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3 Issues Facing Apple Inc’s iOS 8

Unless you live under a technological rock you've probably heard that Apple (NASDAQ: AAPL  ) announced its next mobile operating system iOS 8. The company has improved the software by adding requested features like third party keyboard support an upgraded iCloud Drive, and increased connections between the iPhone, iPad, and Mac. Unfortunately, iOS 8 could actually hurt iTunes revenue growth, which has been one of the company's fastest growing divisions. This is just one of the issues facing iOS 8, and Apple investors need to worry about two other problems as well.

Totally missing the point
The first issue facing iOS 8 is something that Apple calls an improvement on text messaging. In iOS 8, users will have the ability to add voice to messages. In addition, users can hold the phone to their ear and hear recorded messages just like a phone call.

This is a feature missing in both Android Kit Kat by Google (NASDAQ: GOOG  ) and Windows Phone 8 by Microsoft (NASDAQ: MSFT  ) . Both operating systems have similar text messaging options, but recording a user's voice isn't one of them. The question investors need to ask is, has Apple missed the point completely when it comes to text?

One of the key benefits of text messages is the ability to discreetly communicate. Users send texts hundreds of thousands of times in situations where they couldn't have a voice conversation. In addition, many times texts are faster and a more efficient way of communicating than a voice call.

If a user is in a business meeting, is it appropriate for them to record their voice into a text? If you are watching a movie in a theater, is this the time to record their voice? An even better question is, why would a user record their voice into a text instead of just making a call? The point is, Apple has been accused of being out of touch with what users want, using voice in a text message seems to be a good example of an out of touch "improvement."

Revenue driving away
The second issue facing Apple, is the company's change to iCloud could hurt the company's potential revenue from the service in the future. Currently, iCloud is a service that only houses iPhone and iPad backups as well as documents from iWork. The service is relatively limited in scope because if users aren't fully bought into iWork, their storage is essentially a backup and little else.

The good news for users is, iCloud is going to become iCloud Drive, and will be able to store any type of document. This should be great news for Apple as it can go head to head with Google Drive, and Microsoft's OneDrive. However, the online storage battle is heating up and this seems like a battle where no one wins.

iCloud Drive is expected to offer 5GB of free storage, with 20GB pricing at $0.99, and 200GB at $3.99 per month. By comparison, Google Drive offers three times the free storage at 15GB, and 100GB is just $1.99 per month. Microsoft's OneDrive is now offering 15GB for free, and 100GB is also $1.99 per month.

The point is, Google and Microsoft still offer three times the free storage, and their 100GB pricing seems like a far better value than Apple's 20 GB deal.

Everyone shares, but Apple loses
The third issue facing Apple with iOS 8 is something that is great news for users and yet could hurt one of Apple's fastest growing businesses. ITunes Family Sharing has the potential to seriously harm Apple's revenue stream from this important and growing business. ITunes has grown at a double digit rate for the last few quarters, and generates over $4 billion (about 10% of revenue) for the company.

By comparison, Google's "Other" business generated just over $1.5 billion in revenue for the company, and while it is growing faster than iTunes, Google Play doesn't allow sharing purchases. In the same manner, Windows App Store is a small piece of Microsoft's revenue pie.

With Windows OEM, Office 365, Xbox, and Bing are all huge revenue drivers, the Windows App Store is a fledgling operation and by all accounts offers a far smaller selection of apps than iTunes or Google Play.

The great news for iTunes users is, they will soon be able to share apps, music, and more through Family Sharing. With up to six people allowed to share content, the issue seems obvious. These six people would have been required to make separate purchases before. Now, it may be the case with iOS 8 that one purchase will allow the app, music, or video to be shared by all.

It seems obvious that Apple is trying to improve its operating system, but voice inside of texts is a questionable "improvement." In addition, with each improvement comes new challenges as well. Given that changes in iCloud Drive and Family Sharing seem to directly threaten Apple's revenue growth, investors have plenty to worry about. 

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Read/Post Comments (6) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2014, at 8:37 AM, ColoK wrote:

    Ever hear of WeChat, the world's most widely used text messages? One of its key features is the ability to send short voice messages. This feature in use is what TC notice when walking around the streets of Beijing.

    Voice messaging is a wonderful feature and am

    pleased AAPL is implementing it!!!

  • Report this Comment On July 14, 2014, at 8:38 AM, DavidDavis wrote:

    Apple is an icon ) It's time to put money in new developing companies - ALPHALA for example )

  • Report this Comment On July 14, 2014, at 8:41 AM, john795806 wrote:

    I'm really not feeling these criticisms.

    1. Verbal "texting" may not be appropriate for all situations, but it's still a valuable tool in many situations.

    2. Yes, Apple could perhaps price their storage a little better. But if you are thinking of putting everything you have in the Cloud, for me at least, that comes to more than 100 gb. So Apple's plan makes sense.

    3. People are already sharing music in their houses if they want to. I do. So I don't see that much in revenue stream changes. The only difference is that now it will be easier. Anyway, for families, children's tastes in downloads is usually very different from their parent's.

  • Report this Comment On July 14, 2014, at 10:30 AM, garysturn wrote:

    How does adding an option to use speech without removing the text options hurt and make for a bad choice on Apple's part. Those who do not want to use the option just ignore it. They are not removing the keyboard for those situations when text is more appropriate, in fact they are enhancing keyboard functions at the same time. China is a big market, how would you like to have to type in Chinese.

    The main reason sharing is being implemented is because people are already sharing by using the same account on multiple devices. This allows each person to have their own user account and get rid of the confusion that comes with multiple devices using the same user name. We have 4 iOS devices, 1 Mac, and 2 PC's with iTunes all on the same user account so we already share. Siri is confused and often calls me my wife's name. And if sharing is truly within a family that is only fair, Why shouldn't a spouse be able to share the song purchased by her husband, they can on a CD.

    I agree that the 5GB free space is to little, I think they will need to remedy that. A premium priced device should come with more than just 5GB free space.

  • Report this Comment On July 14, 2014, at 4:53 PM, GalpNation wrote:

    The very first thing I thought when I saw the quick voice message feature was "This will be great if I receive a text when I'm driving and can't type back". Simpy press a button and record a reply without barely having to look away from the road. Then you can listen to the response by lifting the phone to your and reply be doing the same. Very hand in the car if you ask me.

  • Report this Comment On July 14, 2014, at 4:57 PM, orangewm wrote:

    WeChat, Whatsapp they all voice IM. Extremely popular in Asian countries and they are the first adopters of mobile stuff.

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Chad Henage

Chad is a self professed tech nerd and has been investing for over 20 years. He follows nearly everything in the technology and consumer goods sectors, and is a huge fan of the Peter Lynch investing style. He has over 1,000 published articles about stocks and investing. You can follow Chad on Twitter at @chadscards1274.

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