Using your example is the perfect illustration that capitalism isn't good at creating innovation. The market for phones has settled and the market leaders have no reason to use resources to create something new that might even be better. That would risk their money and it'd also risk their dominant position in the market. It's more efficient (if profit is your measure of efficiency) to hinder competition.

If profit isn't the incentive and experimentation is, people will play around with new ideas and create new things, much of which will suck but some won't. Just look at makers online. They invent new things just for the fun of creation. Sure, some profit from viewership online (we've all got to survive and we live in capitalism), but not by focusing on the profit of a product. Occasionally something groundbreaking comes out of those spaces, and frequently they create small innovations that improve things.

The same stuff applies to open source software. Reddit became horrible because it was chasing profit, but now we have Lemmy, Mastodon, and the rest of the Fediverse entirely independent of profit motives.