From Music to Maps, How Apple's iPhone Changed Business

By Betsy Morris Features Dow Jones Newswires

Ten years ago, hailing a cab meant waiving one's arm at passing traffic, consumers routinely purchased cameras, and a phone was something people made calls on.

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The iPhone, released a decade ago this month, changed all of that and more, sparking a business transformation as sweeping as the one triggered by the personal computer in the 1980s. Apple Inc.'s gadget, and the smartphone boom that followed, gave rise to whole new industries, laid waste to others and forced new business models.

"It combined size, power and personalization," said Paul Nunes, managing director at global consulting and services firm Accenture and author of "Big Bang Disruption," a book about transformational technologies.

The upheaval triggered by the iPhone, and the launch of Google's Android operating system for smartphones the following year, led to new innovations like apps that continued to transform industry.

Entrepreneurial coders and upstart businesses could now reach consumers directly, creating new modes of shopping, entertainment, travel and more. App stores today offer an estimated 3.5 million to 3.6 million choices, including games, fitness programs, shopping and dating, according to audience-measurement firm Verto Analytics Inc.

Apps also made it easier for big companies to connect with customers: airlines use them to expedite flight check-ins, banks to handle check deposits, and restaurants to automate ordering.

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That activity has been a catalyst for the growing dominance of tech-industry titans. Alphabet Inc.'s Google and Facebook Inc. now get the bulk of their advertising revenue from mobile-ads. Together with Apple, Microsoft Corp. and Amazon.com Inc., they are the five most valuable companies on the stock market today. Ten years ago, only one of the top five was a tech company.

Along the way, smartphones disrupted communication. By offering faster, easier ways to communicate -- text, photo, video and social networks -- "the iPhone destroyed the phone call," says Joshua Gans, professor at the University of Toronto and author of the book, "The Disruption Dilemma." "It's funny we even call it a phone."

Smartphones didn't start social media. Facebook launched in 2004 on desktop PCs. But they made social networks and messaging apps like Facebook's WhatsApp, Instagram and Messenger, along with Twitter, Snapchat and others, pervasive and indispensable. As of March 31, at least 1.94 billion users were checking into Facebook at least once a month.

As mobile audiences grew, so did the time individuals spent on their phones. Average usage had risen to 73.8 hours a month by June of last year from 68.2 hours the prior year, much of it on social media, according to a report by comScore released later in 2016.

Advertisers have redirected their spending accordingly, wreaking havoc on established news companies. In 2015, total mobile ad spending in the U.S. overtook print ad dollars, according to eMarketer. Last year, Facebook captured 14% of the $190.6 billion global digital advertising revenue, second only to Google's 32.8%. And in the first quarter of 2017, Facebook's 49% rise in revenue was largely fueled by online advertising.

Smartphones have also laid waste to the camera industry -- even as they made photos more relevant than ever. Digital camera shipments fell 80% between 2010 and 2016 to 24 million, according to the Camera & Imaging Products Association. Among the casualties: Eastman Kodak Co., the iconic film company that was already reeling from the onslaught of digital cameras. In 2012, it declared chapter 11 bankruptcy and has reorganized to focus on commercial imaging markets.

Most photos taken today aren't printed and kept, but tweeted, messaged or posted. That gave rise to the $20 billion-plus IPO in March of Snap Inc., the disappearing-messaging app. It calls itself a camera company.

Smartphones have paved the way for new technologies that have led to faster production cycles and unpredictable competitors, says Accenture's Mr. Nunes.

Garmin Ltd.'s navigational device technology was groundbreaking. In 2005, sales of its GPS devices were exploding despite retail prices of $700 and above. Within four months of the introduction of the iPhone, equipped with Google Maps, Garmin had gone from posting record earnings at the end of 2007 to missing expectations in early 2008. Its stock, which was trading around $100 at the end of 2007, had fallen to under $20 a year later. The company has since diversified into wearables and other markets besides autos; its stock is now trading in the $50 range.

As existing businesses evaporated, the iPhone spawned new industries and business models. Ride-hailing firms Uber Technologies and Lyft are built on apps; a smartphone is the price of entry for both riders and drivers.

From the days of the phonograph, people have owned music, whether vinyl records, compact discs or downloads from iTunes. The smartphone accelerated a move away from that concept to effectively renting music from subscription services like Spotify and Apple Music.

Artists and labels, who earn far fewer royalties on these new services, have fought the move but for a flailing music industry, streaming has this year been a shot in the arm. A doubling in paid streaming music subscriptions last year drove an 11.4% increase in retail revenue to $7.7 billion -- the industry's biggest gain since 1998, according to the Recording Industry Association of America.

Nowhere has the smartphone's impact been more pronounced -- or unexpected -- than in telecommunications. A month before the iPhone was launched, Randall Stephenson, chief executive of AT&T, Apple's exclusive partner in the U.S. at the time, told a financial audience: "I believe the iPhone is going to be a game changer."

It was, but not in favor of telecoms. The iPhone became such a hit with consumers, who lined up and camped out for days to buy it, that it tipped the balance of power. Manufacturers like Apple could now set tougher terms and demand more concessions from carriers.

Wireless companies were able to capitalize on soaring data use for a while, as consumers became more addicted to their smartphones. But the shift to data plans from texts and calling minutes made it easier for users to treat their cellphone service like a commodity.

Wireless service revenue among the top U.S. carriers grew 5.9% in 2008, the first full year the iPhone was on the market, following years of double-digit growth, according to investment bank UBS Group AG. Revenue, which has been falling in recent years amid increased competition, slipped 1.6% last year.

Many carriers are now rushing to diversify their revenue streams as their customer bases stagnate -- most developed nations already have more active smartphones than people -- and persistent competition keeps them from raising prices.

--Drew FitzGerald contributed to this article.

(END) Dow Jones Newswires

June 23, 2017 05:44 ET (09:44 GMT)