![]() Over time substitutes have entered the market at ever lower prices, ultimately landing at their marginal cost of production – $0. This is why the market for paid apps has largely evaporated. The implication for apps is clear: any undifferentiated software product, such as your garden variety app, will inevitably be free. All that matters is how much it costs to make one more copy – $0. Again, it doesn’t matter how much effort was needed to create said software that’s a sunk cost. After all, software is simply bits on a drive, replicated at the blink of an eye. What makes the software market so fascinating from an economic perspective is that the marginal cost of software is $0. Putting aside the particulars of Bitcoin, the potential it represents is absolutely a very big deal.Īs I’ve written multiple times on Stratechery, the defining characteristic of anything digital is its zero marginal cost. Regardless, the primary takeaway remains, as always, that the product itself is not nearly sufficient to fully understand the strategic intent. This would suggest a much lower price, and a strategy that is based more on propping up the iPhone than on building a separate revenue stream. Moreover, when it comes to a 10s of thousands of dollars purchase, just how much of a role can an Apple-designed entertainment system play? The Mercedes and Ferrari systems, with control-knob and resistive touch display control respectively, certainly suggest that Apple – who would certainly prefer a Volvo-like capacitative display – doesn’t have as much control over the interface as they would normally be accustomed to. On the other hand, the car industry is far more concentrated than even the carrier industry, with only about 10 players that really matter. Apple will push the idea that CarPlay will drive purchase intent, and that car makers ought to pay for the privilege. If that is the case with cars, then a CarPlay option is likely to be more expensive than a standard entertainment system, not less. AT&T née Cingular, on the other hand, gave over said control in exchange for exclusivity, and, ultimately, Apple (and AT&T) won the bet: enough users left Verizon that they had no choice but to acquiesce to Apple. The proportion between those two types was the basis of one of the more interesting bets in recent years Apple originally wanted to launch the iPhone on Verizon, but Verizon refused to give Apple carte blanche over the user experience and phone appearance. Many simply stayed with their carriers and waited for the iPhone to come to them. On one hand, geeks like myself may very well base a car purchasing decision on CarPlay then again, it was geeks like myself who were willing to change carriers to get an iPhone. It’s fascinating to think about who owns the power here. While the automakers all have their own unique touches, and controls for the rest of the vehicle, these distinct things that the phone is, frankly, better at, are done through the CarPlay UI. The CarPlay UI, in contrast, is remarkably consistent across the three examples shown so far. Also, if you watch the Apple employee towards the end, you can see her press the FF “app”, exiting out to the FF’s own user interface, which is distinctly different from the CarPlay UI. In fact, the UI of the Ferrari as demonstrated doesn’t look to be that different from head units in previous versions of the FF (from what I can see). The main point of all of this is it appears the OEM doesn’t have to do massive work to make it functional, it really looks to primarily be integrating in the remote display functionality and the I/O to the phone. ![]() The head unit manufacturer doesn’t really appear to be important here. ![]() Some have said that “CarPlay systems” are running QNX – perhaps some are. It seems to me that CarPlay can best be thought of as a remote display for your iPhone, designed to fit the display of your car’s entertainment system. In short, Apple hasn’t done a complete end around of the OEM – the automaker can still have their own UI for their own in-car functions, and then Apple’s distinct CarPlay UI (very familiar to anyone who has used iOS 7) is there when you’re “in CarPlay”, if you will. Wes Miller has a useful summary of CarPlay:
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