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Apple is screwing it up

Apple doesn’t get it.  Yes, the iPhone is still the standard bearer amongst smartphones. Yes, you can now get a 16GB 3GS iPhone for as little as $97 at Wal-Mart of all places. Yes, the iPhone is clearly still the dominant smartphone. Yes, the iPad takes the iPhone/iPod platform to a new level. And Apple rode these events to $240 a share and a market cap of over $200 billion. But none of these will matter if Apple keeps screwing it up.

It’s the Android platform, stupid. Frankly, Apple has had a free pass until now. Nokia, Microsoft, Palm and RIM never put together complete packages which could challenge Apple on usability or features despite what Walt Mossberg will say. But Android is growing at a breathtaking speed and already comprised 9.0% of the market by March. Android is the first real smartphone competitor Apple has  — and it is revealing all of the Walled Garden weaknesses in Apple’s business model.

Here’s the problem with Apple. Steve Jobs wants too much control – over the manufacture of iPhone/iPod/iPad platform devices, iPhone’s suppliers, over its apps market, over Flash, over everything. Where are the batteries with extended life or the microSD Cards? They don’t exist because Apple wants complete control over its product. But this walled garden approach doesn’t work.

Last week, I joined what must be millions of other technology nerds (if my Twitter and Facebook friends are any indication) in getting rid of my iPhone 3G* in favor of an Android-based phone…

Here’s the breakdown of the reasons I jumped ship, and why I think many formerly loyal iPhone users might be jumping ship, too.

First, there’s AT&T… I don’t really care if Verizon’s 3G isn’t quite as fast as AT&T 3G. Slightly slower but reliable beats faster and spotty every time…

Then we have Apple’s app store policies. Apple is changing the terms in their OS 4 update to the iPhone (coming this summer) to basically disallow any intermediate software layers in the creation of iPhone apps. This means devs can’t use Adobe’s popular Flash-to-iPhone compiler, nor products likeMonoTouch… But shouldn’t developers and consumers be the ones to decide if software is crappy or not? And if Apple is so concerned about software quality, how come so many Apps make it to the App Store in an almost unusably buggy state? How come there are so many completely worthless junk apps? Apple’s quality concerns are demonstrably B.S.

Apple also refuses to support Flash in its browser. Fair enough. Maybe the future of web video and interactive entertainment is HTML5, but the now of web video and interactive entertainment is Flash… Google went ahead and demonstrated how well Flash can run on a phone – Apple claims they give you the "whole web" on iPhone and iPad, but Google is actually delivering it.

-Why I Switched from iPhone to Android, PCWorld

Long story short – Apple wants to restrict what you can do and how. They claim its to maintain high standards, but many believe it is to stifle competition. That’s all fine and good as long as Apple is producing a superior product.  But Android has closed the gap with the Droid Incredible which is arguably the first phone to fully rival an iPhone. Moreover, reports confirm the new Android OS, Froyo, is lightening fast. The result has been a huge erosion of market share for everyone except Android. In fact, NPD Group reported that that Android had the second largest install base in the US in Q1 2010 at 28% – and ahead of the iPhone.

It’s not like Apple shouldn’t have seen this coming. Everyone was talking about this. I even wrote a post back in November entitled "Apple: Can it stop the Android menace?" Of course, your usual fare of Apple fanboys dismissed worries like mine. However, my point is still operative: Apple cannot possibly expect to remain predominant in the Smartphone space as a single vendor against a multitude of competitors once the usability gap is closed.  When that happens, the coolness factor that iPhones enjoy will wear thin and people will seriously start to look elsewhere. We are already seeing more application developers make software for Android for that very reason.

In any event, Apple’s response to date has been to extend the iPhone/iPod Touch-style platform to the iPad and to up the ante with a 4G iPhone. These are good moves. But they still don’t address the fundamental problem of vendor support, which is crucial in pushing product to carriers. The difference in reception between the Nexus One (bomb) and Droid phones (unmitigated success) shows how crucial this element is. I guarantee you Samsung, LG and Motorola are all watching the Droid Incredible and ready to try fabricating their own iPhone killers.

So, as we await the Apple 4G, these words from Jason Cross at PCWorld bear remembering:

Ultimately, my reason for switching can be summed up thusly: I used to feel that, to get the best smartphone software and hardware experience, I had to live in Apple’s walled garden. Now, the walls are getting higher, and life outside the garden looks better and better. I can get a really great smartphone without some company telling me I can’t switch out the keyboard, or the dialer, or the voice mail program, or the browser. I can get a world-class smartphone without putting up with AT&T’s spotty network. I don’t have to put up with supporting a company that enforces its restrictive App Store policies in a seemingly arbitrary and draconian manner. I’m not sure I agree with those who say Google has "leapfrogged" Apple in phone development, but I certainly think they’re doing a comparably good job.

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About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

22 Comments

  1. jameswales says:

    Clearly, Google wants Android to become to mobile computing what Windows is to desktop computing. Fair enough, it needs its OS to be totally pervasive if its going to give it away for free and just make money from ads distributed through it.

    This isn’t Apple’s business model. Apple sells premium hardware and software bundled together in a high margin package. It doesn’t need the iPhone to be totally prevasive to make billions from it.

    If you’re going to call the iPhone a failure if it gets eclipsed in unit sales by Android, then you have to call the Mac business a total failiure too, because it’s long been eclipsed in sales by PCs running windows. That’s a very profitable failiure.

    • James, the iPhone is a raging success – or at least it has been one.

      But, the Mac business is a perfect example of what WAS a successful business that withered. That’s the point, of course. I was an early Mac user (from 1986). I saw how things played out as software developers left the platform and as Windows came to rival the Mac OS and as Apple was bailed out by an investment from Bill gates.

      I don’t expect things to ever become as bad. But Walled Gardens don’t work. Apple needs a more open approach if it is to succeed against a competitor like Google.

      • jameswales says:

        Sure, Mac nosedived in the 80s as Apple was mismanaged. But surely you wouldn’t deny that the Mac is a successful product today?

  2. Jack says:

    Yes, I think they are more than willing to accept lower volumes in exchange for higher margins. They will use their control to keep a certain percentage of users locked into the Apple platform. If you have spent over $100 on apps and music, its going to weigh in your decision to switch to a different phone. To get a customer to switch, Apple’s competitors have to be more than a little bit better. Controlling the platform in this way means you don’t have to be quite as competitive. You just have to keep up.

  3. Jon says:

    The iPad is the blunder. An app store for the iPhone, which has a very unique niche, makes sense to me. The internet browser on a mobile device isn’t as useful as it is on a large screen. I’d rather pick through the App store. But to lock up a portable computer (the iPad) makes no sense. What is Jobs protecting me from, exactly? I like my Powerbook just like it is. The iPad business model will flounder, and I’m staying away from Apple stock until he/they recognize this.

    If Jobs thinks that the closed iPad system will beat a Windows 7 tablet version, he’s crazy.

  4. carlosjii says:

    Great take on Jobs and Apple. When people get sick, as SJ has, it creates personality and brain problems. I’m not saying SJ is demented or anything like that but this is how rigid and inflexible attitudes happen. Look at Bill Clinton after his heart problems – with his irrational statements etc. Transpersonally, rigid attitudes can be the underlying precursor to the illness.

    Another part of the problem is Verizon Wireless – arguably one of the most ineptly managed major companies in the US. They too have these rigid and inflexible and costly ‘positions’ – like V Cast – with a revenue stream to slather over their mis-management.

    I still feel the government’s breakup of ATT was a huge strategic mistake for the US economy. Instead of huge savings and we got MCI, WorldCon, etc AND we lost BELL LABS, one of America’s strategic masterpieces. An iPhone on VZ would, IMO, boost the US economy by 5%+ over a 3-5 year period due to unpredictable innovation that can create markets.

    Whatever………..

  5. Riley says:

    wow you are so smart. Steve Jobs has been at this for years, but he lacks your insight into how to build a successful business. You should be running a major corporation instead of spending all your time blogging.

    (sarcasm)

    • Typical Apple fanboy reply. How about a bit of substantive debate? When
      someone attacks the person instead of the message you know its because they
      don’t have a winning argument.

      Sent from my mobile phone
      twitter.com/edwardnh

  6. Geek freak says:

    Apple is # one! they back up there products if needed, their hardware and software are solid and last forever……I’ve have had Microsoft and apple apple wins hands down…..there not screwing anything up Steve jobs obviously knows why he’s doin ……Steve jobs you are the best!

  7. Geek freak says:

    200.000 ipads a week woot beat that face it there the best!

  8. egghat says:

    I get your point but not regarding Flash in the browser. Google is delivering? What exactly? AFAIK Android up to 2.1 didn’t support Flash in a usable way (flash lite is BS). And guess what? They gained 9% market share. Without flash. Hmmm. Is Flash kind of overrated? IMHO Yes.

    And well just minutes ago I read an article about Android phones, their price crash and their non-upgradability. Some can’t be upgraded, some may be updated (but noone knows when) and some will be upgraded (but well noone knows when as well). There are even phones that came onto the market last december that won’t be upgraded to 2.2. Ouch.

    Too much hassle for me. I’m the kind of guy who bought an iPad because I don’t want to have a second PC. Too much hassle. Need time for blogging :-)

    • egghat, I’m focused more on Apple here than on Google. Google has made plenty of errors – including trying to sell their own phone and cutting off the mobile operators. Bad move.

      This has been Apple’s market to lose. For example, on Flash, Flash is definitely overrated but it IS what we have right now. Crippling your phone by refusing to offer it for whatever reason is not a good business decision. It shows an inflexibility which will hurt Apple. The fact is flash is everywhere and people are annoyed that they can’t visit sites on their iPhone because of it.

      What would you do if you were Steve?

      • jameswales says:

        Interestingly, based on benchmark tests, it appears to be Google that’s crippling its excellent Froyo mobile browser by enabling it to run flash. On flash free pages, its the fastest mobile browser out there. With flash, it renders more slowly than the 3GS.

        Of course, it sucks when you can’t watch a video on an iPhone/iPad because its wrapped in Flash. However, a browser without flash is quite a neat way to trim a lot of the fat off slow-loading, flash heavy websites.

        Apple may just have enough clout to for most major websites to address the video problem within a few more months.

  9. @jporter says:

    Great post Edward. I was looking forward to this one. Jobs’ “high standards” argument has been disingenuous from the start. Add me to the list of folks jumping the iPhone ship.

  10. Jose John says:

    You’re right – with its closed policies, Apple’s iPhone will steadily lose market share. What else should we expect when Steve Jobs tells potential customers that if they want feature X or Y, they should go buy a Android phone! So, Apple doesn’t want to dominate, it doesn’t want the iphone to be everything to everybody. Why is that such a bad thing? Apple’s competitive advantage is in designing devices with great usability and in doing so, it makes choices that appear mind numbingly stupid to most geeks (what?! no camera or USB on iPad?). But Apple is successful and happy in its niche. And when its design or profits are threatened, it fights to protect its ecosystem. So what…? Let’s just admit the iphone will never be the geek’s best friend – that’s a void for Android to fill.