How Apple Thrived In a Season of Tech Scandals

It's strategy is that exclusivity equals safety; a model familiar to those living in gated communities everywhere.

The big question is whether high prices are sufficient to keep the community safe. Especially if the real threat may ultimately be lurking somewhere inside the gates. JL


Farhad Manjoo reports in The New York Times:

The biggest source of strength that Apple has is their ability to charge premium prices for their products. Their value depends on people feeling safe and supported within their ecosystem. The company can argue that only its ad-free business can protect such sensitive information. But Apple’s model isn’t available to everyone. Apple has raised the prices of its top-end phones, and as the smartphone market slows, the company’s haven from the dangers of online life might get only more expensive.

The business world has long been plagued by Apple catastrophists — investors, analysts, rival executives and journalists who look at the world’s most valuable company and proclaim it to be imminently doomed.

The critics’ worry for Apple is understandable, even if their repeated wrongness is a little hilarious. Apple’s two-decade ascent from a near-bankrupt has-been of the personal computer era into the first trillion-dollar corporation has defied every apparent rule in tech.

Companies that make high-priced hardware products aren’t supposed to be as popular, as profitable or as permanent. To a lot of people in tech, Apple’s success can seem like a fluke, and every new hurdle the company has faced — the rise of Android, the death of Steve Jobs, the saturation of the smartphone market, the ascendance of artificial intelligence and cloud software — has looked certain to do it in.

But this year, as it begins to roll out a new set of iPhones, the story line surrounding Apple has improbably shifted. In an era of growing skepticism about the tech industry’s impact on society, Apple’s business model is turning out to be its most lasting advantage.

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Because Apple makes money by selling phones rather than advertising, it has been able to hold itself up as a guardian against a variety of digital plagues: a defender of your privacy, an agitator against misinformation and propaganda, and even a plausible warrior against tech addiction, a problem enabled by the very irresistibility of its own devices.

Though it is already more profitable than any of its rivals, Apple appears likely to emerge even stronger from tech’s season of crisis. In the long run, its growing strength could profoundly alter the industry.

For years, start-ups aiming for consumer audiences modeled themselves on Google and Facebook, offering innovations to the masses at rock-bottom prices, if not for free. But there are limits to the free-lunch model.

If Apple’s more deliberate business becomes the widely followed norm, we could see an industry that is more careful about tech’s dangers and excesses. It could also be one that is more exclusive, where the wealthy get the best innovations and the poor bear more of the risks.

“Because of Apple’s business model — because their money comes from their profitable hardware — it has been much easier for them to make certain choices and certain arguments about how to address problems in the industry,” said Carolina Milanesi, an analyst at Creative Strategies, a technology research firm.

The thrust of Apple’s message is simple: Paying directly for technology is the best way to ensure your digital safety, and every fresh danger uncovered online is another reason to invest in the Apple way of life.

These aren’t new arguments for Apple. While Google and Facebook pursued globe-spanning scale by offering free or cheap services supported by ads, Timothy D. Cook, Apple’s chief executive, was warning of the risks of an internet advertising market run amok.

“I’m speaking to you from Silicon Valley, where some of the most prominent and successful companies have built their businesses by lulling their customers into complacency about their personal information,” he told an audience in 2015.

To many, including yours truly, Mr. Cook’s arguments sounded alarmist and self-serving. But after two years of scandal, he sounds farsighted.

Though their businesses keep chugging along, Facebook and Google, the world’s biggest internet ad companies, now face global scrutiny for the spread of disinformation, propaganda and what critics say is their products’ destabilizing effects on politics and society.

Amazon is beloved by customers, but its rapid growth has spurred economywide anxieties about the future of jobs. All three behemoths are considered growing targets for antitrust prosecution in the United States and elsewhere.

Apple’s business model, by contrast, insulates it from most of the tech fears that have emerged in the last few years. Although it makes the vast majority of the profits in the global smartphone business, Apple’s phones account for a minority of sales, blunting fears of monopoly.





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Apple’s high prices also set up an expectation of safety, giving it a freer hand to police online properties like its app store, podcast directory and news app. A decade ago, when Mr. Jobs imposed rules on the iOS App Store banning scammy and pornographic apps, he was called a prude. Now his rules seem prescient.

Apple is hiring actual human journalists to build a subscription news service that could stand in contrast to the reckless news environment on social networks.

Its commitment to curating online experiences has also turned Apple into something like a moral arbiter for tech. When Apple decided to bar the right-wing conspiracist Alex Jones from its services this summer, it cut through much of the hand-wringing in the industry over Mr. Jones’s antics. Many other tech companies immediately followed its move.

Apple has not entirely escaped criticism in the Trump era. Its reliance on China, where it makes its products and expects to see much of its growth, and where its products abide by government censors, looks to be a rising liability.

Yet so far, Mr. Cook has sailed through tricky political winds. He has somehow managed to offer criticism of President Trump’s politics while benefiting mightily from his tax cuts. Apple has also so far escaped much of a negative impact from the trade war. Note that the Trump administration removed several product categories that may have affected Apple from its most recent round of tariffs.

Even when Apple’s products have been directly implicated in tech worries, its business model has helped it weather the storm. Consider the rising fears of “tech addiction,” the idea that kids and adults are spending too much mindless time in the digital world, egged on by tech companies’ insatiable need for our eyeballs.

In January, a pair of large Apple investors, Jana Partners and the California State Teachers’ Retirement System, wrote an open letter to Apple urging the company to address the issue. Charles Penner, a partner at Jana, told me that the campaign had targeted Apple because the company had every reason to respond.

The biggest source of strength that Apple has is their ability to charge premium prices for their products,” he said. “Their value depends on people feeling safe and supported within their ecosystem.”

And, in fact, Apple responded. The company told the investors that it believed the overuse of tech was a serious issue, and that it had been working on it. In the summer, it unveiled a series of widely praised features meant to allow adults to police their own and their kids’ smartphone habits.

Google, apparently spurred by the same campaign, offered similar features for its Android phones. Mr. Penner told me that he appreciated the companies’ efforts, though he expects to keep pushing them to reduce their devices’ addictiveness.

Apple’s safety-first business model may become only more important as technology becomes even more intimate. The company’s latest phones can be unlocked with your face, while its watch includes sophisticated sensors to monitor your movements and your health. In pushing these and other advances, the company can reasonably argue that only its ad-free business can protect such sensitive information.

But it is worth noting that Apple’s model isn’t available to everyone. In the spring, after Mr. Cook took a few swipes at Facebook’s scandals, Mark Zuckerberg, Facebook’s chief executive, pointed out the inherent limits in Apple’s model.

“The reality here is that if you want to build a service that helps connect everyone in the world, then there are a lot of people who can’t afford to pay,” Mr. Zuckerberg told the journalist Ezra Klein.

Since then, Apple has raised the prices of its top-end phones, and as the smartphone market slows, the company’s pristine haven from the dangers of online life might get only more expensive.

Inequality is the story of our age, and it’s no surprise that it could become the dominant story line of tech, too. As the digital world gets scarier, Apple’s technology may come to resemble a high-priced oasis for the world’s rich. Everyone else takes their chances on a free lunch.