Crunch time for Apple: as competition moves in, company loses elite shine

Apple products, with their slick design and intuitive systems, transformed the tech world. But just when it seems everyone has an iSomething, serious competition has entered the market, and suddenly the company founded by the late Steve Jobs isn’t looking so shiny. Tom Cheshire asks, what’s eating Apple?
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Tom Cheshire2 April 2013

Last September, Apple CEO Tim Cook sent Mark Zuckerberg a present: a brand new iPhone 5. King geek Zuck declared himself delighted with the ‘wonderful device’ on American television, but has since reportedly swapped his iPhone 5 for a Samsung Galaxy Note II. He recently ordered Facebook employees to do the same and abandon using Apple devices in favour of Android phones.

Naughty, but Apple has bigger problems. In September, the Cupertino-based company’s stock reached a high of £468.7; now it’s trading at £279. According to FactSet, the 50 biggest hedge funds sold £1.92 billion of Apple stock in the last quarter of 2012. More and more, people are switching to phones running Google’s Android software. Six times more people are signing up to Android devices than to Apple’s, according to KPCB investment analyst Mary Meeker. In late February, Steve Wozniak — a man who plays Segway polo for fun — wondered out loud whether Apple was losing its cool. The legendary computer programmer, who co-founded Apple with Steve Jobs in 1976, told Bloomberg that Apple was, in the past, ‘always the cool guy’, adding, ‘And ouch, it’s painful, because we’re kind of losing that.’

The fattest worms in Apple right now are other phone makers. ‘They’ve got some valid competitors,’ says Matt Webb, CEO of London product design firm Berg. ‘Android is excellent. Windows Phone is brave and experimenting in all the right places.’ Apple keeps its product line trim, offering big updates only every couple of years. Samsung, meanwhile, seems to release a new phone every couple of days. Since June 2009, it has released 45 versions of the Galaxy series alone; Apple has released six versions of the iPhone, ever. That refusal to keep up is hurting Apple; it completely missed out on the ‘phablet’ market — handsets sized between a tablet and a phone, such as the Galaxy Note. Apple would rather charge people for a phone and a tablet, both made by Apple, but the format has proved less popular in lower income areas around the world (especially in Asia, where Samsung is booming). Nor does Apple have a low-cost version of the iPhone, although it has cut the price of older smartphones. Apple still outsells Samsung in the US market (only just — by less than a million devices in the last quarter of 2012, according to Strategy Analytics), but worldwide Samsung has 31.3 per cent of the smartphone market (up from 8.8 per cent in the third quarter of 2010), compared to Apple’s 14.6 per cent, according to market intelligence firm IDC.

Why hasn’t Apple kept pace with Samsung? ‘Apple just isn’t into bitty iteration like some other people,’ says Tom Chatfield, author of the forthcoming book Netymology. ‘We’re seeing this with phones in particular at the moment, as their consistency of design and core concept begins to fall behind others’ rapid updates.’ And, even though it is being outflanked on the mass-market side, Apple’s huge commercial success also means it has lost its elite-badge status.

‘There is simply no longer the same aura of the exceptional around Apple,’ Chatfield says. ‘It makes great phones, but so do a lot of other people now, and often for less money with more features. So the perception of Apple’s product has definitely shifted away from iconic one-of-a-kind cool towards one-among-many.’

That feeling is even more pronounced among the early adopters of Silicon Valley. Robert Scoble runs scobleizer.com, an influential tech blog. He used to queue overnight to secure the newest iPhone; now, he’s waiting for the next Samsung. ‘I won’t be the last of the defectors,’ he says. ‘There are a few reasons I switched. I’m really getting into Google Glass’ — the ultra-functional, ultra-unfashionable eyewear developed by the search giant. Glass is Google’s vision of the future of computing: instead of a phone, users wear a dorky-looking ‘glasses’ headset, which displays the same sort of information as a smartphone: messages, missed calls, emails. It’s voice-activated, internet-connected and can record video, creepily. Google says the glasses will be out by the end of 2013, for less than £1,000. Anne Wojcicki, the wife of Google founder Sergey Brin, wore a pair to the Oscars. Brin himself has said that smartphones are ‘emasculating’ (and Google Glass isn’t?).

Still, Google is undeniably pushing boundaries — its other projects include self-driving cars and space elevators (which are just what they sound like). ‘We just haven’t seen much innovation from Apple,’ Scoble complains. In the past, all you needed to do to prove yourself as a member of the tech cognoscenti was to take Apple’s latest tablet from the custom-tailored iPad-size pocket in your jacket. Now Apple is a mass-market proposition, the tech-savvy look for bragging rights in bijou, one-off products, like music snobs with new bands: the more obscure the device, the better. Products such as the Jawbone Up, or the Basis watch, a timepiece that can also measure your skin temperature, how much you’re sweating, your activity level, sleep cycle and heart rate — are in vogue. Or even more niche products such as Berg’s Little Printer, a frankly adorable device that spits out paper updates from the internet. ‘It’s our belief that the future of technology won’t be shiny and black, it will be full of character,’ Webb says.

Many of these more characterful tech projects make their public debut on Kickstarter. The crowd-funding platform’s biggest success is the Pebble watch, a wearable computer that syncs with your smartphone. Its makers asked for £66,455 on Kickstarter and ended up raising more than £6.6 million. Apple is itself said to be working on its own wrist-worn computing device, inevitably dubbed the iWatch. ‘It’s the right impulse,’ Scoble says.

But an iWatch may not be enough. ‘The risk [for Apple] is not that internally they’re unable to come up with products, it’s that the technology landscape is changing again,’ Webb says. ‘All of these smart, shared objects in the home are going to be chipping away at the idea we have of big computers doing a lot of stuff, or personal computing devices we carry in our pockets or on our wrist. It’s a really big market shift that will play out over a long time.’ The internet will live in the real world rather than in shiny glass boxes — which wouldn’t suit Apple at all, according to Scoble. ‘Apple doesn’t know enough about the world — look at the Maps disaster.’

When Apple kicked Google Maps — tried and tested in the real world over several years and millions of miles — last year and replaced it with its own mapping app, it was a disaster. Among the numerous errors gleefully reported, Apple Maps classified an entire city as a hospital, placed Greenland in the Indian Ocean and offered directions to Washington Dulles airport that would get a driver run over by a jumbo jet. Cook was forced to apologise.

This ‘internet of things’ seems to be leading to a cottage tech industry producing myriad internet-enabled objects. ‘We may be returning to an era where there are many devices from lots of different manufacturers, because they’re way more available and people hear about them by word of mouth,’ Webb says. ‘Thriving in that kind of world is quite different.’ And especially difficult for Apple, a company that doesn’t hide its distaste for openness.

Under Jobs, Apple was on lock-down. Employees working on new devices would turn on red warning lights when their prototypes were on display on work benches; the company regularly hunted down and fired employees leaking details to the press. According to Wosniak, Jobs was worried about bigger companies finding out details and rushing out copies. It was also a useful marketing device; Jobs loved the big reveal. This Illuminati-level secrecy also gave the company room to experiment and perfect designs: Apple worked on phones for six years before the iPhone was revealed. Secrecy can work well for physical products, but it isn’t helpful for social applications such as Twitter and Facebook, which rely on having real people using them, in the real world. Missteps like the Maps debacle, and the iTunes social network Ping, which died a slow and painful death in 2012 (primarily because it didn’t integrate with Facebook, meaning people couldn’t easily interact with their friends), might have been avoided had Apple developed the products more openly.

Microsoft crushed Apple in the 1990s by letting any machine run its software, and letting any company build its own software on top. The closed, secretive approach favoured by Apple worked in the early 2000s because with each innovative product — iPod, iPhone and iPad — it created whole new markets: there were no other devices to interact with. And the closed approach worked with an aggressive, perfectionist CEO such as Jobs, who told customers complaining about the iPhone’s reception problems that they were, in fact, holding their phones incorrectly. Now, there are many devices on the market and the technology world is changing — innovation is happening on Kickstarter and in plain view. Android software runs on a huge number of devices and anyone can build applications on top. ‘Google is doing its research and development in public with these glasses,’ Scoble says. ‘Sergey is wearing them around. This stuff needs to be tested in the real world. So is Apple testing these watches in the real world by wearing them around? Hell no!’

Apple’s secrecy was down to Jobs himself, a man who, according to his FBI dossier, would ‘twist the truth and distort reality in order to achieve his goals’, but when Cook took over in August 2011, he told one tech conference, ‘We’re going to double down on secrecy on products. I’m serious.’ Maybe, but Apple has seemed more relaxed with Cook in charge. Jonathan Ive, the British designer behind Apple’s most iconic products, invited the BBC children’s television programme Blue Peter into Apple’s research lab, and Apple executives such as Phil Schiller appear in public far more than they used to. Cook went so far as to apologise for Apple Maps; Jobs would have told consumers that geography was to blame. Cook has also, to his credit, opened up the company to scrutiny about its ethics, especially in its supply chain (in particular, with regard to the suicides of low-paid workers at Foxconn factories in China). Maybe communication isn’t a good thing, though: the last six times Cook has spoken in public, Apple’s share price has dropped.

With a market capitalisation of £263.9 billion, Apple is still the world’s most valuable technology company and, on a good day’s trading, the most valuable company in the world of any kind. It still makes brilliant products: the iPhone was, after all, a device so easy to use and seamless that rapper Rick Ross could sell ‘dope straight off’ his device (see the lyrics to ‘9 Piece’). Apple’s design, marketing and retail operation are unparalleled. It has a cash pile of £91 billion, which it could use to buy companies that do have expertise in the real world and social media. And the last time Apple was written off, it came back with the iMac and the iPod. ‘We’re probably seeing a lull before Apple makes a big effort with the next product,’ Webb says. ‘Historically, when Apple has competition it does much better.’ It’s time for Apple to bite back. ES

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