By Jefferson Wang
When Apple reports earnings this week, it will once again find itself trying to demonstrate that it has a continued path for big growth. Many eyes will be on iPhone sales (with scrutiny on efforts in China), profit margins and any insights regarding Apple Watch. The market will question whether the iPhone 7 can help Apple break out of an innovation rut. But Apple may have already dropped the biggest hints regarding how it views its near-term innovation potential.
Steve Jobs once famously said that "consumers don't know what they want until we show it to them." This was a principle that Apple lived by during the Jobs era. However, Tim Cook is faced with a more mature market and new competitors that are causing Apple to change its tune as it struggles to find another breakout hit. Over the past few years, while Apple has been heads down on innovation that hasn't quite hit the mark and trying to maintain upkeep on its overgrown walled garden, the company has seen itself out-innovated on numerous fronts.
Apple knows this. It also knows that maybe in this mature market, consumers now know exactly what they want and that if they can't get it from Apple, they'll look elsewhere. This is a major problem for a company that has mostly enjoyed undying loyalty from customers that have stocked up on its devices and showed year after year they were happy for the company to manage their digital lives. Apple isn't taking this reality lying down, but some key moves toward openness this year suggest that with competition coming from all angles, it recognizes it could get knocked off its feet if it doesn't move swiftly. Most significantly, these moves demonstrate that Apple knows it can't move as quickly as it needs to on its own.
At WWDC this year, Apple announced that it was opening iMessage, Siri and Apple Maps to third-party development. In other words, it's asking the market to help innovate and secure relevancy for these offerings. On the surface, this may seem like a natural course of action. But in reality, Apple knows how important these services are to long-term success and it can't afford to let them fall far behind on the innovation front:
- Messaging - Fast-becoming the starting point for all communication, with future expansions into mobile commerce, on-demand delivery and more on the horizon
- Virtual Assistants - Voice assistants are becoming the default input method across devices with continued expansion into predictive support (e.g., Google Now) and artificial intelligence
- Maps - Already a necessity in helping us decide where to go and how to get there with evolving relevancy tied to key future tech initiatives, such as autonomous cars
Each of these areas have significant commerce opportunities tied to them. Each of these areas are also being disrupted by nimble software developers. Some of them are new, some are regional, some are old foes with a pace of development that is putting a spotlight on Apple's shortcomings. What they all have in common is that they're multi-platform.
Apple has built an amazing business on hardware hits. It would have loved for Watch to be its next success story, but that's unlikely in the near-term. Apple TV is a solid product, but an inability to nail down its desired content lineup means it's falling short of being the disruptive platform Apple wants it to be. Press leaks have suggested the company is hard at work on autonomous car and virtual reality.
Apple is certainly working hard to find the next breakout device. But what if the generational leap to the mobile market's next big device isn't just one device, but any device? In other words, consumers pick what form factor works best for them and they bring their preferred messaging, maps and voice assistant apps to the platform of their choice. Some of the most popular consumer apps are OS-agnostic. Soon, they'll be platform agnostic, showing up on smartwatches, TVs, VR platforms, you name it. When that happens, the ecosystem stickiness that has propelled Apple for so long will start to fade.
Apple has fought stiff competition before. But it was always on the device front and it easily held its own with great devices and one heck of a halo effect. It's slimming smartphone margins and moves into the lower-cost device market have helped it remain at the forefront of competition, but this has come at the cost of concessions the company would've rather not made. Opening Maps, Siri and iMessage represents more such concessions. The big difference is that on the hardware side, Apple knows who the competition is. In app development, that picture changes constantly. Look no further than the outrageously massive success of Pokémon Go to understand how fast this market is moving.
Over the next few quarters, we'll get a much clearer picture of just what kind of shape Apple is in. If iPhone sales continue to lag previous years (while Samsung sales grow, no less), it will be a clear indicator that consumers have moved on to a mobile world where they take their crucial favorite apps to the platform that suits them best. Maybe that's a future standalone smartwatch. Maybe it's a head-mounted display device with its own computing power. It doesn't matter. That "maybe" is even a possibility means that the market is already shifting. The question now is how much share Apple will be able to hold on to. One thing that's clear is that wherever the company goes from here, it won't be the only one steering the ship.
Jefferson Wang is a senior partner with IBB Consulting, leading the firm's wireless and mobility group's work with network operators, device manufacturers, and content providers on technical and business strategy from product innovation through launch. Follow him on Twitter at @jeffersonwang13