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September 13, 2012 • Autos, Editorials

Five Ways the iPhone 5 Event Disappointed, and One Sign It Started the ‘Great Apple Decline’

So we have lived through yet another iPhone announcement, the first one conducted by Tim Cook and out of the ‘shadow of Steve Jobs’. The conclusions? Some pretty sweet looking iPhone hardware, promising stuff for iOS 6, iCloud and iTunes, and a welcome refresh for the iPod line.

But if you look around at tech websites there is much gnashing of teeth and hand-wringing amongst the Apple fan-sites, sneering derision from Android fan-sites, and hopes of a market share beyond 5% from the Windows Phone faithful who were just happy to see the Nokia Lumia 920 in spec line-ups with the iPhone 5.

The editors chatted quite a bit about the event, and there was an overall sense of disappointment and letdown amongst us. Worse yet there were concerns about what some of the indicators might mean for Apple going forward.

So let’s jump right into things!

We Learned Nothing New About iPhone 5

For some reason, right up until I knew that the iPhone 5 was actually the iPhone 5 we have seen leaked recently, I expected Apple to pull a fast one – that this would be the ‘4S LTE’ and something NEW would be the iPhone 5. Instead, we got exactly what we expected – taller but not wider, processor update, ‘earpods’, new connector, and LTE. And while previous keynotes had some leaks and the 4S seemed fairly certain, at no point since the original iPhone has an Apple mobile device been so well known before announcement.

The psychological impact of getting exactly what you expected is that it immediately feels ‘old’. Instead of a frenzied ‘ooh I will have to TOUCH that to believe it’, you get the feeling of ‘yeah, just as expected, maybe in person it will seem more impressive’. There is no doubt that Apple will sell millions of iPhone 5s, but for many the product will seem very old by the time next summer arrives.

Lack of Showmanship and Presentation Strategy

Making a strong presentation requires taking your audience on a journey. You set a vision, lay a framework, and slowly build the reality of the initial vision using the framework. The best way to tell a story is to build, build, build. Your final words are the memory you leave with listeners, so make them count. And for YEARS Steve Jobs has been the master of ‘presentation as journey’, which is what made product announcements such an incredible draw – and caused others to try to imitate them.

This year Tim Cook looked like an imitator. He led with the usual numbers run down before launching right into the iPhone 5. Then there was iPod stuff, iTunes and Foo Fighters. If you remove the iPhone announcement it would have reminded me of the pre-iPhone September ‘music events’. So I was left with the impression of a music event with Apple’s most important product sort of tossed in up front as an afterthought. It was a confusing and uncharacteristically mis-managed order of events.

Some also mention the lack of a ‘one more thing’. That was very much a Steve Jobs iconic move, so I am not sure I fault Tim Cook for letting that one depart along with Steve. But … the IMPACT of ‘one more thing’ was to leave the audience on a high note, feeling that you had already razzle-dazzled them with a great set of announcements, but here was just one extra thing they simply HAD to share. Tim Cook and crew simply didn’t leave us feeling that way – in fact, it felt like the peak was very early and then they coasted to the finish.

The One-Year Cycle Might Be Hurting Apple

During Q2 of this year Apple iPhone sales dropped by a decent amount, and every indication is that they dropped even further during the July and August months. This is all explained by people waiting for the iPhone 5. Which makes sense, but it is a trend that has grown each year. Last year the dip was smaller, same for the year before and so on. There are two ways of looking at this – new iPhone anticipation is growing, and that the current iPhone becomes ‘old’ much quicker.

Apple is not one to ‘leave money on the table’, so there are only a few explanations of why they would continue a trend like this. First, perhaps they calculate that the ‘pent up demand’ factor (that has estimates pegging September sales of the iPhone 5 as high as 10 million) means the overall sales are better than trying to smooth sales with more frequent releases. Second, perhaps they see more frequent releases as sapping more development money (i.e. lower profits) with little gain. Third, perhaps they fear that more frequent releases would mean even smaller incremental changes that would dampen the ‘gotta have it’ factor the iPhone has now.

Whatever the reason, by having a once a year event for phones, they leave the competition to control the news cycle for 11 months of the year. This means that Samsung and HTC and LG on a screen-size ‘arms race’ leaves Apple needing to explain WHY they have a smaller screen constantly. It also leaves adequate time for others to introduce new features and immediately abandon phones and users with technical issues and update lies (Droid Bionic, HTC Thunderbolt, etc) … and for the public to then forget about those issues.

In the end it leaves Apple in a defensive position and with the world looking for something ‘revolutionary’ … and makes just about ANY announcement a disappointment waiting to happen.

Pricing Strategy Borrowed from Sony

While the BASE iPhone price structure remains unchanged and is a solid and competitive position (carrier subsidy aside), when Apple introduced the new iPods they totally screwed up on the pricing. But first back to the iPhone.

I say ‘base’ iPhone pricing makes sense, because in my opinion the 32GB and 64GB models are WAY out of whack with normal pricing. The Kindle Fire HD is $199 for 16GB and $249 for 32GB. The 8/16GB Google Nexus 7 variants have the same price structure. Since we know both products gain much greater profits from the added memory because it costs well under $20, sticking with the ‘$100 per tier’ model that started when there was a memory chip shortage causing a price hike just feels … greedy. And exacting on loyal customers.

But while I think the iPhone pricing is wrong for higher models, I feel that the entire pricing strategy for the new iPod Touch is WAY out of whack. As mentioned, the 7″ tablet world led by the Nexus 7 and Kindle Fire offer solid capability and performance … starting at $199. A 32GB 4″ content consumption device for $300 … is either hubris or stupidity. Sure it has a decent camera … but there is NOTHING to justify the pricing structure. It really feels like they took the success of the tiered iPad approach and ‘copy & pasted’ it to iPods without any consideration.

I use the Sony analogy because I think of their e-Reader approach, which would have taken the same base Kindle and Paperwhite that Amazon launched last week for $69 and $119 and sold them for $199 and $249 … because they are Sony, and therefore awesome.

The $2.75* Semi-functional Adapter That Costs $30

Way back in April of 2003 Apple announced the 3rd generation iPod. It is one I still have, with a ‘touch wheel’ and row of touch-buttons under the screen. It also introduced the 30-pin connector. In our house we have dozens of items that make use of the 30-pin connection, from radios and speakers and alarm clocks to exercise equipment and so on. To say that the 30-pin connection is a ‘standard’ would not be a stretch.

Looking at the design of the iPhone 5, it is clear they needed to make a change. The width is barely bigger than the 3.5mm audio jack, and there was a need for enhanced speakers and more microphones and so on. So I applaud the change to lightning – but Apple needed to address the hundreds of millions of 30-pin docks sitting around.

How did they do this? By building a $2.75 adapter and charging $30 for it – and NOT even including one with the new hardware! (just a note, I totally made up the $2.75, but based on looking at BOM for similar adapters it seems reasonable)

Look – when I am paying $300 for a 32GB iPod Touch, which has last year’s processor, last year’s screen technology, last year’s camera and so on, leading me to calculate that at $300 Apple is already making more than 50% profit, is it REALLY too much for them to include a $2.75 adapter to help people work their way through the transition? And what about a gym with 75 systems with iPod docks? $2250 to add the adapter.

Worse yet, it is not a fully functional adapter, as noted on the Apple site: “Video and iPod Out not supported.” What that REALLY means we won’t know for a while.

It is such a stunningly anti-consumer move – ESPECIALLY when they nickel and dime customers already paying a premium on hardware by charging an exorbitant price for a cheap adapter.

Summing Up

If you combine the first three, then you have a ‘failure to manage perceptions’. Sure, we know that Apple makes the most meticulously designed products on the planet – yawn. Yeah, they have the best fit and finish and build quality of any consumer electronics maker – zzzz. But after years of ‘one more thing’ and ‘magical products’ and ‘defining categories’ … there are some serious expectations for an Apple announcement. One is secrecy – which was compromised last year and totally lost this year. Then there are products that are not inexpensive but MAKE SENSE in terms of price – again something totally lost this year. And finally there was a ‘we delight our customers’ approach, which this year felt more like ‘we view our customers as easily manipulated cash bags’.

And aside from those items, there was ‘one more thing’ that all of the editors found particularly troubling: the place in the pricing and product line-up for the iPad Mini.

No iPad Mini in October (or a $399 iPad Mini) Means ‘Apple in Decline’

A couple of things we know: from the Samsung case we learned that Apple watches competition VERY closely, and in general we know that Tim Cook is the master operations guy who has had a HUGE hand in making Apple the über-profitable company it is today. Put those together and there is simply NO WAY that Apple isn’t at least AWARE of the huge market for a quality 7″ tablet.

We have seen tablet after tablet try to take on the iPad and EVERY SINGLE ONE failed miserably – heck, we know that Samsung sold a paltry 37,000 tablets TOTAL last quarter compared to Apple’s 17 million. The ONLY confirmed success thus far was one that chose to NOT try to compete with the iPad – the Kindle Fire. Set up as purely a low-cost Amazon content consumption companion instead of a high-priced do-it-all machine, it met the ‘good enough’ criteria for a few million people and overnight pretty much became THE Android Tablet Market Share. Now we have the apparent success of the Nexus 7, and last week we saw the launch of new Kindle Fire devices – all low-priced consumption devices (except the high-end 8.9″ Kindle Fire HD with 4G that no one is going to buy anyway).

If Apple KNOWS about the market for the iPad Mini, and they are aware of the market pricing forces at play in that target market, then they have either designed a product for holiday launch or decided not to play. One is potentially smart and the other is definitely foolish.

As we know, Apple doesn’t play in the low-end market such as the netbooks or $300 (crap) laptops. But they STILL have products across a range of price points and capabilities. So in that regard there is no reason to give the 7″ tablet market to Amazon and Android. As Apple knows – and as Dan pointed out calling the iPod Touch ‘iOS training wheels’ – hooking consumers with a less expensive product will get them into your ecosystem and then make them more likely to stay. Leaving the 7″ market to others ABSOLUTELY means lost iPad and iPhone and Mac sales.

So let us assume that Apple isn’t foolish enough to cede the 7″ tablet market. The announcement of a $299 32GB iPod Touch poses a problem:

Where does the iPad Mini fit?

As we have discussed in the past, Apple will NOT be releasing a $199 8GB 7″ tablet. No way. Our estimates were that the rumored 7.85″ screen would be paired with a 16GB configuration and pretty much the same hardware as the new iPod Touch … and cost ~$299. At $249 they would instantly destroy the Fire and Nexus and pretty much any other Android tablet … but this IS Apple, so we figured $299 sounded more reasonable.

But after yesterday, suddenly there isn’t any space in the pricing line-up for that iPad Mini. Apple would know that a $299 iPad Mini would cannibalize the $299 iPod Touch, and they like to maintain differentiation. So what does that leave? Based on the 4th generation to 5th generation 32GB iPod Touch, I have a theory:

The new iPad Mini will cost either $349 or $399. I estimate $349 for ‘stripped down’ and $399 if they include a proper 5MP iSight Camera and solid performance and Retina display. And since at that price you can get TWO Kindle Fire HDs or Nexus 7s, it will be a flop.

And in being a massively overpriced flop targeted by accountants looking at graphs rather than by people who actually care about the customers, it will show that Apple has truly become Sony – the once great technology leader overtaken by massive egos and an immense sense of self-importance about their place in the world. And that would be a sad legacy for the company that has innovated and led for so much of the last 35 years.

So I will call it now – if we DON’T see an iPad Mini announcement in October, or if it costs more than $299, then Apple is a company in decline that will simply milk their resources for variants on existing products until all of the creative minds head elsewhere and Apple finds themselves back in the Gil Amelio years without Steve Jobs to rescue them this time.

11 Responses to " Five Ways the iPhone 5 Event Disappointed, and One Sign It Started the ‘Great Apple Decline’ "

  1. Deni Tako says:

    Well, that pretty much sums up what I’ve been thinking. I can’t remember when ANY new device announcement actually pissed me off so badly I was ready to ditch anything own made by the announcer until yesterday.

    I DO understand the necessity of moving away from the 30 pin connector, but my recollection is that they made an agreement in the EU to use the micro USB standard within a few years, which is actually now. So, no micro USB. (Aren’t they subject to a fine in the EU for noncompliance now??)
    They could accomplish the same small footprint with micro USB, so their only motivation in creating this new lightning port is to keep people dependent upon a proprietary cable, which they either have to buy directly from Apple or someone that has paid Apple to be able to make, so either way – more money in Apple’s pocket.

    But, at $30 a pop, and $20 for a single cable? No freaking way. I too have clocks, docks, speakers and the like at my home, in my office and in my car.

    IF they had made the switch AND provided in the box a sleek adapter that could attach to the bottom of the device and live there semi-permanently, then I’d be on board. But expecting me to dump hundreds of dollars of devices I already own and upgrade all of them along with my phone? Not a snowballs hope in Hades. I’m out of this unless and until there are viable third party adapters that actually take the needs of the consumer in mind.

    But I’ve also heard rumors that they are going to close the loop on third parties making their own cables and adapters. I don’t know how true that is because they said they were working with their partners to get new speakers and docks that would work with their lightning port, so maybe that’s much ado about nothing.

    I’ll have to learn to love android or windows again on a phone. My iPad will stay in my hands until it dies a natural death, which from my experience should be right about the time the warranty is up. I’ll start using my android tablet more and finding the products that work to fill the niche that the iPad does.

    If good adapters show up, and companies like iHome and Griffin do not follow Apple and try to gouge consumers on the pricing, then fine. I’ll take a Chinese knockoff cable because there’s no way that I can pay $20 each to replace the 50 cables I have now, or $30 for adapters for all of them.

    Kickstarter – can you hear me? There is now a need for an adapter that will live on the bottom of the iOS devices, not block the speakers and microphones and that doesn’t have to be removed from the phone, so we can all use the equipment we already have. Pebbles? A drop in the bucket compared to the need for this item now, and how many people who will buy them!

    The only good news with this announcement is that all of the existing clocks, docks and whatnot will now be super cheap to pick up for those of us who will not be rushing to hand over our dough to Apple because of this. That $100 iHome alarm clock you’ve been wishing for will be about $25 by the holiday shopping season.

  2. The connector and so much more is one of the reasons why I am worried about Apple. Sure…it’s going to sell. However, this one just feels like they could have done so much more….an even bigger screen, NFC, wireless charging (ala Palm Touchstone) and eschew the connector altogether. Many different things could have been done but they chose the safe path and created a great, but uninspired device. I think the next iPhone will have to be a leap….in something.

    Innovating at every iteration keeps people interested. Iterating while adding the expected is boring and unexciting. Something Apple never was until now.

  3. Christopher Gavula says:

    I think the connect issue, while significant, is being overstated and key things are being missed. People seem to be starting from the idea that the Apple connecter (of the past) and the new connector offer exactly the same functionality as a USB (micro USB) connector. This simply isn’t true. The USB standard has certain limitations that the (old) Apple connector (arguably) did better. The new connector may well be significantly better (from a technical perspective) with better performance specs and offer more peripheral choices than a micro USB connector would. We just don’t know enough about it yet, so I think people are getting pissed off just based on the physical change which I think, while significant, again, is being overstated. A change had to happen and was needed for a while, and now it finally has.

    Secondly people act as if this connector (introduced in 2003) has been static. It hasn’t it changed from supporting Firewire to supporting USB standards and that screwed with the pinouts and that made many car adapters fail. People seem to forget that issue. We got over it then and we will get over it now. It hurts, it’s a pain, but it was necessary and although it outdates some things, I’m glad it finally happened.

    As far as the lack of a “mini” meaning the beginning of the end of Apple I say “not likely”. You mention that Apple doesn’t play in the low end market (netbooks), but then you kind of dismiss it and give that as a reason to enter the “low end” of the tablet market. I think that is an incorrect conclusion. I don’t think they need to enter that market. The margins there suck and even if many devices are sold my Amazon and Google in that space they are doing it at a small profit or even a loss (making it up in content, potentially). I maintain that Apple doesn’t need to go there to continue succeeding. If they do, ok, but I don’t think it really helps them to compete in the low end of the market – the profits just aren’t there. But we will see.

    What I see as the challenge for Apple is to maintain the level of satisfaction with build quality/feature is the WHOLE audience, not just the geeks who are disappointed every time a manufacture doesn’t re-inevent the world. Apple should not reinvent the world, just improve it enough to keep people coming back. I think they successfully did that with the iPhone 5 even though it doesn’t blaze through the sky with new innovations. It’s good and it improves on the 4s. The screen is bigger, but doesn’t sacrifice one-handed use for smaller hands – that compromise is genius and something a lot of Android handset manufacturers need to learn because big screens attract some people but turn others off.

    What we need to watch is where the rest of the Apple eco-system goes. The AppleTV, for example, is selling amazingly well and extends the usefulness of other Apple computers and devices in a great and intuitive way. If the ecosystem keeps people happy, Apple will continue to do well regardless. But if people get annoyed and pissed off with the ecosystem in large numbers, then they will bolt.

    So time will tell. It’s going to be interesting!

    • Deni Tako says:

      Chris,

      I’m not personally upset that they didn’t use Micro USB. I am curious about the commitment they did make in the EU to move to that standard, and if they will have to pay a penalty for non compliance.

      Also, there is a world of difference between creating a new charging port, which I agree might well have been needed, and gouging the hell out of your audience for the privilege. They could chose to help consumers make the transition, include the adapter in the box, and make them cheap enough that people may grumble a little, but not mind too much. But they’re not doing that. They are taking a pretty high and mighty position that because they are the exalted Apple that they can just add in an extra hundred dollars or more to the cost of device ownership and people will think that’s just dandy. But, in reality that strategy just isn’t going to work. In this economy very few people can afford to just change over their alarm clock, car dock and whatnot just to have the iPhone 5. If it’s peoples first iPhone, then no biggie. But for those of us who have been with the iPhone for years now, we have built up a lot of stuff, from external batteries to fancy speakers.

      I know it won’t stop everyone from jumping on the iPhone 5. I’m sure there will be the usual madness at midnight for pre-orders and I wouldn’t even want to be in the same mall as an Apple store in 2 weeks. But I won’t be one of them. And I’m sure I’m not alone, because it’s not just the cost of the device anymore, or the 2 devices, since my wife and I each need a new phone. It’s replacing literally everything else in my house that connects to it and I just cannot afford to do that, I I suspect that there are way more people in my boat than there are people who can, when they new stuff actually comes to market, and who will pop for the cables and adapters in the meantime.

      As to the entry level devices, I see where Michael is going – that 7 inch devices are more popular because more people can afford them. That doesn’t mean that I think that Apple should just decide to go to the lowest common denominator and put out lower level devices. It’s just not their style. But, I think that they are overestimating how long people can maintain paying sooo much more for their devices, and it seems really clear with the way they have been locking down their computers so you can’t even replace a battery on your own, that they really want people to think of their devices as almost disposable every year or 2.

      Sure, most computers don’t last forever, and one that is 3 years old is almost antiquated at the end of it’s life cycle and innovations come quickly in the realm of consumer electronics. It’s part of what makes the people who read here at Gear Diary want to be here – to keep up on what’s the latest and greatest and drool over all kinds of cool things.

      But, I’m not sure that Apple can maintain it’s “Apple-ness” in a post-Jobsian era and in the current economic climate if they continue down the path they’re on and proceeding with “evolutionary” vs. “revolutionary.” Only time will tell…

      • Gomotron says:

        If pre-orders are any indicator for public reaction to Apple policy, I’d say that the whole port-change issue has largely been ignored by the masses.

        As far as the notion that Apple is making their devices with an air of “disposability”, that has not been their track record in the past, and I don’t see it being a problem in the future. Sure, there may not be an Apple-approved process for changing out battery cells in their Macbook line, but you can bet that if the demand is present, there will be plenty of third-party solutions that will likely be cheaper than what Apple would charge for the same service anyway. And since the Macbook would likely be out of warranty at that point, there would be no fear of voiding an Applecare warranty.

  4. keita124 says:

    Did you write this story? Or someone wrote it for you??

  5. Gomotron says:

    I really have to disagree with your premise that the iPhone 5 announcement signal the great decline of Apple. However, I certainly share your concern about the decline of Apple in general.

    First of all, the iPhone 5 really does not include any features that are a surprise. So what? Neither did the 4S, but that does not mean that the 4S was irrelevant. In point of fact, the 4S was superior to the 4 in so many ways but because it superficially looked the same, it was criticized soundly in the “change for the sake of change” culture that seems to dominate technology pundits.

    Now, when Apple makes a change (to the dock connector), it is criticized by many of the same pundits. The physical connector has been essentially unchanged for the last 9 years. Do you have any other piece of technology 9 years old that you use routinely? Regardless of when Apple decided to make a change, it was going to face criticism. No one has yet experienced the advantages or disadvantages of the new dock connector, and yet they are quick to condemn the new connector to the trash heap of Apple corporate greed. I bemoaned the use of the new Magsafe connector with the retina MBP, and yet I find that carrying around an adapter is minimally aggravating.

    You criticize Apple for the changes in the iPhone 5 that seem largely “reactionary” to what other manufacturers are doing, and yet, aside from leaving the iPhone completely unchanged, anything Apple changed would have seemed “reactionary.” If it came out with a 4.5″ or a 4.7″ screen, technology pundits would have pointed out that this was clearly a reaction to what Samsung and Motorola were doing with their most recent Android offerings. The inclusion of LTE modems is considered “reactionary.” Aside from an ability to transport the user back in time, what, exactly, could Apple have included that would have been considered a pioneering technology?

    Ultimately, however, I have to concede the point that the technology path down which the iPhone is traveling is a dead end. There will not likely be a significant, earth-shattering technology that is introduced via this platform (unless Apple perfects holographic displays or direct-to-retina displays a la Snow Crash). This begs the question, then, of what Apple is going to introduce that is going to be as paradigm-shifting as the iPhone or iPad? Do they have anything or anyone that is working on this?

    Steve Jobs was unparalleled in many ways, but his ability to think “outside the box” (pardon the cliche) had no comparison. I am just not sure that Apple has any truly revolutionary ideas left without Jobs at the helm.

  6. Has the Decline of Apple Begun? – brucekeener.com says:

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  7. doogald says:

    I don’t know whether apple will or will not release an iPad mini next month, bu if there is one company that does not worry about one of their products cannibalizing another, it is apple. The iPod touch seems to have specific market targets – exercisers; teens; people who want a portable music player that can go online. The iPad mini, I think, can be a much broader market. I think that they can sell it at $249 and not worry about the iPod touch sales.

    The iPod touch price does seem high, but remember that, unlike previous touches, it has the same high-quality display as the iPhone. This is a first – the old touch always had a crappier display, plus, of course, an unusable camera, once it got one. Plus, of course, they are still selling the old touch, right, if people just don’t want to pay that price?

    It’s my understanding that apple will sell a micro USB dongle for the new 9 pin connector in Europe.

    Every time apple retires some piece of hardware – floppy drives; DVD drives; FireWire; 30 pin dock connectors – there are those who moan and complain about it, predict the worst – and they always seem to be wrong. I think that most iPhone users do not dock their phones and, if they do, will shrug and buy the adapter.

    I do shrug a bit myself when I read the reviews of the new iPhone that complain about there being a boring lack of innovation – that Steve Jobs was always innovative. That’s just not true. Jobs also had no issue with slow improvement of a mature product – the MacBook changed little until just recently, the iMac hasn’t “changed” (on the outside, at least) for 5 years. The iPhone is a mature produc and now it’s time to slowly perfect it – make it faster, lighter, with a better display, camera, and, yes, a better connector.

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