In 2007, Apple changed the mobile phone industry forever with the introduction of the iPhone. Nearly 15 years and over 2 billion units sold later, the iPhone has become one of the most successful and influential products in history. This is the story of how Apple went from an underdog in the mobile phone market to overtaking industry leaders like Samsung and Nokia to have the best-selling smartphone in the world.
The Early Days of Apple
Apple was founded in 1976 by Steve Jobs and Steve Wozniak. In the 1990s, after Jobs had been ousted from the company, Apple went through tough financial times and was written off by many as a dying brand. When Jobs returned to Apple in 1997, he focused on revitalizing their computer business first before venturing into consumer electronics.
At the time, Apple was predominantly a computer company, doing around $6 billion in annual revenue. In 1998, Jobs introduced the iMac which helped jumpstart growth. But by 2001, revenues had declined to around $5 billion annually as the original iMac boost had faded.
That same year, 2001, Apple took its first step towards entering the consumer electronics space with the launch of the iPod – a portable digital music player. The iPod went on to be massively successful and was credited with reinventing Apple’s image in the eyes of consumers and investors. It showed that Apple could be more than just a computer company.
The majority of Apple’s growth between 2001 to 2007 came from iPod sales. But the mobile phone market remained untouched by Apple until 2007.
The Mobile Phone Landscape Before the iPhone
Prior to Apple entering the mobile phone arena, much of the innovation and development was happening outside of Silicon Valley. In Europe, Nokia dominated with popular handsets like the Nokia 3310. In Canada, Blackberry was leading with its email-focused phones and QWERTY keyboards. Palm had the Treo smart devices. And Microsoft was trying to make headway with its Windows Mobile OS.
When Steve Jobs and Apple assessed the mobile phone market in the mid 2000s, they found it to be fragmented and frustrating to use. Jobs believed that the category was ripe for reinvention. Other smartphone players at the time like Nokia, Blackberry and Microsoft failed to build an integrated end-to-end system that combined hardware, software and services. And none had attempted to build an easy to use, consumer-friendly device. This was the opportunity Jobs and Apple decided to pursue.
The Introduction of the iPhone
In January 2007 at the Macworld convention, Steve Jobs introduced Apple’s revolutionary iPhone to the world for the first time. It was a watershed moment in tech history. Jobs proclaimed that the iPhone was three devices in one – an internet communicator, an iPod, and a phone.
The iPhone was a slate form factor touchscreen device with no physical keyboard. Competitors like Blackberry criticized the design for lacking a hardware keyboard which they believed business users needed.
Apple’s aim was modest – to take 1% of the mobile phone market share in partnership with carrier AT&T. The first iPhone retailed for $499.
But many industry veterans and competitors were highly skeptical that Apple could make a dent. Steve Ballmer of Microsoft infamously dismissed the iPhone, saying it was “the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard.”
The Early iPhone Sales Underwhelm
When the iPhone launched in June 2007, Apple sold 1.4 million iPhones worldwide in 2007. 80% of these sales came in Q4 of 2007. While the sales numbers seemed big, it paled in comparison to incumbents like Nokia which was selling over 385 million mobile phones per quarter in 2007. Investors took note of the relatively slow initial sales as a sign that the iPhone would struggle to gain traction.
But there was a turning point on the horizon for the iPhone – the introduction of the App Store.
The App Store Changes the Game
The first iPhone did not allow third-party apps to be installed. It was limited to the stock apps developed by Apple. However, in 2008 Apple launched the App Store, allowing anyone to develop and distribute apps for the iPhone.
This was a game changer. The App Store spawned a whole new app economy and allowed developers everywhere to build for the iPhone. Popular apps like Instagram, Uber, WhatsApp, and TikTok may never have taken off if it weren’t for the App Store ecosystem.
The App Store is credited with being the defining feature of the iPhone. It turned the iPhone from just a phone into a powerful mobile computing platform. The App Store led to the demise of less adaptable competitors like Blackberry which couldn’t match Apple’s app ecosystem. And it cemented Apple’s leadership in smartphones.
After the App Store launch, Apple’s iPhone sales took off. In 2011, the iPhone 4S helped Apple surpass 50 million iPhones sold in a single year for the first time. And by 2015, Apple was selling over 200 million iPhones annually. Today, Apple has sold over 2.3 billion iPhones cumulatively.
The Impact of the iPhone on the Tech Landscape
The iPhone sparked a revolution in the mobile phone industry. After its release, the iPhone became the standard that all other smartphone makers sought to replicate. It popularized the slate touchscreen and app ecosystem model that dominates today.
The iPhone’s impact went beyond just phones. It transformed many businesses across tech and beyond. Companies like Facebook and Uber adapted to capitalize on mobile computing and built top-tier iPhone apps. The iPhone ushered in a new wave of consumer tech companies. Traditional industries like healthcare, education, transportation and more were disrupted by the mobile-first capabilities of the iPhone.
In 2008, Apple became the most valuable company in the world by market capitalization. A decade after launching the App Store, Apple reached a historic trillion dollar market cap – the first US company to do so. Today, Apple is worth over $3 trillion.
The iPhone caused a paradigm shift where mobile computing took center stage away from the desktop PC era. It will go down as one of the most significant and influential products of all time.
Apple vs. Samsung: The Smartphone Rivalry
Once the iPhone took off, a two-horse smartphone race emerged between Apple and Samsung to dominate the smartphone market.
Samsung is a South Korean conglomerate that manufactures everything from home appliances to memory chips to insurance. They have a massive scale advantage over Apple with over 250,000 employees and revenue over $200 billion compared to Apple’s 150,000 employees and $394 billion revenue.
In the mobile division, Samsung held the global smartphone market share crown since 2010. But Apple overtook them in Q4 2021 to become the top smartphone vendor worldwide for the first time since 2016.
What allowed Apple to topple Samsung? A few key strengths:
The Apple Ecosystem
Switching costs are high for iPhone users who are ingrained in Apple’s ecosystem across services like iMessage, iCloud, Apple Music, Apple Pay and more. Samsung cannot match this depth of integration. The Apple ecosystem retains users and makes them less likely to switch to Android.
Profitability
Apple commanding premium pricing and margins on the iPhone. The average iPhone sells for $800, nearly 3 times the average selling price of Samsung’s smartphones. This leads to huge profitability differences. Apple captures over 90% of smartphone profits globally even while only having 20% market share. Samsung on the other hand operates on razor thin margins.
Chip Design
Apple’s custom designed silicon like the A-series chips give it performance and efficiency advantages. Samsung uses mainly Qualcomm Snapdragon chips. Apple’s M-series chips have industry leading performance for machine learning tasks. This allows Apple to lead in areas like computational photography.
Privacy
Apple touts the iPhone as being more privacy focused than Android devices like Samsung’s. Private, on-device computing for features like facial recognition are a differentiated selling point.
While Samsung continues to be a formidable competitor, Apple has managed to pull ahead thanks to ecosystem stickiness, premium branding, silicon expertise, and a focus on privacy.
The Road Ahead for Apple and the iPhone
15 years after launching the original iPhone, what does the future look like for Apple and the iPhone?
Apple is facing slowing iPhone sales like the broader smartphone industry. The iPhone 13 saw single digit sales growth vs previous models. Consumers are holding onto devices for longer periods before upgrading. But Apple still relies on the iPhone for over 50% of its revenue, so they need to keep the upgrade cycles flowing.
To reignite growth, Apple may look to expand their services business which includes offerings like Apple TV+, Apple Fitness+, Apple Arcade, and more. Services made up 20% of Apple’s revenues in 2021.
Another potential growth area is furthering their lead in silicon. The M-series processing chips designed by Apple are considered the best in class and a core differentiator for Apple. Investing to push M-series capabilities even further could allow revolutionary user experiences. Augmented and virtual reality applications could be long term projects powered by Apple silicon.
Machine learning and artificial intelligence also provide opportunities to differentiate the iPhone, especially in on-device computing. Private, low-latency, AI-enabled features can improve everything from computational photography to personal assistants. Apple is behind peers in areas like natural language processing today but they are investing heavily in machine learning talent.
And as always, Apple is surely working on the next big hardware product category beyond the iPhone. Whether it be AR glasses, an autonomous electric vehicle, or revolutionary new wearables, Apple will continue trying to disrupt new markets.
But even as Apple expands into new territories, the enduring legacy of the iPhone’s impact is undisputed. The iPhone upended the status quo and created the smartphone-centric world we live in today. For any company looking to create a world changing product, the iPhone serves as the blueprint. Apple took a languishing product category and through superb design and technical capabilities unleashed a product that became an extension of hundreds of millions of people’s lives.
Nilionanini 
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