Everything that rises must fall- so says the laws of gravity. History would also seem to concur with that statement. From the gigantic ancient empire of the Romans to the more recent fall from grace for Blackberry in the tech world; the one thing that has marked the annals of human history has been the inevitable demise of every large organization, military or otherwise. Thus, when it comes to the question, will Apple Inc. (NASDAQ:AAPL) ever meet a similar fate as Blackberry, the debate isn’t about if it happens, rather it is about when it does. And if one top follower of Apple, Marco Arment is to be believed, the time for Apple’s death is nigh.
Google, or Alphabet as it is now called, had once stolen the crown as the world’s most highly valuated company from Apple, way back in 2015. That, however, was a short-lived victory as with the announcement of fiscal Q1 2016 results, Apple stole the crown right back. 3 months, however, is a long time in the rapidly evolving tech industry, and Apple has had a disastrous fiscal Q2 2016 result with sales of the entire iPhone lineup plummeting to a new low. On the other hand, despite decreasing per click ad revenues (CPC), Alphabet had posted a fairly decent quarter and at Google I/O ’16, released a glimpse of their vision of the AI-centric world. This raises the question, will the transition from a smartphone to AI-centric experience spell doom for Apple? The short answer- No, it won’t. Read on to know why!
Apple: Down But Not Out
There is no denying the fact that iPhone has past its glory days. With the iPhone 7 rumors that have been making the rounds recently, there is not much to get excited about, which hints towards a rather tame year by Apple standards. And the last two words are the key here. Despite all the doomsday predictions, the fact remains that Apple earned 50.6 billion in Q2 2016. In comparison, Google’s revenue for the quarter was not even half that of Apple clocking in at a mere $20.3 billion. Even if we turn our attention to the other major competitor in this field, Facebook posted a revenue of $5.38 billion in Q1 2016, a mere one-tenth of Apple’s quarter. But, as many would argue, the present scenario isn’t the best yardstick to measure the future by. So with that thought in mind, let’s travel almost half a decade into the future.
Smartphone sales may have slowed down their rapid pace of growth, but by no means is the smartphone revolution done with. There are an estimated 6.1 billion smartphones that are predicted to hit the market by the end of this decade, empowering nearly 70% of the population of the earth with the ease of use of one. While iOS shares have taken a beating in recent times around the globe, Apple and their iPhone lineup are far from extinguished. In fact as a recent analysis by IDC has revealed, iOS though depleted will continue holding onto their share of the market. With a predicted market share of 14% and 269 million units of iPhone sold, Apple seems to have won the numbers game despite losing out in volume.
This is significant because Apple has a vast reserve of cash, over $200 billion, that they can use to purchase or develop any new technology as they wish, while they keep a steady source of income from the iPhones. Here also Apple holds a distinct advantage as iPhones command a significantly higher ASP than their Android counterparts. As a result, while Samsung may have been run ragged despite their status as the top Android OEM; Apple despite their slimming market share, will keep churning in the cash albeit at a lesser rate than before.
With fears for the near future being abated, in our final segment, we will look at the distant future and what it might hold for Apple. One thing to keep in mind, though the fall of Blackberry came about in a matter of years since iPhones were launched, Apple had been working for more than a decade behind closed doors, redefining the concept of what smartphones represent.
While we have no doubt that Google has the motto of connecting the entire world at heart, their foray into Artificial Intelligence is more of a tactical manoeuvre than a noble gesture of benevolence. One of the core reasons that Android has been so successful is due to the fact that Google kept the OS totally free giving OEMs the chance to use the core Android features and then build on it. Their ability to do that has rested on the fact that Google seeks to make the entirety of the profit off Google services that are bundled with each device.
However, Google’s primary source of revenue, Internet ads have shown signs of slowing down over the recent past, and it is predicted that in 2016, the growth rate will fall down below the double-digit mark. Now the onus lies firmly on Google to seek out another source of income, and the Mountain View company has decided to bet big on AI. With the introduction of Allo and Duo, Google has sought to make AI mainstream and by introducing it to Android users across the world, Google is trying to redefine the smartphone experience yet again.
Something quite similar happened except that time Apple was the ushering in the change with their app ecosystem while Blackberry was at the receiving end. Their phones, no matter how good they were, had become antiquated as Apple had managed to change what could be done and expected from a smartphone. With chatbots and AI, Google and even Facebook is trying to ring in the same changes. However, this is not something that will happen overnight, and while tech enthusiasts might like the idea of it, there is no way to gauge public reaction to this.
Technologies like contactless payment and Autonomous cars still have few takers among the general public as the skepticism remains high. Hence, the dream of an AI-driven future seems more in place in a sci-fi novel rather than an analyst’s desk. However, if we for a moment entertain the thought that AI indeed has been successful in changing the current smartphone paradigm.What happens then to Apple and their iPhone lineup?
We end this article, with our view on where Apple would be in such an AI driven future:
- Self-Driving Cars: Even though Apple may not have spent as much time developing a General purpose AI like Google’s Deep Mind, they have been toe to toe with Google in beginning development for their self-driving cars. In fact, Apple has been branching out in recent times with their latest investment of $1 billion coming in Chinese Ride-Hailing service, Didi Chuxing. Apple has traditionally been a company dependent on three pillars for their revenue, and while iPhones may be limping in the future, Autonomous cars and Services provided by Apple can help stabilize the revenue stream
- iPhone Hardware: For quite a while, iOS has not really changed much in its outlook, all the while introducing newer software features to make the best use of new hardware. While Apple’s iOS is loved for its own unique look and feel, what draws most consumers in is the state of the art hardware and brand image. Another important thing to note, while Google may be working on VR streaming apps and even AI enabled Chatbots in apps, the core experience is still running on a smartphone
And that is where Apple’s masterstroke comes in. While they may have to release their tight grip on iOS a bit in the future, the hardware and core framework will remain firmly in their grasp. While WhatsApp and Facebook Messenger races ahead to compete with Allo to see who has the better smartphone AI assistant, Apple can sit back and continue making the great hardware and software experiences, albeit on a more open platform. While relinquishing control over software may not be something Apple would be looking forward to, with the safe thinking that current CEO Tim Cook seems to be a fan of, this is probably the strategy that iPhone would take in an AI driven future.
It may be an inglorious existence for Apple, but they will continue to live on and bank on their cash reserves and engineering talent to strike back once more. The chances of Apple becoming Blackberry or even worse Nokia, is next to nothing, although for it, to have a chance to fight back and beat Google and Facebook in the AI race, would need some bold new moves from possibly a bold new mind.