Stay Active, Close Your Rings
Apple: Wide Moats and High Switching Costs
At 4:30 this morning the watch on my wrist pinged and vibrated with a message telling me to “Keep it Going.” I have been really good about sticking to a workout routine over the first three weeks of the new year and the Apple Watch that I bought right after Christmas is a big part of the reason why. With the watch, I took the three month trial for the Apple Fitness + App. The watch tracks my steps, my heart rate, my workouts, how many times I stand up in a 12 hour period and a lot more.
I use the Fitness + App while I am working out at the gym. I get on the treadmill and I use one of their routines rather than a mundane steady run. Same goes for the bike. I am officially hooked. Even better, the watch “talks” to the Apple Health App on my iPhone. So now I am in a constant state of competition with myself…more steps today, burned fewer calories than yesterday. Have to close my rings. What? The rings to me are the most ingenious idea that I have seen in a while. Everyday I “must” close my rings. Burn a certain number of calories, stand up a certain number of times and workout for a certain amount of time. I can change these whenever I want, but I haven’t yet. It’s a competition after all. Every night, Dara and I joke, “did you close your rings today?” She has the watch also.
When the three month trial is over, there is an extremely low probability that I am going to cancel. I am going to be giving Apple $9.99 a month for the foreseeable future starting on March 31st. Oh, by the way. I do all this with my Air Pods firmly in place.
Apple started as a computer company, pivoted to a mobile phone company and then to services. The app store is one of the best strategic moves that they have made, in my view. It really started with the iPod and iTunes store. The phone is now simply a gateway to our wallets. I get a kick out of how the stock still reacts to handset numbers because I don’t think that handsets are the real story any longer. Yes, they are important but at this point pretty much everyone who wants an iPhone probably has one. That person who sends you a text that shows up as a green bubble instead of blue, they probably are not going to change.
Now, I have a thesis that Apple is slowly morphing into a “wellness” company. Not fitness per se, but wellness. Every routine ends with one of their trainers saying something along the lines of “stay active, close your rings.” I almost feel obliged to listen. The watch is the next big pivot that enables wellness. If you have the series 4 or later, look what you can monitor:
Certain versions of the watch have received FDA approval as a Class 2 medical device.
What this does is give Apple a fairly wide moat with high switching costs…sorry for the b-school jargon. Simply put, Apple has an advantage over peers and I am not likely to switch to a whole new ecosystem because I am pot committed at this point…poker term, better?
All of the data that I have been using to compete with myself is here. Am I going to want to start new with something else? Probably not, the offering would have to be exponentially better.
This is what I want to see when I am making an investment. Not a trade but an investment that I want to hold for a long time. A great business with great products, that make it hard for the customer to leave by adapting along the way.
Is it any wonder that the chart looks like this since the iPod was introduced?
Apple’s P / E Ratio has also been up and to the right. Some people think that Apple is now expensive relative to its history, but maybe they deserve to a trade at a premium?
Here is where I think I have a different view. I think there will come a time when the data that is transmitted from watch to phone will be available to our health care providers (with our permission of course). In stead of taking a trip to the doctor, we may be able to FaceTime with our GP who has all the data he or she needs for a routine visit streamed to them, in real time. Or perhaps this is the first step toward truly customized health insurance? Instead of being lumped into a group rate, what we pay can be tailored to our specific health and lifestyle? Is that far fetched? Maybe. But it is happening with auto insurance so why not here?
Let me know if there are any other companies that you think have such a wide moat and high switching costs.
Thank you for read. Nothing in this note should be considered investment advice.