Apple Inc.: Strategic Misstep, Or Supreme Confidence?

May 16, 2007
Will stellar product development trump product overlap and uncharacteristically bad timing at this consumer tech powerhouse?

On April 9, 2007, Cupertino, Calif.-based Apple Inc. announced the sale of the 100 millionth iPod. To say that iPod sales have been anything less than dramatic would be an understatement, and to call the revolutionary iPod anything less than an entire product ecosystem wouldn't be doing it justice. Between the more than 4,000 accessories to date and the billions in revenue generated by selling proprietary downloads of songs 99 cents at a time on iTunes (and now TV shows, movies, audio books, etc.), Apple has built a nearly flawless business model around the iPod that is the envy of big tech and big media companies alike, and as sales built to record numbers it seemed that the only thing that could slow the iPod's ascent off the sales forecast charts would be Apple itself.

As unlikely as that may seem, it may have happened. Apple co-founder, CEO and chief evangelist Steve Jobs is a charismatic public presence by any account, and his theatrical unveiling of a prototype of the company's new iPhone at Apple's Macworld Expo consumer conference this past January was met with near-rapturous outpourings of desire for this new "it" device. However, once the glow of the sneak peek at this new Apple product-to-be wore off, a more sober assessment of the situation revealed that the premature announcement wasn't as well timed a move as industry watchers are accustomed to expecting from Apple.

First of all, consider the name. At the time of the Macworld announcement, San Jose-based Cisco Systems owned the exclusive rights to the term iPhone, and although there was no doubt that Apple (the originator of the iMac and iMovie, iPhoto and the rest of the iLife line) would acquire the rights by any means necessary, such a high-profile announcement surely put a strain on negotiations -- pressure that presumably was not in Apple's favor. Since then, the two companies have reached an agreement to share the name, but as should be expected, the terms of the trademark-sharing deal were not disclosed.

Secondly, consider the fact that the iPhone was nowhere near ready to ship when the prototype was unveiled. Again, Apple usually has all its ducks in a row (and boxed up and loaded into trucks) before sweeping aside the veil of secrecy surrounding any new product. By giving such a long (it's been almost six months and still no iPhone) time lag, Apple has not only allowed excitement to dim but has also negatively impacted iPod sales in the interim. Even Apple true believers are unlikely to shell out a few hundred hard-earned dollars on a new iPod when the $500-and-up iPhone has up to 8GB of memory and is just around the corner. Also, by giving the world an uncharacteristic pre-launch peek at the iPhone, Jobs put every reverse-engineering department in the grey market into a frenzy to produce a competitive knockoff and steal some market share from the real thing.

Apple Inc.
At A Glance

Apple Inc.
Cupertino, Calif.
Primary Industry: Computers & Other Electronic Products
Number of Employees: 16,820
2006 In Review
Revenue: $19.3 billion
Profit Margin: 10.3%
Sales Turnover: 1.12
Inventory Turnover: 63.07
Revenue Growth: 36.65%
Return On Assets: 17.22%
Return On Equity: 26.64%

To cap it all off, there was actually another very interesting, unique new product unveiled at Macworld -- AppleTV -- with a confirmed ship date and for which Apple was already taking pre-orders. The brightness of Jobs' iPhone spotlight inevitably meant that quite a few consumers were left in the dark concerning this new media extension device, which allows for the streaming and playback of downloaded audiovisual content from iTunes on a home theater system.

Despite what was widely characterized as bad timing by Jobs, the iPhone's unique intuitive interface, rich feature set and undeniable cool factor paired with Apple's pre-loaded customer loyalty means that, so long as Apple's product developers remain at the top of their game, no amount of marketing missteps can keep this new Apple product from getting eaten up by the market.

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