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The iPhone and Apple's Services Strategy

It is the normal course for Apple events to come and go and people to complain about how boring it all was, particularly when the company announces said event like this:

Apple Event Invitation: “By Innovation Only”

Apple reporter extraordinaire Mark Gurman was not impressed:

@markgurman
Nothing shown today really qualifies as meeting high “innovation only” expectations: Apple delivered the smallest Watch update ever, an iPad with a slightly bigger screen and nothing more, and iPhones with cameras equal to or less than many other devices. Apple needs a big 2020.

By naming this event “By innovation only,” Apple is really raising expectations for Tuesday, an event thus far expected to focus on iterative iPhone and Apple Watch updates. Internally, I’m told, attention has turned to more groundbreaking 2020 devices. Let’s see.

Gurman isn’t necessarily wrong about the highly iterative nature of the hardware announcements (although I think that an always-on Apple Watch is a big deal), but that doesn’t necessarily mean he is right about the innovation question. To figure that out we need to first define what exactly innovation is.

Beyond the iPhone, Revisited
Another Apple keynote that was greeted with a similar collective yawn was in 2016, when the company announced the iPhone 7 and Series 2 Apple Watch. Farhad Manjoo wrote at the time in the New York Times:

Apple has squandered its once-commanding lead in hardware and software design. Though the new iPhones include several new features, including water resistance and upgraded cameras, they look pretty much the same as the old ones. The new Apple Watch does too. And as competitors have borrowed and even begun to surpass Apple’s best designs, what was iconic about the company’s phones, computers, tablets and other products has come to seem generic…

I quoted Manjoo’s piece at the time and went on to explain why I thought that year’s keynote was more meaningful than it seemed, particularly because of the AirPods introduction:

What is most intriguing, though, is that “truly wireless future” Ive talked about. What happens if we presume that the same sort of advancement that led from Touch ID to Apple Pay will apply to the AirPods? Remember, one of the devices that pairs with AirPods is the Apple Watch, which received its own update, including GPS. The GPS addition was part of a heavy focus on health-and-fitness, but it is also another step down the road towards a Watch that has its own cellular connection, and when that future arrives the iPhone will quite suddenly shift from indispensable to optional. Simply strap on your Watch, put in your AirPods, and, thanks to Siri, you have everything you need.

That future is here, although the edges are still rough (particularly Siri, which was a major focus of that article); Apple’s financial results have certainly benefited. Over the last three years the company’s “Wearables, Home and Accessories” category, which is dominated by the Apple Watch and AirPods, has nearly doubled from $11.8 billion on a trailing twelve-month (TTM) basis to $22.2 billion over the last twelve months. In other words, according to the metric that all businesses are ultimately measured on, that 2016 keynote and the future it pointed to was very innovative indeed…[ ]

What do you think?

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