As Apple nears peak iPhone, the question becomes “what’s next?”
Apple's latest earning call was a bit of a mixed bag. On one hand, it announced a record-breaking profit of USD$18.4 billion for the three months ending December 26, 2016. On the other, iPhone sales only grew by 0.4% when compared to the same three-month period a year ago.
Despite the ludicrous amount of money Apple is bringing in, slowing iPhone sales have caused many to proclaim the golden goose dead. Apple isn't going anywhere, the iPhone isn’t going anywhere, but it's potentially hit a saturation point, and that's the kind of thing that spooks investors. The numbers suggest we've hit "peak iPhone", the point in time where everyone who wants an iPhone already has one. As such, there's less potential for growth, which in turn, devalues a company.
So how real is peak iPhone? Let's take a look at the numbers. Apple sold 74.8 million iPhones in the first full quarter of the iPhone 6 and iPhone 6s Plus ability. It sold 74.5 million iPhones during the first full quarter of iPhone 6 and iPhone 6 Plus availability. It sold 51 million iPhones during the first full quarter of iPhone 5s and iPhone 5c availability. And prior to that, it sold 47.8 million units during the first full quarter of iPhone 5 availability.
There's a clear trend; Apple sells a lot more iPhones when they don't have an "s" at the end of their name. It will certainly be interesting to how the iPhone 7 affects these figures in a year's time.
Of course, not everyone buys a new iPhone on a yearly or bi-yearly basis. Tim Cook himself said three in five iPhone owners – who bought their device before the iPhone 6 was launched in 2014 – have yet to upgrade to a big screen handset. That’s a lot of people using smartphones over two years old, but iOS’ maturity somewhat mitigates this.
As fun as getting your hand on new gadgets is, hardware has eclipsed software in the smartphone space. While the iPhone 5s wasn't perfect, it's a very comfortable place to be if you're waiting for the iPhone 7. It's got 1GB of RAM, the first truly great iPhone camera, more than enough processing power, and Touch ID for added convenience.
It's not the fastest iPhone on the market, but it's more than enough for the average user. Buying a new phone to save a few seconds when loading Facebook doesn't really make economic sense.
Hell, the iPhone 5 is still holding up alright too.
If I had to hazard a guess, most people don't really need the full extent of their phone's processing power. Facebook, Instagram and WhatsApp doesn't exactly require a lot of grunt. Faster is always nice, but it's not necessary.
We haven't exactly seen a must-have feature in an iPhone for a while either. I love having a bigger screen, but it seems like plenty are content with the iPhone 5's 4-inch display. 3D Touch is very cool, but developers are taking their time when it comes to supporting it.
Every iPhone is better than the last, but it feels like the tangible difference between generations is getting smaller and smaller – something I see as an industry-wide trend. Since the original iPhone’s launch, smartphones have gone from being an oddity to sophisticated devices that many of us use more than a PC. But as with PCs, the platform’s maturity means the year-to-year difference is a bit less noticeable. At the same time, if people are holding onto their iPhones for longer due to the fact they’re getting better, it means there are still a lot of people Apple can sell an iPhone 7 to.
The currently untapped Indian market also presents another iPhone growth opportunity for Apple, with the company expected to open its first stores there later this year.
While India's massive population gives Apple an incredible amount of people to try and sell an iPhone to, launching in the country would not be without it's challenges. Putting aside the nation's socioeconomic status, India's phone network is far from reliable, with many still users still stuck on 2G. Fragmented coverage also means that dual SIM phones are a must-have for anyone frequently travelling inter-state. While Apple doesn't sell a dual SIM iPhone, this is something it could potentially address with an "e-SIM" (an embedded rewritable chip that can connect to any telco the user has a plan with).
But let's assume we have reached peak iPhone. Let's assume Apple is headed to that weird limbo where it's making stable, ongoing profits but seeing little to no growth. The question becomes what's next? In order to maintain its meteoric performance from the last decade or so, Apple will have to go back to the drawing board.
It's an inescapable fact of reality that the iPhone's growth will one day slow, and it would be foolish to assume that Apple hasn't foreseen this themselves. Apple successfully pivoted from the iPod to the iPhone, so there's no reason it couldn't do so again.
The Apple Watch is almost certainly one of the company's first plays in trying to crack the next big thing. While the device's potential sales are limited by the fact you need an iPhone to pair it with, there happens to be a lot of iPhones in the world. The Apple Watch may never reach the same critical mass the iPhone did, but we’re only getting started when it comes to wearables, and we shouldn’t rush to write off the Watch based on how the first generation has been received.
As wearable penetration grows, so does the opportunity for selling accessories such as straps. You might not convince someone to buy a new AUD$1,000 Apple Watch every year, but it doesn't mean that they won't drop a bit of dosh here and there on the latest collection of straps. Apple's post-launch emphasis on new Apple Watch looks is very telling of where the company hopes to take the category. Fashion is very rarely a rational purchase, and collaborations with brands like Hermès build the emotional momentum Apple relies on.
Looking further forward, we've got Apple's automotive ambitions. CarPlay is said to be the tip of Apple's in-vehicle iceberg; an Apple-made electric car could very well be the company's long term goal. When you consider that cars are quickly becoming four-wheeled computers, it would make sense for Apple to consider the space. Google already is, after all.
As exemplified by the 18 karat Apple Watch Edition, Apple is getting quite comfortable dipping its metaphorical toes further and further into the sea of luxury goods. It's not too hard to imagine being faced with a choice between Tesla, Mercedes, Audi, and Apple, if you're the kind of person who's hoping to buy a luxury car in the next five to ten years.
Virtual reality is another untapped area that Apple could expand into. Apple is rarely a first mover, but from a personal perspective, virtual reality is easily one of the most exciting technologies on the horizon. The company hasn't publically discussed VR plans, and the rumour mill hasn't revealed much either, but Tim Cook did describe the technology as "really cool".
I wouldn't put money on it, but my guess is Apple will hold back on virtual reality for a while. At present, the technology seems a little too-gaming focused for it to be something Apple actively pursues. I can't quite see an Apple-made Mac-powered virtual reality headset showing up in an Apple Store any time soon; the tech isn't complex, but it doesn't quite fit with the company's mantra of simplicity either.
Perpetual growth is impossible when it comes to any product, but it's very easy to see slowing iPhone sales as a sign of trouble, or at the very least, of stagnation. While the iPhone 7 could very well give Apple and its investors the growth they're after, iPhone sales will inevitably plateau sooner or later.
The iPhone isn't going anywhere, but it's at the point where upgrades feel iterative rather than innovative. While this speaks volumes about how quickly the category has matured, it also makes it that little bit less exciting. There's less reason to upgrade for the sake of upgrading.
We might not ever see an iPhone that truly wows us again, but hopefully this paves the way for something new, whether it's a better Apple Watch, an Apple Car, Apple VR, or something completely different.