Apple (NASDAQ:AAPL) has set the bar so high with the iPhone that the company has trouble topping itself.
In fact, since it added Siri in the iPhone 4s in 2011, you could argue that the company has not made any truly revolutionary changes. You could also argue that Apple Pay, which was first released in 2014 with the iPhone 6, meets that threshold, but certainly nothing on the 6s or 7 models does.
It's not that these are not fabulous phones. Every single iPhone improves upon the last with a faster processor along with other improvements. The 7 and 7 Plus models have better cameras, double the storage space on the entry-level models from the previous standard, marginally better battery life, and a slightly improved look.
The problem is that for most consumers these changes are like adding five miles per hour to the top speed of a Ferrari. It sounds nice, and it counts as being better, but very few people will ever take advantage of the improvements.
iPhone 7 and 7 Plus may be the best phones ever created, but for the most part, the improvements over the 6s and 6s Plus they replace won't be noticed by most users. The previous-generation phones were so good that nothing short of adding revolutionary new functionality should make upgrading worth it.
That's not a problem unique to Apple. Samsung (NASDAQOTH:SSNLF) faces it, too, when it releases new versions of its Galaxy Phone. Better has become ho-hum and even bad phones are so good that it has become very hard to impress people.
Hands-on with the iPhone 7 Plus
As an avid iPhone user who covers the technology space, I consider upgrading my phone each year for work. And while I was happy when my order of the iPhone 7 in the new black color arrived, actually using it was a bit underwhelming.
Physically, aside from the change in color from my previous phone's space grey, the two units look and feel nearly the same. The new home button and the simulated click work well -- perhaps even a little better than the old one. In addition, 3D Touch -- a feature that allows users to quickly perform certain actions by tapping the screen with varying amounts of pressure -- is conceivably useful, whereas it was entirely useless on my previous iPhone.
The improved processor and camera may well be as revolutionary as Apple says they are, but after a week or so of use (and dozens of pictures of my cats), it's hard to notice that anything has changed. Battery life is anecdotally better as on my last iPhone, a full workday of email, pictures, and playing Pokemon Go often left me sub-20% by 5 p.m. Now, after similar usage, I end up closer to 40%, but it's also worth noting that my past experience has shown that batteries tend to perform better when a phone is new.
And while I like the new iPhone because it has double the storage of the previous model -- 32GB versus 16GB for the iPhone 6s Plus -- I'm actually more annoyed by the lack of a headphone jack than I expected to be. It's not that the included Lightning headphones don't work and it was nice of Apple to include a dongle/adapter so people can use old ones, but there are unexpected issues.
The problem is that I almost never use headphones, but I do plug into my car stereo using the aux port in my vehicle and the headset jack on the iPhone. I can still do that via the dongle, but it's mildly annoying to have to carry the adapter with me or buy a second one to leave in the car.
Apple has itself to beat
The problem for Apple (and to a lesser extent, Samsung) is that its phones are so great that even an iPhone 5 does more than most people need. This has not been a huge drag on Apple, but iPhone replacement cycles are lengthening, according to research from Consumer Intelligence Research Partners (CIRP), which said:
In the year ending with the June 2013 quarter, 66% of old iPhones were either under one year old or from 1-2 years old. By the March 2016 quarter, 51% of old iPhones were either under one year old or from 1-2 years old. The oldest retiring iPhones (those over three years old) increased from 5% of all old phones in the year ending with the June 2013 quarter to 12% in the March 2016 quarter.
CIRP cites two reasons for the longer replacement cycle. "The rate of change in iPhone features has slowed," wrote the company. "In addition, phone financing plans now encourage iPhone owners to hold on to their current phone."
There's still a certain cultural cachet to getting the latest iPhone or even the newest Samsung device, but there's no performance reason for most people to upgrade every two years, let alone every year. Incremental performance increases are simply not that exciting or even noticeable to most users,
If Apple wants to go back to the frenzy created by the early iPhones (or Samsung wants to steal its thunder), it needs real innovation. People will likely hold onto their iPhones longer if the next one, be it the 7s or the 8, simply offers more of the same but a little better.
That would be bad news for a company that generates over 60% of its annual revenue from iPhone sales. With iPhone 7, Apple has inched the bar forward and that's just not very exciting. If that keeps happening, consumers will likely start paying less attention to new releases and having the latest model may become even less of a status symbol.
Daniel Kline owns shares of Apple. He will get the next iPhone on release day, too, if he can. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.