Investors in the mobile space need to know three things about Apple's (NASDAQ:AAPL) soon to be released mobile operating system, iOS 7:
- iOS 7 heralds the introduction of the dynamic user interface (UI) in mobile. With the use of depth and enhanced motion, iOS 7 is purposely designed to look and feel radically different than current mobile operating systems
- Low and mid-tier smartphones do not have the hardware to emulate (copy) the dynamic UI experience of iOS 7.
- High-end smartphones competing with Apple will require significant time to develop software to introduce a dynamic UI.
So, Apple's strategy with iOS 7 appears consistent with what it did with the introduction of iOS in 2007 - Cupertino hopes to develop a UI that is seen by users as the new mobile gold standard. The end goal? Recapture the company's dominance in the high-end of mobile devices.
The Difference Between UI and Functionality
The public tends to take extreme positions regarding smartphone technology - significant time and energy is spent on arguments over functionality - and who had it first. For example, Apple trailed Android in providing "copy/paste" functionality on the iPhone. As a result, Android fans feel Apple "stole" this functionality.
Please note - this article has little to do with smartphone functionality. There is no discussion regarding Apple's new Notification Center, Multitasking, Control Center or AirDrop features. The focus here is on how a dynamic UI may influence user experience and purchase decision.
To better understand, an analogy. Consider the difference between a HD TV and the traditional TV design. Both TV's broadcast the same content (functionality) but the HD TV (UI) provides a more immersive experience.
Translucence, Depth and a Physics Engine: Just Try to Copy this!
Apple's dynamic UI is driven by the heavy use of blurring, translucence and depth. Natural motion is delivered via a new fully functioning physics engine. The end result of these new design components is an interface that feels "alive" compared to current mobile OSs.
Another analogy: Think of the movement to a dynamic UI like the difference between looking at a picture of a fish (iOS 6) versus gazing into an aquarium (iOS 7).
Apple's hope is that this dynamic UI reignites the sense of newness that came with the launch of iPhone in 2007, making iOS 7 the de facto standard for smartphone UI.
Of primary interest to Apple investors -iOS 7's dynamic UI requires significant software and hardware horsepower. According to technology writer, Marco Arment,
iOS 7's appearance and dynamics require a powerful GPU and advanced, finely tuned, fully hardware accelerated graphics and animation APIs
While the high-end smartphones running Google's (NASDAQ:GOOG) Android OS have the capability to deliver a dynamic UI - the majority of Android smartphones are low and mid-tier smartphones which don't have the hardware or software required.
With this hardware and software disparity, iOS 7 Apple hopes create a visual moat. Where Apple's smartphones appear new and cutting edge, while the majority of Android phones, in contrast, will appear dated and dull.
While Google should see little revenue impact from a successful iOS 7 launch (some estimate Google actually earns more revenue from iOS users), Android OEMs may fare differently. If Google does not provide a dynamic version of Android quickly, OEMs might face pressure to migrate to lower-pricing segments placing pressure on margins.
Interestingly enough, Apple's older iPhone models and the company's anticipated mid-tier phone can't run full versions of iOS 7. Some UI effects need to be constrained due to the A4's SoC limitations. The net result? The iPhone 5 and iPhone 5s will provide a more visually robust feel than Apple's mid-priced iPhone models. The company obviously hopes the difference in UI will provide incentive for consumers to migrate-up to the company's higher margin phones.
Is iOS 7 the Nail in BlackBerry's Smartphone Coffin?
Perhaps more problematic is the effect iOS 7, if successful, will have on Microsoft (NASDAQ:MSFT) and BlackBerry (NASDAQ:BBRY). Both companies, already late to the smartphone party, would be faced with the prospect of a significant upgrades to their operating systems after just a small time on the market.
Of the two companies, BlackBerry would seem to face the most risk. The folks in Waterloo already suffered as the result of considerable delays prior to the release of its current OS, BlackBerry 10. With declining market share and the lack of enthusiasm for the company's recently released smartphones, it's unclear if the company could weather another OS update and remain viable.
Microsoft would likely face a temporary set-back in the smartphone space, as it certainly has the resources to handle another OS retrench. However, investors should keep a close eye on Nokia (NYSE:NOK), as its reliance on Windows 8 could put additional pressure on the company and its stock.
The Developer's Quandary
iOS 7 might also have an interesting near-term effect on developers, requiring a major shift in resources to develop and/or update iOS apps:
- iOS developers will face the prospect of having to compete against new iOS apps that take full advantage of the iOS 7 SDK, or updating their current iOS apps. With 775,000+ apps running iOS, that could consume a significant chunk of developer resources at the expense of Android, BlackBerry 10 and Windows 8.
iOS 7: Investor Opportunities
While no one can accurately anticipate whether iOS 7 will be the game changer iOS was in 2007, investors should be mindful of investing opportunities that may arise if iOS 7 proves compelling to smartphone users:
iPhone users may choose to "migrate up" to the iPhone 5 and 5s (versus iPhone 4, 4s and iPhone "Lite"), providing a much needed boost of the company's margins.
If BlackBerry finds its OS outdated, there is little reason to believe that company can produce a major OS update in time to remain viable as a smartphone OEM.
If iOS 7 catches Google flatfooted, Apple will have an advantage in the market, during Android's development time, to capture more share of the high-end market.
Disclosure: I am long AAPL, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.