Friday, October 21, 2011



On August 10, 2011 Apple became the most valuable company in the world with stock price at $364. If you had invested in Apple IPO in 1980, this would have fetched you a return of 13,300%. In fact, by this date more than 314 million iPods, 129 million iPhones, and 29 million iPads had been sold. The latest version iPhone 4S had 4 million confirmed buyers during the weekend of October 16, 2011; the number is rising every hour. All this because of the efforts (atleast visibly) of one man army – late Steve Jobs. Uber-secretive he built his devices without screws so that what was inside would remain unknown. He had the uncanny ability to ‘blend foresight, fashion, form, and function’ which he used to revolutionise music, mobile, communication, telephony, retailing, and of course computing. But more than that he transformed the way people used technology.

He, of course, had his share of ‘lemons’ in Apple III (1981, unreliable hardware), Lisa (1983, at $9995 too expensive), NeXT (1989, ahead of its time and prohibitively unaffordable), Puck Mouse (1998, would disappear in the palm), The Cube (2000, designer PC which flopped again due to price factor), iTunes Phone (2005, which could hold only 100 songs), and Apple TV (2007, half hearted effort born out of ‘hobby’). But against these duds there were revolutionary products that deified Jobs: Macintosh (1984, GUI and cheaper yet faster than LISA), NeXT (1989, even after failure its software provided the basis for today’s Macintosh and iPhone OS), iMac (1998, strikingly designed, easy to operate home computer), iPod (2001, first successful digital music player with a hard drive), iTunes Stores (2003, made buying digital music easy and cheap to access), iPhone (2007, foolproof mobile), and iPad (2010, most advanced tablet).

But, wait a minute! This piece is not about his regular creation of products that would disrupt many markets and marketers. For, every one knows how the Apple I and II forced IBM to enter the PC market,how iPod has almost killed the MP3 players and the personal stereo system, or how the iPhone has disrupted the smartphone market. It also does not wish to tell you that Jobs had a great propensity to take other people’s concepts, improve upon them, and spin them into wildly successful products. Remember Apple never invented computers, digital music players, or smartphones. It reinvented them for people who did not want to learn computer programming or negotiate the technical hassles of keeping their gadgets working. Reams have been written about Jobs’ incessant effort to delight customers by bringing to them the products that ‘they did not know they needed’. However, we have a different agenda, that of pointing at the Achilles Heel in the armoury of Apple Inc.

Apple, after all is not a particularly good innovator. Instead, it relies on design, functionality, and branding to charge huge markups for its products. It was the passion and patience, until he would get it right, of Steve Jobs that would motivate him to pursue an idea and commercialise it through a wildly successful product. But what about Apple of the post Steve generation? Even if millions have booked iPhone 4S over the weekend, by their own admission these people are buying the Jesus Phone because it is the last thing designed by the late ‘Michelangelo of the digital era’. Earlier Apple was known for maverick engineering. But the latest launch has invited mixed review. According to the detractor tech geeks it was a disappointment; it has blown open the doors for the competitors to come charging in. Besides, the launch presentation itself lacked all the aura, drama, and hype that one used to witness when Steve Jobs would orchestrate the launch. People now have many other options to park their money, to get more bang for the buck. Sea Ray from Nokia, Xperia Arc S from Sony Ericsson, Wave 3 and Nexus Prime from Samsung, Titan from HTC and many others from Motorola, Blackberry, LG etc. are likely to offer formidable rivalry to the incremental upgrade from Apple. At least until the release of iPhone 5.

Apple is what it is today because it marries cutting edge hardware and software to provide the user an experience he has not had before. However, this walled garden approach might prove to be its nemesis. Apple is applying its might to make the company experience of its users less free, more locked down, and more tightly regulated than ever before. All of Apple’s iDevices use operating systems that deny the user access to their workings. In an industry where innovation is commoditised, locking consumers into proprietary platform is not a good idea. Open source yields technological improvements on a scale no individual company can hope to match. Computer and cellphone makers have mostly burnt their fingers with home grown  software. Costs of keeping up with Android for mobiles and tablets can be prohibitive. No matter how brilliant marketing is, the iPhones & iPads will always be under intense pressure from the likes of Micromax (makers of iPhone lookalike) and Akaash (tablet at Rs.3,000).

Then, by Apple’s own admission, it has never proactively chased customers worldwide. It is only committed to employees, partners, and customers who spread the gospel about its products. But that still does not explain the almost malignant apathy of the company towards the Indian market, the world’s second largest for mobiles, having 600 million plus active subscribers. Apple, the world’s largest smartphone maker, has failed to capture a significant share out of this booty. The market for smartphones in India is forecast to grow at 68% per year, reaching 81.5 million units, by 2015. Nokia and RIM far outnumber Apple here. Apple shipped only 21,150 iPads to India during April-June 2011 (0.2% of its global shipments). iPhone accounted for barely 2.6% of India’s smartphone shipments in the same quarter. So, whereas Apple App Store has 5 lakh plus applications available for downloading, and Blackberry barely 36,781 (as on June 30, 2011), still RIM has won hands down because it got the right product, the right app for its target customer, and the right timing. Nokia commands 46% marketshare, Samsung 21% and RIM 15%. RIM’s BBM (instant messaging service) is popular because it was one of the first, and it functions well on networks a generation behind the speeds offered in the US and Europe. Apple has lost out partly because it thrives on 3G network which has very limited footprint in India. But there are other reasons aplenty.

In a highly price sensitive Indian market an iPhone 4 costs $705; the same handset is priced at a mere $199 in the US. Any amount of marketing chutzpah can’t face the onslaught of price warriors, especially in India, a market which incidentally also represents the new frontier of digital world. RIM entered India in 2004 and now wishes to expand its distribution to 80 cities from 15 in 2010. Nokia already has more than 200,000 outlets in India and offers 13 smartphones models. But consumers cannot buy Apple products from company stores (in fact, there are no Apple stores in India, only licensed resellers) or even its website.

Finally, Apple is known more as a retailer than an institutional seller. In the US between October 2009 and September 2010 it sold only $50.8 million worth of products to the US Federal Government out of a total reported sale of $65.2 billion. This partly stems from a fundamental mismatch in orientation. Apple revolutionised the markets it operates in by designing products people ‘did not know they need’. But government purchasing always starts with issuing detailed description of products it wishes to buy. Whatever, the fact remains that in India the government is a major buyer of all the technological products. No company can ignore it if it wants to do big numbers.

While Jobs’ creative genius has protected the company all these years, now when his legacy has began to wane, Apple will have to contend with sobering realities of a new marketplace which is swarming with hungry wolves and sharks out to attack a vulnerable soul.

Apple has learnt no lessons from the failure of iPhone 3 in India. It is high time it reviews its marketing strategy for the world’s second largest market.