Apple is holding a launch event tomorrow where we expect the unveiling of the latest iPad and an iPhone. Behind the scenes, though, Apple won’t be as cheery as usual. That’s because sales of iPads are falling and the iPhone's are flatlining. Don’t get us wrong. Both devices will continue to generate the kind of profits that, say, HTC can only dream of. But I think the iPhone rocketship is running out of fuel.
From zero to hero
When the first iPhone was launched in 2007, its potential market was pretty much everybody on Earth: it was the first smartphone of its kind, it worked in a way that no other smartphone worked, and it didn’t have any serious rivals. Android was in its infancy and Samsung was making phones that looked and worked rather like Nokias and BlackBerrys.
The iPhone sold in big numbers, but the total number of iPhone owners was still a tiny proportion of the overall market. So when Apple made a vastly improved iPhone - with 3G this time, and copying and pasting, and apps - it could sell to three kinds of people. It could sell the new iPhone to people who wanted to upgrade from the original. It could sell the new iPhone to people who wanted to switch from lesser rivals, and from feature phones. And it could sell the new iPhone to people who didn’t have any kind of mobile phone at all.
Over time, though, each of those groups has got smaller. The difference between the iPhone 6 and the iPhone 6S isn’t dramatic, so there isn’t the need to upgrade that there was when the iPhone became the iPhone 3G. Rivals have caught up and in many respects overtaken the iPhone, so a Samsung Galaxy S6 owner is more likely to get a Galaxy S7 than an iPhone. And pretty much everybody has a smartphone, so there aren’t many newbies around.
There’s another issue, and that’s the arrival of the ecosystem. You don’t just choose a phone any more. You choose an ecosystem, a world that includes not just the phone but maybe a tablet, a smartwatch, in-car entertainment, home automation and a whole bunch of apps and online services. The more of these things you have, the more of a pain in the backside it is to switch.
So the more Android products, apps and services you have, the more likely you are to stick with Android - and as Android sells in much bigger numbers and in a much wider range of price brackets than Apple, that starts to reduce the number of potential switchers. Persuading a Galaxy S7 owner to switch to an iPhone is tough enough, but a Galaxy S7 owner with a Galaxy tablet, a Galaxy Gear watch and a Galaxy VR headset? Good luck with that one.
Everything is awesome
Another reason for slowing sales is technological: we’re in a lull after years of exceptional advances. Any firm’s Excellent New Phone is almost certainly very similar to last year’s Excellent New Phone, except a little bit slimmer and a little bit faster and with little improvements to bits and pieces.
Battery tech hasn’t followed the same incredible trajectory as processors, 5G is years away and cameras can already shoot in higher quality than most people’s TVs and computers can display. That’s one of the reasons for the hype around wearables, VR, home automation and in-car systems: if you can’t make the phone really exciting, maybe you can attract people with goodies such as headsets or smartwatches instead.
Cheap can be nasty
“Why would you buy an iPhone when you can do pretty much everything on a Moto G for a fraction of the price?” Someone asked us that the other day. It’s a really good question, and the answer is that you wouldn’t, because if you’re considering an iPhone you aren’t thinking about any Android, let alone a specific handset. That’s why the iPhone SE is coming: it’s an attempt to get iPhones into the sector where people don’t pay enormous sums for their phones.
There are two problems with that. One, Android already caters very well for that market with its Motos and its OnePluses and so on. And two, for many people iPhones are status symbols, and cheap ones are not. Remember the iPhone 5C, the gaudy, plastic iPhone? It bombed: it was too cheap by iPhone standards and too expensive compared to Androids. There’s a very good chance history will repeat with the iPhone SE.
Where is all this heading? We suspect it’ll play out just like the PC market did: unless there’s a spectacular new technological development the smartphone market will become increasingly commoditized. Apple will continue to target the most affluent purchasers and rake in the lion’s share of the profits, but it won’t have the high end to itself: it’ll be sharing space with the likes of Samsung, and maybe Huawei and Xiaomi too, and Android will continue to dominate the mass market.
Apple isn’t doomed and the iPhone isn’t a bust, but its extraordinary sales growth couldn’t last forever. Every rocketship has to come back to Earth eventually.
What do you think? Can the iPhone ever repeat its extraordinary success? Let us know in the comments.