Fifteen years ago, I bought my first iPhone in Denver, Colorado. Not entirely coincidentally, I was on holiday in the US. I did not have to queue up, but walked into the Apple store in the afternoon. The iPhones with 4 and 8 Gb flash memory were sold out, but the one with 16 Gb was still for sale.
This iPhone would change the world. First of all, the world of mobile phones. Before the iPhone, smartphones had lots of buttons. Entire keyboards were glued to mobile phones, but people who used them to surf the internet were mostly pathetic. In the financial world, the Blackberry was popular, but thanks to the iPhone, that too was soon over. It was adapt or die. Nokia was a powerful company in 2007, until the introduction of the iPhone. Samsung changed all its mobile phones in one weekend. No more buttons, from now on they are touchscreens.
It is easy to underestimate the impact of the iPhone on the economy and the investment world. In 2007, the developers of the iPhone could not have imagined how this device would change the world. The iPhone created a new technological ecosystem that has shaped the stock market ever since.
Disruptive innovation
In combination with the mobile Internet, numerous applications quickly became popular. You name it, there is an app for it. Before the iPhone, the vast majority of visitors to the Internet surfed via a PC. Thanks to the iPhone, the mobile phone became the most important gateway to the Internet. From now on, it was ‘mobile first’. That meant that virtually every Internet application could only become so popular because of the iPhone.
Without the iPhone, social media would not have been a success. Suddenly the world was much more connected than before. Entertainment, shopping and many businesses use social media for promotion and marketing. The iPhone also allowed new applications to be rolled out worldwide at a rapid pace. New apps quickly went viral worldwide. This meant that young companies could grow and mature very quickly. The technology of the iPhone also meant that existing companies were tackled by a new digital competitor - the term disruptive innovation was born. Together with low interest rates, this means that there are more zombie companies than ever.
Disruptive innovation means that thanks to a specific technological development, a new product or service is superior to existing alternatives and can therefore gain market share at a rapid pace. In fact, these disruptive innovators then become monopolists. At the moment, this means that inflation will prove to be much more persistent than expected. Monopolists are not known for their sharp price competition.
Network effect unprecedented
The fact that people are now constantly connected to the Internet also means that network effects are having a much greater impact on normal life. These network effects were decisive for the choices made during the corona crisis. Suddenly, thanks to social media, public opinion gained a lot of power. The result was that many governments were forced to take draconian measures - a stark contrast to Sars, but then there was no social media. Social media also played an important role in the war in Ukraine.
Through Zelensky’s actions, Ukraine had quickly won the media war. Without that action and the reaction to it on social media, the sanctions against Russia would probably have been much less severe. Now the Americans even seem to be pushing for regime change and the matter has escalated to the extreme. Just like during the corona crisis, the battle is being fought and politicians are using social media for all kinds of purposes, including escalation. There seems to be no way back.
iPhone made a lot of things disappear
The iPhone made many things disappear. First of all, the camera, which is now the iPhone. But also advertisements, encyclopaedias, address books, maps and even phone books. In 2007 I was talking to an investor in leveraged loans and what immediately struck me about the portfolio of loans was that it included different variants of the yellow pages, from Pages Jaunes to Yell. That seemed like a high risk, but there was a big contrast between the portfolio manager’s UK market and my perspective from the European continent.
Yell was initially very popular in the UK, while on the continent everyone was exchanging telephone directories and yellow pages en masse for Google’s mobile variant. Not long afterwards, loans to these companies turned out to be less than expected. The music and film industry also had to reinvent itself as a result of the iPhone, the fact that people can consume music and film ‘on demand’ has completely changed business models. Even the outdated technology of podcasts is popular again. Thanks to the iPhone, there is no longer such a thing as long-distance telephony. There is an app for that.
The iPhone was a real game-changer. Anyone who can assess the potential of such game changers in time can benefit greatly from investing in them. Consumers gained much more power: ‘Power to the consumer’, ‘no more barriers to entry’ and ‘internet kills the middle man’. Apple shares have done well over the past fifteen years, but that pales into insignificance compared to the returns on Sunny Optical shares, a Hong Kong company that makes the lenses for the iPhone.
What are the new game changers?
Still, the iPhone has contributed greatly to the outperformance of US stocks since then, also because Apple itself has become the largest company in the world. Tech companies have played a major role in this outperformance and they are almost exclusively based in the United States. Now that the Big Tech market seems reasonably saturated, the question arises whether there are any new game changers. Europe, for example, is leading the way in the field of energy transition and that could be a segment that carries the stock market in the next fifteen years.
After all, after every bear market, the leadership changes. Also, biotech, for example, is about to make a huge growth spurt, while valuations are lower than ever. The digital renminbi is also often mentioned as the new gamechanger. It enables the Chinese to escape the hegemony of the United States in payments, and this digital currency could become a mobile reserve alternative to the dollar.
Thanks to the iPhone with IOS, an alternative operating system has emerged alongside Microsoft Windows, so the digital renminbi could be that game-changer in a world of dollars. Furthermore, the iPhone has mainly revolutionised the consumer side and now it seems time for a revolution on the producer side. Increasing labour shortages and improvements in automation and robotisation will probably mean that we will soon be producing much more with far fewer people.
Han Dieperink is chief investment strategist at Auréus Asset Management. Earlier in his career, he was chief investment officer at Rabobank and Schretlen & Co. His contributions to Investment Officer Luxembourg appear on Thursday.