The Cult of Apple – or short AAPL and go long a Pen and a Moleskine

DIY Apple Notebook

The hype is now officially over and the newest offering from the mighty Apple, the iPhone 5, has been released. The sheep are pre-ordering it as if it were already going out of fashion (pun definitely intended). I know that just by reading the last two sentences you have decided that I am against Apple and their innovations, but that is just not the case.

I continue to be a proud owner of an Apple G4 Powerbook (now mothballed) and have in the past owned the first generation MacBook Air and the iPhone 3GS and when I was much younger, an original Macintosh. All four products, in my mind, were amazing innovations and changed the face of computing and how I lived my life.

When Jobs opened that brown manila envelope and revealed the Macbook Air, I was astounded, gobsmacked and full of wonder. I used it for three years and travelled with it all across the globe, whether working or on holiday. It had only one USB port, but it worked no matter what! And the iPhone was another wonder when it was released. Prior to that I had been a diehard Blackberry fan and bought the iPhone 3GS on a whim and was soon hooked.

But what of this new offering, the innovatively-named iPhone 5? Schumpeter, yet another interesting blog from the Economist, had this to say:

“Some hilarious videos doing the rounds on the internet show people pretending to take photos with invisible iPhones and hold conversations on them. These spoofs are meant to poke fun at Apple and its legion of fans. But the very notion that the firm could produce a see-through phone also highlights how closely its brand has become associated with revolutionary innovations. What a pity, then, that the iPhone 5, which was unveiled on September 12th, fails to live up to that hard-won reputation.” Source: Schumpeter, the Economist

I tend to agree with this initial assessment. For a more scathing review, I found that the BBC had asked Dan Lyons, the Technology Editor for Newsweek as well as the creator of the “Fake Steve” Blog, to do a piece on the iPhone 5 and he had this to say:

“Now, having had two years to plot and scheme, Apple’s renowned designer Jonathan Ive has replaced the tiny 3.5in (8.9cm) screen with a slightly-less-tiny 4in (10.2cm) screen? Wow. Knock me over with a feather. What do you do with the rest of your time, Jony?

This is what happens when a company is too cheap to invest in research and development. Did you know that Apple spends far less on R&D than any of its rivals – a paltry 2% of revenues, versus 14% for Google and Microsoft?

No wonder the Android platform, where new models appear every week, now represents 68% of the smartphone market, up from 47% a year ago, while Apple slid to 17% over the same period.

In case you’re bad at maths, let me work that out for you: Android’s market share is now four times that of Apple. Four times!

Worse, despite all its bluster about innovation, Apple has become a copycat, and not even a good one. Why is Apple making the iPhone bigger? To keep up with the top Android phones.

 (Phones that, mind you, Apple fanboys ridiculed at first.)

The problem is that the new iPhone won’t really give you much more screen real estate than the old one. Worse, it looks ridiculous.

Apple also has become a copycat in tablets. Jobs once said the iPad’s 9.7in screen was the perfect size, and smaller tablets made no sense. Then the Android camp had success with 7in tablets like Amazon’s Kindle Fire and Google’s Nexus 7, and now Apple supposedly will announce its own smaller iPad in October. Talk about thinking different!” Source: BBC and Dan Lyons

Lyons hit the nail on the head, and pretty squarely I might add. Some of us remember the first round of innovation at Apple when it made the original Macintosh. It became hugely successful, Jobs was sidelined and others took over and it went into decline. Jobs was brought back, it innovated again and again and changed course to become what it is today.  And now Jobs, sadly, has gone forever. These things happen in business. Who would have thought 30 years ago that the fabled Eastman Kodak would now be a defunct, bankrupt company?

These two examples just about sum up what is happening in the world today… either you are with it or not. But this is just too simple an assessment. The fact is that now Apple’s business model is geared to maximising margins first and innovation and research and development are clearly playing second fiddle. Tim Cook is no Steve Jobs and Ive, for all his design savvy, has been knighted by Her Majesty and seems to be lulled into complacency, or maybe he has lost his inspiration, Jobs. He has become a victim of his own success, and seems lost without his mentor and guiding light.

The theory that Jobs was actually worth far more to the company than it is admitting or that analysts on Wall Street are factoring in when pricing Apple shares is nowhere to be seen. Jobs, whatever else he was, was nothing short of a revolutionary. We may never understand his mind, but he had a way of coaxing the designs out of Ive, pressing for innovations and we can certainly see that innovation has taken a back seat since his untimely death.

We all know that Wall Street and everyone else is predicting millions of iPhone5’s will be sold. We all know that it will contribute to the bottom line and spur even more profits at the behemoth. But how long will it last? In this age when the consumer has become fickle we say and wants more, better, faster etc. Apple tends to buck the trend with a brand loyalty that is nothing short of religious fervour. The denizens, who are its followers, are following the myth and cult created by Jobs, though one naturally questions how long will it last?

My personal prediction is that without some real innovation, Apple’s share price will decline over the next few years as margins will get steadily squeezed without innovation and more and more people realise that cults are exactly that: cults. And the cult of Apple, without its leader has nowhere to go but down unless, through some divine intervention, Apple can come up with something completely different and send another Prophet who will revive innovation.

Time to get the pen and paper out again… real writing is just so much cooler.


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