At a time when most businesses are looking forward to the new year, Apple is likely wishing it could get a mulligan on the first weeks of 2019. Roughly four months after becoming the first publicly traded American company to be worth more than $1 trillion, Apple CEO Tim Cook announced in a letter to shareholders that Apple's fourth quarter 2018 revenue estimates were short by about $9 billion.
While Cook largely attributed the expected losses to trade tensions between China and the U.S., he also admitted the number of people upgrading to the latest line of iPhones "were also not as strong as we thought they would be." The revelation came as a shock to global financial markets, causing the Dow to fall 600 points in a single day.
As the tech giant prepares to announce another batch of iPhones in the coming months despite waning interest in the smartphone line, Market-Partners CEO Martyn Lewis thinks businesses can learn from Apple's latest stumble.
"No company stays dominant forever," he said. "I think [Apple] has gotten themselves into a corner with the iPhone."
While most small businesses aspire to the Cupertino, California corporation's level of dominance, what can they learn to dodge Apple's $9 billion woes?
Consider Your Market
Looking at the current generation of iPhones, one thing generally leaps out to consumers more than the new high-def screen and iOS 12 enhancements: the price.
If you were to purchase a new, unlocked iPhone XS Max with 512 GB of internal storage, you'd be looking at a $1,449 price tag (without trading in a previous model). At the other end of the spectrum, an iPhone XR with 64 GB of storage still costs $749. Even with those numbers, Apple shipped millions of units to retailers at the end of 2018. Without a more budget model, the newest iPhone can be one of the year's bigger ticket items for most consumers.
While it's true that Apple's products generally carry a higher price with all its products, Lewis believes the moment the iPhone's cost broke four digits was when customers were finally being priced out.
"Go to a bar in Manhattan and you'll see the young investment bankers with the latest iPhone on the bar to show that they've got the latest one," Lewis, who also wrote How Customers Buy...& Why They Don't, said. "That used to be a much bigger market. At $1,000, that market has contracted massively in size."
Over the last few iterations of iPhones, Apple has seen a consistently declining number of their customer base upgrading to newer models. According to the mobile analytics firm BayStreet Research, who recently spoke with The Washington Post, American customers used to upgrade their phones roughly every two years. Today, the amount of time has gone up to three years and it's expected that people will continue to use their older phones for longer periods of time.
Higher phone costs and a lack of innovative features, Lewis said, drove consumers to repair and protect their older models, rather than run out to the Apple store or cell service providers to get the latest tech.
"Apple failed to acknowledge the possibility that current iPhone prices are simply too high," Toni Sacconaghi, an analyst at Bernstein Research, said in a note to investors on January 3. "The other real issue that Apple's news release did not mention explicitly is that the high-end smartphone market is increasingly mature ... and the overall market contracted for the first time in 2018."
Rather than thinking about why someone might want goods or services from your small business, small businesses should avoid being so in love with what they're offering that they become blind to the less appealing side of what they do.
Learn from your detractors
Lewis thinks small business owners should take a closer look at what their customer base really needs and then consider why they wouldn't buy in.
Over the years, Apple has enjoyed a worldwide fanbase of fervent individuals who love everything the company has to offer. Millions log in worldwide to watch Cook describe the company's latest offerings and thousands line up to mob retailers for new releases.
And while that's all well and good, Lewis said it's just as important for all businesses to consider the other side of the fandom coin – the detractors.
"People get hung up on why someone should buy to the point they say, 'only a fool wouldn't buy this.' Stop that line of thinking," Lewis said. "Don't get hung up on how fantastic your offering is, regardless of whether it's technology or not."
Apple's iOS devices do not live in a vacuum. Google's Android operating system has been in a back-and-forth battle with iOS for market dominance since 2008. Microsoft also has some skin in the game with their Windows phones and Blackberry still exists. It then bears to consider why consumers go to those brands instead.
"Don't just talk to your raving fans, talk to the people on the edges," Lewis said. "Talk to the people you would like to buy your products but haven't done so yet. So many businesses get caught up with the love of themselves that they dismiss [the people that didn't buy in]."
In the case of Apple versus Android, users of the latter tend to value the lower price points, features found on various devices that either no longer exist or never existed in iOS devices and nearly limitless possibilities for customization, among other things.
Innovate and keep people interested
In recent years, one of the main complaints from Apple's detractors was the company's lack of innovation following Steve Jobs' death. Since taking the reins, Cook has been constantly compared to his predecessor, with many pundits finding him wanting.
Looking at the latest line of iPhones, the devices' biggest changes from previous models are either software based, which is hard to convey without having a phone in hand, or marginal upgrades to battery life, performance and the camera. Without groundbreaking features and must-have functionality, Lewis said the "gild has come off the lily."
"With an iPhone, I can now watch all the movies and listen to all the music I want to at 36,000 feet doing 600 miles an hour. I can take pictures that are better than any camera I could have afforded a few years ago," Lewis said. "I've got the world at my fingertips – what more could I need?"
Since the iPhone 5's release back in 2012, interest in the flagship smartphone line has seen a consistent decrease, according to Google search data. Last September, Newsday reported that the lowest drop off in interest came in 2017, "between the release of the iPhone 7 and iPhone 8/X."
There could be several reasons for this, from the lack of innovation to market saturation. Since fewer people are upgrading and opting to repair their phones, fewer people are jumping on the new phone bandwagon.
What small businesses need to take away from this, Lewis said, is the need to find ways of wowing potential customers. If something works for your brand and you stay with that same note for too long, your competitors can exploit your customers' want for something new.
"Lead your market, but only by one step, because you can be too far ahead," Lewis said. "Markets move slowly. Apple didn't arrive overnight, nor did Starbucks, so small businesses should understand the market and where it's going."
The one example Lewis points to is the Chinese market. While incredibly popular with that country's youth, Chinese companies like Huawei and OnePlus have come in with feature-heavy smartphones that perform comparably to the iPhone at a lower price.
Since Apple hasn't totally adjusted to those relatively new entries into the market, their market share in China has dropped off. So while the ongoing trade war could have had an effect on Apple's bottom line, Lewis said it's just that the company's simply going out of fashion there.
"[Chinese consumers] have good domestic alternatives at a much lower price, so if I was Apple, I'd be worried that those companies were going to be the new fashion," he said. "I'd ask myself, 'Am I going to be the brand that was yesterday's fashion?"