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Apple Fever is upon us.
Again.
On September 21, the Cupertino colossus's new iPhone 5
hit the ground running in the wake of the successful verdict in the company's
legal squabble with Samsung. (For more on that, see last week's Technology Investor.) And run the device did, the Usain Bolt of the techno world – moving five million
units in its first three days on the market and selling out. Apple was forced
to acknowledge that pre-orders outstripped initial supply, and that many of
those customers won't get their phones until October.
These are pretty hefty numbers, even by Apple's lofty
standards (although some market observers were "disappointed");
they easily eclipsed the performance of the iPhone 4, which sold a
"mere" four million in its comparable launch period in October of
2011.
That pace is bound to slow, but William Power, an
analyst with Baird Equity Research, predicts that the smartphone's sales will
reach 8-10 million units by the end of September. Apple, one imagines, would
probably be just fine with that.
Furthermore, the international rollout is proceeding
more briskly than ever before. The phone will be available in 31 countries by
tomorrow and in more than 100 countries by the end of the year. In London's
Regent Street, about 1,300 people lined up to buy the iPhone 5 when it first
went on sale. In Tokyo, the lines stretched several blocks. In Hong Kong,
people carrying rucksacks filled with cash waited outside the city's main
Apple store, hoping to snap up phones for resale.
All is well and good under the Apple tree.
Or is it?
Apple has always exhibited a kind of business
xenophobia, fiercely guarding the sanctity of its manufacturing processes,
its operating system, even the physical integrity of its devices. Even at the
dawn of its ascendancy, there were disgruntled iPod users who found it all
but impossible to perform a simple battery replacement.
To balance that, the company courts – and counts
on – brand loyalty... which it has been getting. With its iOS, for example, it's Apple's way or the highway. If you
don't like it, you can buy someone else's product – which is exactly
what countless millions have done, making Android-based phones by far the
best-selling in the world. Much of that migration has been due to the fact
that Android is an open-source OS, making it easy for multiple manufacturers
to adapt it to their specific needs. "Open source" is a phrase
you'll hear spoken only sotto voce in Cupertino.
Brand loyalty, of course, can be very powerful. Those
who started with Apple products tend to willingly shell out the extra bucks
it takes to acquire them, and to stand by them no matter what. However, in
the end, loyalty depends entirely upon customer satisfaction. Users came to
Apple in the first place because they perceived that the company put out
devices that were way better than the competition. Anything that erodes this
confidence is going to be bad news for Apple.
That's especially true of the iPhone, Apple's
highest-margin product and responsible for half of the company's annual
revenue.
Which brings us to the current flap
over mapping.
Once upon a time, Apple and Google were partners. Well,
sort of. Google Maps was far and away the best service of its kind in the
world. Apple recognized that and has been happy to feature it on the iPhone
since 2007... or, if not exactly happy, willing to
grant Google a grudging acceptance. Apple users expected to find Google Maps
on their phones. Until… well, until they didn't anymore.
The "partnership" dissolved this year. As we
all know, Google makes that OS – Android – that allowed other makers
to cut deeply into Apple's phone business, to the point where the smartphone
originator fell to a distant #2 in sales. Apple was a little perturbed about
that. So, instead of accepting that the company was still doing pretty darn
well in the phone business and that having Google aboard was helpful, Apple
decided to strike back by eliminating the popular Google Maps feature from
its products.
As a placemarker, Apple iOSes had been running a Maps app that was made by Apple
but powered by Google's mapping service. But over the past three years, Apple
has acquired three mapping companies of its own. At the same time, according
to a story on TechCrunch:
"Apple
is going after people with experience working on Google Maps to develop its
own product, according to a source with connections on both teams. Using
recruiters, Apple is pursuing a strategy of luring away Google Maps employees
who helped develop the search giant's product on contract, and many of those
individuals seem eager to accept, due in part to the opportunity Apple
represents to build new product, instead of just doing 'tedious updates' on a
largely complete platform."
With the release of iOS 6,
Apple's latest, and the iPhone 5, the transition is complete. Google Maps is
gone, Apple Maps is in – although consumers will still be able to
access Google's mapping service through a mobile Web browser, a method that
analysts describe as rather clunky compared to an app.
Reaction to the change was swift and often highly
critical. Users complained about the iPhone's inability to navigate by voice,
and also that Apple map searches pull up wrong cities, wrong streets, and
incorrect destinations if they're not spelled out 100% perfectly (Google Maps
can deal with misspellings or variations).
Will Apple work out the kinks? Probably. It's certainly
addressing problems with a boatload of programming talent. Will it ever be as
good as Google? Probably not. For example, Apple may have the cash to send
cars around with cameras to create its own version of StreetView,
but it's doubtful the company would allocate resources to an enormous job
like that.
The likely outcome here is that we'll end up with a
couple of competing platforms – or four, if you throw Blackberry and
the upcoming Windows Phone 8 into the mix – each of which has its
pluses and minuses. That's a lot of choice, and choice is always good for the
customer.
A larger question, though, was succinctly summed up in
a recent New York Times story on the new iPhone. The Times
wrote:
"Anil
Dash, a New York-based entrepreneur, was critical of Apple and its maps on
his blog, writing that Apple had 'used their platform dominance to privilege
their own app over a competitor's offering, even though it's a worse
experience for users'."
Exactly. Apple tends to do that. Always has. The
company has turned the old saying around: It's not ignorance but arrogance
that is bliss. Apple is fully capable of kicking even its most ardent
devotees in the teeth, hard enough and for long enough that they eventually
seek out dentures from a new provider.
For a long time now, Apple has devoted considerable
effort to essentially isolating itself from the rest of the tech world. In
the past, it was able to use Steve Jobs' avuncular presence to smooth over
the feelings of fans unhappy with annoying proprietary developments of one
kind or another. Will Jobs' absence alter that equation?
That remains to be seen, but the primary reason Apple
has been able to get away with what it does – and become the largest
market-cap company in the world along the way – wasn't Jobs. It's the
widespread confidence that everything it brings to market is the best. The
flip side of that is that Apple can't afford any cracks in that wall of
belief.
Thus it must continue to innovate – and innovate
better than anyone else – in order to be demonstrably better and
continue to justify its pricing model. That's a tall order... and one that is
ultimately unsustainable. Any company that fails to keep up in a
crowded field can be taken down, way down, and fast. As Bob Dylan sang a
long, lonesome half-century ago, "The first one now will later be
last." Right now, with Apple, that seems utterly inconceivable. But it
happens. Just ask RIMM.
So should you short Apple stock? No. iPhone 5's early
sales figures plus the advent of a new iPad (or
Pads) strongly suggest that's still tantamount to a financial death wish. But
Apple has built a structure with a lot of vulnerabilities to it, and you can
be sure that the market is watching the company very closely. Any missteps
will be punished severely.
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