The Oh So 2012!

Edited by Barsha B. Baruah

“Innovation distinguishes between a leader and a follower.” (“The Innovation Secrets of Steve Jobs,” 2001)

“No one’s going to buy a big phone,” as we recall a quote from Apple’s co-founder, Steve Jobs said at a press conference when he was asked about large-screened smartphones.

It has been four years since the deceased co-founder has made the above statement, while Apple’s (NASDAQ: AAPL) present CEO, Tim Cook seems to have decided otherwise. The tech heavyweight launched iPhone 6 and the iPhone 6 Plus, flaunting way larger screen sizes than its closest competitors such as Nokia , Samsung, Sony and LG.

Shall we say Steve Jobs would probably be rolling in his grave right now.

Market Disappointed

We might believe that the unveiling of two new versions of iPhones, a mobile payment service, and a Smart Watch were enough to satisfy the market, however, they failed to do so in reality.

The chart below shows the shares dropping to $98, touching their lowest levels in a month.


No Surprises

Everything that Apple announced in the conference was anticipated and already taken into account by the market. Large screen sizes, mobile payment service and Apple Watch have already been widely reported and discussed for months before their big launch earlier this week. These leaked reports though helped the share price to rise as the launch date approached, it also set them up for a steep fall, if there was nothing more than what the market has already accounted for.

This kind of fall was expected based on Apple’s previous share price movement post launch considering Apple was not releasing anything that could be regarded revolutionary or ground-breaking. Samsung has already pioneered the “phablet” type screens with its Galaxy line of phones followed by other manufacturers such as; Intel (NASDAQ: INTC), Pebble, Sony (NYSE: SNE) and LG Electronics already showcasing or releasing their versions of smart watches. Mobile payments are also not new with Google (NASDAQ: GOOG), Softcard and PayPal have already rolled out such services. The large U.S. retailers like Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and several others have already partnered to create a mobile payment service called CurrentC.

ME too

The iPhone 6 looks like an attractive me-too product, but there is nothing revolutionary about it. Apple is losing its innovative soul chasing to rivals from Android and Windows, lagging on a few of the basic features like camera and screen resolution, yet a lot of Apple users are made to feel that they’re getting something truly amazing.

Source:WSA/Product details from Apple and Google
Source:WSA/Product details from Apple and Google

Yes Apple does it better and to a higher quality than their competitors but when you really look at it, they’re still far behind and what we’ve seen from the iPhone 6 is nothing new. Apple is just playing catch-up instead of others playing catch-up with Apple.

Can the Watch be the new iPhone

Apple announced its Smart Watch as the first product from its stable after a gap of four years, which is a big news in itself. However, the reality for Apple is that no matter how well the company does on the product front, it is essentially doomed to fail on the sky high expectation in this somewhat-crazed world of the stock market.

It is not that the Apple Watch is a bad product, though it still lags the competition in many areas, which Apple might rectify by the time of its launch in early 2015, but because the iPhone is simply put insanely great business, which is near to impossible to replicate even for Apple itself. The iPhone generates more than half of the revenue for Apple, about twice of the combined revenue generated by the Mac, the iPad, or the iPod.

Source: Apple Annual Report
Source: Apple Annual Report

If you are buying an Android or an iPhone, a rich ecosystem already awaits you, even if app developers are building for iOS or android, they’ll find a large user base as compared to say a Windows or Blackberry. At any moment of time, Apple is the only one selling iPhones, which allows it to put massive orders for the components at a very low unit cost. On the other hand, at least half a dozen different companies are producing Android phones, battling against each other in a way that increases the costs. This monopoly and streamlined purchasing chain allows Apple to maintain price parity with the smartphone without sacrificing on profit margins.

Majority of the mobile phone carriers in the U.S. market as well in other developed markets, will provide a massive discount on a new phone launch. These smartphone “subsidies” are paired with exorbitant monthly fees, with a very high interest rate loan. The subsidy framework works, getting people upgraded to smartphones at a much faster pace as compared to other devices.

This has created a market opportunity which does not exist anywhere. The iPad, for example, is an excellent tablet having mostly similar features as the iPhone. However, plenty of smartphone owners are quite content without a tablet, while plenty of the existing tablet owners feel they can do without routine upgradings. As a result, only a few years after its initial introduction, iPad sales are already slowing down and can see further decline if the iPhone continues to grow larger in screen sizes.

Financial markets love huge numbers and are oriented towards growth. To put up stellar growth numbers at this point, Apple can’t just produce normally successful products, would the Apple Watch be able to deliver success on that level?

From innovator to follower

It is apparent that Apple is adapting. But isn’t it ironic to associate the word adapting for Apple? Apple’s role as the trailblazing visionary and innovator seems to have slowed down considerably.

Apple’s role in creating market which never existed for the likes of smartphones, mp3 players and tablets is indisputable. However, Apple was never the first in development of any of these products. Instead of rushing to the market for the sake of being there first, Apple spotted opportunities, made it perfect and launched only when they felt that the consumers were ready to pay a premium on devices that simply wowed them away. Regardless of who came their first, Apple simply was the best.

They have recently faced some swings and missed. The iPhone 5C was launched with much fanfare last year to reach a younger generation and more price conscious consumer with a colourful array of affordable iPhones. It flopped and Apple didn’t feel the need to bring it back this year.

For Apple, to be a successful company, it is not essential to have the highest market share or launch products before the competition. The company has the highest margin among its peers and rakes in huge amounts of money for every iOS device. The stock has risen 25% year to date, about 300% in the past 5 years and almost 4,000% in the last 10 years.

Source: Bloomberg/Lenovo
Source: Bloomberg/Lenovo

Apple, once the leader of the pack, now seems to be chasing Android’s dust. Still the new iPhones will sell like hotcakes and will crush past holiday sales records. Even the Apple Watch won’t trail far behind once it sees the light of day next year, such is the fan following Apple enjoys from people who love its products, software and services, or everything about Apple. How long would this be last on Me-Too products that remain to be seen?

Apple Lacks a Visionary Leader

Apple is run by Tim Cook, since Steve Jobs died of pancreatic cancer in 2011.

Steve Jobs ran Apple as a small, founder-owned start-up company. All significant decisions were taken or flowed through Jobs. Often, if Jobs wasn’t personally interested in a particular task, Apple just wouldn’t do it.

Jobs was in charge of Apple’s mergers and acquisitions, which meant that Apple didn’t acquire quite a lot of companies. The companies they did acquire were invariably small, and were absorbed into the company rather than continuing to operate as separate entities.

Tim Cook, on the other hand, has been more conventional in his approach in managing Apple. He believes in delegating tasks and with fewer decisions to be taken directly, Cook finds it easier to run multiple things in parallel.

The biggest sign of the change in Apple is perhaps the decision to purchase Beats, a company that makes headphones and a streaming music service. The acquisition cost $3 billion, much more than Jobs had ever spent on any acquisitions. And rather than folding Beats into Apple, Cook will allow it to continue operating as an independent subsidiary.

The financial analysts might argue that this is a better approach and simple math would justify this approach, however there is no denying the fact that the symbolic story “if you can’t create it, buy it” seems to be nestled in that context which was not what Jobs had as the vision of the company.

Before becoming Apple’s CEO Tim Cook was widely recognized as a supply-chain specialist, an operation oriented person with love for spread sheets. Though he is pretty good at what he does, he is surely not visionary like Steve Jobs. The lack of anything exceptional or simply ‘Applesque’ since Jobs’ death is readily apparent. What will be the next product to revolutionize the world like the iPhone or the iPad did. Would the Apple Watch or the mobile payment platform will provide an answer?


Apple creates great products, is an amazingly successful company, and is still considered a good and safe investment. However, would this would be enough to make them to become the planet’s first $1T (translates in trillion) company.

Wish We Could Say More…

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