Where We Could Really Use the "Next Steve Jobs"

A lot of people focus on the smartphone market, and complain with each new Apple product that... Steve Jobs would have done something different, or better, or both. Steve Jobs brought something unusual to Apple, specifically a willingness to make huge gambles on theoretical technology, and to release products that could turn out to be failures. Apple seems to have become exceedingly cautious, but I'm not sure that is so much the result of a change in the company's philosophy as it is a change in consumer expectations. The iPhone 4 antenna issue, and the Apple Maps brouhaha, suggest that consumers want nothing less than perfect and, rather than launching risky products that might inspire a mixed reaction or turn out to be the next Newton (or Zune), caution has spread across the industry.

The real story behind the focus on portable electronics is not so much that a life-changing innovation is just around the corner. It's much more that there is profit in the upper end of the market, the mass market having already been commoditized. Smartphone advances reflect the importance of competition as, even though Apple sees the rise and fall of Nokia as a cautionary tale, history suggests that product development in a commoditized market tends to be slow. Most companies see little to no point in spending hundreds of millions of dollars to marginally improve a product that will likely sell at the same price point as before. That's the sort of context in which a short-sighted CEO of a company like Hewlett-Packard might decide that it no longer makes sense to fund research that is not directly aimed at turning a profit, or why a similarly short-sighted company's products might go from excellent to "good enough" in order to increase margins by decreasing production costs. (Am I talking about the same company?)

One might argue that televisions have seen marked advances in technology despite being a largely commoditized market, but that has been driven in no small part by the introduction of HDTV and the money poured into the development of new displays for computer users and commercial settings. Even in that context, major players like Panasonic have a very difficult time turning a profit, and the pool of companies that produce television displays and sets is not expanding.

One area that has seen a surprising lack of innovation is the desktop computer market. That's in part because it's a tough nut to crack - computers do pretty much what we want them to do, there are no obvious ways to dramatically improve the user interface, and the technologies for interacting with computers other than through a mouse and keyboard tend to focus on niche users or turn out to be largely impractical. It may be that one day we'll have displays and "no touch" gesture controls as shown in the film, "Minority Report", but that's not on the horizon. Basically, the desktop computer market seems a lot like the television market. To the extent that incremental improvements are seen, they're in no small part the result of R&D in the mobile marketplace. The biggest "innovation" we've seen in a desktop operating system was Microsoft's annoying, clumsy interference with the user experience by putting a "smart tile" display between the computer user and the desktop - that is, they tried to make the desktop experience more like mobile, never mind whether that makes sense. Apple has made similar, albeit less in-your-face changes to its desktop operating system, with its Launchpad and App store, but they're really not part of the ordinary desktop experience.

Somebody commented to me recently that Apple seemed to be "giving up" on the competition for desktop computers. I responded that they're chasing money and market share, and that right now they can find both in the mobile space while there is little incentive to try to claw out a greater market share in the desktop market. The cost of significantly expanding their desktop presence would be significant, and there's really not much money to be made in that market. Were Apple to start producing $300 - $600 portable computers it might find a market, but it would have to make the quality cuts that are readily apparent in computers in that price range, potentially costing it brand loyalty over the long run in the same manner that the low quality Apple products of the Sculley era damaged Apple's reputation and competitiveness. Why mass produce low-cost computers that have to be sold at tiny margins and that would likely have an impaired user experience, when you can continue to sell $1000+ computers that people enjoy using, and sell millions of highly profitable iPads to the sub-$1,000 market?

Really, though, the desktop industry needs to be woken from its complacency, much in the manner that Google and Apple rebooted then-stagnant browser development with Chrome and Safari. The problem being, you either need a company that sees a long-term gain in developing new technology at a significant short-term cost, the way Xerox PARC laid the foundation for the computer mouse and windows-driven displays, or because they don't want to be indentured to a competitor's product. And if you take the HP Labs / Xerox PARC approach, you also need a visionary who can see how a new idea can be improved and put into widespread use - after all it was Apple, not Xerox, that turned the mouse and menu/windows-driven interface from an impractical lab-based demo to the desktop standard.

The manner in which the world, and Apple, has changed is perhaps best illustrated by today's quiet announcement that the iMac has been updated. You can go to the Apple Store and buy one today - but the new version isn't even flagged as "new". A secondary illustration comes from the Mac Pro, the high-end computer Apple develops for the professional market, which is soon to be released in an innovative new case. But that's innovation in the same sense as the Mac Mini was an innovation - great design and packaging, but nothing you couldn't have accomplished in a traditional mini tower case. Apple did promote the redesigned Mac Pro, some months back, but when will it actually come to market? Later this year. There's no sense of urgency, as there is in the highly competitive mobile marketplace.

An argument can be made that when a technology reaches a certain point of maturity, all new developments will be incremental. Perhaps the keyboard and mouse-driven desktop computer are pretty much it - and unless the entire concept is reinvented (much as the iPhone reinvented the smartphone market) this is it. People seem disappointed when the new "state of the art" smartphone looks like the old one - as if there's a great deal you can do to differentiate the hardware of a typical smartphone in ways that are obvious or exciting. Even in that market, unless a new, disruptive technology comes along the biggest future changes will come through software. In fifteen years, today's typical smartphone and tablet apps are likely to look about as sophisticated as Pong. But still, it would be nice to have a sense that somebody out there - somebody positioned to disrupt the market - was looking at "impractical, unworkable" new ideas from a different angle, and asking, "What if...."

The Not-So-Cheap, but Colorful, iPhone

With Apple releasing a "cheap" iPhone that's $100 less expensive than its flagship model, and with the price gap being even smaller in China, the Wall Street Journal opines that the new iPhone may not be cheap enough for China.

With the cheaper phone, Apple will no doubt gain sales and market share. But it will still fail to reach the majority of city dwellers, according to a projection from the Wall Street Journal based on income distribution data from research firm CEIC Data.

The projection, developed in consultation with analysts, assumes that a working, urban family would be willing to spend, at most, half of its total monthly income on a single smartphone. Working on that assumption, around 260 million Chinese urban residents could potentially be willing to buy the iPhone 5c. That means cheaper iPhone effectively doubles Apple’s addressable market from the 125 million who would be willing to shell out for the more expensive handset.

My guess? Apple will sell iPhone 5c's as fast as it can make them, rendering moot the idea that it would sell more at a lower price. You can only sell your product as fast as you can make it. The new design is visually striking, and I think that's about more than just giving people a variety of colors to choose from. I think Apple designed the 5c with the goal of letting its customers in nations like China telegraph to their peers, "I can afford an iPhone." Given how status-conscious and luxury brand-focused Chinese consumers are reported to be, that's no small consideration.

It also means that an Apple phone is still too pricey to appeal to roughly 430 million people, or 62% of the country’s urban population.

So... only 263 million prospective customers, who happen to be the more affluent members of Chinese society. Apple sold 31.2 million iPhones last quarter, worldwide.

I appreciate the article's assertion that most Chinese consumers are looking for a phone that costs less than half of the price of a new iPhone, with many wanting to pay less than a quarter. But that's not a market that Apple is presently willing to serve, nor would it make sense for Apple to abandon its traditional business model and to start producing iPhones that could be sold at that price level. Will that give Android an advantage among bargain hunters? Yes, as will the array of larger-screened Android phones. But you don't make profits by selling low-quality merchandise at razor-thin margins, which is why Apple and Samsung are the only mobile phone manufacturers who are presently earning a significant profit from phone sales.

Smartphones will eventually become commoditized, a process that is accelerating with the release of attractive Android phones from several of Samsung's competitors. Apple won't be able to sustain its margins forever, although it is positioned to be the last man standing. The trick then becomes, how to leverage your platform into continued, significant profits. Apple has a number of advantages in that respect, including the fact that it has been careful to maintain backward compatibility in its devices. With most iPhones running the latest version of iOS, and with every iPhone built to Apple's standards, third party manufacturers can develop products and services that connect with the iPhone much more easily than they can with Android devices. It can only help Apple if, while Android remains the operating system of choice for bargain hunters, it holds its position as a phone of choice for affluent consumers around the world.

Even as the WSJ article suggests that Apple needs to make cheaper phones, it acknowledges the problem with that position:

Ma Tao, who owns a shop on the second-story of the electronics mall, echoed concerns that have already been voiced by some analysts: that the new phone would lead to a short-term spike in sales, but that it would erode Apple’s reputation as a maker of luxury high-end phones in the long run.

Meanwhile, the phone vendor they interviewed suggests that Samsung sales in China will suffer as customers opt instead for a considerably cheaper, Chinese "equivalent". It may turn out that Chinese consumers opt for the flagship iPhone, in silver, graphite or tacky gold, and those products are also designed to telegraph, "This is an iPhone". I'm taking a "wait and see" position on whether keeping the price "that close" will turn out to be a mistake, but I'm suspecting that for now it's a good move to maintain luxury pricing and to appeal to brand-conscious Chinese consumers, giving them a discount but also a brightly colored excuse to argue, "I picked this one because it's my favorite color, not because I wanted to save money".

I think that the article glosses over one of Apple's significant problems in the Chinese market - the size of its displays. The concept of a phone that you can operate with one hand is great, and Apple should continue to offer the standard sized iPhone. But if you've ever squinted at a small screen, consider what it would by like to read Chinese or Thai characters on an iPhone screen, or to enter text in an Asian script. Then consider the population that wants a bigger screen because it's better for videos and games. Or because they only want one device, and are attracted to the phablet.

If I were Apple... and I admit an uncanny knack for being incorrect in my Apple-related predictions... I would be thinking about releasing a larger-format iPhone no later than a year from now, and ideally in the spring.

Protecting Your Apple in the Big Apple

Apple is reportedly working with the NYPD to help locate stolen iPhones and iPads.

Last time I was in NYC, there was an unsavory looking character standing near the turnstiles of the subway. My wife took out her cell phone and his eyes lit up... followed by a change of expression that said to me, "Oh crap, it's a Blackberry."

A Walled Garden, Yes, But....

A persistent criticism of Apple is that, with the iPhone and iPad, they have created a "walled garden", limiting what users can do on the devices and restricting which vendors can sell applications that will run on them. For example,

I have no plans to be captured by the Apple ecosystem. It is the height of control-freakery, with Apple telling app developers and even journalists whether what they sell through its storefront is acceptable. Apple wants customers to live in its gorgeous walled garden. No thanks, I prefer to make my own decisions.

It's a fair criticism to a point. Inherent to its business model, Apple does restrict what you can do with your iPhone and iPad. From the technological side, the restrictions keep malicious programs, viruses, worms and the like off of the devices, as well as avoiding technology that causes frequent crashes or drastically shortens battery life (sorry, Flash). Apple was savvy enough to recognize that users would blame it, not software companies, for crashes or for short battery life. Second, yes, by controlling the storefront Apple gets a cut from every product it sells. Apple has made some mistakes in excluding apps from its App Store, and imposes restrictions that keep certain apps out of its store, but pretty much all of that content can be accessed through the browser build right into the device.

The complaint reminds me of the early days of computers, with the introduction of the Mac and mouse. If you remember that era you may recall hearing from PC aficionados that a GUI was too limiting - that you were removed from the real power of the line command, a faster and more efficient means of controlling your machine. That's true to a degree, but even when they were forced to use line commands, most users learned little more than they needed to learn in order to run basic software packages. With improvements to GUIs, most computer users never even fire up a command prompt. Yes, probably 5 - 10% of computer users like and benefit from at least occasional use of a command prompt, most computer users were happy to see it go. The iPad and iPhone can be accused of continuing in that direction: making that same 5 - 10% of the potential user base grumble about it being difficult to program or customize iPads, the pros and cons of "jailbreaking" a device, etc., but producing an easy-to-use stable product that the other 90% of users enjoy.

But if you look at things from another perspective, the iPhone and iPad have, at least, made the cage a lot larger. Consider what was available on the market before the iPhone. If I wanted to develop a software product for the Blackberry or Palm, what was the mechanism through which I would have been able to push it out to the masses? What about a cell phone app - what if I wanted to produce software to run on Sprint's phones? What if I wanted (or want) to sell a VOIP app that will run on any cell phone and let people switch from their cellular minutes to making calls over an Internet connection at a coffee shop? Apple has produced beautiful devices that make us recognize that a cellular phone or tablet-type device is in fact a computer and is capable of doing more than its maker allows (unless you jailbreak the device) but while you're still in a cage, the cage is enormous as compared to what other handset manufacturers previously allowed (and in many cases what they presently allow).

I don't know if the author is a power user. I don't know if he's off writing apps for his Android phone, or if he considers it to be an exercise in freedom to watch Flash videos through a cell phone browser. I suspect that, as with most of the people who used to talk up the freedom and power of the PC's historic command line, it's an "I like to know that I could modify the OS and write my own Apps if I wanted to, and learned how, even though there's no realistic chance of either actually occurring." Let's say, however, that he wants to write and market an app for Android devices. Does he have a realistic option other than selling it through Google's app store or Amazon's app store? If he produces a product that competes with an add-on service from a cell phone carrier, can he be sure that his cellular service won't block or disable the app? That is, where in this market can I find the garden that is not walled - let alone one that has not been forced to expand in response to the iPhone?

As tablet computers become more powerful and capable, we may move into a future in which your cell phone can truly be your personal computer - use it on the go with it's built-in screen or use a wireless connection to have it power a monitor and keyboard for full computer functionality. If that's what the market wants, that's where Apple, Amazon, and the larger world of Android devices will go.

Watch Ads and Earn...

Apple received a bit of media attention recently for a patent that describes hardware-based verification that somebody has watched an ad on their computer or mobile device. There was some speculation at the time that the goal might be to give away free hardware, with users watching ads in order to keep (for example) a free iPod or iPhone unlocked and working. Then Apple acquired a music streaming service - ten cent songs. Then it acquired Quattro Wireless, a firm specializing in mobile ads.

Some have speculated that Apple may use its aforementioned patent to offer free or steeply discounted hardware, requiring people to watch ads to keep it unlocked. That's possible, sure, but I am not betting on it. I don't think it's much fun to have to keep unlocking your hardware, nor do I think it's particularly sensible to give away hundreds of dollars of hardware in the hope that people will actually watch ads as opposed to dumping it in a drawer, while also diminishing any sense of exclusivity among those who have (and would continue to) pay for the same hardware without the ads.

I suspect that what we're going to see is a set of products aimed at people who might otherwise be inclined to get their music through unlicensed sources. Rather than trying to find an mp3 file online or through P2P services, they can watch an ad on their iPhone or iPod to get access to the song, or possibly even access to a streamed library of music otherwise available by subscription. Advertisers are happy because the demographic they're targeting can be confirmed to be watching their ads. Record company executives are happy because they get more revenue. Apple is happy because it sells more hardware to people interested in 'free music' - and those customers are happy because, although they have to watch ads from time to time to access everything they want, they don't pay anything out-of-pocket. Meanwhile the very broad patent language warns other manufacturers (such as you known who) that they aren't allowed to implement the same feature on their products.

And for people who are happy with the status quo, nothing changes.

Then again, based upon my track record of trying to anticipate moves by Steve Jobs, I'm probably completely wrong. ;-)

Irate Over The iPhone

It's not quite the column I would have expected from him, but I think Eugene Robinson got it about right:

Jobs was quick to realize that you have to sell image along with the gizmo.

This time, though, he has failed to live up to one clause in his implied contract with iPhone buyers. The sky-high price was supposed to guarantee a decent period of exclusivity. For a time, if you bought an iPhone, you were supposed to be the envy of your friends. The ability to show off all the neat things it could do was your compensation for the fact that the iPhone didn't really change your life.

The price drop wasn't unexpected - as Jobs observed prior to recognizing the scope of the backlash, that's part and parcel of buying new technology. The problem was the magnitude of the price drop. Over at A VC, a millionaire venture capitalist presents what to me seems to be a microcosm of the uproar:

• I don't want an iPhone.
• I got an iPhone for my birthday.
• I'm perfectly happy to treat my iPhone, still in the factory-sealed box, as a $599 paperweight.
• I'm outraged that my $599 paperweight is now a $399 paperweight!

I admit that I was surprised by the magnitude of the price drop - I had expected a $100 drop - although if you look at the sales figures, this really shouldn't be a surprise. The iPhone's sales figures were impressive, but it was apparent that sales were well below expectation and there are rumors that AT&T was insisting on price reductions (recall that they're contractually forbidden from discounting the iPhone).

Also, with the launch of the iPod touch, there would have probably been concerns about how many people would choose to carry two gadgets (their current cell phone plus a 'touch') as opposed to switching over to the iPhone. (At the same time, I believe the 'touch' has been overpriced so as not to eat into either the sales of Apple's remaining iPod inventory at the lower end, or the continuing sales of iPhones at the higher end. I expect a $100 price drop, or a $50 price drop with a significant bump up in RAM, after Christmas. And I expect the next generation iPhone to have at least twice the RAM.)

Seth Godin has some interesting suggestions for how Apple could perhaps have better smoothed the ruffled feathers of early adapters.

I believe that there is something to be inferred from the fact that Eugene Robinson, a fifty-something journalist, is paying this much attention to the iPhone - something he doesn't own or even plan to own. Even giving due credit to the effect of hype, and even acknowledging the many limitations of the iPhone, the iPhone's design advances (and advantages) are obvious to pretty much anybody who has ever used a cellular phone. Even the AARP crowd knows the iPhone is "cool".

Microsoft's Marketing Genius....

Given Microsoft's magnificent success with the iPod-killing Zune, snatching up 2.5% of MP3 player sales as compared to Apple's mere 72.3%, perhaps I underestimate CEO Steve Ballmer:

There’s no chance that the iPhone is going to get any significant market share. No chance.

Personally, I expect the iPhone to be a huge seller.

I was highly skeptical of the iPhone... until I saw it. And that was before I heard some very favorable commentary on it from non-technically oriented people.

I also suspect that by the time it hits the market, the iPhone will be even more fully featured than it was at the time of its introduction. I expect that, as with the iPod, there will ultimately be a family of iPhones which compete with (and outshine) competing products at all comparable price points.