IT'S OFFICIAL: You're Still Wrong, Business Insider
Early yesterday, Henry Blodget of Business Insider wrote a piece titled IT'S OFFICIAL: Apple Has Lost Its Edge which got close to 23,000 pageviews. I don't have much time, so let's cut the typical Business Insider link-bait bullshit and go straight to the content, which is wrong - unsurprisingly - on so many different levels. I don't actually know if Henry Blodget wrote this piece for the pageviews or if this is what he's really thinking, but I sincerely hope it's the latter. Anyway, let's get down to it.
Apple's stock is down 25% from its peak.
Many factors have contributed to that drop. But none is more important than this:
Unless I'm thoroughly mistaken, I'm pretty sure every single company has dropped this share price before, although in this case, Blodget seems to be more than enthusiastic in pointing out the fact that it has dropped 25%. Is it a huge deal? Maybe, for Blodget. Is anyone really freaking out? No. Why? Because Apple is still one of the best - oh wait, maybe even the best - companies around. Many factors have contributed to that drop. But I hope Business Insider could point out just as many factors when Apple's stock price starts rising again.
It means that Apple is no longer the clear product leader in several categories in which it has dominated the world in the past five years.
Simple explanation here: you don't need to dominate categories in order to have a good stock price. There are many companies out there that aren't dominating anything and yet are still making lots of money.
Now, of course, Apple is still the most valuable and profitable company in the world. And its product design, manufacturing, and distribution are still remarkable. And it's still a great company that makes great products (I, for one, am a very happy Apple customer*). So, let's be specific.
Blodget, maybe you should really stop buying Apple products if you think they've lost their edge. If I think a company has lost their edge, I'll most likely stop buying their products, since they're most likely going to fail sooner or later anyway. But since you continue buying their products, I think Apple would like to thank you for contributing and supplementing their position as the world's most valuable and profitable company.
For most of the past five years, Apple has led the world in the following key areas. In the past couple of years, however, Apple has lost its lead. And in some areas, it has actually fallen behind:
Okay, let's take a look at just what exactly Apple is doing so badly at that made them lose such a huge amount from their market cap. So much, in fact I'm pretty sure Blodget thinks that they'll never be able to regain it. Anyway, here comes the list.
Smartphones. Apple reinvented the smartphone category with the launch of the iPhone in 2007. For the first five years of its existence, the iPhone was unequivocally the best smartphone on the market. Now, many people consider other new smartphones to be better than the iPhone 5, including Google's new Nexus phone and Samsung's Galaxy S3. And with Samsung set to release the Galaxy S4 soon, many fear that Apple will fall even farther behind.
Many people consider other new smartphones to be better than the iPhone 5 - sure. But just as many people would also argue that the iPhone 5 is still the best smartphone around. These smartphone are simply built for different types of people. The exact same reason we don't have a single shirt design on this planet for everyone - everyone has different tastes. Those who love the iPhone 5 will continue to love their iPhones. And those who like Android will continue to like Android. When Blodget said "even farther behind", I wasn't exactly sure what that meant. Was he talking about market share? Or profits? Because if he was talking about market share - which no one at Apple really cares about since it doesn't mean anything - then I'm sure no one is losing sleep over anything. Neither should Blodget. If he was talking about profits, I don't think anyone at Apple is worrying about anything either. They will continue to build great products. People will continue buying them. They will continue making boat loads of money. On a side note, Apple would like to thank Blodget for his concern.
Tablets. Apple straight-up invented the tablet category. The iPad had the market to itself for the first couple of years. The iPad is still by far the industry leader in big tablets, but Apple was late to the market for smaller tablets. As a result, the company lost valuable time and market share in that category. And, in an attempt to preserve its profit margin, Apple made some compromises on the Mini (namely, the lower-resolution screen) that left many Apple fans disappointed.
More than the part where he talked about the smartphones (above), this part made me laugh even harder. Blodget makes this argument using some generic, boring and unsubstantial logic (is it even logic?). Let's take a look at the numbers, shall we? 87% of all tablet web activity were accounted for by the iPad as of December 2012. All of a sudden whatever "smaller tablets" market Blodget was talking about doesn't seem as important, eh? Just in case Blodget would like to argue about the models, these results were posted after the supposed saviour to Blodget's theory - the Nexus 7 and whatever hell that isn't the iPad - were released. Sure, people might be buying those tablets. But what are they doing with them? Leaving them in the bottom of the drawer to dust? Using them as a beverage coasters? And why is the iPad dominating the web traffic so much? Ready for the mind blowing answer?
Because people love their iPads.
Pricing. When the iPhone and iPads came out, Apple led the world in both features AND price. This was remarkable: Apple had the best product AND the best price. The iPhone is still priced at parity with the other top smartphones, but Apple has surrendered the mass smartphone market in emerging markets (where the big growth is) to companies like Samsung. Also, Apple's new tablet, the iPad Mini, is now considerably more expensive than many other tablets in its category. So Apple is no longer the feature and price leader in this market.(Several reports suggest that Apple will launch a cheap iPhone this year, which is a smart move.)
Quick note here: I don't believe anyone ever thought Apple had the best prices. Apple have the best prices for the features their products come packed with, but I don't believe anyone has ever thought that Apple's products are cheaply priced. You pay for what you get. Now that aside, let's get to the heart of the matter. You know why Apple's iPad is dominating all the web traffic? Because people are buying them and using them. Why are people buying themselves - not only for themselves, but also for others too? Because Apple make great products. No one wants to see Apple make a cheap, plasticky, ugly product and sell it for a lower price. That is just something Apple does not do. And hopefully never will. Oh and if price is so damn important in the smaller tablet category, why is the iPad mini selling better than the rest of them? I'm not too sure about this, but I dare bet that the iPad mini is selling better than all of the latest ~7-8 inch tablets in the market combined.
Gadget market share. If one credits Apple with defining a whole new category of smartphone with the iPhone, Apple had dominant share of the category for a couple of years. Same with tablets. In the last two years, however, in part because of Apple's decision to focus only on the "premium" segment of the market, Apple's global market share in both categories has dropped precipitously. If this were merely a "gadget" market, this wouldn't matter. Apple has enough scale that additional market share would not make a huge difference in economies of scale. But the gadget market is now also a platform market (other companies build products and services on top of gadgets). And in platform markets, market share matters a lot.
The short version: no one cares about market share. No one. If you don't believe me, ask yourself if you would rather have market share, or profit. The answer is clear.
The long version: yours truly, a few weeks ago, (Editor's note: the piece in question was hosted on a domain no longer available and as such, the link has now been removed):
In the iPhone's early days, it had the privilege to take a bite out of both categories. It lead the smartphone market in both, if only because the phones sucked at the time. Then Google saw what was happening and they decided they want in - fast. It doesn't matter if they receive any money selling these Android smartphones. They just wanted a bite out of that pie. Eventually, it got so bad that they decided to engage the "spray and pray" method: release as many phones as you can, as quickly as you can, and hope one of them sticks with the consumers. Even if none of them sticks with the consumers, they will be releasing so much phones all at once that the usage would eventually accumulate and they would achieve their goal: to have a decent amount of market share.
Alright, now let's talk about the second part of the equation: profit. Here's the thing everyone should really take note of: if Apple really wanted to go for the market share, they can. All they got to do is license iOS to the millions of upcoming China mobile manufacturers, all who are hungry for something profitable to sell. The moment Apple does that, they'll gain and snatch market share like no one has ever seen before. Adoption rate would be off the charts and beyond anyone's predictions. Hundreds upon hundreds of millions of people would be using it around the globe. But at the same time, they're not making much money - if anything substantial at all. Is that what Apple really wants?
Here's where it gets really different between Apple and Google: Apple wants to make money.
Cloud-based services and apps. By owning the App Store and the most commonly used apps on smartphones and tablets--cloud-based storage, email, telephone, voicemail, clocks, calendars, etc.--Apple once basically had end to end control over the cloud software and services ecosystem. With the "Maps" screwup last summer, along with a slow pace of innovation in its own "anchor apps" and cloud-based services, Apple has given up ground to Google, Dropbox, Evernote, and many other aggressive, focused companies that have produced apps and services that are better than Apple's native apps and services. The more people use non-Apple apps and services, the less important Apple's gadgets become as a platform (if you can easily migrate all your apps and services and content to another platform, there's less reason to stick with Apple.)
This one is sort of funny, because now Blodget is saying that Apple's home grown apps - which was never its specialty to begin with - is compromising the entire platform. I do agree that some of Apple's official apps suck, Game Center being one of them. But is that the focus of the entire platform? No. Apple can so easily integrate all of your data, apps, music and everything and yet other operating systems like Android struggle to even sync everything together using one software - I think that's a plus, not a minus. It's part of the benefit of entering the Apple ecosystem in the first place: knowing that everything will just work, without having to remember how to use different platforms to sync different items. You get a peace of mind when you use Apple's platform. In many cases, I would argue that the reason third-party apps are so popular on Apple's platform is not because Apple isn't good in it - it's because Apple doesn't want to be good in it. It doesn't even want to try. It knows that others do it better than they will, so they leave it up to what works.
In all of these areas, Apple has lost a once-dominant edge.
In all of these areas, the dominant edge doesn't matter and where it does, Apple still leads it.
In the last year, we have also seen Apple stumble with respect to a widely expected new product--a new Apple TV. This product was initially expected to be announced last fall, and some of the excitement that drove Apple to $700 a share was anticipation about this release (most of it was anticipation about the iPhone 5).
Wait, what? So was it the anticipation for the Apple TV or iPhone 5 that drove up the stock price up? And look at Blodget's choice of words. "...stumble with respect" - Was Apple supposed to release the Apple TV or something? They're obligated to? No they're not. Here's what we know about the Apple TV currently: nothing. Nothing at all. Hell, we don't even know if they're even planning to do anything in the TV market/space. This is no different than when analysts try to pull out some ridiculous number as an estimate for a company's sales and then call it a massive disappointment when the company does not achieve those numbers.
But now, analysts don't expect to see an Apple TV until the fall of 2013. And in the meantime, every other electronics company on earth is trying to frontrun Apple's TV effort, including Samsung. These efforts will make it harder for Apple to leapfrog existing TVs--and charge a premium price--when Apple's own TV finally comes out.
Once again, a quick reminder: these are the same analysts that have been wrong again and again and again in the past.
No. Here's the thing about Samsung's TVs: they're all moving in the wrong direction. 3D. Smart TV. Apple, if it ever decides to step into the TV market, will do so with an entirely different concept. That was what Jobs meant when he said he "cracked" it. It doesn't mean going into a brand new market with the stupid, old, losing formula. It means doing something radically different. Apple did not step into the phone business with a thick, fat phone that supported a built-in keyboard (which was flooding the market at the time). They stepped into the phone business with something radically different, while still adhering to the basic concept of what a phone is supposed to do. I reckon they're going to do the same with the TV market.
(Apple fans will protest that Apple never announced a release date for the TV product, or even announced what it will be. That's certainly fair. But time does matter. Competitors aren't standing still. What would have been a startlingly cool TV last fall--"a sheet of glass floating in mid-air" and "a voice-operated show selector"--has now been debuted by Samsung. So the bar for Apple to establish a true edge in this market keeps going up.)
Once again, no. Apple will never bother with whatever bar Blodget is talking about. That's not the benchmark for them. They're looking to change the culture of watching television and so there's no reason to follow the old metric, which is "oooh, let's see how many features we can pack into this thin frame". They're not interested in that. They're more interested in changing the way we do things. And time, in this case, truly does not matter. Whatever the competitors - Samsung, in Blodget's situation - are doing, Apple doesn't care. It doesn't affect them or what they're doing. The bar just isn't there in the first place. Maybe it is for companies that are currently competing for market share in the market right now, but it will not matter for Apple the moment it steps into the market.
It is hard for even the best companies to maintain an edge, especially in markets that move as fast as technology. And Apple rode its edge to amazing heights: The iPhone is still the biggest and most profitable single product in the world.
But Apple has now lost much of its edge. So the next few years will be interesting. Especially as Apple truly moves into the "post-Steve Jobs era," which it is finally doing this year.
It's true that it's hard for even the best companies in tech to maintain an edge. I've written before about how this could happen here, and this is nowhere close to the "situation" Apple is in right now. I wrote,
Are they still innovating? They sure are! But eventually, another kind of company - something very much like Apple back in 1997 - would think of a completely new concept and disrupt the whole market. People would like that change. People would buy that change, and unless Apple could quickly pivot their direction like the agile, badass company Steve Jobs built them to be, they will fade away.
Apple rode its edge to amazing heights - and its probably still not done. When Steve Jobs said that Apple's very best days are still ahead of it, I think he meant every single word of that sentence. In my view, Apple is only at the climbing stage. The climb to greatness. To say that Apple is doomed and that all of its services suck not only presents Blodget's myopic view of what is happening down the road, but also, generally, Business Insider's click-bait nature where ideas are often not as thought out as they should be and are published as quickly as possible for the views. I thought it was also pretty funny how Blodget implied that a "post-Steve Jobs era" would mean that Apple is facing its doom, although it would probably be funnier when it comes time to prove him wrong about his views.
All in all, the only thing that is official here is this: Business Insider, you're still wrong.
