Is Apple the Next Iomega?

Style isn't forever.

Apple (Nasdaq: AAPL  ) is not forever.

Even with its stock trading at less than half of its 52-week high, I'm not sure if the company's mortality is common knowledge. Even with the company offering guidance for the holiday quarter that at the low end implies a year-over-year dip in revenue, the Steve Jobs shrine glows with scented candles.

I'm a realist. I'm a historian. I'm here to tell you that coolness fades like henna tattoos, denim, and my childhood dream of flying to the moon. Apple is hot, but it won't be cool forever.

Z is for Zip
I've been writing for The Fool since 1995 and have been a member of the community since 1994, so I had front row seats to the Iomega revolution. The company may have bowed out quietly after being acquired by storage giant EMC (NYSE: EMC  ) earlier this year, but it was the cool kid in town when it introduced its Zip disks toward the end of 1994.

Iomega's stylish cobalt blue Zips were elegant and functional. With superior storage capacity to floppy diskettes, it became an essential PC accessory. Tape storage rival SyQuest tried to make its mark in the niche, but it was too late. Iomega was gobbling up market share and all of the style points.

We all know how it ended. Zip ultimately handed the baton to CD-Rs, flash memory cards, and USB drives.

A is for Apple
Apple is far more diversified than Iomega ever was, but the company's flagship Mac line was languishing until it rolled out the iPod. Where would Apple be today if it wasn't for that one introduction?

Apple has gained market share in 14 of the past 15 quarters, and it's hard to fathom that happening without the iPod's "halo effect" in its favor. Even the runaway success of its iPhone -- where it outsold market leader Research In Motion (Nasdaq: RIMM  ) during its most recent quarter -- would have been a challenge if it wasn't for the iPhone doubling as an iPod touch.

However, one can't dismiss the rare software duds in Apple's recent history or the slow adoption rate of its Apple TV gizmo. Maybe they are just lacking iPodiness. Maybe they are too far out of Apple's sweet spot. Maybe -- just maybe -- halos fade, too.

D is for Doh!
The Simpsons lampooned the aspirational Apple Store concept over the weekend. Having Matt Groening poke fun at a killer brand isn't necessarily a death sentence, though I do recall Starbucks (Nasdaq: SBUX  ) trading much higher when an animated Bart Simpson was walking through a Springfield shopping mall where every other store was a Starbucks.

None of this would matter if Apple wasn't arrogant. At least then it would be self-aware enough to recognize the cracks and rush in with the caulking gun. Unfortunately, Apple has been slow to pick up on its flaws.

iPod revenue in the latest quarter grew by just 3%. Sure, iPhone sales have donned cannibal suits there, but who is to say that the iPhone is eternal? Google's (Nasdaq: GOOG  ) open Android platform is going to carve out a slice. You also have RIM putting out more consumer-friendly BlackBerry products, and this morning's introduction of the cool Nokia (NYSE: NOK  ) N97. It should raise the smartphone bar with its widescreen touchscreen display, full QWERTY keyboard, and a five-megapixel camera that you can actually use to take great snapshots.

This brings us back to the company's refreshed MacBook line. Surely nothing can bring down the "I'm a Mac" crowds. Even last month's admission by Apple that Mac owners should load up on "multiple" antivirus programs -- after years of mocking PC makers for their hacking vulnerabilities -- won't get in the way. Right?

Well, let's see how those Macs are selling. I love to lean on Amazon.com (Nasdaq: AMZN  ) to get a pulse of where consumer tastes are heading. I pointed out how six of the nine top-selling products during a spot check early last December were MacBooks. This morning, Apple doesn't even crack the top five in portable computing. Netbooks are the hot sellers. Apple doesn't make them. It's sitting back and studying the market, but apparently doesn't know how to "make a $500 computer that isn't a piece of junk."

It's a big mistake for Apple to let a new, low-cost niche gobble up market share. At least Iomega tried its hand in putting out rewriteable CD drives. Apple is going to somehow believe that it can reach the masses with premium pricing, even in this soft economy. My friend Tim Beyers agrees with Apple's stance, but I don't.

Either way, even Apple's own guidance is pointing to the real possibility of lower revenue this year. That means that between iPods, Macs, and iPhones, one or more of those categories will be in decline.

So, is Apple the next Iomega? Will open source smartphones and netbooks be the CD-Rs and flash memory solutions that booted Iomega from the cool kids' table?

I'm worried, but what do I know? I'm still waiting for a cobalt blue iPhone.  

Marketing mantras on parade right here:

Starbucks and Nokia are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Starbucks, Amazon.com, and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz really does find himself surrounded by more and more Apple appliances these days, but he does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (19) | Recommend This Article (14)

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  • Report this Comment On December 02, 2008, at 4:59 PM, riwaterman wrote:

    I guess if you don't write a column you don't get paid so I encourage you to write a column everyday ... but perhaps you should have some substance to the article.

    I also was around when iomega was the great storage alternative and I even bought their stock - which certainly did very very well for a while and then dropped like a rock.

    What i don't like about your article is that it is full of "what if's" and especially what if Apple hadn't done this or that or this didn't sell -- the reality is that they did the right thing, made the right products and continually are way in front of the competition. Certainly every company may fall on its face tomorrow but right now Apple is certainly running as well as any company could and in fact is doing better than most.

    aapl, the stock, is manipulated and it has wild swings and certainly, I believe, is undervalued recently.

    Will Apple's products not sell as well this quarter in comparison to last years similar quarter? Apple has already signaled low estimates. So NO ONE should be surprised if Apple's earnings are down - the feds finally acknowledged today that the country is in a recession!! for the last year. Do ya think that might affects sales of all companies.

    Black Friday's sales were reported as being 7% greater than last year. I thought that was spectacular. The reaction from many ... doom and gloom ... that sales have probably spiked early and that sales will be down overall for the season unless there are more discount days. (so no one can be upbeat about anything.)

    By the way today it was noted that the iPhone has 16% of the entire world smartphone market (Needham) and second only to Nokia.

    AND also today it was noted that iTunes has 12.6% of ALL U.S. music sales.

    Some day Apple could reach the end of its creativity and start to lose sales but I don't think it will be in 2008 or 2009.

  • Report this Comment On December 02, 2008, at 4:59 PM, MurphyMacdotCom wrote:

    Apple's comeback might have started with iPods, but it shined a light on a better OS than the Windows everyone struggles with at home.

    Windows NT was built by a UNIX guy. NT was a dull copy of UNIX - and incomplete. That history is rolled into every version of Windows since - and made worse as MS has tried to blend them all together without starting clean.

    OS X is built on UNIX. ON it. Not an imitation.

    Put more simply, people are tired of Windows and dying to try something different. The alternative is Apple, and the ball is just starting to roll. The comparison to iomega isn't really valid. You said so yourself: Apple is far more diversified than Iomega ever was

  • Report this Comment On December 02, 2008, at 5:01 PM, MBelly wrote:

    We're getting tired of the 'Fool's' yo-yo tech predictions where Apple bobs up and down depending on where the market prices it's stock. Apple is like cilantro, you either love it or hate it. As an investor, I like Apple because the stores are crowded even during a recession and they have lots of cash. Your 'halo' theory is baseless and irrelevant. The smartphone market is on the first floor of a skyscraper and all the contenders are going to win - especially Apple.

    You guessed it, I'm one of those fanatic share holders that feels some big news will come in a small, sleek design and ripen off the big money tree.

  • Report this Comment On December 02, 2008, at 5:02 PM, jkahlon wrote:

    You may be right on the first 6 but of the top 20 notebooks at Amazon Apple still has 5 in there.

    Obviously you are the expert however the market for the cool crowd may still be intact as these folks still have the purchasing power.

    At the low end is where margins will get impacted greatly and this is where Apple does not play.

  • Report this Comment On December 02, 2008, at 5:13 PM, simsasa wrote:

    As an engineer and product developer, I can say the part you are failing to see is how difficult it is to make Apple products. They are extremely difficult to make as good as they are (size, fit and finish, software performance--user experience in general). There is effectively some copy protection built in with physically not being able to make products as good. This was not the case with Iomega.

    I kept waiting for all the iMac copies, but was never a big fan of those, so figured the market wasn't there. When the iPod came out, I gave competitors a year to catch up. Where is the iPod competition? No worries--that's mostly moot with cell phones playing music, right?

    So now, the iPhone. Where are the copies? Is lack of a real competitor almost 2 years since it was announced indication of the "hardware copy protection" I mention above?

    Witness the Blackberry Storm. Did you see the reviews? Sure, many of the issues are software-related, and will be fixed in time. But it will be a while before user experience approaches that of an iPhone, and love or hate Apple, they definitely won't be resting on their laurels in that same period of time.

    Will you make us a promise to refer back to this article in two years if Apple hasn't flopped by then?

  • Report this Comment On December 02, 2008, at 6:11 PM, TMFBreakerRick wrote:

    You're all awesome. Five responses that respectfully disagree with me on certain points. Now THIS is a discussion worth having. I owe each of you a response.

    riwaterman, you're right that it's soft all over, but I'm telling you that Apple computers are now being lapped by netbooks this holiday season on Amazon. This quarter is also the introduction of the G1 Android phone and Nokia N97 and BlackBerry Storm, so let's see how things play out. As for iTunes, Apple rocks in digital music. No argument, but a lot of the iTunes sales come from new iPod buyers who simply buy up the tracks they have on vinyl. As iPod sales go the other way, iTunes will suffer.

    MurphyMac, Apple is no longer the only alternative to Windows (which you won't catch me defending, by the way). Nearly half of all netbooks come with the Linux-flavored Ubuntu. It's NOT Windows, but it's also NOT Apple.

    MBelly, I certainly didn't invent the halo effect theory. The most arden of Apple bulls have called it that. If you think that Mac would have grown in popularity without the iPod, you may want to recheck the timeline of how good things began happening for Apple after the 2001 introduction of the iPod.

    jk, I hear you on the margins for netbooks and light laptops. However, their very existence -- and current popularity -- are problematic for a company trying to move $1300 MacBooks when Dell, HP, Acer, ASUS, etc. are pushing clearly inferior but $300-$400 netbooks.

    Simsasa, you'll get no argument out of me on the quality of Apple products. My concern is just that when you try to turn a niche premium product into one for the masses, you force yourself to price aggressively (which is something that Apple HAS done with its iPods). And I trust Apple won't flop in two years, but an arrogant Apple (as it is today) will most likely not see it coming when it happens.

  • Report this Comment On December 02, 2008, at 6:35 PM, MurphyMacdotCom wrote:

    Linux is not a viable mainstream operating system for home users.

    Netbooks with Linux won't last. Only people who like to tinker will ever buy more than one. You don't see desktops with Linux taking off in a significant way. They've had years to get that started. It's not working.

    In fact - it reminds me of OS/2 Warp. That was IBM's chance to get back in the consumer game. Windows 95 was being delayed over and over again, yet IBM couldn't get any traction. The same thing is happening again.

    As a techie it's so easy to forget how small the geek population is. The masses need the ecosystems that come with Apple and Microsoft.

  • Report this Comment On December 02, 2008, at 8:58 PM, RipRagge wrote:

    I guess this post must be filed under "Amuse." Although I don't find such an (at best) disingenuous post to be very amusing. Possibly this is written to encourage the next wave of short-sellers.

    Apple is growing sales of Macintosh computers, entertainment devices, and smartphones in a recession.

    Apple's sales of Macintosh computers, iPhones, and iPods are growing faster than the rest of the industry each sector.

    The iPod and iPhone are the standards against which like devices are compared. (There are mythical iPhone killers; no Android killers exist.)

    Apple has $25,000,000,000.00 in cash.

    Apple has no debt.

    Arrogant?

    I'm sorry to break this news, but when you're that good, humility is optional.

  • Report this Comment On December 02, 2008, at 11:40 PM, usssa9 wrote:

    apple does not now, or has ever, cared. They will bring in the new --quit crying about money.

  • Report this Comment On December 03, 2008, at 5:29 AM, yvesvdb wrote:

    So the total value represented on amazon 25 bestseller list:

    Netbook: average 400$ x 18 = 7 200

    Mac's: average 1400 x 7 = 9 800

    margin Apple 4x ....

    share Apple 20 % ....

    Me thinks Apple is wise ... they make as much money as the whole netbook club on Amazon tops 25

    (if I where HP, I would be worried ...;-))

  • Report this Comment On December 03, 2008, at 10:57 AM, nixtr wrote:

    I think the main difference for Apple is that they are without a doubt doing all kinds of forward-looking research, and determining their course carefully.

    Jobs is about as crafty an old veteran as they can make, and he will not be easily fooled by missteps on future endeavors.

    Apple will not be outdone on ease of use, style, and seamless integration with other Apple gadgets by ANYONE in the near future. It just is too expensive to do what they do, and no one has the cash but them.

    The products mentioned by other companies are going to have all kinds of integration/update issues that will kill the user experience for mere consumers.

  • Report this Comment On December 03, 2008, at 11:15 AM, WakeJKirk wrote:

    Interesting article, I'm not sure if I agree with it but I can see why one would think Apple is arrogant with their pricing and mentality.

    I would just like to point out that the "big news" of Apple recommending that antivirus be used was debunked yesterday:

    http://gizmodo.com/5100996/false-alarm-apple-mac-os-x-anti+v...

  • Report this Comment On December 03, 2008, at 11:35 AM, beyondanonda wrote:

    Perhaps Apples arrogance is a hinderance but also it is part of their genius. Re. Iomega you cannot simply ignore their dismal quality record and the insane timing of their product family introductions. There is no fair comparison here.

  • Report this Comment On December 03, 2008, at 12:08 PM, joshbk wrote:

    Thanks for the article, this from a younger person who didn't follow Iomega. The article did have a lot of hypotheticals, but its best lesson seemed to be in distinguishing tech fads from tech innovation. It's easy to forget that even such a geeky high-tech area as computers is susceptible to the wax & wane of consumer fads. Apple products - be it laptop or ipod - contain an element of personal user-identification (Iike shoes), not found in Microsoft products. (I guess the analogy Microsoft : Apple as Ford : GM has been pretty drawn out). But then again, it's different focuses and strategies. Feeling personally connected to your computer operating system is about as likely as feeling close to your car engine. Sure you're always depending on it, but ultimately it's still under the hood, not being flashed to the neighbors. Not to say that one's better than the other, just that they have categorically different vulnerabilities.

    My mind's split in this area. Microsoft's weaker connection to public fads, I'd think, would be an advantage in keeping it focused on good science & keeping popular trends & speculation an arm-distance away. But then again, technology is getting smaller & people are taking it with them. So it would make sense that a company banking more on personal identity would benefit in our modern times w/the move towards mobile devices.

  • Report this Comment On December 03, 2008, at 3:04 PM, yzfinance wrote:

    I appreciate your article, but as a geek and an investor, I have to disagree with some of your points.

    You are correct in saying netbooks are increasing in popularity. You are correct in saying Apple benefits from a halo effect. You are correct in saying it has its bad products, and that competition is fierce.

    However, comparing Apple to Iomega is fundamentally flawed.

    I was there during the Zip craze (unfortunately I was a SyQuest customer, eh). The flaw in your argument is that Apple and Iomega make two completely different products. One is a piece of electronic that's equivalent to apparel, transported daily by its users and provides them with entertainment. The other is a piece of electronic that stores data.

    iPod/Macbooks store the entertainment/life of their users, yes, but more than just that, they are being actively _used_. There is user interaction with those devices, and their sexiness appeals and is experienced daily. Zip drives store the entertainment/life of their users, but are passive devices. You use the Zip drive through your computer.

    The point I'm trying to make is, Iomega made a tool, a commodity. Once that tool is replaced by a better one (burnable CDs, flash drives), it cannot come back because intrinsically, it cannot compete. Apple makes a device that delivers content, be it music, video, games or whatever. The need to access content will always be there. If I was making an analogy, magnetic tapes for music is gone. Iomega was making the tape, Apple is making the device that reads tape. Walkmans and portable cd-players are almost gone, but devices that play music are still there. The two companies are not in the same business (after all, if they were Iomega would have been bought by Sony or Dell, not EMC, right?).

    Just to finish, a comment about Apple's strategy for netbooks (or anything else): Apple copies competition. That's what they do, but they improve on it. MP3 players were not novelty when iPods came. Smart-phones were not novelty when iPhone came. And yet, 2 years (not sure?) after the arrival of the iPhone or many many years after the arrival of the iPod, competition is still playing catch-up. Apple's user experience is still better than most, they still package incredible technology better than others. Will that always be the case? No, of course, but it's the case now, and if you're a historian, you know it rhymes.

  • Report this Comment On December 05, 2008, at 5:59 PM, tangotommy wrote:

    I remember Steve Jobs saying, in effect, "Nobody wants to watch movies on a tiny little screen." Now his tiny little screens outsell everyone else's.

    He recently said that Apple hasn't figured out a way to make a tiny little computer that's worthwhile. That's code for "We're gonna make a netbook that'll knock your socks off!" You have to know how to interpret his language. Amazon's klutzy Kindle is probably in Jobs' sights too.

    Nokia's N97 costs way too much; Google's Android, if its user interface is anything like everything else Google has made, will be garbage; and RIM's BlackBerry Storm is a user interface disaster.

    I am very happy with my thousand shares of AAPL stock that cost me $7.50 apiece.

  • Report this Comment On December 09, 2008, at 6:26 PM, leicestercityfc wrote:

    Surely with $25bn in the bank, they make hay while the rest try to keep their credit lines open. This article is a stretch, obviously Apple are arrogant, obviously all good things come to an end, but Macs market share is still so small, the end is a long way away..

  • Report this Comment On December 15, 2008, at 2:13 PM, marcosc wrote:

    Rick, I believe you are not the only one who overstates the importance of the 'halo effect'. There's no doubt it is real and has contributed significantly to sales, but how can one underestimate the importance of the introduction and the significant subsequent development of the wonderful operating system that is Mac OS X.

    You may throw the Oct '01 figure as a milestone in Apple's history, as the time in which the iPod was introduced. But I have another significant date for you: Sept. 25th 2001, when OS X 10.1 was finally released and exited the "beta" stage. Sure, that OS had many bugs and annoyances, but to think there would be an ever-increasing Mac user-base these days without such a robust OS is pretty foolish, perhaps even to the same extent as getting emotionally attached to a stock, point with which I strongly agree with you.

    Just my 2c

    - Marcos

    (Long AAPL)

  • Report this Comment On December 15, 2008, at 2:41 PM, l3iodeez wrote:

    Murphy-

    "Linux is not a viable mainstream operating system for home users.

    Netbooks with Linux won't last. Only people who like to tinker will ever buy more than one. "

    I think you are wrong. Linux has become much more user friendly in recent years. Package management has improved a lot, as well as the reliability of the GUIs. Also, as manufacturers start to recognize and support the Linux market, the hardware headaches will start to go away. The problem has always been that hardware manufacturers don't release the details of their products to open-source developers. Now that powerful OEMS are seriously looking at Linux, hardware compatibility will improve. It has been a long time coming, but Linux is on the verge of taking a large chunk of the market.

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