Some thoughts on where Apple goes with flatlining iPhone sales

This article, sent as an email to a few friends in November 2018, is still relevant. This was in the wake of their most recent quarterly results, in which iPhone sales had stagnated, leading to the Yahoo-esque question of What Apple Is:

Year on year sales have been flat. Revenue has increased only because average selling price has increased, but can’t go much higher (USD 1000/INR 100,000). 

And the need to have the latest and greatest is diminishing, as this article says

But there’s a bigger problem that has nothing to do with the relative inconspicuousness of phones: incremental innovation. Each year, we’re told via loud, energetic ads that we should upgrade to the next version of our device. But at the end of the day, what are we really getting in exchange beyond a slightly better camera and screen?…

My point is simply that phones have lost their differentiation, with little physical difference to support consumers who love status symbols and only incremental improvements for those who are focused on utility. If your phone isn’t broken, there’s really little reason for you to upgrade all that often.

This had happened with iPads years ago, with Macs even earlier, now with iPhones. It’s probably also why Apple announced that it’s going to stop reporting unit sales for product lines going forward.

If Apple is a hardware company, what does this say for its future in general and its principles in particular?

It’s been able to take its stance on privacy, on customer-centricity because its sole customer is the guy that buys the device. Its investments have also been driven by the same incentive: instead of investing in say ad-tech, they have invested in hardware: their own range of chips, in TouchID & FaceID. Instead of deploying AI in targeted advertising, it’s used it to make photography better. When its AI analyses customer data or runs Siri, it’s designed to run locally, not in a vast data centre commingled with other millions’ data. These decisions could become unsustainable with falling revenue.

So where does Apple go?  I think it’s becoming a very interesting entity indeed.

Ben Thompson of Stratechery thinks Apple’s investing in its own ‘real world’ social network with Apple Stores and Today at Apple daily programmes to make it a regular part of people’s lives, like Starbucks is, not a destination to visit when you’re in the market for a new device or want repairs.

Speaking of devices it’s also getting into new areas. Last year someone wrote a piece saying its most important device is the Apple Watch. HomePod may fail, CarPlay may be a commodity, but what Apple is doing with Healthkit and with Medical Research is building extremely strong loyalty – you’re definitely not going to switch to an Android (or Fitbit) watch, and by extension another phone for a few hundred dollars, when your medical history, your patient records with your GP, hospital and insurer, and your participation in clinical trials relevant to you, are tied to your Watch. 

Lastly, it’s shifting from a pure hardware company to a mix of hardware and content one. Its App Store has had editorial content since iOS 11. There’s alway been a human team that picks editorial content on Apple News. And it has been getting into producing original media as well: 

Apple is spending about $1 billion on original content this year, targeting “PG-rated” shows that appeal to wide audiences and won’t get the company in trouble by making them available for free to owners of all devices, said the people. Apple is also looking for “tent pole” franchises that could serve as linchpins to a paid Netflix-like subscription service down the road, two of the people said. Think “Game of Thrones,” but without the sex and violence. The Wall Street Journal reported last month Apple has about 24 original shows in production and development

And, like Amazon Prime, will be available for free to owners of its device, according to the article I quoted above.

It’s interesting that it isn’t moving ‘up the value chain’ traditionally. That would mean that the media, apps, data and such that run on Apple’s devices would, over time, become their new main revenue stream. But instead of going down that road, it’s creating new reasons for people to buy its hardware by giving away for free part or all of this new value created. That’s hard, but that keeps Apple’s incentives aligned with those of us who buy their devices. It’s incredible.