Apple is expected to announce the latest version of the iPhone on Tuesday in what has become an annual Silicon Valley ritual watched closely by the technology industry and gadget lovers. But there's just one question: Who will buy it?
Apple's customers, many of whom once lined up outside the company's stores to purchase its newest phone the day they became available, now wait an average of three years to upgrade, unenthused by Apple's new offerings, analysts say.
Apple sold more of its two-year-old iPhone 8 in the second quarter of 2019 than it did its year-old $1,000 flagship iPhone XS, according to Strategy Analytics. According to research firm Sensor Tower, more than 75 percent of the iPhones in use today are models that were released at least two years ago and that have a home button, which Apple replaced with Face ID on its top-of-the-line phone in 2017.
Nothing makes the iPhone's slide from the zeitgeist clearer than interest in Apple's launch events. Google searches for iPhones once doubled as hype for the new models peaked each fall, but last year's launch barely moved the needle. The iPhone 4 and 6, which debuted in 2012 and 2014 respectively, each inspired roughly four times as many searches as last September's iPhone XS, XR and XS Max combined, The Washington Post's analysis of Google search data shows.
Mike Bostock, a 40-year-old start-up founder in San Francisco, remembers waiting in line to buy the very first iPhone the day it came out. Approached outside an Apple store in San Francisco, he said these days, he upgrades his phone every couple of years, but without the joy he used to have. "I don't get excited about new phones coming out," he said.
It's not just Apple. The global smartphone industry is slowing, as the market is already saturated and new models offer only slight improvements. Major innovations, such as folding phones or new mobile devices such as augmented-reality glasses, are still a ways off from becoming mainstream gadgets. (Samsung's delayed Galaxy Fold is due to launch this month, priced at nearly $2,000.)
But no major technology company is defined by the smartphone quite like Apple, which set the industry standard when it launched the first iPhone in 2007. Accounting for 56 percent of Apple's overall revenue in the first three quarters of this financial year, the iPhone turned Apple into one of the most valuable companies in the world. Samsung, by contrast, has a more diversified business, selling everything from microprocessors to television sets. And Google, which makes the most popular mobile operating system, Android, still earns the bulk of its money from search ads.
One silver lining for Apple is that its customers, despite their lack of interest in buying the company's new devices, are not leaving in any significant numbers for Android, the only major competitor to Apple's iOS operating system. On a July earnings call with analysts, Apple CEO Tim Cook said the company's "installed base," or the number of people using Apple devices, reached an all-time high, with more than 1.4 billion users worldwide.
Apple spokeswoman Trudy Muller declined to comment.
"Apple since 2017 has maybe put more effort into profit margins than delivering good phones to consumers," said Strategy Analytics analyst Linda Sui. She estimates Apple will sell fewer phones this year than it did last year. After sales of iPhones began to slump, dropping 15 percent in one quarter last year, Apple stopped disclosing to investors how many phones it sells.
Bostock, chief technology officer of a data visualization company called Observable, thinks Apple has made a few questionable design decisions, from the way the iPhone's camera protrudes awkwardly from the phone's body to the Face ID system that is convenient but sometimes requires him to hunch over his phone to unlock it.
There are several reasons for Apple customers' waning interest in its newest phones, analysts say. For one, Apple has been slow to add new features like fingerprint sensors built into the phone's screen, which Samsung offers, or advanced cameras that can take high-quality pictures in low light and zoom in on far away subjects.
Apple has also suffered from a dearth of new "killer apps" that drive customers to upgrade their hardware. Smartphone users spend more of their time on the same old apps like YouTube, Instagram and Netflix, none of which require a particularly advanced phone to operate. Despite Apple's push into services, it has been slow to offer the kinds of artificial intelligence enhancements that Google has built into its Android operating system, such as Google Assistant. Most of Google's services are also available on the iPhone.
Apple's new phone is also not expected to include the latest wireless standard, 5G, which is already available on a handful of high-end smartphones, like the Galaxy S10 5G and other models from Huawei, LG and Motorola. Apple has been slow to develop 5G, in part because of a dispute with Qualcomm, which makes the most advanced 5G modems, over licensing fees.
Hardware analyst Patrick Moorhead, at the firm Moor Insights & Strategy, said he believes Apple has come to rely on the fact that its customers won't leave Apple even if it's slow to innovate. "I think Apple is comfortable and doesn't feel the need to take risks," he said. But he warned against Apple depending on the lock-in effect. "It can work in the short term, but it never works in the long term," he said.
Moorhead noted that in Europe, where Apple services such as iMessage and the Photos app are less popular, only about 20 percent of the population uses iPhones. In the United States, where consumers feel more tied to Apple services, that number is closer to 50 percent. Moorhead said he estimates that if consumers were less locked into Apple by its proprietary apps, Apple's market share in the U.S. would drop to somewhere near 30 percent.
At a cost of about $1,000 for the latest flagship model, iPhones have become so expensive that they can be a financial burden for customers.
Craig Jaworski, a 29-year-old content marketer in Columbia, Missouri, said he's sticking with his iPhone 7, no matter what Apple announces on Tuesday. After years of regularly upgrading his phones, sometimes multiple times a year, he's decided having the latest one isn't worth the monthly payments to service his phone loan. When it's time to upgrade, he says he plans to save up and buy a used phone. But he doesn't know when that will be. "There hasn't been anything that has seemed like a must-have," he says.
But Moorhead said it's not all doom and gloom for Apple. Its success will rely on breaking into new categories, such as augmented-reality glasses, which Apple has long been rumored to be working on. That device would essentially turn a person's eyewear into a transparent computer screen, overlaying things like turn-by-turn directions atop the real world, or showing a constant stream of social media posts throughout the day.
Apple CarPlay is another opportunity, he said. As driving becomes more automated, allowing people to tune out on the highway, for instance, the car could become like a second living room, and Apple could become the operating system for automobile entertainment.
Another challenge for Apple in upgrading its phones is its sheer size. While Apple ranks behind Samsung and Huawei in overall phone sales, Apple sells fewer models and concentrates only on the high end of the market. Samsung and Huawei don't have to make as many of their flagship phones, giving them more flexibility in how quickly they adopt new features.
For instance, Apple's latest line of phones, the XR, XS and XS Max, sold 26 million phones in the second quarter of 2019. By comparison, Samsung's S10 and S10 Plus sold only 7 million units in the same period, according to Strategy Analytics.
But Apple has also expanded its product line, coupled by new naming conventions that break from sequential numbers - and Apple is expected to switch from the most recent X branding with this year's models. Google searches for specific iPhone model numbers have dropped more steeply than general iPhone searches, suggesting that consumers are still interested in iPhones even if they can't remember which model was unveiled onstage.
That doesn't mean customers are necessarily happy about sticking with Apple. Some people say they're trapped in Apple's ecosystem. Jeremy Kirkland, the 34-year-old host of the podcast "Blamo!," says he once bought every new iPhone the day it was released. But a year ago, as he watched Apple's live webcast of its new phone announcement for the updated X line, he observed they offered only incremental new features. "There was just nothing," he said. "I was like okay, I'm not doing this."
Kirkland waited for Google to release its Pixel 3 phone later that year and he traded in his iPhone X. He loved how pictures of his 2-year-old daughter taken with Pixel's more advanced camera looked and he enjoyed Google's software features, such as the "assistant" that can predict where you're going and remind you to leave on time. "The Pixel is fire, man. Everything about that phone was great."
But then reality set in. First, Kirkland noticed his Apple AirPods didn't work as well with the Pixel. Then came the complaints from his family members, who all used iPhones. They couldn't use FaceTime, Apple's built-in video-call feature, to speak with Kirkland's daughter. Photos didn't look as nice because they were sent via SMS, instead of Apple's proprietary iMessage service. And he couldn't upload to Apple's photo app anymore because that app is available only on iPhone.
Kirkland tried to persuade his family members to switch to Android, to no avail. So he gave up and sold his Pixel, paying nearly $1,500 for the iPhone XS Max. "Sure, they're getting the most amount of money out of me all the time," he says. "But am I a happier consumer? No."