Riding Waves

I just listened to another excellent podcast from Asymco's Horace Dediu: Critical Path #145: "Arbitrage." Near the end of the podcast Dediu talks about how cord cutting and the demise of cable television is following a slow but predictable path. The downward trend in cable subscriptions may accelerate as over-the-top ("OTT") content distributors like Apple, Netflix, Google, and Amazon offer more and more unbundled alternatives to the current oversupply of bundled cable channels. Dediu's comments reminded me of how Steve Jobs compared taking advantage of technological change to picking and riding a giant wave:

"Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you're going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely it actually unfolds fairly slowly. It takes years."

The Cord Cutting Wave

You can really see Apple riding the cord cutting wave with Apple TV: years of overserving and price inflation in the cable TV business have created a huge wave for OTT providers. See post titled HBO, ESPN, and Jobs-to-be-DoneAnd Apple's closed ecosystem of hardware devices amplifies its ability to exploit this wave -- Apple will get more benefit from cord cutting hardware than companies without a closed ecosystem, since Apple TV will drive the sale of other Apple ecosystem products that work with the Apple TV (Apple Watch, iPhone, MacBook, etc.). OTT providers like Netflix, Google, and Amazon won't get these same benefits because they don't have a viable, prosperous range of closed ecosystem hardware all running a consistent operating system.

The Cloud Storage Wave

The other big wave Apple seems to be riding is the way people are moving their personal photos and videos (as well as all other content) from their computer hard drives to the cloud. With the release of Apple's latest Photos app, people are going to stop storing personal media on their hard drives and start storing it on iCloud. Because Apple's range of closed ecosystem devices makes the user experience the easiest and most convenient, Apple is going to be in a great position to charge for iCloud storage of this media (even if Google and Amazon are giving cloud storage away). iCloud storage of personal media is really going to lock customers into Apple's ecosystem, dramatically raising switching costs. This trend/wave is just starting, and Apple will be able to ride it indefinitely as data storage demands continue to rise.

The author owns stock shares of Apple.