AirPods Are More Important Than The Apple Watch

At this point, it might not even be that crazy to say it, but we think AirPods are going to be a bigger product for Apple than the Watch. After using AirPods for the past month, the Loup Ventures team is addicted. The seamlessness in connecting and disconnecting with our phones and enabling Siri has meaningfully improved the way we work and consume content. AirPods are a classic example of Apple not doing something first, but doing it better. And they look cool. We think there are three reasons that AirPods are more important than the Apple Watch.

AI-First World
Google has been talking about designing products for an AI-first world for about a year now. In our view, an AI-first world is about more natural interfaces for our screen-less future. Speech is an important component of the next interface. Siri, Alexa, Google Assistant, and Cortana are making rapid improvements in terms of voice commands they understand and what they can help us with.

We view AirPods as a natural extension of Siri that will encourage people to rely more on the voice assistant. As voice assistants become capable of having deeper two-way conversations to convey more information to users, AirPods could replace a meaningful amount of interaction with the phone itself. By contrast, using Siri on the Apple Watch is less natural because it requires you to hold it up to your face. Additionally, the screen is so small that interaction with it and information conveyed by it is not that much richer than an AI voice-based interface.

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VR Over The Holidays: What To Expect For Oculus and Vive Sales In Q4

VR headsets may not have been the “it” gift of the holiday season, but there was definitely a pick up in consumer interest. Based on our analysis of Google Trends data, we believe that Oculus sold about 55k Rifts in Q4 and HTC sold about 65k Vives. We note that based on Facebook’s quarterly reports in Q2 and Q3, Oculus was selling around 40k units per quarter.  Thus the holiday season appears to have brought about a 40% increase in unit volume for Oculus.

While Facebook does not report Oculus unit sales (we back into them), management will likely offer some additional VR related commentary on February 1st. We would expect management to maintain their consistent commentary that VR is still early. Beyond that, we may get an updated number of Gear VR users (the company reported 1 million monthly actives at the Q2 call) or additional color on future VR investment (they announced an incremental $250 million in VR investment during the Q3 call). Net-net, we expect Facebook’s Q4 update to be a modest positive to the VR ecosystem.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.  

Apple’s Services Biz Starts 2017 with a Blowout Day

Apple’s news release on App Store sales earlier today implies they generated $78M in App Store gross sales per day in 2016. We would have estimated New Year’s Day sales would gross about 30% more than an average day, or about $100M. The $240M in App Store sales they saw on 1/1/17 is a blowout day. 

We estimate that the App Store accounts for more than 65% of Apple’s gross Services revenue. Given the significance of the App Store to Apple’s Services business coupled with today’s announcement, we believe our previous expectation of 15% y/y Services revenue growth in 2017 is conservative. The actual number may be closer to 20% y/y growth in Services revenue.

The 2016 App Store numbers and the New Year’s Day App Store sales underscore how quickly Apple is becoming a Services business. We previously shared our thoughts on Apple reinventing itself as a Services business here. In short: the transition to Services is important as new platforms like AR and VR emerge and transform Apple’s existing mobile device businesses.

The transition to Services is important as new platforms like AR and VR emerge and transform Apple’s existing mobile device businesses.

In the Sep-16 quarter, Services accounted for 13% of revenue. We think that over the next 5 years, Services can grow to be 30% of Apple’s revenue, given new services that will be required for emerging platforms like AR and VR. Meanwhile, we expect hardware revenue to be flat to up slightly over the next five years, again, underscoring the importance of the Services business as new computing platforms emerge.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.