The problem with iPhone
Today we arrive at the first of two 10-year anniversaries regarding iPhone: Steve Jobs unveiling the handset six months before its release -- unusual for Apple's then-CEO to pre-announce something, but necessary, with the federal regulatory rigmarole that cellular devices go through. Jobs and his management team brought the smartphone to market at great risk: Established and entrenched manufacturers, mainly Nokia, had huge distribution channels and massive amounts of research and development invested in their cellulars. iPhone debuted in one market (United States) and on a single carrier (AT&T, which concurrently rebranded). By most measures of business strategies: Insanity. But risk was a defining characteristic of Jobs' leadership style running the company.
You will read many "state of iPhone" analyses and commentaries this week spotlighting slowing sales, as buying growth plateaus in major markets (China, Europe, and the United States) and observing that Android continues to gobble global market share. The problem with iPhone is something else, and it's a metaphor for what's desperately wrong at Apple as 2017 starts: Loss of innovative mindshare; obsession with an outdated design motif; unwillingness to take meaningful risks. The company's fortunes rose with iPhone, and they will fall with it.
To dispense with some key metrics that are marginally relevant to this analysis' main narrative, yet nevertheless valuable:.
- iPhone's global market smartphone share was 12.5 percent, during third quarter 2016, down from 13.4 percent a year earlier, according to IDC. Samsung led the market at 20 percent share, falling from 23.3 percent. The period is largely congruous with Apple's fiscal Q4.
- iPhone shipments reached 1.4 million units during FY 2007, generating $123 million in cash, or 5 percent of revenues. Device launched June 29th.
- During fiscal 2016, Apple sold 211.9 million iPhones, generating $136.7 billion in sales, or 63.4 percent of all Apple revenues.. By comparison, a year earlier: 232.2 million units; $155.01 billion; 63.3 percent.
On this fine January day, Apple still stands atop the heap: The world's most valuable company, as measured by market capitalization. But beneath, the foundation cracks and crumbles. During fourth fiscal quarter 2016, iPhone accounted for 60 percent of Apple revenues -- down from 62.5 percent a year earlier. Company-wide revenues sank 9 percent -- the first decline in 15 years -- weighted by a 13-percent drop in smartphone sales. Considering that Apple nevertheless generated whopping $46.86 billion in cash -- $9 billion net income -- stupendous success is inarguable. But we aren't talking past, or even present, but future -- and how all three connect.
During the same quarter, Amazon generated $32.7 billion revenue but a fraction of Apple's income: $575 million. The online retailer's margins are razor thin, by comparison. But its profile is as large or larger; during last week's Consumer Electronics Show, Amazon's Alexa generated enormous attention. The digital assistant was everywhere -- arriving on new TVs and in autos, for example. Apple was a no-show, and I'm not talking its perennial absence as event booth participant. CES 2017 is the first I can recall, in a decade-and-a-half. where the company commanded no meaningful presence.
The point: Reputation, and more importantly perception, matters in business. If people talked about Apple, the context was less about innovation and more the lack of it. Go back even two years and rumors about upcoming Apple ware would steal some of the CES news thunder. But not in 2017; leaks about iPhone 8 features or MacBook Pros with indium gallium zinc oxide (IGZO) displays did little, if anything, to raise the news media or blog buzz meters. Instead, persistent -- and increasing -- online grumblings continued: Innovative Apple rots on the tree, under CEO Tim Cook's leadership.
Meanwhile, competitors like Amazon woo consumers and third-party partners. And, yes, Amazon competes with Apple. Both companies sell content-consumption devices, but more importantly a stack of consumer-oriented cloud services. Each operates digital stores selling, storing, or renting books, magazines, newspapers, music, movies, and TV shows, for example. As Apple increasingly emphasizes services revenues, while those from iPhone fall, Amazon competition will matter more. During fiscal Q4, the fruit-logo company's services sales surged 24 percent year over year to $6.35 billion, surpassing the Mac and standing second in importance to iPhone-- that's 13.5 percent of overall revenues.
Amazon as innovator is surprising, and not. The retailer doesn't command the cultural cache of Apple, but many more people use its cloud services and Alexa advances contextual user interfaces into territory that should belong to its Cupertino, Calif.-based rival. Siri should command the attention going to Alexa. Apple had the foresight, while Steve Jobs was alive, to acquire the technology that released as Siri with iOS 5 in October 2011. Nearly six years later, despite improved responsiveness, Siri still sucks compared to Amazon and Google digital assistants. Really a newcomer, Alexa released a tad over two years ago, and its reception and adoption has exploded over the past six months; Siri interest stalls, by comparison (developer and third-party hardware partner support tells the story).
The point: Positive perceptions -- mindshare -- as innovator retreats from Apple. Canaries in the coal mine, so to speak: Cool reception to MacBook Pro with Touch Bar (those damn battery-life problems and missing legacy ports); iPhone 7 and 7 Plus same 'ol, same 'ol; and CES, where not even Apple rumors moved the interest meter, while competitors introduced some surprising tech. Hell, even cheap Chromebooks got some shine, with Acer ruggedized and Samsung touchscreens. Speaking of the latter feature, 2-in-1s were the laptop rage last week. Apple has got what? iPad Pro 12.9? Ah, yeah.
But, again, it's Amazon Alexa that should have Apple execs crapping in their adult diapers. The voice assistant spotlights what's wrong with the company's current, and longstanding, design ethic. Apple obsesses over fingers and touch, while Amazon, Google, and others adopt something better: voice response.
Strangely, Tim Cook's company stands in 2017 where its biggest rival did in 2007: Pinnacle of success, unable to change. Nokia was the marketshare and mindshare cellular handset leader when Apple cofounder Jobs startled the Macworld Expo audience 10 years ago. His design team humanized the cell phone, by using touchscreen and sensors to make it more responsive to the user. Nokia later wouldn't quickly adapt to the design ethic, clinging to the physical keyboard and its success selling feature phones, Apple pursues similar path to design disgrace, desperately seeking to preserve its economic, customer, and partner ecosystems built around touch. The "finger first" design philosophy looks much the same in 2017 as 1984, when Macintosh launched.
Perhaps in an alternate universe, Apple advanced down different design path. I say this because Siri was the right concept six years ago and could have become the motif/platform for next-generation user interfaces. Instead, rivals Amazon and Google outflanked Apple much the way it reputedly did to other tech companies -- with the aforementioned Nokia being supreme example.
Voice interaction -- aka touchless -- makes more sense in the 2010s and is exactly what consumers need from a personal mobile, and many other everyday devices packing chips and operating systems. While humans are tool users, for which touch interfaces make sense, the ability to communicate with language sets us apart from all other species. What is more familiar than talking, and expecting response because of it?
Artificially intelligent digital assistants like Alexa humanize personal devices far more than, say, 3-D Touch on iPhone or MacBook Pro's Touch Bar. Devices like smartphones, or similar to Amazon Echo, are generally used contextually, providing something specific based on desire or need and location. Touchless interaction is a more adaptable and meaningful motif than touch. Think Star Trek computing.
Touch is the past that Apple fiercely clings to but must transcend.
Apple's reputation is that of disruptive innovator -- developing something like iPhone that succeeds in nascent or established product categories. But Steve Jobs' risk-taking tactics went further. Particularly during his second coming, so to speak, starting in 1997, he continually disrupted Apple, taking great risks in the process. Consider the four foundational developments in 2001 that are cornerstones: iTunes (January); OS X, now macOS (March); Apple Store (May); iPod (October) -- all brought to market in the midst of disappointing quarterly results, economic recession, launch of competing Windows XP, and while Gateway shuttered retail stores.
Let's further explain two of them. Launching OS X months before Windows XP, Jobs disrupted OS 8.x-9.x, which had a fairly stable app ecosystem that developers supported. The new operating system introduced major architectural changes during a period when the majority of developers were sure to follow the money, meaning XP (and they did). Timing was madness! The pay-off wouldn’t come for years, but it proved there can be great rewards from tremendous risk-taking.
Two months later, when Apple opened its first two retail stores, Jobs risked disrupting his tenuous reseller supply-chain. Channel conflict could have doomed the Mac, and definitely there were consequences as more stores opened. But this self-disrupting risk also paid off. As did many others.
My favorite self-disruption should be a lesson for Tim Cook -- iPod nano, which introduction was one of the most memorable "fuck you moments" in the history of consumer technology. During the Sept. 7, 2005, launch event, Jobs boasted: "The iPod mini is what all of our competitors have their sights focused on. We’re going to do something pretty bold. Today, we’re gonna replace it". He went on to name the new iPod nano, then asked for a video camera to close-up on his jeans, and, pointing to the coin pouch, asked: “Ever wonder what this pocket is for? I’ve always wondered that”. He then pulled out the diminutive music player.
Under Jobs’ leadership, Apple did something unthinkable, by so blatantly defying the rules of retail: Killing off a product at the height of popularity, what was then the most purchased portable music player in the world. Just as competitors started shipping iPod mini knock-offs to stores for the holidays, Apple made their devices suddenly obsolete -- bricks, by comparison. For all the cleverness of nano’s design, there was greater innovation from a product marketing perspective. The little music player was a giant middle finger lifted towards iPod mini imitators.
Jobs took big risks bringing iPhone to market. Apple needs to disrupt itself, if ever to reclaim its innovator crown and maintain, and even extend, the legacy that he started a decade ago. The device is much the same in 2017 as 2012, or even 2007. The core concepts and design ethic -- slate, screen, touch -- are alike the original, but they will increasingly be anachronisms as the next decade approaches.
Touchscreens won't disappear, but they will become more redundant as touchless interfaces mature. Surely someone at the fruit-logo company understands -- otherwise there wouldn't be Apple Pay. No screen interaction is required.
Amazon Echo, which user interface is Alexa, has no screen whatsoever. Yet millions of consumer get valuable information from the device and even order products -- all by commands from their mouths. No fingers, no eyes required. Yes, Siri is available on iPad, iPhone, and Macs as well as in autos. But Apple's touch-obsession and unwillingness to risk the massive revenues currently generated by iPhone hold back touchless advances. Amazon's innovation incentive is sales, whether they be physical goods or digital wares, like music stored in the cloud and played back on Echo's surprisingly pleasing speakers.
When Jobs pulled out the iPod nano 12 years ago, I saw meaningful consumer product design in motion: Humanization in part by making the tech thingy smaller, less obtrusive. Same applies to the original iPhone. A decade later, smartphones are larger, pretentious. They interfere with and distract from our humanity. Isn't that a problem Jobs might seek to solve, if alive, by bringing something better to market that people don't know they need? Tim Cook can't get there by preserving the Apple status quo. Real risk is required.
I look at Apple AirPods and wonder: Isn't this motif what a smartphone should be? That's my design challenge to the company or its rivals: Give us a smaller device -- and maybe it's more than one forming an ever-present user interface -- that requires no touch, no screen, that allows us to ask questions and give instructions, contextually, wherever we may be; that frees us to interact with the environment around us, rather than continuously look down at a screen. Now that would be humanization of computing -- and surely persistent, artificially intelligent digital assistants available anytime, anywhere, on anything are one way there.
Wanna bet Amazon, and not Apple, gets there first?
Photo Credits: Steve Jobs (Apple); iPhone (Joe Wilcox); two iPhones (Apple)