CEO Tim Cook. Image source: Apple.
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The iPhone is a hard act to follow, but Apple(NASDAQ: AAPL) is sure trying its damnedest.
It's not an exaggeration to say that the iPhone changed the world by revolutionizing a product category, making Apple the most valuable company in the world in the process. Smartphones have become a ubiquitous technology that many consumers feel is a necessary piece of our modern, mobile world. However, if you look at the two major product categories that Apple has entered post-iPhone -- tablets and smartwatches -- neither has enjoyed the same level of success. For a while, I did think that the iPad would become a larger revenue driver than the iPhone. I was wrong.
A tale of two new product categories
iPad sales have been challenged for a couple years now, mostly because the category itself has hit some speed bumps. Tablet upgrade cycles are longer than smartphones, and while iPads and tablets are good general purpose computing devices, they still fall short in terms of productivity for power users. Additionally, most people don't really need a third product category, and smartwatches rank fourth in terms of upgrade priority (if you even have one, that is). Smartwatches still haven't even proven to be general purpose devices, which would broaden the appeal beyond early adopters and fitness enthusiasts. Business Insider's Steve Kovach is already proclaiming that "wearables are dead," and he might not be wrong.
One key distinction between the two categories is that Apple entered tablets under Steve Jobs, but jumped into wearables/smartwatches under Tim Cook. Maybe Jobs just telling us that we all needed tablets did the trick (for a little while). This all puts even greater pressure to succeed on whatever Apple's next big thing ends up being.
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You can't top the iPhone so don't even try
Let's be clear about something: There won't be any product category that will be as meaningful and indispensable as smartphones in the foreseeable future. Expecting the next category to be that successful just sets investors up for disappointment; the bar for success can't be that high. Instead, investors should consider whether the next category complements existing products in a meaningful way and can reinforce the entire portfolio, and simultaneously be compelling enough that a significant portion of consumers will adopt it. The rest, financially speaking, will follow.
The iPad more or less meets these criteria, but Apple Watch does not. This could by why no one considers the iPad to be a failure, but there's some ongoing debate about whether or not Apple Watch and smartwatches overall will fail. Apple Watch is also a symbol of Apple's ability to innovate in the post-Jobs era, so its current struggles point to potential challenges from within Apple, too. As Apple continues to push forward with Apple Watch, it's more important than ever for the next category to prove that Apple still has what it takes.
What could it be?
There are a few obvious candidates as to what this next category could be, although Apple is unlikely to enter any of them for several years. It could be anything from a connected autonomous electric car, to artificial intelligence (AI), to augmented reality (AR), to the Internet of Things (IoT). Apple's car plans are reportedly in turmoil; the company is largely perceived to be behind in AI; mainstream consumers aren't anywhere near ready for AR (or VR); and inflated hype around IoT makes it hard to discern if it will be a sustainable trend or not.
Regardless of what it is, Apple desperately needs a win.
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Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.