Apple discovers gravity, again

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This article appeared in the February issue of CRN magazine.

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Apple discovers gravity, again
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In the past few months Apple has seen its shares nosedive, iPhone sales fall along with its smartphone crown, several key executives depart and the legal bill for its war on patents rise exponentially.

The speed at which a company lauded as the 21st century poster child for innovation and corporate success could sail into such a perfect storm of calamity aptly illustrates the fickle and by turns cruel nature of the tech industry. 

Strewn throughout its countless wreckages are many former giants – once thought infallible – whose misfortunes are largely tied to Apple’s ascension. They include Nokia, RIM, Sony and Kodak.

And many of the most formidable companies in the world including Microsoft, HP and Dell show deep battle scars from Apple’s many incursions into their traditional territory.

But with so many cracks now appearing in its once perfect, white, stainless steel and glass exterior, analysts are asking the inevitable question: is Apple on the slide?

Last month Apple reported lower-than-expected quarterly revenue as sales of its flagship iPhone came in below targets. The company shipped 47.8 million iPhones, lower than the roughly 50 million that Wall Street analysts had predicted. Following the news, in the last week of January Apple’s shares slumped more than 12 percent, slicing more than $US50 billion ($A47 billion) from its market value.

The fact Apple’s shares got clobbered despite reporting a record – and better-than-expected – $US13.1 billion ($A12.5 billion) profit for the final quarter of 2012 illustrates just how worried investors are about Apple’s future.

While iPad shipments were in line with expectations, major iPad screen maker Sharp last month reported it had virtually halted production due to falling orders.The fall in unit shipments of the iPhone is especially worrying for Apple, given the product makes up around half of its total sales, while also exposing one of its many Achilles heels, that of having a very narrow portfolio of products.

Admittedly, most of Apple’s products have achieved success most companies can only dream of. Yet the failure of Apple Maps last year brought into sharp relief the fact it too is capable of the sorts of product flops more frequently associated with its rivals.

The maps debacle – Victorian police were forced to issue a safety warning after motorists travelling to Mildura became dangerously lost – represented an embarrassing capitulation to bitter rival Google, but the fall-out also led some to ask whether divisions were beginning form within the company.

Falling from the tree

Head of Apple Maps Rich Williamson was sacked in September. A month later Apple’s retail senior vice president John Browett left the company, at the same time as long-term head of iPhone software development Scott Forstall was shown the door.

Long tipped as Browett’s successor, Apple’s VP of retail Jerry McDougal departed Apple last month leaving two key retail executive roles at Apple vacant. McDougal formerly worked under Browett’s predecessor Ron Johnson who left Apple back in June to become CEO of US retailer J.C. Penney.

With all these ructions and challenges it’s small wonder Apple has found it difficult to focus equally on all areas of the business and one which has arguably suffered the most neglect is the company’s channel.

Apple has three key priorities at the moment, according to Gartner analyst Van Baker. First is gaining a proper foothold in China, the latest key battleground market for technology. Second is the reorganisation of senior management ranks to better prepare the company for this and other challenges ahead. And the third is straight revenue growth. 

“Channel issues are further down the priority list,” Baker says.

This is despite what would seem to be an obvious opportunity to capitalise on its now massive, albeit accidental, installed base within the business world, by partnering with enterprise resellers to develop a dedicated suite of business solutions to drive sales of even more products.

Of course this would mean ceding control, something Apple does not like to do. Last year Apple unceremoniously, and inexplicably, sacked around 200 of its Australian resellers – many of which had been selling Apple for years – apparently without warning, explanation and, true to form, no apology.

One Sydney reseller – a $5 million supplier of IT to Australian businesses, health organisations and not-for-profits – was one of the 200 partners dumped by Apple late last year. According to its co-founder and director, the company received a two-line email terminating its reseller status. 

“We thought there had been some mistake,” he says, on condition of anonymity due to confidentiality clauses in its reseller contract with Apple. Sure enough, a week later a letter arrived saying the company had been reinstated. It was therefore with utter dismay he received a third letter only another seven days later confirming the import of the first.

Compounding the company’s frustration was the difficulty in getting accredited in the first place. Based in Brisbane, the director had been liaising with an Apple channel representative in Sydney to coordinate the best time to fly down and fill in the necessary documents. On a cold, wet, winter’s day, the Apple rep called to cancel, forcing the reseller to fly all the way back to Queensland empty handed. Several weeks later when he finally got hold of the rep again, the process was completed over the phone in minutes.

He admits at times it’s been difficult explaining to clients the company can’t supply Apple products. In response, the company has been recommending alternative products, most recently HP’s ElitePad business tablet which the reseller says has a number of superior features for businesses, including better touch control, better keyboard, battery life, faster processing and of course Windows 8 and Flash compatibility.

Schizophrenic symptoms

Sydney reseller Complete PC Solutions was another company to be culled during Apple’s partner purge last year, with director Frank Triantafyllou reporting a similarly schizophrenic series of communications.

“One letter said our reseller agreement had been extended and two weeks later we received a letter saying the company had been struck off.”

Even more riling for Triantafyllou was Apple’s contention his company had not sold enough product, something he vehemently denies.

“They made up figures,” he says.

Even while Complete PC Solutions was an Apple Consultant Network Approved (ACNA) reseller, the company often faced opposition from Apple when negotiating deals. Triantafyllou relates one experience when the company wanted 100 iPads for a school customer but was told it wasn’t authorised to supply that particular product. 

“Apple makes it very hard for you to be able to buy from them. When you’re speaking with them they’re arrogant and they have no customer service skills.”

While Triantafyllou recognises not having Apple is a lost business opportunity, he feels the company is fast becomming less important.

“Apple’s peaked; they’re on the decline,” he says.

One industry observer whose company does regular business with Apple in Australia painted a very unflattering picture of the company’s business style in Australia.

“They’re pig headed. They drop people’s contracts with no ifs, buts or maybes.”

He added that Apple is “alienating” its partners in Australia, but generally companies have no choice but to deal with them because of demand for their products.

“I hate dealing with them; most people hate dealing with them. They play by their own rules and if you don’t like it you’re out; they don’t care. But it wouldn’t matter if Apple started making baby bottles – people would still flock to them.”

One underperforming Apple partner which the vendor saved from the block is national specialist Apple reseller Next Byte. Next Byte posted a sharp decline in sales last year, coinciding with the arrival of Apple stores in major Australian cities. One of Apple’s newest retail stores, in Sydney’s Broadway, is just metres from the former location of one of Next Byte’s most successful stores in Australia, directly opposite Sydney University.

Next Byte is in the process of rebranding its stores “Apple Premium Reseller”, a move which managing director Jim Collier says is paying off. The new stores are bigger than the old Next Byte stores but smaller than Apple stores, albeit with a similar layout including a close approximation of the “genius” bar. 

Collier says Apple has been doing a good job in terms of providing support and training programs for partners, and, asked whether he though Apple could be doing anything better at all, said “no”. 

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