Last September, when Apple debuted its new Lightning connector to replace the company’s venerable 30-pin connector, I predicted that the move might cause surprising problems. My post attracted a lot of attention and garnered a whopping 135 comments. Many of those commenters agreed that Apple’s move – while perhaps necessary, would have significant complications for the company. But many others said I was crazy to doubt Apple in any way, shape or form.

(See also iPhone 5′s New Lightning Connector Is A Bigger Problem Than Apple Thinks.)

Well, according to an article by Nick Wingfield and Brian X. Chen in Sunday’s New York Times, the move has indeed given Apple’s rivals an edge in the push toward wireless accessories (Accessories No Longer Tethered To Apple).

In my original post, I warned that the peripheral market’s commitment to the iPhone’s 30-pin connector was a big competitive advantage for Apple, because being the one device that could attach directly to external speakers, clocks, stands and chargers added an extra helping of utility for its devices. I said that the new Lightning connector threatened to eliminate that advantage, and that could hurt Apple:

“The availability of all those peripherals, in turn, has helped make the iPhone even more popular. iPhone buyers know that no other phone comes close to enjoying the choices and support that the iPhone has – in cars, in hotel rooms, at airports and everywhere else. By carrying an iPhone instead of a competing phone, they have a much better chance of being able to buy and use supporting infrastructure – which can make a big difference in the overall experience. The iPhone 5’s new Lightning connector threatens all that, and not just for iPhone 5 users.”

Sunday’s Times‘ article seems to confirm that prediction:

“Apple’s iron grip on the digital accessories in hotel rooms, store shelves and living rooms is starting to slip – potentially risking the royalties it earns from accessory makers and, more significant, giving Apple customers more freedom to switch to rival products.”

and

“Jeremy Horwitz, editor in chief of iLounge, a Web site devoted to Apple accessories, said Apple’s aggressive control over accessories for its products drove many makers to more open means of connecting devices, which helped feed the success of mobile devices made by other companies.”

and 

“Fewer people who buy sound systems that work only with Apple devices, in theory, could mean fewer obstacles for those interested in switching to competing phones and tablets in the future.”

To be fair, though, there has been an industry-wide movement toward wireless connections to peripherals, and Apple devices are fully capable of supporting this trend. It’s just that the wireless world is pretty much a level playing field, while Apple used to utterly dominate hard-wired connections. You can’t blame all of that on the Lightning connector, but as the Times pointed out:

“‘Even before Apple shifted from the 30-pin connector to Lightning, the market had started shifting,’ said Rory Dooley, senior vice president for music at Logitech. ‘Lightning came in and accelerated some of the change.’”

As for me, I couldn’t get my speaker docks to work with my iPhone 5, so I ended up using a “spare” Apple TV device to let me control the speakers using Airplay. Works for me, but probably not a cost-effective solution for most people.

Apple’s profits slid 18% last quarter. Gross margins dropped from 38.44% in 2012 to 37.5% in 2013. While there are a number of reasons for this, the biggest seems to be consumer preference for lower-priced products like the iPad Mini.

While Apple investors have spanked the stock in response, in reality they should be cheering. 

After all, we’re still in the early stages of the global mobile revolution, not the end, and Apple’s high-price, high-margin business model was never going to win outside North America and Western Europe. Indeed, could not win. While Apple is Apple and will never truly go down-market to make sales, it needs to be more price competitive in price-sensitive markets. Getting bullied on price by Android, thereby pushing Apple to introduce lower-priced (and lower-margin) products, is good for Apple, however much it may spook investors in the short term.

In other words, Apple needs to be a bit more like Google with Android.

Learning From Android

And what’s the Android strategy? Make smartphones affordable for everyone, as Google chairman Eric Schmidt declared at a recent mobile conference:

Our goal with Android is to reach everyone. We’ll cross one billion Android devices in six to nine months. In a year or two, we’ll hit two billion. And the way that’s going to happen is with the debut of low-end devices from manufacturers, primarily in Asia. If low-end smartphones are inexpensive now, imagine just how inexpensive they’ll be a few years from now… A relatively inexpensive smartphone with a browser is all you need to get the world’s information. And that’s how we’re going to hit the next billion devices.

Apple seems to be learning this lesson. While it claims a whopping 80% tablet market share in China, this is always how the company begins in a market. Remember when Apple could claim 90% of the smartphone market and then 90% of the tablet market in the US? At its premium prices, those statistics have a very short shelf life.

Selling To Both Rich And Poor

Plus, it’s very possible that Apple hit the high-end Chinese consumers first, but will struggle to claim the mass market. As Tom Christian Gotschalksen suggests, emerging markets are always comprised of both mature and emerging income brackets. Apple has done well with these mature demographics. It needs help on the emerging side.

In China, Apple seems to be holding off Samsung and the other Android vendors much better than it has before, even as it keeps slipping in smartphones. Why? Credit the lower-priced iPad Mini, as Haydn Shaughnessy argues. Apple did well with more affluent Chinese consumers in smartphones but then lost its lead as the mass-market adopted Android. With tablets, Apple is able to serve both markets.

That’s smart.

Pyramid Research has modeled the effects of Apple knocking down prices in China through carrier subsidies (especially China Mobile) and lower-priced offerings like the iPad Mini. The difference between the status quo and a lower-price market strategy is stark. This is something Apple must do.

And it is. Again, investors may not like it, but Apple is playing for long-term success in emerging markets. Finally. 

Image courtesy of feiyuezhangjie/Shutterstock.

The next time you’re thinking about buying a new smartphone, there’s one more spec you might want to consider. If the FBI or the IRS wants to read your texts, will Apple hand them over? Would it require the feds to get a warrant first? And would it even bother to let you know that federal agents made the request in the first place?

If you’re looking at a shiny new iPhone, the answers are not comforting. 

The Electronic Frontier Foundation’s latest digital privacy report, Who’s Got Your Back?, awards Apple its secondthe Electronic Frontier Foundation gives Apple a paltry one out of six stars. While Apple got credit for supporting efforts to defend users by modernizing electronic privacy laws, its apparent willingness to hand over your personal information to the government without a warrant and its failure to tell its users how it handles such requests put it in the dock.

Worse Than Comcast: Apple’s Privacy Black Box

Apple came off much, much worse than most of its peers — here defined as major non-ISP mobile-computing players. Apple fared worse than Amazon (two stars), Facebook (three), Microsoft (four) and Google (five). Even Comcast, the cable conglomerate consumers love to hate, scored one star higher than Apple. 

The EFF chides Apple for not publishing a transparency report as companies like Google and Twitter do. Without that, users have no idea what kinds of information the government asks for, because Apple won’t tell them, nor does it let them know what its guidelines are for dealing with law enforcement data requests. 

(See also: EFF: Twitter Scores, Verizon Fails At Protecting User Privacy)

Apple certainly wasn’t the worst-ranked company overall. The major telcos and ISPs almost always get raked over coals on privacy. In this report, Verizon got no stars, while AT&T racked up a grand total of one. MySpace also got no stars and Yahoo only got one. Amazon’s showing is also pretty disappointing, especially considering its vast storehouse of consumer-purchase data and its rumored plans to enter the smartphone market. 

But Apple dominates mobile computing in a way few other companies do. And as the proprietor of a mobile operating system that runs on more than half a billion devices, Apple has its hands on a lot of data. Its approach to privacy matters to an awful lot of people — and its lousy performance is a big deal considering how deeply its devices are embedded into our lives.

That integration is only getting deeper as Apple prototypes wearable devices and dreams up more screens to dominate. 

Not Just A Computer Company Anymore 

It’s not all together shocking that Apple has some catching up to do in the privacy realm. Until recently, it didn’t deal with all that much information about its customers. For most of its history, the company was called Apple Computer, because that’s what it sold: computers.

In the early days, the only way for the government to snoop through your MacIntosh was to get a warrant to search your apartment. Today’s Apple’s computers are smaller, constantly connected to the Internet and, increasingly reliant on iCloud to sync and share data across devices.

Whereas Google has been handling (and profiting from) user data since day one, Apple is only just getting started. If you use iCloud, its servers house your calendars, email, photos, notes and any other data you choose to feed it. If you’re using iOS 5 or higher, you’re also entrusting Apple with whatever percentage of your personal text messages go through its iMessage protocol.

To its credit, Apple built iMessage using end-to-end encryption that makes its harder for others to snoop on the contents of messages. Of course, if the FBI — or the local cops — really want to know what you’re iMessaging back and forth, they can go directly to Apple, with or without a warrant. 

Of course, if the texts in question aren’t iMessages, the authorities could just do what they’ve always done: Ask the mobile data provider to see them. Such requests have seen a dramatic uptick in recent years, and the major ISPs don’t approach them with the same level of transparency that a company like Twitter or Sonic.net would. 

Why Consumers Should Care

Apple has never been lauded for having a forward-thinking and open approach to user privacy issues. That hasn’t stopped millions of people from trying to predict the company’s next gadget and then eagerly standing in line to purchase it. 

Part of that may have to do with awareness. Digital privacy reports excite a certain breed of data nerd (OK, guilty as charged), but they don’t approach the media attention lavished on Apple product announcements. Nor is the EFF’s chart plastered all over billboards, bus stops and television sets. 

Even for those of you who already knew that Apple doesn’t treat your privacy with kid gloves, the risk of the government peeking into law-abiding texts and calendars is too remote to worry about. To some, this is just a side effect of the hyper-connected, digitally-immersed society we’re becoming. Even if they don’t particularly like it, it’s just not their battle to fight. 

Trouble is, that sort of complacency puts no pressure on Apple to get more proactive about keeping your digital life safe from prying eyes.

If you fall in this category, you might still luck out, of course. Even if there’s some major privacy gaffe down the line, it might not affect you. And if you’re fortunate, IRS agents aren’t currently reading your Apple email or iMessages, looking for possible evidence of tax evasion.

But given Apple’s current practices in this regard, if they are, you’d never know. Maybe ignorance really is bliss.

The apps that users have come to love (or hate) since the iPhone and its mobile operating system – iOS – first hit the market could be about to look very different: No more 3D cartoonish caricatures of bookshelves or billiard tables, Apple apps are reportedly going “flat.” Perhaps just as important, the new design could dictate when the next iPhone actually hits stores.

According to a report from Bloomberg, Apple’s lead designer, Sir Jonathan Ive, is completely revamping the look and feel of iOS. Ive had previously been the long-time head of hardware design at Apple (responsible for the physical look and feel of iMacs, iPods, iPads and the iPhone) but was elevated in 2012 when CEO Tim Cook let go Scott Forstall, the previous lead designer of iOS. Ive now controls the look and feel of just about every aspect of the iPhone.

With that change comes the end of skeuomorphism, the designconcept where developers make apps look like the physical object they represent. In iOS, this can be seen in the bookshelves of the Newsstand app or the paper notebook look of the Notes app.

Apple moving away from skeuomorphism is not news. The New York Times reported the move in November of last year, and the topic has been at the top of designers’ minds for months. On Wednesday, Bloomberg confirmed that Ive and his cohorts are moving toward a flat design that does not digitally recreate physical objects with 3D renderings.

What is news is that Ive’s team have apparently fallen behind in finalizing the new designs that are supposed to be ready for iOS when Apple unveils it at its World Wide Developers Conference, slated for June 10-14 in San Francisco. According to the Bloomberg report, the design concepts were due in February but are running a month late. The Apple team is working under intense pressure to get the new look down before the next iPhone ships, likely in September or October of this year. 

See Also:

• Why Apple Really, Really Needs To Kill It With iOS 7
• Forget Skeuomorphism: The (Digital) World Is Getting Flatter
• Will Apple’s New Design Approach Kill The Luster Steve Jobs Loved?
• Tim Cook Cleans House At Apple – Scott Forstall Is Out

Motivations For Flat Design

The flat design concept is in vogue with mobile designers because it provides a cleaner, crisper way to present information and easy interactive elements. Flat design works better on mobile screens, where inset text and spacing, among other issues, are concerns for developers. Microsoft’s Windows 8 and Windows Phone are prime examples of flat design.

A couple factors no doubt motivate Ive’s decision to transition iOS design:

• Apple is in desperate need of dramatic changes to make iOS 7 fresh and new for consumers. The basic digital design of iOS hasn’t changed since the first iPhone was launched in 2007.
• Flat design is more conducive to high-resolution screens. The original iPhone had a resolution of 163 pixels per inch (ppi) on its 3.5-inch screen. The iPhone 5 has 326 ppi on a 4-inch screen. Competitive models like the Samsung Galaxy S4 (441 ppi) and HTC One (469 ppi) boast even higher resolutions that Apple will likely try to match or best with its newest iPhone. 

According to reports, the disagreement that led to Forstall’s exit from Apple centered around skeumorphism vs. flat design. Now that Ive is in control of both hardware and software, he is going to bring everything into alignment with his own vision. 

Are you looking forward to a different design for your iPhone apps? Or are you happy with how your iPhone currently looks? Let us know in the comments. 

Apple’s annual World Wide Developer’s Conference (WWDC), an event where the Cupertino company typically showcases both new products and software overhauls to OS X and iOS, has sold out in less than two minutes. That obliterates the 2012 record of two hours, which beat the 2011 sell-out time of 12 hours, which… you get the idea. (The big difference is that this year, Apple announced when tickets would go on sale in advance, so the entire Apple developer community was scrambling to grab tickets at 10am PDT Thursday morning.)

Wall Street may be souring on Apple, but developer interest in the company’s next moves continues to hit new highs. The conference, to be held on June 10-14 in San Francisco, also happened to crush Google’s I/O conference sell-out time of a plodding 49 minutes. Tickets to the conference were limited to one per person and five per organization, contributing to the rush. 

The growth of WWDC and the increasing frenzy around scoring the coveted tickets causes some vexing problems for Apple and its developers. 

On the one hand, Apple made some $8 million off the $1,599 tickets, pricey for many independent developers but clearly not a big money maker for the company. But the bigger problem is that hordes of interested developers simply can’t get in to the event. (Unlike competing events, Apple doesn’t invite the press, either.)

Calls have come to expand the event but that might dilute the value of meeting with key Apple experts for those who do manage to attend. Holding satellite events at other locations around the world might allow more developers to attend, but could prove a time-suck for top Apple personnel – or would have to make do with lesser experts – again diluting the value of the events.

The company is promising “exciting announcements on videos and more” for those who couldn’t get a ticket, but it’s hard to see how that will satisfy Apple developers looking to get one-on-one time with company experts.  

In my day, boys and girls, we downloaded songs onto our desktop computer. For free. Often illegally. Then we burned them onto CDs late into the night.

iTunes changed all that. iTunes required that we actually pay for our music. It corralled us into accepting copyright-restricted digital content, while doing its best to force us onto pricey Apple hardware. It foolishly mashed together audio library management tools with a music download service with online payments and computer/mobile device synching – only to somehow grow even more bloated as the years went by. Yet here it is, ten years later, and iTunes towers above all its competitors.

No surprise, then, that Apple is formally celebrating “A Decade of iTunes” with an interactive timeline that is equal parts sales promotion and rare look back.

With the possible exception of Windows Vista, probably no software application from a large company has incurred such vigorous and ongoing public scorn as iTunes. Unlike Vista, however, iTunes continues to grow, evolve and continue its semi-secret though highly successful mission of transforming Apple from anemic, also-ran PC maker to its current position as the world’s largest technology and media company.

It was (technically) on April 28, 2003, when Apple launched the iTunes Music Store. The store contained 200,000 songs, all priced at $.99 each. On that same day, Apple announced its third-generation iPod, weighing less than “two CDs” and able to hold 7,500 songs. From those meager beginnings, content delivery, the music, film and software industries – and Apple’s fortunes – were all soon to be profoundly changed.

Ten years ago, Apple’s share price was $6.66. Today it hovers around $400 (down from more than $700, but still). Recall, if you can, the many Borders and Blockbuster Video stores that dotted the American landscape. iTunes essentially enabled us to buy easily digital content for the first time, and taught us that digital content could be worth paying for.

iTunes Begat iPhone

iTunes helped make Apple relevant once again. It enabled the expansion of Steve Jobs’ “digital hub” strategy, guiding Apple from failing computer maker to consumer electronics behemoth. That much is generally accepted. Just as importantly, however, iTunes enabled the iPhone. 

The single biggest reason for Apple’s meteoric rise over the last decade is the iPhone. Realizing that the rise of “cell phones” could harm Apple’s portable iTunes media players (the iPod), Apple teamed with Motorola to create the much derided Rokr E1 phone in 2005. The hardware was disappointing  and users complained that the device could hold just 100 iTunes songs.

Two years later, however, Apple introduced its own device. The iPhone was the shocking evolution of iTunes and iPod, and Apple’s work with Motorola. The point is, no iTunes, likely no iPhone and no iPad – the products that currently contribute more than 60% of Apple’s valuation.

Yet even the much-improved iTunes 11 still collects scorn, even from the Apple faithful.

This represents a misunderstanding of the platform’s roles. At the initial launch of the iPhone, Steve Jobs noted the importance of  iTunes to the “revolutionary” new device:

The (iPhone) automatically syncs to your PC or Mac right through iTunes.
 And iTunes is gonna sync all of your media onto your iPhone: Your music, your audio books, podcasts, movies, TV shows, music videos. 
But it also syncs a ton of data: Your contacts, your calendars and your photos, which you can get on your iPod today, your notes, your bookmarks from your Web browser, your email accounts, your whole email set-up. All that stuff can be moved over to your iPhone completely automatically. 
It’s really nice.
 And we do it through iTunes. Again, you go to iTunes and you set it up. Just like you’d set up an iPod or an Apple TV. And you set up what you want synced to your iPhone. And it’s just like an iPod. Charge and sync. So sync with iTunes.

Apple Loves iTunes – Even If You Don’t

iTunes simultaneously serves as Apple’s payments platform, media library app, and digital media storefront – for music, books, apps, podcasts and video. It powers the popular App Store. It is an app for purchasing content on the iPhone and iPad – though not for playing that content. On the Mac, iTunes is (still) both music and video library management layer, music player – though not video player – payments provider and media storefront.

No wonder even long-time Apple users complain of feature bloat and a confusing user interface.

Apple’s interactive iTunes timeline, meanwhile, focuses almost exclusively on music. Maybe Apple isn’t ready to accept that iTunes has transformed the company from computer hardware maker to a global digital media concern. But consider these numbers:

• 40 billion apps downloaded
• 25 billion songs sold 
• More than 15,000 songs downloaded every minute
• 1 billion courses downloaded on iTunes U
• More than 100 million books on the connected iBookstore
• Available in more than 115 countries
• 45% of the video on demand market in the U.S.

iTunes has also delivered tremendous value to content owners, publishers and app developers. According to Apple analyst Horace Dediu, iTunes generated more than $24 billion in revenues for content owners (media and app developers) in the past five years.

No matter what you may think of it personally, iTunes has been essential to Apple’s success. Expect it to continue to pushing the company forward, in all its messy, bloated glory.

Images courtesy of Apple.

Apple reported its first profit decline in over a decade and bluntly admitted that its growth is slowing. It was, indeed, a strange but not wholly unexpected change of pace for the wildly successful Cupertino company.

Despite that bad news, the stock market barely hiccupped. As of writing, Apple shares were virtually unchanged in after-hours trading from their close of $406.13 — a level roughly 42% below their peak just seven months ago. Which means that these diminished expectations are, for now, Apple’s new normal.

The Humbling Of Apple

In the January-March quarter, Apple generated $43.6 billion in revenue with a profit of $9.5 billion, compared to $39.2 billion and $11.6 billion a year ago. Profits might be down by a not-insignificant 18%, but the numbers still beat out quarterly estimates of between $41 and $43 billion in revenue. For next quarter, Apple set the bar low, with an expected $33.5 to $35.5 billion in revenue.

Apple also set new records for March quarter sales of the iPhone and iPad, for what it’s worth.

While Apple quarterly calls — like Apple launch events, Apple ads and the Apple ethos — tend to err on the side of smug, today’s tone was muted. As Apple’s boomtown empire of the last decade begins to look like a gilded age, CEO Tim Cook and CFO Peter Oppenheimer maintained a cautious optimism. Cook expressed frustration over Apple’s ongoing stock swoon and noted that 2012′s “exceptional success” makes year-to-year comparisons “difficult.” 

Other notable numbers from this quarter:

• 37.4 million iPhones sold, up from 35.1 million during Q2 2012
• 19.5 million iPads sold, up from 11.8 million a year ago
• iPad sales more than doubled in China and Japan
• Mac sales contracted, with just under 4 million sold – a slight dip from a year ago
• 5.6 million iPods sold (down from 2012′s numbers), but Apple commands 70% of the MP3 player market
• Apple made $5.2 billion from retail stores and expects to open 30 new stores this year
• The company holds $144.7 billion in cash (up from $137 billion in December 2012)

Still, Apple Is Apple

Of course, even at its humblest, Apple couldn’t resist an opportunity to tout iOS as a more secure ecosystem than Android, which has fallen victim to some high profile malware incidents in the last year.

As for what’s next — and how the company will continue to grow — Cook cited the strength of Apple’s ecosystem and “exciting new product categories” for the company’s bright outlook. Cook also turned an eye to untapped overseas markets, which could play a major role if the company plans for another growth spurt: “China has an unusual number of potential firsttime smartphone owners,” Cook said. “That’s not lost on us.”

Similarly, Cook touted the possibility of “an exciting new product category,” although of course without even hinting at details or a timeframe. So feel free to believe that he meant the iWatch, or an iTV, or, well, iAnything.

Apple also boosted its dividend by 15% and announced a new stock buyback program that aims to return $100 billion to shareholders by 2015, in part by taking some existing Apple shares out of circulation to boost stockholders’ holdings.

It ain’t easy being Apple – for once, anyway.

Today, Apple will report its fiscal Q2 2013 earnings today at 2 p.m. PDT. Analysts widely expect the Cupertino company to post its first year-over-year decline in earnings in the last decade. But has Apple really begun its fall from grace, or is the house that Jobs built just falling short of its own impossible standards?

Here’s why Apple has been missing the mark in 2013.

Growing Pains

Apple has fallen victim to its own success, plain and simple. The company’s been on top for so long, we just don’t remember things being any other way. Apple’s market and mind share are the stuff of legend, but they may show signs of waning for the first time in… well, ever in Internet years. While any other company in the universe would be perfectly content being the world’s former most valuable corporate entity, for Apple and its stockholders, that won’t cut it. 

Last quarter, in spite of a $13.1 billion profit, an unhappy market punished the company for failing to meet revenue expectations with a 10% share price plummet - AAPL‘s biggest nosedive in years. As Q2 wraps, Apple investors and acolytes alike are still itching to hit the panic button. Arguably it’s not because Apple’s near-future profitability poses any real cause for alarm – perhaps we just don’t remember how this whole thing goes for companies that aren’t Apple?

No New Tricks Up Its Sleeve?

Really, what could the company that brought little white earbuds into ubiquity wow us with next? The iPad Mini, Apple’s latest mobile device, is an exercise in practicality, a version of a revolutionary device with its ambition, processing power and pixel density scaled back (and its price slashed). 

At this juncture in consumer tech, consumers are pleased to see their gadgets polished and iterated, but they still love to have their minds blown. Look at Google tinkering away just over the Silicon fence. Between its hefty price tag and its unparalleled geek factor, Google Glass is the quintessential early adopter device, yet Google’s flashy cyborg eyewear has captured the imagination of the mainstream. That used to be Apple’s job. 

Unfortunately, reinventing the wheel isn’t easy – even for Apple, a company with a track record of doing exactly that.

The Competition Gains Ground

Competitors like Samsung are gaining increasing traction with a decidedly un-Apple approach and a heterogenous army of Android devices like the hotly anticipated Samsung Galaxy S4, the follow-up to last year’s homerun Galaxy S3.  Meanwhile, Apple is wasting more time than ever looking over its shoulder, building the fortifications of the Mac and iOS walled gardens higher than ever.

In the U.S. last quarter, Apple remained top dog with 38% of smartphone market share versus Samsung’s 21%, but globally the story is quite different, with Apple trailing by most metrics. With Apple shares trading at 40% less than September 2012′s booming highs, the company is at low tide for the moment.

On today’s call, Jobs successor Tim Cook might have to pull a literal rabbit out of his proverbial hat to exceed expectations. From its products to its profits, Apple likes to think of itself as an exception to every industry rule – and usually it is. Unfortunately for Cook and company, Apple just might be exceptional to a fault.

Stay tuned tomorrow for Apple’s Q2 2013 earnings report, which we’ll be reporting here at ReadWrite as it unfolds.

Cedars-Sinai Medical Center in Los Angeles is now using iPads and FaceTime to allow mothers to bond with premature or critically ill newborns in the intensive care unit.

Yes, it’s a savvy implementation of mobile computing technology. It is also unmistakably heartwarming, even in the context of mothers and babies hospitalized on different floors, unable to see each other except via screen. The hospital calls the project BabyTime.

Mothers who are confined to recovery rooms following delivery, typically because of a cesarean section or other complications, often can’t see their newborns in the intensive care unit for 2-3 days. “With BabyTime, the new mother can now see their baby in about 2-3 hours,” Yvonne Kidder, a clinical nurse in the hospital’s Neonatal Intensive Care Unit (NICU), told me:

BabyTime’s been wonderful. For mothers, to see their baby, this absolutely lessens their anxiety. For the fathers, who can become overwhelmed with all the information they are receiving, BabyTime bridges the gap and allows for a direct line between mother and caregivers. 

Approximately 20% to 30% of mothers who undergo a cesarian section are not initially well enough to travel from their bed to the NICU. Once an infant is admitted to the NICU, the hospital sets up a iPad next to the baby’s incubator and provides a second iPad to the new mother. 

A NICU nurse will explain to the mother over BabyTime chat what “all the lines and tubes” connected to their child are and “answer any questions the mother may have about her baby’s care and well-being.”

The program went live this February. The hospital makes the service available for “all in-house deliveries.” New mothers can request a BabyTime chat at any time, although only twice a day. The hospital uses a secure connection for these video communications.

Mothers can also watch as nurses and doctors treat their newborn in the NICU — and can even ask questions and make suggestions.

Charles F. Simmons, Jr., chair of the hospital’s pediatrics department, said in a statement:

BabyTime will help bridge communication with the family and the baby’s medical team and is an excellent use of technology to help new mothers bond with their babies, even when they cannot be physically at their babies’ bedside.

Images courtesy of Maxine Dunitz Children’s Health Center at Cedars-Sinai

Here’s one for you: how is it that some of the smartest, richest, market-savviest companies on the planet – allegedly – can’t seem to figure out how to name their products in a way that isn’t strikingly confusing?

The “new iPad” is not to be confused with the iPad 2. The new iPad is in fact, iPad 3. Only, Apple doesn’t call it that – nor do they market it as “new iPad” anymore, either. Rather, it is now branded as “iPad with Retina display” – with the “R” capitalized, though not the “d.”

Don’t ask me why.

While the iPad with Retina display is newer than iPad 2 it does not come with a model number. Nor does the iPad Mini. At least, not yet. I assume that Apple will still sell “iPad Mini” – likely at a lower price – when the newest “Mini” model is released. Which I’m also guessing will be called “iPad Mini with Retina display.” Or maybe iPad Mini 2. 

After that, all bets are off.

Which brings up the question: how is it that some of the smartest, richest, market-savviest companies on the planet – allegedly – can’t seem to figure out how to name their products in a way that isn’t strikingly confusing?

Welcome To Branding Hell

What comes after iPhone 5? iPhone 5S, perhaps? Or iPhone 6? Is there any real difference? 

And will it come pre-loaded with iOS 7?

Yet despite the inexplicable naming conventions that Apple uses for its products, it’s not the worst perpetrator – not even close. 

Which is better? The HTC One or the HTC First? How is it possible that HTC offers multiple “Ones” at the same time? Which “one” do you want?

• HTC One
• HTC One S
• HTC One SV
• HTC One V
• HTC One X
• HTC One X+ (no, I did not make that up)

I’m not even going to attempt to wade through the angrily confusing versions and price points of software products, such as Microsoft Office. There’s “Premium,” “365,” “Enterprise,” Mid-Sized Business” – to name only a few!  

Technology is here to help us. Otherwise, it does not belong. Technology with a confusing name is, therefore, suspect. If you can’t even get the name right, what else might be wrong with it?

A Galaxy Far, Far Away

Consider Samsung. Go into an AT&T store, for example, and there you find at least six different “Samsung Galaxy” devices. These are not to be confused, however, with the various “Galaxy Nexus” devices. In other words, the Galaxy brand name now means essentially nothing.

If you don’t believe me, just answer this question: which Galaxy is right for you? A Samsung Galaxy S III or a Samsung Galaxy Note II? Will you even bother to find out? Should you have to try?

What? There’s a line of various Galaxy “Tabs”? 

Does Samsung not want my business?

And is the Galaxy Note 8.0 four times better than the Galaxy Note II? (Or do Roman numerals count for more?) Wait. Will the next version of the Galaxy Note 10.1 be a 10.2? 

Nor is it possible to divine the brand meaning – and thus the brand value – of the Motorola Droid line versus Android versus Nexus – all of which is owned by Google. Which I’ve heard is now overseen by the Google Chrome team.

Do companies just pick names out of a hat?

If not, then how much money did Nokia pay its marketing staff to promote the Lumia 820 as “our most versatile phone?” Was it more or less than they paid the team that branded the Lumia 920 as “our most amazing phone?” 

In just the U.S., there is a Lumia 710, 800 810, 820, 822, 900 and 920. I dare you to uncover the meaning, intent, price, value, speed and/or ability of any of those based on their actual name. According to Nokia’s own site, the Lumia 900 is available “from $0.01″ whereas the Lumia 800 is “from 526.72.” 

Why? It seems backwards.

And, no, I am even going to try and select which of these fourteen different Blackberry smartphones is right for me.

Are these companies even paying attention? Maybe it’s time for some brand simplification to put some sense in the market place.

Image courtesy of Shutterstock.

It’s getting harder to make a dent in the mobile app market, especially for Apple and Google. While it’s easy to point to the billions being paid to app developers, the reality is that Apple’s and Google’s 30% cut on such revenue is a rounding error. Given Apple’s struggle to fend off Google, and the comparative peanuts it makes on mobile app sales, it may be time for Apple to give even more revenue back to developers to encourage a continued “iOS-first” policy.

Apple CEO Tim Cook crowed at an investor conference earlier this year that Apple had paid $8 billion to developers since the App Store’s launch. While this may sound impressive, that equates to around $3.4 billion to Apple over five years, or about $170 million per quarter.

Sound like a lot? It’s not. 

The $170 Million Rounding Error

After all, just last quarter Apple notched $54.4 billion in revenues, nearly $31 billion coming from sales of the iPhone alone. $170 million in mobile app sales? Apple makes 3X that amount in the first day of a quarter.

Not that app sales are immaterial to Apple’s business. On the contrary, apps make Apple’s hardware more appealing. As beautiful as Apple’s devices are, few would bother to buy them if they didn’t come with a massive app ecosystem.

So apps matter to Apple. It’s just the app revenue that really doesn’t matter. Not even with the overall mobile app market blossoming to $25 billion in 2013, according to ABI Research. That’s not where the real money is.

The Mobile App Economy

At least, not for Apple. But developers? They could use that money.

Even as app sales boom, generating revenue from mobile apps is something of a bust for developers, and it’s getting worse. According to a VisionMobile report, 35% of mobile app developers “live below the app poverty line,” in that they don’t make enough money from app development to sustain themselves. Furthermore, research firm research2guidance recently released data indicating a 27% drop in average revenues per paid app, from $26,720 in 2011 to $19,560 in 2012.

That drop in top-line revenue is already hard to swallow, but becomes even more so for iOS developers, given how pricey they are to create relative to other platforms:

Hey, Apple, Can You Spare A Dime?

As such, and given Android’s continued market share domination, it may be time for Apple to further encourage developers to stick with it by dropping its App Store cut. While dropping its share from 30% to 20%, 10%, or 0% won’t hurt Apple’s revenue profile, it could go a long way toward keeping developers’ pockets full.

Of course, Google could (and likely would) simply follow suit. After all, Google, like Apple, doesn’t rely on app revenue, instead monetizing mobile through advertising.  

But by moving first, Apple would not only generate goodwill, but it would reinforce developers’ preference for iOS, as a recent Appcelerator and IDC survey shows:

Apple, in other words, doesn’t need to win over developers, so much as it needs to give developers a bit more incentive to keep it top platform for them. As volumes start to shrink relative to Android, letting developers keep a bigger chunk of their App Store haul could go a long way toward encouraging developer loyalty.

Reports yesterday that Apple had inserted itself into the world of publishing censorship have turned out to be completely inaccurate. Apple didn’t ban the sale of a comic; the comic’s distributor app did — though apparently only to pre-empt the Apple ban it anticipated.

The kerfuffle centered on the banning of the sale of issue 12 of Image Comic’s Saga comic series within the iOS version of ComiXology’s app.

On Tuesday, the creator of the series, Brian K. Vaughan, released a statement indicating that Apple would be banning sales of Saga #12 in the popular ComiXology app and any other third-party comic app due to depicted sexual scenes.

“Unfortunately, because of two postage stamp-sized images of gay sex, Apple is banning tomorrow’s SAGA #12 from being sold through any iOS apps,” Vaughan said in a statement posted at Image.

News of this move stirred a lot of observers on the Internet, including me, to lambast Apple for blocking the sale of third-party material when Apple offers the exact same comic directly within its own iBook app. This would have been the first time Apple curated independent media sold through an app, even though, according to the App Store Review Guidelines, independent books and music are not supposed to be curated:

We view Apps different than books or songs, which we do not curate. If you want to criticize a religion, write a book. If you want to describe sex, write a book or a song, or create a medical App. It can get complicated, but we have decided to not allow certain kinds of content in the App Store.

The whole thing seemed odd when I first posted about it yesterday, but the whole thing was completely wrong, and my story incorrect: it turns out Apple had absolutely nothing to do with blocking Saga #12… it was all on ComiXology.

“As a partner of Apple, we have an obligation to respect its policies for apps and the books offered in apps. Based on our understanding of those policies, we believed that Saga #12 could not be made available in our app, and so we did not release it today,” ComiXology CEO David Steinberger blogged yesterday afternoon.

“Given this, it should be clear that Apple did not reject Saga #12,” he emphasized.

The comic, which anyone could still purchase on ComiXology’s web site and then sync to an iOS device, was restored to the in-app catalog yesterday.

ComiXology’s move to preemptively block the sale was their way of anticipating a decision from Apple that would have done the same thing later. But Apple, ComiXology learned, had no intention of censoring the comic issue.

Because the Saga series is intended for mature readers and has depicted graphic scenes of violence and sex before, many speculated that ComiXology (and before, inaccurately, Apple) has an issue with the portrayal of same-sex activities in two panels of Saga #12. This is a charge Steinberger denies.

“We did not interpret the content in question as involving any particular sexual orientation, and frankly that would have been a completely irrelevant consideration under any circumstance,” Steinberger wrote.

It is still not entirely clear what it was about Saga #12 that made it stand out as a potential problem, but one thing is clear: content distributors like ComiXology and Apple definitely need to get their acts together.

ComiXology can be accused of having an overabundance of caution, but there was something in the Apple policies that faked them out. Perhaps Apple, which has not publicly commented on this matter, could come out with clearer policies on content, if that is indeed the problem.

Hopefully, the policy will continue to be what it seems: that for all of the app content that Apple does curate, they have to date not curated content that’s independent of apps.

This can be confusing, because it means that publishers like Playboy will have to keep the naughty stuff to itself within its own Newsstand app, but third-party movies, books and music with explicit material can still be sold through apps, including Apple’s.

For this particular incident, Apple is off the hook. But somewhere there was a miscommunication, which needs to be fixed.

Image courtesy of Shutterstock

Every geek worth his or her salt knows that Wednesday is new comic day, a happy day for exploring their local comics store and getting their pick lists filled with glorious four-color adventures. For some, this means purchasing electronic copies of their favorite books online, to be read on their computer, tablet or even smartphones.

But today’s experience will be marred for fans of Brian K. Vaughan’s Saga: the creator of the series from Image Comics has released a statement indicating that Apple would be banning sales of Saga #12 in the popular ComiXology app and any other third-party comic app due to depicted sexual scenes.

“Unfortunately, because of two postage stamp-sized images of gay sex, Apple is banning tomorrow’s SAGA #12 from being sold through any iOS apps,” Vaughan said in a statement posted at Image.

If you’re not familiar with Vaughan’s work, either on Saga or the award-winning series Y: The Last Man, then you would know that when Vaughan writes a series meant for mature readers, then it’s definitely going to be mature. Already in Saga, for instance, there have been scenes and depictions that I would definitely not want my younger kids reading.

That’s what makes this decision by Apple to prevent the sale of Saga #12 all the more odd. If they were being consistent, then they would have blocked the sale of Saga altogether. The only thing different about this particular issue’s scene? It is explicitly depicting sex between multiple male partners.

This is not the only thing that’s odd with Apple’s decision: while the company has not been shy about banning apps in their App Store that have content or activities that could be construed as violent or sexual in nature, this may be the first time they have curated independent content sold through an app (and, by extension, Apple, since they take a cut from everything bought in iOS). But, according to the App Store Review Guidelines, independent content, such as books or music, is not supposed to be curated.

“We view Apps different than books or songs, which we do not curate. If you want to criticize a religion, write a book. If you want to describe sex, write a book or a song, or create a medical App. It can get complicated, but we have decided to not allow certain kinds of content in the App Store.”

This hasn’t stopped Apple from blocking the sale of Saga #12 within ComiXology, even though this issue falls squarely under the definition of a book.

It gets even weirder: according to Vaughan, you can buy the very same issue directly from Apple itself.

“If all else fails, you might be able to find SAGA #12 in Apple’s iBookstore, which apparently sometimes allows more adult material to be sold than through its apps. Crazy, right?,” Vaughan wrote.

At the end of the day, from a practical point of view, Apple’s decision does nothing to actually prevent readers from reading this issue on their iOS device. You can still purchase the issue on ComiXology’s website and have it synchronize to your iPad or iPhone. This is what I do every week anyway, because it’s faster to make one big purchase on the site rather than tap “Purchase” and “Buy” 15 or 20 times.

Or, as Vaughan said, you can just get the comic right inside the iBook app. Which I would not recommend, because this is usually a sub-optimal user experience (code for: “sucks”). And then there’s the hard copy available at you local comic retailer.

Or (and here’s a wild thought) don’t buy the issue. Vaughan and artist Fiona Staples’ use of graphic imagery is not what this book is about, but rather elements of a larger story. Still, it is certainly the right of any consumer to choose to not purchase something if they find it offensive. Or return it and ask for a refund.

What Apple has done here, however, is taken that choice away from the consumer. They are not letting them discover new content and deciding for themselves if it’s good or bad. They are not letting consumers choose to impose Restrictions on apps that might display content that some would find objectionable for their children.

I have my own thoughts on Vaughan’s use of language and imagery in his works. I am personally uncomfortable with any explicit depictions of sex and violence but I also recognize that sometimes as a reader I’m supposed to have my perceptions and opinions challenged. That’s true for written works, music or art. If I consume literature that only makes me comfortable, what do I learn? How am I challenged?

But if I consume literature that only someone else finds comfortable, that’s even worse.

Apple’s values are not always mine or yours, and it’s past time to start noticing the walls of the garden in which Apple holds iOS users.

Image courtesy of Image Comics.

Apple is a different place since Steve Jobs left us. The stock price is way down, and the company apologizes at an unprecedented rate. Granted, Apple almost never apologizes for anything, and when it does, the apologies tend to be less than apologetic. So “unprecedented” simply means “more than once per century” – but this Apple is different.

For one thing, Apple just apologized for being, well, Apple.

Apple’s China Strategy Breaks New Ground

In Apple’s apology to China over allegedly shoddy customer support, Apple CEO Tim Cook said:

We are aware that a lack of communications… led to the perception that Apple is arrogant and doesn’t care or attach enough importance to consumer feedback. We express our sincere apologies for any concerns or misunderstandings this gave consumers.

Perhaps Cook isn’t aware, but nonchalance toward industry feedback and arrogance are hallmarks of Apple’s history. Now it’s apologizing for these traits? This from the company whose founder, Steve Jobs, famously said:

Some people say, ‘Give customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, “A faster horse!”‘ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.

And from the same founder who, when told the iPhone 4 had serious antenna issues, told users that they were holding the phone wrong?

A Kinder, Gentler Apple

This is a very different Apple. When you read Cook’s apologies on Apple Maps problems or now on China, they actually read like he’s sorry, and not simply going through the motions of looking apologetic.

It’s a kinder, gentler Apple. And I’m not sure I like it.

Sure, there are good reasons for Apple to apologize. For one thing, it’s the right thing to do when someone, or some company, messes up. For another, it’s good business, and given Apple’s recent stock market stumbles, making peace with Apple’s biggest future market – worth $22.5 billion in fiscal 2012 and on a torrid growth pace – makes a lot of sense, as All Things D‘s John Paczkowski posits.

Missing Apple’s Arrogance

But I liked the Apple that was infuriating in its smug assurance that it was right. Because most of the time, it was, and holding its ground forced the industry to be more circumspect about easy assumptions about what would work. I know that I, personally, have been proved wrong many times about Apple, and am grateful that it hasn’t listened to what I or others in the media were saying.

Or, as former Apple employee Guy Kawasaki tells it,

“Apple market research” is an oxymoron. The Apple focus group was the right hemisphere of Steve’s brain talking to the left one. If you ask customers what they want, they will tell you, “Better, faster, and cheaper”–that is, better sameness, not revolutionary change. They can describe their desires only in terms of what they are already using….The richest vein for tech startups is creating the product that you want to use—that’s what Steve and Woz did.

Whatever the Chinese blow-up, if you’ve ever called Apple on a support issue or visited an Apple Store, you know that Apple has exceptional customer support. Better than any other technology company that I know. It rivals Nordstrom, it’s so good.

I suppose Apple felt the need to make China happy, but I hate seeing it prostrate itself and become something it’s not: humble. Apple is great because it pays little attention to critics. Or used to. Lately it’s been apologizing somewhat regularly. I want the unapologetic, arrogant Apple back.

Everybody can agree that Apple’s next couple of iPhones need to be more than just iterative updates. From the design to the hardware to iOS, Apple clearly needs to do… more. 

But some people like to take that idea of “more” to ludicrous extremes. Usually it is some obscure blog trying to make a name for itself (if ever so briefly). Other times it happens to be the founder and CEO of one of the largest and most respected industry analyst groups in the world.

Forrester’s Chief Wants Smartphones To Fold

Forrester CEO George Colony posted an entry on his “Counterintuitive CEO Blog” at Forrester on Tuesday titled, “Apple’s Foldable Future.” The post talks about how Apple must go big with the iPhone 6 (not the iPhone “5S” expected later this year, but the version after that) and he suggests the “foldable smartphone.” 

Yes, foldable. Like, you know, a towel or a piece of paper. 

Colony writes:

Without any inside knowledge of Apple or other makers’ plans, I believe that the coolest future smartphones will fold. To demonstrate, take the current iPhone 5, lengthen it by 1.5 inches, widen it by an inch, make it 30% thinner, then fold the whole thing in half. In your hand… you would be holding a square device with a full screen of icons, video, pictures – ready to make a call or open an app.

But when you open the phone, you would have a massive screen (there’s display glass on both sides of the device) with a diagonal of nearly seven inches. That’s bigger than the non-folding Galaxy Note 2 which is often called a “phablet” in polite circles and “the sandal” in rougher company.

Let’s ignore the obvious caveat here where Colony admits that he has absolutely no idea if this is something that Apple would do. Colony’s view on foldable computing is pie in the sky thinking at best. Delusional at worst. 

Dual Screens & Bendable ≠ Foldable

Over the last several years several companies have demonstrated the concept of “bendable” displays. Nokia had a bendable display showcased in its research and development kiosk at Nokia World in London in October 2011. Samsung has shown off the bendable displays at multiple trade shows. Apple, as far as we know through various patent submissions, is working on curved glass displays, possibly for the release of the so-called “iWatch.” 

In addition, several concepts of the “dual screen” smartphone have emerged over the past couple of years at trade shows like Mobile World Congress and the Consumer Electronics Show. None of them have worked particularly well, gotten anywhere near a decent review or been mass produced by whatever manufacturer thought it up. 

But dual-screen and bendable displays do not a “foldable” smartphone make. While those are interesting concepts in their own right, they don’t appear to be what Colony is getting at – a single-screen device that could folded to be bigger or smaller. (Let’s hope he’s thinking of something more than the next generation of the once-popular flip phone.)

Foldable = Formidable

To his credit, Colony admits building a foldable smartphone would definitely be a challenge.

Now this won’t be easy. The hinge technology will have to be an engineering marvel, and making the folding crease of the screen invisible will pose problems in materials, optics, and touch technologies.

The basic concept that Colony is getting at, outside of the “foldable computing is cool and the future” part (which I do not quite buy), is that a foldable iPhone/iPad device would turn what is basically an iPhone into a small tablet with a fold. This could be a more sophisticated approach to the “phablet” concept of very large smartphones, like the Galaxy Note II (which has a 5.55-inch screen).

(See also Samsung Galaxy Note II: The Tale Of The Comically Large Smartphone.)

Phablets, on a conceptual level, remain controversial. Mobile analytics company Flurry, which tracks nearly a billion smartphones and tablets worldwide, notes that phablets are likely a fad. The entire “small tablet” category (from 7-inches to 8.4-inches) remains very small, despite devices like Google’s Nexus 7, Amazon’s Kindle Fire and Apple’s own iPad Mini. Sure, those devices are relatively new, but their market share is even tinier than their screens.

Look past the foldable phone, though, and Colony does make an important point. Whether it be a foldable iWhatever or some other type of moon shot, Apple clearly needs a huge win with the iPhone 6. If the company does not achieve that, Colony argues, Apple could very easily turn into the next Sony – a once-great company that  grew stagnant and no longer sets the agenda for cutting-edge innovation.

“Foldable” iPhone concept photos from Forrester.

Apple’s formal apology yesterday to the people of China may not be enough to dissuade China’s government from its continued attacks on the company. But if the immediate response is any guide, it should be enough to let Apple keep building out its business in the world’s largest mobile computing market.

Following a damning and highly visible attack by state-owned China Central Television that accused Apple of “arrogance” for allegedly providing shoddy service to its Chinese customers, CEO Tim Cook publicly apologized.

According to Bloomberg, Apple’s apology is a rather common “rite of passage” for large foreign businesses in China. 

Corporate mea culpas have become a rite of passage for international companies criticized by China Central Television, including Volkswagen AG, Carrefour SA (CA) and Yum! Brands Inc (YUM).

The network beamed its program on Apple to more than 1 billion people just hours after Li Keqiang, who has pledged to root out consumer abuses, was named premier. The state-run People’s Daily followed with more than a dozen articles at a time when China struggles to cope with poisonous food, air pollution, government corruption and thousands of dead pigs floating in Shanghai’s drinking water.

The importance of the Chinese market to Apple is hard to understate:

While the iPhone has only a small share of the Chinese smartphone market, Apple has been moving aggressively into the country. In the last fiscal quarter alone, Apple generated $6.83 billion in revenues from the Chinese market (including Hong Kong and Taiwan). China is currently Apple’s second largest market by revenue, though CEO Tim Cook has predicted that China will become Apple’s number one market soon.  

Everyone Hates Apple… Until They Don’t

Apple needed to defuse this situation as best it could. In addition to Tim Cook’s apology, Apple pledged to improve its customer support policies, better train its official Apple resellers in the country and to enhance warranty policies for the iPhone 4 and 4S.

Moreover, Cook’s apology was noticeably personal:

In the process of studying the issues, we recognize that some people may have viewed our lack of communication as arrogant, or as a sign that we didn’t care about or value their feedback. We sincerely apologize to our customers for any concern or confusion we may have caused.

This may be enough to satisfy Apple’s customers and potential customers in China, and could limit anger and complaints about the company across popular social media sites as Weibo. As Reuters noted, shortly after the apology, another official Chinese newspaper, the Global Times, remarked that Apple’s reaction is “worth respect compared with other American companies.”

Perhaps, though Bloomberg notes that the many attacks on Apple from official Chinese government outlets were “more severe” than in the cases of other foreign companies.

Cook, who has visited the country twice already during his short tenure as Apple CEO, will likely make additional visits to smooth official feathers. He will no doubt also remind the government of Apple’s contribution to the Chinese economy. During his last visit to China, for example, Cook singled out for praise the many Chinese partners and manufacturers that Apple relies on to manufacture its products for sale around the world. 

Tim Cook, PR Man

Cook’s apology is a wise move. Apple needed to let the public know that the company was committed to the China market and that it treats its China customers the same way it treats others — by, for instance, offering new replacement phones instead of refurbished models.

The timing of the apology was also critical. Apple could not afford to lose the narrative. According to CNN, even after the many negative stories by state-run media, Apple’s customers and admirers within the country are still unsure what to make of the situation. 

Many Chinese are wondering what the episode was really all about: Government payback against the popular American company? Apple’s arrogance? Or was it legitimate criticism of Apple’s service in China?

CNN also noted that reactions to the original CCTV broadcast were “mixed on social media.” While many sided with the government, others thought “state media was overreaching.”

Image courtesy of Shutterstock

Early Monday morning, Apple CEO Tim Cook issued an apology letter, written in Chinese and posted to Apple’s corporate site in China, in which the company promised to improve its customer support and warranty policies in China. The mea culpa came after several public attacks by official China media.

(See also What’s Really Behind China’s Attacks On Apple.)

“Sincere Apologies”

According to The Wall Street Journal, which offered a translation, the Cook letter read, in part:

We are aware that a lack of communications… led to the perception that Apple is arrogant and doesn’t care or attach enough importance to consumer feedback. We express our sincere apologies for any concerns or misunderstandings this gave consumers.

Cook’s contrite, rapid response ws not unexpected. Just last week, in “Nobody Likes Tim Cook. Oh, Except Apple Customers And His Peers,” I praised Cook for his willingness to quickly get in front of issues like Apple Maps and Foxconn labor concerns. And given that Apple’s 2012 sales in China were $23.8 billion and China is Apple’s second largest market, Cook really didn’t have much choice but to make nice.

Will The Apology Help?

Of continuing concern, though, is whether or not the China government is singling out Apple. Last month ReadWrite noted that actions taken across multiple organizations within China’s government could be part of a concerted effort to either limit Apple’s potential within the country or to help China build it’s own viable smartphone platform – to compete against Apple’s iOS and Google’s Android. 

While this remains supposition, China’s aggressive pressure on Apple has clearly had an impact. Again, from the Journal:

Apple has been the target of criticism in China’s state-run media since the middle of last month. China’s powerful national broadcaster, China Central Television, and The People’s Daily—the official mouthpiece of the Chinese Communist Party—have accused Apple of skirting warranty periods, adopting customer-service policies that discriminate against Chinese customers, and formulating an inadequate and arrogant response to the reports.

As ReadWrite detailed last month, a widely viewed China Central Television (CCTV) report that accused Apple of not fully meeting its product warranty obligations generated a significant social media backlash within the country. Per the Cook letter, Apple will extend warranty coverage on the iPhone 4 and 4S and will replace any broken iPhone 4 or 4S with a new phone – not a refurbished device, as was the previous practice. The company will also provide additional training to Apple authorized resellers regarding company warranty policy and make its product warranty policies more clear to prospective buyers.  

Image of Tim Cook courtesy of Reuters.

The happy greeters at the Apple Store always make me feel welcome, though never special. Maybe they should. After all, if I start to add it all up, I spend a fortune on Apple gear. I suspect I’m not alone among the Apple faithful in that.

Apple is the richest tech company in the world. Though nearly all their money comes from hardware — and in highly competitive markets, such as smartphones and laptops — Apple profit margins are at a shockingly high 38%. The company has long commanded a premium from its customers.

That premium is starting to hit me hard.

That’s not just because of Apple’s higher prices, but also because so many of their products are deliberately complementary. Apple CEO Tim Cook has claimed that Apple “embraces” product cannibalization, but that assertion rings hollow to me. On Apple’s most recent earnings call, Cook boldly stated:

I see cannibalization as a huge opportunity for us. Our core philosophy is to never fear cannibalization. If we don’t do it, someone else will. We know that iPhone has cannibalized some of our iPod business. That doesn’t worry us. We know that iPad will cannibalize some Macs. But that’s not a concern. 

Cook isn’t lying. Better that Apple cannibalize its own products than someone else does. The problem, of course — if that’s what this can be called — is that iPhone, for example, doesn’t replace my iPad. Which doesn’t replace my MacBook. Apple product innovation isn’t about cannabilization so much as extension, making it more attractive for me to replace someone else’s product with a shiny new Apple device.

For good or ill, I seem to fall for it every time.

At work I use my MacBook Pro. I use my iPod while at the gym. I use my iPhone for calls, texting, video recording, a quick game. At night, I turn on the Apple TV and stream the latest blockbuster. I lay in bed with my iPad, reading, surfing. Each of these pricey devices works best for specific uses. This is a core part of their design – and Apple strategy.

The iPad has not and likely never will replace my iPhone. Nor will it ever replace my laptop, which will never replace my Apple TV, which has never even met my iPod. Add it all up and Apple should treat me like Kim Kardashian.

Don’t believe me? This is my Apple spend for the past 12 months:

MacBook Pro (13-inch: 2.6GHz with Retina display): $1699

• AppleCare Extended Warranty Coverage: $249
• Software and Apps: $500*  
• Time Capsule (2TB Storage): $299

iPad Mini (32GB, WiFi only): $429

• Smart Cover: $39
• iPad Apps and Media: $200  

iPhone 5 (16GB): $649

• AppleCare Extended Warranty Coverage: $99
• iPhone Apps and Content: $300 
• Mophie Juice Pack: $80
• Car Charger: $35

Apple TV: $99

• Programs and Movies: $150 

iPod Shuffle: $49

Add it all up and Apple cost me… $4,876. 

Oh my God. Is that right?

That doesn’t even include my wife’s iPhone, nor our older MacBook, nor tax, nor any shipping costs. Nor does it include the cost of voice and cellular data service for my iPhone, nor the cost of WiFi when I need to turn my iPhone into a hotspot to support my MacBook or iPad. All that accounts for at least an additional $1,000 per year.

I also didn’t include the cost of any accessories, speakers or complimentary products, except the Mophie battery pack, which is a must in my line of work, and the car charger.

Although, to be fair, there is one product that Apple cannibilized. I did not buy Apple’s sleek new and very expensive iMac. No need. I already have a three-year-old iMac that, in fact, was rendered useless by my new MacBook Pro. Which, if I haven’t said already, is a thing of beauty.

I shudder to think what will happens if and when Apple comes out with that “iWatch.” After all, that certainly isn’t going to replace any other Apple product, except perhaps my iPod Shuffle. Will it really cost only $49? I doubt it. I may need to take on a second job.

What about you? How much have you spent on Apple products in the past year? 

*NOTE: All software, content, games and apps spending is estimated.

Apple Store image courtesy of Shutterstock

Tim Cook took the helm of Apple on August 24, 2011. Since then, on average, Cook has increased Apple’s market value by $110 million a day. Its shares closed yesterday a hair above $461, up 23% over his tenure so far.

Sure, it’s been a bit of a bumpy ride along the way — and a particularly painful one for those who purchased Apple stock last year in the neighborhood of $705, its all-time high. Fair enough. Yet the media, Wall Street — even Apple employees — seem to overlook a lot of what Cook has achieved.

In its most recent quarterly earnings report, Apple posted record revenues, $54.5 billion, and record quarterly net profits, $13.1 billion. Apple sold a record number of iPhones for the quarter — 47.8 million. The company sold a record number of iPads for the quarter as well — 22.9 million.

Apple generated over $23 billion in cash flow for this first quarter, an astounding number. Indeed, Apple has at least $137 billion in cash reserves. Long thought of as a US-focused company, international sales now account for 61% of Apple’s revenues. Apparently, this is not good enough. The drumbeat of negativity continues. Consider this sampling:

• The Last 6 Times Tim Cook Has Talked, Apple’s Stock Has Dropped
• With Apple Profit Falling, Board Should Replace Tim Cook with Jony Ive
• Tim Cook Negligent on Defending Apple’s Share Price – Price Bordering on Perverse 
• Ex-Apple Employee: I Worry That Tim Cook Is Too Nice 
• Apple CEO Tim Cook’s approval rating drops
• Apple’s first quarter of negative income growth since 2003

Following the legendary Steve Jobs is a difficult task. But despite Cook’s rather exemplary job running the world’s largest tech company, many insist upon viewing him in starkly negative terms.

Tim Cook Stops The Buck

Cook has certainly faced his share of adversity, and he’s typically responded quickly and openly. When Apple was singled out for working conditions at its Chinese contractor Foxconn over the manufacture of iPhones and iPads, Cook made a highly public visit to the country. Cook also began working with the Fair Labor Association (FLA) to conduct audits of Apple suppliers, including Foxconn, stating that: 

We believe that workers everywhere have the right to a safe and fair work environment, which is why we’ve asked the FLA to independently assess the performance of our largest suppliers.

Cook also stated that Apple’s suppliers were to provide full cooperation and “unrestricted access” to the FLA. 

Following blistering press over the flubbed launch of Apple Maps, Cook was contrite and open:

At Apple, we strive to make world-class products that deliver the best experience possible to our customers. With the launch of our new Maps last week, we fell short on this commitment. We are extremely sorry for the frustration this has caused our customers and we are doing everything we can to make Maps better.

In a corporate statement signed by Cook, he also stated the company’s ongoing commitment to meeting customer expectations — even suggesting users consider competing products:  

While we’re improving Maps, you can try alternatives by downloading map apps from the App Store like Bing, MapQuest and Waze, or use Google or Nokia maps by going to their websites and creating an icon on your home screen to their web app. 

Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working non-stop until Maps lives up to the same incredibly high standard.

Cook has also sought to improve the environment inside Apple. One example: soon after being named CEO, Cook implemented a company charitable giving program at Apple. 

I am very happy to announce that we are kicking off a matching gift program for charitable donations. We are all really inspired by the generosity of our co-workers who give back to the community and this program is going to help that individual giving go even farther. Apple will match your gift dollar-for-dollar, up to $10,000 annually.  

Not long after the announcement, Cook donated $100 million of his own money — $50 million to Stanford Hospital and $50 million to Project RED, which works to combat the spread of AIDS, tuberculosis and malaria. 

Last October, Cook announced significant management changes within Apple designed to enhance “collaboration” across Apple hardware, software and services:

We are in one of the most prolific periods of innovation and new products in Apple’s history. The amazing products that we’ve introduced in September and October, iPhone 5, iOS 6, iPad mini, iPad, iMac, MacBook Pro, iPod touch, iPod nano and many of our applications, could only have been created at Apple and are the direct result of our relentless focus on tightly integrating world-class hardware, software and services.

Cook also promoted the highly regarded Jony Ive, placing him in charge of design for both hardware and software.

Despite these efforts, Cook is still largely held to a unattainable standard — even by Apple employees, it seems. In its recent annual CEO approval rating survey, for example, Glassdoor announced this week that Tim Cook’s employee approval ranking had fallen from #1 in 2011 to #18 in 2012. Tech CEOs who placed better than Cook included:

• Mark Zuckerberg, Facebook (#1)
• Larry Page, Google (#11)
• Marc Benioff, Salesforce (#13)

If bloggers, Wall Street analysts and even Apple employees are losing confidence in Cook, Apple customers are clearly not, driving record sales and revenues for the company — and once again ranking iPhone tops in customer satisfaction.

Nor are Cook’s peers uncertain of his abilities. In a recent global survey of business directors and executives, Fortune found that Apple was the world’s “most admired company,” the world’s “most admired in innovation,” and “number 1 in product quality.”

Take that, naysayers.

Image of Tim Cook courtesy of Reuters

Quick, the new Apple MacBook is out. What do you do? Mortgage next month’s paycheck and pre-order it online? Or maybe wait a few months and get a refurbished version? Maybe you type in a school promotional code on the Apple site, and get a measly little discount? Or should you just buy an older model — or just sit on your hands and wait until the price drops? What to do, what to do?

Well, you could try something like this:

So if you can be patient, you stand a much better chance of finding some real deals out there for Apple swag.

Brooklyn-based Dealnews, a deal-hunting site founded in 1997, put together the above graphic to help consumers do just that. The site, which makes its money from advertising and affiliate partnerships, employs about 60 “dealhunters” who scour the web for good buys.

For the above graphic, Dealnews looked at a year’s worth of data and calculated how long it takes a new Apple product to generate an actual deal for consumers. For example, the MacBook Pro 15.4″ with retina display was released in June 2012 with a starting price of $2,199. The site listed a deal two days after its release for $118 off the initial price. Nine months later, the best deal was $350 off.

In other words, he who hesitates… may walk off with a bargain. (Works for “she who hesitates,” too, of course.)

Dealnews offers another tip from its research. If you want the best price for Apple products, don’t buy them from Apple! Instead, wait until a new model comes out, then haunt the MacMalls and Best Buys of the world and buy the previous version days or weeks after the new release. You can thank us — and Dealnews — later.

Image courtesy of Shutterstock

Infographic courtesy of dealnews

When it comes to user security at Apple, it’s one step forward, two steps back.

Yesterday, the company belatedly announced long-needed two-step verification security for Apple IDs, only two years after Google rolled out the protective measure for its users. Today comes word of a massive security flaw that reportedly lets anyone reset your Apple account password if they know your email and your birthday.

(See also: Apple Finally Gets Serious About User Security)

But here’s the punch line: While two-step verification would protect Apple users from this exploit, the company has subjected all requests to activate the security measure to a three day delay. Even then, two-step verification is only available to users in the U.S., the UK, Australia, Ireland, and New Zealand.

How To Protect Yourself

A step-by-step guide to exploiting this vulnerability is still available online, although we won’t link to it here. Basically, it involves pasting in a modified URL on Apple’s iForgot page when prompted to answer the date-of-birth security question to reset your password.

The surest way to protect yourself in the short term — i.e., without two-step verification — is to change your birthday, the Verge’s Chris Welch writes. To its credit, Apple has already disabled its password reset page, presumably to disrupt any attempts to hijack user accounts. With any luck it will have the flaw fixed as soon as possible, although the company has yet to make any public statements regarding the flaw.

This turn of events follows by just days an earlier Apple security faux paux. The company released iOS 6.1.3 for the sole purpose of fixing a lock-screen bypass that let users with a knack for expert timing access an iPhone’s contacts and photo library. Yet later that day it become clear that the update contained yet another lock-screen bypass flaw.

This password reset hack is considerably more destructive than the lockscreen problem, which essentially only allows a would-be hacker to peek at a stolen iPhone’s contacts and photo library. Still, it’s certainly been a bad week for Apple in the user-security department.

We’ve contacted Apple and will update if and when we hear back.

Update: According to the Verge, Apple acknowledges the vulnerability and says it’s working on it:

Apple takes customer privacy very seriously. We are aware of this issue, and working on a fix.

Apple has yanked the controversial game Sweatshop HD from its App Store — a move rife with irony given Apple’s own long association with questionable labor practices in China.

Apple actually pulled Sweatshop last month, although the news just broke Thursday on the game site Polygon. The game put players in a managerial position at an expanding offshore clothing factory. Among other things, it offers the option to employ cheap child labor as everything from fires, longer work hours, and mutilating injuries force players to make increasingly dark decisions to meet the bottom line. 

Simon Parkin, head of the game’s studio Littleloud, told Polygon the title was pulled because Apple was “uncomfortable selling a game based around the theme of running a sweatshop.” The game was originally released for browsers in 2011 and saw an iOS release last year. 

This Is Not The Exploitation You Think It Is

But Sweatshop wasn’t designed to make a quick buck off a cartoony rendition of offshore manufacturing and child exploitation. Littleloud said it got fact-checking input from Labour Behind The Label, a UK-based charity that raises awareness about who manufacturers many Western branded products and where.

Sweatshop was also featured by Games For Change, a New York-based nonprofit that aims “to leverage entertainment and engagement for social good.” On its Web site, Littleloud says it set out to make a game that “challenged young people to think about the origin of the clothes we buy.” Its tag line for the game: “Explore the high cost of cheap fashion.”

Despite all that, Apple chickened out. It’s a telling move, mainly because Apple has long been fighting allegations of sitting idly by while its many Chinese manufactures employ a swath of unfair labor practices to meet the world’s demand for iPhones and iPads. Principally among that group is Foxconn, who just last fall admitted to using child labor with workers as young as 14, and has been routinely plagued by its high suicide rate and massive riots due to the company’s long work hours and robotic lifestyle regiment it imposes on its workers. 

Playing Sweatshop: A Lesson In Cruelty

As I fired up the in-browser version of the game for the first time, I was met with a lengthy and darkly comic introduction that takes you from a store selling a Nike-esque shoe in high demand across the loading docks, delivery trucks, and ocean-crossing steam liners that move it from the sweatshop it was produced in. This is all to the soundtrack of unbelievably catchy arcade techno music that starkly contrasts with what you’re seeing on screen. 

The game starts small, putting you in charge of one child laborer and $100 to hire more workers. Sweatshop is an optimization strategy game, meaning you’re given a top-down view of the factory and must accomplish a task as fast as possible, and with as few errors as you can manage, through furious mouse clicks and intense monitoring of the game’s multiple working parts, which in this game happen to be fearful children and exhausted adults. 

The children are scared mostly because of the cruel and heartless head manager, a stocky, mustached man in a shirt and tie that continuously calls his workers “lazybones” and complains about having to provide them with water. As the conveyor belt pulls in material to make things like hats and shirts, you have to make sure each item is completed before it gets to the end of the belt or it counts as a failed item. If you rack up a certain number of failed items – like I did numerous times while trying to keep my workers hydrated and simultaneously maximizing my speed – you lose the contract and have to restart the level.




Sweatshop holds nothing back when it comes to making you reflect on your decisions, and ultimately begin to marginalize every worker until you begin to think of them as just another cog in the big manufacturing machine. The end of each level gives you a stat rundown, boosting your overall score for the level with bonuses for quality, time and the amount of cash used (which you can try to control by firing workers as they become less useful or by hiring more children). You’re also given a button at the bottom to check your CV, which displays the trophies you’ve earned for completing certain in-game milestones like refreshing your first tired worker. 

While it haphazardly treats themes of child labor and deplorable working conditions in a satirically upbeat manner, Sweatshop also spends a good chunk of time addressing the player directly in a serious manner. At the end of each level, the game’s representative child laborer character offers a real sweatshop fact.

That same character engages in one-on-one conversation with you at the beginning of each level to let you know what makes for more manageable conditions, like paying for more water and keeping the conveyer on slow. The child even offers his personal story — for instance, how he wishes he could attend school but instead must work to support his family.  

Why Apple Should Allow Socially Conscious Games

Many may note the irony at play in Apple banning a game over its controversial, child-labor-related content following Foxconn’s breaking of labor laws last year. Apple deserves some credit it acknowledging the problems of outsourced manufacturing; it launched an investigation last year into Foxconn’s labor practices (though only after the New York Times published some damning investigative reports).

But by banning Sweatshop — a game that, while unorthodox in its message delivery, does actively try to make smartphone users think about the welfare of the workers behind the things they wear and the devices they use — Apple has again retreated from the debate. Not exactly what you’d normally expect from a company that once exhorted people to “think different.”

Approving and promoting a game like Sweatshop might seem risky from a traditional PR perspective, but it would highlight Apple’s willingness to allow others transparent discussion of labor conditions on its platform. It would open up debate, and might even win the company some kudos among critics who have blasted Apple for its lackluster response and feeble efforts to improve working conditions at its overseas contractors.

At the moment, though, it seems Apple’s App Store nannies are too “uncomfortable” to take that chance.

How Alterna-Apple Could Redress The Problem

Imagine for a moment we lived in an alternative universe, one in which Apple executives really wanted to improve working conditions in iProduct factories. That’s exactly the world conjured up in a recent report by the Economic Policy Institute, a left-liberalish think tank, which argues that Apple could, and should, deploy its enormous cash reserves to pay higher wages to the Chinese workers who assemble its iPhones and iPads. (And, for good measure, to its Apple Store retail workers as well.)

“Almost entirely absent from the discussion has been whether those reserves should also be used to provide fairer compensation to the workers making its products abroad or selling its products here,” writes report author Isaac Shapiro.

Shapiro argues that Apple could take several simple steps to improve thousands of lives — for instance, by switching to a livable wage standard, providing retroactive compensation to workers for past labor rights violations, and to keep working to lower the 60 hour work weeks at many of its contractor factories.

Similarly, the EPI report calls for Apple to fulfill its March 2012 promise to compensate workers for all of their past unpaid hours. ”Apple has since gone silent on this promise, and may be walking away from it, even though the promise is a response to illegal and unjust work practices, and could be fulfilled using just a tiny fraction of Apple’s massive reserve,” Shapiro writes. 

These are, generally speaking, terrific suggestions for Apple. But if the iPhone maker doesn’t even have the cojones to allow a social advocacy game on its App Store, I sure wouldn’t hold my breath waiting for it to put some muscle behind the real-world issues that game addresses in virtual form.

Apple is beefing up its security for users of its iTunes, App Store and iBookstore consumers. Starting today, Apple is offering two-step verification for Apple ID, the authentication mechanism it uses for customers using iPhone, iPad and Mac computers.

The move is long overdue for Apple. Two-step verification is a security feature that requires users to verify their identity in more than one way. Previously, if you bought an app in the App Store, Apple would only ask you for your password. That’s a one-step verification. Two-step verification adds another hurdle — asking users to swipe a card, for instance, or to enter a PIN texted to their phone. The idea is that each additional factor used to authenticate a customer makes it that much harder for spammers and crooks to log in as someone they’re not.

Apple is enabling two-step verification as an “optional security feature” for Apple ID. To set it up, you must register one or more trusted devices — say, your smartphone (though technically any device you control that can receive 4-digit verification codes via SMS text or the “Find My iPhone” feature of iOS will do). Apple will also send users a 14 character “Recovery Code” you can print out and save as a way of getting back into your account should you lose your smartphone or forget your password.

The Importance Of Two-Step Authentication

Many companies use multi-factor authentication. Google has offered two-step authentication to all users for more than two years. Facebook also offers it. 

The biggest cautionary tale about Apple security and two-step authentication recently is that of technology reporter Mat Honan. Honan, now a senior writer at Wired, had many of his important accounts hacked, including his Twitter, Google and Apple ID. The hackers, who Honan said were after his three letter @mat Twitter account, were able to remotely erase his iPhone, iPad and MacBook after gaining access to his Apple account. 

Apple, which lacked two-factor authentication at the time, more or less allowed the hackers into Honan’s accounts after they had tracked some personal information about him through his Amazon account. If Apple ID had two-factor authentication at the time, the malicious attack might well have stopped dead when trying to dive into Honan’s Apple accounts.

How To Set Up Two-Factor Authentication

Go to Apple’s support page here and follow the directions. It’s fairly simple. First, you want to sign in to your account with “Manage your Apple ID.” Then click on “Password and Security.” Click on “Two-Step Verification” and follow the onscreen instructions.

Many smartphone users are clueless on how much access their unique IDs allow them. Many people, such as Honan, have most of their gadget and social accounts tied through Apple ID or like services. To stay safe, best to make sure that:

• your passwords are unique;
• your accounts aren’t tied together through a single service (so that if it gets hacked, they all do);
• you use two-step authentication whenever possible.

Lead image via Flickr user thisisanicephoto, CC 2.0

People sure do love their iPhones. Despite growing competition, Apple was just ranked #1 in smartphone customer satisfaction by J.D. Power and Associates for the ninth time. In a survey measuring customer sentiment about things like ease of use, feature set and design, Apple beat out Nokia, Samsung and Motorola. 

For all the talk about companies like Google and Samsung nipping away at Apple’s mobile empire, Cupertino still wins at keeping its customers happy, which is a big deal. It might not be market share, but it’s still a very valuable metric.

Why Happy Customers Matter

It may seem obvious, but if people are satisfied with your product, they’re more likely to stick around. They’re more likely to buy your Internet-connected smart watch and probably less likely to spring $1500 for a pair of goofy-looking cyborg glasses.

Crucially, all those satisfied customers will be less inclined to follow in the footsteps of Robert Scoble and Guy Kawasaki and Andy Ihnatko make the switch to Android the next time their carrier contract is up. Android may activate a huge number of devices every day, but Apple is doing a better job of keeping each of those new customers happy, and thus is more likely to retain them in the long run. 

Of course, Scoble and Kawasaki are geeks. And lots of geeks love Android for its customizability, looser app restrictions and integration with Google’s most indispensable services. When J.D. Power and Associates looks at customer satisfaction, they’re trying to gauge a much broader sample of the general population. 

Geeks Out

To be sure, Android devices have improved steadily. Just look at the Nexus line of gadgets. It’s no wonder some of Apple’s biggest high profile fans are thinking twice. But when it comes to how satisfied customers are in general, Apple still leads the pack.

It’s plain to see why: Whereas Google has been fine-tuning its user experience and its hardware partners are pushing out more and more impressive devices, iOS has been super-polished and tightly integrated with the hardware since the beginning. The experience is incredibly intuitive and mostly pleasant. It makes sense that the average consumer adores it. 

This isn’t to say that there aren’t threats to Apple’s dominance in this realm as well. Newer Android devices are getting bulletproof reviews and of course, Apple let its customers down big time with Maps. Apple will have to work hard to hang onto this title. But for the time being, the iPhone is still the most beloved smartphone on the market.

American technology is winning the smartphone wars. Apple’s iPhone captures the lion’s share of the industry’s profits and Google’s Android operating system easily dominates smartphone market share. Is this a cause for concern in China – which has grown accustomed to dominating tech manufacturing?

Clearly, something is bothering the Chinese establishment. 

Two weeks ago, China’s Ministry of Industry and Information Technology (MIIT) sounded an alarm about Android’s dominance:

While the Android system is open source, the core technology and technology roadmap is strictly controlled by Google.

According to the Ministry’s statement, China’s “mobile operating system research and development is too dependent on Android.” While Android is the world’s dominant smartphone platform, with an estimated 70% market share, Android commands an estimated 90% of the Chinese smartphone market.

This is a big deal. There are more than one billion smartphones in use around the world – and billions more are expected to be activated over the next several years. China is the world’s largest smartphone market, but nearly every new smartphone made is based on technology developed and controlled by North American companies. 

The top smartphone operating systems in the world are American, with Google’s Android and Apple’s iPhone leading by a wide margin. Android commands 48% of the market and iPhone has 19%. Blackberry owns 8% of the market and Microsoft’s Windows Phone has 2%. (Legacy devices running on the outmoded Symbian OS still control 15% of the current market.) Just as important, services, applications, businesses and innovation gravitate to the winning platforms. 

(See also America’s Mobile Comeback.)

Android And iPhone Rising

Earlier this month, I suggested that a de facto threat to Android could certainly benefit China’s ‘homegrown’ platforms, such as Alibaba’s Aliyun operating system, for example. I also said that such a move might benefit Apple’s iPhone and other competing platforms. But that may no longer be a valid assumption.

Late last week, China’s official media, China Central Television  (CCTV), went after Apple. According to The Wall Street Journal:

China Central Television accused Apple of skirting warranty periods and adopting customer-service policies for Chinese customers that differ from its practices in other countries.

During the two-hour broadcast, watched by millions, the network accused Apple of not fully meeting product warranty requirements and of engaging in customer-service practices that differ from Apple’s standard practices in other countries. For example, Chinese customers, the broadcast said, are more likely to receive a refurbished product instead of a new device when their original fails.  

“This is too unfair to Chinese consumers,” one customer said in the report.

While the iPhone has only a small share of the Chinese smartphone market, Apple has been moving aggressively into the country. In the last fiscal quarter alone, Apple generated $6.83 billion in revenues from the Chinese market (including Hong Kong and Taiwan). China is currently Apple’s second largest market by revenue, though CEO Tim Cook has predicted that China will become Apple’s number one market soon.  

Cook was in China earlier this year, where he met with several government officials and the chairman of China Mobile, the country’s largest mobile carrier.

Any actions undertaken by the Chinese government that limit or otherwise diminish the prospects of Apple’s iPhone and Google’s Android platform would likely be felt immediately. As The Wall Street Journal stated in its CCTV report:

China’s consumers flooded social-media sites after the CCTV report. Zheng Yuanjie, a famous Beijing-based children’s author, wrote on the Sina Weibo microblogging service, “By paying the same or even a higher price for Apple products, Chinese consumers have received even lower standards of after-sales service than those in developed countries. I hope the part Apple is missing [in its products] is not its conscience.” The comment received nearly 8,000 comments and was forwarded nearly 10,000 times by late Friday night. 

Smoke But No Fire

Not everyone is convinced. Steven Millward, who covers the mobile market in Asia out of Shanghai, said the moves by China’s state-run broadcaster and Ministry may not be coordinated:

Coming just two weeks after China’s MIIT warned of the country being too dependent on Google-controlled Android, the CCTV attack on Apple might seem to be a co-ordinated attack on the two leading smartphone platforms in the country, iOS and Android, but i’m not convinced. 

There could be other factors for CCTV’s attack on Apple: it was, after all, World Consumer Rights Day, and major foreign companies are often (though not exclusively) the ones at whom the brickbats are thrown.

Apple, Millward notes, is also a “prestigious target” for a television broadcaster to go after. Indeed, as The Wall Street Journal reported, the CCTV report was “hyperbolic” if not necessarily effective. 

Similarly, while there may be some legitimate cause for concern over Android’s near-monopoly in the China smartphone market, Millward notes that “Chinese authorities must realize that their leading Web companies – from Baidu to Tencent, Sina to startups – badly need iOS and Android as the basis of their entire mobile strategy.” 

China’s Sputnik Moment?

Even if the broadsides launched against Apple and Google are indeed coincidental, they could still be signs of China’s own ‘Sputnik moment‘ over American domination of smartphone technology, 

For non-history-buffs, back in 1957 the Soviet Union launched Sputnik, the world’s first successful artificial satellite. Reaction in the United States was dramatic, with warnings that American technological leadership was being squandered and hysterical fears of a deadly “missile gap.” The Sputnik issue became a central to the 1960 U.S. presidential election. Soon after his election, John F. Kennedy Jr. committed the United States to sending a man to the moon.

It’s probably hyperbole to claim that the rise of Android and iPhone will inspire new efforts by the Chinese in the smartphone sphere. But it’s equally clear that China has noticed that there’s a key technology category where it doesn’t lead the way. And no one should be surprised if they decide to do something about it in a big way. 

Nobody’s Talking

Apple did not respond to requests for comment, nor did the U.S. Chamber of Commerce. Google responded with the following statement:

Android is an open source mobile platform freely available to everyone. It is available in its entirety at http://source.android.com, allowing device manufacturers to customize and offer new user experiences, driving innovation and consumer choice.

Image of Chinese flag courtesy of Wikipedia. Graphic image by Nick Statt.

Kevin Lynch, chief technology officer at Adobe, has left the company and is “taking a position at Apple,” Adobe has confirmed. Apple spokesman Steve Dowling told AllThingsD that Lynch will join Apple as vice president of technology, reporting to Bob Mansfield, SVP of Technologies.

CNBC was first to report the news. In Adobe’s Form 8-K, filed today with the SEC, the company states:

On March 18, 2013, Kevin Lynch resigned from his position as Executive Vice President, Chief Technology Officer, of Adobe Systems Incorporated, effective March 22, 2013, to pursue other opportunities. 

Both Lynch and Philip Schiller, Apple’s worldwide marketing head, worked briefly together at Macromedia —which was acquired by Adobe in 2005. Adobe described Lynch’s official duties thusly:

Focuses the company’s technology innovation across three vectors: multiscreen, cloud and social computing (and) oversees Adobe’s Research and Experience Design teams

Each of Lynch’s primary areas of focus are directly applicable to Apple’s work. Last year, CEO Tim Cook told Bloomberg Businessweek that Apple is “marrying hardware, software and services.”

In 2010, Steve Jobs famously posted his rationale for why Apple did not and would not enable Adobe’s Flash technology on the iPhone and iPad:

Apple has many proprietary products too. Though the operating system for the iPhone, iPod and iPad is proprietary, we strongly believe that all standards pertaining to the web should be open. Rather than use Flash, Apple has adopted HTML5, CSS and JavaScript – all open standards. Apple’s mobile devices all ship with high performance, low power implementations of these open standards. HTML5, the new web standard that has been adopted by Apple, Google and many others, lets web developers create advanced graphics, typography, animations and transitions without relying on third party browser plug-ins (like Flash). HTML5 is completely open and controlled by a standards committee, of which Apple is a member.

It was Lynch who was tasked with leading Adobe’s public response to Job’s post. Lynch referred to the iPhone then as “a recent magical device.” Lynch followed that up with a video interview with AllThingsD’s Kara Swisher. 

Image of “Flash Shield” courtesy of linkdb. 

Today is the big launch of Samsung’s flagship Galaxy S4 smartphone — and Apple has clearly taken notice. Earlier this week, Apple released two new iPhone commercials, which were well-crafted if boring. It is unlikely the timing of these new ads was coincidental.

Yesterday, Apple marketing chief Phil Schiller gave a rare interview to the Wall Street Journal. Schiller was clearly on the attack.

Schiller insisted that surveys reveal that iPhone users are more “satisfied” with their device than Android users. Schiller mentioned that Android is plagued by fragmentation and that Android users are often running outdated versions of the operating system. 

Schiller wasn’t finished: 

Android is often given as a free replacement for a feature phone and the experience isn’t as good as an iPhone.

While Apple’s advertising focuses almost exclusively on its own product, Schiller spent much of his time with the Wall Street Journal knocking Android.

When you take an Android device out of the box, you have to sign up to nine accounts with different vendors to get the experience iOS comes with. They don’t work seamlessly together.

While Schiller mostly talked Android, Samsung was clearly on his mind. For example, he took a swipe at Samsung and its larger-sized Galaxy displays, suggesting that the bigger screen is necessary to mask a larger battery with which to compete with the iPhone 5′s battery life.

Schiller even disputed the recent smartphone market share numbers, touted the claim that Android users are more likely to switch to iPhone, and stated:

I’m not sure that the estimates and the modeling accurately gives an accurate picture of it all.

There is good reason for Schiller to be concerned, at least with Samsung, if not Android. According to the most recent comScore figures, Apple has a 38% share of the US smartphone market. Samsung is second, with 21%. But according to mobile analyst, Tomi Ahonen, Samsung is the clear global smartphone winner — having sold 215 million devices in 2012, compared to Apple’s 136 million.

The disparity could grow throughout the year. Samsung has recently stated that its flagship Galaxy line has sold over 100 million units since its May 2010 launch and that it expects to sell over 300 million smartphones in 2013.

Another point of concern for Apple: Samsung has been outspending Apple on advertising. Samsung spent $401 million just in the U.S. last year to promote its smartphones. Apple spent $333 million. Just as important, Samsung’s advertising has been more impactful. As ReadWrite noted this week, Samsung’s commercials “are the kinds of ads that strike a chord.” 

Apple remains the leader, however, where it may matter most: profits. As we noted last week, “Samsung is winning every way but one” against Apple. That one way, of course, is profits. Nonetheless, Apple clearly is watching Samsung carefully — and isn’t above having the likes of Schiller toss a brushback pitch from time to time.

It’s déjà vu all over again in Apple Land.

Steve Jobs took the stage in 2010 to trumpet the iPhone’s dominance in the smartphone market. A few short months later, that dominance was gone. In 2011, with Android consuming Apple’s market share, Jobs pilloried Android for its anemic market share, boasting 90% market share for the iPad. He also sardonically labeled 2011 the “year of the copycats,” calling out Samsung and everyone else that wasn’t Apple.

Two years later, the copycats have basically won, according to a new forecast from IDC:

Source: IDC Worldwide Quarterly Tablet Tracker, March 2013

It turns out that those smaller, cheaper tablets that Jobs derided as “D.O.A.” are actually alive and well — and this year should account for one of every two tablets shipped.

None of which is to denigrate Apple, which makes the device upon which I’m typing this post. Rather, it is to echo Jay Yarow in suggesting that Steve Jobs’ reality distortion field is needed more than ever. With a stock price that has plummeted off its peak and real questions being raised about Apple’s future, Apple needs a Jobs.

Or maybe it just needs to think different.

For example, Apple needs to figure out how to be relevant outside North America and Western Europe, where people can’t afford to pay a premium for iPads and iPhones. As Asymco analyst Horace Dediu reveals, 99.4% of Android’s growth is outside the U.S., with that growth 150 times faster than U.S. Android growth:

Source: comScore, Google, Asymco (2013)

Apple needs to answer this global demand for devices, and keeping with a high-price, high-margin strategy isn’t the right answer.

However much Apple or its fans point to Apple’s profits, Samsung, in particular, is catching up. Profit share follows market share, particularly when competitors like Samsung can not only build cheap Android devices but also high-end Android devices that are equal to or better than Apple’s devices. Android is already eating into Apple’s profit margins, pushing it to release smaller, cheaper devices that generate smaller profits.

So maybe Apple is thinking different. But it needs to accelerate this. And not just in the U.S., which is one of the few markets where users can get the lower-end Apple devices (e.g., iPhone 4S) heavily subsidized.

John Paul Titlow argues that Apple needs to go for broke with iOS 7. Given the innovation we’re seeing from Google with things like Google Now, that’s a great suggestion, but a jump in iOS innovation may merely be table stakes.

(See Microsoft Is Basically Screwed In The Tablet Sector, IDC Says.)

Apple needs to play the market share game. Wholly fixating on profit margins has kept it from aggressively targeting the global market where most of the growth is, now that the Western world is largely saturated with smartphones and, increasingly, tablets. Could Apple build lower-end devices that manage to maintain Apple’s polish and design flair? Of course it could.

The only thing holding Apple back is an unwillingness to think different.

Is the pirate dead? When did Apple become the new IBM? How did the company that once sought to destroy our restrictive computer overlords wind up becoming so buttoned-down?

How did Apple go from this:

To this:

And this:

The short answer, of course, is success. Apple now makes the world’s most popular personal computing products – the iPhone and iPad – and has created the most profitable ecosystem for our new mobile world. No longer the underdog, Apple is now the company everyone else is chasing.

Needs vs. Desires

That kind of success necessarily breeds a certain amount of conservatism. As the risks involved in rocking the boat go up, the rewards seem to go down and the temptation to take the safe route becomes all encompassing.

That’s why it’s not surprising that Apple’s new iPhone ads are exactly what we need – but not at all what we want.

The ads re-confirm that the bold revolution Apple wrought with the launch of the iPhone in 2007 has been realized. The computing world has changed forever. The PC hegemony is contracting. Smartphones and tablets are rapidly taking over the Web, invading the enterprise and challenging the once mighty defenders of the desktop, from Microsoft to HP to Dell and beyond. 

(See also: PCs Are In Free Fall, But Windows 8 Shouldn’t Get All The Blame) 

That’s why some six years later, Apple’s latest ads are no longer revolutionary – or even exciting.

The Tables Have Turned

Soon after the original iPhone was launched, Microsoft CEO Steve Ballmer was asked his thoughts by USA Today (he can never take them back):

Would I trade 96% of the market for 4% of the market? (Laughter.) I want to have products that appeal to everybody.

There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.

It’s easy to mock Ballmer’s words now, but when you are the top dog it’s easy to be glib about the competition. Unfortunately, it’s just as easy to misunderstand what is happening elsewhere while your focus is on maintaining your lofty status.

In that very same interview, Ballmer went on to say, albeit less famously:

It’s not like we’re at the end of the line of innovation that’s going to come in the way people listen to music, watch videos, etc. I’ll bet our ads will be less edgy. But my 85-year-old uncle probably will never own an iPod, and I hope we’ll get him to own a Zune. [Emphasis mine.]

That’s exactly what’s happening to Apple – at least with respect to marketing. 

The latest Apple ads effectively tell the story of the iPhone’s capabilities. But they most closely resemble a campaign from discount clothier Men’s Wearhouse. Is that really what Apple wants to be compared to?

Is Samsung The New Apple?

Consider instead this Samsung ad. It says little about Samsung’s own product and spends most of its time mocking not only Apple, but Apple users.

These are the kinds of ads that strike a chord. As ReadWrite noted yesterday:

[Samsung] wants to dethrone the iPhone in the U.S. Samsung apparently chose New York City for the launch event because it, “is nicknamed the Big Apple, which is also the symbol and heart of the United States, Samsung picked that city for the event.’’

Not very long ago, Apple fought for its very existence. Now it’s one of the world’s richest corporations. That’s a big change. It only makes sense that Apple’s advertisements reflect that evolution. 

Today’s Apple execs obviously want to promote their product, excite their core base, not lend stature to the competition – all while showcasing the iPhone’s universal appeal. These latest ads likely succeed at that.

I like them. I also suspect they are the kinds of ads that Steve Ballmer would have happily approved back in 2007.

If you listen to a rising chorus of Apple investors, it seems increasingly clear that Cupertino will soon dance a Wall Street jig and offer either a share-buyback plan or a higher dividend. Either of which would help support the share price, even if neither move seems likely to restore much of the 40% haircut the stock has taken since September.

Yesterday, Bloomberg quoted fund managers at Gamco and Capital Advisors, both of which own Apple shares, saying they expect the company to announce new plans for deploying more of its $137 billion cash hoard in support of investors. Today, Quartz reported that Apple might buy back stock, hike the regular dividend or issue a special dividend as early as this spring, and has retained Goldman Sachs to review its options.

The loudest such investor in recent months, of course, has been David Einhorn of Greenlight Capital. In February, Einhorn proposed that Apple begin issuing what he called “iPrefs” — preferred shares that would pay a guaranteed dividend of 4%. Earlier that month, Einhorn had filed suit against Apple to block a proxy measure that would have complicated the issuance of preferred stock — an apparent slap at his plan.

Einhorn’s lawsuit got people a bit riled up, leading Apple CEO Tim Cook to call it “a waste of money for all involved” and “a silly sideshow” — which slapped the word “silly” all over Einhorn’s advocacy plan for news cycles to come. Quartz’s unnamed sources, however, claim Apple actually found the idea “interesting,” and Einhorn apparently got what he wanted when Apple dropped its proxy measure on the order of a federal judge. In turn, Einhorn dropped his lawsuit against Apple shortly thereafter.

Hedge fund drama aside, Apple has been increasingly public about its plans to spread its mounting wealth, including an initiative to return $45 billion to shareholders over three years. “As of next week we will have executed $10 billion of that plan,” the company announced last month. Einhorn’s suit didn’t plant this seed, but it certainly seems to have accelerated its growth.

Lead image courtesy of user 1000 Words at Shutterstock

Philip Elmer-DeWitt of Fortune ran a chilling story last week about Andy Zaky, an “Internet-trained” hedge fund manager who led naive investors over a cliff by investing in Apple. (The Rise and Fall of Andy Zaky.) As Apple’s stock has dropped over the last few months, they all took heavy losses. Forms filed with the SEC reveal that Zaky’s Bullish Cross hedge fund’s entire $10.6 million asset base is now gone. Worse, Zaky had 700 subscribers to his Bullish Cross newsletter, and they seem to have lost even more, as Elmer-DeWitt reports in a follow-up article (Losses of Apple guru’s clients could reach into the billions.)

According to Elmer-DeWitt:

I’ve heard directly from 37 former Bullish Cross members who tell me that they lost anywhere from $15,000 to $50 million apiece.

• Total losses for these 37 investors: $94.5 million
• Average loss: $2.5 million

Given that at its peak Bullish Cross had 700 members, it’s quite likely that Andy Zaky’s followers — many of whom had put their savings and retirement accounts into Apple call spreads — lost hundreds of millions of dollars. If the members I haven’t heard from were large investors, total losses could reach into the billions.

Zaky’s bio on Seeking Alpha lays bare his Apple-centric investment focus (emphasis added):

We only care about the best in breed and nothing less. On the Apple research side of the offering, Bullish Cross will be putting out a mix of public and exclusive Apple content.  

Members will also get to participate in an open forum for questions regarding Apple’s short and long-term direction. There will also be a lot of discussion regarding positioning and hedging ahead of major events. The Apple research will give the average Apple investor a distinct advantage over the market as we head into the future. There is a tremendous amount of money to be made on Apple, it’s a matter of how to properly capitalize on it. 

What Goes Up…

Apple’s stock was on a tear over the past couple years, and briefly topped $700 a share. During the run-up, Zaky had no shortage of admirers. But as Business Insider pointed out, the people who subscribed to Zaky’s newsletter “were not sophisticated investors who understood the risk of listening to Zaky.”

Among the loudest of Zaky’s fans was John Gruber, whose Daring Fireball tech blog has become hugely influential among Apple fans. (That’s Gruber pictured above.) Daring Fireball receives more than 4 million monthly page views and has over 400,000 RSS subscribers.

Business Insider calls Daring Fireball “a must-read blog for Apple shareholders, employees, and the many, many `fans’ of the company.” Readers visit Gruber’s site to learn the latest about Apple products, speculate on the latest Apple rumors and get Gruber’s thoughts on all things Apple. 

Gruber, 40, has a BS in computer science from Drexel University. He has spent his career in tech. He makes no claims about giving investment advice. He does, however, claim to have sources close to Apple and frequently addresses rumors about the latest Apple products.

For years, Gruber praised Zaky (pictured at right), holding him up as a wizard who understood Apple better than big-name Wall Street analysts.

A Zaky Fan

In a July 21, 2008, post (Apple Shares Fall in After Hours Trading) Gruber linked to a MarketWatch report noting that Apple shares had fallen short of Wall Street expectations, then added:

Now’s a good time to re-read the piece I linked to over the weekend from Andy Zaky on Wall Street’s misguided obsession with Apple’s conservative guidance numbers.

On Oct. 28, 2008, Gruber again linked to Zaky and his Bullish Cross newsletter, and included this quote from Zaky (emphasis again added):

Right away, one ought to notice the staggering growth rate in both revenue and earnings that Apple displayed in 2008. Apple’s real revenue grew 54.5% from $24.637 billion in FYE 2007 to $38.041 billion in FYE 2008 — a full $13.4 billion growth in revenues. Even more impressive is Apple’s 81.2% growth rate in adjusted net income. For a company that is trading at 12 times 2008 earnings, it doesn’t take a genius to conclude that Apple is severely undervalued. Especially since Apple currently trades at about 3.37 times its cash position — which is objectively and significantly lower than every other large cap tech company.

GOOG trades at 7.18 times its cash position, RIMM at 15.51 times cash, AMZN at 9.15 times cash, MSFT at 9.13 times cash, CSCO at 3.62 times cash, IBM at 10.96 times cash, INTC at 6.54 times cash, and HPQ at 5.15 times cash. What is more, only GOOG, AAPL and MSFT have no debt of the companies mentioned above. Apple has the largest net cash position than any of those companies and Apple has more net cash than RIMM, GOOG, AMZN and IBM combined.

On Jan. 20, 2009, Gruber wrote the post Andy M. Zaky on Apple and Subscription-Based Accounting, in which he stated: “Zaky argues that Apple’s use of subscription-based accounting for iPhone revenue has significantly hurt its share price — casual investors who are only looking at Apple’s GAAP results don’t realize how much revenue they’ve deferred.”

On April 19, 2011, Gruber posted Andy Zaky: ‘Why Apple Shares Are Dirt Cheap‘ and wrote, “Sharp piece by Andy Zaky on Apple’s finances and stock price. He expects a big move.”

In a Nov. 30, 2011 piece titled Apple: The most undervalued large-cap stock in America, Gruber wrote that “Zaky makes a compelling, data-backed case that Apple’s stock price is severely undervalued.”

On that same day, in a different post, Gruber wrote that, “A few readers have asked whether I personally own Apple stock. Good question. I do not. I don’t own stock in any companies that I cover regularly here on DF. I do own shares of an S&P 500 mutual fund.”

A few weeks later, Gruber posted How to Properly Use Apple’s Guidance to Accurately Forecast Earnings, and linked to an article where Zaky “explains in painstaking detail how to do what almost no professional Wall Street analysts actually do: accurately predict Apple’s finances.” Gruber said Zaky’s piece was a “tremendously detailed article,” and that “Zaky continues to impress.” 

This was followed up three days later, on Dec. 16, 2011, with  Zaky on Apple’s Next Quarter: The Biggest Earnings Blowout in History, which contained nothing more than a short Zaky quote: “The largest company in America is about to grow its earnings by a whopping 84% this quarter, and Wall Street is asleep at the wheel.”

On May 17, 2012, when Apple shares were trading at $530.12, Gruber wrote Bullish Cross initiates rare buy rating on Apple. He linked directly to the Bullish Cross newsletter, and also quoted Zaky:

Now here are the reasons why we believe it’s time to buy Apple and why we feel the valuation is incredibly attractive today. At $533.52 a share, Apple trades at 13x last year’s earnings and at only 10.56x our expect October earnings. Those are incredibly low valuations even for Apple. At the November 25, 2011 lows, Apple traded at a 13.13 P/E ratio. So today, Apple is trading at a lower valuation than it was at the November lows. At the June 2011 lows, Apple was trading near a 15 P/E trailing P/E ratio.

Gruber closed with: “This is only the fifth time Zaky has issued a buy on Apple. He’s four-for-four.”

Zaky was right. By Sept. 17, Apple’s stock had climbed to $699.78. 

The Tide Turns

But then Apple shares started to slide. By Oct. 17 the stock had fallen to $644.61. Instead of urging caution, Zaky issued a call to arms, declaring that Apple had hit bottom, and that “History has taught us that the best time to buy Apple is when the bearish sentiment in the stock has reached the pinnacle of extreme pessimism.”

Gruber linked to that Zaky post and quoted that line about this being the time to buy. Gruber titled his post: Bullish Cross: ‘Apple $1000: Why It’s Time to Buy,’ and wrote:

I don’t offer investment advice, but Andy Zaky does — and those who listen to him have done pretty well. 

But this time Zaky was wrong. Instead of rebounding, Apple stock went into a free fall. Shares are now at $432.

Gruber’s Role

Did some of those Zaky fans find him through Gruber? Probably. Gruber himself proudly showcases those sites that have been “fireballed” — that is, sites that have been overwhelmed with traffic after Gruber links to them. No doubt each time Gruber linked to Bullish Cross, thousands clicked.

This has happened a lot. In addition to the posts mentioned above, there are numerous others where Gruber directly mentions Andy Zaky and Bullish Cross in a generally positive light, including these:

• 2010: The Year Apple Enters a New Golden Age (July 9, 2010)
• Zaky: Apple to Surpass Microsoft in Revenue This Quarter (July 22, 2010)
• Andy Zaky: Why Apple Shares are Dirt Cheap (April 19, 2011)
• Zaky: Apple’s Cash to Exceed $300 Billion by 2015 (May 31, 2011)
• A Brief Look at Apple’s Stock Seasonality (July 5, 2011)

If Gruber touted Zaky, should he share some of the blame for the losses when Zaky led investors astray? That’s hard to say. But it seems that Gruber’s knowledge of Apple products didn’t give him special insight into Apple’s stock price.

The real lesson? Be careful where you get your advice.

Note: Gruber requested questions by email, but had not responded more than 72 hours later. Zaky did not respond to our requests for an interview.

Top image of John Gruber from the Daring Fireball website. Image of Andy Zaky from his Seeking Alpha profile.

Wall Street analyst Brian White of Topeka Capital has built some kind of “Apple Monitor” thing where he monitors the health of the various companies in Asia that supply Apple with parts. For some reason, in February, the whole sector fell off a cliff, Business Insider reports.

White says business at key Apple suppliers dropped 31% in February, a lot worse than the usual 8% drop in February. In fact it was “the worst February we have on record,” White reported.

Hon Hai, which owns Foxconn, Apple’s big manufacturing partner, also had a 25% drop in February, White reported.

Reading Tea Leaves

This fits with other previous reports on Apple suppliers like one where Citigroup said demands for iPhones and iPads had slumped, based on reports on the supply channel. And the one where Digitimes said Apple had cut component orders. Or the one where the Wall Street Journal reported Apple had cut orders for phone parts, which we at ReadWrite also wrote about.

But back in January, one brave voice – Apple blogger John Gruber, aka the world’s smartest man – declared the whole thing to be bullshit. There was nothing wrong with Apple. Apple was doing fine. Apple was the most bestest busiest profitablest company in the history of the world. As history has shown us, any organization that claws its way to the top will remain there forever. Thus Apple would never ever see its growth rate decline. Apple would never fall short of expectations. And if Apple failed to meet Wall Street expectations, it was not because Apple had a bad quarter, but because Wall Street got the numbers wrong. Because Wall Street bad, Apple good. Wall Street stupid, bloggers smart. Anyone who says otherwise is either a corrupt short-selling shill or a moron.

I had to admit, the power of Gruber’s logic was overwhelming. And I think the same line of reasoning applies now. Who cares if all of Apple’s suppliers suddenly saw their sales fall sharply in February? What does that have to do with Apple? How do you take some random numbers from companies you’ve never heard of that are located halfway around the planet and then apply what’s happening to them to Apple? 

Pay No Attention To That Analyst Behind The Screen

Oh, sweet, sweet, innocent Apple, the beacon of innovation and all that is good and wonderful and pure. Why do these malcontents feel the need to smear you? 

Who is this analyst, Brian White of Topeka Capital? Has anyone ever heard of him? And what is Topeka Capital? Is it even a real company? Why have I never heard of them before? Are they some kind of shell corporation created by hedge fund managers and short-sellers to bash Apple and manipulate the stock? Frankly I don’t trust anything they say. 

Bottom line: Everything is fine. Nothing to worry about. Apple is doing great. Now go back to sleep and have another sweet dream about the iWatch, which is going to change your life. Totally.

There are so many reasons to love this photo of Apple marketing boss Phil Schiller holding up an iPad Mini. For one thing, it captures the kind of hushed sanctimony and reverence with which Apple introduces things that are, essentially, little plastic gizmos. But mostly I love Phil’s weird off-camera gaze, which reminds me of this photo from Stepbrothers. What is he looking at? What’s he thinking? Is he fearful, even then, on the day of the introduction, that this cool new device is going to kill sales of the bigger iPads and thus drag down Apple’s profit margins?

(See also Is The iPad MIni The “Real” iPad?)

If so, then Phil was right, because apparently that’s what’s happening, according to a report from Digitimes, which claims Apple is cutting back orders for components used in the big iPad and now expects to sell fewer of them than originally expected. Mostly because it’s selling so many of these goddamn iPad Minis.

Digitimes says Apple originally planned to sell 60 million big iPads and 40 million Minis, but that now Apple expects to sell 33 million big ones and 55 million little guys. 

That’s great news if you’re the product manager in charge of the iPad Mini – you’re having a blowout year! But you’ll notice that the new sum total of all iPad sales for the year stands at 88 million, which is less than the previously expected 100 million. This is not good. 

My Entire Premise Could Be False, In Which Case, Sorry

Then again this entire report could be bullshit, since it comes from Digitimes, and Digitimes is perhaps not the most reliable publication in the world, as reflected in the headline the story to which I linked, which mentions issues with Apple’s “supplpy” (sic) chains.

But if the report is true, this means Apple will sell fewer overall iPads (of all kinds) than originally expected. And more of what it does sell will be the less-expensive Mini model.

That in turn means Apple is likely to make less profit margin, as the financial wizards at Business Insider point out.

Does Phil Schiller sometimes lie awake at night wishing Apple had never made that damn Mini? Does he lurk outside Apple stores and curse the cheap bastards who keep buying Minis just because they’re $170 cheaper than the big one? 

Maybe not. Maybe Phil and his team figure they pulled off a pretty amazing coup. They milked ridiculous margins out of the original iPad for a long, long time. And now that big iPad serves a purpose – it makes the iPad Mini look cheap. Which it’s not, considering that you can get roughly comparable Android tablets for a lot less. 

(See also The iPad MIni’s Killer Feature = Price.)

Apple stock is up a bit today to $427, so apparently Wall Street is taking the Digitimes report with a grain of salt. 

Photo by Reuters. 

Seems like only yesterday Apple was a simple company for Wall Street to understand. The products were great, demand was insane, and there was nowhere for the stock to go but up, up, up. Which is exactly what happened.

Those days are over. Apple’s stock has dropped 40% since last fall, from $705 to $426. This has happened even as the overall stock market has soared to new highs.

Wall Street has no idea what to make of this. Is Apple the greatest deal ever, or is Apple doomed? It depends who you ask. The opinions are all over the map. It’s actually kind of entertaining seeing Wall Street know-it-alls suddenly look so baffled.

Goldman Sachs says Apple is one of the most undervalued companies in the world. By that reasoning, the stock is a steal.

Citigroup says demand for iPhones and iPads is lagging, and that Apple won’t even hit its own revenue targets for this quarter.

(See also Apple May Never Regain Its Status As The World’s Most Valuable Company.)

It’s Not About Numbers

Wall Street guys will fret about how much cash Apple has, how cheap the stock is relative to earnings, what’s happening with gross margins, and so on.

But Apple’s stock price never had much to do with fundamentals. Apple is about emotion. It’s about narrative. It’s about mystery. It’s about secrecy and leaks, rumors and hype. It’s about people standing in line outside stores as if they’re going to a rock concert.

Apple does best when it lives in the realm that Arthur C. Clarke described when he wrote that “Any sufficiently advanced technology is indistinguishable from magic.”

Magic is what Apple was selling when it introduced the iPhone and iPad. As long as Steve Jobs kept pulling rabbits out of his hat, customers (and investors) were dazzled.

The problem is now we’ve come to expect magic from Apple. And lately Apple hasn’t delivered.

Sure, Apple is a terrific, well-run company with a business that every company in the world must envy. The iPhone and iPad are terrific products, and Apple keeps making them better.

But: there’s no magic.

Wall Street keeps trying to tell this story in numbers. Gross margins. Net margins. Growth rates. Market share.

But numbers are almost beside the point.

Apple is a hits business, like a movie studio. Right now it needs a new blockbuster franchise. Whether that’s an iWatch or an iTV almost doesn’t matter. Apple just needs something. Something new, something exciting, something that gets people standing in lines outside stores again.

Apple needs magic. Whether Tim Cook and his team are capable of creating it remains to be seen. That uncertainty, I suspect, is what has shaved $260 billion from Apple’s market value.

No One Stays On Top Forever

Room For Growth?

Even as it lost the lead in market cap, Apple may also have lost its primacy in generating buzz. No product this year – shipping or not – has generated the buzz of Google Glass. Even the launch of a new smartphone is no longer all about Apple, as Samsung ratchets up the hype leading up to next week’s launch of its flagship Galaxy S4. 

Getting Harder To Move The Needle

I simply don’t believe Apple will make, or even wants to make, a TV set. To realize the dream, as discussed previously, you need to put a computer – something like an Apple TV module – inside the set. Eighteen months later, as Moore’s Law dictates, the computer is obsolete but the screen is just fine. No problem, you’ll say, just make the computer module removable, easily replaced by a new one; more revenue for Apple… and you’re right back to today’s separate box arrangement. 

Samsung is the leading smartphone vendor in the world. In the U.S., however, Apple is still top dog — and its lead is growing.

For the quarter ending January 2013, Apple held a 38% share of U.S. smartphone subscribers, according to ComScore’s latest U.S. smartphone market share data. Samsung placed a distant second, with a 21% share. Apple gained 3.5 points of market share, while Samsung’s slice of the pie grew by only 1.9 points.

As went the two giants, so went their respective platforms. Android continued to lead with 52% of the U.S. market, but its share actually declined by 1.3 points over the previous quarter. Blackberry held a 5.9% share and Microsoft only 3.1%, both of them down from the prior quarter. 

 Samsung’s laid-back performance is somewhat surprising given its aggressive marketing efforts. Samsung is spending way more on advertising than Apple. (Of course, Samsung makes a much broader array of products than Apple does — everything from TVs and flat panels to smartphones to chips.)

This year’s Super Bowl was held on Feb. 3, just after ComScore’s numbers were compiled. It’s possible that the reported $15 million Samsung spent on its two-minute Next Big Thing commercial will deliver an uptick in subscriber share in next quarter’s ComScore report. Samsung is also planning to launch its flagship Samsung Galaxy S4 next week with an attendant media blitz. Several Apple blog sites, meanwhile, have pegged August as the release date for the next iPhone. 

ComScore says 129 million people in the U.S. now own smartphones, a seven percent increase over the last quarter. The news, however, is not good for all vendors. Third-place HTC’s subscriber share fell 1.7 points over the previous quarter. Fourth-place Motorola’s share dropped 1.4 points in the quarter.  

Top image courtesy of Samsung Mobile

In the smartphone wars, Samsung tops Apple across nearly every metric, except perhaps the most important one of all: profits.

2013 could be the year when Samsung takes that crown as well. 

Samsung already has more revenues and more people – and it spends more on Research & Development and marketing. Oh and it sells more smartphones than Apple does, too.  Perhaps most importantly, though, Samsung’s smartphone sales are growing faster than Apple’s.

A new infographic from MBAOnline crystallizes the rise of Samsung and its chances of becoming the undisputed King of Smartphones. 

Turns out Apple CEO Tim Cook and his team celebrated too soon when they took a big victory lap last summer after a jury awarded Apple more than $1 billion in damages based on claims against Samsung.

Because the judge overseeing the case just tossed out almost half of that judgment — saying, in effect, that the jurors were a bunch of idiots who didn’t calculate damages correctly. And if Apple wants another crack at that money, it will have to go trial all over again. (In case you care, here’s Judge Koh’s actual ruling.)

It’s an amazing setback for Apple, but perhaps no big surprise. A lot of people right from the start seemed to realize that the jury in the case had done a lousy job by ruling too quickly without seeming to fully understand the laws it was charged with applying.

(See also: Apple’s Thermonuclear Patent War Is A Farce)

Worse, this band of buffoons was led by a foreman, Velvin Hogan, who after the verdict went around giving interviews in which he revealed, over and over again, the many mistakes that he and his minions had made. Hogan indicated, for example, that the jury was trying to “send a message,” even though that wasn’t its job. That was just one of many dumb moves on its part.

“Impermissible Legal Theory”

In her ruling today, Judge Lucy Koh said she was tossing out part of the judgment because the court had “identified an impermissible legal theory on which the jury based its award.”

Consequently, Koh ordered a new trial for damages on a bunch of Samsung products that Apple claimed infringed on its patents. The judge isn’t saying that the products don’t infringe, just that the jury didn’t follow the right procedure in calculating damages.

(See also: Another Apple Patent Gets Smacked Down; ‘Thermonuclear War’ Even More Of A Farce)

At the time of the verdict some observers noted that there seemed to be lots of problems with the jury’s decision. Nevertheless, Apple fanboys cheered. And Cook put out a ridiculous statement about how Apple wasn’t doing this for money, or to thwart competition, but because of “values.” (Gag me.) “We owe a debt of gratitude to the jury,” Cook wrote. “We applaud them for finding Samsung’s behavior willful and for sending a loud and clear message that stealing isn’t right.”

Patent Medicine

Problem is that since then, some of Apple’s patents have been struck down as invalid because of “prior art,” meaning other companies, not Apple, had invented the technologies involved.

To put this another way: Apple found stuff that other people had invented, tricked the patent office into granting Apple patents on that technology, then used those patents to file bogus claims against competitors.

Worse, Apple wasn’t just hoping to squeeze money out of its competitors by collecting license fees. Apple wanted to drive its competitors out of business, so it could have the market to itself.

So much for “values.”

I pointed out in December that Apple’s “thermonuclear” patent war is turning out to be a farce. Apple’s claims have been laughed out of courts all around the world. In a few cases where Apple has won some minor victory, its claims have been so trivial that opponents developed workarounds in a matter of days.

Today’s news makes Apple look even more ridiculous and pathetic.

Worse, while Apple has been pursuing this quixotic legal quest, its rivals in the Android camp just keep gaining market share. Android now runs on 75% of smartphones. Even in tablets, Apple has seen its market share eroding at a stunning rate, thanks to the rise of Android.

Thermonuclear Crater

All this started because Apple’s late CEO, Steve Jobs, threw a temper tantrum and vowed to go “thermonuclear” on Google for daring to create a rival to the iPhone. Jobs might have been a genius, but he was also a bully and a spoiled brat who couldn’t stand the idea that he couldn’t have the smartphone market all to himself.

Jobs was wrong. And now he’s gone. It’s time for Apple to stop this bullshit. Settle the cases and go back to competing based on products. Supposedly Tim Cook never wanted to sue Samsung in the first place. Now’s his chance to step up and do the right thing.

Image courtesy of Reuters

Is Apple deleting emails containing vulgar and porn-related phrases? That’s the charge leveled at Cupertino in a Robert X. Cringely post on InfoWorld (and several reblogs), claiming that an email containing an attachment with the phrase “barely legal teens” was being deleted by Apple’s iCloud email service.

But while it’s tempting to paint Apple as the prudish overlord it sometimes plays on the Web, iCloud is not bulk-censoring filthy emails. 

The original post related the tale of an email bearing a Hollywood script as a PDF attachment. This email reportedly never arrived in the recipient’s iCloud inbox despite multiple resends. Several retries and edits later, Cringely’s correspondant determined that the phrase “barely legal teens” (which was used in a non-sexual context) had caused the problem. 

A Spam Filter Bug, Maybe. But Censorship? Not Quite

There’s little reason to doubt that this story is true. In all likelihood, iCloud is scanning email attachments for certain keywords and phrases to determine if they’re spam. It’s entirely possible that the filter was a little too broad and wound up zapping a perfectly legitimate message. In fact, Apple may have seen the press coverage and immediately fixed the problem, kind of like that time they quietly pulled the bizarre dental surgery iPad app from iTunes after we wrote about it. 

But charges that “Apple now deletes all iCloud emails that contain the phrase ‘barely legal teens,’” as Cult of Mac has claimed, are false. Apple is not deleting every email containing the phrase “barely legal teens.” It might have deleted one email with an attachment that contained that phrase, but the alarmist lead on that story is way over the top. 

Trust me. I emailed myself some pretty horrendous things to test this out. Using multiple external, non-Apple email accounts, I tried sending the most disgusting, vulgar phrases I could think of to my iCloud email address. All of them made it through. Even emails containing things that go beyond “barely legal” to “definitely completely illegal” and “will probably land me on some government watch list” made it through to my iCloud inbox.

Trust me when I say that the things I’ve been emailing myself for the last hour would cause major problems had I mistyped the recipient’s email address. I’m still half expecting to hear a knock at my front door. 

News That Fits Into A Larger Narrative

The claim that Apple is auto-zapping offensive emails fits nicely into the larger narrative about Apple services being run by anti-porn, censorship-happy control freaks – which, of course, they pretty much are. Not only can a little nudity get a very popular app like 500px booted from iTunes, but perfectly non-offensive, journalistically valuable apps like Josh Begley’s Drone+ iPhone app aren’t allowed into the App Store because of their content. It’s one of Apple’s worst tendencies, but in this case, the narrative just doesn’t hold true. 

It’s not unlike the time the fake story about Apple designing an asymmetric screw to keep hardware tinkerers at bay exploded all over the Internet. Like this story, that one fit into a larger narrative that had roots deep in Apple’s history. But again, not true. 

As frustrating as Apple’s app censorship can get, its very existence at least makes sense. By keeping the App Store free of nudity, vulgarity and overtly sexual content, Apple ensures a squeaky clean user experience that’s well-suited to the next generation of iGadget addicts. But deleting private emails? The company would have just about zero business motivation to monitor your inbox for filthy words and delete your private messages. 

Instead, what probably happened is that the service’s anti-spam filters were a little too broad and wound up blocking a term that, quite explicitly, refers to something that is perfectly legal. In at least this one case, the wrong email got caught in the filter. If it’s true, the claim that the message was deleted and not merely flagged is unfortunate. But there’s little reason to believe that what happened is either common or part of Apple’s prudish philosophy. 

Now, if you’ll excuse me, I have a bunch of truly raunchy emails to delete.   

UPDATE: Apple has acknowledged that the some phrases are indeed being blocked by its outgoing spam filter and encourages customers to follow up with AppleCare if legitimate messages are getting blocked.  That’s not good enough. It makes sense for Apple to try and minimize the volume of spam emails coming from iCloud addresses, but if they’re going to blacklist certain terms, it needs to be made clear to users. 

I stand by my original position that this isn’t the prudish censorship for which the company is sometimes known. If Apple cared what filthy words we were emailing back and forth, I wouldn’t have been able to read some of the messages I sent to my iCloud address during my tests. This is an anti-spam mechanism that’s been set a little too broadly. Apple has a right to prevent outgoing spam, but customers also deserve to know when emails aren’t getting sent. Here’s hoping Apple fixes this soon. 

Photo by David Bueso

Until recently Apple has been on an unstoppable roll. Apple’s iPhones and iPads have been flying off the shelf. But when Apple’s latest quarterly results got a thumbs down from Wall Street, from the market, lots of people started wondering if Apple had lost its mojo.

Dan Lyons put it this way here at ReadWrite, “It seems Apple has hit a wall. It’s not just about sales and earnings, but also about innovation. It’s been years since Apple did something truly revolutionary.”

A Delicate Balance Of Innovation

But truly revolutionary can also be truly risky. With 75 million iOS devices sold in Q1 of its 2013 fiscal year, Apple’s success is now increasingly all about iOS. To keep the iOS train moving and churning out profits, Apple needs to innovate – but not so much that it scares away the legions of happy iPhone and iPad users.

Might iOS, the very product that helped put Apple on top, require risk taking beyond what the new Apple can handle? Current users love iOS – but Apple seems to losing the numbers war to Android.

To turn the tide, iOS may need to be re-invented. That often happens to operating systems, but it is not easy to pull off without killing the goose that lays the golden eggs. Other companies have seen inordinately popular operating systems actually hold them back from getting fully behind new and improved versions.

The Windows XP Comparison

Look at Microsoft. Windows XP was released on October 25, 2001 and it took until August 2012 before Windows 7 had more users. Windows 8 – given its challenging new interface – might have an even tougher time moving the needle.

Windows XP was successful because – as David Johnson, an analyst with Forrester has noted – “It was a very, very good operating system… a superb OS because it removed a lot of pain.” While the Macintosh was often called great, Windows XP was often said to be “good enough” and with inexpensive hardware as a platform, it won the desktop computing war.

Windows XP retains a strong hold on many users, to Microsoft’s chagrin. The company would like to see them buying new computers loaded with Windows 8.

Is it conceivable that Apple has achieved that magic “good enough” formula with iOS on its current iPhones? People hang onto to their iPhone because it has been a positive experience for them and it works – will that affect Apple’s ability to get the to try something new and presumably better?

The iPhone and iOS revolutionized smartphones and tablets much like the Mac popularized graphical user interfaces. Now, in spite of huge Apple numbers, the smartphone and tablet markets are slipping away to Android much like the computer market went to Windows XP.

Is iOS Falling Behind?

Where does iOS stand today? Erica Ogg at Gigacom argues that while there have lots of releases of iOS, there has been little change.

“While iOS has seen six new releases since its debut in 2007, there have been few major changes. The arrival of the App Store in 2008, and push notifications in 2009 were the last big adjustments in how the software works.”

John Martellaro, a Mac Observer writer who used to work for me at Apple, recently had this to say in his article, We’ve Changed and Grown. Apple’s iOS Hasn’t:

“iOS, now roughly six years old, was designed in an era of much less hardware capability and launched on the small 3.5-inch display of the original iPhone. Now, it’s being pressed into service on ever larger iPhone and also iPad displays. One of the big annoyances is the single foreground app/single window design.”

The iPhone is also losing some notable users and influencers, including Steve Wozniak and Robert Scoble. Yet in spite of all this, the number of people who own iPhones and who are planning to switch to another platform remains small. A recent study suggests that the number of iPhone users planning to buy another iPhone has dropped only from 88% to 75%.

Why Change Will Be Hard

If the iPhone and the iPad are no longer the clear technology leaders, big change seems in order. Ironically, Apple’s loyal customers who still plan to buy a new iPhone might be a hurdle. How much Apple can change iOS without losing the loyalty of those customers?

In a recent Ars Technica survey – iPhone users: what does Android have that you want? – 8% said they wanted bigger displays – but 10% said they would never switch from their iPhone.

Apple Has Been Here Before

Finding just the right amount of change in that environment won’t be easy. But Apple has successfully faced this type of pivotal moment before – sometimes even without the help of Steve Jobs. Apple’s history demonstrates a willingness to make technology breaks when needed.

Today’s need for innovation while maintaining a satisfied customer base calls for the same boldness that Apple displayed when it moved users from the Apple II line to the Macintosh line, and later from Mac OS9 to Mac OSX and finally to Intel processors. Apple users gave Apple high marks for these difficult transitions.

Can Apple Do It Again?

But this is a different Apple – and a different, arguably less-forgiving market. As Blackberry and Nokia so clearly demonstrate, things happen quickly in the mobile space, with little room for error.

Whether Apple can innovate enough to stem the Android march while keeping current users happy might be the first big test for the new, post-Jobs Apple.

Apple still has one key advantage. Apple owns the whole widget, the hardware and the software. In the past it has made the ecosystem change so compelling that loyal customers followed without hesitation. But Google and Microsoft are starting to copy Apple’s whole-widget strategy – and that could make any iOS transition even harder.

What’s Next?

All things point to Apple making significant changes in iOS in 2013. Most Apple iOS users will follow wherever Apple goes – but that is only half the battle.

It all boils down to two things. Does Apple have the vision to make the next version of iOS a true advance? And even if the next iOS is a huge hit among current users, will it be enough to stem the tide toward Android?

If Apple can pull off this difficult transition, it could find itself set for another 5 years. If not, it will face increasing pressure from many sides.

Image by Fredric Paul.

The clock turns, the pendulum swings and we have a new leader on top of the Smartphone Wars scoreboard. 

Two of Apple’s iPhone models were the top shipping models in the last quarter of 2012. The iPhone 5 shipped 27.4 million units, making it the top-selling phone. It was followed by the year-old iPhone 4S, which shipped 17.4 million units, according to a new report from Strategy Analytics. 

The vaunted Samsung Galaxy S 3 flagship came in third with 15.4 million units shipped. 

Everyone except Wall Street seems to know that Apple did extremely well during the holiday season. It sold a record 47.8 million iPhones and recorded $54.5 billion in revenue. Apple does well every quarter, really, but its business is extremely cyclical.

Apple does extraordinarily well late in the year, while dipping in the summer months. This has to do with the consumer-oriented nature of Apple’s products and timing of device launches.

That’s why in the third quarter of 2012 the report from Strategy Analytics carried the splashy headline, “Galaxy S 3 Tops iPhone 4S.” Apple had just released the iPhone 5 at the end of Q3 and the 4S was still Apple’s flagship for most of the quarter, retailing at $199 in the United States on two-year contract. When the iPhone 5 came out, the 4S was discounted to $99 on a contract. 

Right in time for the holidays.

The difference between the Galaxy S3 and the iPhone 4S is slim. From Q3 to Q4, Samsung’s flagship declined 2.6 million in shipments. The iPhone 4S rose 1.2 million with many of those units likely targeted toward cost-conscious consumers and emerging markets. 

Strategy Analytics looks distinctly at individual phone shipments. It does not include Samsung’s extremely long tail of “S”-related devices that the South Korean company uses to flood the world market with affordable Android devices.

When Apple started discounting old iPhones when the newest iteration was released, it defined its own long-tail strategy. Apple CEO Tim Cook said at the Goldman Sachs Technology and Internet Conference last week that the company would not make a cheaper iPhone for the sake of making a cheaper iPhone, but would rather focus on making older models more affordable. We see now what he was talking about. 

Apple’s share of the tablet market has plummeted from 90% to 38.8% in just three years, and it’s certain to continue to fall. It has to. Apple’s business model demands it.

In early 2011 I wrote:

Apple is fantastic at fostering growth in new markets. It is terrible at maintaining market share. Why? Because Apple is not a market-share leader, with very few exceptions (e.g., the digital music market). Indeed, Apple’s high-margin, premium-pricing business model demands that the company cede market share as it hoards the high end of a market.

Some criticized me for that post, arguing that this time things would be different! This time Apple would be able to command a premium price and premium market share! This time Apple would defy gravity!

But it didn’t. It couldn’t. That’s just not how free markets operate.

The Implications of Losing Market Share

In the past year Apple’s share of the tablet market has dropped nearly 20 points, from 56.8% to 38.8%, with Samsung and Amazon gobbling up Apple’s market share, according to a new report from Citi. Perhaps not surprisingly, the market has seen a “particular slowdown” in 10-inch tablets, caused in part by Apple’s very successful iPad Mini. Speaking of the Mini, Citi warns that “innovation of this nature is insufficient to reverse share loss.” It’s also sparking a drop in average sales price, with the iPad selling for an average price of $467 this quarter versus $535 last quarter.

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market. Profit share follows market share, as I’ve illustrated before. Already we’re seeing Samsung increase its share of the profit pie as its market share increases, while Apple’s profit share has declined in tandem with its market share. Apple has no one but itself to blame: as Asymco analyst James Allworth points out, Apple largely taught Samsung how to build a global mobile device business.

Apple has been minting money with app developers, over $3.5 billion on $8 billion in total App Store sales. Developers follow the money, and Apple has been the place to make money developing apps. But that was before Android took such a commanding share of the device market. Over time, those developers are going to move to where the market share is. They have to.

So is Apple doomed?

Doom that Most People Envy

Well, that depends on your definition of “doomed.” Apple remains a phenomenally profitable, successful company, and likely will for years to come. Asymco’s Horace Dediu makes this clear by comparing Apple’s revenue to Google’s and Microsoft’s:

If this is “doom,” I’d like a double helping.

However, the picture becomes a bit fuzzier if we look at what’s happening over at Samsung, as another Asymco chart shows:

Clearly, Samsung is learning to play Apple’s game, and quite well. It’s not just a market share leader: it’s destined to be a profit leader, too.

A Bright iFuture for Apple?

Not that Apple is resting on its laurels. Speaking at an investor conference this week, Apple CEO Tim Cook glowed, “I’ve never been more bullish for innovation at Apple.” While I can’t see anything better than profitable niche status for Apple in smartphones, tablets, and personal computers, Apple has some interesting cards it can play to spur another bout of high-margin, mass-market boom times.

For one, there’s the rumored iWatch. I’ve argued an iWatch makes a lot of sense for Apple to build. With a relatively low price point, Apple customers would flock to the device and refresh their iWatches every 12 to 18 months. I’d be among them. In my home we have five Macs, six iPhones, two iPads, and an Airport Extreme. We’re a pretty dedicated Mac family, and have been for years.

Or take Apple TV. Apple calls it a hobby, and Apple TV has hardly stood out from the pack. But as Xbox founder Nat Brown writes, with just a few simple moves, Apple could completely dominate the console gaming market, eviscerating Microsoft and every other contender. You know, sort of like what it did to handheld gaming. Microsoft has completely failed to anticipate this move:

xBox’s primary critical problem is the lack of a functional and growing platform ecosystem for small developers to sell digitally-/network-distributed (non-disc) content through to the installed base of xBox customers, period. Why can’t I write a game for xBox tomorrow using $100 worth of tools and my existing Windows laptop and test it on my home xBox or at my friends’ houses? Why can’t I then distribute it digitally in a decent online store, give up a 30% cut and strike it rich if it’s a great game, like I can for Android, for iPhone, or for iPad?…

Apple is already a games competitor broadly, even if Apple-TV isn’t yet a game platform or a console. Mobile generally and iPad specifically have grown the total hours of game play and grown the overall game market. Only in the last 18-24mo has that overall growth turned from a segment-expanding rising tide to a tsunami swamping the console game vendor profit boats hitched to the docks. It is accelerating. Apple, if it chooses to do so, will simply kill Playstation, Wii-U and xBox by introducing an open 30%-cut app/game ecosystem for Apple-TV.

People who think that Apple could simply make modest, incremental changes to the iPhone, iPad, and Mac product lines to remain successful, as 37Signals’ David Heinemeier Hansson argues, are fooling themselves. Clearly they were not around to witness Apple’s last swan song, when “crappy” Windows ate its lunch on the desktop. Apple remained influential, but its business shrank to match its market share.

It turns out it’s a really big deal to maintain market share, and not simply profits. Profit share follows market share.

Apple’s Vision Is Bigger than Its Fanboys’

But such Apple fans needn’t worry: Apple doesn’t agree with them. The company isn’t planning to churn out light iterations on its iThings for the rest of eternity. That kind of stasis isn’t in its DNA, and Apple CEO Tim Cook knows it would be a recipe for obsolescence, anyway. Which is why he talks about Apple’s pent-up innovative energy. He knows that Apple can’t stay relevant by staying the same. Which is why every few years Apple has been upending the market, and itself, with new innovations.

With new innovations comes the ability to maintain its premium pricing, an essential hallmark of Apple’s business model. Apple seems content to keep charging BMW prices in now-established markets that, in the long run, are fine with Hyundai treatment. This ensures Apple’s niche status in markets where it once claimed 90% market share.

It also requires that Apple come out with big, market-defining products every few years to ensure that it can not only charge a premium, but also claim significant market share, if only for a year or two. The iWatch and improvements to Apple TV could well take care of Apple’s hefty profit margins for the next ten years. It seems clear, however, that simply sustaining the iPhone, iPad and Mac franchises will not. After all, profit share always follows market share.

Image courtesy of TonyV3112 / Shutterstock.com.

A knock against Apple over the past couple of years is that the company has failed to innovate anything new, anything special. The newest iPhones and iPads have been iterative updates of what had come before. Apple had lost its innovative mojo, people said. 

Apple CEO Tim Cook begs to differ.

“I’ve never been more bullish for innovation at Apple,” Cook said at the Goldman Sachs Technology and Internet conference this morning. 

“If you look at skills, Apple is in a unique and, in my view, unrivaled position. We have leadership in hardware, software and services,” Cook said. “The real magic is at the intersection of these. Apple has the ability in all three of these spheres and innovate like magic. The iPad is very magical because of all of those things.”

Cook would not comment on future features or products from Apple and instead took the classic company line, using words like “experience,” “magic” and “innovation.”

“If you look at IBM, it did a study on Black Friday, this was shocking, even to us. The most shopping on any device was on an iPad,” Cooks said. “The iPad was twice as much as any Android device. Every phone, every tablet. Why is this? Because of the incredible experience.”

Apple will also not release a cheaper smartphone just for the sake of releasing a cheaper smartphone, Cook said, but instead will continue to focus on its ability to make great products.

“Our North Star are great products,” Cook said. “We wouldn’t do anything that we consider not a great product. That is not why we are on this Earth. There are other companies that do that and it is just not who we are.”

Apple is reportedly developing a smart watch made from curved glass. Does it really have a choice? With iPhone sales stalling, the Cupertino innovator is in desperate need of another hit product, and not just any product: Apple needs something that consumers will refresh every 12 to 18 months. My editor Dan Lyons has his own thoughts on why these Apple watch rumors are making the rounds. But what if we take them at, pardon the pun, face value?

At Apple’s size, the company must be very choosy about its products. While Apple does at times dabble in $100 million “hobbies” like Apple TV, its bread-and-butter depends upon multi-billion dollar breakout successes like the Mac, iPod, iPhone, and iPad. Apple simply isn’t the kind of company that is going to release a horde of SKUs, each designed to reel in a hundred million dollars here and a hundred million dollars there.

(See also Who’s Manipulating Apple Stock With This iWatch Story?)

The company continues to thrive, but its stock has taken a beating recently as investors fear that Android is knocking the iPhone off its lofty perch, and will almost certainly do the same in the tablet market. (Some investors are more sanguine on its chances.) Over time, it’s simply not possible for Apple’s high-margin, premium product strategy to own the mass market. So as it fades into highly profitable niche-status in smartphones, just as it has in personal computers, Apple needs a new hit to drive it forward.

Apple Needs A Particular Kind Of Hit

But not just any kind of hit. While The Wall Street Journal and others have reported that Apple has a TV in the works, a TV doesn’t fit Apple’s recipe for success. All of Apple’s big hits have a few things in common:

1. They’re focused on consumers.
2. They’re priced at a premium but within the budgets of the middle class (in Western Europe and North America)
3. They’re cheap enough that consumers “refresh” to the latest version every 12 to 18 months

A TV, however, and particularly a premium TV like Apple would be inclined to make, is not going to fit in the budget of many consumers, and certainly not in less affluent markets. But even if it were, people don’t buy new TV sets every year. Apple could still build a multi-billion dollar business with a multi-year refresh rate, but this would significantly change Apple’s standard operating procedure.

Much more likely would be significant improvements to Apple TV, taking control of video content from the cable and satellite operators. One Apple source tells me that Apple is waiting on DirecTV’s exclusive contract with the NFL to end in 2014. Regardless, an Apple gateway to bounteous video content fits perfectly with Apple’s iTunes business model, as well as the three factors above.

An Apple Watch Could Be A Perfect Fit

But then, so does an Apple smart watch. In fact, an Apple smart watch arguably better fills Apple’s product portfolio, as it serves as a complement to Apple’s iPhone and iPad products, helping to spur sales both ways. It also could further expand Apple’s App Store business, with a range of fitness, diet, and other apps landing on one’s wrist.

It would not, however, find many fans at traditional watchmakers, as Box CEO Aaron Levie humorously points out:

Apple rumored to be making a watch. And now, a moment of silence for Casio.

— Aaron Levie (@levie) February 10, 2013

The biggest reason for thinking an iWatch could be a big deal for Apple, however, is that it perfectly fits Apple’s business needs and design ethos. Watches have seen little innovation for decades, yet continue to be used for both style and utility. (As for myself, I traded in my watch years ago for my iPhone, which provides the time and more.) At $250 to $500, Apple’s smart watch could be hugely profitable but also inexpensive enough to justify consumers buying the latest and greatest each year.

None of this guarantees that Apple will release a smart watch. And it’s possible that Apple will ignore my advice (again) and release a high-end TV. There aren’t many product categories that fit Apple’s need for consumer products with a 12- to 18-month refresh cycle. Wrist watches just happens to be one of the few.

Image courtesy of Shutterstock.

My pal Kevin just sent me a link to this auction on eBay which he swears is for real. It’s for a “rare, vintage, collectors iPod” and the asking price is a mere $25,000. The iPod is a fourth-generation iPod Classic that’s still in its original packaging. It’s the model that was sold by HP. Has a whopping 40GB of storage space and 12 hours of battery life. According to Wikipedia, HP and Apple ran this crazy joint venture in 2004 and 2005. To say it was a disaster would be an insult to disasters. This might be one of the only units HP actually sold. 

Still — $25,000? The owner of the iPod says in his listing, “The part number shows the iPod has been engraved but I have no idea what it might say.” 

I’ll take a guess. How about, Hello I’m an idiot and this is my $25,000 iPod.

The auction ends tonight at 7 p.m. Pacific time. That means you have only 10 hours to get your hands on this rare beauty!

If you love collecting vintage Apple equipment but can’t part with $25,000, the same seller – who goes by the name “samsonbible” and has a 100% positive feedback rating - is also listing a vintage second-generation iPod Classic, “pre-owned but with very little wear,” for a mere $2,299. That one also ends today. Hurry, because the clock is ticking.

My pal Kevin just sent me a link to this auction on eBay which he swears is for real. It’s for a “rare, vintage, collectors iPod” and the asking price is a mere $25,000. The iPod is a fourth-generation iPod Classic that’s still in its original packaging. It’s the model that was sold by HP. Has a whopping 40GB of storage space and 12 hours of battery life. According to Wikipedia, HP and Apple ran this crazy joint venture in 2004 and 2005. To say it was a disaster would be an insult to disasters. This might be one of the only units HP actually sold. 

Still — $25,000? The owner of the iPod says in his listing, “The part number shows the iPod has been engraved but I have no idea what it might say.” 

I’ll take a guess. How about, Hello I’m an idiot and this is my $25,000 iPod.

The auction ends tonight at 7 p.m. Pacific time. That means you have only 10 hours to get your hands on this rare beauty!

If you love collecting vintage Apple equipment but can’t part with $25,000, the same seller – who goes by the name “samsonbible” and has a 100% positive feedback rating - is also listing a vintage second-generation iPod Classic, “pre-owned but with very little wear,” for a mere $2,299. That one also ends today. Hurry, because the clock is ticking.

I don’t want to give up my desktop computer, but it seems like many people do.

Dan Frommer at SplatF lays it all out: The PC industry is in decline. The Mac, which was growing while the rest of PCs were shrinking, is now shrinking, too. But if you add in the iPad and count all of Apple’s “computers” at once, the numbers are through the roof.

It’s pretty clear what all this means. As Steve Jobs said, PCs are trucks, and tablets are cars. Most people don’t drive around in trucks. But the ones who drive trucks need great ones, and that’s where Apple is starting to focus its Mac efforts exclusively.

Here in the U.S., at the peak of the George W. Bush era (remember him?), a trend began where people whose jobs entailed parking their car, going inside, and doing something on a computer began driving hulking monster trucks designed to resemble military assault vehicles. But after realizing over decades how much unnecessary energy those SUVs consumed, the trend swung back, and now many people conspicuously drive little hybrids instead.

Consumer products can be like that. Trends swing back and forth like a pendulum as new technology becomes available to meet people’s tastes.

The Tablet Trend

What we see in Frommer’s amazing charts is the adoption of just such a trend. Yes, it may be that Mac sales declined 22% in 2012, the biggest drop in 10 years, but that fall in Mac consumption can’t come close to accounting for the soaring iPad numbers.

Certainly, there’s a use case for a tablet that replaces the point-and-click PC completely. It does a better job for lots of people, since the battery lasts all day and it fits in a handbag. Apple should be thrilled to sacrifice Mac sales in exchange for selling iPads to those people. The company is even betting that this trend will take a bite out of the enterprise PC market, and it seems a pretty safe bet.

But the iPad was not the first $500 portable computer. It may (seriously) be the best one, but its astronomical adoption rate is not simply driven by the sudden realization by tens of millions of people that they can be more efficient workers on this device.

Tablets are also entertainment systems. They’re an elective choice, like the choice of a Hummer or Prius over a used Honda. They’re trendy.

Likewise, not everyone who bought a white plastic MacBook needed all its capabilities. They needed some of them, which a $300 Windows netbook also offered, and they wanted some of them, like the ability to watch Netflix in bed. But those people have the iPad now. It’s a better choice for those uses. And Apple doesn’t have to make that Mac at all anymore.

The Real PC Market

Since the “what is a PC?” argument is not yet resolved, I propose this definition: A PC is a computer with a multi-window workspace and a pixel-precise input method. For now, though I think this part can change with good-enough voice interfaces, let’s include a physical keyboard, too.

The PC market is surely subject to trends, but that 22% drop in Mac sales is not the end of the Mac trend. Apple knows that as well as anybody. In 2012, Apple shipped the first Macs with retina displays and a striking new iMac, which, as CEO Tim Cook pointed out in the Q1 2013 earnings call was not available for most of the quarter in which the low Mac numbers were reported.

Why would Apple ship those products in a down year, fighting the clear trend against PCs? Because today’s PC market is the real PC market. The people who still buy PCs actually need them. It might be a pretty hard crash for low-margin PC manufacturers, but for Apple, with high-end Macs bolstered by roaring iPhone and iPad businesses, it’s just a chance to build the best, most powerful PCs it has ever made.

And that’s not to say that Windows PCs are finished, either. It just means they have to be excellent enough for an increasingly high-end market.

Lead image by Eliot Weisberg for ReadWrite. Chart courtesy of Splatf. Bottom image from Apple.