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How Apple can make money after the iPhone

Author : Vivek Wadhwa
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iPhoneApple reported lackluster earnings on Tuesday as the companysiPhone sales continued to slide. The numbers make it clear that the future of the consumer products behemoth is no longer in its consumer products. The fix? Apple shouldrelease a version of iOS for non-Apple devices.This suggestion will seem likeheresy to the brandsloyalists, butit may be necessary for the successof the company.

Imagine those Samsung, LG, and Xiaomi smartphones having an original Apple operating system on them rather than the imitations they are presently running. Offered the choice, users would upgrade in droves. And those users would download new applications and sign up for Apples subscription services, giving the company a cut of everything they purchased, as well as valuable data and marketing opportunities. Googles Android business would finallyhave a formidable rival.

Apples second-quarter profitswere27 percent lowerthan in the same quarter last year. On the bright side, it said that quarterly revenue from its services business the App Store, iTunes, and streaming music grew by 19 percent year-over-year to $6 billion, making these services its second-largest revenue earner after the iPhone.

If Apple made iOS available on other phones, it would not only multiply the markets for its service businesses but would also allow the devices to become a platform for all sorts of new products and subscriptions that other companies would develop.

Apple hasreportedlybeen working for years on developing video-streaming services that act asaversionof Apple Music for TV and movies. If the company opens its platform, these could potentially be made available to billions of people.

The reason Apples profits are falling is that it doesnt have any bold new products. Also its worldwide market share in smartphones is shrinking.According to Gartner,Apples marketshare fellto 14.8 percent in the first quarter of this year from 17.9 percent a year earlier. At the same time, the overall market grew by 3.9 percent, and Android increased its market share to 84.1 percent.

Instead of owning a big chunk of a large pie as Google does, Apple owns a decreasing share of an increasing market. Yes, Apples slice has been the most profitable, but, as this quarters results indicate, that will not last.

Microsoft offers a cautionary tale. The companywas protectiveof its core operating system for the longest time, causing it to lose the smartphone market. When Microsoft released its mobile operating system, Windows RT, in 2012, Microsoft bundled its Office product into it and charged resellers a price of around $85 per device. This made Windows more expensive, in some cases, than the hardware. And even though Microsoft changed strategy after Satya Nadella took over as CEO in 2014, and started giving Windows away, it could not regainthe momentum it had lost. Today, Microsoftretains a paltry 0.7 percent of the smartphone market.

Without expandingits operating system, the future looks bleak for Apple. Full-featured smartphones can be purchased for as little as $50 in China and India today. That price will fall to less than $25 over the next three or four years, and billions of people will be purchasing them. But these will be Android-powered devices. Apple will find that its market share has shrunk to the low single digits and that it has become even less relevant in the consumer space. Yet, unlike Windows RT, which was inferior to Android, iOS is far better than Android. That is why Apple needs to grab this market while it still has an advantage.

Will doing so eat into iPhone revenue? Yes, it will in some markets, but that is happening anyway. Chinese competitors such as Huawei and Xiaomi Corp. are selling devices with comparable hardware, for a fraction of the price of the iPhone. As a result, the iPhones market share in China reportedlyfellfrom 16 percent in 2015 to less than 13 percent in 2016. Apple doesnt even have the best devices any more. Consumer Reportsrecently rankedthe Samsung Galaxy S7 far higher than the iPhone 6s. Samsung has alsotoppedApple in customer-satisfaction surveys.

And then the question is whether iOS can run on non-Apple devices. It surely can. Hackers have been demonstrating that for years. Oneportedkey parts of the iOS core to the Nokia N900 in 2013. I have myself installed an older version of Mac OS X on a Dell desktop and been able to dual boot between Windows and OS X on the same hard drive. Most of the components of an iPhoneare purchasedfrom third-party suppliers, so there is little that is proprietary.

Making iOS available on other devices will remove a critical competitive advantage that the iPhone enjoys, but it will create many new revenue streams and will be better for Apples long-term survival. Apples innovation machine haslargely stalled; the iPhone was the companys last major product invention. Declining market share may be just what it will take to jolt Apples hardware designers and product developers out of their complacency and get them aspiring to deliver products as imaginative and groundbreaking as the iPhone once was.

Link to article on Washington Post’s website

About Author
Vivek Wadhwa is Vice President of Innovation and Research at Singularity University; Fellow, Arthur & Toni Rembe Rock Center for Corporate Governance, Stanford University; Director of Research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering, Duke University; and distinguished visiting scholar, Halle Institute of Global Learning, Emory University. He is author of ”The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”–which was named by The Economist as a Book of the Year of 2012.

Wadhwa oversees the academic programs at Singularity University, which educates a select group of leaders about the exponentially growing technologies that are soon going to change our world. These advances—in fields such as robotics, A.I., computing, synthetic biology, 3D printing, medicine, and nanomaterials—are making it possible for small teams to do what was once possible only for governments and large corporations to do: solve the grand challenges in education, water, food, shelter, health, and security.



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