iPhone5 does not Wow

iPhone5 is thinner, bigger, faster and has more battery life. There are more apps, Facebook is more deeply integrated and Siri has been enhanced further.  The wave of innovation that started with new magical touch interface and apps that led to phenomenal usage on iPhone, is now abating.  Siri which promised another round of innovation with its voice interface and deep integration with existing apps on the device, has not yet made the same impact as Touch interface did. iPhone5 is almost guaranteed to be the best selling iPhone ever and most selling smartphone. The question is “is that enough”. As a customer, it does not matter - I still get the best product albiet at a high price.  As an investor, I care about long term growth and profitability, while share price moves to near term sales potential.

Apple needs to keep the innovation engine rolling, for margins to stay at current levels. The big challenge facing Apple is the open source, Android and copy cat apps on Android. To protect and preserve long term growth and margins, we may see more instances of legal suits between Apple and Android vendors. That said; it is very hard to control the onslaught of free and open source.  

·         Governments and large companies don’t prefer getting locked in to a proprietary and closed system like iOS. We saw a brief upsurge in Linux as Governments and Government owned institutions backed Linux.

·         However, unlike Linux, Android has the support of application developers and device manufacturers.  

·         Android is already dominating traffic across the emerging countries.  World is more web centric than it was a decade ago.

Can Apple innovate fast enough to maintain a strong lead over competition? iPhone5 disappoints on this metric. If Apple fails again, price competition will soon destroy Apple’s margins or worse, Apple may lose market share.

Adobe Flash - Customer is King !!

Last few months have been not kind to Adobe.  Apple, the creator of MAC operating system, has openly challenged Adobe on Flash, calling it a legacy application, buggy, slow and consuming too much power.  Adobe makes majority of its revenue and profits by selling applications which work on MAC and Flash was one of the main reasons for Adobe to acquire Macromedia in 2005. 

As Web as gained prominence in the last decade and print has lost relevance, PDF is no longer the growth engine that drives Adobe business.  Web is the future and Flash is at the center of Adobe strategy for web. Without Flash, Adobe will struggle to grow its business and maintain its 40% operating margin. Adobe has spent last couple of years battling Microsoft's Silverlight and just when it seemed Adobe has managed to slowdown Microsoft's momentum with Silverlight, Apple has directly aimed at Flash, that too with a religious zeal.

Clearly, Adobe has been pushed to a corner. And its attempt to create some elbow room, by allowing developers to embed Flash Player inside application, has been circumvented by change in licensing policy by Apple.

Left with no options, Adobe has come out with print ads "We love Apple", "We love Choice" and finally making an effort to connect with the customer.  This is certainly not the last word in this powerful tussle.  It is hard to pinpoint a specific reason for this strongly negative view Apple has been propagating about Adobe Flash.  By trying to push HTML5 instead of already established Adobe Flash, Apple risks alienating customers and developers who like Flash.  Apple might also provide some respite to Google and Research in Motion who are struggling to catch up with their offerings.  Android already supports Flash and Google is obviously using its support for Flash as a marketing tool.  Blackberry is not behind.  Is fighting Flash more important than preserving the strong market position that Apple has with iPhone? Apple is clearly aiming for strong market dominance which is hard to create and sustain in this hyper competitive world. 

In my personal view, "Customer is King".  Future of Flash will be decided by the customers, not Apple. Adobe best chance lies in making sure Flash succeeds on Android and Blackberry.  It is a fight for survival and failure is not an option.

Full Disclosure - Adobe is my ex-employer.  I have never used Apple products even though I admire iPhone and Macs and I hope to buy my first iPhone later this year.

iPhone 3Gs Makes a Late Entry

Indian telecom service providers don't subsidise IPhone, with fickle Indian consumer merrily switching between service providers and using multiple SIMs at the same time.  Number of subscribers in Delhi now exceeds its population and Samsung is aggressively advertising its dual-SIM phone.

Last week, both Airtel and Vodafone launched iPhone 3Gs in India - months after global launch and few months ahead of new version from Apple.  That made me wonder if Apple is on the right track in its India strategy. IPhone is no where close to a cult phone in India and Samsung, LG and Nokia are pushing their touch-phones at significantly lower price points.  Apple probably needs to rethink its India strategy.  Otherwise it may be the case of too little too late.  Market skimming strategy works only if there is a large segment of early adopters.  Besides that Apple needs to add India focused free downloadable content - Ringtones, caller tunes, themes, local language songs.  How about a content partnership with IPL and bollywood?  Following Google (YouTube tie up with IPL) is not bad if its good for business. Pre-install of Google Maps, Gmail/Rediff/Hotmail/Yahoo mail will help along with support for dual-SIM and extended battery life.

Side note - For a change, Apple is advertising Macs. I saw two full page ads in national newspaper - though only in the magazine section and that too in the end. Compare this with 1 minute prime time TV ad slots used by HP when it launched "HP Vectra" in India in the late 80s.  Long way to go.  The main hindrance is of course, price, distribution and support - at Rs 56,990, Mac is almost 2.5 times more expensive than a PC.

Market Leadership Feeds on Itself

Market leaders across product categories benefit because of their leadership position. High volumes enable a strong channel presence. Counterparties give them first preference when looking for partners and regulators and policy makers listen more to their views. Finally, customers prefer to buy what everyone is buying. This is visible cross product categories. Here are a few examples.

Maruti Suzuki leads in the small car segment and has over 50% market share of the overall car market in India. Customers see more Maruti cars on the road than other brands. Product volumes support a lower cost structure which feeds on itself. Maruti has been using its strong dealer and service network as an important messaging pillar in its marketing communications (a traveler finds a service station on top of the mountains). However, we must also give credit to Maruti for maintaining a strong product line, high service quality standards, low cost of maintenance and also its strong presence in pre-owned cars.

Microsoft is another clear beneficiary of its market leadership in desktop software. Its strong presence in educational segment, a strong network of training institutes supporting Windows and MS Office software, and unintended benefits of piracy – all of have helped Microsoft retain it stranglehold on desktop software.
a) Linux has remained in confines of enterprise server market while Apple has failed to execute well in emerging markets like India.
b) Assembled PCs using Intel software have maintained high market share until recent reduction in taxes have led to increased presence of branded PCs. Assembled PCs often have pirated software. This increases price differential with Macs. At the same time, Apple has failed to justify its price with the value it delivers. Needless to say, Apple has almost negligible market share in India and that too can be attributed to technical staff in enterprises convincing their employers to grant their wish as favor. I have seen a strong tussle between employee’s desire for Macs and enterprises reluctance to pay for what is seem as non-essential purchase.
c) The biggest challenge for Apple in India is visibility. Most consumers don’t know about Mac or its benefits. Even if they know about it, they don’t consider it as a viable option. There are very few evangelists for Mac in India, which is the strength of Apple’s marketing in the developed world. Apple needs to fix the awareness issue first. Second most important issue relates to cost of purchase and maintenance. Thirdly, it is important to induce trials to create a positive word of mouth. Make the initial consumers "WOW!!" with the product and customer support. Make them your evangelists.
d) Changing consumer preferences takes time, investments and most important, patience from top management. When Kellog’s entered India, they were willing to wait for 20 years to make profits. Is Apple willing to invest and wait? Is Apple willing to take up the challenge? Success will be hard, but is very much possible.

While it is easy to understand why market leadership helps in physical world (role of dealer and service network), the effect is also visible in digital world, for example, Google commands over 90% market share in India compared to much lower market share in the developed markets.
a) Good word of mouth publicity has probably helped Google the most. A new customer often looks to peers or experienced users for guidance on which one is the best to use.
b) Google has obviously benefited from Yahoo’s failure to execute well. You need to look at Google maps and Yahoo maps for India to see why Google has succeeded while Yahoo has not.
c) Yahoo has not managed to beat rediff or indiatimes on news content. Rediff and Indiatimes have leveraged their early entry, along with local content and partnerships. Being a late entrant with me-too offerings has limited Yahoo’s success in India. On the other hand, search has natural economies of scale. Local players are not able to compete with size and scale of Google.

In two of the three examples, global leadership seems to imply market leadership in India. Maruti Suzuki is the only one exception. Success of Maruti Suzuki can also be attributed to strong support from government in its early days and a favorable regulatory regime towards small cars (a segment in which Suzuki has strong presence). In technology, one call probably say that global leadership makes a huge difference in the Indian market as Indian consumer still considers herself as a follower and takes lead from others on what is the best product to use. Presence on strong Indian community in the US and its strong technology linkages has meant that LinkedIn and Facebook are growing at a faster pace in India.

Apple iPad - Wait for v2.0

Apple iPad is probably one of the few Apple products which have a confused positioning.

It is not a mobile phone- it is too big for that purpose.  Those expecting it to be an extension of iPhone did find that similarity. However, they are underwhelmed as iPad does not seem to have made effective use of higher computing power and screen space.  Lack of Flash support and its central position in Apple's marketing blitz is intriguing. It is hard to understand why Steve Jobs chose to demo "absence of Flash" rather than positives of iPad.

iPad is not as functional as a laptop.  Absence of keyboard makes it a less efficient tool for professionals who travel but still need a fully functional computing system.

iPad also does not serve the purpose of stress free book reading, a market which Kindle dominates. Even though a few reviewers give iPad's high screen resolution a thumbs up vs. Kindle. Kindle is still under threat from v2.0 of iPad. As Nick Marshall points out, "Kindle is a one-dimensional device with limited format support and .... competes in a micro niche.  The distinct advantage the Amazon Kindle has over the Apple iPad is the data subscription fee."  That said, e-book reader is a much smaller market and unlikely to touch millions of iPhones and iMacs.  

Another usage scenario is head on competition with Tablet PCs or netbooks.  Tablet PCs is a niche market with most common usage in the healthcare industry.  Doctors are finally being forced to move towards e-prescription and tablet PCs are more user friendly and time efficient than PCs.  However, compared to Netbooks, iPad does not make the cut. And as Nick Marshall says "Price-wise the $499 entry level iPad is still over 60% more expensive than the Dell Inspiron Mini and lacks many key features: multitasking, hdmi video output (external monitor), optional external dvd drive and front-facing camera (web cam)."  That said, Apple has huge volumes when it comes to components like touchscreen, batteries and can use some of its iPhone component advantage. iPad v2.0 can spell the doom for net-books and tablet PCs.

iPad is probably a niche product and will remain so till next version of iPad makes significant adjustments to price and product positioning.  iPad v1.0 is probably not going too far, however,  I am going to wait for v2.0 before writing off this product.