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Why the iPhone isn't a commodity

Apple Event

Uninformed analysts and tech pundits continue to posit that smartphones are becoming commodities. In doing so, they completely ignore, or perhaps underestimate, Apple's ongoing efforts to differentiate the iPhone from competing devices.

Of course, the idea that smartphones are fast becoming commoditized is often brought up as a reason why Apple needs to come out with a magical new product immediately. The often overlooked reality is that Apple works tirelessly to ensure that the iPhone houses features that competitors simply can't match. We saw this most recently with the introduction of Touch ID on the iPhone 5s. While some competitors -- namely Samsung -- have attempted to mimic the functionality of Touch ID with their own offerings, the simplicity, usability, and more importantly, the reliability of Apple's own implementation remains unrivaled.

As a quick example, here is Engadget's review of the fingerprint sensor on the Samsung Galaxy S5.

Over the course of several days, I made dozens of attempts with each finger and it only recognized me on the first try about half the time -- and that's a generous estimate. More often than not, I had to swipe my finger two or three times before it let me in; typing in a PIN code would've been more efficient. Worse, there were other times when the scanner wouldn't recognize me at all, even as I adjusted my swipe speed, angle and finger pressure. And even when it works, there's a small delay after you swipe before the phone accepts your print.

Folks who argue for a commoditized smartphone market might as well argue the car market is commoditized in the sense that any car you choose will just as ably get you from point A to point B.

Recently at WWDC 2014, we saw that Apple remains committed to enhancing the feature set of iOS in ways that are difficult, if not practically impossible, for competitors to copy. The mounting integration between iOS and OS X is the most glaring example. With iOS 8 and OS X Yosemite, Apple continues to blur the lines between the Mac and iOS. More importantly, Apple's over arching theme of "continuity" brings with it a number of features that will have a real impact on the way consumers use technology; Handoff is a boon for efficiency while the ability to make phone calls from the Mac elicited boisterous applause from WWDC attendees.

This type of seamless integration will prove frustratingly difficult for companies like Samsung or LG to implement. Microsoft could presumably go down this path, but with the share of Windows Phone still obscenely low, they've still yet to prove themselves a major player in the mobile space.

Smartphone innovation hasn't yet peaked

Taking a step back, let's examine the notion of a commodity itself. A commoditized market is one in which one good is practically indistinguishable from competing goods in the marketplace. In other words, competing goods are on all counts and forever interchangeable because no discernible improvements can or will ever be made to the goods in question.

To that end, arguing that smartphone commoditization is upon us is the equivalent of asserting that technological progress in the smartphone realm has come to a halt. And who, aside from the most cynical of pessimists, would suggest that we've reached that point?

Horace Dediu articulated this point back in 2010 when, surprise surprise, people were predicting smartphone commoditzation was afoot as well.

To suggest that this time, in 2010, it's different: that the definition of the smartphone as it exists today is the product at its zenith; that user experiences and expectations and hardware specifications and platform dynamics will be henceforth frozen with minor sustaining tweaks to look forward to is, in my opinion, a far riskier bet.

I don't try to be a futurist or predictor of how the product will evolve, but I can see a dozen ways of how the very definition of a smartphone will change and how in 4 years we'll have products that won't be recognizable as such today.

What's so incredibly exciting about the smartphone market is that the competition is so fierce that we're constantly seeing a great number of interesting ways in which handset manufacturers try to separate themselves from the pack. Though many new features are often gimmicky, there are a few smart ideas out there that often keep things interesting. And to be clear, not all of them come from Apple.

The smartphone battle is an ongoing race

When Steve Jobs first unveiled the iPhone back in 2007, he boldly proclaimed that it was five years ahead of the competition. And lo and behold, Android handsets, after a few years of mediocrity, finally began making great strides in catching up to Apple. What's more, Android functionality in some ways even began to surpass the iPhone.

But Apple is not a company prone to standing still, and just when one might have been ready to proclaim that the iPhone was no longer that different from the competition, Apple raised the bar a little bit higher. From the Retina Display introduced with the iPhone 4, to the introduction of Siri, to the ongoing rollout of A-x processors, to the Touch ID feature introduced with the iPhone 5s, Apple has a proven track record of innovating before commoditization can rear its ugly and non profitable head.

As it stands today, consumers clearly see enough differentiation between varying smartphones that Apple in 2013 was able to sell 150 million iPhones, a 20% increase from 2012. Even within the iPhone family, the flagship iPhone 5s with TouchID was far more popular than the iPhone 5c. In other words, Apple has a penchant for creating differentiation that consumers actually care about,

Looking out into the future, Apple has a number of technologies in place to ensure differentiation going forward. Touch ID, for example, may seamlessly tie in with a mobile payments scheme in the future. And with over 800 million credit cards on file, Apple is better positioned than most to bring mobile payments to the mainstream. Similarly, with the recent introduction of HealthKit and HomeKit, Apple is clearly trying to broaden the iOS ecosystem and offer functionality that competitors may simply not be able to match as effectively.

If anything, commoditization across Android handsets seems like more of a pressing issue than commoditization vis a vis Apple and Android.

To be clear, if Apple stops innovating, then sure, commoditization will occur. But there's absolutely no evidence to suggest that Apple has lost its innovative mojo. If anything, WWDC 2014 showcased that Apple is as strong as ever, with great new ideas that got developers and consumers alike excited. And that's all without even seeing the next-gen iPhone.

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