By Doug Hornig, Senior Editor
Apple Fever is upon us.
On September 21, the Cupertino colossus's new iPhone 5 hit the ground running in the wake of the successful verdict in the company's legal squabble with Samsung. (For more on that, see last week's Technology Investor.) And run the device did, the Usain Bolt of the techno world – moving five million units in its first three days on the market and selling out. Apple was forced to acknowledge that pre-orders outstripped initial supply, and that many of those customers won't get their phones until October.
These are pretty hefty numbers, even by Apple's lofty standards (although some market observers were "disappointed"); they easily eclipsed the performance of the iPhone 4, which sold a "mere" four million in its comparable launch period in October of 2011.
That pace is bound to slow, but William Power, an analyst with Baird Equity Research, predicts that the smartphone's sales will reach 8-10 million units by the end of September. Apple, one imagines, would probably be just fine with that.
Furthermore, the international rollout is proceeding more briskly than ever before. The phone will be available in 31 countries by tomorrow and in more than 100 countries by the end of the year. In London's Regent Street, about 1,300 people lined up to buy the iPhone 5 when it first went on sale. In Tokyo, the lines stretched several blocks. In Hong Kong, people carrying rucksacks filled with cash waited outside the city's main Apple store, hoping to snap up phones for resale.
All is well and good under the Apple tree.
Or is it?
Apple has always exhibited a kind of business xenophobia, fiercely guarding the sanctity of its manufacturing processes, its operating system, even the physical integrity of its devices. Even at the dawn of its ascendancy, there were disgruntled iPod users who found it all but impossible to perform a simple battery replacement.
To balance that, the company courts – and counts on – brand loyalty... which it has been getting. With its iOS, for example, it's Apple's way or the highway. If you don't like it, you can buy someone else's product – which is exactly what countless millions have done, making Android-based phones by far the best-selling in the world. Much of that migration has been due to the fact that Android is an open-source OS, making it easy for multiple manufacturers to adapt it to their specific needs. "Open source" is a phrase you'll hear spoken only sotto voce in Cupertino.
Brand loyalty, of course, can be very powerful. Those who started with Apple products tend to willingly shell out the extra bucks it takes to acquire them, and to stand by them no matter what. However, in the end, loyalty depends entirely upon customer satisfaction. Users came to Apple in the first place because they perceived that the company put out devices that were way better than the competition. Anything that erodes this confidence is going to be bad news for Apple.
That's especially true of the iPhone, Apple's highest-margin product and responsible for half of the company's annual revenue.
Which brings us to the current flap over mapping.
Once upon a time, Apple and Google were partners. Well, sort of. Google Maps was far and away the best service of its kind in the world. Apple recognized that and has been happy to feature it on the iPhone since 2007... or, if not exactly happy, willing to grant Google a grudging acceptance. Apple users expected to find Google Maps on their phones. Until… well, until they didn't anymore.
The "partnership" dissolved this year. As we all know, Google makes that OS – Android – that allowed other makers to cut deeply into Apple's phone business, to the point where the smartphone originator fell to a distant #2 in sales. Apple was a little perturbed about that. So, instead of accepting that the company was still doing pretty darn well in the phone business and that having Google aboard was helpful, Apple decided to strike back by eliminating the popular Google Maps feature from its products.
As a placemarker, Apple iOSes had been running a Maps app that was made by Apple but powered by Google's mapping service. But over the past three years, Apple has acquired three mapping companies of its own. At the same time, according to a story on TechCrunch:
"Apple is going after people with experience working on Google Maps to develop its own product, according to a source with connections on both teams. Using recruiters, Apple is pursuing a strategy of luring away Google Maps employees who helped develop the search giant's product on contract, and many of those individuals seem eager to accept, due in part to the opportunity Apple represents to build new product, instead of just doing 'tedious updates' on a largely complete platform."
With the release of iOS 6, Apple's latest, and the iPhone 5, the transition is complete. Google Maps is gone, Apple Maps is in – although consumers will still be able to access Google's mapping service through a mobile Web browser, a method that analysts describe as rather clunky compared to an app.
Reaction to the change was swift and often highly critical. Users complained about the iPhone's inability to navigate by voice, and also that Apple map searches pull up wrong cities, wrong streets, and incorrect destinations if they're not spelled out 100% perfectly (Google Maps can deal with misspellings or variations).
Will Apple work out the kinks? Probably. It's certainly addressing problems with a boatload of programming talent. Will it ever be as good as Google? Probably not. For example, Apple may have the cash to send cars around with cameras to create its own version of StreetView, but it's doubtful the company would allocate resources to an enormous job like that.
The likely outcome here is that we'll end up with a couple of competing platforms – or four, if you throw Blackberry and the upcoming Windows Phone 8 into the mix – each of which has its pluses and minuses. That's a lot of choice, and choice is always good for the customer.
A larger question, though, was succinctly summed up in a recent New York Times story on the new iPhone. The Times wrote:
"Anil Dash, a New York-based entrepreneur, was critical of Apple and its maps on his blog, writing that Apple had 'used their platform dominance to privilege their own app over a competitor's offering, even though it's a worse experience for users'."
Exactly. Apple tends to do that. Always has. The company has turned the old saying around: It's not ignorance but arrogance that is bliss. Apple is fully capable of kicking even its most ardent devotees in the teeth, hard enough and for long enough that they eventually seek out dentures from a new provider.
For a long time now, Apple has devoted considerable effort to essentially isolating itself from the rest of the tech world. In the past, it was able to use Steve Jobs' avuncular presence to smooth over the feelings of fans unhappy with annoying proprietary developments of one kind or another. Will Jobs' absence alter that equation?
That remains to be seen, but the primary reason Apple has been able to get away with what it does – and become the largest market-cap company in the world along the way – wasn't Jobs. It's the widespread confidence that everything it brings to market is the best. The flip side of that is that Apple can't afford any cracks in that wall of belief.
Thus it must continue to innovate – and innovate better than anyone else – in order to be demonstrably better and continue to justify its pricing model. That's a tall order... and one that is ultimately unsustainable. Any company that fails to keep up in a crowded field can be taken down, way down, and fast. As Bob Dylan sang a long, lonesome half-century ago, "The first one now will later be last." Right now, with Apple, that seems utterly inconceivable. But it happens. Just ask RIMM.
So should you short Apple stock? No. iPhone 5's early sales figures plus the advent of a new iPad (or Pads) strongly suggest that's still tantamount to a financial death wish. But Apple has built a structure with a lot of vulnerabilities to it, and you can be sure that the market is watching the company very closely. Any missteps will be punished severely.
HighSchool Grads Should Head for South Dakota (Bloomberg)
We write about education in this space with some regularity, most recently on September 13, when we discussed the rise of MOOCs. But if you do choose a traditional campus for your higher education, where should you go? A recent study suggests that you'll do better after graduation if you choose tiny South Dakota School of Mines & Technology over Harvard.
Cancer-Cure Moonshot (CBS News)
We've also written a fair amount about the quest for cancer cures. There's a lot of cutting-edge research going on in this field at present, and the amount is about to grow enormously, with a recent announcement that the nation's largest cancer hospital – University of Texas MD Anderson Cancer Center – is launching a massive "moonshot" effort against eight specific types of the disease. Similar to the all-out push for space exploration 50 years ago, the effort expects to spend as much as $3 billion on the project over the next 10 years.
Robotic Factories (New York Times)
Yet another topic we've been very interested in is advances in robotics. In this article, a Times reporter visits some modern factories where humans are hard to find. The extent to which manufacturing can now be automated is stunning, as is the increased efficiency and accuracy robots produce. Which raises the question: What will society look like when the working class disappears altogether?
Diamonds by the Truckload (Scientific Computing)
How do you make a diamond? It's pretty simple: carbon + heat + pressure + time. When an asteroid strikes the earth, you have the first three. But might the intensity of the collision negate the need for the time component? Apparently so, say the Russians, who claim to have discovered a vast diamond deposit, containing "trillions of carats," in the crater caused by a massive meteor strike in Siberia 35 million years ago. That far exceeds known global deposits of conventional diamonds. Alas for the girls who still believe the gems are their best friend, these will be useless for jewelry purposes. You'll continue to pay through the nose for diamond jewelry. But if these diamonds are there (some scientists remain skeptical), they could create quite a downdraft in industrial prices.