The iPhone just turned 10 years old — but Apple's greatest challenge is in the next decade (AAPL, MSFT, FB, AMZN)

REUTERS/Stephen Lam

You might have heard, the iPhone turned 10 years old this week.

Apple has good reason to celebrate.

The iPhone turned Apple from a manufacturer of trendy computers and music players into the world's most valuable company. The App Store is an economy unto itself. And all new smartphones, no matter who makes them or which operating system they run, are measured against the iPhone — and (mostly) fall short of the bar set by Apple.

As we enter the second decade of the smartphone revolution, Apple is still the one to beat.

But that strength is also Apple's biggest vulnerability. 

Apple's biggest rivals — including Amazon, Facebook, Microsoft, and Google — are all plotting to systematically undermine the Apple empire. And they all know that Apple's dependency on the status quo is a golden opportunity for them to steal the advantage. 

Green-eyed monster

Apple's iPhone dominance is grating to pretty much anybody who doesn't work at the company. Facebook CEO Mark Zuckerberg has long lamented that the social network didn't build a smartphone platform while it had the chance; Amazon has removed the ability to buy Kindle books from an iPhone rather than pay Apple its standard 30% cut. 

Sure, Google's Android is a far more popular smartphone operating system than Apple iOS. But it's Apple's iPhone that captures the majority of the profits in the smartphone market. 

AP

The iPhone/iOS combo has proven impervious to every attempt to topple it. The list of victims is long: Nokia's Symbian; RIM's BlackBerry OS; HP's WebOS, even Microsoft's various Windows phone operating systems are almost entirely gone now, like tears in rain. 

With Apple's lock-up on smartphones all but assured, these competitors have all been forced to look elsewhere to come up with ways to chip away at the iPhone's fortified position. 

The peanut gallery

Facebook, for instance, is placing its bets on virtual reality, augmented reality, and chatbots. Virtual reality headsets are a niche now, but they could become the next big hardware platform — a platform it would own. Similarly, chatbots give a way for Facebook to offer premium services to its users, without paying the App Store cut. 

Amazon has its Echo line of smart speakers, which use the Alexa virtual agent to accomplish simple tasks with only your voice. The newest Echo Show, too, adds a screen. Alexa is slowly growing into the operating system of choice for smart home appliances, getting an early lead on Apple's still-nascent HomeKit ecosystem.

AP/Jeff Chiu

Microsoft was first to market with real, standalone augmented reality goggles, the HoloLens. Put them on, and holograms are projected straight into your field of view. It's seen within Microsoft as the next great frontier for Windows, after missing the smartphone revolution in the first place.

Microsoft and Facebook both agree on one important, overarching point: Augmented reality can replace the iPhone, or anything else with a screen. Why carry a separate phone if your texts and games are projected straight into your field of vision?

As for Google, it's working on all of the above, as is its wont. It has its Google Home smart speaker, a grab bag of artificial intelligence enhancements to its existing apps, and a growing focus on virtual reality with its Daydream ecosystem. Even the much-maligned Google Glass headset is now reported to be in preparation for a comeback.

Apple's move

Apple is coming into this at a distinct disadvantage. 

So much of the company's fortunes are tied up in the iPhone that it can't just up and move to whatever the next big thing turns out to be.

With no real smartphone play to speak of, Microsoft, Facebook, and Amazon aren't handcuffed by the legacy of a smartphone business. That gives them the freedom to move forward without worrying about hurting a cash cow. Google too has more freedom, since its real revenue is tied to search advertising, not the Android smartphone software it gives away for free.  

So Apple has to be really careful about every step it takes away from the iPhone. Over the years, it's made small but important moves to create the next big thing, starting in 2011 with the Siri virtual assistant. This turned out to be prescient — while Amazon's Alexa gets a lot of credit for kickstarting interest in voice assistants, Siri is still the most widely used.

YouTube/Microsoft

We're already starting to see more forward-looking competitive hedges come into play. Apple's Airpods wireless earbuds and the HomePod smart speaker are both designed to bring Siri closer into your life, and thus, keep Alexa and systems like it out. 

That's just a short-term play. A longer term gambit for Apple is ARkit, a way for developers to build augmented reality into their own apps using the iPhone camera. If and when Apple releases smart glasses of its own, it means there will be a whole selection of ARkit-powered apps to go with them, too. It's a way to bridge the dominance of the iPhone today with the hypothetical future dominance of Apple goggles tomorrow. 

The risk

This, right now, in 2017, is a precipice point. The bets these companies are making or not making today are going to shape the technology market for the next, next decade. All these various technologies, from artificial intelligence, to chatbots, to augmented and virtual reality, are real and imminent. 

So I don't envy Apple's position. Move too slowly, and there are no shortage of rivals waiting in the wings to fill the gap and claim the crown for the next major market shift. Move too quickly, though, and Apple sacrifices its famous willingness to build stuff that just works. 

The only thing that's clear from here is that the days are numbered for the iPhone as we know it. The hard part, of managing this next wave of massive and tumultuous change, is only just beginning. 

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