“Premium branded phones are the culmination of decades of research in wireless technology, computing, materials, and design. Shitphones are the culmination of decades of research in wireless technology, computing, materials, and design — minus a year or two.”
John Hermann-Shitphone A Love Story
After Apple doing the best quarter ever (for any company), it does not really seem that company is in trouble. However if you investigate the Apple revenue breakdown, there are some things to watch out for. iPhone contributes to almost 70% of Apple´s revenue. iPad (which is declining) is only 17% of iPhone sales and Mac 13%. Services contribute to 0.6% to Apple´s revenue.
Launching the phablet-sized iPhone 6 was brilliant business move in China. The sales soared over 70% in Greater China region.
1.Smartphones will be commoditized
Xiaomi is a great example of this: the phone works ok, but sells in aggressively lower price (thus low margin). Like John Hermann wrote, many technology brands are in situation where “genuine novelty rapidly reduced to thankless anonymity” Apple is more secure than other premium phone brands, as it is guarded with its lock-in ecosystem, but nothing in this world lasts forever.
2. Smartphones will eventually be no longer status symbols
When I got my first mobile phone at the tender age of 12, I was the king of hill in schoolyard. First iPhone was a conversation topic for weeks. New bigger-screen iPhone was a topic for a short question around “does it bend” and that was it. iPhone has already been around eight years, mobile phones even longer, it is getting harder and harder to excite the audience. Same will apply to China, which currently brings huge parts of Apple revenues. Technology status symbols are fickle as the status comes from constant innovation.
3. iPhone eats the other parts of Apple ecosystem
Who normal person needs home computer any more? As our life has become more dominantly mobile, the need for laptop has radically decreased. iPad was the first substitute for your home laptor. At the same time iPhone 6 is killing it, iPad sales have dropped 20%. That is not necessarily worrying; maybe iPad was transition product for something else (such as the bigger mobile). Although you are committed to single device, the previous Apple ecosystem with multiple devices working seamlessly acted as a bigger barrier to switch. Not to mention that the former clue to that ecosystem iTunes does not really do anything at the moment. Streaming services have pretty much killed that business and what will become from Beats acquisition is yet unknown.
This brings us to the watch. Apple Watch is hugely important for Apple because of the following reasons:
1. Opportunity to highlight premium innovation
Apple is a premium technology brand so it needs to be constantly innovating. The recent innovations in mobile phones have been tepid at best (making your phone big require more innovation for jeans makers). Apple watch is an opportunity to showcase their innovation, which entitles them to ask premium price.
2. New behavior
Apple Watch is also an opportunity to teach a new behavior for consumers. If any brand can do that, Apple can. Using iTunes, downloading apps or using iPad were new behaviors for the audience. Jury is still out, have these behaviors become permanent (app downloading seems to still go strong).
3. Stronger lock-in to ecosystem
iPhone is currently the crown jewel for Apple. As Apple Watch requires iPhone to work properly, it is great fit to Apple ecosystem and will increase the time spent on it.
4. Bragging rights
Apple Watch will spark much more lunch hour chatter than previous iPhone models combined. It remains to be seen, do you appear cool or douche when dabbling with your watch.
Apple Watch can be success or not (we will now more when it hits the store April 24th). It is risk because it involves new behavior and wearables have not yet been that succesful. However it is necessary risk for Apple to stay relevant and continue charging premium from their products.