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  • The iPhone at 10: The Critics Were Wrong!

    January 10th, 2017

    From the very first day when Steve Jobs unveiled the iPhone at a Macworld Expo keynote in 2007, the critics were vocal. Apple had no business whatever building a cell phone. I suppose they also felt the same when Apple released the iPod. At the time, it was regarded by many as an overpriced indulgence.

    Funny how that turned out.

    That feeling might have resulted from the fact that Apple once supported Motorola in building iTunes-compatible feature phones, such as the infamous ROKR. But it’s not that Motorola made bad phones in those days. All three members of the Steinberg family used Motorola RAZRs for several years before iPhones showed up. It was a pretty good phone for its time if you just wanted a fairly basic cell phone with a rudimentary contact list.

    In any case, Steve Jobs denigrated cell phones after the ROKR tanked, which should have given a clue.

    When the iPhone arrived, Microsoft’s then-CEO, Steve Ballmer, quickly put it down: “There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.”

    Now this wasn’t the first time Ballmer was totally wrong about something. But even after he left Microsoft and became the owner of the Los Angeles Clippers, his mistakes have continued to haunt Microsoft. To this day, the company has been unable to get any traction out of mobile handsets. Even buying Nokia’s handset division failed; the latest Nokia actually runs Android.

    After Google altered its Android roadmap from a BlackBerry wannabe to an iPhone wannabe, the critics said it was Apple versus Microsoft all over again. Well, the version from the 1980s and 1990s, in which Apple fared second best for a variety of reasons having nothing to do with product quality. But Microsoft has earned hundreds of billions of dollars from Windows over the years regardless of what you think about Windows.

    Even though there are far more Android handsets out there than iPhones, most are cheap. Apple dominates in the high-end smartphone marketplace and earns over 90% of the profits. What’s more, Google earns very little from the platform. Android is given away free to licensees, and the profits, such as they are, come as a result of people clicking on targeted ads in the various Google apps that are installed on those handsets. Yes, there is revenue from paid apps in the Google Play store, but it’s still mostly about the ads.

    Yes, I suppose Google takes in a decent profit from the sale of Pixel smartphones, at the expense of other mobile handset makers. But it’s a fraction of what Apple earns from iPhone sales.

    Today, the iPhone is, to some Apple skeptics, on its last legs. It’s all about the fact that, for the first time in years, Apple reported reduced earnings. Fewer iPhones were sold, but the same was true for iPads and Macs. And iPods too. Yes, Apple still sells a small number of iPods, though the total sales are buried in the same “Other” category as the Apple Watch.

    The company is, however, hugely profitable, and its guidance for the December 2016 quarter called for a slight revenue increase. The NPD Group reports good sales for the iPhone and Macs, so the news when Apple releases its financials at the end of the month may be surprisingly positive.

    Oh yes, there’s that published report that Apple recently reduced orders from its suppliers for the iPhone. This is an old story, that iPhone sales must be bad if Apple builds fewer units when going into a new year, but that contention merely defies logic. It’s normal for sales in a March quarter to be far less than the December — holiday — quarter. But many members of the media report such stories uncritically without context.

    They also forget what Tim Cook has said on several occasions, that you cannot take a few supply chain metrics and come to any valid conclusions about demand and sales for Apple products.

    Apple is, surprisingly, making a huge deal of the iPhone’s 10th anniversary. But it stands to reason, since it’s the company’s most successful product and is responsible for all the huge gains Apple made in recent years. The iPhone is also a cultural icon, and even when people buy other smartphones, they are often viewed in the context of the iPhone.

    This all implies that there will be some sort of special 10th anniversary model come this fall. As has been reported repeatedly, the next iPhone — an iPhone 7s or iPhone 8 — may arrive, in at least one configuration, with a glass-based case and a wrap-around OLED display. There may even be some sort of wireless charging scheme. Whether the entire lineup takes this direction, or it’s just a single premium model, is anyone’s guess outside of Apple and its suppliers.

    What is clear is that the iPhone has been a far more successful product than Apple’s competitors — and probably Apple itself — expected. So maybe it isn’t hype when Tim Cook promises, “The best is yet to come.”

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