6.3 The Rise of The iPhone

Marcos Antonio de Lima Filho, PhD.

As seen in the Results, mobile phones used to come in a variety of form factors (Figure 5.1.1). The smartphone industry of the early 2000s resembled what Abernathy described as a “fluid stage of product development”, in which performance criteria for new products are not well defined. In these early stages, “no one knows for a certainty what the market will want or what the product can or should do” (Abernathy et al., 1983, p. 20).

The introduction of the iPhone in 2007 marked a significant turning point in the mobile phone industry. The iPhone’s design, which featured a touchscreen and no physical keyboard, was initially met with scepticism by industry incumbents and critics alike. Steve Ballmer, Microsoft’s CEO back then, despised Apple’s new venture: “It does not appeal to business customers because it does not have a keyboard, which makes it not a very good email machine.” Industry incumbents also disdained its potential. The leaders of BlackBerry, for example, continued for years to maintain that Apple would not be a threat as their customers wanted a physical and tactile keyboard (Gans, 2016, p. 35). According to a senior engineer who worked on the project, neither Apple’s marketing team was convinced of this vision:

So when Steve told the team his vision for Apple’s first phone—one giant touchscreen, no hardware keyboard—there was an almost audible gasp. People whispered in the hallways, “Are we really going to make a keyboardless phone?” (Fadell, 2022).

In the end, the iPhone’s success was undeniable, and it quickly became a reference design for the entire industry. Now that such design concepts are ubiquitous, it is challenging to appreciate the bravery and uncertainty that accompanied this groundbreaking innovation. Back in 2005, BlackBerry dominated the smartphone scene (Fadell, 2022). While touchscreen smartphones did exist, they relied on resistive touchscreen technology, which resulted in a subpar user experience. Due to their plastic surface, resistive touch displays had low optical quality and durability (Walker, 2012). Touch inputs demanded significant force and were often missed. Because of these problems, resistive touchscreens lacked the precision necessary for an effective typing experience.

Apple was the first company to integrate capacitive touchscreen technology into a consumer product (Walker, 2012). This new technology addressed the inherent limitations of analogue resistive touch, which had been the dominant technology since the mid-1970s. From then on, typing on a touchscreen display became as effective as typing on a small tactile QWERTY keyboard, such as those featured in the iconic BlackBerry. Since then, this button-free, touchscreen design has become the standard.

The iPhone’s architecture became a point of reference for the entire industry. Previous innovation scholars could explain this event as an architectural innovation (Abernathy & Clark, 1985; Henderson & Clark, 1990), or the emergence of a dominant design (Anderson & Tushman, 1990). This new architecture was also competence-destroying (Tushman & Anderson, 1986), as it rendered resistive touchscreen technology and rival form factors obsolete. As such, the iPhone’s form factor represented a technological discontinuity, which, as defined by Anderson and Tushman (1990), involves product forms that fundamentally differ from and outperform their predecessors.

However, the publication of The Innovator’s Dilemma brought about a paradigm shift in understanding such advancements. Christensen introduced a new model of disruptive innovation that diverged from earlier scholars’ perspectives. As a result, technological advancements like the iPhone or Tesla were no longer deemed disruptive but were instead reclassified as “sustaining innovations” under this new paradigm.

Back in 2007, Apple was an entrant in the smartphone industry. Christensen’s theory of disruption predicts that “entrants succeed with disruptions”, and that “failure awaits entrants with sustaining innovations” (Raynor, 2011). Accordingly, Christensen predicted that “Apple won’t succeed with the iPhone”. In a 2007 interview with Business Week, the author stated:

The iPhone is a sustaining technology relative to Nokia. In other words, Apple is leaping ahead on the sustaining curve (by building a better phone). But the prediction of the theory would be that Apple won’t succeed with the iPhone. They’ve launched an innovation that the existing players in the industry are heavily motivated to beat: It’s not (truly) disruptive. History speaks pretty loudly on that, that the probability of success is going to be limited (McGregor, 2007).

To provide some context, it is worth noting that Christensen gave this interview in January 2007, six months before the release of the new device. Like many others at the time, Christensen did not see the iPhone as a disruptive innovation and predicted that Apple would fail to be an effective competitor (Gans, 2016, p. 34). Other critics also pointed to major barriers to adoption, including the $600 price, the slow data speed without a 3G network, and the locking of the phone to a single operator (West & Mace, 2010). At these high prices, Apple actually entered at the high end of the mobile handset market rather than at the low end, which was normally the way disruption was thought to arise (Gans, 2016).

However, contrary to Christensen’s theory, the iPhone proved to be a phenomenal success (Figure 6.3.1). In 2018, Apple became the world’s first trillion-dollar company. In December 2020, the iPhone maker became the world’s first $3 trillion company, largely thanks to iPhone sales. Along with the Android platform, the iPhone built a momentum that effectively displaced traditional market players, namely Nokia, BlackBerry, Windows Phone, and Motorola (see Figure 6.4.1).

Figure 6.3.1 Apple’s Self Disruption.

According to Christensen’s theory, the iPhone should have faced considerable challenges in gaining market traction, as it represented a sustaining innovation that would primarily appeal to existing smartphone users rather than displace established companies through a more accessible device.

Despite Christensen’s predictions, the iPhone was a massive hit. This success led to Apple becoming the world’s first trillion-dollar company in 2018 and the first $3 trillion company in 2020, with iPhone sales playing a critical role. Since the beginning of 2010, the iPhone has surpassed the Mac and the iPod as Apple’s main revenue generator. That is, the iPhone disrupted not only the smartphone industry, but also Apple itself.

Christensen revised this prediction in 2015, this time viewing the iPhone as a disruptive innovation to “the laptop as the primary access point to the internet”:

The product that Apple debuted in 2007 was a sustaining innovation in the smartphone market: It targeted the same customers coveted by incumbents, and its initial success is likely explained by product superiority. The iPhoneʼs subsequent growth is better explained by disruption — not of other smartphones but of the laptop as the primary access point to the internet. (...) The iPhone created a new market for internet access and eventually was able to challenge laptops as mainstream usersʼ device of choice for going online (Christensen et al., 2015).

Nonetheless, in my view, this reevaluation fails to address the key difficulties posed by Christensen’s disruption theory. Arguing that the iPhone “disrupted not other phones but the laptop” seems like an attempt to twist the evidence to maintain the paradigm’s framework. This reassessment also overlooks that the iPhone was (and still is) a more expensive option than conventional laptop computers. Apple’s disruption was founded upon a novel product architecture (Figure 6.4.1 and 6.4.2), and contrary to expectations, its entrance led to the decline of established players such as BlackBerry and Nokia (Figure 6.5.1).

An effective managerial theory should be capable of identifying, ex ante, those innovations that will be radical in their consequences (Rosenbloom & Christensen, 1994). In this regard, Christensen’s theory has been unsuccessful in both anticipating and providing a retrospective explanation for what is arguably one of the most significant industrial revolutions in history. The diffusion of smartphones continues to be an anomaly that the current paradigm of disruptive innovation cannot explain.