Posted by: crudbasher | October 26, 2012

Apple Is In A Trap Of Their Own Making

I have had many PCs over my lifetime, most of them built by hand. My first PC was an IBM clone AT with a Intel 386 12 mhz processor (it was 6mhz but had a turbo button to go to 12). It had a 40 meg hard drive and 1 meg of ram (later upgraded to 4). It was the hot machine on my block at the time let me tell you. As each year passed by I would upgrade my hardware and get new PCs but as I did so, I noticed something about price vs performance.

Observe the dark blue line on this chart from Tom’s Hardware.

(H/T Tom’s Hardware)

Notice that the cost rises gradually for a given level of performance until you get to the right side (higher performance). At that point, the price skyrockets. You pay a premium for the cutting edge.

It didn’t take me too long to understand how this works. Also to note is there is a corollary to go along with this observation. The level of performance on the very top end will be only mid level next year because of Moore’s Law. (See Why Bring Your Own Device To School Is Inevitable)

(cc) Sunova Surfboards

I now look at computer upgrades as surfing. In surfing, you don’t try to ride the very top of the wave, you actually try for a sweet spot part the way down the wave. That is the most stable and keeps you moving along. You can either spend a huge amount of money every 3 years or a moderate amount of money every year to do upgrades.

If you are a school looking to purchase computer technology each year then it means it is more economical not to buy the very latest thing, but to stay slightly behind the technology curve. Keep in mind though that this year’s mid level tech is last year’s cutting edge stuff.

Ok so let’s get to Apple and how this applies.

Apple this week mostly focused on Hardware. This makes sense because as I have noted before, Apple is a Hardware company. This is opposed to a software company. In my opinion this will eventually cause them trouble and I think I saw in this event the start of it. The new iPad and the iPad Mini are both excellent products, and in isolation they show how Apple can still make very good tech. As I have learned, in this connected world, you can’t take things in isolation anymore.

The iPad Mini is a direct response to the new 7 inch tablets from Google and Amazon. They are selling pretty well so Apple had to get into that market. This is very very significant because it’s the first time in a long time that Apple followed somebody else. They have always seemed to be the most innovative company around and yet they copied somebody else’s innovation. This will quietly hurt their image I think. Even so, the iPad Mini looks like a winner for education. It’s better for small hands.

The second problem I saw was the new iPad. The problem is one of timing. The last major refresh of the iPad was only 7 months ago. Typically they refresh the iPad once a year so this new one is early. The trap Apple has set for themselves is having to live up to their expectations. When a company uses the terms “magical” to describe their products, the industry will expect a lot each time.

It reminds me of Silicon Graphics many years ago. They built a line of very expensive graphics workstations in the early 90s and they were a bit like Apple in that they made good looking products that were expensive. They created a line of graphics workstations called the Reality line. First was the Reality Engine. Then came Reality Engine 2 but then they jumped the shark. The third series was called Infinite Reality. Ok great, but where do you go after that? Infinite Reality 2? (that’s what they did) What is more than Infinite? lol

Apple has created this expectation of releasing new products on a regular cycle. Consumers are on board with this and ready to upgrade each year or 2 at regular intervals. This lets Apple stay at the top of the price/performance curve thereby maximizing profits.

Releasing the new iPad early creates several problems.

  1. People who bought the previous one are unhappy because now they don’t have the latest stuff.
  2. People might hold off on buying an iPad if they are more than 3 months old because they might think another one will be coming out.
  3. Wall Street loves consistency even more than profits.

Reading between the lines shows me a problem at Apple. I think the last iPad model (the 3rd) was an interim model with some new tech in it because they had to have a new model at that time. This latest model is with all the new tech that wasn’t ready for the 3, but can’t wait until the next refresh. Tech is perishable; it’s use it or lose it.

This isn’t a problem of technology, this is a problem of execution and that is what builds customer confidence and investor confidence. This isn’t much of a hick-up for Apple, but it does show they do (like any company) have some problems. They are in a trap of high expectations and they have nobody to blame but themselves. (still I suppose there are worse traps to be in heh heh )

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