Apple is finally paying for its hubris

Color me surprised. Just a few months ago, Apple announced its new phones, iPhone XR, along with the XS and XS Max — and I thought they had hit it out of the park. At the high end, the XS and XS Max continued the push toward bigger, more powerful phones, while the XR featured most of the benefits of its more expensive brethren at a more reasonable price. With Apple covering a broad swath of the market, I predicted a huge holiday quarter.

It seems I was mistaken. Though it's still too early to tell how bad things are, a pall now hovers over Apple as reports of cut production targets and weaker sales have sent the stock plummeting 25 percent. Goldman Sachs has downgraded the stock twice on worries Apple's lineup is too expensive, too familiar, and just not appealing enough. Suddenly, it seems the sheen has come off the world's most valuable company.

If I am a bit surprised, one imagines the execs at Apple are only more so. The company has become perhaps the defining emblem of the digital age, its products and brand ubiquitous, its profits unprecedented. But perhaps it was just that success that led to the current situation — a mixture of hubris and comfort leading it to rest on its laurels. Most of all, however, it appears Apple has given up on what made it most successful: a willingness to cannibalize itself and create new categories.

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It is not that Apple has put out bad products. By all accounts its new iPhones are the best yet, and indeed, I and many other tech journalists still believe that the iPhone is the best phone you can buy.

Rather, it is the context into which the new devices were introduced that has changed. For one, the smartphone market has matured: Radical new features are few and far between, and there is functionally very little difference between a brand new phone and one from a year or two ago. That same maturity means phones don't go obsolete as quickly, so people hold onto their devices for longer. Ironically, Apple's own efforts haven't helped; the newest version of iOS improved performance on older phones, giving users less reason to upgrade.

At the same time, Apple hasn't done itself any favors. Consider that recently, Apple announced it was going to stop reporting the unit sales of its devices. The reason was simple: As the market becomes saturated, Apple didn't want to publicize stagnant or declining sales. Instead, it looked to keep on increasing profits by upping prices, a fact made most clear by the new iPhones. An iPhone XS Max costs more than many laptops, including Apple's own new Macbook Air. It's hard not to get the sense that Apple is Icarus, and the wax holding its wings together is starting to melt.

For years, Apple's fanbase seemed willing to follow it anywhere, including the land of higher prices. But the company might be pushing that goodwill too far. Not only is the iPhone more expensive, so is every new product, from new laptops to the Watch to the iPad Pro. Like the iPhone, however, competition has made those prices harder to swallow. The new Macbook Air, for example, is not only more expensive than its competitors, it's also slower. The iPad Pro wants to be a model of mainstream computing, but it's easy to spec one out to be more expensive than a MacBook Pro.

Perhaps this was inevitable. There is a cultural effect that comes with market dominance in which companies become both complacent and defensive precisely because of their success. Just ask Microsoft, a company which almost became irrelevant when it was unable to leverage Windows in the mobile era (but now appears to be on the right course under new CEO Satya Nadella). Apple risks falling into the same trap.

What made Apple successful were three things: First, it perfected new categories of devices, such as with the smartphone. Second, it was willing to cannibalize its own products, as when the iPhone swallowed the iPod. And finally, it had as its mantra to skate to where the puck was going, not where it was.

On all three counts, Apple now appears to be failing. New categories like smartwatches and hybrid computers are still without mainstream appeal. The company has become complacent in its reliance on the iPhone; as ever-astute tech analyst Ben Thompson has pointed out, Apple may well become a rent-seeking company that tries to extract service revenue from established customers. And finally, there is little sense that Apple is inventing the future of tech, having ceded innovation to Amazon, Google, and even Microsoft.

To be clear, most consumers are still well-served by Apple — at least, if they can afford their stuff. But in the mid- to long-term, the once unflappable company appears to be on the precipice of either a big change or irrelevance. It got to this point because of arrogance. Sure, as the world's biggest company, it earned its braggadocio. But some truths in tech are timeless: Everyone gets disrupted, and the bigger they are, the harder they fall.