Is Apple One Failed iPhone Away From Being BlackBerry?

Apple (NASDAQ: AAPL  ) has enjoyed three major successes in recent years, first with the iPod then with the iPhone and iPad. But with the iPod nearing the end of its run and the iPad not producing anywhere near the profit that the iPhone does, Apple's long-term profitability today relies heavily on the company continuing to sell new iPhone models.

The iPhone, according to Apple's year-end report, accounts for 53.4% of the company's profit. That number has steadily climbed since 2007, and while Apple is not a one-product company, having more than half of your profit come from a single product makes a business especially vulnerable.

It happened before

Only a few short years ago, BlackBerry (NASDAQ: BBRY  ) was the dominant player in the smartphone market -- a market it essentially created. President Obama used one, seemingly all business executives used them, and an increasing percentage of phone users were adopting the platform.

Then, the bottom fell out. BlackBerry, for reasons that have never entirely been explained, only made minor tweaks to its phones between 2009 and 2011 and did not release a new model until 2013. By the time that model came out, most of its customers had gone away.

Today, IDC reports that BlackBerry had just 1.9% market share to close 2013, down from 10.3% in 2011. Essentially, BlackBerry -- which does not have other product lines nor massive cash reserves to fall back on as Apple does -- went from solid player to nearly non-existance due to a few years of bad moves.

Apple iPhones versus Samsung's Galaxy line

According to NPD's Connected Intelligence, iPhone ownership increased from 35% in the fourth quarter of 2012 to 42% in the fourth quarter of 2013. This increase happened as the company launched two new iPhones, the high-end 5S and the (slightly) lower-end 5C.

While those are impressive gains, Apple now has something it hasn't had for years -- an actual competitor. Fierce Wireless reported that according to NPD, Samsung's (NASDAQOTH: SSNLF  )  Android phones increased from 22% of smartphones owned in the year-ago period to 26% in the fourth quarter of 2013.

"They've [Samsung] done a phenomenal job sort of emerging from a pretty large set of handset makers to be the clear leader," venture capitalist Chris Dixon of Andreessen Horowitz told NPR in March 2013.

Having a competitor that gives customers a viable option should you falter can hasten the demise of a company or product line. BlackBerry didn't lose the majority of its user base in one product cycle, mostly because its devotees were intensely loyal and there was no comparable smartphone (with a built-in keyboard) to switch to. That worked, of course, until Apple convinced the public at large that an actual keyboard was not needed and BlackBerry users had an alternative to sticking with their old, not-updated phones.

Can Apple make an iPhone that bad?

While recent iPhones -- some would say iPhones since the death of Apple founder Steve Jobs -- have not wowed anyone, they have steadily (albeit boringly) moved the line forward. The iPhone 5S is not a radical improvement over the iPhone 5. Instead, it's a little better in a lot of ways -- enough ways that while iPhone 5 owners might not have felt compelled to upgrade if they weren't owed one by their phone carrier, owners of older iPhones did.

Apple, while it's less likely to innovate under current CEO Tim Cook, seems unlikely to release a radically different iPhone that would drive customers away. Even if the company did try something that was a radical departure (maybe an iPhone Mini or a phone with screens on both sides), it would likely release said product in tandem with a more conventional choice.

End of the smartphone era

At one point, the iPod was the dominant player in its category -- a category that largely does not exist anymore. At one point, carrying digital music with you required an iPod -- now phones, tablets, and in some cases cheap Flash drives have made the iPod all but irrelevant.

According to a chart produced by CNBC, iPod sales fell by nearly 49% from 2007 (when the iPhone was introduced) to 2013. The iPod didn't become any less cool during that period. It just became less necessary for most people to have a music-only device.

That type of fate seems like the most logical threat to the iPhone and its contribution to Apple's bottom line. What if the public moves away from phones to wearable devices like Google  (NASDAQ: GOOGL  ) Glass? As unlikely as this idea seems -- and no current product in a form the public has seen seems likely to supplant the smartphone -- it's not impossible that one will emerge.

Remember when netbooks were a rising category? All it took was the introduction of the iPad and netbooks barely exist. Of course, the smartphone killer -- if it ever happens -- may come from Apple in the same way the company made its own iPod irrelevant. But if it comes from Google, Samsung, or some genius working in his parent's garage, Apple is vulnerable.

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Read/Post Comments (9) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On February 19, 2014, at 4:52 PM, Zankudo wrote:

    uhhh…nope.

  • Report this Comment On February 19, 2014, at 5:22 PM, melegross wrote:

    It a ridiculous. There are major increases in value from the 5 to the 5S. What major innovations have been coming from Samsung? A larger screen and going back to a stylus? And their high end phones aren't doing all that well. It's their mid line and cheaper smartphones that are doing so well, all three dozen different models.

  • Report this Comment On February 19, 2014, at 5:32 PM, twolf2919 wrote:

    It's amazing how differently readers can react to this article - one guy thinks it's a great article, while others (including myself) think it's a pure baloney.

    You can't compare Apple and its iPhone to Blackberry! For one, while Blackberry might have been the dominant player in the smartphone market, that market was minuscule compared to today's. Apple,sells nearly as many iPhones in a single quarter (51m) as Blackberry has overall (~80m?). So if Apple were to produce one dud, people would simply skip their usual device upgrade cycle and wait for the next one. Yes, they'd lose a few months of sales, but nothing they can't easily afford.

    Apple is the richest company in the world with almost $160b in the bank. I am 100% certain that they have multiple devices in the pipeline at any one time. If the next iPhone is a 'dud', they could simply accelerate the release schedule for the next one.

    If your point is that Apple might fall victim to the 'next big thing' (as it was the next big thing that caught Blackberry), well then all I can say is: thank you, Captain Obvious!

  • Report this Comment On February 19, 2014, at 5:37 PM, gsagi wrote:

    Betteridged it.

    @ChaimYonkel2013 — paid Samsung shill (look up posting history)

    Cheers!

  • Report this Comment On February 19, 2014, at 5:52 PM, danmiddleton999 wrote:

    Is BMW one bad roadster from certain demise? Is starbucks going to disappear because they try to market tomato soup? Is Disney going to disappear because they make a movie about a martian cowboy?

    The answers are no, no and no.

    Apple has a has a loyal following which will laugh off a mistake and wait for the next version.

    If they wait 6 years to update their products like RIM did then they deserve to go in the dumpster.

    Long AAPL

  • Report this Comment On February 19, 2014, at 6:21 PM, JaredPorter wrote:

    For the US, Apple times its releases of its new model phones every year to coincide with the expiration of the two-year contract of one of its previous hit models. Therefore, if Apple were to introduce, say, a new and improved iPhone 6 towards the end of this Summer, this introduction would dovetail with the maturing of tens of millions of customers who had purchased the iPhone 5 when it was first launched two years prior (2012). (No "contract" iPhone5 owner is currently eligible for an upgrade without an Early Termination Fee). And especially now since customers have trade-in options (e.g. Gazelle.com), wherein they can garner $200+ for their old phones, tens of millions will be assured to purchase the NEW iPhone 6 with little if any new cash outlay, since they will be able to trade in their old phones and not affect their monthly telco charges. (These traded-in phones will be refurbished and shipped off to emerging nations). Apple's eco system (which Blackberry never had), plus their loyal following, plus this high trade in values pretty much insure good launch success for any new iPhone.

    Also, Apple purposely designed the iPhone to disrupt its own iPod in the first place. Who needs an iPod when you carry an iPhone?

  • Report this Comment On February 19, 2014, at 6:24 PM, Padova wrote:

    What makes this article stupid and useless is you don't know what you're talking about. That is to say you have no idea what Apple is coming up with. Neither do I but I don't write ludicrous articles.

  • Report this Comment On February 20, 2014, at 7:36 AM, jdmeck wrote:

    Far from it. What a waste of my time. The only people who liked it were the usual Apple haters.

  • Report this Comment On February 20, 2014, at 8:26 AM, Mathman6577 wrote:

    @ ChaimYonkel2013: The same thing was said about the S4 last year .... most reviews gave it a C+ at best and the iPhone outsold it by 25%. .

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