Apple: After 10 Years, iPhone's Full Potential Is Still Unrealized

| About: Apple Inc. (AAPL)
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Summary

The first iPhone was revealed 10 years ago.

Steve Jobs offered a clear vision of where the iPhone would go as a personal computing device.

Apple, under Tim Cook, has yet to fully realize that vision.

Steve Jobs unveiled the first Apple (NASDAQ:AAPL) iPhone ten years ago today, January 9, 2007. The world will never be the same. With so many competing smartphones, it's easy to think that Apple's accomplishment has been equaled, and that there is nowhere else for Apple to go. Peak iPhone, peak Apple... But the iPhone still has room to grow, its full potential, even now, not fully realized. And Apple also still has room to grow.

Source: YouTube

Status Quo

Watching the iPhone introduction at Mac World, I'm struck with how much Apple misses Steve Jobs. He doesn't just unveil the product, gush about how "amazing" it is, and list all its new features. He walks the audience step by step through the thought process that led to the iPhone. He convinces you that the iPhone is not merely a logical evolution of personal computing, but a quantum leap by solving problems of design and user interface that existing smartphones of the time hadn't solved.

Jobs could do that because he understood the thought process, because it was to a large extent, his own. When I recollect product introductions since the passing of Jobs, there isn't a single instance where Apple's management has demonstrated the level of clarity that Jobs displayed on that day in 2007.

Perhaps the closest that Apple has come was in the March 2015 launch of Apple Watch, which in many ways followed the example of Jobs iPhone presentation by identifying three key functional areas that the Watch combines: time keeping, communications, and fitness/health tracking. In Jobs presentation, the three functions combined in iPhone were a media player, phone, and Internet access device.

Yet somehow, Cook is never able to make the Watch compelling in the way that Jobs did with iPhone. Partly this is just due to the limitations of the Watch and the need to tether it to an iPhone, but partly, it's due to Cook's limitations. He doesn't articulate a case for the Watch, compelling or otherwise. He simply recounts its various features.

The iPhone was without question, the most important achievement of Steve Jobs as the Product Architect of Apple. It bears the stamp of his personality, his tastes and sensibilities. The iPhone is very much a personal creative expression. Could a committee have designed the iPhone? I doubt it. But it is clearly a committee in the form of Tim Cook's direct reports, that is in charge of Apple's products now.

The Committee Agrees...

Product design by committee is starting to strangle Apple. Last fiscal year (2016), there was the first decline in revenue and earnings since the iPhone was introduced. iPhone, iPad and Mac sales all declined y/y. Apple's products are all evolutionary compromises, what the executive committee could agree upon.

And what the executive committee can agree upon is falling behind Apple's competitors. The committee agrees that macOS shouldn't support touchscreens, despite the fact that touchscreens have been embraced by Apple's two main OS competitors, Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). The committee agrees that iOS shouldn't support mouse or trackpad driven cursor input, despite this also being supported in the mobile devices of its competitors.

I could go on, of course. The committee agrees that Macs should be based on Intel (NASDAQ:INTC) processors. The committee agrees that the 15" MacBook Pros still need discrete GPUs. The committee agrees... The committee agrees...

The committee agrees that the iPhone should just be a smartphone. After all, Apple essentially invented the smartphone concept with the iPhone. This is despite the fact that the iPhone 7 is now carrying around more processing power than PCs of ten years ago. This is despite the fact that the iPhone can easily be connected to an external monitor. This is despite the fact that you can even pair a Bluetooth keyboard.

This is despite the fact that the iPhone, as do all iOS devices, is just running a variant of Mac OS X. I was reminded of this by the Jobs video above. He tells the audience at one point that the iPhone runs Mac OS X. Yes. At that point, the iOS name hadn't even been invented.

Of course, it was a very stripped down OS X. But Jobs featured this with the clear intent of endowing (or seeming to endow) the iPhone with personal computing features. In so doing, he presaged what I still consider to be the ultimate destiny, the full potential of the iPhone, to be a PC.

It would be so simple, if Apple just allowed iOS to support a mouse or trackpad driven cursor. Then iPads and iPhones really could begin to replace PCs. Then iOS really could be a viable option for professionals. Then the iPhone could finally realize its potential.

Why is cursor support so important? If the reader hasn't tried this experiment, just go ahead and try it and you'll see what I mean. Connect your iPhone or iPad to an external monitor (either through an adapter or through AirPlay). Great, you now have a mirror of what you have on your little iOS device. Now try to use it for something other than watching a movie, such as using one of Apple's productivity apps from iWork.

You'll figure it out right away. It's mostly an unworkable arrangement, because all your user inputs have to go through the iDevice. You can't see what you're doing on the external monitor, so you constantly have to glance down at the iOS device. That's the whole beauty of the cursor: You can see where you're pointing without looking at the pointing device.

I can sort of understand Apple's attitude on touchscreen Macs, if one really believes that iOS is the future. But iOS will never achieve that future, never achieve its full potential, unless Apple makes using an external monitor practical. No professional is going to be willing to sit hunched over a little 10-13 inch screen for eight hours a day.

Investor Takeaway

The situation in Apple regarding "convergence" borders on the bizarre. Here Apple is pioneering the core technology, ARM architecture processors, that is making the traditional PC obsolete. This technology is making it increasingly unnecessary to use a desktop, or even a laptop PC. The iPhone (and its cousin the iPad) is still a breakthrough waiting to happen. The iPhone is still waiting, almost bursting at the seams with unfulfilled promise, to finally demolish the PC era, and with it, the Wintel hegemony.

Yet Apple insists on hobbling it, on preserving the status quo. Under Jobs, new products were expected to cannibalize older ones. The iPhone cannibalized the iPod. The iPad cannibalized Mac to some degree.

But now, Apple seems to want to protect the Mac and preserve its niche, with inventions of dubious value such as the TouchBar. I'll be blunt. The Mac franchise isn't worth it. Apple needs to move on to the next big thing: What the iPhone's creator envisioned from day one: A Mac you can put in your pocket. If Apple insists on trying to hold back this future, it will only come from other sources. Then Apple will have to play "catch up," even though it started out ahead, way ahead, under Jobs.

I continue to see Apple as a company that is only limited by the parochial thinking of its management. Apple is lucky that this is the only thing holding it back, yet also is cursed by it. I continue to believe that parochial thinking alone cannot hold Apple back indefinitely. I continue to be long Apple and recommend it as a buy for investors with a 3-5 year investment horizon.

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Disclosure: I am/we are long AAPL.

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.