Extrapolating Some Apple Mobility Dots

Over its 40+ year history, Apple has gone from being a pioneer of personal computing to one of the world’s leading purveyors of mobile phones, with stops along the way to change the nature of human machine interaction and upend the music industry. The problem with having an extremely popular product is that eventually everyone has one and the market stops growing. With Apple starting 2019 with its first revenue warning in more than 16 years, some seemingly unrelated news during this year’s CES could hint at the company’s intentions in the mobility space. 

Automated Apple

It’s no secret that Apple has been working for some time to develop an automated driving system. At last count, Apple had nearly 60 cars permitted for testing on California roads. The big question has been what Apple intends to do with this system when it is ready. Many have been assuming that the company would build its own vehicles at some point. This is in part due to Apple’s preference for maintaining tight control of all its products including hardware, software, and related services. 

However, in the 2 decades since now CEO Tim Cook took over operations responsibility, Apple has been remarkably profitable, consistently generating net margins approaching 40%. Those sorts of margins are unheard of in the auto industry, where most companies struggle to break out of the single digits. 

Signs of Collaboration Point to Mobility Intentions

In recent years, Apple has increased its focus on generating recurring revenue from services in addition to its hardware sales. The warning that its revenue for the December 2018 quarter would fall short of earlier estimates by 9% makes new revenue streams all the more important. 

At CES, Samsung surprised attendees by announcing that its 2019 TVs would include an app for playing iTunes video content and several other manufacturers announced support for Apple’s Airplay 2 protocol. This is content that has until now been restricted to Apple devices. 

That Apple is now suddenly willing to let other hardware makers access its content services may well be a hint at its mobility intentions. Rather than trying to build a complete vehicle, it seems more likely that Apple will license its automated driving stack to other manufacturers that don’t have the resources or expertise to develop their own. If that happens, it will likely be tied to an Apple-controlled mobility services platform, much as Apple’s mobile devices are locked to its app store. 

This would likely enable Apple to take a percentage of every mobility transaction. It would be able to do this without incurring the costs of paying drivers as current ride-hailing providers do or the capital and operating costs of actually running a fleet. Apple would almost certainly have responsibility for ongoing development and deployment of functional, safety, and security updates to software, much as it does today for the devices it sells. Apple would likely provide much of the required hardware including the compute platform and perhaps even the sensors.

The saturation of the market for iPhones will absolutely hit Apple’s bottom line in 2019 and perhaps for some time to come. However, it may also provide the incentive that the company needs to push forward into becoming an automated mobility service enabler in the coming years.