Is Stubborn Old Apple Changing Its Ways?

Steve Jobs showed off his usual bluster during Apple's (Nasdaq: AAPL  ) last earnings call, bad-mouthing almost each and every one of his company's smartphone rivals while touting Apple's "integrated" approach to doing things. But as always, Apple followers are best served by paying more attention to what Jobs does than what he says. For while Jobs' tough guy act might have set the tech world abuzz, Apple's actions as of late show that the company is becoming much more pragmatic in the way it does business, with the company displaying a willingness to bend some old, uncompromising positions for the sake of countering the huge challenge posed by Google's (Nasdaq: GOOG  ) Android.

And from an investor's standpoint, I think Jobs' change of heart is far from a bad thing.

Embracing old enemies
Three recent moves show how Apple's newfound pragmatic streak has taken hold. First, there was an announcement that Apple would now allow third-party software development tools to be used to create applications for its iOS operating system, which powers the iPhone, iPod Touch, and iPad. As you might remember, Apple and Adobe (Nasdaq: ADBE  ) had quite a bitter war of words a few months ago over Apple's refusal to approve iOS apps created using Adobe's AIR platform, which allows apps written with it to be easily modified to work with different mobile operating systems. But the company reversed course last month, much to the delight of both Adobe and numerous mobile developers.

Then, Apple showed a change of heart on another matter: It began approving apps supporting Google Voice for the App Store, with a report arriving in late September that Google's official Voice app would also be arriving soon. Until recently, Apple was intent on keeping Google Voice, which provides a variety of great voice and text messaging-related features, off the iPhone on the grounds that it duplicated features that Apple had already baked into the device. But with Google Voice turning into a selling point for Android devices, Apple apparently decided that having some duplicate functionality was better than having some customer loss.

To cap things off, there was Apple's recent announcement that it would begin selling Wi-Fi-only versions of the iPad via Verizon (NYSE: VZ  ) , in conjunction with a portable router that would give users access to Verizon's network. That's definitely a clunkier means of getting 3G access on your iPad than buying one with 3G built in and using it on AT&T's (NYSE: T  ) network, and Apple has quite the reputation for wanting to avoid clunkiness at all costs. But with Research In Motion (Nasdaq: RIMM  ) having announced its PlayBook, and with a slew of Android tablets likely to be offered by carriers within the next several months, Apple needs to do whatever it can to extend the iPad's big head start over the competition.

The end of the iPhone as we know it
Still, while app policy changes and increased iPad distribution are important, it's the credible rumors of upcoming iPhone launches that really have to make your head turn. First, there's the rumor reported by Kaufman Brothers Research analyst Shaw Wu that Apple is working on iPhones with both larger and smaller screen sizes than the 3.5-inch displays used thus far for every iPhone model. Apple clearly views 3.5 inches as striking the right balance between having ample screen real estate, and keeping a phone from feeling like a proverbial "brick" in a user's hands. But buyers of high-end Android phones with 4.3-inch displays, such as the Motorola Droid X and the HTC Evo, apparently disagree. And buyers of low-end Android phones from the likes of Huawei Technologies and ZTE, featuring displays as small as 2.8 inches, are apparently willing to accept a smaller display as a trade-off for obtaining a more affordable device. That makes Apple's insistence on a one-size-fits-all approach to iPhone a real liability ... and perhaps one that the company is willing to address.

And of course, no discussion of about-faces on Apple's part would be complete without bringing up the nonstop flood of rumors about the release of an iPhone that can run on Verizon and Sprint Nextel's (NYSE: S  ) EV-DO networks. With more than 141 million customers between them, you'd think that Apple would have jumped at the chance to deliver an EV-DO iPhone. However, such a move would've run afoul of Apple's obsession with simplicity, since it would mean selling an iPhone that, unlike the ones offered by AT&T, wouldn't work in the majority of international markets.

But competitive threats have a funny way of making companies rearrange their priorities. And with multiple research firms claiming that Android has blown past the iPhone in terms of new activations – propelled in no small part by Verizon's heavy promotion of Android phones – Jobs has apparently decided that he has no choice but to challenge Android in its heartland. Even if that makes Apple's iPhone lineup look a little less elegant.

Will Apple's attitude change be enough to crush Android? I doubt it – Google and its partners have created too much momentum for that funny-looking robot for that to happen now. But with the iPhone still topping Android phones in terms of customer satisfaction, and competing quite well against them in places where carrier exclusivity isn't an issue, I can see Apple's moves producing a much better 2011 for iPhone shipments than what Wall Street is currently expecting. With the iPhone now accounting for almost half of Apple's sales, that's likely to spell more upside for Apple's shares.

Eric Jhonsa has no position in any of the companies mentioned. Google and Sprint Nextel are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple and Adobe Systems are Motley Fool Stock Advisor selections. The Fool owns shares of 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.


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  • Report this Comment On November 01, 2010, at 11:46 PM, xmmj wrote:

    You have some good points here, but I think you do not fully understand some of the issues.

    First of all - Apple has always been very flexible and pragmatic in so far as it does not contradict their basic principles of quality design at all levels.

    Two great examples from iPhone.

    1- They began with carriers giving part of the first two years' income to Apple. When this method did not work, they scrapped it.

    2- While having externally created apps was (most likely) always in their plans, I think they were surprised by the strength of the demands for apps. They quickly turned and opened the app store and - as they say - the rest is history.

    In both these instances they, they showed the most incredible flexibility for a very large corporation.

    Then - of course - there is their biggest change. After being wedded to the Motorola based chipset for so many years, when they could not get their needs met, they switched to Intel.

    So they have a long history of flexibility.

  • Report this Comment On November 02, 2010, at 12:01 AM, xmmj wrote:

    Next...

    I think you do not quite understand the relationship with ATT - or should I say, its purpose.

    There were, of course, many reasons for the original exclusive relationship with ATT, One in particular, however is not appreciated by many people or even recognized by most journalists/bloggers.

    Remember, Apple had never built a phone before the iPhone. NO ONE had ever built a phone like the iPhone. Just because it is easy to use does not mean it was easy to create. The complexity of the whole system is really mind boggling. Remember that they had to take OS engineers off of Leopard in order to make iPhone OS happen.

    So, when they went to one phone, one carrier, aside from all the business aspects of the deal, they had one very important engineering goal: to simplify the overall system as much as possible. Anyone who has worked in software development or QA (quality assurance) understands the importance of this. Remember there was no cut and paste, and a dozen other features. Why? Simplify simplify simplify. When a problem comes up yo want to be able to hone in on it as quickly as possible. Things like cut and paste across apps increase the order of complexity. The same with multiple carriers.

    So they made an exclusive relationship with ATT. It was not because they did not like Verizon or they have any reason to avoid Verizon, but for very very practical issues.

    So your point about them "changing their minds" about Verizon is really exagerated. They are just continuing forward with their plans to make the iPhone available to more people as they maneuver through an ever changing world.

    Did the rapid growth of Android have some effect on this? I imagine it did. They would have preferred to wait until the 4G system was in place. But given that CDMA is so widespread in China, it seems that they had many reasons to build a new phone.

    Nimble little company - aren't they?

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