How Apple could make money without the iPhone

As iPhone sales dip and companies like Samsung surge ahead, Apple may have to start thinking about a new business model.

Apple announced Wednesday the sale of its billionth iPhone, but although it has been a defining feature of the past decade, dropping sales and increased competition from Samsung, LG, and Xiaomi have some wondering how Apple could continue to turn a profit without the iPhone.

Vivek Wadhwa, distinguished fellow and professor at Carnegie Mellon University Engineering at Silicon Valley, has a suggestion that may keep Apple afloat in a world where the iPhone is not the commodity it was a few years ago: make a version of iOS for non-Apple devices.

Apple loyalists may not like the idea, but Bill Gates had the same idea in 1985, Mr. Wadhwa wrote for Market Watch. He wrote a letter to John Sculley, then chief executive officer of Apple, asking him to license Apple's operating system to other companies. Mr. Sculley and other Apple executives ignored the request and just five months later Microsoft released its own Windows operating system that went on to dominate the computer world for the next several decades.

In 1997, Microsoft actually saved Apple from bankruptcy by investing $150 million in it, and Apple went on to be the most successful and profitable smartphone company.

However, as Samsung, LG, and Xiaomi began producing comparable and cheaper alternatives to the iPhone, the monopoly Apple once had on the industry began to slip. The Samsung Galaxy S7 outranked Apple’s iPhone 6S in consumer satisfaction surveys – but the same can’t be said for the companies’ respective operating systems.

“...iOS is far better than Android. That is why Apple needs to grab this market while it still has an advantage, Mr. Wadhwa wrote in a blog post.

Features of iOS including App Store, iTunes, and Apple Music earned the company $6 billion in the last quarter, up by 19 percent over last year, making these services the second largest source of income behind the iPhone. Were iOS available for Android and other devices, those services would be even more profitable, as Apple would be earning money from the phones produced by their competitors.

In the next two to three years there will be another billion people online, and these people will have no reason the be loyal to Apple, and will likely not be affluent enough to afford a $700 iPhone when there are better-functioning phones for significantly less money.

The main question that remains is whether Apple – a company whose success over the years has depended largely on brand loyalty – would actually go for an idea that decreased the power of its own image?

“Apple is still functioning the way it did 20 years ago,” Wadhwa tells The Christian Science Monitor. “The way it releases software is, you do a big release, you get everything perfect and it goes out the door. But that is not the way they really do things anymore in this day and age, because technology is moving so fast right now.”

Take Facebook’s Oculus Rift, a virtual reality headset, as an example. The product was released in a highly imperfect state with the promise of future improvements implied. The company learned from its mistakes and user feedback and is remembered for creating a revolutionary product.

But Wadhwa does not think that Apple will adopt that strategy any time soon.

“The market is shrinking on Apple, it is becoming less and less relevant," Wadhwa says. "If there are 3 billion Android phones and 5 million Apple phones, developers will create new technologies for the Android platform and Apple will become a niche platform that gets second treatment."

In a way, that would return Apple to 15 years ago, before it branched off from computers and hit the mainstream.

As of now, Apple expects to make up for the past quarter's poor performance throughout the rest of the year with the iPhone 7 release, which is expected sometime early this fall. And as frustrating as Apple’s sensibilities seem to him, Wadhwa, an Apple loyalist himself, will be in line to buy one.