Ben Thompson at stratechery.com just wrote a thought-provoking article titled "Apple's Organizational Crossroads." In the article Ben says Apple should consider organizing its services into divisions with separate P&L's, creating a direct profit incentive to help it create better services and then rapidly iterate/improve these services. This would be a break with Apple's current functional structure, under which the company is organized around functions like design, engineering, marketing, and so on rather than by product division.
I wrote a pretty lengthy response/rebuttal to Ben's article. Rather than rewrite the response I'm going to quote it in full:
I think Apple does iterate its services independent of hardware releases -- I get regular updates to iTunes and OS and iOS regardless of whether I purchase new hardware.
I like the simplicity of Apple's approach to services: when I buy the hardware I know it's going to come with certain core services I need -- mail, messaging, contacts, calendar, Pages, Numbers, etc. -- and I don't have to worry about getting nickel and dimed for service updates (which is what Apple would presumably have to start doing if each service had a P&L).
Conversely, as an end user I really dislike the way Microsoft is following a nickel and dime approach by trying to funnel me into a yearly subscription for Word, Excel, etc. -- and I'm finding I can get along without state of the art services from Microsoft. Apple's core services are good enough for me. If any core Apple service isn't good enough then I just buy the service/app from a third party -- no big deal.
I think Apple is actually doing a fair job monetizing most of its services through its hardware, iCloud backup, and iCloud storage. And while hardware monetization doesn't provide a direct incentive for Apple to improve its services, it does provide an indirect incentive: Apple wants to make sure its core services are generally liked and used, since that use keeps the buyer purchasing future Apple products.
It's strange but you don't seem to hear as much about Google Docs anymore, despite powerful direct incentives for Google to improve this service (such as collecting user data, generating ad revenue, etc.). I continue to see complaints on Twitter about the limitations of Google Docs. I'm not convinced incentives have to be direct to be effective.
Apple Music may not be as good as Spotify but it's good enough for me, as is the ability to purchase videos through the iTunes Store. Apple Maps is also good enough for me and continues to get better (despite Apple's lack of direct incentives to improve Apple Maps).
I really think Apple's focus on the integrated user experience is appropriate, because this approach puts the focus on the job-to-be-done. Focusing on the job-to-be-done helps keep prevent unused features and non-meaningful improvements to services that are already good enough (again, I'm thinking of Microsoft services here).
And referencing Steve Jobs, Jobs always said you have to start with the user experience and work backward to the technology. You could arguably take this line, change a few words, and say something like: you have to start with the user experience -- which by its very nature is broad and encompasses both a hardware and a services component -- and work backward to a holistic, well-designed solution which isn't tied to whether particular components of this solution are profitable.
This holistic, integrated approach is enabled by a functional organizational structure. I don't think I'd ever want Apple to abandon this approach and go to product divisions/silos and a bunch of separate P&L's where great, integrated solutions/products become almost impossible.
Going forward I believe Apple will try to make a profit on services that don't have to be tightly integrated with Apple hardware. Such services might include: App Store revenues, iTunes music/video revenues, and Apple Music. This list might also include iCloud backup/storage tiers, since this is a backend service that's arguably more standalone. The more standalone nature of certain Apple services may explain why Apple made iTunes and Apple Music available horizontally to users of Microsoft and Android hardware.
Much of this response suffers from anecdotal, first person bias -- my own experiences and opinions regarding the "good enough" nature of many Apple services may not hold true for others. Despite this, I suspect at least some Apple users feel this way.
The Problem with Legacy Products/Services
After mulling around Ben's article and my response, it occurred to me that the Apple services struggling the most -- in terms of quality, complexity, and general cumbersomeness -- are the legacy ones. iTunes and Apple Music are confusing and complex because they still provide users like me with the legacy stuff I bought a few years ago (downloaded music, for example) while also giving me access to newer technologies/approaches like music streaming. iCloud can be confusing and cumbersome because I used to back things up to my computer and iTunes rather than backing up with iCloud. iPhoto can be confusing and cumbersome because Apple is trying to accommodate users who sync with their computers while also encouraging users to start using iCloud to save all their photos and videos.
I don't think the main thing holding up improvement/iteration of these Apple services is the absence of separate service divisions, each with a separate P&L. I think the main problem is the pre-existence of legacy solutions -- e.g., downloading and syncing music in iTunes or syncing photos with iPhoto on your computer -- that were developed before cheap cloud storage and high speed broadband became widely available. These legacy problems would exist regardless of whether Apple used a separate P&L for each service.
The Apple services without significant legacy issues seem to iterate/improve pretty rapidly. Apple Maps has no legacy issues and has rapidly improved. Apple services like contacts, calendar, notes, Pages, and Numbers have few legacy issues and have rapidly improved. iCloud has a few legacy issues related to traditional computer backup and iPhoto, as noted above, but because iCloud operates largely out of sight, it has also improved rapidly. Again speaking anecdotally, I now use iCloud Drive for all my folders/documents on both my Mac and iOS devices.
The thing I like about Apple is that it's always trying to move users away from legacy approaches toward newer, more efficient ways of doing things. So Apple has abandoned built-in computer disk drives, is encouraging people to backup with iCloud instead of their computers, and is encouraging people to use Apple Music instead of continuing to download music through iTunes. Apple is trying to take care of legacy users who don't want to change while also "getting its foot in the door" by adopting new technologies that improve legacy services like iTunes and iPhoto (with services like Apple Music streaming and iCloud).
Companies that let legacy products and services rule their portfolio -- and don't get their foot in the door by adopting technologies that can improve products and services -- can pay a heavy price. Intel's adherence to legacy x86 chips, and its reluctance to shift to ARM chip designs, is a good example of this.
The author owns stock shares of Apple.