Coming into the summer, news -- outside of continued extremely strong financials -- surrounding Apple has trended in the wrong direction for the company. This week, it was news that a recent patch to the MacOS Lion release had put passwords in plain text (this followed reports they were 10 years behind Microsoft), and this followed issues with Foxconn (the firm that builds Apple’s gadgets) and horrid labor practices, iPhone 4/4S issues (evidently there have been so many problems the stores are having supply issues), antitrust litigation, increasing public concerns about their decline (including books on the topic), the iPad trademark in China (they don’t own it), Samsung’s new Galaxy III is testing better than the iPhone, and Walt Mossberg of the Wall Street Journal Samsung finally has a credible iPod Touch alternative. Heck, even Greenpeace has gone back to pounding on Apple.
Suddenly Apple’s star has lost some of its luster; so are they imploding?
Perception is Reality
One of the things that Steve Jobs understood and used to his advantage is that perception trumps reality. Initially, many of us focused on the wrong side of this and spoke to Steve’s “Reality Distortion Field.” This was where Steve seemed to have a view of the world that was completely unrelated to reality. Dan Lyons this week reminds us of this as he makes an attempt to save Scott Thompson’s job at Yahoo by pointing out that Steve Jobs lied more. Remind me not to have Dan defend me in court (“sure he’s guilty, but there are other folks out there who are guiltier!”).
The thing is, he understood that the truth didn’t matter as much as what people believed. Over time, he became very good at crafting an image about Apple, about its products, and even about its founder, and getting people to believe it. For instance many seem to credit Steve Jobs personally with the creation of Apple’s key products from the Mac to the iPad, but in virtually all cases, the idea, technology, and execution were carried out by others. Heck, in many cases, the idea came from outside the company (iPod – Portal Player, iPhone-- LG Prada, iPad -- Bill Gates) and his team just refined it and made it successful.
This isn’t belittling Apple; on the contrary, Apple was able to take half-cooked or flawed ideas and create products folks thought were magical. Or were they? The first iPhone that Apple presented to an audience was, at the time, little more than a shiny brick and, while they got it working by launch, it was fragile, slow (2.5G in a 3G world), expensive (around $500), and didn’t have many apps. But Steve got folks to see it for what it was and not what it wasn’t.
Jumping ahead to the iPad; it was basically an expensive Netbook without a keyboard and even fewer capabilities. Netbooks, which had failed in developed markets, were seen as crippled offerings while the far less capable and more expensive iPad was also seen as magical.
Even looking at support, Apple’s products aren’t very reliable, but Apple wraps them with the Genius Bar, an excellent service, that provides a white glove experience which adds to the Apple magic. Years ago, I saw this in a study that compared the 1990s Dell to the 1990s Sony; Sony made more reliable products, Dell didn’t, but Dell provided far better service and customers thought more highly of Dell.
This is the power of perception; Steve was a master at getting people to see the world the way he wanted it to be seen, and this is apparently what Apple may have lost.
Losing the Magic
Have you even seen the movie My Fair Lady? It comes from the story, Pygmalion, of a low class woman who is taught to dress and behave like a high class lady and folks believe her image so strongly that, even when she slips, they think it is a new trend. The entire believable story is a statement on how perception is stronger than reality.
While Steve Jobs ran Apple, he was expert at getting his team to craft Apple’s image so that you generally saw the company and products as he wanted you to see them. All big companies have problems; Apple’s problems were largely successfully concealed behind an OZ-like curtain so that all you wanted to see was the magic. It wasn’t just a successful job of covering up issues; it was making it so most didn’t want to see the issues because no one is powerful enough to force folks not to see the truth.
The reason you are suddenly seeing so much negative news on Apple is that Apple has lost the ability to maintain the facade. Apple’s Wizard has departed and the machinery that allowed Apple to get you to see them differently is slowly breaking down. Information is leaking out of the company more often, problems are becoming more public, and the problems that any leading company would have are becoming more visible.
It isn’t that Apple is sliding; it is still too early for that and Jobs built too well; it is that their image is sliding and, given that it was image that made the company challenge Oil Companies for valuation high water marks, that’s a problem.
Wrapping Up: Perception Is More Important than Reality
The strange thing about all of this is that, for a decade, Steve Jobs extended his reality distortion field over his company and led with perception and followed with products. You’d think one company would stand up to emulate this practice given it helped Steve become the CEO of the decade. And here is how strong his control of perception was: name any other “CEO of the decade” ever? You search on the term and only Steve’s friend Larry Ellison shows up, and just for being the most highly paid, which isn’t the same thing. Granted, I’d be OK with that, personally.
So, the issue for Apple this summer and going forward is that with Steve gone, the reality distortion field has been shut down and another reality is starting to slip in, one where Apple doesn’t shine as bright. That potentially removes Apple’s greatest advantage, the ability to control the perceptions that surround their products, and Samsung, Nokia (Nokia is going directly after Apple’s perceptions in their ads), and others are beginning to capitalize on this change. This may well be remembered as the Summer of Apple’s Discontent.
President and Principal Analyst, Enderle Group
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