There Will Be No iPhone 5, EVER

When I listened to the latest episode of The Talkshow during my morning walk something clicked. All the puzzle pieces that pundits, blogs and myself had been commenting on individually suddenly started to come together. The result is a vision, probably similar to how Holy Mary might have felt when the archangel told her about her next “one more thing”.

I really mean the title literally, there will never be a device – not in October, not in 2012, not ever – called “iPhone 5” that you will be able to purchase. Somebody who kept pestering his “contacts” at Apple about “when does the next iPhone come out” reaped this remark “Next iPhone? There will never be a next iPhone. There can never be an iPhone better than the iPhone 4”.

Of course there will be a device to purchase , something that has all the features of iPhone 4 and possibly many more, it just won’t be CALLED “iPhone 5”. Here’s why.

Financial analysts keep telling us that Apple is doing so great because they focus on products with a high profit margin. Traditional PC makers keep having the problem that customers only marginally pay more for their assembled machines. So little in fact that HP wants out of the consumer market by stopping making PCs, tablets and phones. At the same time the bought a services company. Services is where the money’s at, if you are not Apple, because you don’t have any costs for parts and manufacturing. Better margins, that’s all.

While “high margin” might be a side effect of Apple’s business strategy it is not one of their primary goals. Being able to charge premiums on your products simply allows you to amass capital and keep innovating. Differently put, you stay alive because you can pay your employees and people keep buying your frequently refreshed product lineup.

Other PC makers have long abandoned innovating technology because they are basically drip-feed new chips from Intel. No new chips, nothing new to build.

But if margin is not Apple’s primary goal, what is? I would say The User! Apple wants their products to delight the user and fulfill his needs as simple and smart as possible. Other companies usually ask the market place in form of doing market research and holding focus groups who debate about new product features. Not so Apple. Not even amongst themselves in the sense that you take somebody not related to your close circle and let him voice his ideas and concerns. Such cross-deparmental yet intra-company focus groups still carry too much risk of accidental information leakage.

What the user truly wants is to be able to make phone calls when he needs to, feel connected to his social circle and work (at the appropriate times), play games, consume media (read, browse, watch, listen), create and that’s about it. Most of these needs can be tackled in Software and Apple quite successfully outsourced the biggest part of that to us iOS developers. So Apple can focus only one two other parts: hardware and operating system.

Being privy to the latest BETAs iOS you know rather well what kind of features are coming soon. Although Apple routinely hides features that might reveal something that needs special hardware to work with. Like for example if a future device would support NFC you would still not see these features in the developer BETAs. But some people do see these features, even outside of Apple, when they are provided with the right key or special builds. Recently some telecommunication companies have been reported as having speech recognition and FaceTime over 3G enabled.

The mystery that we are all lusting after truly is what advances in hardware will be made. You are saying: “I am anxious to the the iPhone 5”, not “I anxious to get any device that runs iOS 5”, right? Software can bring new features with every update. But your are stuck with the hardware you purchased. Even more so because software updates are free, while a new iPhone typically costs several hundreds of Dollars.

But now back to the title of this article. There will not be a box saying “iPhone 5” on it. And the simple reason for that will be that Apple has shown with the iPad 2 that they want to drop the number sheme. The big metallic “iPad 2” on the iPad product page is about the only place where you can see this term for marketing purposes. If you look at the box your iPad 2 came in you will only see iPad. The same is true for all other devices apple makes. The iPod is the iPad. The Mac is the Mac. MacBooks are MacBooks. The dropping of the numbering is Apples way to say: “we’re done … introducing the category”.

Instead the established products are categorized by the time they were made. For example my iMac says “iMac 27-inch, Late 2009”, not iMac 5 or whatever the generational number would be. Same is true for iPods where they are categorized by their generation number. But this is generally quite unwieldly, I have no idea if an iPad is 3rd or 5th generation and whether it is reasonably current. By contract “Late 2009” tells me that I feel that a new iMac would be cool with this feeling increasing as time flows.

A potential iPhone 4s or 5 will be the 5th generation. But it will be know simply as “iPhone”. When you connect it to iTunes though, it might say 5th Generation or Late 2011″. Any device that had 5 iterations already can be said to be well established. Just like cars where they also don’t have numbers but instead you categorize them by model year. And there’s another commonality between cars and iPhones: technically cars continue to be equipped with the necessary features to get you from place A to place B with the same number of wheels, seats, windows, windshield wipers since the first modern cars. The iPhone 4 did have all the features necessary for a Smartphone.

Bluntly put there is nothing new and revolutionary that Apple could put in the next generation iPhone in terms of technology. All changes from here on forth will be incremental: more pixels in the camera, better zooming, faster processor, probably more CPU cores, more memory, possibly a slightly bigger screen so that it goes all the way to the edges of the device.

Similarily there is very little that you can do in terms of design. Lithium Ion battery technology is still state of the art and the only way how you change the dimensions of the iPhone is to more tightly pack the screen and chips. But that only affects the thickness of the device. All iPhones had almost identical width and height which tells us that Apple has decided that this is the optimal sweet spot between pocket device (as small as possible) and something with a touch screen (as large as possible). Maybe some day we will get true holographic projection technology or ubiquitous screens built into all furniture to allow Apple to ditch the display. But until we do, we know how iPhone’s will look like.

The major product transition that had been alluded to for this financial quarter will be the merging of iPod Touch and iPhone products. There are multiple indicators that this would finally become a reality:

• Apple beginning to sell unlocked iPhones all around the globe (wherever their contracts with providers allow it)
• The one year old Retina iPod Touch is technically almost identical with the iPhone 4
• The Verizon iPhone does not have a Sim-Card slot, being the first test case for a user-experience without Sim-Card hassles
• The Verizon iPhone also has a Qualcom radio Chip that theoretically could work on all existing networks. Only problem there would be to design an antenna that can support that.
• Apple filed for a patent last month to allow for multiple carrier profiles on one iPhone
• Apple is known to be working on virtualizing the Sim-Card and they have grown to be a force where Telcos can no longer block this move (which they did in 2010)
• The concept on data connectivity on demand is foreshadowed by the iPad prepaid data plans. You activate a plan if you need it, though because of the sim card you are still limited to one provider.
• At the time of launch of the first iPads Steve Jobs told us that the difference between iPads with and without cellular radio is $100.
• The Apple A5 chip has about all the power a mobile device needs, even with Retina display. Since this chip design is probably around 2 years old by now Apple can leverage savings in manufacturing and slight improvements in energy consumption.
• With the pricing of iPad Apple has shown that they are also willing to price as low as technically possible to establish a new product category and bar competitors

The problem with smartphones worldwide has always been that the purchase cost is so very expensive that people generally can only afford them if they get them subsidized by mobile carriers. And because of this a teenager needs to have rich parents to pass the credit check for him if he wants to have an iPhone. Apples vision though is to allow everybody to have these devices and that means everybody needs to be able to afford them.

This is exactly the reason why somebody figured that by ripping out the radio and cell phone chips they could drop the manufacturing cost enough to sell the iPod Touch sort of as the “iPhone for poor people”.

Then there is Moore’s Law. If the number of transistors in chips doubles every two years then that means the same 3G radio technology that was built into iPhone 3G would have only cost half as much in 2010 when the iPhone 4 shipped. The more different things can be united on a single chip (Qualcomm Chip!) the cheaper it gets to build the radio part. Of course there are some tricky engineering problems left to solve, like to build an antenna that can work with all radio frequencies used in cellular networks. But if anybody can solve that then it would be in Cupertino.

In recent keynotes Apple often mentioned the number of all devices running iOS. This is because to them they are technically the same. But in terms of calculating market share iPod touches are dark matter, they don’t get counted as mobile phones. The new iPhone will count as phone even when the user (possibly a kid without income) does not activate a cellular plan.

This is possible as soon as the radio part becomes cheep enough to not play a role in pricing even though it is never used. Or if this leads to more people activating cellular plans as they like because their dad might pay for prepaid cellular with his iTunes account. Maybe in exchange for activating “Find my iPhone” on the youngsters device so that the parent can check whether he is actually at school when he should be.

In fact there is only one reason left why my prediction might fail, but it is neither a technical nor marketing one: Apple has to show to the mobile network operators that they can let go of the antiquated notion of controlling access to their network via a physical chip on a Sim-Card. But Apple has proven for quite some time now that their activation system is secure and provides a great additional income. I had to pay 40 Euros each last month to get my iPhone 3G and 3GS unlocked by Orange. T-Mobile even charges 50 Euros. I can see Apple giving providers more access to this unlock system if they in turn also implement virtual Sim-Card technology. The system would be used in reverse: you don’t pay for removing the Sim-Unlock, but instead the provider would subsidize your phone in exchange for LOCKING the iPhone onto their network.

For this scheme to work the unlocked over the counter price tag of iPhones needs to drop to current subsidized phone levels which is possible if indeed the manufacturing cost has further dropped and maybe by Apple giving up some of their exceptionally large margin on sales. The sweet spot would be in around $299, because such devices could also be subsidized to cost $0 with new contracts. To date an unlocked iPhone 4 begins at $649.00 so according to Mr. Moore that should be available next year for half as much. You can see Apple selling the previous year’s model for a discount as well with further proves the point that cell phone tech is becoming cheaper every year. It also proves that Apple would rather you buy the previous generation hardware at a discount than get an Android.

Now you also know the reason why there was no phone announcement at WWDC 2011, because there will be no “iPhone 5”. Instead the iOS family will reunite and thus all such announcements will be in the fall beginning this year.

Don’t get me wrong, I will still buy the next iPhone, because I promised my iPhone 4 to my wife. And we will be happy even if its called differently or if it is only slightly incrementally better. But when has one Apple product ever been worse than its predecessor?

Categories: Apple