This week, for the first time since 2003, Apple reported a decline in year-over-year revenue. The news, though not at all devastating to the company (which is holding more than $200 billion in liquid assets), is significant. It’s the first big sign that, well, Apple is still a tech company capable of falling back to Earth from stratospheric heights.
At the same time as Apple was reporting a bummer to shareholders, Facebook was reporting that its pythonic maw had widened around $5.38 billion in revenue, off of its 1.65 billion (with a ‘b’) monthly active users.
The decline in revenue for Apple is primarily attributable to two interconnected things. First, iPhone sales declined 18 percent over the same quarter last year — a hefty chunk, and even more significant when figuring in that iPhones represent two-thirds of Apple’s business. Along with this, Apple’s aggressive push into the Chinese technology market doesn’t appear to be paying off. The New York Times reports that the iPhone is no longer the tastemaker status symbol in China that it was just a couple of years ago.
It used to be the case that Apple, on the strength of its astounding phone (and, to a lesser extent, computer) sales, had the exciting earnings calls to talk up astronomical growth and huge revenue. Now, as Facebook has foregone hardware to focus on controlling the (very mutable) foundation upon which billions of people use the web, they’ve created a service that will conceivably outlive even the most radical shifts in hardware.
New hardware announcements are always exciting, to users and developers alike, because they increase technical capabilities: faster chips, better processors, more RAM. For the past few years, when Apple has announced a new phone, it’s always highlighted two major hardware enhancements: a better camera (where physical components truly matter) and a faster processor (mostly good for playing 3D games without making your phone heat up like an oven).
But networked platforms and the cloud have made client-side hardware improvements less significant. You don’t really need a processor with a zillion cores and 128 gigs of RAM on your machine unless you want to play complex video games or do an astronomical amount of number-crunching. The whole point of cloud computing is that those hardware changes happen behind the scenes, otherwise known as server-side. Instead of Apple designing, testing, and manufacturing a consumer-level hardware revision every year (and then convincing millions to buy it), Facebook can tweak its comparatively minuscule army of servers. According to a report earlier this week, Facebook is putting pressure on hardware manufacturers to drive down prices — hardware being the razor to software-as-a-service’s blades.
At the same time, it’s difficult to imagine how much more can be done to the smartphone in its current slim rectangular form: better camera, faster chips, longer battery, and… uh… chamfers? Gadget writers love to complain about the lack of groundbreaking upgrades, but the increasing insignificance of changes in iPhone design from year to year are, as much as anything else, a sign that the smartphone has gotten as good as it’s going to get. That malaise partially explains all of the hype surround virtual reality. VR has, in short, created a whole new paradigm for interacting with hardware, and thus justified its manufacture. (Facebook is positioning itself well for dominating the next hardware cycle, if it’s VR, by purchasing Oculus Rift.)
And so we’re leaving an era driven by hardware and entering one driven by software. You can already see the transition. You might watch HD video over streaming, processing thousands of tiny packets instead of one enormous local video file. Multiple video-game companies have tried to stream games, meaning that the player does not control their own computer, but one remotely. The only thing local hardware has to do is process the video stream. Apple’s iPhone-sales engine isn’t as powerful as Facebook’s enormous platform. Even services like Siri and the impending legion of messaging chatbots engage in Natural Language Processing by sending the data outside the confines of your phone. If the truly significant hardware bumps are happening remotely, then what’s the point of buying a new iPhone every year?