the Trump administration], but I think they looked at this and said that it’s not really great for the United States to put a tariff on those type of products.”
So, phew, we avoided a disaster, and the iPhone and Apple Watch are not subject to tariffs. YAY, the most profitable firm in the world — the firm best able weather POTUS’s feeble understanding of trade — is exempt. It’s just the small and medium-sized manufacturers in middle America that get the full brunt of the shit-kicking.
We’ve lost the script. The exemption typifies our perversion as a society: we see the most valuable firm in the world as a protected class. In addition, its customers, the wealthy, are also a protected class. Hey, if you buy baby clothes or a bicycle helmet, you’re hosed, but don’t worry about your $1,200 phone. We’ve outsourced war to the poor and the brave, and now outsource trade wars to small and medium-sized businesses.
Mr. Cook is the first openly gay CEO of a Fortune 500 company, and an inspiration. President Trump is a raging bigot. However, in the interest of protecting the wealthy in the US and China — where two million people make their livings (in-) directly from iPhone manufacturing — the CEO of the most valuable firm in the world and the president have found common ground. What is this common ground? To use the middle class as kevlar for the rich.
Life is so rich,