“We want to capitalize on our first-mover advantage,” Apple COO Tim Cook told analysts and media during an April 20 earnings call, discussing his company’s decision to “aggressively” price its tablet PC.
That comment came soon after the iPad’s release, but it also neatly summarized Apple’s broader strategy throughout 2010: Unlike tech companies such as Microsoft, which built their empires on being “fast followers” and capitalizing on emerging trends, Apple seemed determined to push into new territory.
The prime example of that was the iPad. After months of speculation, Apple CEO Steve Jobs took a San Francisco stage Jan. 27 to formally unveil the 9.7-inch touch-screen device, which included a 1GHz A4 proprietary processor and a choice of WiFi-only or 3G-enabled connectivity. Analysts immediately began debating the iPad’s potential impact on the market, and its sales prospects in both the short- and long-term.
From the outset, Apple seemed to bet that third-party developers would create the apps that would make the iPad a truly robust competitor in areas such as gaming, e-readers and productivity. At the same time, analysts questioned whether a bulked-out tablet would cannibalize the market for lower-end netbooks and mobile devices.
By the time the iPad was released in early April, that question remained unanswered. “U.S. consumer PC, and especially notebook, growth decelerated in January when Apple introduced the iPad and again in April when the iPad launched,” Katy Huberty, an analyst with Morgan Staney, wrote in a May 6 research note. “Given the corresponding increase in [average selling prices] in the market, we believe much of the demand shortfall came from netbooks and low-cost notebooks.”
Even as the iPad sold roughly 1 million units in its first month of release, Apple’s aggression in the mobile-devices category-particularly mobile apps-led to antitrust rumblings. On May 3, a New York Post story suggested that the company’s mobile applications policy was being scrutinized by either the Department of Justice or the Federal Trade Commission. According to an unnamed source for that article, the government was looking into whether excluding applications built with tools such as Adobe Flash CS5 violated other smartphone platforms’ ability to stay competitive, given the popularity of the iPhone OS.
The Great Gizmodo Caper of 2010
The iPad continued its spectacular sales rate, and Apple geared up for the annual summer release of its next-generation iPhone. Before the company could unveil the device in one of its carefully orchestrated events, though, corporate disaster struck in the form of a careless moment in a northern California bar, where an Apple software engineer celebrating his birthday reportedly left a prototype of Apple’s upcoming smartphone.
Gawker Media, parent company of tech blog Gizmodo, supposedly paid a source $5,000 for the device, and then gave it a very public dissection online April 19. Features included a front-facing camera, high-resolution display, and secondary mic for noise cancelation. Having had its way with the hardware, Gizmodo’s people then returned it to Apple in response to a legal request.
Case closed? Not quite. On April 23, the Superior Court of San Mateo issued a warrant to search Gizmodo editor Jason Chen’s home and vehicles for digital property associated with the prototype iPhone. “My wife and I drove to dinner and got back at around 9:45PM,” Chen wrote in an April 26 statement posted on Gizmodo. “When I got home I noticed the garage door was half-open, and when I tried to open it, officers came out and said they had a warrant to search my house and any vehicles on the property -in my control.'”
The raid on Chen’s home was conducted by members of California’s REACT (Rapid Enforcement Allied Computer Team). Gizmodo’s lawyers argued that the search warrant was invalid, on the grounds that Chen’s computers contained data about sources and were thus protected from seizure under Section 1070 of the Evidence Code. Chen eventually had his equipment returned.
A few weeks after the smartphone loss, Gizmodo’s mega-traffic posting, and the raid on Chen’s home, the Vietnamese online forum Taoviet posted images and video of another alleged iPhone prototype. When the iPhone 4 was formally unveiled, its hardware ended up retaining few secrets: there was, indeed, a front-facing camera for video conferencing, along with a larger battery. The iOS4 operating system, however, boasted some all-new tricks, including multitasking. Design-wise, the smartphone featured two glass panels sandwiching an exterior antenna rim-and with that particular detail, Apple’s troubles began.
The iPhone 4
The Antenna Rim
On June 15, some 600,000 customers pre-ordered the iPhone 4 and promptly crashed the ordering systems of both Apple and exclusive U.S. carrier AT&T. On June 24, the iPhone 4’s first day of general availability, the device’s debut was marred by long lines and device shortages. Many seemed pleased with their device-including tech reviewers, who gave high marks to its software and hardware-but reports of a singular problem began to leak across the Web: Whenever a bare hand touched the lower-left portion of that exterior antenna rim, an unknown subset of customers reported that the iPhone 4’s signal dipped.
That hue and cry seemed to climax on July 12, when Consumer Reports refused to recommend the iPhone 4 due to what it described as the antenna “problem.” The publication found that a rubber bumper, or piece of tape, once placed over the antenna rim, effectively solved the reception issues. “But these options all put the onus on consumers to solve or pay for a fix,” blogged Reports‘ Paul Reynolds. “We’re still calling on Apple to provide an acceptable free solution to the iPhone 4’s signal loss problem.”
For their part, Apple executives insisted that the antenna issues were having no effect on iPhone 4 sales.
“My phone is ringing off the hook [from] people that want more supply,” Cook said during a July 20 earnings call. “Right now it is hard to address the real question you’re asking: -Is there an effect or not?’ because we’re selling everything we can make. You can’t run an experiment that way.”
Nonetheless, Apple intended to mitigate the complaints with a free bumper giveaway program for iPhone 4 owners, an initiative that would apparently cost the company some $175 million. Launched July 23, that program allowed anyone who purchased an iPhone before Sept. 30 to receive an iPhone 4 Bumper or select third-party case from Apple, as well as a full refund for anyone who had already purchased a bumper.
Apple promptly shut down that program on time. “We now know that the iPhone 4 antenna attenuation issue is even smaller than we originally thought,” read a Sept. 11 posting on Apple’s corporate Website. “A small percentage of iPhone 4 users need a case, and we want to continue providing them a Bumper case for free. For everyone else, we are discontinuing the free case program on all iPhone 4s sold after Sept. 30, 2010.”
Apple had already moved onto other things when, at a Sept. 1 event in San Francisco, Jobs revealed a new line of iPods, a revamped Apple TV, a music-oriented social network called Ping, and two revisions to the iOS mobile operating system. With those releases, the company’s strategy seemed clear: extend its strength in multitouch applications to devices beyond the iPhone 4. In addition, both Apple TV and Ping hinted at increased Apple interests in both cloud-based services and social connectivity.
A little under two months later, on Oct. 20, Apple unveiled a refresh of its MacBook Air. The two new versions-offered in 11-inch and 13-inch models-relied on SSD (solid-state disk) storage technology. “We’ve taken what we have learned with the iPad,” Jobs wrote in an accompanying statement, “solid state storage, instant-on, amazing battery standby time, miniaturization and lightweight construction, to create the new MacBook Air.”
Announced alongside a preview of Apple’s next OS X update, Lion, the new MacBook Airs suggested that Apple is committing itself more than ever to mobility–pushing the limits of how far it can strip down its product lines in terms of size and weight. The next OS X will feature Mac App Store, with full-screen apps that mimic the functions available for Apple’s mobile devices.
The revamped Apple TV seemed to target Google TV, effectively opening another competitive front between Apple and the search-engine giant. Throughout 2010, with Google Android gaining such momentum on smartphones, analysts began chattering about a besieged Apple, something that must have set the latter’s executives’ teeth on edge. The upgrades to iOS also seemed designed to buttress Apple’s defense against Android.
On Sept. 8, Apple released the first of those updates, iOS 4.1, which bundled new applications, such as the multiplayer-centric Game Center, iTunes TV show rentals and the Ping social-networking service. The second update for later in the Fall, iOS 4.2, would extend a range of features to the iPad.
But the surest sign of Apple’s focus on Google as an opponent came Oct. 18, when Jobs made an uncharacteristic appearance on the company’s quarterly earnings call.
“[Google CEO] Eric Schmidt pointed out that they’re activating 200,000 units per day,” he told media and analysts, referring to Android. “By comparison, Apple has activated 270,000 units per day, on average.”
Jobs also opened fire on the tablets poised to enter the market. The “painful lesson,” he said, will come when those competitors realize that their “tablets are too small and increase the size next year, abandoning developers and customers who jumped on the 7-inch bandwagon.” A variety of early tablet entrants, including the Galaxy Tab and Research In Motion’s upcoming PlayBook, will feature a 7-inch screen.
Seemingly unable to help himself, Jobs waited another month before blasting a salvo at the competition. “Once again, the iPad with iOS 4.2 will define the target that other tablets will aspire to, but very few, if any, will ever be able to hit,” he wrote in a Nov. 22 statement posted on Apple’s corporate Website.
The iPad’s end-year share of the tablet PC market totaled 95.5 percent, according to research firm Strategy Analytics, although the general expectation is that that percentage will dip as more competitors come online. Meanwhile, the iPhone’s rumored appearance on Verizon in early 2011 will likely affect Apple’s share of the smartphone market, where it continues to battle RIM, Google, and Microsoft’s new Windows Phone 7. However those battles turn out next year, of course, Apple will likely try to maintain its strategic stance as a first mover.