Are Apple's Problems Bad to the Core?

The first quarter of 2008 was the most successful in Apple's history. The company boasted revenue of $9.6 billion and a net profit of $1.58 billion, compared to revenue of $7.1 billion and a net profit of $1 billion in the third quarter of 2007. But its second quarter results were down ($7.51 billion in posted revenue and $1.05 billion in net profit) from the first quarter. Some people think this downtick signals the beginning of an unfortunate trend-line... or worse. I hope not. But there is certainly more going on here than meets the eye.

In the eighteen months since Apple dropped Computers from its name, the company has greatly expanded its reach. However, with massive growth have come security flaws, software bugs, faulty hardware and a plethora of other puzzling problems.

While Steve Jobs' operation is known for its quality products and devoted fan boys, it seems that the company has compromised quality for growth. So much so that even Apple's most devoted supplicants (like me) are beginning to lose faith.

While Apple has had small production problems for years, lately the company has experienced an eerily high amount of bad press for malfunctioning electronics. The major problems began with the release of its new Leopard Operating System.

While the system works great on new Macs (where it is pre-installed by the factory) users running older machines, who tried to make the update, experienced what can only be described as "the blue screen of death," a complaint that gets its name from fatal crashes in Microsoft Windows. Days after the release of Leopard, message boards erupted with complaints from angry users, many of whom still pray at the Jobsian alter. But many of whom have long memories.

While the Leopard Chronicles were widely covered, the problems in Cupertino did not stop there. In fact, they actually got worse, culminating with the release of the 3G iPhone.

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Apple has been promoting the new iPhones as "twice as fast, half the price." But are they? Not so much. While the hype for the 3G iPhone was ungodly, the phone also received a fair amount of bad press from pundits who noted a significant increase in the cost of data and lackluster battery life. Regardless, the 3G iPhone sold over a million units in its first weekend on the market.

That same Friday, July 11, Apple decided to open its Application store, launch MobileMe (an updated version of its .mac platform, which includes access to a broadband cloud), and release a software update for the original iPhone.

iPhone 1.0 users were vocal about the problems associated with the software update, which caused many iPhones to become plastic bricks. A quick Google search for "iPhone Brick" will yield 2,080,000 results from very sad iPhoners. No matter how you spin it, Apple was unprepared for the launch.

Nothing has been more indicative of Apple's growing pains than its ultra flawed MobileMe service. The service, which was a large update to its existing .mac platform, has been universally panned. One of the talked-about problems with MobileMe was that a small percent of users lost email service for a few days. The problem was so serious that a colleague of mine got an email from his girlfriend last weekend while sitting on the beach next to her. Puzzled, he asked her if she had just sent him a message from her iPhone. She said, "No." He showed her the email. She barely recognized the message because she had sent it a week earlier. This was last weekend, a month after the initial problems were reported, and reportedly fixed. The service has been so bad that Apple even publicly stated that its performance has been sub par, and has given subscribers three extra months of service for free. But what good is three free months if the service doesn't work properly?

Apple's problems don't stop there. The company announced that they would replace iPod Nanos (which caught fire) and MagSafe power chords, which broke or melted. Speaking of fire, the company also had a major problem roughly ten days ago when a fire erupted at its Research and Development building on the grounds of its headquarters on the infamous 1 Infinite Loop campus. Small disasters, to be sure, but when you add them up, you begin to see a pattern.

With rumors of Jobs' declining health, security bugs, the options backdating scandal, engineers canceling appearances at hacker conferences and the continuing saga of 3G iPhones' awful performance on AT&T's 3G network (including this week's pending class action lawsuit citing poor iPhone performance), Apple cult members are in a tizzy. Will the Street be next?

Can the House of Jobs get back on track? Despite major problems in the last 18 months, Apple still tops the ACSI's customer satisfaction survey -- ten points higher than closest competitor, Dell. And sales are robust. Apple shipped 2,319,000 Macintosh computers which represented a 44 percent growth in units sold and a 47 percent increase in revenue for the quarter year-over-year. iPod sales were up five percent in units (22,121,000) representing a 17 percent revenue increase year-over-year and, the faithful purchased 2,315,000 iPhones during the same quarter. Nice numbers.

So, to paraphrase the immortal words of Donnie Osmond, "One bad apple don't spoil the whole bunch girl. Oh, I don't care what they say, I don't care what you heard."

Shelly Palmer is the host of MediaBytes a daily news show featuring news you can use about technology, media & entertainment, Managing Director of Advanced Media Ventures Group LLC and the author of Television Disrupted: The Transition from Network to Networked TV (2006, Focal Press). Shelly is also President of the National Academy of Television Arts & Sciences, NY (the organization that bestows the coveted Emmy® Awards). He is the Vice-Chairman of the National Academy of Media Arts & Sciences an organization dedicated to education and leadership in the areas of technology, media and entertainment. Palmer also oversees the Advanced Media Technology Emmy® Awards which honors outstanding achievements in the science and technology of advanced media. You can read Shelly's blog here. Shelly can be reached at [e-mail]

Comments

[rcpmac]

We are a mac home but no iphones, still in a verizon contract.
In my experience apple has wonderful tech support at the genius bar at any apple store.
I recently brought in the macbook pro because the battery was down to 20 minutes life. It was a year out of warranty and I suspected it was just used up but wanted an official assessment. "yup it has exceeded it's expected # of charge cycles by 50% but no problem we can help you" The tech proceeded to go in the back room and return with a new battery. I signed for it - no charge.
In the past they have replaced my kids ipods at the drop of a hat. I'm completely sold.

Ipod touch
ipod classic
ipod mini
15" macbook pro
24" imac

[tuzigoot]

Mr. Palmer"s representation of Apple"s financials is, at best, inaccurate. In the first paragraph he cites a drop off of 2.1 billion in Apple revenue from Q1 to Q2. He concludes ominously: "Some people think this downtick signals the beginning of an unfortunate trend-line¦"

Fiscal Q1 ended December 29, 2007 " it included Christmas shopping season. Isn"t that why quarters are compared year-over-year?

Apple"s Q2 revenue (regardless of how it compared to Q1) was up 43% over the same quarter the previous year. Apple"s revenue for Q3 (ended June 28, 2008) was not even cited by Palmer -- it was up 38% from Q3 of last year.

All of this information is readily available (by law) for anyone who cares enough to check their facts.

"The major problems began with the release of its new Leopard Operating System."

Leopard was released on October 26, 2007. The first week of the quarter Palmer himself describes as "the most successful in Apple"s history".

In the ten months since leopard was released, Apple"s average share price looks to be about 50% higher than the 10 months preceeding.

[rcpmac]

Spot on tuzigoot

[TrevorAlan]

I'm kicking myself for not buying Apple stock when it was so low and just before Jobs was coming back to the company, but I wouldn't buy it now.

The real danger for Apple is that they've never created a replacement for Steve Jobs. When he reitres or dies, Apple's days will be numbered UNLESS they actually develop someone to replace his vision, iconic status or hypnotism.

[rcpmac]

translation = I haven't learned anything

[Marklar]

I think those MAC VS PC ads are about as realistic as John McCain's political ads. Total lies. Macs are just as problem prone as PCs (since 90% of computer problems are caused by stupid users) and now as far as hardware goes, MACs are PCs, and their new OS isn't even a MAC OS, it is a UNIX platform with a Mac interface...and you can now dual boot your PC with Windows and Leopard.

So what is it that is so great about Mac's? Nothing. It is just snob appeal.

My PC Laptop...$550...your MAC with the same hardware...$1900

The difference? You are stupid.

[TrevorAlan]

Macs are a litle over-priced, but not that much. You CAN buy a $500 PC, but it never has as many features as the more expensive base Mac. A PC comperable to a Mac, with brand-name not some unknown and likely to die components, is only a little less expensive.

[freshpavement]

I bought my wife a new iPhone a year ago and she loves it. I waited for the new 3G and got it a few weeks ago - and I love it. While it is not perfect, no phone is.

My small business (33 employees) runs on 11 desktop Macs of varying vintage, 1 Mac server, and about 25 PC's and 2 PC-based servers.

The Macs just don't have problems. The PC's and their servers are less expensive to purchase, and far more expensive to keep running.

Speaking as the owner of this business, it's making more & more sense to move totally over to the Mac platform

[wolfgangmo]

Speaking as a medical clinic owner who flipped to completely MAC's about 4 years ago, I can tell you that our computer costs have plummeted. Why? Macs just work. And our employees, former WinDoze users all, have all fallen in love with the MAC because they can get more done in less time with fewer hassles.

The biggest problem we have is former WinDoze users trying to find the most complicated solution to any new technical problem rather than trying to drag and drop. In other words, life is simpler over here in Appleland.

[Sundialsvc4]

Apple's problems with the iPhone, from my point-of-view anyway, are simply "marketing."

I need to use my phone in places where sometimes AT&T's towers are not the closest ones. With any -other- AT&T (or otherwise) phone, I simply automagically connect to the strongest network in the area and, you know, "make my phone-call without thinking about it." Perfect!

Why doesn't my iPhone do that? Only because it's programmed not to.

That programming needs to go the way of the dodo-bird ... fast. It might have been a good idea when Apple might have been worried about how well the iPhone would be accepted, but now it's just a mile-wide competitive portal that other suppliers can ... and will ... drive a handheld computer through. Why give business away?

[sink]

You're contradicting yourself.... is it marketing or programming? (I personally think it's both, and in a big way)

[Sundialsvc4]

The hardware of the iPhone is quite capable of tracking multiple cell-stations and choosing the strongest signal automatically ... as most cell-phones do. But this feature is intentionally turned-off, locking the system to "AT&T" (even if "Cingular" towers are in the area!). And this, in my opinion, is a disastrous mistake.

If this stands, then all that Google or anyone-else needs to do is to walk up to me with (say) a Linux-based touchscreen driven phone and say to me, "it's not locked." Bingo... I'm there. Because this competing unit will be a better --telephone-- to me. No matter how good the device may be "as a PDA," it must first-and-foremost be "an insanely-great(TM) Phone" in the actual, practical world of physical geography.

"Take the ball-and-chain off... you don't need it anymore, and neither does AT&T. Let your horse run free."

[joebaggadonuts]

When it works, it's still insanely great. And unlike most products in the spaces where Apple competes, Apple products DO work mostly better than expected, nearly all the time. If perfection is what you are after, you will have to wait until you are dead to find it, and you sure as heck won't get it from Apple's competition.

[stsparky]

More FUD. The 3G iPhone battery issue is easily solved. What remains is what a breath of fresh air to the retail space Apple is.

Apple addresses its' mistakes. Few companies do better.

[sink]

Ha - yes, the 3G battery problem is easy to "fix".... turn off 3G. Heckuva solution!

Apple eventually, begrudgingly addresses their mistakes, yes. Maybe. I'm an Apple fanboy and I have a house and business full of them. 3 ipods, 2 iphones, 2 macbooks, 1 mac mini, etc.

But this recent launch of the iPhone has been a shameful disaster.

[stsparky]

Actually - you should turn off 3G when you have WiFi available. However I was going to suggest you turn off LOCATION SERVICES. And management of when to use PUSH is a good idea too. 3 Million customers must see something in it you don't then.

As stated, Apple does address its errors. Everyone has seen the Mobile Me announcement - right?

[Rule Of Law]

Here we go again. I like Apple, but oddly enough own none of their products, so I think I speak without a particular axe to grind when I say that the sudden flurry of "ooo, ooo, Apple has problems, watch out...!" stories that arise each time they have a great new product release or set records in revenues has become as predictable as Bill Gates using a proxy to sue them each time they threaten his empire--which is quite regularly.

This seems to be the new sport in business reporting and one can only wonder at the timing and vehemence of these quite obviously manufactured "news" items and how the fine toothed comb and magnifying glass seem to be applied only to Apple, when there are so many other companies--Microsoft being one--that have real problems that this sort of coverage could expose to all our advantages.

[LeftRight]

They shoulda stuck with quality, not quantity!

[AuntSally]

I have an iPhone 3G -- it works great. Had it about a month, couldn't be happier. The interface is a joy to use and easy to learn. Voice quality and internet connection speeds are excellent. In short, it just works. Great. (Battery life leaves is a bit lacking, but by turning off 'push' services I get two days of normal phone and internet use on a charge.

I have an iBook G4, still going strong (OS 10.4.11) after 4 1/2 years. (I'd love to buy a MacBook Air, but can't justify it b/c the iBook still works so well.)

I also recently set my mother up on a MacBook, running Leopard -- and running Windows on VMWare Fusion. The entire setup was nearly painless. (I say 'nearly', b/c loading Windows and associated virus accoutrements was a hassle, but no more so than on a regular PC. It's Windows.)

I've had a few frustrations w/ Macs from time to time -- they're computers, after all. But the level of frustration w/ any Apple product I've been exposed to is far less than with any PC or Microsoft product. Vista is awful; Word is a bloody nightmare on any document larger than a letter. (Using Pages now, and the saner for it.)

Apple has been so good for so long, we hold them to a much higher standard than any other tech company. Perhaps trending troubles are worth mentioning, but let's keep things in perspective.

[Sachem515]

Put Leopard on the iBook (10.5.4). Spaces alone will make it worth the price.

[sink]

Unless I just don't use the 3G phone (3G, push turned off), I'm barely able to get a day's use out of it. I want to know what these people are doing who have 2+ days worth of "usage"....

[rgersmrk]

Apple is a fine company that makes good products. I think people (fanboys in particular) are finally realizing that humans run the company and humans make mistakes. Some of the criticism Apple is getting is warranted and it's good they are at least admitting some of their problems (something they've been very reluctant or arrogant to do in the past).

Alot of the hype around their problems reeks of the same things Microsoft got with Vista. Some of it deserved, alot of it just garbage. In the end I guess perception is everything and right now the perception is Apple has a major QA problem with their products.