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“Apple’s reported plans to cut iPhone production by 10 percent in the first quarter of 2019 make increasingly clear that the company’s base of loyal users isn’t an inexhaustible resource from whom it can forever extract a rent through its services offerings,” Leonid Bershidsky writes for Bloomberg. “Apple needs to compete more vigorously in all the other markets in which it’s present, without relying on the network effects of its large installed base.”
“In the medium to long term, the decline can only undermine Apple’s ability to feed off the ‘halo effect’ from its installed base, estimated at about 1 billion iPhones globally at the end of last year. In the company’s other markets, its products and services will increasingly compete on their own merits, with less help from the network effects that push iPhone users toward everything else Apple,” Bershidsky writes. “The company inevitably will need to face up to the fact that, as things stand, few Apple products are strongly competitive among the non-iPhone users.”
“Weaning itself from iPhone dependence will be a painful experience for Apple, not only because the stock market will punish it for being overoptimistic for too long, but also because the importance of each market in which the company is involved will increase. The iPhone’s enormous shadow won’t hide errors as well as it did in the past,” Bershidsky writes. “And competing hard against specialized players with a lot of skin in the game will become more of a necessity. The new situation requires a sharper focus from people in each of Apple’s lines of business and more multitasking from Cook, whether or not he’s willing to see things this way.”
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