Apple is not the place to look for innovation anymore
Can Apple innovate? Of course they can. Will they, every again? Not on the iPhone, in any significant way.
Simple put, innovation implies a risk, a gamble. You did something crazy, and it caught on... innovation is really just that, a judgement call. If it's not subject to failure, that's a pretty good indication you're just extending what already works. That's all over the iPhone 5, as it should be. And of course, if your risk is not well received, you may lose customers.
Apple doesn't have much to worry about, as long as they keep the iPhone relevant. There are many iPhone users who are simply not going to look anywhere else for a smartphone upgrade. The iPhone 5 is less about luring in potential Samsung SIII buyers than it is luring in current iPhone 3GS or iPhone 4 buyers. Or 4S... Apple gets more people breaking their contracts to get the latest thing than any other smartphone company.
Apple also delivers just one iPhone per year. They absolutely have to get that right. They're on top, and it's much easier to imagine falling than to imagine claiming more phone market share. All of this means that it's in Apple's best interest to keep doing what they did last year, only in a 2012 footprint. Which is exactly what the iPhone 5 does. That's incremental change, though, no revolutions, thus, no potential to be judged as innovative.
In fact, the one big hardware change is the docking connector, and that's also the one big controversy. That's fairly low risk... it may have a few buyers waiting to upgrade, but it's not as if every iPhone user has a stockpile of expensive add-ons. They've managed to keep annoying the Europeans by not going to microUSB, but no more so than with the previous models. Some of this is just keeping up with the Joneses (and in particular, Samsung Jones and Motorola Jones) -- the old dock connector was looking pretty thick, and didn't make it easy to put the headphone jack on the same edge.
