If Apple's new iPhone 8 is a fizzer, we will all suffer

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This was published 6 years ago

If Apple's new iPhone 8 is a fizzer, we will all suffer

By Matthew Lynn
Updated

The home button will be replaced. It will come with an all-over screen. It will have wireless charging, facial ID, and potentially a new name. The higher-priced models will even turn into a submarine when you are in a high-speed car chase, just like the really cool Lotus that Roger Moore drove in The Spy Who Loved Me. OK, I made that last one up. But the rest are all rumoured features of the iPhone 8, the device Apple is set to launch next Wednesday.

When the details are finally released, Apple shareholders will be hoping for some radical innovations that will kick-start the market, and get sales moving again. That matters to its investors of course. But it matters to the rest of us as well. Why? Because if it doesn't, it may well mean we have hit "Peak Phone" and that will have a big impact on the wider economy. It will drive the stock market lower, slow down the rate of innovation and reduce competition, and we will all be worse off for that.

There are already plenty of signs that the decade-long boom created by the launch of the first iPhone may well be running out of puff. Apple shifted 211 million of them last year, compared with 231 million in 2015. Most phones run on Android these day, but those haven't been shipping so fast either. IDC calculated that global sales were up by a modest 4.3 per cent in the first quarter of this year, driven mainly by China and emerging markets.

In truth, like most products after a decade or so, most people who want one already have a smartphone, and there are no new features that are sufficiently compelling for most of us to upgrade. We don't replace our TV every couple of years, because the new one wouldn't do much the old one couldn't. Likewise, we may have stopped upgrading our phones. When they wear out, we might trade up. But not before.

Whether we buy one or not, the new iPhone will affect our lives.

Whether we buy one or not, the new iPhone will affect our lives.Credit: Glenn Hunt

In the immediate term, that is only going to worry the big manufactures, such as Apple and Samsung, and the retailers that rely on them. But in the medium term, it is likely to be a problem for the wider economy as well. Here's why. First, it's going to hit the stock market, and potentially very hard. This bull market that has run since 2009 has overwhelmingly been driven by the so-called FANG stocks - Facebook, Apple, Netflix and Google, with Amazon sometimes thrown in for good measure.

Apple aside, those are not pure smartphone companies, but they are all heavily dependent on the devices we carry around all the time for a big chunk of their business. Google, or rather its parent Alphabet, would be far smaller without Android or Maps, or any of its other mobile products. Facebook would not be so dominant if we couldn't upload selfies from our phones all day long. The five biggest companies on the S&P 500 are now all tech giants (whereas a decade ago the index was led by the likes of ExxonMobil and General Electric). Any significant drop in the share prices of those five is inevitably going bring down the whole index, and if the S&P 500 crashes so will every stock market in the world.

Next, we can expect less innovation. The significance of the smartphone was not just that it allowed Apple, Samsung and smaller rivals, such as Huawei, to become some of the biggest companies in the world. The emergence of the app economy created a platform on which dozens of new products and business models have been able to thrive.

Without mobile devices, it is unlikely there would be an Uber, worth $US60 billion ($75.5 billion) or an Airbnb (with a $US30b value) or a Spotify (with a $US9b value) or any of the dozens of games, music, food delivery, fintech or other smaller applications that have come along in the last decade. The phone has liberated entrepreneurs to think of new ways of disrupting old industries. If it stops growing, it seems inevitable the app economy will slow as well, and as a result we will see fewer new businesses and fewer new ideas launched.

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The five biggest companies on the S&P 500 are now all tech giants so any significant drop in the share prices of those five will have a dramatic effect on the world.

The five biggest companies on the S&P 500 are now all tech giants so any significant drop in the share prices of those five will have a dramatic effect on the world. Credit: Richard Drew

Finally, the smartphone is a great driver of competition. The EU, in a completely bonkers way, seems to think the likes of Google and Amazon make the market less competitive. Just about everyone else in the world can see that any market you care to look at has become ferociously more competitive in the last 10 years. Planning to renew your car insurance? You can check 50 prices on your phone in a few minutes. Looking for a Thai meal? Your phone will tell you five restaurants you can get to, complete with detailed reviews of each one. There is nowhere for business to hide any more. That often makes it tough to run one. But it is great for consumers, and it is great for the economy overall.

From Adam Smith onwards, the one thing we know for sure about the economy is that more rivalry between firms makes everyone more efficient, promotes new ideas, and drives down prices. Smartphones have created big overall gains. If their growth slows, that will slow as well.

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True, something else — robotics or artificial intelligence perhaps — may come along to replace the phone as a driver of growth. But in the short term, the saturation of the market will hit the wider economy, and potentially very hard, unless Apple can come up with something sensational next week that gets us all rushing down to the shops for an immediate upgrade.

Telegraph, London

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