Apple will face 4 challenges this week that could fundamentally alter its future

Key Points
  • Software developers build the apps that make Apple products useful, and next week is its annual conference for them.
  • To keep them happy and engaged with its platforms, Apple will have to address challenges with Siri, content, the Mac, and China.
What to expect from Apple's Worldwide Developers Conference
What to expect from Apple's Worldwide Developers Conference

Considering its role as the world's most valuable public company, Apple reveals remarkably little about the strategy that has catapulted it to an $800 billion valuation.

This week is a rare exception: The annual Apple Worldwide Developers Conference, where coders and app makers gather to make preparations for the next versions of Apple's operating systems.

This year's confab could be particularly important to investors. CEO Tim Cook has set an ambitious goal to double the company's services revenue — which includes the App Store — by 2020. Developers, the people who build those apps, are key to getting there.

Apple CEO Tim Cook delivers the keynote address at Apple's annual Worldwide Developers Conference at the Bill Graham Civic Auditorium in San Francisco, California, onJune 13, 2016.
Gabrielle Lurie | AFP | Getty Images

Apple knows how to court them. It has invested heavily in education efforts around coding — including coding game Swift Playgrounds and the revamped Genius Bar — and the App Store has paid out $70 billion to developers since it launched in 2008, according to Apple.

To keep those developers engaged, here are four challenges that Apple will have to address.

1. Making Siri competitive

Last year, consumer technology writer Walt Mossberg asked why Siri seems "so dumb." An (albeit non-scientific) test by last month came to a similar conclusion: The Google Assistant answers most questions better than Siri.

Apple is reportedly preparing a smart home speaker with Siri, which may or may not debut next week. (Apple almost never confirms products ahead of launch).

But for a speaker like that to take off, the development around Siri might need to improve, said John Forrester, chief marketing officer at Inbenta, which makes virtual agents and assistants for enterprises.

With many development platforms to choose from, it's up to Apple to woo developers to make something for Siri, Forrester said. Many developers today like the App Store, Forrester said, because they can easily monetize their work. The same goes for chat-based artificially intelligent bots, he said.

Forrester, who has previously worked for companies like Samsung and Microsoft, said that Apple has a big advantage in that it is known for sleek industrial design, and aligned with luxury brands like Hermes.

When you look at three major players, Apple and Google have a great record of courting developers. They work well with them.
Jonathan Frankel
Founder of smart home system Nucleus

Apple is also known for its focus on user experience, which could make the rumored speaker easier to use than Alexa, which often requires you to awkardly ask it to summon a skill before you can do tasks. That could be augmented by Apple's recent investments in automation.

"When you are talking to someone, you give it a name. I think it's weird that Google Home doesn't have one. We have customers that have avatars, that's more important in some cultures," Forrester said.

"It's going to be important that as Siri learns — if it's a platform to make it more intelligent — that it won't be hidden commands. Just part of the persona," he added. "I think that's really important. The bar is really raised for Apple to really wow us."

2. Content, including AR and VR

Developers also need to have a clear understanding of the rest of Apple's services strategy to know where and how they can plug into it.

For instance, last year's WWDC event included a big upgrade to Apple Music, foreshadowing the release of content like original series "Planet of the Apps" and Tribeca Film Festival movie "Clive Davis: The Soundtrack of Our Lives." This year's updates to platforms like tvOS could foreshadow what's to come for Apple in the video space.

Apple has also been widely rumored to be planning new augmented or virtual reality capabilities in the next iPhone. If it wants users to take advantage of those capabilities, it's going to have to start showing developers how to build apps and experiences that take advantage of them.

"Apple will announce iOS 11 and bring new capabilities to iPhones and iPads," wrote Gene Munster, venture capitalist at Loup Ventures. "The question is: how much will iOS 11 tell us about Apple's ambitions in augmented reality?"

3. Some Mac love

Apps are built on Macs — and even Apple admits that its attention to Mac upgrades has been lackluster.

Meanwhile, Apple continues to pour resources into the iPad, and says it's still bullish on it. But it's not powerful enough to do serious programming.

With refreshed MacBooks and iPads expected at the event, Apple would do well to more clearly define the different use cases for each, and prove to developers that it's still serious about the Mac.

Tim Cook, Chief Executive Officer of Apple Inc., and China Mobile Chairman Xi Guohua (R) visit a China Mobile shop to celebrate the launch of iPhone 5S and iPhone 5C on China Mobile's fourth generation (4G) network on January 17, 2014 in Beijing, China.
VCG | Getty Images

4. Addressing China

One of the top questions clients ask Bernstein's Sacconaghi about Apple is "What is happening in China?" The resulting "investment controversy" has become known as Apple's "China Problem."

Warren Capital estimates that iPhone sales in China fell 14 percent from the year-ago period in April.

"There is no doubt that the iPhone is not selling well in China currently," Longbow analyst Shawn Harrison wrote in a recent research note. "Domestic [manufacturers] are taking share, particularly Huawei. However, many people are waiting for the new iPhone."

But another issue is that one of Apple's main value propositions — an easy-to-use, integrated software system — holds less appeal in China.

Ben Thompson, the author and founder of Stratechery, explained last month. "The fundamental issue is this: unlike the rest of the world, in China the most important layer of the smartphone stack is not the phone's operating system. Rather, it is WeChat."

In fact, WeChat received about 29 percent of all the time spent in mobile apps in China on an average day last month, according to data in Mary Meeker's 2017 Internet Trends report published last week.

"Naturally, WeChat works the same on iOS as it does on Android. That, by extension, means that for the day-to-day lives of Chinese there is no penalty to switching away from an iPhone," Thompson wrote.

Last year's WWDC event provided clear appeals to the Chinese market, including iMessage apps, and "Scribble" written characters in messages — convenient for writing Chinese characters. Building out these resources could be key for Apple, Thompson wrote.