AT&T: The (Apple) Brand Destroyer 37 comments
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One of the most recognized, innovative and valuable brands in the world, Apple (AAPL), is under assault. Apple has long been known for its fanatical followers, innovative solutions like a graphical user interface or the mouse and stylish products that meld hardware and software to create the best user experience possible.
With several successful product launches, the new Snow Leopard operating system, which quickly rose to #1 on Amazon (AMZN), being available for pre-order and iPhone sales being up 700% over last year which contributed $1.69B to revenue the company looks to be doing well fundamentally.
Many within the cult of Apple are developers who build applications for the iPhone with over 65,000 currently available in the App Store. These are developed at no cost to Apple while the developers hope to have them pass Apple’s arbitrary and discriminatory review process for inclusion into the App Store where significant revenues can be earned. The applications add significant functionality to the iPhone and provide for a better user experience.
But with the stock price rising to about $165, the P/E has soared to 29 and it appears that speculative fervor may be beginning to boil. Fundamentally, Apple’s profitability is inextricably linked to its brand and its venerable brand is now under assault from some of its most loyal (formerly) followers. After all, the opposite of love is not hate but apathy.
EXPLODING IPHONES
The TimesOnline reports, “Apple attempted to silence a father and daughter with a gagging order after the child’s iPod music player exploded and the family sought a refund from the company.”
The iPhone started hissing and then spontaneously combusted flying 10 feet into the air. I have been unable to find a functioning hyperlink to the exploding iPhone app in the App Store though, sorry. Despite Apple’s environmentally friendly advertising this is not the first example of an iPhone posing a serious health hazard. There are many examples which can be found using Google (GOOG).
AT&T – THE BRAND DESTROYER
I remember watching Steve Jobs announce the iPhone. I was incredibly excited and made the decision that I would buy it. When I found out that there would be an exclusive agreement with the notorious AT&T (T) I simply held my nose. AT&T’s core competencies include (1) damaging the customer and (2) destroying shareholder value. For example, over the past two years since this millstone was hung around the iPhone’s neck the share price has fallen from about $42 to $27 or 35% decline.
I have been an iPhone user since they were launched and I even waited in line for hours at launch day. I think the device is that great (it has not exploded yet nor burned down my house or car) but the relationship with AT&T has been absolutely horrible and over-priced. AT&T does not add-value they destroy value.
One of the strategic reasons for the iPhone was for it to be an introductory product for Apple. People who had never bought an Apple product would purchase an iPhone and then after a positive user experience go on to purchase a MacBookPro, etc. Since the iPhone release Apple’s market share for smartphones, computers and operating systems has been rising.
Most new users probably have a good experience with the iPhone so long as they ignore the massive debacles that happened during activation, do not mind being required to purchase the iPhone in an AT&T or Apple store and not online, the serious dropped calls issue and other problems.
Then there are the tethering restrictions which really, really annoy me. I travel often and if I could access the Internet with my laptop through my iPhone’s $30/month unlimited (only on the iPhone) data plan 3G connection then the user experience would be that much better. Overall, this is all extremely frustrating for a luxury product where the cheapest monthly plan is twice what my friend pays for his cell phone.
AT&T is the likely culprit when it comes to the tethering restrictions. Why? So AT&T can attempt to charge more. In fact, AT&T is the likely culprit for the activation issues because it did not want iPhones sold and then jailbroken and then used on a different cellular network. Just blame AT&T for everything that goes wrong.
And if AT&T is not the culprit Apple should still try and shift as much blame as possible to them. But ultimately Apple made an exclusive agreement with AT&T and therefore only so much blame can be shifted before Apple’s brand begins to be degraded by associating with brand destroyers.
GOOGLE VOICE
Another Internet behemoth is moving into the cellular market. Google Voice, currently available by invite only, is one of the greatest innovations for handling voice communications I have ever used. To ease the burden on American solders “Military staffers with .mil addresses will receive Google Voice invites within 24 hours after requesting them.”
Want to integrate Google Voice and the iPhone in order to greatly simplify your life? There was an app for that. On 27 July 2009 TechCrunch reported about all Google Voice applications being excluded from the App Store. It seems ‘a reliable little birdie’, probably through Twitter, told John Gruber of the Daring Fireball that AT&T is the chief instigator of blocking which software can and cannot be used on the iPhone. The move has sparked many customers, developers and even the influential TechCrunch blogger and early adopter Michael Arrington to ditch the expensive luxury iPhone.
Being in the catbird’s seat the Google spokesman throws all the blame for a sub-optimal user experience on Apple:
We work hard to bring Google applications to a number of mobile platforms, including the iPhone. Apple did not approve the Google Voice application we submitted six weeks ago to the Apple App Store. We will continue to work to bring our services to iPhone users — for example, by taking advantage of advances in mobile browsers.
Even the regulators are annoyed with their user experience being disrupted and the Dow Jones reports,
The Federal Communications Commission has launched an inquiry to AT&T Inc. and Apple Inc. over the rejection of Google Inc.’s voice application for the popular iPhone.
BRAND DAMAGE
Apple is taking marching orders from AT&T to degrade the user experience of their most loyal and lucrative customers. Currently, Apple earns $4.8B on $32.5B in gross revenue compared to Dell (DELL), which earns $2.5B on $61.1B in gross revenue. It is Apple’s brand and their focus on the user experience that is a significant factor in the better margins. Additionally, Apple sells premium products that are more expensive.
Apple should learn a lesson from Dell’s past mistakes. I found that Simpson’s video on Apple Hell which must be modeled after Dell Hell which got started by a single little blog post by Jeff Jarvis who later recounted,
But the most telling moment came in a blog post by Toronto venture capitalist Rick Segal, who overheard a bank teller in his office food court saying, “I was going to buy a new Dell but did you hear about Jeff Jarvis and the absolute hell he is going through with them?”
Apple ought to get this situation of exploding iPhones and their relationship with the brand destroyer AT&T under control before they have an absolute PR nightmare on their hands. It is a lot easier to sell another expensive luxury product to a happy customer than attempt to acquire one through intrusive advertising via failing mediums like television, magazines or newspapers.
The 29 P/E ratio is largely contingent upon the ability to acquire new customers at double digit growth rates, sell expensive luxury products and maintain high margins. All of this when there is nothing positive about the fundamentals of the American economy and there is another massive market crash coming. An expected 1.5M unemployed seeing their unemployment benefits cease by year end. They are going to continue cutting any extra expense they can.
If this idea virus that Apple is intentionally degrading the user experience begins to spread it could turn into a full-fledged epidemic. AT&T spends millions on advertising and who believes them? Likewise, every negative blog post that is written, email that is sent and conversation that is had causes damage to Apple’s brand and erodes shareholder value.
CONCLUSION
Apple has a tremendous brand and has been able to monetize it to create shareholder value. Google also has a great brand and is working hard to leverage it to provide a better user experience. On the other hand, AT&T is a giant brand destroyer and has targeted Apple with its Death Star.
Apple’s current P/E is contingent upon virile growth but they are making the same mistakes Dell did which prompted a community to gather and commiserate which spread the idea virus that Dell treated their customers poorly. That stigma still has presence in the social zeitgeist. All of this in the midst of not just a recession or even depression but The Great Credit Contraction. I would stay away for now.
What is Apple thinking? Caveat venditor.
Disclosures: No position in Apple or AT&T. Long Google.
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This article has 37 comments:
While AT&T's association with Apple has some potential to tarnish the brand (for reasons you have pointed out ), you don't make an argument for Apple's alternate choice . What carrier would you have them select instead of AT&T ?
To pay themselves ever more, managements have cut corners wherever possible and that includes completely unaccountable, nearly inaccessible "help desks" reached through lengthy, insanely-designed "help menus" in nearly all American companies now.
The experience dealing with such companies as ATT&T are too well-known to increasingly harried and squeezed customers. Those companies have cultures that perpetuate a miserable experience that never improves as management arrogance is the problem. Bad upper managements seem to perpetuate themselves no matter the gathering storms of reality and even demise of their companies, like GM and Chrysler. Long before a company goes under, they have failed to address serious problems, but CEO's never take a paycut.
Apple seems not immune to the short-term greed of using ATT&T and apparently not addressing a real danger with iPhones. They have been a cut above almost all others in innovative products and a quality user experience with more on the way, I hear. ATT&T has not changed. Apple can afford to fix these problems with the rewards they've reaped and this article points out well the consequences of failure.
I would imagine those other carriers are feeling pretty stupid, about now.
On Aug 05 08:01 AM dieuwer wrote:
> What was the reason Apple did not go with Verizon?
On Aug 05 08:01 AM dieuwer wrote:
> What was the reason Apple did not go with Verizon?
Your argument that T's stock went down during the Great Recession...hmmm, didn't nearly all Stocks go down at least 30 or so percent? That false straw collapses your whole argument, right there. Some places other than NYC or whatever coast you're at have much better T service than VZ service and the crappy dataplans of VZ aren't something to be overjoyed about.
Perhaps Steve Jobs can start up his own cell phone network next???
If anything, fault Apple for not acquiring their own segment of the radio spectrum auctioned a couple years ago. That would have been their chance to really go it alone w/o business parner compromises.
ATT in my area (outside Philly) was not great for the first 6 months, then they upgraded service and now it's fine.
The article has some good points, but it is written by a Google stock holder, sooo...
The iPhone is wonderful. Apple innovates fast and does actually care about its customers. With ATT, they made the best deal they could at the time. It might be a whole new ball game once that deal ends.
Imagine it! One number, a personal number of my own, forever! That I could point to any phone I wanted, plus voice mail! The personal number could be used as a long-distance calling card number too (sorry, I'm dating myself. you see, when you had to make a LD call, you used this number...awww- forget it)
Sadly, they never 'switched on' the auto-forward, cool Universal # program. I never found out why.
Almost a decade after the turn of the century, ATT is a cell phone company that sells Apple phones and Google Voice is going to make the universal number plan actually happen. <shakes head>
Now about cash-for-clunkers...
If you don't like AT&T you are free to buy a non-contract iPhone for $600.
As for the fire, you have ONE or even a few fires out of 200 MILLION ipods sold - do we know for a fact if the person was using an apple charger and not one they picked up for $4.99? Or is the car battery & voltage converter to blame? Was the car parked in the Sun - sometimes close to 150 degrees plus already and then the car battery goes nuts? But of course, blame Apple for 1 fire out of 200 million sold? There are more people who drown in their own bathtubs EVERY YEAR ... who do we blame or try to sue there?
As for the Google Voice thing - there is no law that says they have to approve every app for their products - when it's a competiting product - that's just a fact of life. Just as a bookstore can choose not to sell a book called THIS BOOK CHAIN IS A**, STEAL THIS BOOK (it's only censorship by gov't actions not private enterprise).
Unlike Dell's lackof quality & R&D ... Apple is disliked by open sourcers and hackers and programmers who think they know best on how to w5rite a UI ... they will TRADE useability, UI & ease of use just so they can write their own OS. For that, they have the Google phone (which it shoudl be noted, Google makes ZERO money off of providing the tools) while 98% of consumers do NOT want to program a phone - they want to use it so while 10% of the tech webloggers are loud haters (100,000?), 98% of 6 BILLION people want an iphone. That is the difference.
To a large extent it was my own fault for going against my core Christian values to do business with them in the first place. I had refused to deal with them numerous times before and had been forced to hang up on them on many of those times when their phone marketers just wouldn't seem to take "NO!" for an answer.
Those refusals were partially motivated by having been slammed and ripped off before, but primarily because of their radical left wing politics, promotion of abortion and homosexual partnerships and marriage etc.
But I stupidly gave in when another one of their salesmen came to the door, on his birthday, supposedly, promising major savings and a rebate, and I've paid for that mistake in spades for several years now.
I'll save a lot of the details, but I have been lied to repeatedly, and the prices have been double what they promised. They did not give me a copy of the contract after I signed it and after repeated requests finally sent me a copy two times, with neither copy being even close to legible. They are so light you can't even make out more than about 10% of the letters, much less the words.
Then when I moved offices they did it again. When I called to transfer service to another part of town, about 15 miles away, I was told that even though they were local calls, I could not keep my long time phone number. After some wrangling, I was told I could pay a monthly fee to have them forwarded to whatever new phone line I set up, but would have to pay long distance rates for every call. I was also warned that if I did not use AT&T for my new phone line I would be charged some $1500 for breaking the contract.
I was forced to buy another AT&T line at my new office, which also came out more than double what I had been quoted allegedly with all of the line charges and estimated taxes included. I had been quoted a monthly bill for that line in the low $40s, but it came out in the upper $80s. But I went with Vonage for my second line line and fax line and it came in at about $29 per month for both and was able to keep my original number. It also included unlimited long distance to the US & Canada and a few other areas, far cheaper international rates and all kinds of bells and whistles, many of which AT&T didn't even offer.
I fought with them every month over the price difference and was told that I had been quoted some package deal that wasn't offered any more, but they could give me a different one and dropped my price to ~ $66 for that line. BUT, the next month it would invariably mysteriously go back to ~ $88/ month. So I would go through the numerous phone calls explaining the situation to multiple people, more requests for the contract that no one could come up with until eventually they got the price to stick at ~$66 / month. Until I got a notice that my contract was up and they bumped it back to the ~$88/month unless and until I signed a new long term contract. I paid it for a couple of months before I finally changed out.
BUT, then I was billed for an early cancellation fee of several hundred dollars. I went through the whole rigamarole again explaining everything to multiple people and trying to escalate things to higher managers but eventually was flat out refused to have anything done about it.
Then they turned it over to a collection agency who was sending threatening letters and multiple phone calls from collectors. Once again, I've explained the situation to multiple people but one hand never seems to know what the other is doing.
The whole time I'm getting calls from AT&T solicitors trying to get me to sign up for their service &/or come back. No matter how many times I tell them there's no way in hell another one of their solicitor companies will call back a few days later. I've told every single one of them to take me off of their lists and they all promise to do so, but there must be hundreds of them and they can't take me off of any master list, each of them is completely independent of the other.
AT&T is indeed the company from hell.
How then do you reach the conclusion that AT&T is destroying Apple's brand?
And like another, my experience of customer service with AT&T has in the past two years been MUCH better with AT&T than it wad with Verizon over the previous 5 years in this same area.
So on balance I'm not convinced AT&T is a terrible company. Though I must say that the OLD AT&T I think really was bad and I hated dealing with them. (You remember? That long distance carrier that was impossible to contact or reason with?) Could it be that people are tramatized by old memories and unable to shed them?
Finally, I wonder if Verizon had a deal with apple two years ago if they would have been prepared for the same rapidly growing data demands on their system that AT&T has had to face? Of course think about it. Isn't Verizon the company that cripples Bluetooth on cellphones? And demands control over content delivery? And doesn't do roll over minutes? Didn't Consumer Reports once show that CDMA network phone batteries seem to have about half-to-two thirds the battery life as GSM network phones?
I came in off a Apple News aggregator (i'm a IT guy who works in a shop of macs, gimme a break)
The story itself is kind of funny, Apple is if anything a much larger and more recognizable brand than it was at the iphone's debut, easy to forget Apple was more or less in Palm's current position when they came out. While i agree with some of the carrier complaints, (although I've used all four as well, and they are, like other people have said - all pretty much the same) the exploding phone seems like l-ion batteries in any device can be made to do such things, and i never had frequent call drops, and have owned all three iphone generations.
The pot shots about having to pay for a data plan while your friend's with razor's pay $5 for WAP access is typical in that it's really misleading, You have to pay for that with any internet mobile device.
tech blogs are going through there "enquirer" phase it seems.
On Aug 05 08:51 AM terder wrote:
> This article seems sort of bipolar. It seems to flip-flop between
> praise and criticism of Apple. I'm so confused, <sigh>. I also
> don't see where the (alleged) issue of exploding iPhones is relevant
> in the article. In fact, I've never heard of it and have had my
> device since day 1 as well.
>
> If anything, fault Apple for not acquiring their own segment of the
> radio spectrum auctioned a couple years ago. That would have been
> their chance to really go it alone w/o business parner compromises.
To answer another question:
Why didn't Apple go with Verizon? Because Verizon chose not to go with Apple. That's pretty simple. That mea culpa will be one for the ages. OOPS.
And if Apple had purchased their own bandwidth of the wireless spectrum and were the sole provider in that bandwidth with their sole products, etc., do you not think the FCC would be all up in their shnizzle about it?
Face it, the FCC is being pushed by somebody with a lot of clout, stock in Google, or both. Apple is suddenly king of the hill and everybody wants to knock 'em off.
Which is so funny because the iPhone still only has 2 models, doesn't control the market, and their partnership with AT&T, has severely limited them. But good marketing has made them the corporate enemy number one.
On Aug 05 05:23 AM FreeRange wrote:
> Although I've had my problems dealing with AT&T customer service,
> I have had none of the problems some in other markets claim - that
> is, frequently dropped calls. In fact, I got out of my Verizon contract
> after about 2 months when I switched to AT&T because of poor
> Verizon reception in my home office in downtown Denver!
@JeffDB - AT&T has "radical left wing politics"???? What color is the sky on your planet? AT&T has been a far-far-right org almost since its inception. These are the same guys who called for the overthrow of Allende in Chile when he nationalized their holdings there - and got it, along with having him assassinated, and lots of other nasty actis in South America and elsewhere.
They were mega-donors to Dubya and his Dad, and Ronnie Ray-gun before them, and they never saw a right-wing politician or cause they didn't like.
Not sure what their policy towards homosexuals is, and don't really care, as a person's gender or preference is of minus zero interest to me, and none of my business, though I think they should have the same rights as anyone else. Same for abortions - the last worst form of birth control, but preferable in many case to unwanted kids being born - or even wanted, but to the WRONG parents. (I worked in Juvenile Halls and the Neglected and Abused Home for some time, and BELIEVE ME, there are a lot of folks who should NEVER have kids - or even be near them... and there are kids who would have been far better off never having been born than being born into the places they were.) It is also none of my business (or the govt.'s, or yours for that matter) what other people do.
Not sure how a person can have "Christian values" and be an investor anyway - did you ever consider the harm many of the companies do to the planet and the people of the world? As I recall, Yehoshua said something about "sell all you have, give the money to the poor, and follow me." and his comment about how it was easier for a camel to pass through the eye of a needle than for a rich man to enter into the kingdom of heaven." (Unless the Bible on your planet is as different as the AT&T.)
He did NOT say (to the best of my knowledge), "Yea, verily invest in ye great trans-national mega-corps, and give unto them your gold, for they shall multiply it many times, even as the loaves and fishes, (unless they lose the bundle in their maneuverings and chicanery and with the mega-bonuses they pay unto their CEOs) and despite the damage they do unto tose in the Third World, be thou not vexed, because that exploitation of men, women, and children will gain thee many gold ducats, and they are only sons of the cursed Ham anyway, so piddle upon them." (Nothing personal - we are all just as bad here - I just don't pretend I have Christian (or any other religious) "values" - which (historically speaking) usually means you have to hate and / or kill someone else who believes differently...
As to AT&T - I can understand some of these comments - AT&T as a corporation sucks. Most corporations suck. Even Apple has its suck moments, and I have been an Apple fan for years.
Their tech and customer service personnel have improved greatly in recent years, but they remain hard to actually get to, and yes, AT&T has done damage in some respects to the iPhone, especially in the buying aspects and the "one size fits all" data plan.
As to the dropped calls - I have had pretty good luck with them, and I just found out an interesting factoid - if you are on speaker and you forget or want it more private and hold it to your ear, your ear can cause the mute to go on, seeming to be a dropped call.
Other than that, their coverage is great.
Verizon (who I had for many years, and only left for iPhone) had good coverage and GREAT service - and if they go with iPhone in the future, I may look at them again.
Meantime, Apple is a GREAT product and stock.
(Full disclosure: Bought when it was 86, sold half at more than twice that, still have shares, long on Apple.)
Unquestionably, as this article shows, both the carrier and the device manufacturer have an incentive to behave more badly than otherwise with a closed/cartelized arrangement.
Has everyone forgotten how Apple got destroyed in the 90s by the ultra-compatible PC architecture? They didn't gain back that ground until they became a non-computer gadget company and simply adopted a unix-based OS. Once again they are innovating first, but heading towards flaming out quickly as they try to stop progress towards a more open architecture.
I don't see how their model is going to hold up in this economy.
On Aug 06 01:24 AM Aaron Krowne wrote:
> A lot of the above commentors seem to miss the point that the very
> problem is that ONE carrier has been picked. It doesn't matter which
> one (though AT&T is notorious for a variety of reasons). The
> point is,why in the world should a PHONE DEVICE have only one carrier?
> What a racket. This is the antithesis of a quality outcome in technology,
> where consumers benefit most by eventual openness.
> Unquestionably, as this article shows, both the carrier and the
> device manufacturer have an incentive to behave more badly than otherwise
> with a closed/cartelized arrangement.
>
> Has everyone forgotten how Apple got destroyed in the 90s by the
> ultra-compatible PC architecture? They didn't gain back that ground
> until they became a non-computer gadget company and simply adopted
> a unix-based OS. Once again they are innovating first, but heading
> towards flaming out quickly as they try to stop progress towards
> a more open architecture.
>
> I don't see how their model is going to hold up in this economy.
As someone else pointed out, no one but ATT wanted to take a chance on Apple. So, this argument is completely pointless.
The way to surpass AT&T w/o jail-breaking is to get a MiFi device (via Verizon). This could work both as a home and a mobile WiFi router.
On Aug 05 09:44 PM TheHogKiller wrote:
> Since I've changed the the grossly over priced / rated 3G dropped
> calls have increased from rarely to often. I've yet to discern any
> real speed increase except for the speed of my bank balance being
> depleted. I'd sue for false advertising but they still have more
> money than I've got, not to mention more lawyers.
On the other hand, you inadvertently make a good point that one network had to end badly because there are so many iPhone users now that one network just can't handle the influx.
On Aug 06 01:24 AM Aaron Krowne wrote:
> A lot of the above commentors seem to miss the point that the very
> problem is that ONE carrier has been picked. It doesn't matter which
> one (though AT&T is notorious for a variety of reasons). The
> point is,why in the world should a PHONE DEVICE have only one carrier?
> What a racket. This is the antithesis of a quality outcome in technology,
> where consumers benefit most by eventual openness.
> Unquestionably, as this article shows, both the carrier and the
> device manufacturer have an incentive to behave more badly than otherwise
> with a closed/cartelized arrangement.
>
> Has everyone forgotten how Apple got destroyed in the 90s by the
> ultra-compatible PC architecture? They didn't gain back that ground
> until they became a non-computer gadget company and simply adopted
> a unix-based OS. Once again they are innovating first, but heading
> towards flaming out quickly as they try to stop progress towards
> a more open architecture.
>
> I don't see how their model is going to hold up in this economy.