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In the past few months Apple has seen its shares nosedive, iPhone sales fall along with its smartphone crown, several key executives depart and the legal bill for its war on patents rise exponentially.
The speed at which a company lauded as the 21st century poster child for innovation and corporate success could sail into such a perfect storm of calamity aptly illustrates the fickle and by turns cruel nature of the tech industry.
Strewn throughout its countless wreckages are many former giants – once thought infallible – whose misfortunes are largely tied to Apple’s ascension. They include Nokia, RIM, Sony and Kodak.
And many of the most formidable companies in the world including Microsoft, HP and Dell show deep battle scars from Apple’s many incursions into their traditional territory.
But with so many cracks now appearing in its once perfect, white, stainless steel and glass exterior, analysts are asking the inevitable question: is Apple on the slide?
Last month Apple reported lower-than-expected quarterly revenue as sales of its flagship iPhone came in below targets. The company shipped 47.8 million iPhones, lower than the roughly 50 million that Wall Street analysts had predicted. Following the news, in the last week of January Apple’s shares slumped more than 12 percent, slicing more than $US50 billion ($A47 billion) from its market value.
The fact Apple’s shares got clobbered despite reporting a record – and better-than-expected – $US13.1 billion ($A12.5 billion) profit for the final quarter of 2012 illustrates just how worried investors are about Apple’s future.
While iPad shipments were in line with expectations, major iPad screen maker Sharp last month reported it had virtually halted production due to falling orders.The fall in unit shipments of the iPhone is especially worrying for Apple, given the product makes up around half of its total sales, while also exposing one of its many Achilles heels, that of having a very narrow portfolio of products.
Admittedly, most of Apple’s products have achieved success most companies can only dream of. Yet the failure of Apple Maps last year brought into sharp relief the fact it too is capable of the sorts of product flops more frequently associated with its rivals.
The maps debacle – Victorian police were forced to issue a safety warning after motorists travelling to Mildura became dangerously lost – represented an embarrassing capitulation to bitter rival Google, but the fall-out also led some to ask whether divisions were beginning form within the company.
Falling from the tree
Head of Apple Maps Rich Williamson was sacked in September. A month later Apple’s retail senior vice president John Browett left the company, at the same time as long-term head of iPhone software development Scott Forstall was shown the door.
Long tipped as Browett’s successor, Apple’s VP of retail Jerry McDougal departed Apple last month leaving two key retail executive roles at Apple vacant. McDougal formerly worked under Browett’s predecessor Ron Johnson who left Apple back in June to become CEO of US retailer J.C. Penney.
With all these ructions and challenges it’s small wonder Apple has found it difficult to focus equally on all areas of the business and one which has arguably suffered the most neglect is the company’s channel.
Apple has three key priorities at the moment, according to Gartner analyst Van Baker. First is gaining a proper foothold in China, the latest key battleground market for technology. Second is the reorganisation of senior management ranks to better prepare the company for this and other challenges ahead. And the third is straight revenue growth.
“Channel issues are further down the priority list,” Baker says.
This is despite what would seem to be an obvious opportunity to capitalise on its now massive, albeit accidental, installed base within the business world, by partnering with enterprise resellers to develop a dedicated suite of business solutions to drive sales of even more products.
Of course this would mean ceding control, something Apple does not like to do. Last year Apple unceremoniously, and inexplicably, sacked around 200 of its Australian resellers – many of which had been selling Apple for years – apparently without warning, explanation and, true to form, no apology.
One Sydney reseller – a $5 million supplier of IT to Australian businesses, health organisations and not-for-profits – was one of the 200 partners dumped by Apple late last year. According to its co-founder and director, the company received a two-line email terminating its reseller status.
“We thought there had been some mistake,” he says, on condition of anonymity due to confidentiality clauses in its reseller contract with Apple. Sure enough, a week later a letter arrived saying the company had been reinstated. It was therefore with utter dismay he received a third letter only another seven days later confirming the import of the first.
Compounding the company’s frustration was the difficulty in getting accredited in the first place. Based in Brisbane, the director had been liaising with an Apple channel representative in Sydney to coordinate the best time to fly down and fill in the necessary documents. On a cold, wet, winter’s day, the Apple rep called to cancel, forcing the reseller to fly all the way back to Queensland empty handed. Several weeks later when he finally got hold of the rep again, the process was completed over the phone in minutes.
He admits at times it’s been difficult explaining to clients the company can’t supply Apple products. In response, the company has been recommending alternative products, most recently HP’s ElitePad business tablet which the reseller says has a number of superior features for businesses, including better touch control, better keyboard, battery life, faster processing and of course Windows 8 and Flash compatibility.
Schizophrenic symptoms
Sydney reseller Complete PC Solutions was another company to be culled during Apple’s partner purge last year, with director Frank Triantafyllou reporting a similarly schizophrenic series of communications.
“One letter said our reseller agreement had been extended and two weeks later we received a letter saying the company had been struck off.”
Even more riling for Triantafyllou was Apple’s contention his company had not sold enough product, something he vehemently denies.
“They made up figures,” he says.
Even while Complete PC Solutions was an Apple Consultant Network Approved (ACNA) reseller, the company often faced opposition from Apple when negotiating deals. Triantafyllou relates one experience when the company wanted 100 iPads for a school customer but was told it wasn’t authorised to supply that particular product.
“Apple makes it very hard for you to be able to buy from them. When you’re speaking with them they’re arrogant and they have no customer service skills.”
While Triantafyllou recognises not having Apple is a lost business opportunity, he feels the company is fast becomming less important.
“Apple’s peaked; they’re on the decline,” he says.
One industry observer whose company does regular business with Apple in Australia painted a very unflattering picture of the company’s business style in Australia.
“They’re pig headed. They drop people’s contracts with no ifs, buts or maybes.”
He added that Apple is “alienating” its partners in Australia, but generally companies have no choice but to deal with them because of demand for their products.
“I hate dealing with them; most people hate dealing with them. They play by their own rules and if you don’t like it you’re out; they don’t care. But it wouldn’t matter if Apple started making baby bottles – people would still flock to them.”
One underperforming Apple partner which the vendor saved from the block is national specialist Apple reseller Next Byte. Next Byte posted a sharp decline in sales last year, coinciding with the arrival of Apple stores in major Australian cities. One of Apple’s newest retail stores, in Sydney’s Broadway, is just metres from the former location of one of Next Byte’s most successful stores in Australia, directly opposite Sydney University.
Next Byte is in the process of rebranding its stores “Apple Premium Reseller”, a move which managing director Jim Collier says is paying off. The new stores are bigger than the old Next Byte stores but smaller than Apple stores, albeit with a similar layout including a close approximation of the “genius” bar.
Collier says Apple has been doing a good job in terms of providing support and training programs for partners, and, asked whether he though Apple could be doing anything better at all, said “no”.
Apple aesthetic
Adelaide reseller and winner of last year’s CRN Fast50, LeetGeek, managed 300 percent growth in the 2011-12 financial year, largely due to a sharp uptick in sales of Apple products and solutions. But it’s solutions which the company tries to focus more of its energy on, meaning discussions with Apple tend not to revolve around products as such.
Nevertheless LeetGeek director Ben Corbett admits the intense emotional attachment users have for Apple devices is an inevitable factor for customers.
“One thing we have noticed is people are very seduced by the Apple aesthetic and Apple brand,” he says. “They do a great job with their marketing.”
Corbett doesn’t however agree with every decision Apple has made. Its decision in 2010 to drop the Xserve range of server products, for instance, made it harder for the company to deliver back-end integration for customers wanting to mesh Mac and Windows environments. Since then Apple has been without a business server line to speak of.
But Corbett feels Apple has made many other decisions likely to endear it to business customers. For instance, the vigilant way in which Apple manages its App Store, as well as the proprietary nature of its iOS mobile operating system.
“Look at Android; there’s a ridiculous number of iterations,” he notes. “Apple, on the other hand, is very consistent with regard to how its devices can be managed.”
If there’s anything Corbett dislikes about Apple, is the sense, at least in Australia, one has that it is a US-run company.
“The buck stops in the US, not here. You feel that.”
Corbett admits he was miffed at how long it took before Apple began offering discounts for bulk purchasing of apps in Australia. Apple announced last September that nine countries, including Australia, would be able to get the discounts, long after US buyers started receiving them.
“A question we were getting asked a lot in education was why it wasn’t available for so long in Australia.”
No road map
Apple’s unexpected status as a supplier of technology to business comes at a time when Microsoft’s long-held dominance of the corporate market appears vulnerable, arguably for the first time in its history.
Yet unlike Microsoft and other traditional suppliers of enterprise IT (eg IBM, HP, Dell and others), Apple doesn’t have a well-developed business channel, despite not having a direct sales force for business customers. It has no services to assist with the implementation nor support of enterprise solutions, with Gartner reporting that the Apple Store is usually the best source for CIOs (see chart p32).
Apple also doesn’t provide product roadmaps nor information regarding how long products are likely to be supported; something which senior IT buyers typically insist on. And perhaps most riling of all for Apple’s partners and customers, it flatly refuses to offer volume discounting.
If an organisation orders 10,000 iPads it pays virtually the same per-unit price as a company ordering 10. Those companies wily enough to negotiate a discount usually do no better than around 2-4 percent.
Further, Apple has no global structure to deal with large scale procurements, with customers and partners forced to seek out and deal with representatives in individual countries.
With Apple’s incredible success over the past few years, not just in redefining new product categories like ‘smartphones’ and ‘tablets’, but also dominating those markets, the company has become even more stubborn and inflexible. Last year Apple became the world’s most valuable company, while revealing that it had a staggering $US100 billion cash in the bank.
The much documented arrogance and hubris of Steve Jobs is well and truly alive within Apple’s DNA. Jobs’, and Apple’s, attitude has always been “it’s our way or the highway”.
But here’s the rub. Over the past several months Apple’s shares have fallen sharply as investors absorb and react to the many headwinds facing the company.
Bitter rival Samsung, for instance, recently overtook Apple as the world’s leading supplier of smartphones. The two companies have fought a protracted and often nasty patent battle in the world’s courts over the past few years, with neither side appearing close to victory.
Apple is also further enriching patent lawyers in battles with Google – a company which Jobs openly despised – and others including HTC. Mobile devices running Google’s open-platform Android operating system now outnumber those running Apple’s iOS by at least 2:1.
To many in the industry, Apple’s apparent obsession with patents reflects a desperation to reverse its falling market share. After all, Apple itself borrowed heavily from the ideas of other technology companies, most famously the user interface developed by Xerox PARC in the late ’70s and ’80s, which eventually informed the “windows” style of desktop management for Apple, and soon after Microsoft Windows itself.
In his younger years, Jobs was fond of quoting the famous Pablo Picasso line, “good artists borrow; great artists steal”. But in today’s tech marketplace, there’s much more at stake.
On the wane
Without a doubt, Apple’s dominance as a supplier of consumer technology is beginning to wane as companies like Samsung, Lenovo, Huawei and Google close in. And while Microsoft has got off to a slow start with Windows 8, few are bold enough to write them off.
Logic dictates Apple should simply transform, or at least partly transform, itself into a business technology company. But quite aside from its obvious disdain towards the business channel desperate to help it, Apple has a number of shortcomings that are harder to address.
“They’ve tended to be a company with an extraordinarily narrow product offering,” says Gartner’s Baker, adding that major product announcements are typically years apart.
But he feels Apple knows it has no choice but to address this. The launch last year of the iPad Mini was proof of this, while rumours that a cheaper, stripped down iPhone may be coming to market is another positive sign – despite being sniffed at by Apple zealots – that Apple is moving in the right direction, Baker says. After all, it’s a product strategy which worked well with the iPod.
“There you have different versions separated by around $50 or so.”
Excitement has also been brewing around Apple’s long-rumoured plans to release a TV, although Baker is sceptical about the wisdom of such a move, at least while Apple has more pressing priorities. And it needs all the focus, creativity and precise execution it can muster.
Reality distortion field
For Apple there’s no escaping the fact all of its blockbuster products were developed, or at least conceived, under the watchful eye of its late co-founder Steve Jobs, whose famed “reality distortion field” was frequently deployed to push staff to their limits in finessing products to their maximum potential.
Yet since his death in 2011, there have understandably been doubts expressed about Apple’s ability to maintain product momentum.
“I think they’re going to struggle to come up with something new,” says Phil Harpur, senior ICT research manager, Frost and Sullivan A/NZ.
Gartner’s Baker disagrees that the situation is quite so dire.
“It’s a little too early to declare invention has gone out of Apple, but I do think the market is nervous about that.”
He maintains however that people “ascribed more credit to Jobs than he deserved”.
“Can Apple continue to be creative?” he asks. “They’ve certainly got the talent.”
But aside from the issue of limited product lines, Apple also suffers from an altogether narrow technology focus compared to its key enterprise rivals. Gartner’s Nexus of Forces for the enterprise highlights four major enterprise technology themes as: mobility, cloud, social and information. While Apple is active in the first two it has virtually no solutions addressing either social or information.
And the lack of a technology roadmap means enterprises have good cause to be nervous about investing heavily in Apple, especially given other tech giants typically provide product roadmaps looking ahead one or several years as a matter of course.
It’s something Apple did routinely in the decade that Jobs was away from Apple, but the practice died off after he returned in 1997 and set the company on course to be the consumer juggernaut it is today.
“Apple is still way too secretive about what it does in the enterprise,” Baker says.
But signs are that change is afoot.
“There is evidence Apple is paying more attention to the enterprise,” Baker adds, stressing that CEO Tim Cook has on several occasions indicated that his eyes are well and truly on the ball.
Mature security
A key example is the greater focus on iOS security, with Gartner reporting the platform now has “increasingly mature security and manageability functions”. Like any other platform, security threats still exist (see ‘Top 5 iOS security threats’ p32), but Apple appears to be more vigilant in addressing them.
In addition, Apple has tried to make it easier for customers to access its APIs, helping to simplify systems and device management for IT managers.
Even more significantly, Baker says in recent months Apple has begun advertising for internal sales staff addressing the business market.
“That’s not something we’ve ever seen before.”
ICT’s Phil Harpur concedes there are great opportunities for Apple to gain a foothold in the enterprise, but questions whether it really has the commitment.
“It seems pretty obvious there’s much more opportunity for Apple in the enterprise sector which they haven’t tapped into yet. But they seem content to take a backseat to the whole idea.”
However, fellow Frost analyst Anand Balasubramanian notes that several large integrators, including UXC Connect and Fujitsu, are already working closely with Apple on enterprise accounts in Australia.
“These companies have definitely capitalised on opportunities for Apple,” he says.
But he agrees Apple has more work to do.
“It’s like they’re concentrating more on the devices, which seems to be a more passive role compared with Microsoft and RIM which seem to have a planned roadmap.”
Lenovo’s declaration late last month that RIM was on its list of potential acquisition targets might also worry Apple, given the Chinese company’s rapid growth, drive and resources to innovate combined with RIM’s coveted product and patent portfolio around business mobility.
Harpur notes another challenge facing Apple in the enterprise; security and manageability issues stemming from the fact its apps can only be downloaded via individuals’ iTunes accounts.
“There’s no comprehensive security measure [with iTunes].”
He adds that Apple also needs to address security and manageability issues stemming from the fact its apps can only be downloaded via individuals’ iTunes accounts.
“There’s no comprehensive security measure [with iTunes].”
Gartner notes Apple is more responsive to businesses in certain geographies, citing Australia as one example. What remains to be seen is whether Apple’s consumer-oriented approach achieves acceptance among enterprise customers.
Given the unrivalled “halo effect” enjoyed by Apple products which have now achieved deep and irreversible penetration within the business world, it would seem they have no choice. If that’s the case, the entire IT industry may be about to experience a complete paradigm shift in the way all major vendors deal with larger corporate customers.
A recent Gartner report titled Working with Apple requires a different approach to vendor management made the following observations:
“Apple is not likely to significantly change how it deals with enterprises anytime soon, putting the burden of change on IT.
“Other vendors may change their processes to be more like Apple’s, forcing enterprises to change vendor management strategies.”
That all depends of course on whether Apple’s rivals are able to develop the sorts of compelling, must-have products that made the Cupertino giant the most successful consumer technology company ever, while catapulting it over the high wall into the enterprise.
The signs are that they are. The immediate question is whether Apple can keep up with itself.
Apple declined the offer to comment for this article.
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