iPhone 7: Apple's services to move centre stage as smartphone innovation stalls

If you're expecting big innovations to appear in the next iPhone, prepare to be disappointed. You may also be looking in the wrong place.

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Is it time to look beyond the smartphone for innovation?

James Martin/CNET

The Apple rumour mill has already offered a pretty credible list of the new features in the iPhone 7, which is expected to be unveiled later this week.

Some sort of dual camera setup may debut, while the 3.5mm headphone jack is likely to vanish to make room for a new sensor and a second speaker. Storage is finally being revamped to do away with the diminutive 16GB option, as we predicted a year ago, and we may see some new colours and improved waterproofing too.

There as some interesting features in the list, but -- assuming this is all that's announced -- these are modest incremental changes at best. They're unlikely to generate huge excitement, although the demise of the headphone jack will irritate plenty of people.

There are some obvious reasons for this lack of innovation -- the main one being that the iPhone is now a tried-and-tested, nine-year-old product. Apple isn't going to mess too much with the device that brings in the majority of its revenue, so if you were holding out for a clamshell model to debut on Wednesday, prepare to be disappointed.

What else could Apple stuff into the iPhone anyway? There may be a few elements that could be added (my colleague Adrian Kingsley Hughes nominates wireless charging), but little that's likely to make a huge difference to businesses or consumers.

That's not to say we've reached the end of smartphone innovation -- just that it might take a while to happen: the PC didn't change much for years and then rapidly evolved with the rise of two-in-one and hybrids like Microsoft's Surface and Lenovo's Yoga ranges. But smartphones have certainly reached an innovation plateau: although it's possible that curved screens or modular phones will shake things up at some point, it won't happen this year or next.

Watch out for services

For now, it's necessary to look beyond smartphone hardware innovations to understand where Apple is going next.

The company will be looking over its shoulder more because, as the smartphone becomes more of a commodity, the gap between the bottom and top of the market will narrow. Even affordable smartphones can be remarkably good, so Apple has to come up with ways to keep consumers and businesses aboard that aren't just about the hardware.

This means the focus will be on services: the iPhone became a success because it harnessed a multitude of developers to build apps for it. The iPhone will continue to be a success if Apple can persuade users to adopt more of its services like Apple Pay and Apple Music, or to use their smartphones to control their home appliances.

Apple has a strong position here: it has sold more that one billion iPhones and, as analyst Forrester points out, has very limited software fragmentation compared to its rival Android, which makes it "the premium consumer platform for brands and developers." If any smartphone company can make services work, it's Apple.

As for cutting-edge tech, the Apple Watch is where a lot of innovation will happen (visible innovation, anyway, as big chunks of Apple's increasing R&D spend is presumably also going on VR/AR and car technology).

Rumours suggest we're unlikely to see the Apple Watch with built-in cellular connectivity appearing this year, but it's surely on the way -- perhaps next year. Once the Apple Watch becomes a standalone device it will begin the journey from expensive curiosity to a potential smartphone replacement, as innovation -- at least for now -- moves to wearables.

The absence of a significant tech breakthrough in the next iPhone doesn't mean doom and gloom for Apple, which remains in a hugely powerful position. But it does suggest that the market is shifting once again, and that the challenge for Apple is how to respond.

Read more on Apple

Apple Watch 2: How one new feature could help smartwatches step out of the shadow of the smartphone

Apple's HomeKit, coming to a neighborhood near you: Housebuilders preparing for the rise of the smart home

Apple sells billionth iPhone, here are numbers that matter more (TechRepublic)

Looking for big iPhone changes? Wait till next year (CNET)

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