Jag Venugopal's Blog

July 16, 2010

Its all downhill from here

Filed under: Digital Living — Jag @ 2:30 pm

I’m just reading reports of Steve Jobs’ press conference where he insisted that the reception issues plaguing the iPhone 4 were not that big a deal, that all smartphones had similar problems, and that if it would make consumers happy, he’d throw in a ring of rubbery plastic to put around the rim (also known as a “Bumper”).

I (and many other observers) commented about Apple’s strategy and success in light of the hugely successful iPad rollout. What I’ve learned since then is that there’s a very thin line between confidence and pride in one’s product, and hubris. It would appear that Jobs is on the wrong side of the line.

Apple’s products are aspirational, “halo” products. You don’t buy an iPad because you just want to browse the web. If that was all you wanted, any cheap netbook would do fine. An iPad stands for design elegance, getting things right, quality, engineering, and owning something from a cool company that has a finger on the pulse of innovation.

Similarly, owning an iPhone is more than about running applications and making phone calls. Palm sells phones that are functionally equivalent. Samsung and Nokia have scores of such phones that provide similar functionality, not to talk about the Android crowd. Owning an iPhone has a lot to do with the intangible attributes: quality of engineering, touch and feel, the aura of an Apple product, the hip glass-and-metal design, the “retina” display.

It is exactly these intangible attributes that have been severely damaged by Apple’s head-in-the sand ostrich response to the iPhone problem. Regardless of the magnitude of the physical problems with reception, the intangible problems with people’s perception have been severe, and are likely to harm Apple for the long run. the iPhone is now a phone with a defect, hidden by a plastic ring. Gone are the attributes of beauty, sleekness, great design, quality of engineering, and such. The damage to Apple’s brand will carry over to its other products such as the iPad.

One can see parallels between Apple and Toyota. The latter insisted that there was nothing wrong with its accelerator pedals and that consumers were pressing the accelerator when they meant to brake. For the longest time, no admission was made of any fault, and the corporate strategy was to stonewall. Similarly, with Mr. “Don’t-hold-it-that-way” Jobs, the corporate strategy is to claim that there is no problem, and if consumers don’t like the iPhone, they are free to return it for a refund.

Now is a good time to short Apple’s stock.


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