This week’s podcast is about Huawei’s next products. And why they are so much more innovative than Apple.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here is the link to our Tech Tours.

Here are some pictures:

Here is the golf watch

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From the Concept Library, concepts for this article are:

• Innovation
• Extreme Personalization

From the Company Library, companies for this article are:

• Huawei
• Apple

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Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy Podcast from Techmoat Consulting. And the topic for today, the new Huawei smartphone, the Trifold. It’s just awesome. It’s really awesome. And it tees up an interesting business question, which is why is Huawei so much more innovative than Apple, let’s say? Because the difference is really quite stark at this point. I’m going to get into that and I’ll give you my answer for that. But I was down in Kuala Lumpur this week at the Huawei event where they unveiled their big products for the year. They do this every year all over the world, but I was at the Kuala Lumpur one. And yeah, I played around with them. I got some sort of, you know, the presentations. I’ll give you the details, but yeah, it’s really impressive. And it’s a really great… way to think about innovation and how it plays out over time. So that’ll be the topic for today. Okay, standard disclaimer. Nothing in this podcast or my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment, legal or tax advice. Do your own research. Let’s get into the topic. Now, I mean, the concept for today obviously is innovation, which is… Yeah, it’s, I mean, it’s super important. I don’t usually. The thing I don’t like about innovation is it’s such a vague thing. I like things that are very specific that I can measure. So, you know, for a long time I’ve been talking about digital marathons you can run, certain activities where if you focus on them and you outrun your competitors, it can create a significant advantage over time and operating advantage, not a structural one. And within that would be sustained innovation. Right. I call it SMILE, S-M-I-L-E. The I stands for sustained immigration. But you really want to tease that out from the others because people kind of group it all together. Everything’s innovation. No, I look at, let’s say, rate of learning, adaptation. That is different. That would be the L, learning. Ecosystem orchestration, ecosystem participation, that’s the E. That’s a different activity. I don’t really consider that innovation. And then scaling and then machine learning. I do think that term is a bit vague, but in this case we’re talking about innovation because we’re really talking about new hardware, breakthrough technologies, mostly engineering level, not science and chemistry. Okay, so then we’re in Elon Musk land, we’re in rockets, we’re in engines, we’re in creating new devices that haven’t existed before. Okay, so we’re in the innovation bucket this time, but yeah you want to kind of tease those out. I try and be very specific. today. This will also tip into sort of my extreme personalization strategy which is actually very similar to what they’re doing. It’s kind of my boiled down, I mean I wrote seven books on digital strategy. The short boiled down version is basically extreme personalization and value add. And that’s the three bullet point version of all of that. That’s where the rubber hits the road and what I think matters most. And I think that’s what Huawei’s doing, but I’ll kind of explain it as we go. Alibaba is too, a lot of the companies I study, that’s kind of where I got it. I didn’t think it up. I saw what was working for the giants. Okay, so let’s get into the topic. And now I flew down to Kuala Lumpur, which is always nice. Really nice place, Kuala Lumpur Green. A bit hot. Great Indian food. It’s not a huge tourist destination. There’s not a lot to do as a tourist, but if you go down to Kuala Lumpur with the intention of just eating, it’s a pretty good trip. Lots of Indian food, lots of Chinese food, Malaysian food. Okay, it’s good. I mean, I wouldn’t… put it in the top 10, but it’s pretty interesting. Yeah, so it’s kind of a foodie trip, more than anything else. If you’re going to see big tourist sites, they got a couple, but not that many. So anyways, I was down there to see the sort of launch of the consumer business of Huawei, right? They have the enterprise business, they have the cloud business, they have the telco business, obviously, and then consumer, right? The consumer business practice, consumer business group. really interesting because that was the group that probably got hit hardest by the Entity list ban back in 2019 and then you know sort of it expanded 2020 because that’s I mean right before that hit I remember at the time like Huawei was making the best high-end smartphones anywhere. You know they were known as sort of a cheap smartphone maker, inexpensive phones like Oppo and Vivo, Xiaomi’s a little bit higher, let’s say Redmi, but they had been moving from there to higher-end smartphones to compete with Samsung and the iPhone sort of and really right before they got hit they were on the verge of becoming the largest smartphone maker in the world. They were right there. They were like months away and their high-end smartphones were fantastic. Far better I think than Samsung. I think than any of at least hardware. The operating system is always a question because you got to do the Android thing which is Android they get hit and it really hit them in the consumer business because one where do you use high-end semiconductors 7 nanometer 5 nanometer well smartphones right it didn’t hit them that hard in their telco business they were able to swap over to other chips and things and then it also hit them you can’t offer high-end premium smartphones if you don’t have really good semiconductors and then it hit them in the operating system if you can’t use Android if you Google Play Store basically and you can’t use any of the apps Facebook, YouTube, all of that. Well, that makes it really hard to sell your phone in Europe. And for the most part you know their business took a major hit. They were pretty much; Telco was always their big business but over about 2012 about 2019 the consumer business had matched Telco in overall revenue. They were about $200 billion a year, something like that. Wait, no, I’ve got that wrong. That number’s not right. But they were about half the revenue. They basically was their largest business. It was showing growth. Okay, but then you lose the entire international markets. Pretty much. And they basically retreated to China, where people don’t use Android anyways, because everyone uses China apps. and you know they sort of pulled back from the high-end smartphones to more mid-level because they couldn’t get the chips. And they did quite well actually they fell pretty good but they made up for it with a lot of smartphone sales in China and then they rolled out other products really quickly. They did uh ear pods They did smart home. I mean, they’ve jumped into electric vehicles. I mean, they really, the consumer group was really pivoting hard for the last three to four years. And then they did pretty well. They stabilized. And now they’ve come back and they’re going right at the top of smartphones again, which. sort of shocked the US because this was back in October, November when they released their Mate Pro and it had let’s say 7 nanometer chips and no one could figure out how they were doing it and they weren’t telling. That shocked the US government like that was really fast. And then they launched Harmony OS which in China, you know, 15% market share. I mean they have enough market share for their operating system in China now that it’s viable. Right. duopoly and they’ve got enough developers building on it that Harmony OS is yeah, it’s the first major mobile operating system We’ve seen in 12 13 years So they’ve broken out. They’re back in China. They’re doing well If you look at the top five smartphone makers in China You know Apple’s not in the top five. Well kind of it bops in and out of fortified but it’s really Huawei and Xiaomi and it okay back up off the mat they’re coming back and they’re going for high-end smartphones again. The Huawei XT. Okay let me tell you about this phone because it’s I played with it and it was really impressive. I’ll put some pictures in the show notes if you want to see it but it’s basically you know three screens that fold together and the first thing you notice when you pick it up is it’s incredibly thin. I’d seen the previous one last year. This one, it’s 3.5, 3.6 millimeters. So, it’s about the width of a coin. Like it’s really thin. and then when you fold it up it’s actually surprisingly not as big as you think and it’s pretty light so they’ve been kind of rocking and rolling on make it thin, make it light now they have a big huge camera on the back which is awesome but it does sort of make it more thick in that area but generally speaking the first thing you notice okay this is really cool you can put it in your pocket and walk around And when you fold it up, you look at the top screen. So, you can look at it just like a normal smartphone without unfolding it. You know, just the top screen that’s showing. You flip open one, then you’ve got a dual screen. You can use that for various things. And then you can flip out the third, you basically got an iPad. Okay, very cool. Thin, light. Then you get to sort of the Steve Jobs question. What are consumers going to do with this thing? Do they care? Do they like it? And what really came to mind was, I don’t know, 20 years ago, I remember being in Manhattan, and this was the Steve Jobs, this was peak Steve Jobs. The iPhone had come out, the iPod, he was king of the world. And he announces the iPad. And nobody really knew what this thing was going to be used for. Not really. It’s like a new sort of device is what are we going to carry it around? We’re going to make phone calls on it. What do we do with this thing? And I did a pre-order. So, the day the iPhone was released, I’ve walked from Upper West Side, Manhattan down to the big Apple store and I stood in line with my ticket and I picked it up. You know, because he had so much credibility. It was just like, look, everything this dude does is great. It’s going to be compelling, let’s just do it. And sure enough, when I walked home, I stopped in a Starbucks and whatever. Like everybody kept coming up to me. Is that it? Can I see it? Ooh, how, you know. That’s how the XT felt. Look, I don’t know what I’m going to use this thing for. I know it’s super cool. Now, it could still not work out, but I suspect it will. It was so it reminded me that’s how I got onto the Apple subject because I was really kind of thinking about Steve Jobs and You know, I haven’t sort of had that sort of experience in a long time Certainly not with Apple. I mean, let’s not kid ourselves Okay, so how do you use it? I’ll put some slides in the show notes. These are from the presentation by Huawei staff, big stage. They put on a really good presentation, by the way. And it basically shows apps how they look with the different configurations. So, let’s say you’re looking at a map. I’ll put the picture in the show notes. The map, we all know what that looks like on a normal smartphone. It’s kind of vertical, shows us some stuff. When you fold it to the dual screen, It’s quite a bit better. You can see the whole city. When you do the trifold, it’s fantastic. The trifold map, like let’s say Google Maps or something, is fantastic. You can see the whole city. You can zoom in. It makes a huge difference. Videos, photos, obviously the same thing. It is, I mean, one of the Huawei guys who was on stage mentioned this. It’s weird that we watch TV shows and movies basically staring through a periscope. Because a smartphone screen is very small. When you fold it out, okay, photos and videos dramatically better. Presentations, I found that, you know, PowerPoints. I actually noticed this because I read a lot of PowerPoints on my phone and it’s a total pain. I have to keep zooming in to read parts and then zooming out and then zooming in the other side of the document. You put it on the full trifold, it’s basically looking like a PC. It’s great. So that was cool. So multiple configurations. I’ll put the pictures in. It really comes out when you see the configurations. The other thing that was interesting. So that was kind of… Yes, I think it’s cool. The other one that got my attention, the feature was, you can basically open up two apps at the same time. So, let’s say you open up two screens, or you open up all three. You can open up two apps at the same time. Let’s say a video and messenger, or I don’t know. emails and messenger and you can see them both on the screen and you can shift around the dividing line. So, 80% of the screen can be your video but then you have your messenger on the left and that was actually very cool. And then of course they have the unbelievable camera, you know the one that zooms in like miles. So, they have all that. So that’s kind of the basics of the So, okay, that’s, you know, it’s a new luxury product. It’ll come down. But do you believe in this type of format, this type of device? And yeah, I’m a believer now. I would get one as soon as the price drops. Okay, that’s the product. Let’s jump to the business question now. I’ll put in a bunch of pictures of the phone and stuff like that and videos. It’s pretty cool. Okay, how does Huawei do this? This was not the only product they launched. They launched basically four big products. That was the big one, obviously. All of them had something new that we haven’t seen before. All of them could do something that couldn’t be done before. These were all breakthrough innovations. This is not Apple’s… incremental, we added a button on the side of the iPhone 16. We have a new color, pink, not these little endless incremental innovations that you get from somewhere like Apple. No, these are all breakthroughs. They’re all new things. Now you may not use those functions, but they’re new. Okay, McKinsey always had a framework I liked where they said, you know, innovation is four types. Cost innovation, customer facing innovation, engineering innovation, and science innovation. And you know, they’re kind of a pyramid. Cost innovation is the easiest. That’s what China is very, very good at. They find something that’s existing and they make it cheaper. That’s using different tech, using tricks, process engineering. DeepSeek, which got everyone’s attention recently, that was cost innovation more than anything else. They found a way to do the things that OpenAI does dramatically cheaper. And if you actually look into the technical tricks they used to do that, it was really super clever. smart people. Anyways, we see a lot of that coming out of China in hardware. We’ve always seen that. You know, refrigerators, air conditioners, but we’re increasingly seeing on the software side. So, Chinese EVs. You want to… you want a BYD EV, they start at $9,500 now. They go all the way up to $300,000, but they have really low priced EVs, and they’re doing the software side and they’re giving it away for free. So, they’ve announced all the cars are going to have free, basically self-driving, where Tesla charges you like $8,000 or something. So, this whole China game, innovation, and people kind of make fun of that. They say, oh, you’re not innovating, you’re just copying. No, no, no. innovation is very powerful. That’s how Shein won, that’s how BYD won, that’s how Temu won. Yeah, it’s all over the place. Anyways, the way I always think about it, cost innovation, I think China. User interface innovation, I think Steve Jobs. He didn’t really invent anything. I mean, Apple was famous for hunting around for other stuff and repackaging it into something that was really cool and fun to use. Like, you know, the original Macintosh, well that came from Xerox PARC, but he was better at putting things together in a way that consumers really liked. And that’s not insignificant. at all that’s very important and you could say a lot of Silicon Valley that is really the business they’re in I don’t know let’s say uber Airbnb there weren’t any real engineering breakthroughs there no it was it was user customer interface services innovation Okay, you move up to the next level, we get to engineering innovation. I always think of Elon Musk there. He’s a physicist, top tier engineer at heart. So, he can actually figure out how to make the rocket that can land and be caught. Okay, that’s engineering. That’s BYD. You could argue that the DeepSeek guys really are playing at this level as well. Yes, they’re cost-based, but these are serious engineers, top level engineers. to sort of, and I would say Huawei’s at this level. They are, 200,000 employees, 60, 70% of them are engineers. They’re a serious, they’re basically an engineering company at large scale. And then top-level science innovation, which is the hardest, that’s inventing the new drug. You know, that’s the new chemistry breakthrough. You could argue that BYD is there. That, you know, the background of the founder is, is chemistry and applied materials. He’s very, their whole team is very good at figuring out how to make batteries using completely different chemistry. They have that type of science background. That, that stuff’s much harder. Most everything fails there. Like most of the action tends to be in engineering. Anyways, that’s kind of how I think about it. So, if we’re talking about engineering level innovation at Huawei into a lesson and Apple too. I shouldn’t dismiss that. I mean they do a lot of stuff at the semiconductor level but the difference I would say between them is one is focused on breakthrough innovation and one is focused on incremental innovation We are not seeing entirely new stuff coming out of Apple the big electric vehicle which was under works for 10 years. They, you know, I know how much they spent, 10 billion. They basically said, no, we got nothing. We never saw a car from Apple. The Apple Vision Pro. you know, which was only a couple months ago, the big virtual reality headset, I mean, they’ve discontinued production. Now that was an attempt at breakthrough, didn’t take. So, you can kind of go down the list. They just announced Apple that they’re going to partner up with Alibaba for basically generative AI within China. And then they’re going to partner with OpenAI outside of China. Again, I would say, why are you doing this all by partnership and not in-house? No, LLMs are not. They’re not accessories like EarPods. They are core to how a smartphone is going to function and how a user will use a smartphone. That’s right, and this is like Google did not partner up to do LLMs. They recognized that search was going to get disrupted. We have to become a basically generative AI company, which they’ve been doing very, very well. Very impressive what Google’s been doing the last year. Anyways, okay, so if we look at the trifold again. All of these products that I think they roll out, now they did four products this year, they did four products last year, they keep doing four or five every year. What jumps out of all of them to me is they have done some sort of breakthrough engineering, breakthrough innovation, usually in hardware, that lets their phones do something or other devices that other competitors simply can’t do. Nobody else knows how to make a trifold. They don’t know how to do it. And what’s cool is when they give presentations, this is the language they talk in, they basically tell you this product was based on four breakthrough innovations. And for the trifold, they list them out. These are the four things we had to figure out how to do to make this thing work. And no one else can do this. There aren’t any other trifolds. Maybe Samsung might, I don’t know. But pretty much nobody. The first thing is they have the hinge system because you have three screens. and the hinges are where you know you close it you open it it’s the seam between the two screens and then they form one screen. The problem is the trifold folds inward and then it also folds outward. So, one seam folds together. And the other seam folds outward, and that’s how you make it stack into three. So, they said like, you know, they had to basically come up with a hinge system that can support inward and outward folding in the same screen, which nobody, I guess, could do. They actually took you through all the little hinges they made and all the steel that’s inside the hinge and how it works. They call it the advanced precision hinge system. It was really impressive. I mean, it was serious engineering in that hinge. The other innovations they talk about, well, one is the display, which is they call the X-True display, which has… Pretty impressive split view that can adjust and adapt. It’s okay, the screen’s cool. I don’t really understand that. The battery was actually pretty interesting because each screen has to have its own battery. All right, so you’ve actually got three screens lined up and underneath each one, you’ve got three super thin batteries. And that was their kind of thing, that the battery width is about 1.9 millimeters. I mean, super thin batteries, which… They say it’s the industry’s thinnest large capacity silicon anode battery. Okay. And then the charging is also super-fast. So wired, wireless, super-fast charging. But they say, look, we had to do four innovations to make this thing work. And yeah, that’s really interesting. And as they go through their other products, which I’ll go through quickly, they say the same thing. Here’s our new product. Here’s the key breakthrough innovations we had to make happen for this thing to exist. And by the way, nobody else can do this. I shouldn’t say nobody, but most everybody can’t do it. Anyways, I’ll go through the other ones quickly. They have a new tablet, which is the MatePad Pro, which is a tablet. You basically, it has a detachable keyboard on it. So, you can kind of use it as a tablet, but it’s also, they’re basically trying to get as close to a PC as you can. Okay, cool. I didn’t think that one was, you know, stunning. The trifold was, this one wasn’t for me, the part that got my attention was the big innovations here on the screen. They basically have what they call the paper mat display where you basically work on the screen with a stylus and it really feels different. It is nothing like writing on a screen. It feels like paper. So, you put the stylus on and yeah, it’s really strange how much it feels like writing on paper. And that was kind of the big innovation for that one was the screen. I won’t go through that. The coolest, not the coolest, the one I really liked that I might buy because I’m not going to spend $3,500 on a trifold yet. I will in the future at some point, but not this month. They actually had watches that were fantastic. And they had won the golf watch. I’ll put a picture of the golf watch. I mean it’s really interesting. Again, the idea is our hardware is better than others so we can make it do things that others can’t do. Now in the trifold that’s a case of we can make it fold. In this one it’s more about putting the watch in extreme situations where other watches would not function. So, you can use it for diving and you can go down about a hundred meters and the watch will work. And not only that it’s got functions for diving. There’s an app for diving. tells you how much gas, it tells you how long until you have to ascend, it tells you how to ascend and do it in the right timing. They’ve got hiking and trekking, you can take it into the jungles, you can download maps, it can handle the heat, it can handle everything else. The one actually that was cool even though I don’t play golf was the golf app. I’ll put the picture in the show notes. Basically, the screen is quite big. It’s got a picture of the hole and it tells you your distance from the hole, your distance from the bunker. It tells you the slope of the grass all along this hole. It tells you the wind direction currently. It recommends what golf club you should use. Like, it’s pretty neat. I do have a Huawei watch which has a blood pressure cuff in it. So, it’s a health type watch, but it’s got a little inflate cuff where it takes blood pressure all the time. And it was it’s the same idea like hardware innovation creating functions that other can’t match The one that I kind of want to do is the e-wallet payment from your watch, you know, basically QR code comes up That’ll work quite well in China in particular where you know EPOD E-payment is mobile payment is everything it’s getting hard to pay cash there for anything Anyways, that was it. They also announced their ear pods, which they call the free arc same picture It’s a high-quality ear pod, but it doesn’t go in your ear. You know, because a lot of people complain when you put the Air Pods in your ear, they kind of sit inside your ear, and it’s a little uncomfortable because you’ve got a lot of nerves in there. This one basically hangs around your ear, and it hangs sort of in front of your ear. So, it’s super comfortable. It’s actually pretty cool. It’s… They explained all the engineering, which was kind of strange, like how to make it balance so that if you’re running or you fall down, it doesn’t come off. Yet at the same time when you’re wearing it, you can’t feel it at all. I mean, it basically, it’s got about the same weight as glasses or an earring. That was kind of interesting. So, I thought, oh, it’s a, you know, it’s an ear pod, but turns out the engineering was pretty interesting. Anyways, take a look at the free arc if you’re curious. I’ll probably get one of those this week because I thought that was pretty fun. Anyways, that’s kind of the, what I wanted to go through, which says like, look, how is it this company that has basically been hit by the US government is able to keep innovating at such a rate? even in the areas where the US government doesn’t want them to play. They took away their chips. They took away their operating company. Okay. They struggled for a couple of years, but now they’re back and they’re moving fast. How is it they’re moving so fast when companies like Apple haven’t changed their phones in years, at least hardware wise, and even the software, like you can’t ignore the fact that they missed generative AI, they missed Apple music. They missed messenger for the most part. I mean, they kind of miss WhatsApp and Instagram and all that. not really widely used for payment. I mean, it’s how you are missing wave after wave of technology, definitely in hardware, and EVs missed that one. You know, the contrast is quite stark. So, I’m going to sort of give you my explanation for what I think is going on. So, I’ve been talking a lot about extreme personalization and customer improvements. you’re doing lots of advancing, you’re always adding value on the customer side. Now you can do a lot of innovation on the production side, on the back office, but in a world with dramatically increasing supply of everything. You have to win at the customer interface. And the way you win is you keep adding value all the time. You never sit still. So, you may be good today, that’s fine. You got to be better next year. Now I call that extreme personalization and customer improvements. Personalization is just something people know, but it’s just a type of improvement. But the other way you could describe all that is customer facing innovation. That’s really what we’re doing. Now it could be hardware innovation. It could be engineering or it could be other. And it was, that’s kind of been my mantra recently for how you win in a world that is already overloaded with supply and with generative AI coming online. I mean, the amount of content. the number of products and services. Basically, it’s just going to go through the roof, like a hundred X, because everybody has been, basically we’ve all been made into superheroes. We’ve all got superpowers now. You can create anything now with a small team of people. You want to create an animated TV show? One person can do that now. two people, three people, you want to launch a sneaker line like Nike, you know, you get five people in a room, you put a bunch of AI agents with you, and you can kind of match them in a lot of ways. So, supply is going to go through the roof. The only way to win is to win on the demand side, on the customer side, and that’s basically a race that never ends. Okay. So, I’ve kind of said it’s two things. You have to constantly be improving on the customer side. New services, improving your interactions, better personalization, but you also need to build a moat. You want to be doing those two things all the time. And my little go-to graphic for this is four levels, and the first three are basically types of customer improvements, and the fourth one is building a moat, right? Now, what does a customer improvement mean? It doesn’t necessarily mean innovation. It could be any of the digital marathons we’ve talked about, machine learning, rate of learning. I think rate of learning is an incredibly powerful one. It could be ecosystem participation, but it needs to be customer facing because that’s kind of where the rubber hits the road. Now, for those of you who are subscribers, I sent out a letter last night, or email last night, with an article basically talking about Alibaba. And a lot of what I just said is me copying Alibaba. Because if you ask them, what is your core strategy, they don’t say platforms. They say never-ending customer improvements. That’s the part they say out loud. We always add value to our buyers, consumers, as well as to our merchants and brands. Every year, no matter what, it’s a race. We always stay ahead. Now the part they don’t usually say out loud is, we have a very powerful moat. And not only does a moat prevent people from competing with us and getting into our business, but it also lets us innovate faster. If you have certain types of moats, competitive advantages, it gives you the ability to innovate at a rate others can’t match. So anyways, that was what was in that article. That was kind of the so what. So, you can kind of see Huawei doing this. They’re leaning heavily on their background in telecommunications. They’re really good at hardware. And they’re leveraging that into consumer facing situations that hopefully consumers care about. Maybe some of them they don’t care about. But they’re always sort of doing this rapid rate of innovation on that side. And they’re trying to pair that with a moat. Now the problem is they don’t have much of a moat, not really. They’ve got economies of scale. which is very powerful in telecommunications business. And they have decent amount of switching costs there. They’re building out their cloud business, which is pretty impressive actually. They will have some competitive advantages there. In the consumer business, they don’t really have one. And most consumer electronics businesses don’t. The way you get a moat in consumer electronics is you got to own the operating system or maybe the semiconductors. But most of these companies are trying to wow you every 12 months with their latest phone, their latest watch, their latest earphones, and convince you to buy a new one. They have to spend a tremendous amount of money on marketing. So, when you look at Huawei, what I see in the consumer business, I see a fairly weak moat, which is either forcing them or maybe that’s just their culture. to be a tremendous innovator on the consumer side and they’re leveraging in their hardware expertise more than anything else. Now, fortunately, that would be a worrisome business. if they didn’t already have two or three other great businesses that are pretty well protected. So that type of business is fine as a third business. I wouldn’t want to be a standalone business. We’ve seen a lot of smartphone companies struggle forever, often go down. It’s a hard game. So, yes, they’ve got the rate of innovation. I think it’s more from their culture than anything else. But their innovation tends to be consumer-facing. Now Apple to me looks like the inverse. They have a tremendous moat with their operating system. They also have some brand power. You know, obviously the iOS system locks everybody in, you know, all the developers build there. It’s an innovation platform. It’s got massive network effects that are global. And then in addition, they’ve layered on lots of services like iCloud and Messenger that have switching costs and other things. So, they’ve got a tremendous moat, which is why they’re like insanely profitable. Is that why they’re so weak at innovation? It’s so incremental and when they do try and do something big it doesn’t seem to work Like does having the big mote make you weak, you know the analogy I always think of is like trust fund babies people who grow up in really wealthy families They don’t tend to work as hard, you know, they’re not in the office. It’s Saturday at 11 p.m. Not usually right? So, this is kind of how I think about Apple that the mode is so strong that they’ve been able to get away with being a fairly weak innovator for a long time and still printing money like God. Now what’s interesting is that may be changing. So, let’s say we put it in two levels, rate of innovation, build a moat, customer improvements, build a moat. That playbook tends to be a lot more powerful when there is a change in the tech paradigm happening. You know, if large language models, foundation models, and all of this is going to replace how people engage with the internet, then maybe the operating system is not important anymore. An operating system is built for humans. because we need everything put in one place so we can scroll through all the apps, or we can scroll through all the videos, or we can scroll through all the types of shoes. We need that. Generative AI doesn’t need that. It doesn’t need you to concentrate all the options in one place so we can choose. It can just scan the whole web. Generative AI, AI agents, as far as I can tell, don’t really need a marketplace to operate. So. When you look at a tech change, this playbook becomes more powerful, you get more room to run. So, I think that’s what we’ve seen with EVs versus regular cars. All this innovation and rapid sprinting ahead coming out of China didn’t really work until EVs came along. It didn’t work against traditional automobiles. But now the tech has changed, the playing field has been leveled, and they’re moving fast and it’s making a big difference. If Apple’s ecosystem is going to be disrupted, like Google search is kind of being disrupted, or at least threatened, that could open the door for another smartphone player to break in. So that’s kind of one factor. That one looks like it’s in Huawei’s favor. If it’s happening in smartphones, it’s bad for Apple. The other two factors you could think about is changing government regulations. That can change the playing field as well. It can be positive; it can be negative. The US government was very negative on everything crypto for the last couple years. Now they’re super positive and they’re your best friend. That’s kind of interesting. Huawei got hit pretty hard by the US government. That changed the game. So, government’s an external factor. And then the other one I think about is changing consumer behavior. Steve Jobs was very good at this. He was very good at convincing populations to change their habits and their behavior. Try my new device. Most companies can’t do that. If you want to launch TikTok in the US and people use Facebook or Snap, you kind of have to go for the younger generation that hasn’t started yet. And often these big behavioral changes, you’re depending on one generation coming up to get a new behavior. Now Apple was a bit of an exception under Steve Jobs. Now China and Asia is different. People change their behavior all the time, especially China. Consumer behavior, they will adopt new stuff like it’s nothing. But generally, those are the three factors I look at. I call it CGT. Whenever I look at a business and I’ve assessed like its competitive situation, then I always ask myself, like what’s the situation with CGT? Is consumer behavior changing? Is the government having an impact is the technology changing, CGD, because those sorts of external factors can completely change the competitive dynamics of an industry. Now, if those things aren’t present, I find that Moat’s competitive Advantage really helped me predict. And if you look at what Warren Buffett does, he seems to avoid businesses that have any sort of CGD. He likes Coca-Cola. There’s no C, there’s no G, there’s no T. And then you just find out the main players, do they have modes? You can stick with them forever. Anyways, that’s kind of where we are on this. Interesting thing, if I had to guess, I think Apple’s going to have serious trouble in China. I think their ecosystem is much weaker than anywhere else. Chinese consumers don’t use their apps. One, a lot of them aren’t allowed. But two, everyone uses WeChat and Baidu and Alibaba. So, their ecosystem is not nearly as strong there. They’re basically a luxury premium product in China. They’re closer to like Coach and Tiffany than they are to what they are in the US. So, I think they’re going to have trouble in China, particularly against Huawei. Outside of China is the big question. I think it’s interesting that Huawei showed this phone in Malaysia, running the Harmony OS operating system. And they’re selling it in Southeast Asia and other places. So yeah, this is going to be, let’s say Southeast Asia, probably Latin America, maybe Europe. We’ll see. But yeah, I think that’s kind of the question to watch. Anyways, that’s it for me. I hope that’s helpful. Pretty fascinating stuff going on. Generative AI, robotics, hardware, like everything’s moving so fast. It was pretty exciting. It’s also a bit daunting. So as for me, yeah, good week. I’m going into China in the near future. Kind of spending a couple weeks there just meeting with lots of companies, which is kind of my favorite thing to do in life. So, I’m looking forward to that. What else? I started watching The Expanse, that show on Amazon. I don’t know how I missed this show. Like I’m not sure how this wasn’t on my radar. This show is great. Because I really like Battlestar Galactica and Dune. You know that’s my kind of thing. I don’t know how I didn’t know about The Expanse. Man, it’s really good. So yeah that’s what I’m doing late at night. Anyways that’s it for me. Hope everyone is doing well and I’ll talk to you next week. Bye bye.

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.