Apple’s Half-empty Half-full Future

| Ted Landau's User Friendly View

What's happening with Apple these days?

Has Apple peaked? Is it running on fumes, no longer cool or innovative, starting its downward spiral into oblivion? Hardly.

Or is Apple well-positioned to surge ahead in 2013, cementing its already strong position with a line of new products that will blow away the competition? My Magic 8-Ball says: "Reply hazy."

The truth is that this is an uncertain time for Apple. A reasonable case can be made for two starkly different views of Apple's future right now — depending upon whether you tend to view your Apple cider glass as half-empty or half-full.

The half-empty view

When the iPhone and iPad first came out, they had virtually no competition. There was nothing else that came close to their specs. This was especially so for the iPad, which quickly garnered such a huge share of the emerging tablet market that it threatened to wind up with a permanent stranglehold — much like Apple's iPods continue to do in the MP3 player market.

Unfortunately (for Apple), this is no longer the case.

There are now numerous Android-based iPhone-like smartphones out there (if you don't believe me, just ask Samsung about Apple's patent lawsuits). They may not be able to match the iPhone in hardware design or in App Store selection, but they are good enough to be very popular. And some of them are getting great reviews. The most recent issue of Consumer Reports, for example, prefers the Samsung Galaxy S III to the iPhone 5.

While Apple's iPad continues to dominate the 10-inch tablet market, much of the action these days is in the smaller 7-inch range devices. And here Apple is playing catch-up. The iPad mini just arrived on shelves this month. While it has gotten mostly favorable reviews, more than a few complain that it is too expensive, describing it as nothing more than a scaled-down 10-inch iPad that is slower and lacks an Retina/HD display. From Kindles to Nooks to Google's Nexus, there are many competent and less expensive alternatives — including ones with HD displays. Apple no longer has the market to itself.

Current sales and market share numbers for mobile devices support the concern that Apple is in a degree of trouble. Sales figures for the third quarter (which admittedly should be taken with a grain of salt, as the iPhone 5 was not yet out), show that Android devices accounted for 72.5% of the market, up from 52.5% the year before. iOS devices sales declined from 15.0% to 13.9% during the same period.

Meanwhile, the iPad's share of the tablet market dropped to an all-time low of about 50% for the same third quarter (this is before the iPad mini arrived). Competing Android-devices once again account for the drop. It's yet to be seen how Microsoft's Windows 8 devices may affect all of this.

The opening week-end sales for the iPad mini were a mixed bag. Apple reported that it "sold three million iPads in just three days—double the previous first weekend milestone of 1.5 million Wi-Fi only models sold for the third generation iPad in March." Still, the proportion of sales that went to the iPad mini specifically (which Apple did not specify) may have been weaker than expected. However successful the iPad mini turns out to be, it seems certain that iPads are no longer destined to match the iPod's market dominance. In fact, at least one analyst predicts the "iPad will lose market dominance to Android next year."

At the same time, Apple's fourth-quarter financial results were below Wall Street's expectations. To be fair, the figures were impressive…with both revenue and profits up substantially. It's just that the numbers were not as impressive as Wall Street wanted.

Not surprisingly, in the face of all of this news, Apple's stock has tanked recently, falling close to 200 points from its recent high of over 700.

For some, the overall picture suggests that Android may be surpassing iOS in the same way that Windows nearly eradicated Apple in the PC market two decades ago. Make no mistake. Apple's iOS devices (and Apple itself) are in a much stronger position than was the Mac (and Apple) back in the 1990's. There is no bankruptcy possibility on even the most distant horizon. Still, there are warning signs among the trends here that Apple would be foolish to ignore.

Adding to Apple's financial concerns have been a couple of public-relations brushfires.

At the top are the complaints about the lack of accuracy of Apple's new iOS 6 Maps app (the replacement for the removed Google-based app). The situation became so bad that Apple was forced to issue an apology, advising unhappy users to switch to third-party mapping programs until Apple could fix its own app.

Users have also been unhappy about the new Lightning dock connector for iOS devices — which renders all existing iOS wired peripherals either unusable or requiring an relatively expensive adapter.

Personally, I believe Apple made the right decision in dumping Google Maps. It could no longer tolerate having Google control if and when it would add features such as turn-by-turn directions (already present on the Android version of Maps). And I believe that the connector change was necessary as well. After a period of transition, this issue will be forgotten. However, these matters contribute (rightly or wrongly) to a perception that Apple's new iOS devices are not as desirable as they once were.

Following on the heels of all of this news was the announcement that Scott Forstall and John Browett were leaving Apple.

As head of iOS development, Mr. Forstall had been instrumental in many key decisions about iPhones and iPad design, including a critical initial one to base iOS on OS X. While reports indicate that many inside Apple could no longer tolerate Mr. Forstall's management style and were happy to see his exit, his contributions will be missed.

Mr. Browett's departure as head of retail operations (Apple Stores) comes only months after being hired. Again, many see this as a positive move, as Browett's perceived emphasis on profit at the expense of customer service was not appreciated. More broadly, however, it has led to questions about Tim Cook's effectiveness as CEO. If Browett was so obviously a bad choice for Apple, how did this guy get hired in the first place?

Most recently, Apple announced a delay in the release of iTunes 11, from October to November. November is now drawing to a close and the app still not out. The new iMac is supposed to start selling in November as well. However, a rumor claims that production problems may precipitate a delay in the iMac's release until 2013 (although this is now in dispute). Combined with the iOS 6 Maps issue, it has led to speculation that Apple is having uncharacteristic struggles getting its products ready and able to ship on time.

Not surprisingly, given all of this negative news, a spate of articles has appeared questioning Apple's future, with titles such as "Is Apple Really Doomed…" and "Has Apple Peaked?". While these articles generally extrapolate beyond what seems reasonable, and will most likely be fodder for "claim chowder" one day, I have some concern of a self-fulfilling prophecy. That is, if enough buzz generates about an Apple downward trajectory, this can create a perception that the buzz is true (even if it isn't). This, in turn, could lead to the very decline that the doom-sayers are predicting.

The half-full view

Okay. The last few months could have gone better for Apple. When Tim Cook has to sign an apology letter concerning the failings of Maps — and Scott Forstall refuses to sign it and gets fired — all is not going super well.

But let's not get carried away.

First of all, don't fall into the trap of thinking "things like this would never happen if Steve Jobs were still in charge." Things like this did happen when Jobs was around. It wasn't that long ago that Jobs had to apologize for Antenna-gate, after previously sending an email that offered "avoid holding [the iPhone] that way" as a solution to the reception problem. This fiasco didn't spell doom for Apple and neither will the current troubles.

And yes, there has been a big management shake-up recently. But with Jony Ive promoted, with Bob Mansfield no longer leaving, and with Tim Cook, Phil Schiller, Eddy Cue and Craig Federighi still around — Apple remains in good hands. There's not the slightest need to panic.

Actually, we needn't wait for Apple to bounce back from recent troubles. It's already doing quite well.

For starters, the iPhone 5 has been greeted with rave reviews and continues to sell so well that Apple has trouble keeping it in stock. With its larger 4-inch screen, faster A6 processor, LTE support and a new sleek design, it may well be the best smartphone ever made. And for those that prefer their mobile devices without a phone contract, the new iPod touch has finally been upgraded to the point that it is almost on a par with the iPhone 5.

The iPad continues to dominate the tablet market. And the iPad mini will likely help cement that lead. Indeed, a Morgan Stanley analyst predicts: "The iPhone 5 and new iPads will trigger a surge in sales for Apple this quarter and next." Rather than cannibalizing sales of the larger iPad, it appears that the mini is creating greater total demand for iPads.

Most of the reviews of the iPad mini have been positive, with reviewers finding the reduced size of the mini ideal for a tablet. It's a better size for reading media, easier to hold with one hand, and more convenient to carry around. At the same time, the mini is still big enough to capably display and handle "iPad specific" apps. And, of course, it runs all of those iPad apps right out of the box; no adjustments needed. No other tablet can compete with this wealth of apps.

The consensus view is that, unless you plan to use your iPad as a laptop substitute, complete with an external keyboard, you will probably be happier with the mini. For the many users who wanted an iPad but preferred a smaller size, your wait is over.

Let's not forget Macs. Apple has refreshed almost its entire Mac line-up, just in time for the holidays.

The 15-inch and just-released 13-inch MacBook Pros with Retina Displays have been hailed as the best Macs that Apple has ever made. Macworld raved that the 13-inch model was the ideal "combination of performance and portability." I can confirm that, after seeing the Retina display on these laptops, you will be hard-pressed to be satisfied with anything less.

For those who want the ultimate in laptop portability at the lowest cost, the MacBook Airs remain a top choice. Other vendors have tried to match its specs, but have failed.

The new Fusion drive on the latest Mac minis and iMacs has been greeted with enthusiastic reviews — probably helping Apple top the list of "most innovative" companies for the third year in a row.

When you finally decide you want to buy one of Apple's products, head over to your local Apple Store. With or without John Browett in charge, Apple Stores continue to be an incredible retail success. The latest data show that they top the list of all retail stores in the United States, based on annual sales per square foot.

Given all of this good news, it's not surprising that Apple's stock is moving back up the ladder again. Many analysts remain bullish on Apple, predicting its stock will return to over $700 per share before too long. Despite Android's continued surge, Apple managed to gain marketshare in the global mobile handset market. And Apple continues its reign as the biggest-ever U.S. company; it will take more than a few bumps in the road to upset this apple cart.

The next big thing

One final topic needs to be addressed before we're done: What about Apple's "next big thing"? The iMac, the iPod, the iPhone, the iPad. These were all "big things." When is Apple going to reveal its next game-changing device? Is one coming at all?

A common not-so-hidden subtext behind this question is that Apple somehow needs to have a next big thing — and soon — if it is to continue its dominance. I'm not so sure.

Take Apple's Mac line-up. It has not had a "next big thing" in the last ten years or so. The iMac, the MacBook, the Mac mini and the Mac Pro have evolved and improved over the years. But there have been no startling changes. The MacBook Air comes the closest. The MacBooks with Retina displays are a distant second. And that's about it.

And yet these Macs continue to sell well. In fact, the Mac's market share has actually increased over the past few years.

Mobile devices may be closing in on a similar state of maturity. While we can expect to see continual improvements in phones and tablets in the years ahead, there may be no market-disrupting new products. This doesn't necessarily spell trouble for Apple's iOS devices — any more than it does for Macs. It all depends on how Apple does relative to its competitors.

On the other hand…I believe Apple still has a few hidden cards up its sleeves.

The most persistent rumor is that Apple is up to something with television. The possibilities range from an upgraded Apple TV with a Siri-based remote all the way to an actual television set with Internet-based offerings that eliminate the need for a cable/satellite set-top box. Apple will need more than a few cards up its sleeve to pull this off — as powerful forces in the entertainment industry push back. Still, I believe Apple is getting ready to release a significant new television-related product in 2013.

Next, Tim Cook has hinted that there will be "something really great for later next year" (2013) to replace the current Mac Pro. As the Pro is Apple's least popular computer model, this news may not be big by itself. However, it may be linked to bigger overall changes, such as in the next versions of OS X and iOS (as I have speculated previously).

There is speculation that Apple may yet come out with touchscreen Mac or a MacBook/iPad hybrid. Other vendors (including Microsoft with Windows 8) have begun to explore this direction, but without much success thus far. It would be like Apple to arrive late to this party — but with the device that "does it right" and blows away the competition. I remain skeptical, but who knows?

Finally, Apple may be working on some entirely new "next big thing" that even the rumor mills haven't tripped over yet. Maybe we'll soon be able to do video chats where the person on the other end appears as a hologram. When you unground predictions from known facts, the sky's the limit.

Regardless of whether or not Apple has a "next big thing" in the works for next year, I wouldn't worry. Apple's future success does not depend on it.

Half-empty or half-full or…?

So where does this leave us?

A pessimistic view is that, while Apple is certainly not doomed, there are several significant cracks in its firewall. If Apple doesn't quickly repair them, and regain its mojo, the wall will split apart — leaving Apple in very serious trouble.

An optimistic view is that Apple remains in a strong position, with a solid line-up and a likely spectacular holiday season ahead. With great new products slated for 2013, expect Apple to be in even better shape a year from now than it is today.

In the fast-paced world of consumer electronics, it's hard to make firm predictions. Even if Apple is on the right track now, it wouldn't take much to derail it. I know I'm biased, but I'm predicting the optimistic view will carry the day. People have bet against Apple many times before — and lost. I believe it's still a losing bet. I expect 2013 to be a great year for Apple.

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10 Comments Leave Your Own

geoduck

If Browett was so obviously a bad choice for Apple, how did this guy get hired in the first place?

“things like this would never happen if Steve Jobs were still in charge.”

Lets not forget the guy from IBM, Papermaster that didn’t last long because he fit like a square peg in a tigers nether regions. Hired under SJ’s leadership, he was totally wrong for the corporate culture.

KitsuneStudios

I really hope Apple shores up it’s offerings in the power user range. For people who want a strong GPU, the only options start at $2000, where you can get a PC box for far less. Now that gaming on the Mac is becoming a much bigger thing the lack of good graphic card options is becoming more apparent.

Right now, I’m fantasizing that Apple releases an intel ATX Mac motherboard with the OS bundled on an on-board flash drive.

wab95

Nicely balanced summary, Ted.

Both sets of facts in your two scenarios exist; the challenge lies in not simply interpreting them, but weighting them against observed outcomes and extrapolating towards future outcomes.

As I see it, there are three sets of variables that, not only have to be factored in, but contribute to further uncertainty, making hard, accurate predictions that much more difficult to achieve.

First, is the obvious variable endogenous to Apple, namely Tim Cook himself, who is the new CEO and is not SJ. As both geoduck and you, elsewhere and here, note, missteps were made during SJ’s tenure as chief, and the company moved on, growing from strength to strength. Unless Cook is incompetent as chief, and there is nothing to suggest this, I would argue that this variable is at worst neutral in contributing Apple’s future, but observation this far suggests a more bullish favourable effect on outcomes.

Second is a set of variables exogenous to Apple, namely the trend amongst competitors to up their game with offerings competitive to Apple. These competing products reduce product and possibly service differentiation for consumers, reducing any superior product advantage Apple might have even on first mover basis. On balance, this would have a negative effect on Apple’s future.

Third is another factor both internal and external to Apple, namely future supportive and enabling technology development that will enable next generation leaps forward, not necessarily to the next big thing, but in the capacity and performance of current post-PC era devices and services. History supports Apple being able to harness these new advances and get out ahead of the competition in packaging these as best in class user experience. This is where Apple can, once again, pull away like an Olympic sprinter from the pack of its often-times mediocre competitors who follow Apple’s lead. On balance, this variable should work,substantially, in favour of Apple’s future.

There is a fourth variable in this analysis, implicit yet non-quantifiable, namely us, the consumers, and our evolving culture of tech use. What is appealing today may be pass√© tomorrow, or even frankly repugnant. We are a moving target elusive, fickle, thankless and perverse (okay, we’re not that bad, but we a work in progress). If any company has shown that it can grapple with us, indeed, get out ahead of our projected flight path and provide us with our desired destination while we are in non-committed mid-flight, it is Apple. So long as it retains its relentless focus on end user experience as its ultimate objective and destination, history would suggest we and our cultural evolution favour Apple’s bright future and dominance.

Which brings this analysis full circle, back to the endogenous variable of Tim Cook. He does not need to be the visionary SJ was in order to shepherd Apple to its prosperous future. Rather, his principal objective and task is to maintain Apple’s focus, laser-like and unflinchingly, on the end user experience, and being obsessive and uncompromising in ensuring that it is, indeed, best in class.

I, for one, think Cook is so oriented and focussed, and that your alternative scenarios, when analysed as above, favour the glass half full scenario and Apple’s bright future.

Rob

Suffering from insomnia I suddenly realised where apple may be going.
Apple is investing a lot in its own chips, and more recently we had the rumour of a transition away from intel to ARM based architecture…

Late next year timeframe makes sense when one thinks of new hardware…Perhaps new “A7 (or whatever)” cores that can be massively paralleled. Already we are reading of server farms on ARM chip to lessen power consumption.

It all makes a lot of sense. Only issue is porting all the desktop software versions from intel to ARM. Putting the users through another transition is a real pain - but not without precedent….and all that iOS code is ready waiting! (and we lose boot camp :-().

James

“At the same time, Apple’s fourth-quarter financial results were below Wall Street’s expectations. To be fair, the figures were impressive‚Ķwith both revenue and profits up substantially. It’s just that the numbers were not as impressive as Wall Street wanted.”

This kind of situation never fails to confound me. A group of people (actually several different groups working with different criteria) pull a number out of the aether about how much of what product and how much revenue and profit a company will make. Just completely make it up (using of course terms that vindicate their assumptions like forecast or trend or indicators). And then when actual real numbers are announced, if they exceed the made up numbers, then everyone does the end zone dance and the “ANALysts” note how conservative their made up numbers were. If the real numbers don’t exceed the made up numbers, no matter how good they are, then everyone whines about how poorly the company is performing rather than how poorly the “ANALysts” choose their imaginary numbers.

Honestly, why don’t we all just go down to the neighborhood palm reader and ask how well Apple is going to do. I’m sure the answers there will be as accurate.

If Apple’s numbers were impressive, why should some one’s made up numbers paint that result as somehow being a failure? That’s like failing a driving test because you showed up in a Kia rather then a Lexus.

David T.

What about the stagnation and impending abandonment of the Mac Pro? Everyone is all wrapped up in multitouch-y, mobil-y devices that nobody stops and thinks about the desktop. Apple needs to take desktops to the next level with capabilities that phones and tablets can only dream of, instead of trying to merge the two (think App Store, for instance). I have always seen the mobile space as complimentary to the desktop space, with leapfrogging breakthroughs led by the power of desktops and then polished by more powerful next-gen mobile hardware. As it is I feel condemned to a computing future dominated by iOS and its clones, as already evidenced by Windows 8.
It’s a classic case of “Who Moved My Cheese” for Apple. Mobile touch computing is hot _right now_, but this doesn’t mean the next important breakthrough lies there. A singular focus on any one area prevents the kind of parallel thinking that leads to true breakthroughs.

give_me_a_break

Perhaps the place where apple is really falling behind is in more fundamental things like languages and development tools.  Objective-c seems increasingly clunky with modern language features layered on top of an old foundation.  I always surprised that Android can compete performance wise with what is essentially c code.  How much overhead is soaked up by the language and frameworks.  XCode seems unstable. large, complex and fragile.  It demands a solid commitment of time and knowledge to be productive.

MuppetGate

I’m not a huge fan of ObjectiveC myself, but Apple’s developer community seem to swear by it. And the fact it demands commitment and knowledge is probably a good thing; I would rather have fewer people churning out excellent apps over a larger number of script-kiddies turning out crap ones.

z.mukwa

Re:Apple seemingly facing difficult times.I’m of the opinion that Apple has been chasing the wrong goose.What goose? The Intel goose ,that’s what.The 80s inspired a number of excellent or ugly processor architectures.Any one who programs today and is aware of this 80s history of processors will tell you the Intel 8086 processor on which the current Mac processor is based was very ugly and difficult to program in assembler.Why assembler?Well,if you love your programming you’ll always want to stay really close to your processor architecture.Assembler, not only cements your relationship with your programming skills but also clears up a foggy view of processors.In this case Business won and Programmers lost.A decline in programming skills may eventually lead to loss of Business. Nokia realized this fact recently.

vbroido

Two things should be outlined in my opinion though.
The first thing is to consider the magnitude of the Apple brand footprint. During the last decade Apple only has durably and consistently changed:
- The way we consume music with iPod/iTunes and has revolutionised the music industry as a whole.
- The way we connect to the internet with the iPhone, this incidentally has given birth to a whole software industry (with apps) and it is now shaping the telecommunications ecosystem.
- The computer landscape with the addition of the tablet, Netbooks are dead just as Apple has predicted it, and this is only the beginning as the form factor for hardware has only started to break free from the keyboard/screen/mouse (or trackpad) paradigm.
Even if this is now the end of innovation for Apple those profound changes have impacted the public and this is going to last. Just as Microsoft still profits from the sensation it made by releasing Windows many years ago.
The second element is that Apple delivers. Like no other computer firm. The devices, products and software appeal to the largest public, the distribution, sales and advertising are well up to speed. The actual product line is extremely profitable and I see no reason for it to be less profitable in the mid-term.
So these two reasons give Apple heaps of time for the next big thing to come. Apple still remains way cooler and younger than any other computing brand. The only real threat is the new comer, the underdog, the one company that will take over the lead. But I see no one coming up, do you?

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