There is simply no denying Apple’s dominance, but there is no guarantee that it will continue.
If anything it suggests the company has a long way to fall when it falls out of favor. That time appears to have come.
Third quarter results were a disappointment, but not the first. The company has struggled with sales of its marquee product, the iPhone.
Then there is the iWatch, which failed to gain real traction in spite of one of the most hyped, heavily marketed debuts.
Then there was the SE, which cannibalized sales at a lower price point, and the rumors swirling about new phone delays and that the iPhone 7 will have to skip the lucrative S revamp.
Furthermore, Apple is about to face its biggest existential threat since it had to accept a bailout from Microsoft nearly two decades ago.
We’re on the cusp of the next generation of mobile computing, and Apple’s cash cow is the product most threatened by it.
Let’s look at what is going wrong, and what is coming down the road.
Falling Behind
Apple released its quarterly report after markets closed on Tuesday. Wednesday morning, the company’s shares had dropped nearly 2% and $14.3 billion had been lopped off its market capitalization.
Sales and earnings fell within expectations, but those expectations weren’t that great. Meanwhile, year-over-year revenue fell for the third straight quarter.
Apple reported revenues of $42.4 billion in the third quarter, down against the comparable year-ago figure of $49.61 billion in revenue. In the second quarter, Apple reported $50.56 billion in revenue, a roughly 13% decline against $58.01 billion in the comparable year-ago period
Part of the reason for that is a profitability squeeze. The iPhone 7 was in demand, but it also led to higher-than-expected operating expenses.
This trend will continue, with analysts lowering earnings per share estimates for 2016, 2017, and 2018.
Then there are the iPhone sales. The iPhone SE effectively cannibalized sales over the past year or so by introducing a model that was significantly cheaper than the iPhone 6 series.
The iPhone 7 is now out, but has yet to put a dent in shrinking sales numbers so far, leaving Apple to hope for abnormally strong holiday season sales, and little to fall back on until the rumored iPhone 8 release in late 2017.
Real Limits
While Apple is struggling with sales, and releasing small, nearly inconsequential, incremental improvements in its flagship projects, a paradigm shift is underway.
At their heart, smartphones aren’t really phones. They’re simply mobile computers.
More and more, apps have taken over how we interact with these devices. The act of communicating takes a back seat to everything else they are.
But as exciting as all these applications are, they all have the same crippling physical limit: They’re tied to a two-dimensional screen that keeps us disconnected from the real world.
Simply put? Smartphones are like technology prisons: they keep the world of computing, and by extension ourselves, trapped inside a 6-inch by 3-inch plane.
There is a physical reality to this that cannot be avoided. You have to carry the device around, after all. The screen is the biggest power draw of a smartphone, by far.
The bigger it is, the better the processor needed to run it, and the bigger the heavy, expensive battery within it must be.
Battery technology is hitting a physical limit already. Those Samsung phones catching fire was not a fluke. Nor were the Tesla car battery fires.
Lithium ion batteries are pumping out so much power from such a small volume these days that a slight compression caused a runaway thermal reaction.
However, companies are on the cusp of completely breaking free of these physical limitations. Effectively, we’re about to see people carrying weightless, 60-inch smartphones, without actually carrying them at all.
The Future Threat
What we’re talking about here is virtual reality, and Apple is quickly setting itself up to become the next Nokia, which famously — and perilously — dismissed smartphones as a gimmick.
That 60-inch screen example? You could have as many virtual screens as you want, of any size.
You could be watching a football game, chatting with distant relatives on Skype, and checking your email all at once with a single device.
And those are just examples that duplicate what a two-dimensional screen can do for you today. It doesn’t include the massive 3D potential.
Movies and cinema will come bursting to life, which is exactly why the Walt Disney Company just dropped $60 million on a small startup that develops special cameras that film content.
Even the $92 billion gaming industry is about be turned upside down, with these devices promising to destroy the stereotype of couch-potato gamers.
We’ve already seen the beginning of this trend with things like Microsoft Kinect and Nintendo Wii, but those are nothing compared to immersive environments that are being created now.
Units are already being shipped to major companies like Google, Microsoft, and Facebook. One company in particular is selling the core technologies to all three.
While Apple is struggling to keep milking the saturated, stagnating smartphone market, these companies are creating the products that will kill the dominance of the iPhone, and Apple with it.
If you haven’t seen what can already be done with the next generation of mobile computers, you should right now.
