The Origin of Brands Blog

Apple's Golden Goose

Jobs makes surprise cuts

Less than 3 months after the most hyped product introduction of our time, Steve Jobs shocked the world when he abruptly discontinued the 4-gig iPhone model and chopped $200 off the price of the 8-gig model.

“That’s what happens in technology” was Job’s initial response to the outrage expressed by owners and critics alike. That’s what happens when a product is in trouble is my response.

Apple loyalists, who in some cases camped outside stores for days to be the first to get their hands on the all-in-one iPhone, now look foolish for being so quick on the trigger. The gall of Apple to cut the price so quickly was seen as a thumbing of its nose at its most devoted followers. Not a wise move. Even Apple legend Steve Wozniak personally blasted Apple in a recent article.

Not surprisingly, a negative PR firestorm erupted and public outcry was heard from the blogosphere to the media to the water cooler and beyond.

Jobs gives lame $100 credits

In a lame attempt to neutralize the negativity, Jobs then announced he was giving iPhone buyers $100 Apple store credits. Wow! Attempting to placate the 8-gig $600 suckers with a $100 Apple store credit is just adding insult to injury.

No cash refund, only store credit? In my experience, this never works out in my favor. Store credits usually make me buy something I don’t really want or need for more than the dollar amount of the credit. If it had happened to me, it would piss me off even more than the price cut.

How many things can one possibly buy for $100 in an Apple store anyway? Not too many. The only real product would be the iPod Shuffle at $79. But come on, the reason people are supposedly buying an iPhone the first place is the desire to have only one device that does it all. Ergo, you don’t need a Shuffle.

All this is not good news for Apple’s iPhone. Yes, they have told us the have sold 1 million phones. But that is wholesale not retail. For all we know, 500,000 phones could be sitting on the shelves at Apple and AT&T stores. And by most accounts the phones are readily in stock, as AT&T ads point out on almost a daily basis.

Also, I have never heard of a product, even a high-tech product, having its price cut so fast. Usually companies cut prices only when a next-generation model comes out that is faster, lighter and has double the memory. That didn’t happen with the iPhone nor did stiff competition arise. The only thing stopping the iPhone seems to the iPhone itself and its homage to the false idol of convergence.

If the iPhone were truly living up to anything near its hype, then Jobs is the dumbest person alive. Lesson number one in business school: You don’t drop the price on winners.

iPod Touch gets ignored.

The really interesting angle to this saga is the recent introduction of the latest iPod, the iPod Touch. Its launch has been mostly overlooked and usurped by iPhone mania. After the over-the-top iPhone hype and its dramatic price cut, the media were just not interested in giving much ink to another Apple product.

Furthermore, without any exciting new functions that weren’t already included in the iPhone, the iPod Touch has little news value. It is basically just a smaller iPhone without the phone or email access. Big whoop.

This disregard of the iPod Touch is tragic. The iPhone took the wind out of the iPod Touch’s sails before it got the chance to set sail.

iPhone - Convergence = Touch

The iPod Touch is brilliant. The iPod Touch is revolutionary. The iPod touch is everything the iPhone is not.

It you take all the convergence stuff out of the iPhone and leave in all the cool features, you end up with an iPod Touch. Not a all-in-one, but a great music player.

The iPod Touch is a high-capacity media player with a touch screen that connects to the internet and Apple’s new mobile store to buy music and watch videos.

The reason the iPod Touch is so great and the iPhone so problematic is that the two main functions of iPhone, the phone and music player, are at odds with each other.

Both a phone and music device are considered essential tools that people can’t live without for even brief periods. Both use a lot of battery power. Both are used for long periods of time during the day.

The disaster of sucking the battery dry while out for the day is easy to imagine. Out of the office and your cellphone battery dies? Disaster. Two miles out on a 4-mile run and your music player dies? Disaster.

Jobs loves to create cool things. And Jobs is a great salesman. Initially the media, the market and consumers eat his stuff up. But eventually you come crashing back to reality.

iPhone is distracting Apple

The iPhone is a distraction not an opportunity for Apple. A novelty product built on the technology whims of Jobs and another in a long line of convergence chasers.

In theory, everyone would like to carry one device, have one card in our wallet, shop at one store for everything and drive a flying car to work. But the reality is that none of these is ever likely to come true. It is not the way the world works.

Size, price, memory, and battery life always end up bursting the convergence balloon. From flying cars to media center PCs to N’Gage, Newton and the iPhone.

What Apple should have done is to put its marketing and PR muscle behind the new iPod Touch.

The golden goose.

The iPod is the goose that lays the golden eggs at Apple. Overlooking it and not giving it its proper attention is foolish. The iPod resurrected Apple from the ashes. The iPod is the leader in the growing MP3-player market. The iPod is the dominant brand in the U.S. with over 60% of the MP3-player market. Taking your golden goose for granted is unwise in the competitive and fast paced world we live in. Just ask Dell.

Apple has some serious work to do globally where its iPod is less than dominate and more than vulnerable. In Europe the iPod has only a 20% market share which includes a 40% share in Britain.

Distractions are not what Apple needs. A focus is what they need. The way to build a monster brand is to attain global dominance. Which is what Nokia did in cellphones, Red Bull did in energy drinks and Google did in search.

Clearly the time for Apple to launch massive iPod marketing programs in both the U.S. and the rest of the world is now, while the brand is riding high with ground-breaking technology and a heap of iPod killers lying in wait. But the distractions and confusion created by the iPhone are likely to slow the iPod’s momentum and keep it out of the fast lane where it rightly belongs.

Instead Apple is cooking the goose that has laid the golden eggs.

Hello, can you hear me now?

The only other PR event that even compares to the iPhone circus was Harry Potter. But unlike iPhone, Potter delivered on its hype, selling 8.3 million books on the first day.

In terms of Apple's numbers which were released yesterday afternoon. Apple said that it had "shipped" 270,000 iPhones by the end of the quarter.

Yet only 146,000 were activated by AT&T. Assuming that some 10 or 15 percent of the iPhones sold weren’t activated (for some reason or another), that would make actual sales under 175,000 for the two day period.

Look at the situation from Apple’s point of view. After six months of incredible publicity (more than for any other product in history), what would Apple like to see happen when the product finally went on sale?

I think they would like to have seen 90 percent or more of the Apple and AT&T stores sold out of iPhones. To make that happen, they would have had to ship fewer iPhones than they expected to sell.

Since Apple shipped 270,000 iPhones, they obviously expected to sell well over 300,000 units. (Pundits predicted 400,000, 500,000, even 800,000 units in the two-day period.)

Why restrict deliveries in the first place? Apple wouldn’t have wanted to offend its loyal fans. After all, if a store doesn’t sell out on the first day, all those people who waited in line for hours are going to feel cheated.

In fact, anyone that waited in line for days must feel a little silly today. There was obviously no rush and no shortage of the devices.

Is the iPhone off to a great start? I don’t think so. Furthermore, I expect to see a gradual weakening of iPhone sales in the months ahead. The bad PR surrounding these early sales figures is obviously damaging.

Convergence captures the imagination and generates hype, there is no doubt about that. But divergence brings home the bacon. That is the message I hope to get out loud and clear.

iPhone sales disappoint, despite hype

For a product dubbed the Jesus-phone, which received more pre-launch hype than any other product in history, it looks like a major miracle might be in order. Today has not been good for Apple’s iPhone, as underwhelming sales numbers hit the street with a thud and sent Apple’s stock price down sharply.

Many analysts had predicted 500,000 or more iPhones would be sold in the first few days. Yet AT&T said they activated only 146,000 iPhones in the first two days. To make matters worse, CIBC World Markets said demand for the iPhone has had a significant decline in the past 10 days and that stores are stocked with the devices.

One interesting side note to this story is that the iPhone publicity could turn out to be great news for BlackBerry. A CIBC analyst noted that the iPhone has "significantly increased awareness for email devices. And that is a positive mainly for RIM, the brand of choice for email devices."

When more consumers realize how great it is to have mobile email they will more often than not go to BlackBerry, the leader and originator of wireless email.

One of the biggest downsides for heavy email users is the lack of a real keyboard. It is the same problem for all multi-use devices; you have to sacrifice something to get everything.

The heavy email user wants a keyboard and a decent sized screen; the heavy phone user wants a much smaller device with a numerical keypad; the music user wants an ultra-small device, the internet/video user wants a large screen. And they all want ultra-long battery life. Even God can’t produce that.

There’s still a long way to go before the true fate of the iPhone is decided. But it’s fair to say, today was not a good start.

iPhone news items today: Bloomberg, CNN

Some of my previous iPhone posts: just good enough, what is driving the hype, crappy device, convergence questioned.

And let's not forget this classic Ries Report with Al's iPhone predictions filmed back in February for The Ries Report and now posted on our You Tube channel as well. The report is long so it is divided into 2 parts.

Ries Report: iPhone predictions part 1

Ries Report: iPhone predictions part 2

iPhone, just good enough

It is not really the Jesus phone, the iPhone is just another smartphone. It is not even the first smartphone (the way the iPod was the first high-capacity music player.) It is not different, just dressed up a bit.

The bottom line is that smartphones are compromised. The phone, email, music and internet functions are very different from one another. One small device doing all of them cannot be better than individual devices doing each of them. It is a fact of life.

With the iPhone, Apple has definitely produced the best, most fantastic smartphone ever. It is a beautiful and elegant piece of hardware with simple well designed software. But it is still a smartphone, a multifunction convergence device.

The question is: Will smartphones or multiple devices be the future? Only time will tell.

Short term, Apple addicts will gobble up every last iPhone that goes on sale this Friday at 6 pm. But will the iPhone dominate the telecom market the way the iPod has dominated the music market?

I doubt it. Why?

Because I believe consumers prefer "better." A convergence product like the iPhone can only offer up “good enough.”

RAZR is a "better" phone. BlackBerry is a "better" email device. Nintendo DS is a "better" game player. Garmin is a "better" mapping device. iPod is a "better" music device.

Some of these products even be could better if manufactures would stop trying to add more functions to the babies and just try to make them better, smaller and cooler. That is exactly the strategy that gave us the iPod.

My iPod shuffle needs to be tiny so I can run with it. My BlackBerry needs to be big enough so I can type comfortably. A little of one combined with a little of the other and you get a device that performs poorly at both functions. In other words, it gets trapped in the mushy middle.

The question is, will consumers be willing to compromise on battery life, size, price and easy of use in order to get an all-in-one device that doesn't perform better than the sum of its parts?

Sure, a few people will buy iPhones for the sake of convenience. Sure, a few people will buy iPhones because they are so in love with Apple that they would buy a bridge if Steve Jobs tried to sell it to them.

But the in long run, the vast majority of people will prefer their "better" individual devices. Especially companies wised up and created more divergence products.

Don't be fooled: Despite the hype, the deals and the massive advertising smart phones still only have around 10 percent of the market.

Opportunity comes from pulling things apart not putting them together. The devices of the future might plug together or network together, but they will all be individual “better” products.

What is driving the iPhone hype?

At this point, I don’t think anybody could live up to the incredible hype the iPhone has received, even Jesus. But the more interesting question is:

What is driving this unprecedented hype?

Steve Jobs is a master salesman. But what has really fueled the iPhone hype is the success of the iPod.

iPod is the most revolutionary product of the 21st century; it built the digital music category and dominates it with 70% of the market. 100 million iPods have been sold and iTunes has sold over 2.5 billion songs.

The hype and intense media, consumer and Wall Street excitement comes from the impression that the iPhone will become another iPod (it even has a similar name.) And that Jobs will do in phones (a market 4 times the size of music players) what he did in music. In other words, he came, he saw, he conquered.

Nothing could be further from the truth. If the iPod is the biggest success of the 21st century then iPhone is likely to be the biggest flop of the 21st century.

The problem stems from the fact that the iPod and the iPhone are drastically different products despite the similar name.

The iPod is a divergence product. It does one thing extremely well: plays music.

iPod was the first hard-drive music player in the mind. It could hold thousands of songs versus all the other MP3 players that could only a couple of CDs. iPod was different, unique and brilliant. It also took off slowly. Initial reaction was lukewarm at best.

But truly revolutionary ideas always take off slowly. People don’t change overnight. It has taken years for photography to go digital, or for people to fuel up with Red Bull or Starbucks.

Smaller companies are actually more successful at building new categories because they have the determination and patience to focus and use PR instead of advertising. On the other hand, big companies usually ignore these small markets until it is too late to get in.

Red Bull was on the market for 13 years before Coca-Cola introduced its own energy drink, a me-too product called KMX which fizzled quickly. It took Red Bull over ten years to reach $100 million but last year it was a $3.4 billion dollar business.

The iPhone is the opposite of the iPod. The iPhone is a convergence product. It tires to combine multiple functions into one device. It is also nothing new. There have been many convergence devices in the past and all have been failures. Including: ROKR, N-Gage and the Nokia Communicator.

Convergence means compromise

Convergence products capture the imagination of the media and public but the devices can never deliver on their promise of nirvana because all convergence devices are doomed by compromise.

In order to produce an all-in-one device, the device has to make compromises: battery life is short, the device is difficult to use, it is too large and it is too expensive.

The iPhone will likely have problems with all these things. If you are watching movies, surfing the internet, checking email, listening to music and making phone calls, how long do you think even the best battery could last?

The most troubling aspect of the iPhone is the touch screen keyboard. The touch screen is a compromise in order to have the screen as large as possible. In general, people like to feel a keyboard and the technology is complex. Even Jobs admits it will take people time to get used to it.

It is also worrisome that no one has really been able to try it yet (could there be problems?) Talk is that the product was rushed to market and announced at MacWorld before it was actually debugged and ready.

The touch screen is not like the click-wheel on the iPod. The click-wheel made using the iPod easier and simpler. The touch screen will make using the iPhone more difficult.

Remember the Newton?

The iPhone reminds me of another over-hyped Apple convergence product: The Newton from 1993. The product was launched after the success of the Macintosh and received enormous hype.

John Sculley called it a complete reinvention of personal computing. The key function being its handwriting recognition technology.

But the handwriting recognition had major problems from the start. News story after story told of the funny and mistaken translations the device made.

I think the iPhone could face the same problem, as consumers have difficulty with the touch-screen keyboard. Hitting one key to play a song is one thing, typing out multiple emails on a touch-screen is another. I have enough trouble getting money out of the ATM with a touch screen. I don’t think consumers will necessarily welcome this technology for a keyboard.

The iPhone ad campaign

At this point massive advertising for the iPhone is not only unnecessary but looks desperate. Why does Apple have to advertise a product that is not available yet and already has widespread recognition? Perhaps Apple is nervous?

The ads themselves are not simple or elegant. They look like a desperate attempt to try and justify the hype and explain the product. All the product demonstration in the ad does is to show how truly complex the iPhone is. Not a good thing. Simplicity sells. Complexity scares.

The iPod advertising is perhaps one of the greatest ad campaigns of all time. The simplicity of showing the white ear buds and the “iPod” name is pure brilliance. It does what great advertising should do: Reinforces the brand in the mind.

Apple has brought us many revolutionary products over the years from the Apple II to the Macintosh to the iPod. Unfortunately, I don’t think the iPhone will be one of them.

iPhone, a crappy device?

Will it or won't it succeed? That is the burning questions for almost everyone these days when it comes to the iPhone. You can easily find passionate predictions on both sides of the fence. My prediction is failure for the iPhone, which you know from reading this blog.

In the last few days there have been more press reports questioning convergence which raises my hopes that the convergence craze will finally come crashing down.

In the Sunday’s Atlanta Journal-Constitution, Bob Keefe asked “If you believe the hype” when it comes to the phone. He quoted Al who compared the craziness of the iPhone publicity to another classic brand disaster the Ford Edsel. Here is an excerpt from the article:

“Whether the iPhone lives up to its hype, of course, remains to be seen.

But Ries, the Atlanta marketing consultant, said he thinks the iPhone will be "a disappointment" because consumers generally don't want all-in-one "converged" devices.
Ries said overhyped products usually face an uphill climb.

"The more advanced the hype, the more publicity a product gets [before launch], the more likely it is to fall," he said.

"And let's face it," Ries said. "The last product that got this much hype was the Ford Edsel."”

And last night on The Daily Show with Jon Stewart, Jon delivered a classic comment on the fruitlessness of combination convergence devices.

During a discussion about Ultimate Fighting, which is a mixed Martial arts sport, Jon says that by combining all the fighting disciplines you lose the form and artistry of each. (Indeed Ultimate Fights usually just ends up with two guys rolling around on top of each other on the ground.)

John Hodgman refutes Jon’s statement with “So why combine a cellphone and a camera then?”

Jon comes back with “Why? That’s my question. You just end up with a crappy phone and a crappy camera.” It receives big cheers from the audience and at this point Hodgman concedes that Jon wins the round.

This is the bottom line on all convergence products, when you combine functions you don’t get the best of breeds, you just end up with a fruitless mutant. Or has Jon Stewart described a crappy device.

The iPhone will do a lot of things but it will do nothing well. And that is why it is destined for failure.

The Ries Report

The Ries Report is live! Our exciting new project, The Ries Report, a weekly marketing news report delivered by Al and Laura Ries, is now playing live on the Internet. Watch us today at www.TheRiesReport.com.

Currently Al and I are in China for a seminar and media tour. Later this week I'll be commenting on the biggest branding problem facing China, how to best position the city of Beijing and what Lenovo should have done with the IBM brand.

iPhone predictions

Seth Godin is putting out a challenge on what will happen with the iPhone. iPhone is the one product every marketing pundit seems to have an opinion on. And Seth and I are no exceptions.

Seth quotes Steve Ballmer and myself in believing iPhone will not be a winner. On the other side, Seth sides with iPhone and predicts 2 million units in 2007 and more in 2008.

It will be interesting to check back on this one next summer to see if iPhone can claim convergence success or it becomes the final convergence product to break the camel's back. Will the convergence bubble finally burst?

The best way to predict the future is by studying the past. But in doing so, you need to separate what you want to happen from what you predict will happen.

Right now most people carry multiple devices and most people dream about being able to only carry one.

But dreams are different from reality. In reality, one device cannot do it all, at least not very well. Being able to do everything, means you are usually not very good at any one thing. In general, convergence products are difficult to use, larger, more expensive and have poor battery life when compared to the original.

In the future, the phone, the wireless email device and the music player will each evolve in different directions.

Why? Study history. Look at the computer and the television. Many thought these would naturally converge so that every home would have one device. Not so. I still have a TV and a computer. In fact, I have multiple varieties of each. Don't you?

Instead of becoming more similar, televisions have become huge, giant sized devices with HD and other features. And computers have become smaller with the majority of units sold being laptops.

The same will happen with portable devices. The cellphone will become smaller. The BlackBerry might become bigger (It would be easier to type and read on.) And the music player will come in two varieties. The travel iPod and the home iPod. I have both a shuffle and a Nano myself. Running with my Nano now feels like I have a desktop computer strapped to my arm.

Early iPhone sales are likely to be brisk. Apple's amazing ability to generate PR will no doubt attract many Apple fans and early adopters to purchase an iPhone. Just like they bought a Newton back in the day.

But I stand by my prediction that the iPhone will not be a long-term success. What we will see instead is further divergence not convergence. Remember Apple's brilliant iPod is a divergence device.

That's my opinion. I am officially on the record. Check back after the iPhone has been on the market for a year. Was I right or was I wrong? Only time will tell. If I am wrong, I'll buy Seth an iPhone.

Apple put all the chips on white

It seems they are everywhere, iPods, Razrs, and Howard Stern. Brands with huge momentum and strength. And competing against them seems impossible. How does this happen?

Apple, Motorola and Sirius took three great ideas and then focused on them. They focused their resources, their marketing, their PR and their entire companies on these three ideas. They took products that represented a small percentage of their total sales but a large percentage of their future hopes and made them the essences of their companies.

Creating a big branding winner is not just good for one brand, but it creates a halo effect for the entire company. Success breeds more success.

Look at Apple Computer. The company has struggled for years with 3% of the personal computer market. Long considered to have a cooler and better product that the Wintel machines, they have been unable to make much headway against Hewlett-Packard and Dell.

Then along came the iPod, a new little music player product. So what did they do?

Apple put all of its chips on white. They put the entire company’s might behind the iPod. The majority of its promotion, advertising and PR dollars went to the iPod despite the fact it was initially an insignificant percentage of Apple Computer’s sales.

The result? The iPod is a runaway success and it’s leading a turnaround at the computer company itself. Apple sold 14 million iPods in the last quarter alone.

But despite 2005 being a sensational year, the iPod and iTunes together still only represents 39 percent of the company’s total sales. The other 61 percent of sales continue to come from computers, peripherals, software and services. The rest of Apple had greatly benefited from iPod’s success. Apple’s computer sales were up 26.8% over 2004. And today they have 4% of the PC market. The halo effect.

Yet look at how do most marketing dollars get spent at most companies?  A little over here, a little over there, and some there. Most companies allocate resources across all of their brands. Taking all its eggs and putting them in one brand’s basket, strikes most marketing people as risky.

Not only that, putting all your eggs in one basket makes the brand managers with empty baskets a little more than angry. It takes a strong and determined leader like Steve Jobs to pull off such a strategy, but the rewards are clear. Focus delivers. More companies need strong leaders with the conviction to focus.

Look at Motorola. In the third quarter of 2005, the company shipped 38.7 cellphones. But of those 38.7 million phones, only 6.5 million were Razr phones, 16.8 percent of the total. Yet almost everywhere you look you see only see Razr being promoted; you might think it is the only product Motorola sells.

Sirius satellite radio did the same thing. It has come storming back from a slow start against market leader XM. How? Out of the 120 channels offered on the network, Sirius is only promoting only one, Howard Stern, the crass and controversial shock-jock from New York. Stern is not for everybody, half of the Sirius subscribers probably never want to listen to the channel.

Does Sirius offer other exciting programming? Absolutely. But the focus on Stern has generated enormous PR. The focus on Stern has created memorable advertising. And the focus on Stern had boosted subscribers from 660,000 in 2004 to 3.3 million subscribers today. Myself included.

What should your company do? Take a look at the brands in your stable and pick your best bet. Even if it is small, even if it represents 0% of today’s sales, put all your energy and efforts into making this one brand a big success.

Focus. Make your best horse a big winner and the whole barn will share in the glory.

Nano

All signs point to iPod’s nascent Nano becoming a huge hit. Apple’s iPod is a divergence brand if I ever saw one. And the new Nano enhances Apple’s reputation as the country’s most brilliant exploiter of divergence concepts.

Divergence products create a new category, have a new name, and perform a single function. Example: Gameboy in handheld games, Palm in handheld computers, Nokia in cellphones, Lexus in luxury Japanese cars, BlackBerry in wireless email.

Diamond Rio pioneered a new category, the MP3 player. Then Apple introduced the iPod, the first MP3 player with a hard drive. Now there were two categories of MP3 players: flash memory and hard-drive players.

The Nano makes it three categories. Instead of the 20 or so songs a traditional flash memory device can hold, the Nano has a high-capacity flash memory that can hold up to a thousand songs.

Apple is also making a wise move my discontinuing the iPod Mini which would have become a product in the mushy middle between the mega storage of the iPod and the small size of the Nano. The marketplace, just like nature, favors the extremes.

Unlike divergence devices, convergence products try to bring two categories together. Most companies are chasing this dream with products like interactive television, the tablet computer, the TV computer, and the smart phone.

But even Apple made the error of partnering with Motorola for the ROKR phone which can play iTunes. The early reviews were mostly negative and sales have been dismal. Yet critics still insist that Apple needs to hurry up with a true iPod/phone combo. And that they face a big risk by not going after the iPod-phone market quickly. Even though the ROKR is a failure, critics don’t ever question the validity of the convergence theory but rather insist that product execution is at fault.

Wrong. What iPod needs to do is stay away from phones all together. Animal species don’t combine and neither do product categories. While flying cars, auto boats, interactive television and smart phones capture the imagination of the public, they seldom do well in the marketplace. Think about it. An auto boat at best will only float like a car and drive like a boat.

A Nano will beat the combo device every time.

Apple’s iPod is not going to be a monster brand because it took a great idea and looked for ways to move it into phones. Apple’s iPod is a monster brand because it took a great idea and made it even better. Nano is another step in the right direction.

Divergence is the key to branding success.