Is the iPhone 5 the beginning of the end for Apple?

13th September 2012

Is the iPhone 5 the beginning of the end for Apple? It's an incendiary, polarising question that seems to raise the spectre of the impossible. Surely not.. Apple is the world's biggest company by stock market capitalisation, the iPhone is the biggest selling smartphone in the world, customers love their iDevices. So what can possibly go wrong?

Perhaps if we want to look at the potential dangers, we need to go back in time five years or so when the first iPhone was launched. Back in 2007, Apple was the upstart challenger and Nokia was the market leader that was looking a bit stuck in its ways. When Apple designed the iPhone they started with a blank sheet of paper. They didn't have to worry about backwards compatibility. They didn't have to worry about alienating existing customers. They could do what they wanted and they created a handset unencumbered by restrictions or baggage, which appealed to customers precisely because it was refreshingly different from what they had in their pocket at the time.

In 2007, Nokia's response was slow and half-hearted. As far as they were concerned, they were still the market leader and by the time that Nokia realised that the world had changed it was almost too late for the lumbering Finnish giant to change direction.

Five years on, the situation is almost reversed. Apple is now the market leader, and it now has to worry about all the things it didn't have to worry about in 2007. Apple can't mess around with the formula too much, so later generations of the iPhone have been pretty much straight upgrades to the previous one. The iPhone 5 is really just a bigger, faster iPhone 4S.. and the iPhone 4S was just an upgraded iPhone 4 and so on.

In 2012 though, Nokia is now the challenger. Last year, Nokia hard rebooted the company and joined forces with Microsoft. Nokia's first generation of Windows Phones were so-so devices that couldn't compete with the best in class, but the second generation Lumia 920 certainly is competitive with the very best rival devices, and it shows what a company can create when it stops worrying too much about what it did in the past.

In almost every respect the Lumia 920 outclasses the iPhone 5. It has a bigger screen with the same pixel density as the iPhone, a much better camera, NFC support and wireless charging and it looks great with a modern take on classic Nokia designs.

Yes, the Nokia Lumia 920 is a massive device which is 65% heavier than the Apple. And the Nokia's Windows 8 operating system is so new that there are no applications available for it yet. But customers have shown that they don't mind larger smartphones (witness the millions of Samsung Galaxy Notes that have shipped) and the applications will surely start to come when developers can get their hands on the devices.

Nokia has all the advantages of starting with an (almost) clean sheet. Apple does not. But what's worse for Apple is that it is also being squeezed by Android devices which offer a much greater choice.

The result of this lack of room to manoeuvre is the iPhone 5. Although it is undoubtedly a good device, it packs no surprises. A bigger screen? Well that was inevitable. A faster processor? Of course. Upgraded software? We wouldn't expect anything else. Yes, it's better than the iPhone 4S, but we can't see that people are going to be trading in their Galaxy S IIIs to get an iPhone instead.

So who is actually going to buy the iPhone 5? Well, mostly existing iPhone customers. Yes, that's a lot of people, and that should produce some decent sales figures. And the BlackBerry market is looking soft at the moment, so Apple might pick up some figures from there.  But by and large, the iPhone 5 doesn't have anything to tempt existing Android users away (where the Lumia 920 does) and it really looks like Apple will just end up recycling its own customer base rather than wiping out the competition.

The path of sales success followed by decline has been trodden many times before. Nokia used to be the clear market leader but is now struggling, RIM ignored warning signs and stuck with its aging formula for too long. Before that, Motorola nearly killed itself off with the original RAZR.

Big companies such as Apple tend to become risk-averse. They have to worry about shareholder value, and if they're not careful they end up being run by accountants. But consumers demand more choice and new ideas, and that's the sort of thing that the late Steve Jobs was good at nurturing. Can Apple ever regain that sort of spirit? People who are familiar with Apple's history can see that this has happened to Apple before.

Perhaps the critical step will be Apple's next generation of iPhones. The challenge for Apple is to come up with something better and more radical during 2013. Just producing more of the same is just going to lead to decline in the long term. And yes, we truly believe that unless the iPhone 6 can recapture the spirit of the original iPhone, then Apple will be facing a long-term decline against strengthened competition.

So, to paraphrase Winston Churchill: Is the iPhone 5 the beginning of the end for Apple? Possibly. But it is certainly the end of the beginning.

Oh. And by the way, according to Betteridge's Law of Headlines the answer to any headline with a question in it is generally, simply: "no".