Tag Archives: Apple

Tech Companies’ Customer Retention

As my Apple Iphone 4 is approaching three years old and is starting to have some problems, I have been researching some new mobile phones and seeing what is out there. While I haven’t made a purchase yet, the two I was deciding between are the Samsung Galaxy S5 and the Apple Iphone 5s. With Apple’s most recent software update for their Mac computers (OSX Mountain Lion), you are able to use iMessage on your laptop. When it dawned on me that if I switched to the Galaxy S5 I wouldn’t be able to use this feature, my mind was made up, I would be sticking with an iPhone.

It is worth noting that usually Apple’s major operating system updates would cost twenty or thirty dollars. The most recent one was free. While I am sure that there were other reasons, I am also sure that this idea of getting Macbook users to stick with the iPhone by adding a whole new level of seamless interaction between the devices was part of the justification for giving this software update away.

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While the above infographic shows that this problem of customer loyalty isn’t really an issue for apple, it is for many other major tech companies. This got me thinking of ways that tech companies can do a better job with customer retention. As the example above demonstrates, Apple’s messaging feature being linked to their laptops got me to stick around as an iPhone customer. Many have noticed this trend of high customer retention with Apple. South Park even made an episode that made drew parallels between Apple and a cult or religion.

Clearly Samsung, LG and the others could take some lessons from Apple. With Blackberry’s terrible decline from the dominance they once held over the smartphone market, these companies have a lot of incentive to learn a thing or two about customer retention. As this driving sales article points out, and in line with the example I gave in my introduction, Apple’s products work flawlessly together. This is one benefit to the fact that you can’t buy Apple’s software unless it comes preinstalled on one of their machines. This is much different from Microsoft’s Windows or Android’s mobile operating system, that can be used on many different brands’ devices. While Apple’s policy on this has drawn some criticism, from the standpoint of brand loyalty, it has surely been a winning strategy.

Amazon’s New Smartphone, Apple’s Conern

In the second half of 2014, Amazon plans on releasing a smartphone. Yes, a smartphone. We all could have expected it at one point, but with all the other new releases Amazon has pushed out, like the Fire TV and the drones for delivery, I was definitely not expecting a smartphone release this soon. This launch would jump into the market dominated by Apple and Samsung as well. How big of a concern should this be for Apple?

According to Chief Executive Jeff Bezos, “he prefers Amazon to profit from customers buying services through Amazon hardware, rather than profit from the devices themselves.” As Amazon claims to seek to boost sales of digital content, Apple should still be very concerned. This is more or less of a judo strategy by using the puppy dog ploy. Amazon will be looking to keep a low profile and avoid the head-to-head battle based on product alone. But I believe that once Amazon is capable of gaining some market share, they will be able to define the competitive space and follow through fast. A very interesting feature on the new Amazon smartphone will be its screen capable of displaying 3-D images without special glasses.

What does Apple have to lose? Although Apple focuses on creating products that delight customers, there is more to it. An article in Forbes written by an employee at Apple states, “ I’ve come to realize that Apple’s future depends not on its ability to make elegant products, but rather its ability to create a platform for the 10,000 best developers to reach and serve customers via apps.” The employer also mentions that “future blockbusters will come in the form of new platforms through which developers can touch our lives.”

Will this be Apple’s only chance to stay on top? Is Amazon just trying to increase their product sales online? According to The Wall Street Journal, “Amazon has been inviting select app and software developers to hotels to demonstrate the handset in suites protected by security guards.”

Amazon is truly looking to expand in every direction. From their online store, to new products such as the Fire TV and potential smartphone, Amazon is looking to test the waters and reach out to customers in a variety of ways. The key asset they have is their online store where it all began. They have the power to reach consumers at a physical level. It seems that Amazon will want to be the only online store customers should go to. And the new smartphone is one way to help the process. If Amazon can then dominate their own app platform, Apple better look out.

Microsoft released its iPad version Office

Today is a big day for Microsoft Office: Microsoft released the new version of this software for iPad, which is owned by the company’s main rival—Apple. This is not only a new day for office, but also this is the first decision made by Microsoft’s new CEO Satya Nadella, who is believed to process the capability to change the software giant into a new direction.

What’s more important, for the company itself, this decision is also an essential strategy change that was never been expected in the era of its former leader—Steve Ballmer. According to the article on WSJ:

Still, the decision to launch the iPad version now—at Mr. Nadella’s first public appearance as CEO and before Microsoft refashions Office for Windows-powered touchscreen devices—is symbolic of his move away from a Windows-first strategy.

Some critics judge this movement by Microsoft as a surrender to Apple, because by releasing the iPad version office software, Microsoft is suggesting that iPad has some productivity in opposite to its previous claim. And since the Office software is the only advantage for windows tablet against iPad, this action will surely destroy this last “defense” of windows tablets and make iPad a “perfect” winner against Microsoft’s own production.

But personally, this is a very clever move made by the software giant.

First, from the perspective of overall situation, windows tablet’s failure can’t be saved by office only. From those graphs below sourced in Guardian.com, we can find that the share of Microsoft in tablet market is never changed much even we know the office software can always run on it.

Second, currently the most important task for Microsoft is to maintain its dominant position in the field of production software. Office is still the one with most market share now, but as the share of iOS devices increasing over time, it’s not impossible for its position to change. Because if less and less people use it, then the chance of it to be replace becomes higher. Microsoft is trying to do something to reduce this risk.

Third, this decision will not benefit Apple a lot. From the official site of App store, it is showing that those office tools are free. What does this mean? it means Microsoft is not selling those softwares for profits, it is reclaiming the market share that should belong to it long ago. And also i personally think it’s uncomfortable to use offcie software on a phone or tablet, the number of people who want buy iOS devices will not increase a lot becasue of the existance of office apps.

In addition, if to say something in a bureaucratic tone, i will say Microsoft is turning its focus on its own profit to the welfare of all consumers.

Apple + Comcast

There has been recent talk of a deal forming between Apple and Comcast. Apple will benefit from the deal because they have been looking to jump into cable for a while now. Apple can also complement Comcast because it can benefit Comcast’s huge scale. Apple has a 22 million video subscriber base, a huge portfolio of content, and owns NBC, partial stake in Hulu, and just recently signed a big deal with Netflix. Comcast can benefit from the deal because they have been losing subscribers lately (see table below). With the help of Apple’s brand name and quality, a new streaming-video service from Apple will potentially allow both companies to refine the TV business.

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In terms of the actual streaming-video service, “Apple wants traffic to the boxes to be marked as distinct from public internet traffic and travel in a separate flow of bandwidth over Comcast’s cables to homes, ensuring better quality for Apple’s TV service than Web video.” The content from the service would stream from Apple set-top boxes. However, the companies are not close to closing a deal and there is no guarantee that there may even be a deal in the future. Also, a deal as big as this is bound to face regulatory scrutiny.

Moreover, Apple proposes that its video traffic be treated as a “managed service” traveling in internet protocol format- similar to cable video-on-demand services. In January, Federal “net neutrality” rules were passed which barred broadband providers from discriminating against any public internet traffic. However, the rule makes exceptions for managed services because they don’t interfere with other web traffic.

Opponents of the deal (in favor of treating all internet service traffic equally) argue that the deal would allow Comcast to pick winners and losers and ultimately make it harder for new innovative companies to join the internet service. As we have learned throughout our Econ courses, increased competition raises entry costs and barriers for new competition. In my opinion, I believe that the two companies have good intentions- but I actually feel that the deal could have a negative effect. If Apple and Comcast paired up, I can foresee extra fees added to cable bills that will become active as consumers are provided with new, higher-bandwidth services. I actually just recently cancelled my Comcast service because I was being billed for extra irrelevant costs that they had never specified up front. If the deal is passed, I can definitely foresee the FCC re-writing the “net neutrality” regulation in order to prohibit the TV business from becoming more highly monopolized than it currently is.

Apple Vs. Samsung: Failure to Settle Patent War

Today, Yun-Hee Kim from the Wall Street Journal reported that Apple Inc. and Samsung Electronics Co. failed to settle in their patent dispute in the U.S., which will therefore lead to a courtroom showdown this March. This trial this March will decide the dispute between these two companies over whether Samsung’s line of products, including the Galaxy S III smartphone, infringed on patents held by Apple Inc. This dispute comes even after a U.S. federal juries ordered Samsung to pay a total of $930 million after the company was found to have infringed on Apple’s intellectual property.

This has been a highly prolonged and costly feud for both companies. Although Apple has largely won out against Samsung in the U.S., they’ve spent more than $60 million over the past 3.5 years in legal fees. This begs the question, is all of this litigiousness worth it?

Patent lawsuits are largely a zero-sum game. The company who is found to be infringing on the patents of another will have to dole out money for a number of damages, including profits lost by the opposing company due to competition, legal costs to the opposing counsel, and royalties on future profits from products that use the patent in question. Despite the heavy penalties that I’ve just listed, this is actually often a best-case scenario for a company who is found guilty of infringing on another’s patent. When both companies have significant market power and high profits stemming from the patent in question, the more important reason for a patent owner to sue a potential infringer is to simply knock them out of the market if the defendant is found guilty by having a judge issue an injunction against the infringing party. The injunction prevents the infringing company from legally selling any products that use the infringed patent. This strategy is called “patent hold-up” and there are a number of variations including the “patent surprise” and threats of injunction. An appropriate metaphor comes from boxing: either you can try to knock out your opponent in the ring, or you can save yourself some pain and get the opponent disqualified before the match even starts.

The patent hold-up strategy is especially effective when a company’s patented invention is only a small component of a potentially infringing company’s product. In the words of Carl Shapiro, professor of business strategy at UC Berkeley’s Haas School of Business, “by obtaining an injunction, the owner of a patent who prevails in patent litigation, as a practical matter, has the power to stop the defendant from selling even a non-infringing version of the product, at least until the defendant can redesign its product and introduce a non-infringing version.” This gives the patent holder, even of a weak patent, incredible legal power over potentially infringing companies. This especially important in the tech industry, where one product may incorporate tens of thousands of patents, but the launch of the product could be held up if the company infringes on even a single patent. This one of the main reasons why many companies have begun to compile enormous patent portfolios. We have seen this recently in the tech industry, for instance in the acquisition of the Nortel patents in 2011 by Rockstar Consortium Inc. whose members include Apple, Inc., Blackberry, Ericsson, Microsoft, and Sony. One of the direct effects of Rockstar’s Nortel patent acquisition was the response by Google to purchase the floundering Motorola Mobility, a company that also holds a sizable patent portfolio. To further evidence Google’s motivations to use Motorola Mobility for its patent portfolio, Google sold Motorola’s handset business to Lenovo in late January, only holding onto a few key technical divisions and the majority of Motorola’s patent portfolio. Despite Google’s purchase of the Motorola patents, Rockstar responded last October by engaging in “patent warfare” by launching lawsuits against 8 different tech companies including Google and Samsung. As we have seen by these lawsuits, success in the tech industry could in part be considered akin to turf warfare.

To answer my previous question: from the perspective of the patent holder this level of litigiousness is not only worth it, but mandatory in certain “Darwinian” industries such as big-tech. But what about from the perspective of the consumer? In my opinion, it’s largely not. For one, patent warfare distracts many of these companies from their primary goal: to bring world-changing technology to the mass market. While many of these large companies can easily afford the legal fees ($60 million is pocket change to Apple, which has a cash holding of nearly $150 billion as of October 2013), not all of them can bear the cost of having their product taken off the market. Consumers lose in this scenario as well, as they have a smaller basket of truly innovative products to choose from. To quote Supreme Court Justices Kennedy, Stephens, Souter, and Breyer in their concurring opinion from Ebay vs. MercExchange, “When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, […] an injunction may not serve the public interest” (Ebay, Inc. and Half.com v. MercExchange, L.L.C., 547 U.S. 388 (2006)). As a consumer of many of the products coming out of the big-tech industry, I hope legislators will work to change the patent law code to diminish the important of “patent trolls” and encourage companies to instead focus on innovation

Apple’s Problems

It’s hard to find something blamable of the company that earn most aggregate profit per year in the worldwide, but investors of Apple are still not satisfied about it.

Falling from its top point of $700 per share in 2012, this technology giant is facing more and more challenges now. According to this article, Apple’s stock price is keeping slide down after the company’s announcement that the sales volume of iPhone in the last quarter of 2013 was not as good as predicted. Until now, iPhone is still the core product of this company and accounts for more than half of the total revenue. Actually, the success of iPhone has been accelerating the businesses of Apple in the field of tablet and personal computer.

I think Apple must solve several problems simultaneously to keep itself safe in the foreseeable future, what I mean “safe” here is to keep the first place among all the companies.

First and the most important, search for the next growth point in the market and get rid of the dependence of the company on iPhone. I feel that companies like Apple, and also Samsung are facing the saturation of the high-end smart phone market. Apple is experiencing demand decline of iPhone now and it is trying to expand market in Asia countries like China and Japan. According to Daisuke Wakabayashi of Wall Street Journal, “Apple introduced the new phones in China without a delay; it also inked a long-awaited deal with Japan’s largest carrier, NTT DoCoMo Inc.”

Second is find the balance between profit margin and product quality. In order to boost sales of iOS product, Apple has kept the prices of iPhone and iPad constant for 7 years, we can expect that they will also not be changed in the future. So the margin of those products can be calculated once we know their costs. Apple needs to upgrade its iPhone every year to attract consumers switch to its new generation phone, this will definitely increase the cost because many new techs need to be applied on the newest iPhone. So the result is, Apple must sacrifice its product margin in exchange of sales. So to keep the margin high, Apple changed phone’s components to drag down the cost. And this brings another problem: consumers may not want to upgrade their phone because they expect the lower quality of the new phone.

Then the last is the balance between innovation and the limitation of technology. I personally think that the upgrade speed for Apple’s product is too fast now. I used my two old Nokia phones for almost 10 years and now people around me changes iPhone every year. The problem Apple must face is they need to make a trade-off between their short-term profit and long-term sustainability. If Apple applies many new changes in their new product, it will boost sales now but for the next year, people may not buy the new iPhone unless you come up with more surprising features. The truth is our technology is limited so you can’t waste all your good ideas on one product in a single period. But if Apple don’t use new features on its current phone, then the performance this year is going to be terrible.

As long as it is taking the top spot, the company have to solve those problems or it will be replaced soon.

Apple in 2014

Apple stock tanked on Tuesday, dropping $44 dollars per share, or nearly 8 percent.  That means that lost a mind-numbing $39 billion in market value in a single day.  This sharp just was the result of lower than expected sales, with 51 million units of the iPhone selling in the 4th quarter.  All this information leads to the question: Should investors be worried about the future of Apple?

They are many good reasons for answering no.  It’s 51 million units sold set a quarterly record, and that was a 7% increase from the same time period during 2012.  Furthermore, nobody really knows what Apple has up it’s sleeve, and time after time they have been able to reshape markets.  No company in recent history has been able to reshape people’s daily lives like Apple. Apple continues to enjoy high profit margins all its devices, even the newly released iPhone 5C, and thus there are still large profits to be made even without being able to trend-set in a new market.

There are also many reasons for believing that Apple is coming to the end of it’s growth potential.  First is that the iPhone now makes up a substantial portion of both Apple’s revenue and its profits.  Industry experts have guessed that about 70% of Apple’s profit in the most recent quarter came from iPhones.  Thus, Apple is reliant on the success of the iPhone, but their market share is falling, with iPhones accounting for only 15% of the global sales of smartphones.  As emerging markets demand cheaper alternatives, Apple has failed to provide; Apple has had the most success in richer markets, like the U.S. where brand recognition is the highest.  Seeing as emerging markets are the largest opportunity for smartphone sales growth, and Apple isn’t exactly dominating those markets, it seems like Apple is missing a large potential for growth.

A second reason to believe that Apple will have a hard time continuing to grow is that their product line is not as innovative as in previous times.  The recently released “cheaper” alternative, the 5C is neither than much cheaper than its cousin the 5S, nor did it do well.  This is the second time in the post-Steve Jobs era where an Apple product has more or less flopped (with the first being the infamous Apple Maps).  Apple hasn’t released a groundbreaking product since the iPad, in 2010, just under four years ago.  I for one believe that the post Steve Jobs Apple has not done as good of a job either innovating or at the very least selling their products to people.  Perhaps the creative juices have dried up at Apple, or their best people are leaving.  For example, the management of Nest, recently acquired by Google for $3.2 billion, is littered with ex-Apple designers.

Third, is simply the nature of growth.  Apple is a huge corporation, and growing simply becomes harder to do when a firm is large.  The 40% average growth over the last three years in the heyday of the iPhone era was simply unsustainable.  To keep growing at that rate would require way more marketshare than would ever be possible.

For these three reasons, I believe that Apple’s growth will begin to taper heavily, and that the reduction in stock prices were warranted.  Does this mean that Apple as a company will face tough times?  No, I believe that Apple will continue to enjoy large profits.  Apple will still continue to be a giant company with great (and perhaps overpriced) products.  But, for the time being, I think it might be time to look elsewhere to find a stock that will substantially outpace market growth.

(Samsung Electronics + Google) >= Apple Inc. is a question.

On January 27th, Samsung Electronics Co. and Google Inc. announced that they signed a contract which will allows them to all of their technology patents with each other for at least next 10 years. This was not a much of surprise news to Apple Inc. but, I bet it can be the least pleasing news of the year, 2014 for Apple Inc. According to the Wall Street Journal article, this global patent deal between Samsung Electronics and Google will give a huge advantage to Samsung in defending some of litigation by Apple Inc. Numerous litigations and law suits between Samsung and Apple have begun since 2007, and those issues are still very hot potatoes. There were approximately more than 50 relating lawsuits around the world, and each outcome of lawsuit have brought substantial damages to each company. You may want to read more about their “fighting” which is known as “smartphone patent wars” on Wikipedia or inside the Wall Street Journal if you are interested to read about more. However, what I am trying to focus on my blog is not about their processes of lawsuits or to favor a company over another. Better yet, I would like to share my ideas about the values of their fighting. In the path of my unorganized contemplation, I came up with some definitions. I think all the similar technology patent lawsuits occur so frequently is because we are now in what I call “Second Phase of Cyberspace Globalization”. So what I mean by this second phase of cyberspace globalization? I will explain.

My definition of “First Phase of Cyberspace Globalization” starts from the invention of internet. Not many people had access to the internet in 1980s. However, within two decades, by the beginning of 21st century, uses of internet among lay people became very popular. Having benefited from the using internet or the world wide webs, the Merriam-Webster Dictionary’s definition of “globalization” was more strengthen. What this means is that people were benefited from the faster flow of capitals and communication around the globe using Internet. For example, more trades could be made globally, and this made us, earth people, more close together.

“Second Phase of Cyberspace Globalization” begins with debut of Apple’s iPhone 3. What I think Steve Jobs did for all of us have really opened the next generation of cyberspace involvements by us. Smartphone made the world even a smaller place, because in cyberspace, precisely the inside of smartphone world, there is no such a thing as “F-1 visa” to access information inside of United States. Since, there are less border restrictions than the physical world people live in now, big companies like Google, Facebook, Apple, and Twitter started to attract people to live by their “rules”. I see this is the core value of the fight between Samsung and Apple. Because Samsung and Google agree that having more users inside their world are just as good as collecting taxes inside the United States or from any other nations. My analogy of Google and Samsung having more power is like having a right of collecting tax.

In future, we may see a company that can exercise more “power” than what a nation can do for their people.  Thus, “Smartphone patent war” inherited the same characteristic of winning war strategies that were used in many wars. Simply fact that Samsung is the biggest smartphone producer in the world and they use Google android platform for all of their smartphone made them inseparable. They need more people to live by Google’s rule rather than Apple’s. So they fight together against Apple. Who will be the survivor of the “Second Phase of Cyberspace Globalization” can be worthy of paying close attention as much as people care about Fed Policy. Because I believe in next 100 years, Google’s policy change or Apple’s policy change may have greater impact on jobless rate than changes made by Federal Reserve.

Apple Dwindling? Not Really

Today, news about Apple’s profits last quarter hit the media – with much exaggeration. The hype seems to be about the company’s profits – which fell slightly short of its projected figure. Had the company had negative profits, then the hype would be understandable. But this isn’t the case; Apple still had a $13.07 billion profit last quarter. The Wall Street Journal article reporting on the news (Apple Reports Flat Earnings for Holiday Quarter), explains that the company “is coming off its first decline in annual profit in more than a decade.” This decline is from a $13.08 billion earning in the same holiday period, a year ago.

However, the company still saw an increase in share value and in sales. According to a Bloomberg article (Apple iPhone Sales Trail Estimates for Holiday Quarter), Apple shares are currently $14.50 a share, up from $13.81 a year ago. Analysts had predicted shares to be valued at $14.07 – which the current value has exceeded. Additionally, sales rose 5.7% to $57.6 billion – analysts had predicted $57.5 billion in sales. Apple said in a statement today that “it sold a record 51 million iPhones for its fiscal first quarter that ended Dec. 28, missing analysts’ estimates of 54.7 million handsets.”

It seems like the focus on this report is rather skewed. Why should Apple be reprimanded for not having met analysts’ projections – which are after all an estimate – when it still saw immense gains? Instead, we should simply look at the reports and conclude that analysts slightly over-estimated profits that quarter.

Let’s put things into perspective. According to the Fortune 500 list, of the wealthiest companies in the US, Apple ranks number 6. Above General Motors, General Electric, and Ford, it is among the companies with the highest revenue today. In fact, in terms of profits, it is the second-most profitable company in the US (after Exxon Mobil). Its gains are roughly $41.73 billion annually. And it is well ahead of the third most profitable, Chevron at $26.18 billion.

Understandably, this poses concern for stocks. While its stock is down 1.9% this year, it has increased 26% in the past six months. When the report came out about its earnings, Apple stock fell as much as 9.1% in extended trading. But this is probably heavily influenced by media reports that negatively portray the news.

I agree that Apple has to diversify itself and introduce new products, because competition is getting more and more intense. However, to say that it is in trouble because its gains fell slightly, is a huge exaggeration. Like I said, it is still one of the biggest companies in the US and is even more profitable than many oil companies.