By John D. Stoll
The iPhone is arguably the most valuable product in the world,
representing the backbone of Apple Inc.'s half-trillion-dollar
hardware business and undergirding its software-peddling App store.
It remains the envy of consumer-product companies world-wide.
If history is any indication, though, America's favorite
handheld device will someday take up residence with the digital
camera, the calculator, the pager, Sony's Walkman and the Palm
Pilot in a museum. Although it's hard to imagine the iPhone dying,
change can sneak up rapidly on contraptions that are deeply
entrenched in American culture.
Consider it was as recently as the mid-1990s when I spent an
hour a day during my senior year in high school in a room full of
electric typewriters learning to type. Today, I spend most of my
working hours using that skill to bang away on a keyboard, but I
have rarely touched an actual typewriter in 25 years.
"Over time, every franchise dies," said Nick Santhanam,
McKinsey's Americas practice leader in Silicon Valley. "You can
innovate on an amazing mousetrap, but if people eventually don't
want a mousetrap, you're screwed."
Kodak, Polaroid and Texas Instruments are all examples from the
recent past of companies that held too tightly to an old idea.
Today's tech giants, ranging from Netflix (having already
reinvented itself to be dependent on advertising-free streaming
video) to Google parent Alphabet Inc. (counting advertising as 86%
of revenue), should take note of those painful demises to avoid the
same fate.
Apple's mousetrap is anything but broken. Representing 60% of
Apple's revenue, the iPhone outsells 96% of the companies on the
Fortune 500. The phone carries the bulk of the $545 billion
valuation that Morgan Stanley assigns to Apple's wider hardware
business.
Apple, for the better part of the 2000s, was the master of the
next big thing: the iPod, the MacBook Air, the iPad, the iPhone.
Apple wasn't always first, but its products were easier to use,
thinner, cooler.
With the success of the iPhone since it arrived on the scene,
the next big thing has been harder to find. Apple has had no
breakthrough on TV, a modest success with its watch, a stumble in
music and a lot of speculation concerning its intentions for
autonomous cars or creating original programming. Now, like a
comic-book movie, we're all left to wonder whether Apple's greatest
strength could be its biggest weakness?
Apple Chief Executive Tim Cook acknowledges the latest iPhone
delivery trends indicate his company faces a potential inflection
point. "Apple has always used periods of adversity to re-examine
our approach," Mr. Cook said in a Jan. 2 letter to investors.
Apple has a legacy of invention, Mr. Cook says. That's something
the Cupertino, Calif., company is eventually going to need.
In a CNBC interview Tuesday, he pointed to rapid growth in
services and "wearables" -- such as watches or ear buds -- as
reason for optimism. Someday, Apple will be known more for its
contribution to health care than its sleek gadgets, Mr. Cook
says.
Whatever shape it takes, Apple's evolution will be closely
watched if only because reinvention is so hard to pull off. A
decade ago, Nokia's dominance in handheld devices evaporated after
executives failed to create a compelling operating system to make
their pricey smartphones more user-friendly. Finnish executives
have told me on several occasions that Nokia knew it needed to
rapidly change, but lacked the urgency and resources to do it.
There are success stories, to be sure.
The Model T almost entirely underpinned Ford Motor Co.'s rise a
century ago, when the Detroit auto maker owned roughly half of the
U.S. car market. Without "The Universal Car," Henry Ford likely
would have been forgotten.
A closer parallel to Apple is Microsoft Corp. Its best-known
product, Windows, was so dominant that it drew extreme regulatory
scrutiny while vaulting the Seattle software company atop the
personal-computer market before cloud computing existed.
Both Ford and Microsoft adapted and survived. Iconic vehicles
like Ford's Mustang coupe or F-150 pickup prove companies can live
a productive life after the initial hit product fades. Microsoft's
transition to cloud computing with its Azure product, meanwhile,
has vaulted the company back near the top of the race for the title
of world's most valuable company.
Still, it's a slog.
"It's hard to be a two-trick pony," former Microsoft CEO Steve
Ballmer told me Thursday. "It's amazing to do one. It's super
amazing to do two. Doing three? I have a lot of respect for a
company that can do three tricks. ... It's just hard to come up
with concepts that can make that happen."
He said Apple's line of Mac products is one trick and the
so-called i-Series (iPhone or iPod) was a second. "If they had
stopped with the iPod, where would they be?" They succeeded because
"they pushed beyond" with a phone.
By all accounts, the iPhone's run -- nearing the dozen-year mark
-- has been remarkable, especially when you consider the average
company in the S&P 500 remains in the index for only 15 years.
Mr. Cook's legacy, however, hinges on how well he pulls off Apple's
next act.
(END) Dow Jones Newswires
January 11, 2019 07:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.