The persistence of iPhone

In the wake of Apple's recent quarterly financial results report, there's been a lot of talk about what happens if the company has truly reached the peak of iPhone sales — and what must come next in order for Apple to keep growing.

The iPhone is a once-in-a-decade (if not once-in-a-lifetime) product, and won't be replaced on Apple's revenue chart any time soon. And that's okay, for a whole bunch of reasons.

What goes up... stays up

It's easy to assume — in part due to language commonly used by growth-obsessed investors — that the iPhone is in free fall. Not so much: iPhone sales set a record last quarter. What's actually concerning investors is the rate of change — the idea that we'll never see an iPhone sales quarter bigger than this one, or at least not much bigger. The days of enormous iPhone growth may have reached its end.

If you're comparing the iPhone's life cycle to that of Apple's iPod, there's reason to be terrified: The iPod sold like gangbusters for a number of years, but its decline was drastic — to the point where it got removed from Apple's financial reports last year. That's not going to happen with the iPhone, for a simple reason: the iPod was made largely obsolete by the smartphone. And the smartphone's not going anywhere, not for a very long time.

That means Apple's iPhone business is probably going to keep contributing 150 billion dollars a year for the foreseeable future. (In the last four quarters, the iPhone brought in an average of 38.9 billion per quarter. In comparison, the Mac and iPad bring in five or six billion dollars per quarter. That's a lot of money, sure, but the two products combined pale in comparison to the phone juggernaut.) It's enough money to make Apple one of the biggest, most profitable companies on the planet.

Could the iPhone eventually fail? The future is promised to no one, but people are going to want an internet-connected device in their pockets until there's something even better you can stick in your ear or pop on your eyeball or connect directly to your brain.

There's money in the ecosystem

Apple focused a lot of energy this week on communicating how well it's doing — and how much it's growing — in terms of services revenue. That's the budget line covering iCloud, iTunes, Apple Music, and the App Store.

The users of Apple's one billion active devices are all spending money on digital goods and services. It's potentially a huge growth opportunity for the company, and it will be interesting to see what other services Apple might introduce and how much additional revenue might be generated from its existing iPhone installed base — namely, us.

But beyond offering us more content to buy, the Apple ecosystem extends outward. Consider the Apple Watch: It's essentially an iPhone accessory, since it only works with Apple's smartphone. It's another product that can be marketed to existing iPhone users, generating more revenue while also tying them more tightly into the Apple ecosystem. (When an Apple Watch user considers an Android phone, they also have to consider giving up their Apple Watch — making it potentially that much easier to stick with what they know.)

There's still room for growth

The days of rapid smartphone sales growth may well be over, and while Wall Street may not be thrilled about this, it doesn't mean the iPhone is in any danger of disappearing. Apple still thinks there's room for future growth, and the company's reasons seem reasonable to me. The rapid growth of the middle class in China is creating hundreds of millions of new consumers with money to spend on brands like Apple, and products like the iPhone. Apple's weak position in India is generally seen as a negative, but it also means there's a huge upside if the company figures out how to crack that market.

While those of us in the most industrialized nations have benefited from fast 4G LTE cellular networks for a few years now, those networks are still rolling out in India and other emerging markets. People in those countries will buy new phones to take advantage of LTE as it comes online, and that's a big opportunity for Apple to sell iPhones.

And then there's switching: Apple continues to suggest that there's a constant flow of smartphone users from Android to iPhone. It's hard to quantify those numbers overall, but at least from Apple's perspective, there's a growth opportunity simply in picking up Android users who are ready for a change.

Wait for it

Okay, so the iPhone's pretty good for now. But what about the next big thing? How does Apple ignite future growth, and protect the products it already has?

Fortunately, Apple has many, many billions of dollars in cash from its past few years of profits. And the company is investing that money in researching the next generations of products. I'm sure some of that money is going into exploring what might replace a smartphone, whether it's a Siri-powered device that plugs into your ear, or an augmented-reality visor, or who knows what else.

In terms of finding growth, we've all heard the reports that Apple's exploring the possibility of building a car. Entering new markets is never easy, but it provides huge opportunity for growth. It's the same principle as iPhone sales in India: Apple's current share of the automobile market is zero, which means that the sky's the limit when it comes to gaining new customers.

The smartphone era

I'm pretty confident that when we look back to the early parts of the 21st century, we will consider this the dawn of the smartphone era. Even from the perspective of 2016, the personal computer seems to rapidly be transforming into a footnote — a technological prelude to the creation of the smartphone. Tiny devices with massive computing power and an always-on connection to a global data network, living in our pockets — they have transformed the way people live around the world, from the richest countries to some of the poorest.

Apple doesn't need to replicate the iPhone's success with another product to be successful, which is good, because there may not be a product as successful as the iPhone any time in the near future. (Though I'd be happy to be proven wrong when the direct-brain implants come around in 2030.) People who are searching the horizon for the next big thing as hot as the smartphone are searching in vain.

We live in the smartphone era, and considering the slowing rate of growth in smartphone sales, so does everyone else. The introduction of the iPhone was the moment this era truly began. Apple has benefited massively from that, and will continue to for the foreseeable future.

Jason Snell

Former lead editor at Macworld for more than a decade, wrote about Apple and other tech companies for two decades. Now I write at Six Colors and run The Incomparable podcast network, which is all about geeky pop culture, and host the Upgrade and Clockwise tech podcasts.

  • The slowdown in growth may be partly due to the 6S new keynote features being slightly underwhelming. The 5S touch ID and 64 bit processor (and built in activity tracker) were compelling new features. On 6S the 3D Touch and Live Photos seem a bit gimmicky and I think in both cases are options I would probably turn off - 3D touch on initial play seemed to add little value and could end up confusing; live photos seems like something to use once and then turn off; clever but useless. The new 7 and some smaller models should hopefully start driving sales again.
  • It's also partly because the demand for the iPhone 6 exceeded supply in Q1 and meant more sales in Q2 than usual, which is why this year's Q2 won't be able to beat last year for the first quarter ever.
  • To me, having tried the 3D Touch, I feel is a game changer. I like using gestures to execute my intents and 3D Touch seems to deliver on that front, and more apps are joining in. On line photos, yes I do feel they are a bit gimmicky. But I'll see when I receive my 6S Plus this coming Monday is I stay convinced. Looking at their earnings call on Tuesday, it looks like nothing has dropped so far, their ASP is relatively high, indicating good sales of the new devices. So the "S" version seems to be doing very well so far. What these devices are facing mainly is the strained market as everything is getting more expensive due to a lot of currencies being on a free fall, like our South African Rand (ZAR) which has fallen from along ZAR11 to the USD around the September when the 6S version was released to nearly ZAR17 now. Lucky enough my carrier MTN has still maintained their prices, probably due to overstocking. The thing is that every manufacturer is being hit by this, so it's not a particular type of device that's being hit, all top end ones are being hit. Posted via the iMore App
  • You're just speculating, I agree with you about Live Photos being a gimmick but 3D Touch I'd use for sure and is a game changer for me and more convenient especially if you want to just glance at a page without having to go fully in to that page. Sent from the iMore App
  • I disagree. I use 3D Touch a lot and and hardly ever use the home button for app switching now. Also 3D Touch is in its infancy. Right now it might be just for shortcuts or content previews but who knows what Apple's working on and where it will go. I doubt Apple spent all this time on it just for shortcuts on app icons. I think the slowing growth is due to the 6 cycle being the exception not the norm. There was a lot of pent up demand for a larger screen iPhone and the FY15 holiday and quarter after were monster quarters that would be incredibly difficult to beat (and Apple still managed to slightly beat last years holiday quarter). Also it's possible some demand was pulled forward. If the 7 cycle is underwhelming then we'll know for sure iPhone is in a slow down period.
  • I agree about 3D Touch being in its infancy. There are loads of useful applications of the technology just waiting to be invented. For example my app temporarily zooms out according to how hard you press. It means that seeing what is around you, or panning long distances, involves just one touch of one finger, instead of lots of multi-finger pinching gymnastics. I use it for maps but it would work with any app that involves looking at a large document on a small screen, such as a PDF or a large website. Apple could easily use 3D Touch in a similar way across iOS, although knowing them they probably have something even better planned!
  • "And then there's switching..." Is there? Besides Tim Cook's word on the matter, are there reports that back this? I know there's people switching phones and platforms everyday, but how can we know for sure that the bulk of the migration is from Android to iOS. Kantar World Panel's latest info actually says that, with the exeception of China, Android marketshare actually grew from the last quarter of 2014 to the last quarter of 2015.
  • Actually the evidence shows quite the contrary to what Cook claims: Posted from my Nexus 6P
  • You're not interpreting the statistics correctly. Android is taking more market share because it dominates the low-end of the market where the majority of new users are buying their first smartphone (in countries like India, especially, but basically anywhere, including the low-end of the US market). Apple has low market share amongst people who are only now buying a smartphone for the first time, often because of cost barriers. That's why Android's market share is going up, not because people are "switching" from the iPhone.
  • The question remains- why would somebody want to switch from Apple to Android?
  • I could answer that with another question: Why would someone switch from Android to Apple? Answer: Choice Posted with the Nexus 6, Nexus 5, or Surface Pro 3
  • More hardware choices, better customization, file managers, better Google services integration, homescreen widgets, not having to rely on software like iTunes to transfer stuff, alternative app stores (legal ones like Amazon, not piracy), little things like the ability to set default apps and ,you know, a back button, etc, etc iOS is a great OS, but it's not for everybody.
  • ^^^ this Posted from my Nexus 6P
  • I agree, why would anybody consider switching to at least the rest of Android? You know, Samsung,HTC,LG etc.. Sent from the iMore App
  • IMO opinion, there are really only two stand out features of the 6s. It's 3D Touch and the 12 megapixel camera. Those are great new features, but not enough for me to want to upgrade from my 6. I'm sure a lot of people don't even really know the difference between the 6 and 6s, so it's assumed that it's the same phone that's been around since September 2014.
  • Don't forget 2GB of RAM and a beast of a chip in the A9. Sent from the iMore App
  • I don't see it dying because it's not like millions of people are going to switch platforms any time soon. People might switch back and forth but people can be pretty picky once they get used to something. I just hope Apple would concentrate more on it's services platform, they are so focused on moving hardware because it's the biggest money maker.
  • 3D Touch is a game changer on the 6s and 6s Plus. Sent from the iMore App
  • 3D Touch is a game changer. Sent from the iMore App
  • But not a lot people need 3D Touch
  • They will do when they realize how useful it is
  • Except it isn't.
  • 3D Touch is a game changer. Sent from the iMore App
  • Are you alright?
  • I'm fine, I just thought that my comments weren't showing up on this thread. iMore really needs to sort this out. Sent from the iMore App
  • Mine does this too, I just have to assume it's posted the comment
  • I thought I was the only one this happens to, I tried the Android version of iMore and it doesn't do this. Sent from the iMore App
  • 3D Touch is a game changer that I'd use once I got used but I agree about Live Photos being a gimmick. Sent from the iMore App
  • I'd be interested to hear your opinion of 3D Touch.
  • It changes the game
  • ROFL
  • Live Photos would be nice if the frame rate was higher. 3D Touch I kinda forgot about but remember when I need to delete an app and accidentally activate it. It's useful but I find it's getting in the way of some apps like Wunderlist when it comes to moving an item in a list.
  • I think if the IPhone wants to gain more market share they really need to open it up to allow for theming and more customization. While it works well and is very reliable, ios is soooo boring. I get sick of looking at the same **** icons and colors. I can only change the wallpaper so many times a day.
  • I think iOS is reliable because of lack of customization, if it becomes customizable like android, then Apple would loose control of the variety of running codes just like Google is unable to control them. Once you open the OS to being customizable, you can't easily control how far that goes. You'll end up with an OS with such a wide variety of code that instability will creep in. Posted via the iMore App
  • Some people prefer flexibility to stability. Some people prefer choice to stability. Some people prefer price to stability. Some people prefer flexibility/choice/price to security. To each his own.
  • Well I'm one of those who prefer stability to flexibility. Sent from the iMore App
  • Android has that covered as well. Posted via the iMore App for Android
  • The only stable version of Android is stock Android, the rest of Android is unstable, slow, laggy, malware ridden junk, still I prefer iOS and iPhone overall over even stock Android, but I'd pick stock Android out of the rest of Android though. Sent from the iMore App
  • I'm sorry, but right now that's just not true. I have an iPad Air 2 and a Galaxy S6, and as far as stability goes I have just as much app crashes on iOS and on Android. Which is to say very few on both. On the speed front, Android is much more fluid and responsive than it was on the Jelly Bean days, even with TouchWiz on top. And as far as malware goes, if you only install apps from the Playstore, that's pretty much a non-issue.
  • But we don't even have a choice....
  • Meh, I was a true android power user, rooted my Galaxy and installed a custom ROM, overclocked my CPU and GPU, etc etc. I also had iPhones that I have jailbroken, and customized as well with features normally found on android os. There are always "options" for each platform, but what sold me with Apple is longevity. I still have a 4s that runs ios 9.2 just fine. That's where Apple products' true value shines. Can you find a android handset as old as the 4s that runs the latest android os? Heck, can you find one that still runs at all without glitches that make it unusable? 10 years from now, the 5s will be running the latest ios (you will have to replace the battery, but that's expected). What android phone can do the same? They usually are obsolete within two years, because the manufacturer (and most app devs) will eventually stop supporting it. Sent from the iMore App
  • Haha iOS 9 running fine on an iPhone 4s. You made me chuckle and developers don't unsupport it. Some still support 2.3 for goodness sake Posted via the iMore App for Android
  • My Mum is still using a 5.5 year old iPhone 4 and even though it can't run the latest iOS 9, for a user like her it is still more than adequate and still far more secure than any Android device (considering that an appalling 87.7% of Android devices are un-patched for up to 7 critical vulnerabilities going back 4 years.). This extraordinary longevity is demonstrated by the fact that Apple has over 1 Billion devices still active (of which around 900 million are iOS devices) whereas Google can only boast 1.4 Billion active Android devices despite their far higher quarterly sales stats. That puts the active iOS installed base at 60% the size of Google's active Android platform.
  • This is shadowboxing, arguing with a straw man. No one is saying that the iPhone is dead. Instead, what people are saying is that "peak iPhone" is over. For better or for worse - well forget it ... it is better for everyone save the profit margins of Apple and Samsung, two massive corporations that aren't exactly on the verge of going broke - smartphones have gone from being this amazing, fascinating, life-changing thing to being just another product. Radios, cassette players, TVs, CD players, DVD players, PCs etc. all went through it. It always happens when 1) meaningful improvements and innovations to the product cease, 2) more than a few big companies with the best talent and know-how are able to make good, credible products adding up to 3) the price of it drops meaning that practically everyone has them. Of course people - lots of people - will still buy iPhones because smartphones are now part of daily life. But the era of the iPhone being "the big thing" is over. The product has been out too long and too many people have them - or simply smartphones in general - for them to be attention grabbing and exciting. The one thing that could have helped the iPhone maintain its fervor for 2 or 3 more cycles - incorporating it with practical VR capability (and no, strapping a Google Cardboard/Samsung Gear VR type thing on your face isn't practical ... it would have had to be a way of providing a good VR or at least 3D projection experience directly in the phone itself) -Apple didn't pull off. Maybe the tech isn't ready yet, who knows. But even if Apple implements it into their iPhones down the line, it will be too late. Everyone else will have moved on to the next big thing.
  • Yep, build the straw man by exaggerating what the "chatter" is saying now. Then proceed to add nothing new besides what the chatter heads have actually said. Cool article. The growth has peaked (for now). Iphone itself? There's plenty of marketshare to be had. Of course Apple is exploring other areas but the most important thing is to keep feeding everything through iphone. Car play, homekit, icloud, photo mgmt, music, etc...all these things must improve. Other things like apple watch, apple tv, must evolve as well. The ecosystem, as a whole, is what Apple must focus on. Apple has proven it's not good at certain things. Think iAds. Mobile me. Ping? The most important thing, Mr. Snell, is to keep sight of who you are. Focus on what you do best. It's not just one product. It's a community of products that all work well together all built on a solid foundation and a host of services.
  • Don't think that Apple sold a lot iPhone 6s the only reason for good numbers was that they start selling it in China. iPhone 6s is a good phone but last year with the bigger screen a lot people upgrade there plans and next year they will do that again and Apple know that. The other thing is the USD right now. Won't buy an iPhone for 1300CAD that's crazy and same in Australia. If that won't change a lot people will ether keep there old iPhone or change to android.
  • Indeed, Apple's Other Products and Ecosystem growth seems to be ignored by far too many people. Apple's "Other Products" category which includes the Apple Watch and the AppleTV surged 62% YoY growing from 2.7 Billion dollars to 4.4 Billion and Apple's Services category increased 26% YoY from 4.8 Billion to 6 Billion this quarter. As a comparison, taken together, Services and Other Products have increased from 6.8% of Apple’s iPhone revenue to 13.6% of this quarter’s iPhone revenue. That is NOT inconsequential and has HUGE potential for off-setting a drop in iPhone demand IF it occurs. For perspective, that $10.4 Billion for Services & Other Products is equivalent to almost 60% of Google’s entire revenue in Q3 2015 and as I said, that is up 26% YoY for Services and a massive 62% for “Other Products”. That is MASSIVE.