5 Worrying Signs For Apple

Volume 4 Issue 25: Intelligent Investing

I am not an extreme tech enthusiast. Far from it. The Worldwide Developers Conference, or better known as the WWDC, is Apple’s annual event where they launch their new gadgets, or software and fun stuff like that. But based on yesterday’s news from the WWDC, I see a big sign of worry for Apple. Especially if you are an Apple investor.

As I said, I am not a techie. So if you were to ask me to discern the functionality of the iOS 6 vs the Android Ice Cream Sandwich, the best thing that I can probably tell you is that Ice Cream Sandwich has a far more enticing name.

But I pride myself in spotting macro-trends and here are 5 worrying signs for Apple as I see it:

1. Android x (Samsung + HTC)

As recently as three years ago, there was no serious competitor in sight to Apple’s iPhone 3 and 3GS. I am a (very unproud)owner of an iPhone 3GS and the only reason I got it was because there were no close substitutes to a web-capable mobile phone.

In 2009, Google tried their hand with the NexusOne and the reception was lukewarm at best. Google fanboys swarmed to it but Apple was still the king of pop when it came to “coolness”. Apple definitely got it right with ads like these:

Fastforward to 2012. Apple is no longer just up against the likes of Nokia, or Google’s half-hearted attempt at a smartphone. Samsung and HTC have combined powers with Google and have proven to be more than a challenge to Apple’s throne in the smartphone arena.

It is easy to see why. When you are the market leader, you can be certain that every one will be gunning for your back. And technology is one of the most competitive and fast-changing industries. Case in point: Nokia’s “demise” in the smartphone industry.

In fact, it is arguable that Samsung has definitely arrived at the “coolness” stage. The Galaxy S2, the Galaxy Note, the Galaxy Nexus, and most recently, the Galaxy S3 are more than serious challengers to Apple's iPhones. How do I know this is a legitimate challenge? This brings us to point No. 2.

2. Patent suits

The amount of lawsuits filed by Apple against Samsung just keeps increasing. While others may see this as a sign that Samsung "copied" Apple, I see this as Samsung is legitimately challenging Apple. Why else would Apple take Samsung to court over the most frivolous of disputes. How frivolous? Here are some samples:

a) A spokesman for Apple told Mobilized the Galaxy line infringes the 'Trade Dress' of the iPhone and iPad by using a rectangular design with rounded edges. Apple notes the black borders that adorn the Galaxy Tab are similar to those on the iPad.

b) They also believe Samsung has copied the use of small square app icons.

c) Even the slide-to-unlock feature that was first seen on a Nokia was disputed. 

After all, you could find thousands of other copycats out there, especially in China. Even Malaysia is getting on the tablet wagon with its 1Malaysia Tablet. The reason Apple has singled out Samsung is plain and simple. It is the biggest challenger and Apple is trying to take them out of the game. Being the cynic that I am, I think the main purpose is just to delay the launch of Samsung's products so that they can catch up. Yes, you heard me right. Apple is playing catch up right now. Samsung has come up with product after product with almost no real answer from apple after the iPhone 4.

3. No New Products?!

This one is sure to strike a chord with Apple fanboys. I am claiming that Apple has not launched anything revolutionary since the iPhone 4 and iPad 2. Since those two products, Apple has come up with the iPhone 4S and the "new" iPad. The iPhone 4S is just a souped up version of the iPhone 4 and is far from game-changing. It saw the introduction of Siri, which is more of a gimmick that has an entertainment value of two weeks or so, than an actual game-changer. There is great potential for voice-command, but more still needs to be done. The 3rd generation iPad, also called "the new iPad", is also just a souped up version of the previous iPads. There was nothing "gotta-have-it" about the new iPad. One has to question, did all of Apple's creativity move on to the next world with Steve Jobs?

The latest WWDC was again a let-down of sorts. While Apple is best known for its secret-keeping, the delay of the iPhone 5 hints of Apple's impotence in trying to catch up with Samsung. They took a look at the S3 and was like, "Holy Crap!". So it is back to the drawing boards for Jonathan Ive and his team of designers. The best they could come up with at the WWDC was, "We are going to upgrade the Macbook Pro" and "We will have our own version of Apple maps, but our web-based version will link you to Google Maps". By the time they come up with the Galaxy S3 beater, Samsung would be ready to launch their next Apple killer. The iPhone 5 is probably the last bet for Apple to flex its muscle. Without any game-changer ala Jobs, it does not bode well for Apple's future.

4. Cracking China

With 1.3 billion people in China with an increasingly bulging middle class, it is already a given that China is THE consumer market. All the big brands in all industries like BMW, Volkswagen, Adidas, Nike, Louis Vuitton, Hermes and Gucci want a piece of that Chinese pancake. But Apple finds itself a stranger in a country where imitation is free game. Apple has to come to terms with the fact that as soon as they launch a new product, some smart Chinese dude is going to get his hands on one, crack it open, reverse engineer the product and launch a rip-off that is half the price of Apple's product. And point No. 5 shows why this is a huge problem.

5. Fat Margins

One of the main reasons why ripping off Apple's products is a viable business is simply because Apple prides itself in charging fat profit margins. This is probably Apple's best non-kept secret. In the given link, page 43 of Apple's 2011 annual report (Form 10-K) shows that Apple's gross profit margin is over 40% while its net profit margin is about 24%. While most people may be OK with paying Apple that kind of premium, but economics dictate that such profit margins WILL be challenged. Samsung will continue to launch cheaper and arguably better products with HTC not far behind.

In an oligopolistic market, Apple is unlikely to descend into an all-out price war with the other two Asian upstarts. This partially explains why it needs to go through the patent-trolling route. It is fighting to separate itself from Samsung and HTC products as much as possible, to generate what economists call "perceived differentiation" so that it can continue to charge the fat margins that it has been charging all this while. Given the lucrativeness of this smartphone and tablet business, you can count on the fact that the competition is not going away. To be able to keep charging the premium that it has been charging, Apple needs to come out with equally deserving products. The iPhone 4S and the "new" iPad isn't going to cut it. 

Volume 3 Issue 50: Two-Cent Economics

The Next Generation Apple TV

The Old Generation Apple TV

As a disclaimer, I am no Apple geek and am no tech writer. I occassionally delve into techy stuff and indulge myself in Apple products once in a while. That is the extent of my Apple experience.

But recently, after some light-hearted discussion with more intelligent people, I came up with a possible idea for the possible Apple TV that Steve Jobs apparently cracked.

Nonetheless, let me first put down a few thoughts. Apple has never really been an inventor. They were not the first to invent a portable mp3 player (iPod). They were not the first to invent a touchscreen phone (iPhone). They were not the first to invent a music player (iTunes). They were not the first to allow music downloads (iTunes Store). What they did was put a bunch of really cool stuff together. So, what I came up with is not very different. I am combining a bunch of really cool existing technology and ideas together to form what could possibly change the whole TV-viewing experience.

1. Youtube, Netflix, iTunes

Video-streaming is the in-thing these days. It is fun and convenient because it can be like a box of chocolates. You never know what you're gonna get. More and more people are sharing videos of stuff they think are interesting or cool or worth watching. The Apple TV will contain video streaming, no doubt. Of course, by extending the idea of iTunes and Netflix, you can basically get a movie store that allows you to download/stream movies by paying a small fee. With increasingly fast internet speeds, this is becoming more and more possible.

2. Pandora, Amazon etc.

Now, combine the streaming experience, with a software that recognizes tastes and preferences. Of course, currently Youtube has some element of that, but very often, there are just songs and movies out there that we may like but we do not know that they exist. Using the Amazon-based idea of "Users who have bought Book A, also purchased Book B", we could create a whole new experience for the user. Now, users can find out movies that they like without having to look it up. Typically, the movies would probably be categorized by genre's actors/actresses, movies with twists, length of movie/video. And we can look them up based on these categories.

With the above two features, it is probably not a game-changer yet. You could probably do that with Netflix already. But very often, we forget that there are two components to the TV. Well, it is a recent phenomenon. There is the TV unit, and the very often forgotten unit, the remote. Essentially, the remote is the key determinant of the user's experience with the TV.

3. The "iRemote"

Now, imagine a new remote app called the "iRemote". Presently, most remote controls only allow you to navigate the TV screen using irritating arrow buttons that allow you to move up, down, left and right. But now you're going to have a touchscreen to navigate the TV. You don't even need an additional device. You just need your current iDevice, be it the iPod, iPhone or iPad. They can probably be connected through wifi or bluetooth, so you don't have to irritatingly point your remote at the TV to ask it to do stuff. Now, imagine coming home from a tired day and plopping yourself down on the sofa, busting out your iPhone or iPod, and voila, you can control your TV from there. No need to look for the remote in between the sofa seats and what not.

4. Siri

This is the clincher. If you thought the "iRemote" was cool, imagine controlling your TV with voice command. The possibilities are limitless. There are just days that I come back home and just feel like I want to watch a movie but I don't know what movie to watch. I just know I need something relaxing and funny to take my mind of things. So what do I do? I just tell Siri to connect to the Apple TV and find me a movie that is funny and relaxing. As the Apple TV recognizes genres and my preferences, it will bring up a list of movies that I may like. I can even filter it by asking Siri to remove movies that have Jim Carrey in it because I find him irritating. Maybe narrow down the list to those that only feature Adam Sandler or Seth Rogen. All this from voice command, without so much as touching the remote or scrolling through an irrelevant list. I don't even have to care if I already have the movie or not because of the streaming capabilities. I can tell Siri to turn on the subtitles, or turn down the volume or change the brightness without having to even touch any button on the remote. OK, maybe I have to call up Siri.

Another way to use this is, very often, let's say we are just sitting around waiting for our friend or wife/husband or somebody to get ready and we have about 2-3 minutes to spare, we don't know what to do with it. Instead of just whining about it, call up Siri and ask it to find you a 2-3 minute video clip that has cute kittens or what not in it. Or show you your favorite band's latest music video. Or if you have 25 minutes to kill, you may even call up your favorite episode of How I Met Your Mother. You do not have to dig out a DVD, or scan through your hard drive for it. Siri and your Apple TV does it for you.

And all I did was to combine four very simple ideas and technology together and you already have an amazing device. I am certain that the brilliant engineers at Apple can come up with something a little bit better than this but I'd like some credit for my very own version of Apple TV.