Apple’s Biggest Problem? The iPhone Isn’t Better Than Android (Premium)

I’m confused that anyone was surprised by Apple’s admission this past week that its latest iPhones aren’t selling as well as expected. After all, we had seen months of evidence—what I think of as “intelligence chatter”—showing that these iPhones were not selling well. But I’m more alarmed by a narrative I’ve seen repeated again and again in mainstream publications that part of the problem is that Android handsets are “almost as good” as the iPhone and cost much less.

This is nonsense, since Android handsets are superior to the iPhone in very important ways. And they can cost just as much as the iPhone.

The problem for Apple is that it doesn’t offer a superior product. And the reason we know this is true is that iPhone’s marketshare has fallen steadily over the past few years. Android, meanwhile, dominates the smartphone market, and it has for years. Over 80 percent of smartphones sold each year run Android, not iOS.

And this problem is entirely of Apple’s making.

I’m almost certainly going to write separately about Tim Cook’s deceptive and overly-wordy open letter in which he tries to foist blame for the company’s troubles off on events beyond his control. Here, I’m going to focus on something that I feel is even important: That Apple hasn’t done enough to differentiate its own offerings beyond making them too expensive to buy and locking in its best customers with related services that only work on Apple’s devices. That is Tim Cook’s real legacy. He’s Apple’s Steve Balmer, a guy who was able to grow a company well beyond that of his co-founder predecessor. And yet doesn’t contain even an iota of that special something made that predecessor so great. He’s a manager, not a creator.

This might have worked out fine. But Android doesn’t suck either. And now Apple has a problem.

Android isn’t perfect, for sure. And some Android hardware makers are absolutely running right into the same sales wall as Apple thanks to nearly ubiquitous market saturation. Everyone who wants a smartphone pretty much has one. And in that condition, sales go mostly to a previously-created, mostly-stable installed base. Customers may move between brands a bit. But no one is leaving. And very few new users are being added.

If this situation sounds familiar, that’s because it mirrored what happened in the PC market, albeit more slowly and over a much longer period of time. What’s interesting is that Apple is making the same mistakes now with iPhone that it did with the Mac. And just as Windows long ago surpassed the Mac, functionally, technically, and in usage, Android has also surpassed the iPhone.

(Contrast Apple’s insular kill-the-partners approach to Microsoft’s long-time partnering philosophy and its more recent openness, literally, to open source and to former competitors.)

The list of technologies that appeared on Android before iPhone is long and hardly worth recounting, and I assume most people reading this site or at least aware of that gap, even if they do prefer the iPhone. But it’s not just about being first. It’s about being best. And the list of ways in which Android is superior to the iPhone is likewise long. For example, the best camera technology is on Android, not iPhone, and has been for years. Android is tied in with the Google Assistant, which is well on its way to winning the next platform battle for digital assistants and the smart home. And Android is infinitely configurable, whereas the iPhone’s iOS software is so old-fashioned that you can’t even put icons where you want them on-screen. Why? Because Steve Jobs decided it would be that way over a decade ago and Apple is too deferential to its savior to reverse most of his decisions, screwing millions of users in the process.

And that’s really the issue here. That Apple’s decisions—on how it creates and markets its platforms and decides to compete with other companies in particular markets—-are Apple’s decisions. Tim Cook can blame China all he wants, but it was Tim Cook that put Apple in China in the first place, and it was Tim Cook that decided that it was so important that apple sustain its ~40 percent margins that the firm should go ahead and raise prices another 20 percent this past year.

Yes, Apple was somehow shielded from normal market conditions that have hobbled other firms for longer than anyone expected. But this past week’s news was also a long time coming. And it was telegraphed by numerous events, including a leveling off of smartphone sales, the explosive growth of Chinese smartphone giants both at home and abroad, and signs from both Samsung and Apple and their suppliers that, huh, things really aren’t going very well right now.

What did you think it meant when Apple revealed that it would no longer publish its unit sales numbers each quarter? That sales were going up? No, Apple cherry-picks what it communicates for maximum effect, just like any other company. And this is no longer worth shining a light on. So now that metric that it had always bragged about is suddenly going away.

Look, no one is claiming that Apple is doomed. But Apple is in trouble. This is a company that gets 75 percent of its revenues directly and indirectly from a single product that is now on the wrong side of the growth curve. Peak iPhone happened about two years ago, folks. Peak Apple happened in August when the firm hit its $1 trillion market cap. That’s what inertia looks like. But now its crested the hill and is falling to earth. It was inevitable.

Indeed, I’ve often said that Apple would eventually fall, just like Microsoft did before it. But Microsoft had an ace up its sleeve that Apple today does not: Other products that didn’t just equal but exceeded the revenues created by the hit product for which it is most famous. That is, Microsoft’s Office and Server businesses both overtook Windows and have been bigger revenue makers for many years now.

What does Apple have? Apple Watch, a product that is so small, revenue-wise, that it’s in Apple’s “Other” business category? Services, whose revenues are just a tiny fraction of the iPhones and, worse, are entirely dependent on there being iPhone users willing to spend more? The iPad? Please. Apple has nothing to fall back on. Nothing that is in any way as revenue-rich as iPhone. So yeah, they’re not doomed. They do have a problem.

And that problem starts right at the top. Tim Cook is the problem, and it’s time for this uncreative middle manager to go. He has done the improbable by taking the greatest company on earth and making it bland and uninteresting, and curiously unable to address a problem it saw coming years ago. For all the money Apple has generated, Tim Cook has failed in keeping Apple great.

Android achieved its dominance on your watch, Tim. Worse, Android got better than iPhone on your watch too.