Could the iPhone 5 be the beginning of Apple's plateau?

Breaking news here I’m confident you’ll not read anywhere else: Apple announced the iPhone 5 today. I know, hot scoop, though there was no sight of the iPad Mini or any of the other stuff that was widely expected to be there as well. I had to get a tire replaced today so I didn’t get a chance to watch any of the live blogging gushfests, electing instead to just read a couple of summaries after the fact. With Nokia stupidly bombing the intro of the otherwise impressive Lumia 920 with that camera scandal and Motorola’s new RAZR model dropping with a thud, Apple didn’t have to try very hard to impress. I had my suspicions of how the reveal of what the iPress claimed could be the biggest product launch in history would be received but I know my views are often coloured by my living in a reality where Apple can actually do wrong. Based on the stunning amount of “Meh” I’ve read since, it appears even many of the faithful have joined this reality.

I’ve said for a long time that Apple’s current growth is a fashion trend, that it’s unsustainable and that while they’re going nowhere any time soon, they are in a bubble that’s only going to pop faster with Steve Jobs now gone. This view has largely been met with rolled eyes but I believe I’m one step closer to being proven right today. The first sign of this was the iPhone 4S. It’s only big new feature aside from a spec bump (which is always expected) was Siri. It launched in beta (which Apple never does) and while other phones already had voice recognition features, none had the theoretical capabilities of Siri. After the initial lustre wore off though, people realised that Siri didn’t actually work very well and most stopped using it. Apple omitted it from the next iPad that followed and has kind of neglected to talk about it since. Apple loves to toot their own horn so when they don’t talk about something recently introduced, it means they aren’t pleased with how it’s done. I predicted that the iPhone 4S would be the beginning of a cooling off period for the Apple fashion trend and that it would sell well but would be the first phone to not trend as well as the previous one. I’ll admit it, I was dead wrong. The 4S is the best selling iPhone to date. There is no doubt whatsoever that the iPhone 5 will sell many millions and continue to make Apple buckets of money. However, I do believe this could be the tipping point and I’ll tell you why.

The overwhelming view expressed which I agree with fully is that the iPhone 5 offers literally nothing new. Siri was new in that like Apple often does, they took an idea someone else came up with and evolved it into something neater, at least on the surface. The iPhone 5 is in every single way, a spec bump. It has a faster processor, a slightly bigger screen, 4G LTE and it’s thinner. That’s it. That size screen (and larger) as well as LTE have been available on Android phones for years now. There are even Windows Phone 7 devices with them, forget the Windows Phone 8 ones around the corner. Those are not new features, they’re playing catch-up at best. Now, there’s nothing wrong with a spec bump but the generally accepted rule is that every second year, that’s when the big innovations come to the iPhone. The second one added 3G and third party apps, the fourth changed the design and added the Retina screen. With the iPhone 5, we arguably got less innovation than the 4S, just features that the competition’s already perfected. None of that is going to make anyone but the hardcore iCult break a contract to upgrade early and it’s certainly not going to convert anyone who wasn’t just waiting to buy an iPhone regardless of what it had. They didn’t even improve the camera, the one thing where the iPhone has solidly stepped on the competition’s throat for 2 years now. It looks like the Lumia 920’s camera will be the top dog this generation far and away, something that was enough to sway my girlfriend from being sold on the iPhone 5 to waiting for reviews of the 920 and likely going with that if the camera fares as well as it appears.

What this tells me is that Apple is running out of big innovations to make to the iPhone. They undoubtedly have an R&D superteam with a virtually unlimited budget crunching away on new ideas but there is a limit to what can be done right now and I think mobile phones are coming up on it, if they aren’t there already. If the best they can offer with the iPhone 5 is matching features others already have, that will start to take some of the sheen off the fashion trend that they’re carefully balanced on. If they can’t outspec the competition, they might have to start competing on price or offering things like more than 16GB of memory in the base model, eating into their precious high margins which remain an abberation in the tech industry. When those margins see even a small dip, expect their nearly $700 stock price to take a big hit as investors no longer see Apple as the new hotness.

Now, some of the smartest people in the world work at Apple and I believe they knew this long before I did. I also believe this is why they decided for no good reason to change the dock connector on the iPhone 5 to a new design ironically called Lightning. There was nothing wrong with the old connector. It was a bit large but it wasn’t obtrusive, it worked fine and it was on millions of accessories and cables. The new connector requires either the replacement of everything you used your iPhone with before or that you purchase a $30 adapter which Apple is rumoured to be selling exclusively. There is no benefit other than being smaller because this “Lightning” connector doesn’t even support the new USB 3.0 standard, meaning it’s probably not even much faster. This makes Apple’s partners happy because they get to sell the same thing to everyone over again and it allows Apple to hedge their bet a bit because if the iPhone 5’s sales don’t outpace the 4S, they can pad out those margins by making the new buyers pay for a $30 adapter that probably costs them $1.50 at most. If sales are lower, the new customers get the privilege of subsidising the drop and if the sales are higher, Apple just gets to make even more money. It’s the kind of scummy, disrespectful move that few other companies have the brilliance, gall and blindly ravenous fan base to pull off. I truly believe that this move has a shot at making Apple the same amount of money, even if the iPhone 5 ends up falling short of the sales bar set by the 4S. That will keep investors happy but it’s a move that will only work for a year. Lightning is something they’re going to be stuck with for a while.

I’ve insisted for a long time that Apple could only maintain the momentum they have for so long before they simply ran out of ways to milk it. Sure, they have the iCult that will blindly buy whatever Tim Cook tells them to and the success of iOS devices has grown that membership immensely in recent years. Much as I despise this company and the pretentious douchebags that ran before and run it now, they’re here to stay and I think it’s partially good because it forces everyone else to work extra hard to compete and make things better for everyone. As with all my predictions, I could be totally wrong on this but I think this is where their growth goes from stratospheric to merely atmospheric and where the other phone hardware and platform makers can really step up and show what they’ve got. Apple’s growth is wholly dependent on that ultra-high margin and if they can’t find a reason to get people to keep paying $200 + $80/month for an iPhone every year, the only way to keep the sales numbers up will be to join the “race to the bottom” that everyone else is in. When that happens, it’s no longer Apple and everyone else, it’s Apple with everyone else. That’s the way it should be and I won’t lie, if this is the first iPhone that sells less in the first month than the last one, I will take great pleasure in watching iCultists squirm as they try to spin it as a good thing. Apple’s done some great things but they need a shot of humility and I think this might be the start of it. In my house, they’ve now gone from a guaranteed sale to a 75/25 shot of losing to a Windows Phone made by Nokia. More people than just my girlfriend are thinking that now and that should be keeping Tim Cook awake tonight.

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