Mobile Wars: Why Apple Might Lose to the Insurgents
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple (NASDAQ: AAPL)has a penchant for innovating – especially on others’ turf. For example, Apple created the stunning iPad. It buried Research in Motion’s Blackberry. Sony’s Walkman didn’t stand a chance against the iPod. And now it looks like Pandora has reason to be terrified.
But a history of innovation could come to a close if Apple is not careful. On September 12 Apple released its much-anticipated iPhone 5, what CEO Tim Cook calls “the biggest thing to happen to iPhone since iPhone.”
From an engineering standpoint, Cook may be right on the mark – but from the never-before-seen-upgrades that customers have come to expect, Apple has missed the mark.
Preparing for Battle
iPhone 5 has a few neat features. The camera has been improved, and the device features engineering upgrades. The new phone is 4 inches diagonally instead of 3.5 inches – a 15% increase. The larger screen allows users to view a fifth row of home screen icons, where users could perhaps view Apple’s new version of iTunes.
Thickness and weight are also different. The new iPhone is 18% thinner and 20% lighter than the previous version, impressive improvements. Finally, Apple is hooked up to the LTE network – which stands for long-term evolution – enabling it to download data up to 10 times faster than 3G networks. Furthermore, users will use this feature with Apple’s fast, new processor and iOS 6 software.
Still one problem remains. Apple is known as a marketing genius for clearly defining its products’ benefits – showing users exactly how they will feel when using their products. But the iPhone 5 is void of emotion. In contrast, Apple’s competitors launched products that are full of emotion. Could this be the last year that Apple runs the smart phone show?
Competition Strikes
Competitors have introduced state-of-the-art upgrades. Below are some of the key features that the iPhone 5 is missing.
Google’s (NASDAQ: GOOG) Android operating system is cutting-edge. The phones sport an NFC – near-field communication – chip that allows users to use Google Wallet to pay for merchandise. Instead of swiping a credit card, users can simply touch their smart phone to a payment scanner at stores.
“Face Unlock” is another trailblazing feature. Face Unlock allows users to look into their smart phone to unlock it. Users: say goodbye to sliding the lock/unlock screen upwards and typing in a password.
Piggybacking off Google, Samsung has launched a feature that lets users touch their smart phones together to share pictures, web sites, contacts, and videos. E-mailing large photos or passing on contact information used to be a hassle, but Samsung’s innovation eliminated it. NFC technology enables this feature.
On the engineering front, Samsung developed a 4.8 inch screen, 20% larger than Apple’s screen. Improved screen size will be helpful to frequent travelers whose smart phones double as laptops.
Unexpectedly, Nokia (NYSE: NOK) boasts the “coolest” features. Nokia’s new Lumia 920 and 820 phones, which run on Windows 8, sport a wireless charger. Just set your phone down on the charge pad and the phone instantly begins to recharge.
Nokia also has what is viewed as the best smart phone camera, and the company made upgrades that allow users to unlock the smart phone with gloves on – a feature that no one has touched.
Finally, Nokia redefined how users interact with their smart phones. Nokia’s “tiles” allow users to pull information directly to their home screens instead of burying them in apps. For example, you may decide to put your new e-mails on the bottom of your home screen and your new text messages right above them. Of all the usage features for all phones, the tiles layout is the most innovative.
Winning the Battle
Despite having a shortage of features, the iPhone 5 will be a massive hit. Apple executives have joked that each new iPhone sells more than all the previous iPhones combined. This year should be no different.
In addition to having the three largest U.S. carriers as iPhone distributors, Verizon, AT&T, and Sprint, Apple has added the world’s largest carrier China Mobile. Expect the iPhone 5 to break records.
Also, Apple is a hit-drive company, meaning that the company’s share price is driven by its earnings, but also from the hype that its products create. That is one reason why the company’s price to earnings ratio is significantly less than other tech companies like Google, Amazon, Netflix, and right on par with Microsoft. I expect Apple shares to continue higher as the iPhone 5 takes off.
Nonetheless, Apple must get back to its roots of selling innovation and benefits, not just features. Research firm Gartner forecasts that Apple’s market share will jump from 18.9% to 22%, but that Google’s Android phones will earn 60.3% of sales versus 46.5%.
Apple has a strong history of creating markets where none existed and taking old products and redesigning them from the inside out. Research in Motion and Sony can tell you that. I expect Apple to continue this trend, but if the company wants to keep its strong position in the smart phone market, it had better get prepped for battle.
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ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
