It is time to start questioning the iPhone "S" cycle, the often referred to development cycle theory in which a significant iPhone update is followed by a more minor, evolutionary update the following year. Instead, the best way to understand how Apple thinks about iPhone development is to look at Pixar. The film company has multiple films under development at any given time in order to ship at least one new film a year. Similarly, Apple is developing a number of iPhone features at any given time with the goal of shipping a more advanced iPhone at least once a year. As more people upgrade their iPhones annually using monthly leases, shipping iPhone features just to match a two-year iPhone "S" cycle begins to look like a dated theory.
The iPhone "S" Cycle Theory
"Which iPhone cycle are you on?"
This question has come to symbolize the iPhone development cycle. Partly due to Apple's (NASDAQ:AAPL) own iPhone nomenclature, consensus has settled on the theory that Apple keeps its significant iPhone updates for whole numbered years (iPhone 3G, 4, 5, 6, and so on). Consequently, the odd years, or so-called "S" years, are characterized by more modest, evolutionary software and hardware upgrades (iPhone 3GS, 4s, 5s, 6s and so on). Exhibit 1 depicts the iPhone "S" cycle theory in which greater advancements in iPhone development are said to occur every other year.
Exhibit 1: The iPhone "S" Cycle Development Theory
The major implication from the iPhone "S" cycle is that Apple is guided by a two-year development cycle where the focus is on getting iPhone users to upgrade their iPhone not every year, but rather every two years. Much of this theory is based on the early days of mobile carriers subsidizing iPhones. By having carriers "subsidize" the iPhone's cost, customers agreed to be locked into a multi-year contract. With early iPhone upgrades being nearly nonexistent, it was often in the customer's best interest to upgrade their iPhone soon after their standard two-year contract expired.
As Apple expanded the iPhone into new geographies and carriers, this subsidized model began representing a smaller portion of iPhones sold. Today, the subsidy model is breaking apart as the up-front costs associated with such plans have weighed on carriers. In its place, carriers are embracing monthly lease plans which amount to nothing more than interest-free financing.
Annual iPhone Upgrades
The iPhone Upgrade Program was one of the more strategically important announcements announced at Apple's "Hey Siri" keynote. Apple's goal is rather straightforward: make it easier for consumers to upgrade to a new iPhone every year. Apple isn't reinventing the wheel with the iPhone Upgrade Program as AT&T, T-Mobile, and Sprint have similar iPhone leasing and upgrade options. The major implication from the move towards iPhone leasing is that millions of iPhone customers will be moving from a two-year iPhone upgrade cycle to an annual iPhone upgrade cycle. With these plans, not only are there no carrier penalties associated with upgrading to the latest iPhone each year, but in some ways such behavior is even promoted by the carrier. The incentive is no longer to wait to buy a new iPhone. In some ways, this trend is a byproduct of an iPhone development cycle that has been able to entice users to want the latest and greatest iPhone. If the iPhone truly followed an "on and off year" cycle, few would feel the need to want a new iPhone every year.
A Different Kind of iPhone Cycle
There are additional signs that the iPhone "S" development cycle may have ended years ago, if it ever existed. When looking at the last four iPhone updates, it's clear that Apple is using a different upgrade cycle. The following features were the tentpole features of that particular iPhone release:
- iPhone 5: Larger iPhone screen
- iPhone 5s: Touch ID / Gold color
- iPhone 6 / 6 Plus: Larger iPhone screens / Apple Pay
- iPhone 6s / 6s Plus: 3D Touch / Live Photos / Rose Gold color
Not only has there been at least one noteworthy new iPhone feature each year, but it could be argued that the updates seen in the "S" years (iPhone 5s and iPhone 6s / 6s Plus) are more strategically important than the cosmetic changes seen in the "non-S" (iPhone 5 and iPhone 6 / 6 Plus) years. Touch ID has become a crucial element of the iPhone ecosystem, and 3D Touch will likely follow the same path. Meanwhile, the iPhone's screen growing size, especially to 4.7 and 5.5 inches, has been a game changer across the world. The takeaway is that the "S" cycle concept where there are more important iPhone upgrades every other year is starting to look incomplete and not representative of how Apple thinks about iPhone development. Something else is at play driving iPhone development.
Exhibit 2 shows a more likely representation of iPhone development. Instead of shipping the most advanced features every other year, Apple strives to ship at least one major, new iPhone feature every year. The goal is simple and straightforward: ship a more advanced iPhone that beats the previous year's model. Market analysts often debate Apple's biggest competitor to iPhone each year. In reality, the iPhone's biggest competitor is the previous year's iPhone.
Exhibit 2: A Revised iPhone Development Theory
Tim Cook recently talked with BuzzFeed's John Paczkowski about a number of topics, including the "S" iPhone cycle. His comments support the view that the tick-tock nature of an "S" cycle is no longer relevant. Speaking about Apple's latest iPhones, Paczkowski wrote, "Apple released the iPhone on a tick-tock cycle; with the 'tock' device typically being a modest refinement of the 'tick' device that debuted the year prior with a new form factor and other big upgrades. This is traditionally a 'tock' year, but [Tim] Cook bristles at this notion. '[The iPhone 6s / 6s Plus update] is clearly not an off-year issue,' he argues. 'This is a substantial change.'"
Cook went on to say, "[a]s soon as products are ready we're going to release them...There's no holding back. We're not going to look at something and say 'let's keep that one for next time.' We'd rather ship everything we've got, and put pressure on ourselves to do something even greater next time." Cook's comments describe a different iPhone development model than what is implied with the iPhone "S" cycle.
The Pixar Model of Product Development
One company that stands out for its superior product development is Pixar. Instead of putting all of its resources into working on one film a year, the film studio has multiple films under development at any given time since it takes longer than a year to bring a movie from concept to a finished product. The end result is a steady product release schedule that has moved from a new film every few years to soon two films a year. Exhibit 3 highlights the development timeline for each Pixar movie. The company went from developing one movie at a time in the early 1990s (Toy Story) to having at least seven films at some stage of development in 2015 (Inside Out, The Good Dinosaur, Finding Dory, Toy Story 4, Coco, Cars 3, and The Incredibles 2).
Exhibit 3: Pixar Film Development Timeline (click to enlarge)
For Apple, the iPhone is likely following a product development strategy and timeline similar to that of Pixar. At any one time, Apple has a number of iPhone features under development since it takes more than one year for many features to go from concept to finished product. Even though the iPhone 6s and 6s Plus were just announced, Apple has already been working on features for next year's iPhones and even the iPhones for the year after. The goal is to have a new iPhone with at least one major new feature at least every year.
We got a closer look at this development schedule with 3D Touch. Phil Schiller commented to Bloomberg that 3D Touch was in development for years. "Engineering-wise, the hardware to build a display that does what [3D Touch] does is unbelievably hard...And we're going to waste a whole year of engineering - really, two- at a tremendous amount of cost and investment in manufacturing if it doesn't do something that [people] are going to use. If it's just a demo feature and a month later nobody is really using it, this is a huge waste of engineering talent." The same could be said of Apple Pay, the new cameras, iOS features, not to mention the different iPhone colors."
Expanding iPhone Development Capabilities
Similar to how Pixar has grown its development capabilities over the years from being able to do one film every few years to soon two films a year, I expect the iPhone development cycle to accelerate in the coming years. In some ways, Apple has already been showing this level of expansion. We went from one new iPhone model a year to now having two new models a year (iPhone 6s and 6s Plus). It is not unfathomable to see Apple expand this to three new models a year and embrace a product line with different screen sizes corresponding to different models (iPhone Plus, iPhone, iPhone mini).
The era of a tick-tock development cycle for iPhone is over.