Apple’s iPhone X Launch Wasn't Just About Smartphones

More Apple devices poised to escape iPhone’s gravitational pull as compute power and key functionality are expanded to new form factors.

On September 12th, 2017, Apple unveiled three new iPhone models, including the iPhone 8 and 8 Plus, and the much-anticipated display and AR focused iPhone X that sports the highest price tag yet for an iPhone. But it was Apple’s decision to add LTE wireless connectivity to the Apple Watch Series 3 that demonstrated a quiet and gradual divergence from the iPhone as central compute power. By adding LTE to Apple Watch, Apple increases the true mobility of the watch form factor, finally letting consumers temporarily escape the iPhone, leaving it behind during a trip to the gym, on a run, or as the iPhone charges without missing important notifications, calls, messages, music or directions. Ten years have passed since the iPhone was introduced and now Apple is bundling its key capabilities into new high-margin form factors for more convenience and life improving experiences.

Last week, the world celebrated the tenth anniversary of the iPhone’s introduction and got perhaps the most revealing look yet at what the next ten years have in store for Apple’s product universe. As the market attempts to understand Apple’s future, this ten year milestone is worth marking with a quick look back at how we got here.

About every ten years, we see a shift in compute power between a divergent or convergent device landscape [figure 1]. Think back to life in the years before 2007 when we carried a flip phone for calls and a BlackBerry for email access, took pictures on a digital camera, listened to music on an iPod, and watched videos on a computer or TV. Starting in 2007, we saw a major convergence trend begin, led by the iPhone. Now, all of the aforementioned devices in our life didn’t disappear immediately. But as we converged once disparate compute power and functionality into the smartphone, we relied increasingly less on the independent devices, consolidating our spend and usage to a single device.

In 2017, we are in the dawn of a divergent trend in compute power that is building on the success of the smartphone, extending that form factor’s key functionality to emerging devices for convenience and new experiences. Consumers relied less on traditional watches when smartphones could tell them the time. But now that Apple Watch has LTE, it can also offer critical smartphone features such as notifications, calls, messaging and directions, along with new fitness tracking capabilities like heart rate monitoring. As a result, consumers can leave their iPhones behind in certain cases, reinventing the purpose of the smartwatch form factor. iPhones don’t have the size to integrate room filling speakers, but the forthcoming HomePod announced a few months ago will be able to play music while providing hands-free interaction for quick access to important information when the company enters the “home assistant” market. This is just the beginning of what we’ll see in this upcoming "decade of divergence." Even AirPods could potentially one day become more than just headphones, with their own compute power, storage, voice assistant and mobile connectivity.

Yes, Apple filled us in on the details of its much-anticipated tenth anniversary iPhone. But more importantly, we now have a clearer picture of the role divergent companion devices will play in Apple’s product future.

iPhone X: Finally, An iPhone For Consumers and Critics Alike

Despite releasing a consistently high-quality and high-selling device over the past several years, Apple’s efforts have not come without criticism. One of the biggest complaints has been that the company seemed to be hitting a wall on innovation and design. In spite of compelling augmented reality advancements, we would have likely heard similar innovation criticism if all we were shown last week was the iPhone 8 with upgraded innards, software and a familiar, albeit glass-based, design. But, of course, we were also introduced to the iPhone X that has had the market salivating for years.

Apple unveiled a gorgeous, sleek design with extremely thin bezels and no home screen button, creating the cleanest and most elegant iPhone to date. Despite an initially flawed FaceID demo, fast facial recognition has the potential to take the industry beyond what has traditionally an unreliable and gimmicky feature. The True Depth Camera system will also potentially help take photos, video and AR to new heights. For the first time, Apple is including an OLED (Super Retina) display, meeting always-high expectations for a gorgeous screen. The new A11 Bionic processor that will drive the device represents another mobile computing leap. And Apple says the battery will last two hours longer than the iPhone 7. Perhaps the biggest complaint (besides cost) will be Apple’s decision to integrate wireless charging technology that does not offer out of the box fast-charging capability. At $999 and up, iPhone X sees Apple sitting at the top of the premium phone cost scale, with some would-be owners inevitably priced out of the market. For everyone else, iPhone 8, though not cheap, will be in line pricing-wise with previous high tier flagship iPhones.

This is about as good as innovation gets on a mature device. So, Apple has now completed a family of devices, is now able to offer 8 different iPhones that price stratify most segments, even creating a new - ultra-high tier [figure 2]. Which is why Apple was so eager to draw attention to other areas of its product lineup where it is really pushing boundaries.

Apple Watch Shines

We’ve typically referred to Apple’s annual September event as an iPhone event. But with two additional products unveiled, we’re seeing how Apple is carefully planning a portfolio of devices around the iPhone franchise. Putting LTE in Apple Watch Series 3 is significant in many ways. Most importantly, it creates a stand-alone connected device in an emerging form factor. The compute power and key feature set were already available in watch but it was completely dependent on the iPhone. The LTE connectivity option is critical in positioning Apple Watch Series 3 as a standalone device, freeing the increasingly popular wearable to break free from the iPhone’s gravitation pull.

Ability to stream music? Check. See and respond to messages? Check. Leave the phone at home for a run, in the locker for a swim or safely in the glove compartment during an errand? Keep tabs on preventative health issues? More easily spy on a rival baseball team. Check, check, check.

As other phone manufacturers focus wearable innovation efforts on mobile VR head-mounted displays (HMDs) that rely completely on a smartphone for compute power, Apple is putting its weight behind the smartwatch form factor. (And incidentally, skipping VR HMDs for now, opting instead to power augmented reality experiences via iOS.) In doing so, we continue to see evidence that the stand-alone smartwatch could bundle and improve on specific smartphone functionality to create mass market appeal.

Apple’s Device Future Coming Into Focus

We should not overlook the uncharacteristic moves Apple has made over the past months and years to help us see further into its universe.

It took its lumps with the first Apple Watch’s short battery life and minimal feature set to get a product to market that it could start learning from and refining. At WWDC, it unveiled HomePod many months before availability, departing from its typical practice of announcing fully baked devices that are ready to ship at scale.

Apple is making clear it can adapt to perpetual beta in its own way as it prepares for a "decade of divergence." It can “break the rules” and launch products that aren’t perfect from the start to learn how consumers will use these new devices and ultimately expand compute power and functionality to them. From this point on, expect to see more Apple product experimentation take place in plain view.

A Universe of Opportunity

To be clear, the iPhone isn’t going anywhere anytime soon. In a divergent product market, Apple simply gets to push more product while continuing to prep Apple Watch, and eventually other devices for mass market primetime. Sure, these devices won’t carry the profit margins and high sticker prices of the iPhone in its heyday, but add them all up and Apple continues to have a demonstrably healthy business on its hands. Standing back to look at the bigger picture, it is a sight to behold. That is, as long as Apple is able to fend off the fiercer-than-ever competition that is successfully invading its space at every turn. For now, the company continues to find new ways to innovate and the market will reward it in kind.

About IBB Consulting’s Wireless, Mobility and Innovation Group

IBB Consulting’s wireless, mobility and innovation group advises network operators, device manufacturers, and content providers on technical and business strategy, including new product innovation concepts and launches. Please contact senior partner Jefferson Wang (jefferson.wang@ibbconsulting.com) to discuss how IBB Consulting can help drive growth, innovation and differentiation in a global market.