Why the Apple Watch Series 4 is a BIG deal

Why the Apple Watch Series 4 is a BIG deal

I am not an Apple fanboy, but it’s hard to ignore all the things Apple is doing as of lately. One of the first articles I wrote was about the disruptive potential of the iPhone X. While new apps using the True Depth sensor camera will take time to flower, the Face ID application was an instant hit

But there was a big question about Apple’s future then. What happens when the iPhone franchise ends? The future of Apple wasn’t obvious. During the past few years, the company has been increasing their cross-sales capabilities. It’s not about the device itself anymore, but about all other devices, you can connect to the iPhone. The strategy, though, has always revolved around the anchoring device, the smartphone. 

However, the recent announcement of the Apple Watch Series 4 changed all this. Apart from the usual array of iPhone upgrades, the introduction of the new Series 4 Watch stood out as a new strategic direction for Apple.

September Event 2018 — Apple – YouTube

The backdrop

I’ve been particularly disenchanted with Apple’s efforts around the smartwatch. Their first incarnation, launched in 2015, was despite the record sales, a big disappointment from a product perspective.

The Big Picture: Apple products have always been driven by what they solved. The iPhone addressed a big obsession for Jobs and a natural evolution from the iPod. Nonetheless, the Apple Watch was one of those products that weren’t clear what problem it responded to. In a way, it resembled the Google Glasses fiasco

The Apple Watch Series 3 delivered significant improvements over its predecessor. A clear message emerged from Apple: “We’re focusing on fitness and health.” This was the first time they stated a clear goal for the product. It was a big win. 

Why it matters: Fitness and health isn’t just a wearable category, it’s a whole change of behavior. As our society becomes more complex, our mind and body are barely keeping up with the exponential acceleration of technology. The turn towards healthier lives is a growing trend, and it stands to reason that we’ll turn to technology to help us cope with technology. Apple is leveraging this lifestyle change to sell the Apple Watch to this growing audience. 

Still, many other wearable companies have been pushing fitness tracker devices. Apple’s approach wasn’t groundbreaking or especially novel. There wasn’t anything in the Apple Watch Series 3 that made it stand out beyond its slightly better hardware and, of course, the iPhone ecosystem integration.

Source: Accuracy ofWrist-Worn Heart Rate Monitors. JAMA Cardiol. Jan. 2017
Source: Accuracy ofWrist-Worn Heart Rate Monitors. JAMA Cardiol. Jan. 2017

I don’t want to downplay the fantastic work Apple has done with their smartwatch though. Their iPhone integration is indeed critical. It propelled Apple to the top of the wearables industry, toppling other players that dominated the space until then. This is the power of catering new hardware to the existing iPhone base; it spreads like wildfire. 

Apple Watch Series 4

Apple’s new smartwatch, though, is a different thing altogether. Two new features are placing the device in a completely different league. Those are the fall detection system and the ECG (EKG) sensor and application. These two features alone moves the smartwatch squarely into the predictive medicine realm. 

Until now, most wearables have been focusing on fitness applications. They record your heartbeat, your blood oxygen, number of steps, etc. It all revolves around tracking and displaying. Such devices have been the foundation of the Quantify Self (QS) movement. Predictive medicine though is a much more complex challenge. While Quantify Self is about tracking, predictive medicine aims to predict when a user is getting sick. For years, being able to predict an illness before it happens has been the Holy Grail of many startups

The reason why it’s so challenging is that it requires a confluence of three elements. You need a multi-sensory device, a continuous stream of sensory data and complex predictive algorithms and models. Each one of these is already hard on its own. The need for all three turns it into a significant challenge.

The new Apple Watch is a big step towards that goal. The Series 4 delivers on two of these premises. It creates a real-time, always-on health stream data that informs a complex prediction model on top. 

What’s Next: The device isn’t there yet though. While Apple has achieved a critical milestone, they still need to ramp up the multi-sensory approach. I expect them to cramp other sensors within the smartwatch. Once they’ve saturated the device’s surface, they’ll expand to the periphery with novel add-ons. The new sensory inputs will translate into better predictive capabilities and improved algorithms. 

Why having a one-lead ECG doesn’t matter

Several doctors have shared their mixed feelings about the new ECG capabilities. Their primary criticism is around its capacity to correctly diagnose (or misdiagnose) severe health conditions. The arguing is that a one lead ECG will never have the depth of the hospital-grade 12 lead ECGs. What Apple has built within their smartwatch will only detect a minimum subset of heart conditions

While I agree, I think that line of thought completely misses the point. Apple didn’t come out with a compact ECG to compete with hospitals. What Apple wants is to skip hospitals altogether through an early detection system. 

One of the dimensions most critics fail to observe is the time variable. While professional ECGs are state of the art, they are only attached to a patient briefly. The Apple Watch will be attached to a user all day long, every week, every year

It doesn’t matter if the device can’t detect certain conditions on the short-term. The analysis of thousands of hours of recordings of a single individual can yield other long-term detection methods when compared to that user’s baseline. The combined data of every Apple Watch user far outpaces any sample any hospital or study has ever seen.

Prevalence of four health conditions among wearable owners, compared to US population average. Sources: In-App Survey of Cardiogram Users, CDC.

What to Watch: It’s important to remember that Apple isn’t a standalone wearable company. They come with millions of iPhone users worldwide which will eventually buy into the Apple Watch narrative. That will allow them to have millions of health data streams to train their algorithms with. Additionally, they’ll be sitting on the most extensive medical sample ever. The current Apple Heart Study done in collaboration with Stanford Medicine is an excellent first example of this. There will be many more in the future. 

Future implications

The Apple Watch opens a new era for the company. One that will revolve around massive amounts of sensitive information. It begs the question of how will Apple handle such data. The company has taken a robust privacy-first stance, but I wonder how strict will that be when exploiting this side of the business.

“Yet Apple seems to be the only major tech company that had the foresight–and the will–to begin tackling these issues before they reached a crisis point.”

Forget the new iPhones: Apple’s best product is now privacy – Fast Company

While I don’t believe Apple will share any information without consent, it will, most definitely, begin offering integrations with interested third parties. These can range from family members, doctors, autonomous vehicles or insurance companies, to name a few. 

The Bottom Line: The new Apple Watch is not only a communications device. It’s the first step towards a nascent medical prediction platform with global reach. Its potential to change the medical, pharma or insurance industry, to name some, is dramatic. Competitors will eventually catch up with the current hardware, but they will have a much harder time replicating the complex prediction models Apple is building as we speak. Their moat won’t be the hardware, but their algorithms. 

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Welcome to the Content Paywall Era

Welcome to the Content Paywall Era

Content has always been notoriously hard to monetize. It seems surprising, as most people would agree that good content is valuable. It brings insight, opinions, perspectives or pure entertainment. 

In the physical world, we still retain a certain tangible principle to content. You can touch it, squeeze it, burn it or throw it. You pay for the object, and you own it, herein lays the value. However, when we transpose content to the web, it suddenly loses all value. I can’t own it, and I can’t feel it. I can’t touch or weight it. 

The nascent Internet

The Internet changed many things. One of the most relevant ones was the scarcity of content. Replicating physical content was hard. The Internet, though, made replicating and distributing its digital counterpart a child’s play. 

Content that was unique before, lost its uniqueness as it became wildly distributed online. The old content gatekeepers struggled to keep up. The Internet’s capillarity wrestled their control away from them. As content became widespread, it became harder to concentrate large audiences under a single banner. Without eyeballs, it was hard to make advertisers pay what they did in the physical world. This decrease in advertising revenue, collapsed the most significant revenue stream publishers had. 

Logic dictated that, if advertisers wouldn’t pay, consumers should. However, brick and mortar logic rarely applies in the digital economy. They soon found out that it was excruciatingly hard to get anyone to pay for content; let it be video, text or images. 

If consumers wouldn’t pay for content, it was back to the advertiser model then. The problem though was how to make them pay more. Publishers realized they needed a bigger audience to offset the income drop. And increasing the audience was a problem because they had lost control over how their content got consumed.

The Internet had shattered the content distribution fiefdoms. Or more like, they had changed hands. Distribution was now the domain of search engines like Google. They owned search through their algorithms; something content producers couldn’t replicate.

If publishers wanted distribution for their content, they had to go through Google first and pay the Royal tax. 

And along came Facebook

As the web matured and became more accessible, the usage patterns changed too. The Internet went from a place of research to a place of social connection. Attention shifted from pure search to people connecting with others through shared content. 

This evolution opened a new avenue for distribution. Publishers didn’t need to pay tributes to Google anymore. They could hack the distribution loop by getting people to share their links among their contacts. The faster and more comfortable this sharing was, the larger the reach. The more significant reach, the more eyeballs and in consequence, bigger advertising revenues. 

But nothing comes for free. The new social distribution channel triggered new problems. As organic distribution grew, brand awareness got diluted. While before the brand was the atomic reading unit, the new constituent was the article. Producers had to promote each piece independently. The brand couldn’t be relayed on to drive traffic to the advertisers.

Source: Reuters Institute. Digital News Report 2018

A consequence of this fragmentation came in the form of link-baiting. As traffic became paramount, producers began subverting their content to increase “shareability. This editing of the truth started snowballing and brought us into the Fake News era

Source: Social Clicks: What and Who Gets Read on Twitter?

Meanwhile, the tectonic plates were shifting yet again. 

The News Feed Algorithm

In a move to protect users from a tsunami of content, the big social networks like Facebook or Twitter began tweaking what users saw. These changes marked the beginning of the end of organic audience growth.

Source: Reuters Institute. Digital News Report 2018

The impact was immediate. Reading audiences dropped liked stones. The advertising model, which was starting to gather steam, crashed. Again. 

“Mark [Zuckerberg] doesn’t care about publishers but is giving me a lot of leeway and concessions to make these changes,” 

[…]

“We are not interested in talking to you about your traffic and referrals anymore. That is the old world, and there is no going back.”

Campbell Brown, Facebook Global Head of News Partnerships. Nieman Lab, Aug 2018 (Editor’s note: Comments contested by Brown)

Meanwhile, some content producers started to think outside of the proverbial box. Their legacy advertising model didn’t work. Many recognized that a new medium required different revenue streams. Plenty agreed, very few tried. 

One of those first trials was direct content monetization via a paywall. This model had fans and detractors. Many believed that the content they produced was inherently valuable. But the market proved them wrong. 

The first experiments with gated content failed. One of the biggest lessons was that the readers didn’t want to pay for a content they could have elsewhere. But it was more profound than that. At the time, every piece of content was accessible for free. Users saw gated content as defacement of the Internet’s freedom of information credo

“Paywalls are not a new idea. The Atlantic previously had a different one for a while in the mid-’00s. The Adweek article announcing that this paywall was being pulled down is a fascinating time capsule. Paywalls, back then, were often seen as a way of protecting the existing print businesses.” 

Prepare for the New Paywall Era

Paywalls had many problems at the time, but one of them was rather ominous, the audience. For the system to work well, it required a large audience that had a taste of the content and then decided to pay for it. The bigger the haystack, the larger the needle. There was one issue though, during the mid-’00s the online population was still meager.

In late 2000, online users accounted for only 6,8% of the global population. By the end of 2017, that number was 54,4%. That’s eight times more. The lack of online audience meant that conversions for the paywall would be limited and scarce. 

A bigger question was why anyone should pay for content? Many legacy producers argued that their content was the most valuable there was. The truth was, it wasn’t. Most contents resembled one another. Even worse, in most cases, it wasn’t relevant to people in different geographies. 

The Internet enabled new distribution channels, but it also provided access to users with different cultural backgrounds. The content produced at the time lacked all three; uniqueness, originality and global relevance.

 The only reason why non-unique content had prevailed was that consumers didn’t have another option. The Internet killed that. 

And so, the word on the street was that people wouldn’t pay for content. Every Internet expert chiseled this into stone. At the time, it was a good piece of advice, but it required specific understanding.

Be Smart: It’s important to differentiate between current restrictions and the potential development of technology. Digital content could and would become valuable to consumers. Payments for virtual assets, ignored by many, would become a massive market. 

Netflix meets Fake News

While the social networks were hacking their News Feed algorithms, new trends were colliding and changing, once again, the landscape. 

Several new trends became instrumental in the emergence of successful business models around content. The first one was the rise of the “Netflix Model.” The model itself was well known. Traditional media companies had employed subscription-based-content for decades. Nonetheless, the model seemed only to work for offline media and entertainment

As successful as Netflix was with their DVD business, its customers paid a monthly subscription fee for a service. Content was part of the deal but wasn’t the only reason. In 2007, Netflix introduced Video On Demand (VOD) and began unwinding their DVD business. This marked an important milestone. Netflix had suddenly transitioned from a service to an Internet cable company where the value rested on the content itself. 

As Netflix kept growing, it signaled the way forward. Other content providers, like Spotify, started experimenting with the model. There is one thing that was unique to the model, which was the bundling of content that consumers had to pay for independently before. Pre-Netflix, the unit was the movie. Post-Netflix you paid to get access to any film in the catalog. Spotify did the same for music, from paying for an album to paying for the streaming. 

There was a fundamental difference with news content though. At the time it was hard to find movies or music online. Many took to piracy to get their daily fix of content, but it became increasingly harder to do that every day. When Netflix or Spotify came around, they hit the sweet spot between convenience and price sensitivity

News was different. It wasn’t hard to find that type of content. It was everywhere, with various degrees of quality, and it was free. It was hard to imagine you could put the Jinn back in the lamp and stump a price on it. 

But things started to take a turn at the beginning of the decade. More and more content providers began their paywalls experiments, including freemium approaches (metered paywalls). As the years went by, it became harder to find quality journalism for free anymore. The key word here is quality. At last long, some content providers started upping their game. Scoops, in-depth research and powerful op-eds became the drive of these digital subscriptions.

And so we reached November of 2016 and the US Presidential race. When Donald Trump won the elections many were flabbergasted. As the dust settled, the first hints that something had gone fishy during the race came out. Exaggerated news, misquoted people, fake photographs or tainted explanations became the bread and butter of the campaign.

A look at the content that users shared on social networks painted a grim picture. Trusted content was absent, and the News Feed algorithm was happily promoting fake sources to the users

While media manipulation has always existed, the scale, automation, amplification, and consequences that the 2016 election campaign achieved, set a new record. 

The outraged at being duped flared for months. One of the immediate consequences was a sharp increase in digital subscriptions for news. 

Source: Reuters Institute. Digital News Report 2018

The erosion of trust, or more precisely, who to trust, propelled the success of the paywall. The inertia of the system pushed content providers out of the social networks and onto their platforms.

Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018

The bottom line: Many consumers are scrambling for reliable and trustworthy brands. Those that ensure it, produce high-quality, relevant content and drive engagement beyond it, will see an increase in their digital subscriptions.

The paywall platform

As monthly subscription models become common-place, people are getting used to paying for content. Currently, it’s hard not to find anyone that’s not subscribed to at least one or two of these services. 

The everyday nature of the model is easing the way for more and more content offered behind a subscription. A decision made easier by the constant erosion of trust produced by social networks. As top publications and providers keep accruing subscribers, the challenge now is how to turn a content catalog into a platform.

In the past, common lore highlighted the power of the social media walled gardens. This has been especially true of Facebook. Nonetheless, people’s attention, and more importantly, the consumer’s content behavior is moving away from these platforms. 

Instead, it’s starting to accrue around the content provider’s platforms. Spotify’s social layer, Twitch’s streaming service or The Atlantic’s Masthead’s meet-the-editors approach are all excellent examples of it.

Source: The Atlantic’s Masthead Splash landing

Why It Matters: The Internet has evolved from a scattered landscape of free content to a series of big powerful walled islands controlled by GAFA (Google-Apple-Facebook-Amazon). These gardens are now being splintered into myriad smaller islands of protected producer-owned content. This opens the door for a meta content subscription service that could aggregate these fragments again. Such a supra-aggregator would wrestle the customer relationship away from the content owners, yet again. However, that’s precisely what Apple is trying to achieve with their Texture approach

Current paywall challenges

Despite the growth of subscription-based models, most companies are still facing critical challenges. 

As I stated before, to make a paywall work, it’s essential to have a large enough audience in the first place. Not all content providers have such audiences. It’s easy to refer to top publishers like The New York Times or The Washington Post. But both companies had a vast audience even before putting a paywall in place. The question is, how can smaller publishers build a broad enough subscriber base.

 “The most common cause of poor digital subscription sales is not asking enough users to pay.”

 Digital Subscription Best Practices – The Lenfest Institute

According to The Lenfest Institute, the top aim is to increase, not just the audience, but engaged users.

While large publishers have a much bigger audience to draw conversions from, smaller publications can focus on their niche audience. Such users are much easier to engage as they tend to be more homogeneous and more straightforward to engage with.

The key for many content providers is to establish how much content is in the open and when to ask for a subscription. As reported by The Lenfest Institute, the ideal stop rate is something between 10% to 5%. The industry average hovers around 1.8%, so there seems to be significant room for improvement. 

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Another big challenge is how to turn engaged users into paying customers. The industry standard is rather low, with a conversion rate of 0.54%. By comparison, top publications are achieving between 1% to 2% conversion rates.

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

In other words, it’s paramount to detect engaged users and ask them to pay, but it’s as essential to making it easy and clear, what are they paying for. The value perception is something that is still not very clear for most users. The higher the literacy of the users, the higher the probability the users will pay.

Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018

Most consumers have no idea how much time is invested in crafting their favorite stories. The more they know, the higher the probability they’ll pay. And it seems that the cost of the subscription isn’t a problem once the consumers understand the need to pay for it.

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Once subscribed, churn rate is becoming an issue. Successful content providers are turning their paywalls into platforms. Engagement inside these is, thus, becoming critical. 

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Be Smart: While many content publishers are moving towards subscriber-based models, it’s important to assess how many engaged users do you have. Don’t be afraid to ask for money, as long as your fan base knows what they get and why they should pay. Once subscribed, make sure they keep coming back and promote features that empower your users. 

Beyond the paywall, new business models for content

Although subscription models are becoming the industry de facto, many publishers are complementing them with other revenue models. Most organizations are no longer leaning on advertising only. They’re leveraging their expertise to build adjoining businesses.

The Atlantic, for example, combines their subscription-based product (The Masthead) with live events (AtlanticLIVE) and their own consulting company (Atlantic57).

“Over the past decade, the company has worked to diversify its revenue sources. In 2006, 85 percent of The Atlantic’s revenue came from print advertising and circulation. This year, print will account for less than 20 percent of incoming revenue; the company’s digital, events, and consulting divisions make up the remaining 80 percent. In the past decade, the company’s annual revenue has quadrupled, to nearly $80 million.”

Emerson Collective Acquires Majority Stake in The Atlantic. Jul 2017.

They aren’t the only ones. The Washington Post is turning their content platform Arc into an absolute money maker. The Post turned their content expertise into a service with Arc. They went from being in content to becoming a service provider for the industry. 

“The Washington Post doesn’t disclose Arc Publishing’s revenue or whether it’s currently profitable. (The Post itself turned a profit in 2016.) It does say, however, that Arc’s revenue doubled year-over-year and the goal is to double it again in 2018. According to Post CIO Shailesh Prakash, the company sees the platform as something that could eventually become a $100 million business.” 

The Washington Post Is A Software Company Now
Source: Arc Publishing – The Washington Post

One of the most interesting concepts I’ve seen so far is Uzabase’s NewsPicks. I’m not surprised at all they recently bought Quartz. Both companies have very similar DNA regarding content product experimentation.

NewsPicks is Uzabase’s content curation content. But it’s also much more than that. They select handpicked stories, and they focus the engagement not on the stories itself, but on the comments from their users. On top of that, they’ve built a subscription service that gives access to original content. Their numbers in Japan are imposing. They yield four million users and 70.000 subscribers. That’s a 57% conversion rate, which at an average of 15 dollars per month brings in 12.6 million dollars each year

Source: Uzabase via Business Insider

While their subscription clearly works in Japan, I’m not sure it will convert as well in the US though. After days of playing with their app, the one thing I value is the thoughtful comments. Would I pay for original content? I wouldn’t. Would I pay to get access to insightful and strategic remarks around content? You bet. I believe they’ve stumbled upon a unique approach where content is relayed to a second plane, and unique perspectives take precedence. I like the notion of getting access to a curated selection of brains and not the news per se. 

Source: Uzabase via Business Insider

Either way, it’s clear that users are increasing their willingness to pay for quality, noise-filtered content. The collapse of trust around social media and the prevalence of subscription models are unlocking new business paradigms. 

The growth of the “Netflix Model” though carries its own problem, that of unequal access to information. In an age where inequality is at the root of most global issues, many people are concerned that locking information behind paywalls will only accelerate the trend. That’s why some publishers like The Guardian are opting for a donation-based revenue stream. 

Source: The Guardian Donation Splash page

“The rise of subscription has raised concerns about a two-tier system, where high-quality news is reserved for those who can afford it. This is why some news organizations prefer to keep access free but to ask for voluntary contributions. In the UK, the Guardian adopted the approach in 2016, and since then it has received 600,000 voluntary payments, raising tens of millions of pounds each year. It has also started to crowdfund around specific stories such as the recent US school shootings where it raised $125,000 to produce solutions-based reporting.”

 Reuters Institute. Digital News Report 2018

The big picture: As online content’s value increases for a broader audience, new business models will develop. Quality and truthfulness are becoming the hallmark of what users are looking for. Supporting deserving publishers is paramount. Nevertheless, it’s vital to keep relevant information accessible to all. Education is one of the keys to relieving inequality. The automation of work will bring hard times, and it’s essential that publishers help and inform the next generation, independently of their social background. 

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