The Curious Case of Apple and the iPhone 4S

iPhone 4S, Why not iPhone 5?

This is exactly the question millions are asking after analysing the product and the new advertisement. Apple’s product launches have always been eagerly anticipated but this one produced more frustration than amazement. The new phone carries a dual core A5 chip capable of 7 times faster graphics than A4, a new voice recognition system “Siri”, icloud and an improved camera with improved video capabilities. Although it lacks the “Wow” factor that one normally associates with Apple products but from the marketing and branding point of view, it has enough changes to carry the new brand iPhone 5.

A key principle of marketing is that the manufacturers produce what people want and by putting out the iPhone 4S instead of the hugely anticipated and demanded iPhone 5 apple has committed a complete failure of branding. 4S is not the breathtaking, must have mobile phone and it means that Apple has lost out on a lot of potential iPhone 4 upgraders, who now will shift their attention to the much anticipated Samsung Nexus. It might not look like a big mistake but if considered carefully, it might hurt Apple in the long run as it might lose its tag of the “The best innovators” in the technology industry.

Besides, it comes at a time when its competitors are fighting tooth and nail to grab the market share from Apple. Samsung electronics, its biggest competitor, has stepped up its game and is shipping more smart iPhones than Apple to be considered at a hair’s breadth from Apple in terms of worldwide market share. It would not be wrong to say that Apple has just passed the baton to their fiercest rivals, Samsung.

Apple’s marketing strategy is to acquaint itself with products that enhance customer experience by introducing a new way of doing things and it has always clung to its belief that cutting edge technology should be easy to use. Apple has never relied on muscle to sell its products and it has always been about simplistic design and experience; however unfortunately, the appeal of the duality has started to peter out. By relying on the increased power and speed until the next iteration, it has entered into a race that it is not well equipped to run.

Apple’s idiosyncratic strategy

I am less concerned with the failure of the iPhone 4S and more concerned with the direction the company is going in. Firstly, it is important to know that Apple’s hierarchy operates in two layers. At the top end, it has the executives, decision makers and innovators who are collectively responsible for the company’s success or failures. The other side of the hierarchy has young salesmen and marketers who work in regimented environment and have had their share of Mr. Job’s fulminations and as per a recent report a lot of psychologists spend a major chunk of their time in recovering Apple employees. Mr. Jobs, though charismatic and visionary, was a “Time Teller” rather than the more revered “Clock Builder” and he has built up a regimented empire, where the top management is not interested in seeing a 1000 flowers of innovation bloom. Employee empowerment is a must because a lot of innovative ideas flow from the bottom end of the organisation and as history suggests, it is only a company that gives its employees a congenial environment to innovate that has the potential to make a successful transition from one regime to the other and to survive not years, but decades or even centuries.

Secondly and more importantly, Apple does not make the iPhone or iPad itself, but rather, outsources the assembly to a Taiwanese firm Foxconn at its Shenzhen factory in China. It gives Apple the advantage of focussing on its strength of designing easy to use gizmos. However, it has a plethora of disadvantages as well. Consider this, all the various components come from different suppliers’ worldwide; out of which one of the most important is Samsung Electronics, one of Apple’s fiercest rivals. Samsung provides flash memory, application processor, etc and cumulatively these parts account for 26% of iPhone’s cost. Apple has sued Samsung for copying hardware and software in many of its new models but the mutually beneficial transactions between the companies continues. But is it really mutually beneficial? This idiosyncratic business practice has seemed to tilt the power balance away from Apple and in favour of Samsung; a fact that is corroborated by the shrinking gap between the two technology behemoths. The table shown below shows the worldwide market share of smartphones in 2010 and 2011:

I am belabouring on this point because it gives Apple very little control on its business macro-environment. China has always been known for its plentiful, pliable workers but a companywide strike in Foxconn in 2009, a consequence of mass suicides due to the low wages and catastrophic working conditions, has cast a doubt on that caricature and any such future strikes will have a catastrophic result on its performance. Other than that, there is a small issue of not getting the supplies in time from its various suppliers due to a natural disaster, like the one in Fukushima, Japan. Samsung, on the other hand, is looking in a much healthier state right now because of its high technology and low price offerings, which are a result of the economics of scale it achieves by supplying large numbers of parts to Apple and others. In my opinion, Samsung will soon overtake Apple to be the number 1 company in terms of smartphones market share.

Having said that, I don’t expect the Apple’s results to nosedive immediately as people like the product and it has also introduced iPhone 3 GS for free on a long term contract; a particularly good move for the humungous Asian market where its main rival, Samsung, is making giant strides with its Android driven smart phones. But the policies followed by Apple will make it increasingly difficult for the company to sustain its stratospheric growth in the long run. Normally the adage goes something like “If it ain’t broke, don’t fix it’ but for Apple it should be ‘fix it while ain’t broken yet’!

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About karan Mehta

A future Business Developer

Posted on January 9, 2012, in Analysis, BizDev, Champions & Spoilers, Design, Innovation, Marketing, Strategy and tagged , , , . Bookmark the permalink. Leave a comment.

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