- The iPhone has become a “non-substitutable infrastructure,” columnist Michael Gartenberg says.
- The device and its services seem too popular with users to be replaced.
- But a challenger will one day dethrone it, he says. Here’s how to see the signs of this change.
The iPhone – with iOS and the App Store – has held such a dominant position in the mobile industry for so long, it has achieved the status of what is known as “non-substitutable infrastructure.”
Non-substitutable infrastructure is something that so strongly holds users, a competitor cannot get them to replace it. It has the following characteristics:
- High switching costs for replacement.
- Complete or near-complete standardization in an organization or market.
- Strong third-party and vendor support.
- Functions as a key underlying technology for other services and applications.
The New Jersey Turnpike is non-substitutable infrastructure. I’m not likely, even with the help of some billionaires building high-speed underground tunnels, to ever stop driving on it. Coke and Pepsi are examples of substitutable infrastructure. I can drink Diet Coke in the morning and Pepsi that afternoon. There is no price for switching brand names (except I always conclude that Coke tastes better).
Apple today benefits from the image of being the “safe choice” for users. A positive feedback loop is created for them that leads its customers further in its infrastructure: they buy other devices designed to work best with their Apple gear such as Apple Watch and AirPods, together with Apple services such as Apple Music and Apple TV +.
Many say the power of the Apple ecosystem of hardware, operating systems and services, all tied together with the power of the App Store, are unstoppable. Since no challenger today can undermine Apple’s market position, they say it will only grow stronger with time.
Despite this, it is inevitable that the iPhone and the Apple ecosystem will be replaced by something else.
Empires rise and fall, from the Egyptians and the Romans to the Ottomans and the British to tech empires such as IBM or Microsoft.
It’s an imperfect metaphor, I know. Apple will not cease to exist, and IBM or Microsoft will not disappear. The latter two, however, while both strong and profitable, do not have nearly the dominant market or mindshare positions they once had. No one is suggesting we break up IBM or Microsoft as they support Apple these days.
To explain how Apple will fall, I propose a framework for how technology cycles fall, a cycle that has been true for a variety of technical innovations, from refrigeration to audio technologies.
Technology shifts over time and goes through five phases:
- Multiple companies produce different technologies that serve the same user need.
- Market forces lead to one standard emerging as non-substitutable infrastructure. Often, it’s not best-of-breed technology that wins market adoption.
- The standard is attacked by pseudo-challengers who imitate it but do not effectively displace it, because the pseudo-challengers do not offer enough meaningful differentiation or have different flaws than the technology they attempt to displace. (But pseudo-challengers often have enough value to survive and coexist alongside the dominant technology.)
- The normal reemerges stronger than before and is invincible to displacement.
- A new and better technology emerges and displaces the existing standard.
iOS is in stage 4. It has achieved dominance and mindshare despite being challenged by the Android operating system and a host of devices from the likes of Google and Samsung.
To replace the Apple juggernaut, any new technology that comes to market must meet the following criteria:
- It must offer visible and demonstrable value and differentiation that can be directly exploited by end users. One reason the iPhone replaced flip phones was that it had a real browser and touchscreen with a pinch-to-zoom feature. It made using the Internet much more like you were on a PC than on a cell phone.
- It must offer economic benefits to a market of vendors. The iPhone offered apps, an entirely new market for existing and new software developers.
- It must offer clear economic benefits to hardware vendors. If conditions one and two are met, hardware vendors have strong incentive to build systems to take advantage of the new technology and drive upgrades.
I’m not going to attempt to predict what will ultimately suppress the Apple “I” ecosystem. This is a fool’s work. No one predicted Apple’s rise and rebirth under Steve Jobs. No one predicted the iPod and its influence on Apple sales. Certainly, no one predicted the iPhone and the impact it would have on the industry.
Some even greeted the iPhone with great skepticism and more than a little sarcasm.
But as chips grow more powerful and network speeds get faster and artificial intelligence gets smarter, the technology that trumps the iPhone may already be there in some form. The bigger question is: Will Apple be the one to produce it?