The best worst case scenario

Measuring bundle strength to estimate potential for iPhone disruption

The iPhone was introduced as a bundle: an iPod, a Phone and an Internet Communicator. It went on to bundle a camera, a game console, an email client and literally thousands of other functions which used to be separate products. A calendar, a flashlight, a magnifying glass, a measuring tape, an emergency beacon, all the world's maps, travel assistant, shopping and food delivery, etc. Many of these components created empires for the developers who built them, building separate markets unto themselves.

The competitive analysis for the iPhone was always about another bundling option in the form of an Android phone. That platform offered to do all the same things, at perhaps a lower price point or a more diverse choice of devices.

However that competition failed to make a dent in the iPhone. To date, the iPhone continues to grow both in user base and in product variety and price points. Swithing from Android to iPhone is still more common than the alternative.

But lately, a new competitive thesis has emerged: that of the AI enabled device which is simply an agent that is asked to do things.

Muse from Meta is the latest example, though we've seen similar arguments for Alexa, Humane, or a future possible set of devices from OpenAI. Less well known are Rabbit R1: A pocket-sized AI hardware device designed to handle tasks and app interactions without a traditional smartphone screen. Smart glasses like those from Meta but also from Solos that integrates artificial intelligence, audio features, and language translation directly into glasses. Abeye: Smart eyewear developer known for health- and wellness-focused optical products like Lexilens and Spectalert.

Then there are AI-Enhanced Smartwatches: Various next-generation smartwatches and voice-first wristwear serving as screen-light alternatives to standalone AI pins.

The premise is that if you can ask a microphone-enabled device for anything, it would answer (or act) and it won't need a screen even to interact with. The device is just a passive wearable or even embedded in the environment. Just speak and it will recognize your intent and act.

The idea is that if you had one of these, you would not need a phone anymore.

To put it another way, these devices would unbundle the iPhone. They would take a subset of the uses for the product, carve those away and "steal" usage time/cycles/attention into a new platform.

This is similar to how the original BlackBerry stole usage from computers. They took messaging, initially in the form of short emails, at a time when messaging did not exist as a standalone technology. By stealing messaging, usage of computers shrank to uses that were slow response only. The foothold of messaging arguably anchored the smartphone category.

However, eventually the smartphone grew into more and more capabilities and created its own. I mentioned photography and video but also social media itself, now consuming trillions of hours.

But will AI devices really unbundle the phone?

Clearly the phone can do what the AI tchotchke aims to do. Indeed so can the Apple Watch, iPad, Apple HomePod (and whatever is announced for the home). The idea that an internet-enabled microphone replaces the iPhone is not because the iPhone cannot do what the microphone can do. Nobody has more smart microphones in use that Apple.

The premise for unbundling is that the less-able alternative, focused on one task only, will be more convenient, much cheaper and delightful to use than the bundled alternative.

But assuming you do have a dongle that listens, what will you do about your social media habit, your camera, your messaging, your entertainment and all your digital life?

The answer would need to be that the trinket "grows up" into a phone in the future. That is, that at first it seduces with voice but eventually delivers on visuals.

That's a tough sell since the iPhone is not standing still. Apple is not averse to building delightful wearable devices. I expect we'll see home and vision line-ups that expand on the audio wearables (AirPods) and watches. These are best-in-class and have the polish that only Apple can deliver.

To date, the premise was that the newcomers will be "better at AI" but here the race is one with commoditization. Apple can just pick the winners or the pieces once the market shakes out. AI is software and software alone has never been a strong business model. It's too easy to replicate, rebuild, remake, rebadge, redesign.

The argument that the AI agent unbundles the phone is only the latest in a long list of bundle challengers. Although bundling and unbundling are two great ways to enable disruption, it's not an easy thing to pull off.

I've had my share of attempts to unbundle the automobile but it's far tougher than just imagining it or realizing that it's necessary. The problem with the (un)bundling theory is that there is no clear way of predicting the strength of the bundle. Or the strength of the component separate from it.

In the case of the car, the bundle is strong because of externalities such as infrastructures. In the case of the iPhone the bundle is strong because the object is dynamic, changing rapidly, diverse, with wearable accessories, part of network exhibiting network effects and has high value and satisfaction.

Measuring the strength of a bundle and its resilience to unbundling would be a very interesting topic to research.