Industry Voices—Lee: Have we reached peak iPhone?

Apple iPhone 11
Apple recently announced two versions of the iPhone 11 Pro but Cupertino's new game might best come via the new mid-tier iPhone 11. (Apple)

The latest Apple keynote was arguably lackluster compared to prior years. Over the last few years software and services have continued to steal the spotlight away from Apple’s hardware, leaving industry pundits wondering if Cupertino has lost its flair for transformative, exciting innovation. Other than what appear to be formidable upgrades to cameras (now there are three forward-facing) and a faster and smarter processor, was there anything about the newly-revealed iPhones that might move the needle? Anything that might change the game?

The iPhone has now gone the way of the Mac

As of Sept. 10, we seem to have reached peak iPhone. More importantly, Apple seems to acknowledge this as leading research firms have reported slowing if not declining smartphone shipments globally for the last two years. Even China is experiencing a slowdown in domestic shipment growth, falling 6% in Q3, according to Canalys. In recent quarters, Apple has experienced a significant tempering of iPhone revenue growth with a year-over-year decline of 12% in Q3 2019.  

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Thanks to a profound branding move by Apple, we now have an iPhone Pro that is positioned similarly to the pro tiers of Apple’s laptop and desktop product lines. In other words, the $1,000+ top-end iPhone is no longer intended for everyone much like the Mac Pro, (which starts at $6,000) is not for everyone. As Phil Schiller, Apple’s SVP of World Marketing, put it, the iPhone 11 Pro “is the first phone that we have called ‘Pro’.” Yes, smartphones have become that capable and powerful.

The majority of consumers will be fine settling for one of the cheaper iPhone options that are more than good enough for most of us in terms of hardware specs and features. The newly unveiled iPhone 11 makes for a great Macbook Air equivalent for Apple’s smartphone portfolio. It shares the same A13 Bionic chip as the iPhone 11 Pro but is priced starting at a very attractive $699, taking us back to the days before the iPhone X pushed premium smartphone prices into the stratosphere. Apple should be able to continue to drive the success of their mid-range handset slot currently championed by the iPhone Xr with a compelling successor in the iPhone 11 while providing a strong entry point with the still-compelling iPhone 8 starting at $499. 

Super upgrade cycle in the making?

For years, Apple CEO Tim Cook has been emphasizing the size and growth of its iOS installed base which is now approximately 1.4 billion active devices. Apple continues to add to this massive installed base through new unit sales as well as a vibrant secondary market for pre-owned devices while maintaining an extraordinarily low level of fragmentation with 88 percent of active iOS devices running iOS 12 as of August of 2019. iOS 12 provides support for five generations of iPhones which has encouraged users to keep their devices longer thus delaying upgrades.

Could the iPhone be on the verge of experiencing the super upgrade cycle that Wall Street has been anticipating for the past three years since the announcement of the iPhone X? If we look at the software, specifically iOS 13, Apple has decided to shorten the iPhone support cycle from the six-year window we saw with iOS 12 to just four-years with iOS 13. 

Apple has also tightened up the generation gap between the models in its iPhone line up. The iPhone 8 armed with the A11 Bionic, which it shared with the iPhone X, sits at the bottom of the roster and is only two years old, making an upgrade investment better than prior years where we saw a two-generation gap at the bottom of the iPhone line up.

Much to the chagrin of many, Apple did not announce a 5G iPhone. Apple has not been known to be first to market for many things and for many good reasons. In regard to 5G, it is simply too early and mmWave deployments are very limited globally and spotty in territories where the new network is being rolled out. A 5G iPhone would also require a significant redesign and testing of the handset to ensure it performs and does not cause another embarrassing Antennagate event for Apple. 

For those consumers who know and care, 5G could be the upgrade trigger, but then there is LTE/5G coexistence which may temper consumer urgency for jumping on the 5G bandwagon as 5G network upgrades simultaneously improve LTE service quality and speeds.

If better upgrade economics and a 5G modem don’t convince stragglers to take the plunge, there was the announcement by Tim Cook that any new iOS device purchase will come with a complimentary one-year subscription to Apple TV+ coming available on Nov. 1 of this year. Maybe Jennifer Aniston’s return to TV will be the upgrade trigger Apple has been waiting for.

Game-changing for Apple

With the US-China trade war dampening Apple’s prospects in the second largest economy and the maturation of the smartphone beyond the threshold of “good enough” across tiers from premium to utility handsets, Apple needs a new game. I think they have it with their focus on driving ecosystem rejuvenation with a solid mid-tier play in the iPhone 11 and compelling lower-end entry points with the reasonably priced but very competitive iPhone Xr and iPhone 8.

No doubt, Apple’s game has changed as it should. Change is what we expect of companies that continuously innovate and adapt to tectonic disruptions in the market. The industry is starting to understand the shift in Apple’s story, more specifically the inflection point that we have reached with the iPhone subplot. Maybe it is time that we look at Apple with a different lens: one that allows us to see the halo is more valuable than the hardware from which it emanates.

Leonard Lee is the founder and managing director of neXt Curve, a research advisory firm focused on Information and Communication industry and technology research. He has worked as an executive consultant and industry analyst at Gartner, IBM, PwC and EY and has advised leading companies globally on competitive strategy, product and service innovation and business transformation. Follow Leonard on LinkedIn: linkedin.com/in/leonard-lee-nextcurve

“Industry Voices” are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinons of Fierce.

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