An Alternative View: Why Apple Will Not Be a Service-Based Company

Photo of Zach Fuller
by Zach Fuller

Apple’s announcement of smartphone slowdown a few weeks back sent waves through the tech-centric investment landscape. Various requiems seem to suggest that with the stock price dropping 12%, the darkest day in the iPhone era means Apple will now have to focus on its service business if it is to retain its dominance.

A reflection on the cycles of tech hardware suggests these promulgations that Apple now must now focus on services are premature. Gordon Bell, creator of Bell's law of computer classes, observed as early as the 1970s that in information technology, the dominant hardware platform shifts every ten years or so. As we therefore come to the end of the exponential smartphone uptake (which began just over a decade ago with the original iPhone launch), it is understandable that without a clear successor, (although Voice Control has had impressive early growth), people believe we have reached the limits of technology.

This is a fallacy with a storied history, where short-term views of technology mean people find it difficult to view the future without merely extending the present. Charles H. Duell,  the Commissioner of US patent office in 1899, famously said that 'everything that can be invented has been invented'. Henry Ford also once quipped, 'If I had asked people what they wanted, they would have said faster horses'. To therefore assume that Apple will focus on services both extends the present and ignores the fact that the company are already known to be working on two potential hardware paradigms: AR and self-driving cars. It also has enough of a war-chest (some $237.1 billion dollars) to compete against or acquire any upstarts.

Commentators also seem to forget that what they see as a conservative approach towards hardware (moving second in voice control devices with Homepod against Amazon's Echo) is classic Apple strategy. Through much of its history, the company has employed the second-mover advantage, which it has deftly executed over almost every hardware paradigm in computing since its genesis in the Los Altos garages of Steve Jobs and Steve Wozniak. They were not the first PC, laptop, MP3 player or smartphone. This strategy appears to be a reflex burned into the psyche of the company from the Apple Newton debacle, where in 1992 at the Las Vegas CES conference, then CEO John Scully was the first to publically use the term PDA (Personal Digital Assistant), in reference to the launch of the product. PDA’s never meaningfully took off and Apple paid the price, memorably being mocked in The Simpsons. Steve Jobs promptly discontinued the Newton on his return to the company in 1998.

To assume therefore that we have reached the end of hardware, not least for Apple, is short-sited. It is a common mistake to project our present onto the future, and as prospective new hardware paradigms emerge from universities, corporate research and development labs, what does and does not work often takes us by surprise. So while the next few years may see Apple become more service-centric as they weather the tide until finding the next big growth story in hardware, Wall Street’s catastrophizing of this development as an époque in the company’s trajectory does not mean that Apple should now be considered a service business.

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