Why can’t Apple match its Watch dominance with the iPhone?

Why can't Apple match its Watch dominance with the iPhone?

In Apple’s yearly, and largely predictable, unveiling of new product this week in Cupertino, just 19 minutes of stage time was devoted to what is arguably one of the company’s most innovative products, the Apple Watch. Talk time for the Watch Series 5 was less than half of that devoted to the new iterations of the iPhone 11, which – given there were three handsets to outline – is possibly understandable.

The iPhone is also, of course, the company’s flagship product, Apple’s favourite child. It can do no wrong. However, it’s not been doing so great lately. In May, it was reported that iPhone sales were dropping at record pace, down a whopping 17 per cent, compared with the same period a year earlier, to $31 billion. Indeed, at the end of July, technology analysts Canalys revealed that for a third consecutive quarter, iPhone sales declined with year-on-year shipments 13 per cent down to 36 million iPhone shipped in Q2 2019.

The fortunes of the Watch could not be more different. By Q2 2018, according to Asymco analyst Horace Dediu, Apple had shifted more than 46m units. Apple doesn’t release numbers on Watch sales, but LG, which makes all the screens for Apple’s wearable, confirmed it shipped 10.64m AMOLED smartwatch panels in 2017 to take 41.4 per cent of the market.

Then, showing phenomenal growth, Apple Watch apparently accounted for half of all 45m smartwatch sales in 2018. Half. To put those numbers in further perspective, Fitbit came in an extremely distant second at 5.5m units in 2018, Samsung third with 5.3m, then Garmin with 3.2m. On top of this, Counterpoint estimates Apple Watch sales grew 49 per cent year-on-year for Q1 this year.

To put it plainly, Apple is at the very top of the smartwatch industry. In fact, as it will supposedly sell more watches than the entire Swiss watch industry combined this year, it could be argued it is at the very top of the entire watch world.

If you read our reviews of the various iterations of the Watch, you will see a steady escalation in score and praise. Each version improved on the last, with key features updated or missing functions added. Increased speed, waterproofing, eSIMs and ECG. Now with the new Series 5, the Watch fixes the black-screen bugbear with an ‘always-on’ Retina display, so you don’t have to raise your wrist or tap the watch face to check the time.

Anyone who has worn an Apple Watch before knows that it has been almost impossible to check the time surreptitiously on versions one to four. It has almost become acceptable for a Watch users to look down mid-conversation or mid-meeting to check their wearable, oblivious to the fact that if it were a mechanical timepiece such behaviour would be considered discourteous. Now you can be discourteous discreetly. What’s more, Apple has corrected this design flaw yet managed to keep the all-day, 18-hour battery life that has been a winning feature from the first model.

If Tuesday’s Watch 5 news didn’t have Fitbit, Samsung and Garmin crying into their corporate beer, then the announcement that Apple was also dropping the price of its Series 3 watch, which will get all the new features of Watch OS6, plus already has the waterproofing and cellular capability, to just £199 surely must have caused some waterworks. This new price point just about does in its smartwatch rivals that have been selling in this price bracket for years, comfortable that they were operating below the Apple price premium.

“I think that Apple Watch is one of those products where Apple was not the first to market for the category but was able to define the category, ultimately delivering a successful formula,” Creative Strategies’ smartphone analyst Carolina Milanesi says. “It is interesting how when talking about innovation Apple Watch is not often a product that gets looked at. I’m sure Fitbit is quite worried, as moving from bands to watches was their path to higher average selling price and revenue.”

Of course, the iPhone still sells significantly more units than the Watch, with the ‘budget’ iPhone XR outselling its more expensive siblings with 47m units from launch in October 2018 to June 2019. The iPhone XS and XS Max shipped 20m and 28m respectively. But the drop in growth for Apple’s cash cow is likely down to the fact that the iPhone is not as innovative, as groundbreaking as it used to be (or as the Watch is now), and users are unwilling to upgrade.

Take the new 11 Pros. On the back of the phone there are three cameras: a wide, a telephoto and an ultra-wide lens. All three work with the phone’s A13 chip to stitch images captured by all the cameras together. Impressive, yes, but Huawei introduced the triple-camera setup with an ultra-wide angle lens on its Mate 20 series in October 2018. Samsung followed with its Galaxy S10 and Note 10 launches in February and August this year.

Apple also announced it would ship the Pros (not the standard 11) with a 18W fast-charger. Android phones have been pushing fast charging at 15W, 30W and 45W for years. The Huawei P30 Pro can easily last two days of regular use, which makes Apple’s battery life improvements of one to five hours (depending on the flavour) on the new iPhones look modest. And that’s without mentioning the lack of 5G iPhones.

With its new iPhones, Apple is keeping pace with the top-end of the market, not leading it. Which begs the question, why can’t Apple emulate its success, market share and innovation of the Watch with iPhone?

Well, the smartwatch market relative to the smartphone is less mature, which of course gives Apple room to innovate, but then this advantage applies to all in the wearable market. Neil Shah, research director at Counterpoint Research, believes a key reason lies in that many of Apple’s smartphone components come from third parties.

“For smartphones, while Apple is quite vertically integrated, the majority of hardware innovation comes from partners such as Sony for cameras, Samsung and LG for displays, Western Digital or SK Hynix for memory or Qualcomm for cellular tech, which has anyways been available to most of the rivals,” he says. “So the only room left to innovate and differentiate is in iOS, processors and user experience, which is where Apple has been differentiating, but rivals have caught up, and even surpassed in that as well.”

“This, of course, is one reason why Apple is focusing on privacy as a key differentiator, a major advantage compared to the open Android camp,” Shah says. “Apple is great at integrating technologies and marketing it much better than rivals, and thus actually not an innovator. But with Watch, Apple has been acquiring companies to scale the innovation on wrist and differentiate with core features making the watch a meaningful health sensor.”

There is a sliver of good news, though, for iPhone fans. The most interesting feature of the new iPhone is actually a new chip inside called the U1. Blink and you would have missed its mention on the 10th as a reference flashed up on the giant screen for the briefest of moments.

This chip enables “ultra-wideband” (UWB) positioning, which has been succinctly described by WIRED US as “Bluetooth on steroids: faster, more accurate, and more capable”. Check out the full story here. Apple describes it as “GPS at the scale of your living room” adding it will improve AirDrop file-sharing as the phone will be “directionaly aware” and able to determine which other phone it is pointing at, and so bump this device to the top of the share list when iOS 13.1 rolls out later this month.

UWB has some major advantages over Bluetooth Low Energy or Wi-Fi. It can pinpoint objects to within a 30cm range as opposed to the metre range of existing Bluetooth devices. It can transfer data four times faster than Bluetooth, operate on a wide frequency band so physical walls are less of an issue for signal, update its position every 100 milliseconds, and it doesn’t interfere with Wi-Fi. The applications of such technology are genuinely exciting – and it goes way beyond sharing files.

Volkswagen and NXP have demonstrated a UWB system for unlocking cars. As UWB uses “time of flight” to ascertain location it could prevent relay thefts, where a fake radio signal is used to steal cars boosted from wireless key fobs inside homes. If Apple signs up any automotive companies, your new iPhone could potentially unlock your car as you walk towards it.

Imagine if your local supermarket or shopping centre was loaded with U1-compatible sensors. Your iPhone would know not only which store you were in, which aisle you were walking down, but possibly the exact product you were looking at or considering buying. Then imagine combining this with Apple’s already impressive grasp of mobile AR for a world overplayed with contextual data just when you need it.

The U1 chip is genuine innovation in the new iPhone. Just the sort of thing to make it perform as well as the Watch relative to its market. If only Apple had spent more time talking about that.

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