Recreating the Aggregate
I’ve got a quick thought on Apple’s earnings, the growth of the iPhone, and the future of Apple’s product categories.
The iPhone is an historically large and successful business, and it will continue to generate tremendous revenues for its parent company for several years to come. That said, the growth of the product is inevitably slowing down, and this quarter’s results really drove that point home. After a year-over-year decline of 16% in units and 18% in revenues, we should prepare to see a lot of pieces over the next few weeks to the tune of, “Where is the next iPhone?”
In the short run (less than five years), I’m convinced that there is no next iPhone. That’s not just for Apple — that’s for almost every company in the world. The iPhone was a perfect storm of product quality, market readiness, and industry economics, and there just isn’t anything out there right now that I think could even compare in terms of short-term revenue generation, market creation, and cultural impact.
There is no “next iPhone”. But that’s okay. I think Apple knows that, and its understanding is already manifesting itself in the company’s approach to products and services. Call it The Giambi Strategy.
For those of you who read Moneyball (or, more likely, saw the well-done film adaptation), the Giambi Strategy should be familiar. Following the loss of their All Star first baseman Jason Giambi, who had reached free agency and signed a lucrative new contract with the Yankees, the Oakland Athletics and their general manager Billy Beane were faced with the seemingly impossible task of replacing him. How did they do it? As Michael Lewis writes, they didn’t even try:
The A’s front office realized right away, of course, that they couldn’t replace Jason Giambi with another first baseman just like him. There wasn’t another first baseman just like him and if there were they couldn’t have afforded him and in any case that’s not how they thought about the holes they had to fill. “The important thing is not to recreate the individual,” Billy Beane would later say. The important thing is to recreate the aggregate.” He couldn’t and wouldn’t find another Jason Giambi, but he could find the pieces of Giambi he could least afford to be without, and buy them for a fraction of the cost of Giambi himself.
I think that, across Apple’s current product lineup, they are trying to, over the next couple years, recreate the iPhone in the aggregate. It’s not a matter of collecting everything in one ultimate polished product, but rather splitting that value across several, small products that together present a unified and exceptional customer experience. The Apple Watch, the Apple TV, Apple Music, the iPad even, should all be seen in this light, as should every new category or service Apple pushes out in the next few years.
There are serious questions about whether or not Apple can successfully execute this strategy — remember that while the A’s won their division after recreating Giambi, they didn’t win the World Series — but I think that it’s a sensible one to pursue as iPhone growth slows and the search for the Next Big Thing continues. None of them are the iPhone, but together, perhaps, they can come close to replacing the pieces of it that Apple can least afford to be without.