Often, Innovation successes and failures are unexplainable. As a result, management professionals are clueless in building the habits and routines that lead to steady growth from innovation. To make the management’s frustration worse, the board refers to the consistent growth performance of Apple’s iPhone. Hence, executives’ obvious question could be: does the iPhone product life cycle offer any insights for management that they can institutionalize as corporate habits and routines? Besides, does the iPhone product life cycle show any sign of decline?
Although 84 percent of managers see innovation as highly important to growth, 94 percent of executives are unsatisfied with innovation performance. More alarming is that very few executives know how to fix the problem. According to an article by Scott D. Anthony and his colleagues in HBR, companies have invested billions in internal venture capital, incubators, accelerators, and field trips to Silicon Valley to increase innovation success. Studies have repeatedly found that despite all their spending, businesses aren’t getting the impact they want from innovation.
Against such a reality, the iPhone’s consistent success in sales, revenue, and profit has been enviable. The secret of the magical performance of the iPhone has been in its life cycle. The dissection of the iPhone product life cycle reveals the secret of growing innovation from a minimum viable product (MVP) into a radical innovation success. This article explains Apple’s innovation secret recipes embedded in the iPhone product life cycle’s development, introduction, growth, maturity, and decline stages. Insights derived through the dissection form the core of Apple’s innovation strategy.
- despite the iPhone’s magical performance and a great example of Steve Jobs creation, no magic has been hidden in its life cycle. iPhone product life cycle shows similarity to other example products. Instead of a hidden secret, there has been a meticulous effort in product life cycle management.
- iPhone product life cycle unveils a logical reason for the success of the iPhone, from its humble introduction as a new wave to its evolution as a creative wave of destruction.
- due to meticulous efforts on empathy, technology and innovation management, and conventional marketing approach, the iPhone has profitably graduated from the introduction and growth stages by releasing successive better versions. Along the way, Apple has become a great success story of technology transfer.
- at the maturity stage, Apple has been sustaining the volume and unit sales through technology acquisition and refinement.
- the escalation of the R&D to revenue ratio and increasing per unit cost have shown a sign of decline. However, there is no visible new solid wave to take over the iPhone.
- despite the R&D cost rise and release of successive better versions, unlike the growth phase, Apple has been failing to increase the price or volume or both due to sustaining innovation challenges offered by competitors.
- the iPhone product life cycle provides insights for developing habits and routines of systematic management practices for leveraging technology possibilities to meet consumer preferences better for consistent growth.
iPhone’s enviable statistics
- iPhone sales—from the launch in 2007 to 2022, Apple sold 2.38 billion units of iPhone. In 2022 alone, Apple sold approximately 225.30 million units of iPhone. However, during the six months of 2007, the release year of iPhone 1, Apple sold only 1.39 million units. In its lifetime, iPhone 1 faced 6.1 million units of sale.
- iPhone sale trend—due to the release of successive better versions, iPhone sales rapidly grew from 1.39 million in 2007 to a record high of 233.9 million in 2019. However, unit sales in 2022 experienced a 3.7% decline from the previous year.
- price trend of iPhone—despite the price increase from $499 for iPhone 1 in 2007 to $799 for iPhone 15 in 2023 (basic version), iPhone sales accelerated.
- iPhone revenue—iPhone revenue has grown from $13 billion in 2009 to $205 billion in 2022. iPhone made a 52% contribution to Apple’s total revenue of 394 billion in 2022.
Product life cycle stages—characteristics
Like all other products, iPhone product life cycle has five stages: (i) development, (ii) introduction, (iii) growth, (iv) maturity, and (v) decline. Characteristics of introduction, growth, and maturity are shown in the following figure:
Of course, the iPhone has not reached the decline stage yet; the reasons it may enter the declining stage also offer management insights to improve habits and routines for improving innovation performance in driving growth.
Dissection of iPhone product life—drawing insights and lessons
The statistics show that the iPhone did not start showing magical performance from birth. By the end of the launching year in 2007, iPhone sales had come down close to zero. Due to the high development and introduction costs, Apple did not profit from the development and introduction of the first-generation iPhone. Instead, the success came from the evolution. It also did not show up due to Steve Jobs’ magical empathy power alone. Hence, let’s dissect the stages of the iPhone life cycle to draw a lesson.
Development of iPhone
In one lovely morning, Steve Jobs did not come up with the complete design of the iPhone. Besides, Apple did not have all the technologies needed to implement Steve’s feelings about customers’ pain points and ideas to implement them. Apple also did not just acquire and integrate outside technologies to offer state-of-the-art solutions. Instead, Steve Jobs focused on refining ideas and technologies to implement them so that Apple succeeds in pushing the envelope and creating a new wave of growth through the reinvention of smartphones.
- trigger signal—at the peak of the success of the iPod, Steve Jobs strongly felt the impending threat from the rising smartphone wave to render music downloading and playing the role of the iPod obsolete.
- empathy—Steve Jobs felt that a large screen and user interface free from the stylus and keyboard would alleviate customers’ pain in using mobile phones for talking, sending e-mail, using Internet-based applications, and enjoying music and video.
- technology possibilities—multi-touch offered the opportunity of reinventing mobile phones’ user interface—creating a new wave of smartphone innovation.
- technology acquisition, refinement, and fusion—the current state of technologies was insufficient to create excitement from the idea of a new user interface. Apple had to acquire, refine, and fuse multiple vital technologies such as multitouch, graphics, gestures, display, and processor.
- global partnership of innovation, production, and distribution—Apple had to form innovation, production, and distribution partnerships with global players, including potential rival Samsung.
- formation of a new wave—instead of offering Incremental innovation, Steve Jobs unveiled a reinvention of smartphones—creating a long wave of evolution.
After four years of development, Apple introduced the iPhone 1 in 2007. Although it was big news, it did not create a big bang in sales. By the end of 2007, Apple succeeded to sell only 1.39 million units. More importantly, the sales reached near zero; no amount of marketing effort like advertisement, distribution channel development, and discount revived sales. Besides, subsidies or price cuts were not a solution for Apple to turn the loss-making beginning into a profit. Instead, the rise of the iPhone with a 3G mobile data interface and the rollout of 3G mobile internet created a resonance, resulting in a sales revival.
- facing incumbent barrier—target users of iPhone had smartphones like Blackberry in their hands—causing a barrier to iPhone diffusion. To overcome it, Apple had to pursue innovative marketing options, such as offering the iPhone for free and generating revenue from retailing talk time.
- sales spike did not last long—by the end of the launching year of 2007, iPhone’s sales reached close to zero—posing a sustaining innovation threat.
- creating the positive externalities—for turning the 3rd party application plugin into a positive externality, Apple focused on budding an app development community.
- readying for releasing the next version—before facing a sudden fall in sales, Apple anticipated and worked accordingly to include 3G features and released the 3G version within one year of birth.
Growth stage of iPhone
iPhone’s growth phase did not emerge due to conventional marketing efforts like finding customers, communicating, conducting ad campaigns, discounting, and developing a distribution network. Of course, they contributed.
- releasing successive better versions—subsequent better versions kept increasing perceived value at a far higher level than the price. As a result, even after the price increase, Apple succeeded in selling an increasing number of units of successive versions.
- adding and enhancing modules— theaddition of features such as video recording, additional cameras, and a voice interface like Siri kept increasing the perceived value. Of course, the growing availability of Utility apps kept increasing the sale of iPhones.
- expanding functionalities—additional functionality like high-resolution video recording, making payments, and checking health status kept raising the demand for iPhones.
- acquiring technologies—to support the addition and enhancement of features, Apple kept increasing technology acquisition. Apple also kept increasing its R&D budget for internal refinement and technology development. For example, between 2018 and 2019, Apple acquired ten companies over 12 months.
- strengthening external innovation partnership—Apple kept leveraging the innovation capability of external partners like Sony, Largen, Foxconn and TSMC to fuel the evolution of the iPhone.
- developing proprietary manufacturing capability—although Apple outsources manufacturing services to Foxconn, Apple has significant involvement in developing high-end manufacturing tools at Foxconn. Besides, Apple has developed a strong R&D partnership with TSMC to leverage the latest node of foundry services.
Maturity of iPhone
Sales and revenue data indicate that, unlike the ramping-up period between 2008 and 2015, the iPhone has shown a maturity sign since 2016.
- growth of sales slowing down—Growth of sales has slowed down; contrary to the rise of unit sales by 12 times from 2009 to 2015, iPhone unit sales have just grown from 155 million units in 2015 to 225 million units in 2022.
- price does not increase—despite the marginal and R&D cost increase, unlike in the past, Apple has been failing to increase the price.
- cost increases—Apple’s R&D cost has escalated from $1.78 billion in 2010 to $29.9 billion in 2023. Similarly, TSMC charged the A16 bionic chip 2.4 times higher than A15; for 4nm A16 Bionic, Apple paid TSMC $110 for each chip. Besides, Apple has been paying Sony increasingly more for camera modules—notable for LIDAR feature.
- pursuing technology upgrades—to counter the imitation and innovation force of the competition, Apple has been investing more in technology upgrades. For example, Apple has invested over $1 billion in micro-LED display technology.
- manufacturing diversification for accessing incentives—for offsetting the cost, Apple has also been shopping for incentives. For example, Apple’s recent decision to expand manufacturing in India has primarily benefited from capital expenditure subsidies and 6 percent production-linked incentives.
Decline of iPhone
As of 2023, there has been no vital sign of declining iPhone sales and revenue. However, despite the component cost increase of approximately 12 percent and the escalation of R&D cost, Apple did not increase the price of the iPhone 15. Apple did it to prevent the decline in iPhone sales.
So far, Apple has been facing the imitation and innovation forces of competition by releasing successive better versions. However, as the advancement effect is not strong, Apple has failed to increase the price or volume despite accelerated R&D investment growth and escalation in marginal cost (cost of producing each unit). As a result, the R&D to revenue ratio has been rapidly increasing–resulting in a rise from 2.16% in 2012 to 6.68% in 2021. On the other hand, Apple has been paying, on average, 12 percent more to component suppliers for the iPhone 15 than it paid for the iPhone 14. However, Apple had to decide not to increase the price due to the low implication of R&D cost on willingness to pay for the iPhone 15 over the iPhone 14.
Lessin from declining R&D productivity
There are multiple indicators of R&D productivity. One of the most commonly cited is patent filing and granting. However, in the financial statement, additional profit generated from R&D investment increases matters. Of course, along with R&D investment, Apple’s patent filing has also grown, from 378 in 2000 to 9494 in 2020. However, the trend of economic benefit from additional R&D investment and patent filling has been showing the opposite trend. Despite exponential growth in R&D and patent filling, Apple could not increase the price of the latest release of the iPhone.
It indicates that Apple has started to suffer from saturation or declining financial return on R&D investment and patents. Taking into consideration of competition and innovation dynamics is vital to make decisions for generating attractive returns from R&D investment. Hence, its fair to say that economic value creation does not only depend on R&D budget and idea production. Competition and innovation dynamics significantly affect it. Therefore, Apple should take smarter decisions to drive growth out of R&D and idea production.
Of course, the iPhone has been Apple’s remarkable innovation growth engine. It’s a testimony of Steve Jobs’s innovation secret. In 2022, the iPhone contributed 52% to Apple’s 394.33 billion USD. However, it did not start the journey in the introduction stage as an instant success. Its growth from the introduction stage has been due to a deliberate attempt at evolution. Of course, market tactics helped. However, the major success came from technology and innovation management. During the maturity stage, Apple released successive versions to withstand the challenge of sustaining innovation. Due to technology maturity, R&D productivity has been declining, showing a sign of decline in the iPhone product life cycle. Hence, due to the presence of reasoning, insights into the iPhone product life cycle could be turned into habits and routines to leverage innovation for growth.