(source Apple)

what will Apple “next big thing” be? Not the AirPods themselves, but they are an important part of it

Jorge Serna
Nov 6, 2016 · 9 min read

A recent trend around analysts and bloggers is to consider the potential situation of the market having reached “peak smartphone”, so that growth in sales of this devices is coming to a halt. It is arguable whether the market has reached a real maximum or if we will have a later recovery, but when looking at the flattening of global smartphone shipments it is easy to relate this with a slow-down of renewal cycles: latest generations of smarphones being released are driving less incremental sales in mature markets because: 1) the reduction of the “new market”, as more and more people already have a smartphone and 2) upgrades are difficult in a saturated market, because new capabilities are not enough to invest in a new phone.

So a recurring question is, if the smarphone category is now commoditized, what are manufacturers looking at to become “the next thing” that will drive growth in the consumer electronics market.

Apple’s peak iPhone

In this discussion the focus moves very quick into Apple, as they were the ones to create the market for the smartphone category in the first place, and are now expected to find a new category that will become the “new iPhone”.

This situation was reinforced by Apple’s announcement of the new iPhone 7. The main reaction has been lukewarm, considering it a good product but not a big leap in capabilities that would justify an upgrade from a customer owning an iPhone 6 or 6S. We still have to wait for real sales figures to see if the iPhone 7 is reinvigorating Apple’s smartphone business, but in the meantime the rumours of doom still continue.

So will the salvation come with a new product, launched with a big splash? Will this define a new category that in turn can mark the path for other manufacturers like Samsung or Huawei to follow next?

I believe that in this case Apple’s strategy is to play the long game, and that they are already positioning elements that aim to replace the iPhone and become this next big thing.

But it will not be one thing, it will be several.

From Accesories to Replacements

My thinking around this is that the positionining of accessories that currently work fundamentaly in conjunction with the phone itself will evolve to eventually replace it. We could have then:

  • Processing power, location and communications in one device
  • Audio interaction and voice commands in another one
  • Visual representation and image capture somewhere close to your eyes
  • Bigger screens for more detailed visualisation/interaction

But for this to happen, the current status as accessory for some devices becomes a limitation to overcome.

Smartwatches, not there yet

This is the current limitation faced by smartwatches, which are still struggling to become a category, with sales not picking up. One common complaint about them is that their value is very limited precisely because they are just an accessory: why should I use a watch to access information if I have my phone with me to do the same thing? The convenience factor is not that relevant when you have to carry your phone anyway.

Samsung is trying to go beyond this limitation with the Gear S3, by adding LTE connectivity to the watch. And rumors say that Apple is also trying to bring cellular connection into the Apple Watch, but was not able to get the right battery performance for it just yet. In the meantime they have given a bit more of independent life to the Watch by adding GPS capabilities to it.

But when the Apple Watch gets cellular connectivity — and I believe it will, more on this later —, this will actually change what developers would do with apps too. Right now the applications for Apple Watch are quite limited due to its accessory status, with only bits of information displayed in the tiny screen, driving more complex interactions to be done on the phone. But if apps need to be designed considering the “no-Phone” scenarios, richer applications will pop out naturally.

And this could follow the AppStore path, with the category flourishing with further choice as developers get economy of scale when porting their apps to the Android ecosystem too, reinvigorating the Android Wear market.

Enter the AirPods

But a huge limitation when using the tiny screen of a watch is accessing longer information and entering text. But this is where the next accessory comes: the wireless headset.

With the iPhone 7, Apple announced their new wireless earbuds: the AirPods. At the keynote this was mostly related to the infamous “lack of headphone jack” issue with iPhone 7, that drives the usage of bluetooth headsets (yes, lightning connector head phones are supported too, but that will not be key for Apple or manufacturers). But with the AirPods Apple has also focused in a different approach to cordless interaction. In particular, AirPods have no buttons so all actions with them are based on physical actions, like tapping the headset to invoke Siri or removing one from your ear to pause music.

Pairing the headphones with your phone is almost magical, you just open their box close to your phone and that’s it. But what was particularly interesting — and was emphasised a couple of times — is the concept of iCloud pairing, so that they will connect instantly not only with you iPhone but also with your Mac, your iPad… and your Apple Watch.

Magic pairing (source Apple)

Yes, the insistence on how they will work with your Apple Watch was very interesting to me, because usage of headphones paired with an Apple Watch is only relevant for the phone-less usage I believe they are aiming for the future. If you are carrying your phone with you, music and voice actions will happen through it, so why should we use AirPods with the Watch in that case?

Are AirPods for running?

In truth Apple Watch has supported audio since its first generation, with internal storage available for music and supporting Bluetooth headphones, considering that phone-less usage will be related to running activities. The latest generation of Apple Watch has been even more focused on sport usage (with even a Nike-branded version of the device), so maybe that is the main reason why AirPods can be linked to Apple Watch. But if that is the case, there are two things that don’t feel right to me:

  • The AirPods don’t seem designed for sports usage. The jokes about losing them are even more relevant for an activity like running. Maybe they will hold in place while running, but it just doesn’t feel the right approach.
  • They operate mostly via Siri, and to use Siri you need a data connection that the Apple Watch does not *currently* provide. Music may be fine, but the Siri-centric approach for interaction is not currently valid in a phone-less scenario.

Pieces of an ecosystem

So in my mind the AirPods and the Apple Watch pairing only makes real sense if you can get a full Siri experience, and that requires data connectivity. Which reinforces the expectation that Apple Watch will get that at some point in the future. On the flip side, a more Siri-centric interaction for the Apple Watch will also address limitations for accessing and providing informarion to it.

And then AirPods+Siri+Apple Watch+LTE connection together start to become something that could almost replace your smartphone. And we can also expect this from the Android ecosystem, in which headset+Google Assistant+Android Wear+connectivity can bring a similar experience.

Information can be input by voice, and can be accessed without a bigger screen at hand, with new “Watch native” apps pushed to provide more value and boost the currently small Watch ecosystem. Think about checking prices, getting flight updates, doing reservations and of course calling, texting and paying just wearing some headphones and a watch, no phone involved.

Of course there is still a place for richer interaction in a big(ger) screen, but not *having* to carry the phone, it becoming optional, will drive different interaction models. The choice between an iPhone Plus or an iPad Mini will become more difficult if your actual phone is in your wrist and ears, and you don’t have to carry the screen aroud all the time.

The Next Piece: AR

A critical piece is missing from the AirPods+Siri+Apple Watch+LTE model, and that is the image capture aspect. Yes, the camera function is something fundamental for a phone today, for capturing memories (a beautiful view, or friends meeting, but also to capture a price in a store, or a parking space number, or a shopping list) and even more importantly for sharing them.

Communication is becoming more and more visual, and an image sent in a message or shared in Instagram is conveying much more information than some text — or in this case a voice dictation — can provide. So we cannot leave the phone at home just yet, we need a camera somehow.

And no, I don’t think adding a camera to the Apple Watch is the solution.

not really…. (source Samsung)

But there has been another hint about where this may move to, and that was a recent interview in which Tim Cook says he is more interested in AR (Augmented Reality) than in VR (Virtual Reality). With AR the existing world around us is enriched with relevant information, content or virtual objects, and for that to happen the environment needs to be captured or recognised, so the right contextual elements can be added on top. AR turns the world into your screen, to be captured and shared as needed. That was also the vision behind the initial foray into this space by Google with Google Glass, but they went too early into this space.

Snap (formerly Snapchat) is trying to move into this space too with their Spectacles. The Snap glasses are not an AR device, they just record video, but Snapchat has already worked into the “reality enriching” space with their popular video filters, so it is not hard to think both elements coming toghether into the AR space. So yes, what Snap is proposing today is a device that is almost a toy and a service mostly designed for fun, very different products from what is expected from Apple or what can really define a category, but they are making breaking some ground into defining the technology and customer expectations for a real step into AR.

And I believe that something in this space will pop up from Apple, and followed soon.

The Smartphone Dissassembled

Once all these pieces are in place, then the phone as a unit becomes less relevant, as components take its place:

  • Processing, location and communications in your wrist
  • Audio interaction and voice commands in your ears
  • Visual representation and image capture in your eyes
  • Handheld screens for more detailed visualisation/interaction

with not a single element taking its place, but an ecosystem of elements that can provide value individually or work together to provide a full experience.

Apple is an expert in creating things that together become more than the sum of the parts, and has already positioned products in three out of the four categories above. And we will keep seeing approaches from other manufacturers in these categories too.

The key is that as this accessories and become more independent, they will have their own renewal cycle and will provide a different revenue cycle too. Moving from spending +$700 in a smartphone every 2–3 years to spending $150+$400+$300+$350 at different rhythms, and with additional spending in secondary accesories (think on bands for the watches, maybe rims for glasses?) can compensate a decline in the smartphone renewal.

Change will not happen overnight, and these devices will evolve and improve separately for years to come, turning the smartphone category into technology that dissolves into the user, and will realize the actual concept of “wearable” that has been promised for a while.

But then the smartphone we know today as the center of the digital life will be no more.

Jorge Serna

Written by

Product & Strategy in @securitize — formerly Director of Global Communication Products @Telefonica

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