Blog Archives

Apple’s Rotten Core

Apple has always been equally an enterprise and a secular religion. The Apple Faithful do not tolerate heretics or critics, and non-believers “just don’t get it.”

So the first thing any critic must do is establish their credentials as a Believer:My first Mac model 0001 was the 21,447th made in week 32 of 1984 in Fremont, California. Now that we’ve established that, we can move on to my profound sense of anguished abandonment that Apple ceased producing the iPhone SE, the only form factor that works for me.

But Apple Faithful are accustomed to repeated bouts of anguished abandonment; it’s just one of the burdens the faithful must bear.

Focusing on the enterprise rather than the religion, Apple’s core–its revenue and profit potential–is rotten. As the charts below illustrate, despite all the happy talk about growing “services,” the hardware-software iPhone generates nearly 60% of Apple’s revenues. The iPhone ecosystem is also the foundation of the “services” currently being hyped as replacement sources of revenue.

The problem is that the proprietary features of the iPhone that have generated strong demand as prices kept rising are reaching diminishing returns. People want the status of owning an iPhone, but there are limits on what the bottom 90% can pay for that status.

The new features of the $1,000 iPhones have also reached diminishing returns. This is analogous with adding memory to a computer or increasing the pixel count in a digital camera: at some point, the added feature no longer has any impact on the user experience.

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Commoditization = Deflation

Apple’s slumping sales growth in China re-energized discussions on the commoditization of smart phones: the basic idea is that once devices, services, goods, platforms, etc. are interchangeable and can be produced/generated anywhere, they are effectively commodities and their value declines accordingly.

In the case of Apple’s iPhone, many observers see diminishing returns on the latest model’s features as the price point (around $1,000) now exceeds what many customers are willing to pay for the status of owning an Apple product and the declining differentiation of the iPhone when compared to other smart phones available at a fraction of the iPhone’s price.

Commoditization doesn’t just affect the top tier of the food chain; it affects the entire food chain. The commodity $400 smart phone has diminishing returns over the commodity $200 smart phone, and the $200 smart phone has diminishing returns over the commodity $100 smart phone.

Commoditization ravages price and profitability. Once the production facility is paid for by the first run, the cost basis of future production drops, enabling the producer to reap profits even as price plummets.

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Does the World End in Fire or Ice? Thoughts on Japan and the Inflation/Deflation Debate

Do we implode in a deflationary death spiral (ice) or in an inflationary death spiral (fire)? Debating the question has been a popular parlor game for years, with Eric Janszen’s 1999 Ka-Poom Deflation/Inflation Theory often anchoring the discussion.

I invite everyone interested in the debate to read Janszen’s reasoning and prediction of a deflationary spiral that then triggers a monstrous inflationary response from central banks/states desperate to prop up their faltering status quo.

Alternatively, economies can skip the deflationary spiral and move directly to the collapse of their currency via hyper-inflation. This chart of the Venezuelan currency (Bolivar) illustrates the “skip deflation, go straight to hyper-inflation” pathway:

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The Flaws in Basic Income for Everyone

Finland made the news recently by proposing a pilot program of guaranteed income for all, also known as Universal Basic Income: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens.

The goal is two-fold: by providing every household with a minimum income, regardless of what other income the individuals might earn, the program does two things: it provides everyone enough money to get by and it removes the disincentive to work inherent in the conventional welfare model: in the current model, recipients who earn money lose their benefits, leaving them no better off if their earnings are modest.

The Finnish proposal offers a basic income of around $850 to $900 per month, roughly $10,000 per year.

Proponents of Universal Basic Income (UBI) see it as the only solution to automation’s replacement of human labor, a topic I discuss in depth in my new book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.

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Automation Doesn’t Just Destroy Jobs–It Destroys Profits, Too

The idea that taxing the owners of robots and software will fund guaranteed incomes for all is not anchored in reality.

Automation is upending the global order by eliminating human labor on an unprecedented scale–and the status quo has no reality-based solution to this wholesale loss of jobs.

Two recent articles highlighted the profound consequences of advances in robotics and AI (artificial intelligence) on employment: four fundamentals of workplace automation and Robots may shatter the global economic order within a decade as the pace of automation innovation has gone from linear to parabolic (via Mish).

The status quo apologists/punditry have offered two magical-thinking solutions to the sweeping destruction of jobs across the entire spectrum of paid work:

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Why We’re Poorer: Inflation and Deflation Are Now Globalized

We’re being hit with a double-whammy: Wages are under deflationary pressure, and almost everything else is exposed to inflationary pressure.

As correspondent Mark G. observed in Globalization = Permanent Instability, it’s impossible to understand inflation and deflation now except in a global context.

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The Artists’ Road to Serfdom: The Commoditization of Creative Content

This is the net result of commoditization: there’s no premium for commoditized capital, labor, goods, services or content.

As I noted in Our New Robot Overlords & The Third Type of Capital, profits flow to whatever inputs are scarce. Unfortunately for musicians, writers, filmmakers and others producing creative content, creative content is no longer scarce: it’s been commoditized and is now available in unlimited quantities for $10/month.

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A Critique of Piketty’s Solution to Widening Wealth Inequality

The real problem with Piketty’s taxation/social welfare solution to wealth inequality is that it does nothing to change the source of systemic inequality, debt-based neofeudalism and neocolonialism.

Those of us concerned by widening wealth/income inequality have been following the work of Thomas Piketty and Emmanuel Saez for many years. I’ve cited their analysis many times; for example: Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens (August 18, 2010).

Thomas Piketty has taken his meticulous research and turned it into a book, Capital in the Twenty-First Century, that has catalyzed the discussion of widening inequality by essentially proving that capital expands at rates far above the overall economy and wages. Since capital grows much faster than wages or the underlying economy, the gap between earned income and unearned income (rents) widens, along with the net worth of those who own capital and those who own little to no capital.

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