Apple (AAPL) Pay Lacks Innovation; Every Tech Co. Over 20 Will Split – Andreessen

In an interview with Bloomberg’s Emily Chang (@emilychangtv) at the Salesforce Dreamforce Conference yesterday, Marc Andreessen said Apple (AAPL) Pay lacks innovation, “[what is] actually surprising about Apple Pay is how many things don’t change with Apple Pay, like you put in your credit card. It’s innovative in a way that is very consistent with the status quo. It’s very clever. It’s very cleverly done… It kind of plugs right into that existing system. I mean it just inserts Apple into the middle of the existing system which is why [the Financial industry is] all so freaked out.”

When asked by Chang how Apple’s future looks under Tim Cook, Andreessen said, “It looks incredibly promising. It looks extremely promising… Apple is gaining strength…you kind of get…you can kind of feel it, I think they’re going to do extraordinarily well.”

Andreessen gave Chang two reasons why Apple will steer away from producing TV’s, the first he said is the “upgrade cycle for TVs is like five years or seven years or ten years, and so I think what that means it that they’re just not that attractive relative to the smartphone” and the second reason, the TV is the “dumb peripheral to the smartphone.”

Andreessen also told the Bloomberg Television anchor that breaking up is the only way to survive and any big tech company including Google and Apple will do it in the next 20 years.

Highlights:

On Apple Pay:

“This is an area where I think there will be more change in the next five years than there were in the previous twenty. And there’s two big drivers of that change. One, Apple Pay, and the other is Bitcoin. Apple Pay is the thing that is freaking out all the financial services companies right now, like the financial services companies are kind of like… whatever… internet…okay. Credit cards, they’ll work fine on the internet, it’s all good. Apple’s showing up to the party and saying we’re going to now be in the center of payments has caused kind of like a collective heart attack. And there are payments companies that are aligned with that and Apple like “yeah we’ve figured it out” and then there are payments companies that aren’t that are basically having a stroke in real-time and trying really hard to figure out what the implications of Apple Pay are. So there’s going to be a lot of change I think catalyzed by that. And by the way, not just Apple but presumably Google…everybody assumes that Google (GOOG) will respond to Apple Pay and that Google Pay will work much the same way with Android.

On whether Apple Pay is innovative:

“This is what is so interesting about Apple Pay. Apple Pay is viewed by the payments industry as revolutionary but it’s also, it is the most consistent with the existing payments system as any of these new systems yet. It doesn’t require…it’s actually surprising about Apple Pay is how many things don’t change with Apple Pay, like you put in your credit card. [Apple Pay is] innovative in a way that is very consistent with the status quo. It’s very clever. It’s very cleverly done. If anything it’s big selling point is that it doesn’t require massive structural change. So the typical problem of a new payments system is the chicken and egg problem. This is the problem credit cards had when they first came out 15 years ago, it’s the problem that Bitcoin is fighting its way through today which is if everybody has a way to pay, then all the merchants take it, and it’s all great. But until you have universal acceptance on both sides, nobody uses it, right? And so it’s a network effects problem. You have to get through the chicken and egg problem on either side to universal adoption. And so Apple Pay is very cleverly calibrated to basically skip right through that to be very much in alignment with the status quo payments systems, credit card companies. It kind of plugs right into that existing system. I mean it just inserts Apple into the middle of the existing system which is why they’re all so freaked out.”

On the future of Apple under Tim Cook:

“It looks incredibly promising. It looks extremely promising. The iPhone 6 is obviously a huge hit and is going to be extremely successful. And you know Apple is gaining strength this is sort of what I talked about earlier, you kind of get…you can kind of feel it, is the company gaining strategic strength or losing it? And you can just feel that Apple they’re gaining strength. I think they’re going to do extraordinarily well. The interesting thing about Apple and TV is that it keeps refusing to build a TV. And everyone keeps predicting that there will be the Apple TV you put on your wall and they don’t build it and I think there’s a bunch of different reasons for it, but I think the big one is that I believe the big reason they don’t build a tv is that it goes back to the power of a smartphone which is that smartphone upgrade cycle is like two years, you basically get a new smartphone every two years, and even if you don’t get anything else new in your life you get a new smartphone. It’s the most important consumer product probably in history. And the upgrade cycles are actually shrinking, and so more and more people are now upgrading once a year. And potentially as these phones keep advancing you could get the upgrade cycle below a year. I think what Apple has figured out is that the upgrade cycle for TVs is like five years or seven years or ten years, and so I think what that means it that they’re just not that attractive relative to the smartphone to build something when they won’t buy a new one every year. The other conclusion from that though is that the TV then effectively sort of faded, it’s going to become a dumb peripheral to the smartphone. The smartphone will be the center of your media universe. And you’ll be able to watch everything on it. And if you have a big screen nearby, you’ll use Apple Play or Chromecast or one of these things and you’ll be into the TV. But the TV will be kind of the dumb recipient of the content. And I think that they think that’s a low-margin business that other people can pursue.”

On the ‘fundamental, structural industry change’ and the inevitability of tech companies over 20 splitting:

“I think my view is there’s going to be more fundamental, structural industry change in the next five years than there has been in the last twenty years. I think it’s actually a consequence of what we’ve been talking about which is the internet works now. Mobile and smartphone work. All these technologies work and they’re pervasive in people’s lives and so you have a lot of new companies like Salesforce in the last fifteen-twenty years who have kind of grown up in this environment, and then you have these really big, really important franchise technology companies that have been around for 30-40-50-80 years, that still are doing incredibly important work, incredibly big, they have a very large number of people, and so my prediction, the prediction I made the other day is that I think that basically every technology company that’s more than twenty years old will almost certainly break up. Almost certainly break up, like literally split apart. I think basically every, I don’t know it’ll take time, but I think you go right down the list. I don’t want to specifically…whiteboard…specifically…get in too much trouble [by mentioning Oracle].”

“Here’s the two big reasons. So number one, they’re all super cheap. And this is something that’s widely misunderstood, there’s a conventional view that there’s this little tech bubble and I think what’s actually the case is that all of the sort of large, older technology companies, they’re all really cheap. Even Google and Apple are trading at really low P/Es. Like single, low double-digit P/Es. And the really big ones like Oracle, Cisco, and some of these others, many of them are trading at single digits price earnings. And a lot of these companies have tons of cash on the balance sheet. That’s what’s attracting all these activists, the activists come in because the companies are cheap. Not because the companies are expensive. And then the other side is the industry change. The industry is now changing so fast, that if you’re a multi, you know you have technology in all these different businesses, you now have a single on your business from all these new startups and all these new companies. And your ability to fight five or six front wars at the same time is just really challenging. And so at some point I think you wanna split up because you want to be able to get more aggressive, nimble, which means it’s going to having smaller more independent companies.”

“I don’t wanna name..I don’t wanna specifically…I would say over twenty years. Now obviously some of the newer companies including Salesforce and Google and Facebook and others are actually growing very fast and so I think a lot of companies will get larger through this period and so if they’re more than twenty years old then they’ll probably benefit from being broken up, and many of them will probably be forced to break up if they don’t do it voluntarily. Which is why I feel so good I’m involved with HP and eBay and I feel good about both of those moves because especially actually with HP it’s really getting ahead of what would probably happen anyway. So it’s a sign of change, it’s a sign of evolution, the industry is changing, it’s a sign that the technology is changing, it’s a sign that there is the opportunity to do more and better if you’re smaller and more nimble.”

Bloomberg Television

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