Apple and the fear of flopping

Apple has set itself up to flourish or flounder in a hit driven business. For the last decade, the company has flourished, but a flop could quickly erode the company's stellar reputation.

Dan Farber
5 min read
The Apple store near the Opera Garnier in Paris. Bertrand Langlois/AFP/Getty Images

While Samsung, HTC, Google, Nokia, Amazon, and many others are cranking out new smartphones, tablets and even wearables several times a year, Apple is hanging back. The company last introduced an iPhone in September and an iPad in October.

Updated versions of Apple's existing mobile flagship mobile devices and iOS are expected in the fall, but latest rumors indicate that there will be no iPhone with a bigger screen, smartwatch, or Retina iPad mini until 2014, if ever. Of course, these are merely rumors and the notoriously opaque Apple could bring out a "one more thing" surprise later this year.

With a growing global appetite for mobile connectivity -- smartphone shipments are expected to almost double to 1.5 billion by 2017, according to IHS -- the overall market is exploding, but Apple's global share is declining. Apple's Q1 2013 worldwide share of the smartphone market dropped from 23 percent in the same period in 2012 to 17 percent. On the other hand, Apple is a supercharged profit machine and will continue to see significant sales growth. The company is expected to report sales of around 30 million iPhones for the quarter ending June 30.

Whatever is going on in the market, Apple doesn't appear to be in a hurry to respond to competitors. In fact, Apple has never been very reactionary or much of a fast follower in trying to keep up in the feature wars.

It's as if Apple knows something that no one else knows about how the mobile market will play out as it tinkers with exotic materials, like liquidmetal, and develops its own chips in pursuit of the perfect union of hardware and software. Apple is more interested in the thickness of fonts and bezels than giving its customers a smartphone with a screen larger than four inches to compete with Samsung's Galaxy.

The crowd assembled for the launch of the iPad on April 3, 2010, at the flagship New York store on Fifth Avenue. Dan Farber

The next iPhone, the rumored 5S due in the fall, won't likely break the mold. Similar to previous "S" upgrades, it is rumored to offer a faster processors, improved LTE connectivity, an upgraded 12-megapixel camera (up from 8 megapixels for the iPhone 5), NFC for contact-free transactions and a fingerprint scanner. Those purported specs will not be the most advanced in the industry. Apple will be among the last to implement NFC. Nokia just introduced the Lumia 1020, a smartphone with a 41-megapixel camera.

Apple has always been more focused on creating what it thinks is the best engineered and most aesthetically brilliant device on the planet. It's a conceit that seems to be working.

"We have to focus on products, making the best products," Apple CEO Tim Cook says. "If we do that right and make great products that enrich peoples' live, then the other things will happen."

It's the "build it and they will come" approach, pioneered by Steve Jobs, with a dash of what they hope is iconic marketing to create demand and the pull of more than 400 stores, cathedrals of Appleness, situated in close proximity to target buyers.

And they come. More than one million customers visit an Apple Store daily, and the company has nearly 600 million online App Store accounts. Apple can bank on customer loyalty as a hedge against the faster moving competition.

Apple can create a frenzy of demand for its new products. Dan Farber

A Yankee Group survey from April 2013 found that buying intent for new customers to iOS and Android is about the same, but loyalty to one ecosystem or the other is not. Only 9 percent of the Apple device owners surveyed said they would switch to another platform with their next phone purchase, while 24 percent of Android owners plan to abandon the Android platform. And Apple buyers are more likely to adopt other parts of the product lineup, such as the $99 Apple TV, which is the top selling Internet streaming device.

But there is more to Apple's success formula than setting out to build great products and cathedrals to attract disciples. Apple chooses to avoid flooding the market with a broad slate of shapes and sizes like its main rival, Samsung. Instead, the company sells a mix of its older and new products in a few sizes to fill price and feature gaps, squeezing the most juice out its lineup, and then, with impeccable timing, introduces a new version to satisfy the pent-up hunger for something fresh from Apple, just when the initial flood of two-year contracts are ripe for a discounted upgrade.

Apple has been dominant with the iPad since it was first introduced in 2010 and has continued to iterate the tablet, although it was slow to enter the 7-inch "mini" category. As would be expected in a vibrant, new market, capable competitors including Google, Amazon and Samsung, are gaining ground on the established leader. IDC projects that Apple's share of worldwide tablet shipments will drop to 46 percent in 2013 from 51 percent in 2012.

Throughout its 37-year of existence, Apple has been able to combine hardware and software, using mostly the same technology available to competitors, in a way that redefines a category, such as a laptop, music player, mobile phone, and tablets. Those breakthroughs have fueled Apple's meteoric rise over the last decade, its brand equity and a bank account with close to $150 billion.

Apple can continue to iterate its products, going from iPhone 5 to 5S but maintaining its status as a premium brand deserving of higher margins and a more loyal customer base than rivals will become more difficult over time unless the company comes up with another breakthrough or bold innovation that redefines a category or industry, such as TV or wearable devices. The halo starts to wear off unless the seeming miracles that transform markets or industries keep happening.

Apple has set itself up to flourish or flounder in a hit driven business. For the last decade the company has flourished, but a serious flop could inspire defections and erode the company's stellar reputation.

A wearable device, perhaps an iWatch, could be Apple's next attempt at breakthrough device. It would follow in the footsteps of many current attempts to break out the category, such the Pebble and Sony Smartwatch 2. Samsung and Microsoft are reportedly also working on smartwatch projects.

Apple has long been rumored to be developing a smartwatch, and is reportedly aggressively hiring new employees to work on a new wearable device. The company has filed for the registration of "iWatch" as a trademark in several countries.

But don't expect Apple to be in a rush. The fear of flopping makes Cook and his minions extremely rigorous and relatively patient. They will learn from others' mistakes and wait until they have achieved engineering feats that design chief Jony Ive can tout as "profound and enduring beauty" before showing the world a new creation.

Apple's most loyal fans will patiently wait for the next big thing, and barring a flop will continue their evangelism. But in its quest for perfection, the company could also be leaving a big opening for another company to define the next big epoch of computing.

Correction at 5:55 a.m. PT: The Nokia Lumia 1020 has a 41-megapixel camera.