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

GearDiary 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.


About the Author

Michael Anderson
I have loved technology for as long as I can remember - and have been a computer gamer since the PDP-10! Mobile Technology has played a major role in my life - I have used an electronic companion since the HP95LX more than 20 years ago, and have been a 'Laptop First' person since my Compaq LTE Lite 3/20 and Powerbook 170 back in 1991! As an avid gamer and gadget-junkie I was constantly asked for my opinions on new technology, which led to writing small blurbs ... and eventually becoming a reviewer many years ago. My family is my biggest priority in life, and they alternate between loving and tolerating my gaming and gadget hobbies ... but ultimately benefits from the addition of technology to our lives!