- The iPhone has become a “nonsubstitutable infrastructure,” says columnist Michael Gartenberg.
- The device and its services seem too popular with users to ever be replaced.
- But a challenger will one day dethrone it, he says. Here’s how to see the signs of that change.
The iPhone – with iOS and the App Store – has maintained such a dominant position in the mobile industry for so long, it has the status of what is known as “nonsubstitutable infrastructure”.
Non-substitutable infrastructure is something that keeps users so strong, a competitor cannot replace them. It has the following characteristics:
- High switching costs for replacement.
- Total or near-total standardization within an organization or market.
- Strong third party and vendor support.
- Functions as a key underlying technology for other services and applications.
The New Jersey Turnpike is not substitutable infrastructure. I’m unlikely, even with the help of a few billionaires building high-speed underground tunnels, to ever stop driving. Coke and Pepsi are examples of substitutable infrastructure. I can drink Diet Coke in the morning and Pepsi that afternoon. There is no cost to switch brands (except that I always conclude that Coke tastes better).
Apple today benefits from the image of the “safe choice” for users. It has created for them a positive-feedback loop that leads its customers further into its infrastructure: they buy other devices designed to work best with their Apple equipment such as Apple Watch and AirPods, along with Apple services such as Apple Music and Apple TV+.
Many say that the power of Apple’s ecosystem of hardware, operating systems and services, all tied to the power of the App Store, is unbeatable. Since no challenger can replace Apple’s market position today, they say it will only get stronger with time.
Still, it’s inevitable that the iPhone and the Apple ecosystem will be replaced by something else.
Empires rise and fall, from the Egyptians and the Romans to the Ottomans and the British to tech empires like IBM or Microsoft.
That’s an imperfect metaphor, I know. Apple will not cease to exist, nor will IBM or Microsoft disappear. The latter two, however, while both powerful and profitable, do not have nearly the dominant market or mindshare positions they once had. No one is suggesting we break up IBM or Microsoft like they advocate for Apple these days.
To explain how Apple will fail, I offer a framework for how technology cycles occur, a cycle that is true for a variety of technical innovations, from refrigeration to audio technologies.
Technology changes over time and goes through five phases:
- Multiple companies produce different technologies that serve the same user need.
- Market forces lead to a standard emerging as non-substitutable infrastructure. Often it is not the best-of-breed technology that wins market adoption.
- This standard is attacked by pseudo-challengers who imitate it but do not effectively supplant it, because the pseudo-challengers do not offer enough meaningful differentiation or have other deficiencies than the technology they are trying to supplant. (But pseudo-challengers often have enough value to survive and co-exist with the dominant technology.)
- The standard appears stronger than before and seems invincible to displacement.
- A new and better technology emerges and displaces the existing standard.
iOS is in stage 4. It has achieved dominance and mindshare despite being challenged by the Android operating system and a host of devices from Google and Samsung.
To replace the Apple juggernaut, any new technology that enters the market must meet the following criteria:
- It must provide visible and demonstrable value and differentiation that can be directly exploited by end users. One reason the iPhone replaced flip phones was that it had a real browser and touchscreen with a pinch-to-zoom feature. It made using the internet feel more like being on a PC than on a mobile phone.
- It must provide economic benefits to a marketplace of sellers. The iPhone offered apps, a whole new market for existing and new software developers.
- It must provide clear economic benefits for hardware vendors. If conditions one and two are met, hardware vendors have strong incentives to build systems to take advantage of new technology and drive upgrades.
I won’t try to predict what will eventually replace the Apple “i” ecosystem. That’s a fool’s errand. No one predicted Apple’s rise and rebirth under Steve Jobs. No one predicted the iPod and its influence on Apple sales. Certainly no one predicted the iPhone and the impact it would have on the industry.
Some even greeted the iPhone with great skepticism and more than a little sarcasm.
But as chips get more powerful and network speeds get faster and artificial intelligence gets smarter, the technology surrounding the iPhone may already be out there in nascent form. The bigger question is: Will Apple be the one to produce it?