Many people have asked me since Apple's Tuesday announcement: Where was the sex? Where was the sizzle? Where was Apple's disruption? Where was the "one more thing"?
My reply is that Apple makes its living through punctuated equilibrium[1], not through disruption. Revolutions are hard; small but significant improvements are far easier. The all-in-one iMac, the MacBook Air, the iPod, the iPhone, and iPad all changed the way in which the entire industry created similar products.
Those were released at years-long intervals, not every year. On the Mac side, the ones I think of as having the greatest long-term impact on both Apple and the rest of the computer world:
- The iMac (1998) had USB and no floppy drive. Clearly, it would fail, because people needed a built-in floppy and there were practically no peripherals that used USB. ADB (Apple Desktop Bus) was the standard.
- The MacBook Air (2008) with its sealed battery and small, expensive internal SSD, relatively high price, non-upgradable RAM, and ability to be thrown out unintentionally with the trash, was a non-starter.
- The 2013 (or 2014?) Mac Pro is a black trashcan without internal drive or card slots.
- (Okay, I'll give you the G4 Cube [2000], even though I owned one, loved it, and used it for years. It had a lot of compromises, and the Mac mini [2005] was the "fixed" version.)
What happened in each of these cases, you may recall.
Floppy
drives hung on, but USB quickly became much more widely adopted because
peripheral makers created stuff for Macs that could also be used with
Windows systems. All-in-one designs became de rigueur. The MacBook Air,
after being ridiculed and after necessary improvements in various
features, became the model for "ultrabooks," a category into which Intel poured hundreds
of millions of dollars to help PC makers produce their own versions with varying levels of success.
On the gadget/mobile side:
- The iPod (2001) lacked user-changeable batteries, a low-power FM transmitter, and support for memory cards. Way too expensive.
- The iPhone (2007) was a toy
with its touchscreen, already tried by Nokia, and a lack of a physical
keyboard. It only had 2.5G (EDGE) networking instead of the 3G that was
available in more advanced phones at the time. Way too expensive.
- The iPad (2010) is just a giant iPod touch. At least it wasn't too expensive, but nobody is going to buy one because it's not a netbook.
- (The iPad mini (2012) has had an impact that's yet to be seen fully, because Apple's competitors already had slightly smaller between-phone-and-tablet devices. They've sold a lot of them, and it seems more about conserving customers and keeping their money going to Apple rather than creating a new market.)
In the device world, the iPod slaughtered all competitors, and remained ascendent until Apple started killing its own babies. The iPhone destroyed market leaders BlackBerry and Microsoft in America and Nokia worldwide. All smartphones had to become iPhones, ultimately. The iPad killed the low-performance, low-margin, compromised netbook market that everyone had urged Apple to get into, and ate the heart out of new PC sales, while forcing competitors into developing tablets, long seen as toxic after Microsoft's earlier failures.
Apple also managed to keep margins high for all these products. It didn't discount anything. The iPad came to market cheap relative to competitors just before and even long after because of Tim Cook's excellent supply-chain advance purchases that cornered the market on things like 10-inch displays. It had a high margin, too.
But those are all the revolutions. Those are the big sticks in the sand. Apple didn't kill established markets and rework the industry just by coming out with a new model.
If the iPhone had remained mired in 2.5G networking and its chunky (though seemingly elegant at the time), slow original form for long, it would have foundered. An original iPad also seems like molasses, low-res, and horsey. Instead, Apple pounded away year after year with new models, most of which were not astounding improvements over the year before. They were early to bring Retina (quadruple density) displays, but late to LTE (which was earlier a battery burner and not widely available enough to be worth the cost). The fingerprint sensor on the 5s is, of course, not new, but Apple waits until features, cost, and the ability to deliver to tens of millions of people are there; then they pull the trigger.
Every other year, and sometimes only every third or fourth year, Apple drops a bombshell feature that sets the bar higher for competitors, or checks a box that its rivals might already have managed (often at the sacrifice of high cost or poor battery life) after Apple has watched them drain margins or lose sales to make it happen.
Apple makes its money through incremental improvements that appeal to people who bought their last version of whatever it is Apple offered two to four years previously. For a new device, like an iPad, they get early adopters. For a refresh of existing devices, like a MacBook upgrade, they hit people who are finally feeling the speed differential enough to budget for a new machine.
The iPhone 5c is not supposed to convince an iPhone 5 owner to "upgrade." It's the same device. It's designed for iPhone 4 and 4S owners, first-time smartphone owners, and switchers from other smartphones, to be sexier (colors!) than the original iPhone 5, but not feature different.
The 5s likely won't convince many 5 owners to upgrade yet — most iPhone 5 owners in the U.S. can't get the fully subsidized price for another several months or more than a year; those elsewhere who bought a 5 at its full list price aren't likely to sell it used to get a 5s.
But the 5s has just enough to be interesting: the new camera features are intriguing (slow-mo, burst mode, auto-selection of "best" shots, bigger individual sensors and thus better low-light shots, bigger maximum aperture, two-color LED flash mixing), the fingerprint sensor sounds like a way to get security and avoid irritation, and one wants to wait and see what happens with a 64-bit processor and the separate motion processor. (In fact, I qualify for an upgrade and I'm seriously considering getting a 5s.)
From a financial perspective, this is how the phones line up for Apple:
- The 4s is Apple's very high-margin phone. It uses two-year old components and a perfected production system that's been streamlined over time. Though it is $200 less than when it originally retailed, its margin has still likely a much higher percentage than when it debuted and somewhat higher than a year ago.
- The 5c almost certainly has a higher margin, even with a $100 drop in price, than it did at debut as the iPhone 5. The polycarbonate backing drops the raw cost, in addition to the same year-over-year benefits as the 4S's continued production.
- The 5s will have lower margins at introduction, but it's necessary to keep the price in line to bring aspirational buyers, early adopters, and frequent updaters to the party, as well as grab switchers. In a year, when all the 5s features become standard on the next-cheaper phone, they'll have driven the cost way way down.
There is a very reasonable sense of deflation, though, despite all of this being sensible. A software developer and App.net friend, Isaiah Carew, wrote in a message on App.net, of which I quote part:
I've never cared that they're a company. I've never cared whether they succeeded or failed. I've never cared that they made or lost money.
I care that they do amazing things that make life better.
I understand this sentiment. Apple is a company that makes boatloads of money. It's hard to wait through the boring periods in which they're swimming in cash like Scrooge McDuck, to see how they will challenge the industry again.
In March 2012, I wrote an essay for TidBITS that touched on some of the issues of incrementalism, focusing more on the competitive issues of cost and features in the mobile-phone market.
[1]: Alistair J. Cullum, a biology professor, wrote in with a correction that I very much appreciate.
The evolutionary term "punctuated equilibrium" refers to long periods
of relative stasis, he writes, alternating with short period in which
change occurs rapidly. The incrementalism between releases that I write
about is more accurately called "gradualism," in which improvements pile
up a bit at a time over long periods. I suppose I'm suggesting a synthesis: Apple has gradualism, not stasis, between its points of huge change. Thank you, Alistair!