The iPhone is arguably the most valuable product in the world, representing the backbone of Apple Inc’s half-trillion-dollar hardware business and undergirding its software-peddling App store. It remains the envy of consumer-product companies world-wide.
If history is any indication, though, America’s favourite handheld device will someday take up residence with the digital camera, the calculator, the pager, Sony’s Walkman and the Palm Pilot in a museum. Although it’s hard to imagine the iPhone dying, change can sneak up rapidly on contraptions that are deeply entrenched in American culture.
Consider it was as recently as the mid-1990s when I spent an hour a day during my senior year in high school in a room full of electric typewriters learning to type. Today, I spend most of my working hours using that skill to bang away on a keyboard, but I have rarely touched an actual typewriter in 25 years.
“Over time, every franchise dies,” said Nick Santhanam, McKinsey’s Americas practice leader in Silicon Valley. “You can innovate on an amazing mousetrap, but if people eventually don’t want a mousetrap, you’re screwed.”
Kodak, Polaroid and Sears are all examples from the recent past of companies that held too tightly to an old idea. Today’s tech giants, ranging from Netflix (having already reinvented itself to be dependent on advertising-free streaming video) to Google parent Alphabet Inc (counting advertising as 86 per cent of revenue), should take note of those painful demises to avoid the same fate.
Apple’s mousetrap is anything but broken. Representing 60 per cent of Apple’s revenue, the iPhone outsells 96 per cent of the companies on the Fortune 500. The phone carries the bulk of the $545 billion valuation that Morgan Stanley assigns to Apple’s wider hardware business.
Apple, for the better part of the 2000s, was the master of the next big thing: The iPod, the MacBook Air, the iPad, the iPhone. Apple wasn’t always first, but its products were easier to use, thinner, cooler.
With the success of the iPhone since it arrived on the scene, the next big thing has been harder to find. Apple has had no breakthrough on TV, a modest success with its watch, a stumble in music and a lot of speculation concerning its intentions for autonomous cars or creating original programming. Now, as in a comic-book movie, we’re all left to wonder whether Apple’s greatest strength could be its biggest weakness?
Apple Chief Executive Tim Cook acknowledges the latest iPhone delivery trends indicate his company faces a potential inflection point. “Apple has always used periods of adversity to re-examine our approach,” Cook said in a January 2 letter to investors.
Apple has a legacy of invention, Cook says. That’s something the Cupertino, Calif, company is eventually going to need.
In a CNBC interview, he pointed to rapid growth in services and “wearables” — such as watches or ear buds — as reason for optimism. Someday, Apple will be known more for its contribution to health care than its sleek gadgets, Cook says.
Whatever shape it takes, Apple’s evolution will be closely watched if only because reinvention is so hard to pull off. A decade ago, Nokia’s dominance in handheld devices evaporated after executives failed to create a compelling operating system to make their pricey smartphones more user-friendly. Finnish executives have told me on several occasions that Nokia knew it needed to rapidly change, but lacked the urgency and resources to do it.
The Model T almost entirely underpinned Ford Motor Co’s rise a century ago, when the Detroit auto maker owned roughly half of the US car market. Without “The Universal Car,” Henry Ford likely would have been forgotten.
A closer parallel to Apple is Microsoft Corp. Its best-known product, Windows, was so dominant that it drew extreme regulatory scrutiny while vaulting the Seattle software company atop the personal-computer market before cloud computing existed.
Both Ford and Microsoft adapted and survived. Iconic vehicles like Ford’s Mustang coupe or F-150 pickup prove companies can live a productive life after the initial hit product fades. Microsoft’s transition to cloud computing with its Azure product, meanwhile, has vaulted the company back near the top of the race for the title of world’s most valuable company.Still, it’s a slog.
“It’s hard to be a two-trick pony,” former Microsoft CEO Steve Ballmer told me Thursday. “It’s amazing to do one. It’s super amazing to do two. Doing three? I have a lot of respect for a company that can do three tricks. … It’s just hard to come up with concepts that can make that happen.”
There are success stories, to be sure.
He said Apple’s line of Mac products is one trick and the so-called i-Series (iPhone or iPod) was a second. “If they had stopped with the iPod, where would they be?” They succeeded because “they pushed beyond” with a phone.
By all accounts, the iPhone’s run — nearing the dozen-year mark — has been remarkable, especially when you consider the average company in the S&P 500 remains in the index for only 15 years. Cook’s legacy, however, hinges on how well he pulls off Apple’s next act.
Source: The Wall Street Journal