Will Amazon Eat the Low Apple?

Apple reported its numbers yesterday, and they showed what might have been a surprise for Apple fans, was surely a disappointment for the Street, and things that I’d been concerned about for quite a while.  In short, Apple’s message is that “It isn’t easy to be cool, and coolness isn’t very durable either!”

Apple’s three pillars of profit are the iPhone, the iPad, and the Mac.  Everyone thinks that tablets and smartphones are eating the PC market, but Apple’s Mac sales beat estimates.  The sale of iPhones was below estimates, and Apple lost market share in the iPad though it did manage to sell more of them than expected.  Apple’s shares are off about 7% pre-market, which shows that this situation isn’t a happy one for Wall Street.  It should be a warning for Apple too, but I’m not sure it will be.

Apple’s strategy for a decade or more has been to target the “cool” consumer of technology and not the average consumer.  There’s nothing wrong with that approach in the sense that it does let you sustain higher prices and margins and gives you a kind of envy-driven brand recognition.  The problem is that the mass market is where the mass money is, and that coolness as I’ve said is not durable.  Much of the coolness of iPhones and iPads has come from the novelty of the devices.  From a distance it’s hard to tell just what a given smartphone or tablet user is using, and after there are enough iPads and iPhones floating around, it’s not a novelty to be seen with one.  If everyone drove a Corvette, a beat-up Ford would get the most attention.

For Apple, this means that the trajectory that the Street is pointing out for the iPhone and iPad, which is steady loss of market share, is inevitable.  It means that you either have to accept a mass-market positioning that will kill your margins, move on to some new product (my suggestion has been WiFi belly-button studs—why not just jump to the end-game?),  or somehow rehabilitate your coolness.

A lot of people I know say that Steve Jobs would have known what the next gigantic opportunity was, that he might have even made my WiFi belly-button studs work.  I’m not so sure.  I wonder whether Steve or anyone could find a niche like smartphones or tablets at this point, because I wonder whether we’ve not reached the point where the device is really just a portal.  Underneath it all, Apple’s problem is that its device-driven strategy has hit the wall of the cloud.

Just yesterday I talked about the notion of a future where knowledge and power migrated in a contextual sense (including a geographic one) toward the current interest profile and location of a given user.  The user’s device is a necessary portal into all that knowledge and power, but ultimately a smartphone or a tablet is still an on-ramp to the Internet and the cloud.  In fact, it’s the Internet-on-ramp mission for these mobile devices that have undermined the PC market.  Why now are they suddenly more than that on-ramp?  Yes, some people will buy thousand-dollar sunglasses to keep the sun out of their eyes, but not very many.  Apple’s own product strategy is its own greatest weakness.  It’s a window, not the world.

But where is Apple in the cloud game?  After long and apparently agonizing deliberation all they’ve managed to do is replicate what a dozen companies offer in the way of storage and synchronization.  They are not driving cool features that could be hosted in the cloud, they are stuck in those cool platforms.  Well, earth to Apple here; people want the movies and not the tickets.  The latter is just a way of getting to the former.  Apple’s failure to even control its own mapping framework until the failure was obvious (and then booting their response) is an indication that everyone who matters in Apple is sitting in the Industrial Design group and there’s a vast silence in service design.

Wearable tech is not the salvation of Apple, it’s an indication that there are no device salvations.  What wearable tech can do is very limited without significant from-somewhere-else service support.  You can slave your belly-button stud to your iPhone or iPad, but if you do that you’ve got an iStud that doesn’t do anything you couldn’t have done before except perhaps to get a belly-buttons-eye-view of the world.  Or maybe have your pulse taken there, or your hormones checked.  How about having your stud glow green when you see someone you like and red when you’re repulsed?  Yeah, somebody would probably buy it, but how many and for how long?  That’s the other problem with coolness.  It’s not easy to drive a trend like WiFi belly-button studs, and with every cool trend like it the barrier for the next one is only higher.  Eventually the combination of barriers to entry and durability of opportunity combine to kill your business model.

This loss of appliance opportunity isn’t Cook’s fault; Jobs would likely not have been able to do better.  However, Jobs might have recognized the value of the cloud some time ago and gotten Apple solidly into the lead there while there was still time.  Since Cook took over, the old Apple rivals have gained share on fundamentals, but they’re not the problem.  There is a new kid in town.

Yes, Apple has a new competitor now, Amazon.  Amazon, perhaps with the same level of serendipity as drove Apple into iPhones, has taken a cloud’s-eye view of the future.  The recognize that contextual consumer services are the perfect cloud application because there are a zillion different things a consumer might want but the duty cycle of their needs, and the variability and distributability of their need, make need-fulfillment a perfect cloud application.  For which Amazon thinks (with considerable justification) they have the perfect cloud.  Amazon has relentlessly pursued Kindle, but not just as a tablet—as a symbiote.  A Kindle has a foot in the cloud by design.  It’s what Apple should have done, that maybe Jobs would have done.  Now it may be too late to catch up.  Somebody is picking the low apples of the cloud, and eating them.

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