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What’s Eating Apple?

The world’s largest public company hasn’t released a game-changer since the iPad. Siri, what’s going on?

Mr Tim Cook and Sir Jony Ive should be partying like they’ve never partied before. The two most important men at Apple, the CEO and the feted head of design, are moving into Apple’s new 2.8 million sq ft, $5bn, circular Lord Norman Foster-designed corporate headquarters in Cupertino, California, where every surface is as smooth as the chamfered aluminium corners of an iPhone. Their timing is impeccable. They’re trading up just as the iPhone is hailed as the most successful product in the history of modern capitalism in just its 10th year.

The glossy rectangular device has become the fastest-selling and most popular branded consumer product ever. More than 1 billion have been sold. Its success has made Apple the most valuable publicly traded company in the world. It generates quarterly earnings of nearly $46bn (£36bn), and has a market value of $814bn – larger than the output of the Netherlands, the world’s 18th-biggest economy.

Yet, you can’t hear champagne corks popping in Cupertino. No office-warming party is planned and no “Happy 10th birthday, iPhone” celebrations. In fact, the sound coming from the white walls of the new Apple campus is the sound of, well, silence.

  • The Apple campus, Cupertino, California. Photograph courtesy of Apple

Apple is a nervous place these days. Six years after the death of Mr Steve Jobs, it is confronting an awkward truth. A company whose products are the stuff of magic – the Mac, the iPod, iTunes, the iPhone and the iPad have revolutionised computing, the music business, mobile communications and media, not to mention how we take pictures or hail a cab – has not had a game-changing hit since Mr Jobs’ death. He introduced the iPad one year before he died. Seven years is a lifetime in computing. Seven years ago, people still used BlackBerries without embarrassment. The New York Times recently concluded that, after so many years in the sun, Apple’s “long-term outlook has begun to look partly cloudy”.

No one can accuse Apple of not trying. Mr Cook, Mr Jobs’ successor, has launched new iPhones, the iPad mini, the iPad Pro, AirPod headphones and new services, including Beats Music, Apple TV and original TV programming. While these new products and services have performed well enough, none has come close to the popularity or revolutionary effect of the products created under Mr Jobs.

Mr Cook’s boldest consumer product, the Apple Watch, launched three years ago, has created an estimated $5bn market and kick-started the luxury smartwatch segment. But $5bn barely moves the needle at Apple. It has earned $750bn in revenues from smartphone and tablet sales and associated apps so far. By the end of next year, it will break the $1 trillion barrier. The watch has also garnered some rare – poor – PR. Ms Vanessa Friedman, acclaimed fashion editor of The New York Times, infamously declared it a stinker after just six weeks road testing it.

Some of the rivals that Apple once ridiculed as so far behind the curve that they were out of sight have caught up and, in some cases, overtaken it. Many critics and customers say they prefer the Microsoft Surface tablet computer to the iPad, especially for business use.

Even though Apple was the first tech giant to create a reliable digital assistant – Siri in 2011 – it is Amazon that has taken the technology into the key marketplace, the home, with its hugely popular Amazon Echo digital butler and voice service, Alexa. It is in more than 11 million homes in the US alone. Google and Microsoft have launched their versions of the always-on e-helper that responds to voice commands. Apple has only just launched its HomePod hub. It will play music, turn on the lights and do other household tasks, but is not linked to Amazon’s e-store, as the Echo is, which will make shopping difficult. And it won’t be on sale until Christmas.

  • Apple’s HomePod. Photograph courtesy of Apple

Google, Facebook and Amazon have all got a headstart on Apple with emerging technologies, notably artificial intelligence, virtual reality and augmented reality – overlaying images, video and games on the real world.

Where Apple has dared to dream biggest, it has stumbled. Three years ago Mr Cook and Sir Jony, who is a car nut with a collection of brutish British vehicles, mostly Aston Martins and Bentleys, decided to build a car. They hired more than 1,000 engineers to work on what was codenamed Project Titan. Apple was rumoured to be interested in buying a car company outright to build it. Britain’s McLaren was mentioned. Mr Cook even approached Mr Elon Musk about the possibility of scooping up his whizzy California auto startup, Tesla.

They’re not doing that anymore. Mr Cook confirmed last month that Apple has downgraded its project to creating a new iOS user interface (dashboard) for a new kind of networked, self-driving car, the chassis, wheels, body work and powertrain of which will be made by A N Other car maker. Hundreds of Apple engineers have lost their jobs.

What’s going on? Some say Apple is the victim of the success of the iPhone. It accounts for two-thirds of sales and dominates much of the company’s focus, which, former executives say, has limited its ability to move into and conquer new markets. Mr Alan Cannistraro, who worked at Apple from 2000 to 2012 before founding video startup Rheo, points out that Apple has tended to develop products that are linked to the iPhone, such as the Apple Watch and AirPod headphones. That’s why it missed the digital home-hub revolution.

Mr Cannistraro adds that, as the firm has grown – its workforce has trebled – it has been hard to safeguard and preserve its culture. Before the iPhone, Apple sought to prove itself after nearly going bankrupt in the mid-1990s. “We were the underdogs,” Mr Cannistraro recently told The Wall Street Journal. “We felt like, let’s show the world.” But new hires haven’t inherited that attitude and it has become “less of a mission-driven” place and “more function driven”, he noted.

In the race to expand, Apple has moved out of its core area of expertise – hardware – and the journey has not been seamless. Its effort to bring publishers to the iPad triggered a price-fixing lawsuit. A judge ruled in 2013 that Apple colluded with five major US publishers to drive up the prices of e-books. Spotify is still more popular than Beats Music when it comes to music streaming. Its attempts to create a TV-subscription service have fizzled out. Apple TV is not Netflix or Amazon Prime. Its original programmes have been weak. Planet Of The Apps, an Apple-commissioned reality show about app developers, starring Ms Gwyneth Paltrow, Ms Jessica Alba, will.i.am and entrepreneur and social-media star Mr Gary Vaynerchuk, was described by Variety as “a bland, tepid, barely competent knock-off of Shark Tank [the US version of Dragons’ Den]”.

  • Ms Jessica Alba, will.i.am, Ms Gwyneth Paltrow and Mr Gary Vaynerchuk on Planet Of The Apps. Photograph courtesy of Apple

Apple knows it needs to raise its game and it is starting to. It has trebled research and development spending to $10bn a year. Its latest iOS software update makes the iPad more business friendly, which should help to stiffen wobbly sales. Apple is also trying to catch up with its competitors in the vast new internet of things sector (connected smart devices, from cars to fridges) by putting increasingly powerful microprocessors, and more wireless radios in all its devices. Siri is getting smarter and popping up in more places. Mr Cook is also going deep into virtual reality and augmented reality. He says he is so excited about AR he wants to “yell out and scream”. He likens AR’s game-changing potential to that of the smartphone.

Apple executives say they are not worried that the firm is late to the home digital assistant market. They point out it has often entered categories after rivals and quickly assumed a commanding position by doing a better job. “We don’t feel an impatience to be first. It’s just not how we’re wired,” Mr Cook told Bloomberg Businessweek last month. “Our thing is to be the best and to give the user something that really makes a difference in their lives.” He singled out Apple’s home products, which, he argued, are better than their rivals’ because they better protect their users’ privacy. Communication with the HomePod and Siri will be encrypted and disassociated from the user after six months. Amazon and Google don’t do that.

To improve its original programming, Mr Cook has poached two top Hollywood television executives from Sony. Messrs Jamie Erlicht and Zack Van Amburg oversaw Breaking Bad and The Crown. Mr Cook has also cut a deal to screen Mr James Corden’s wildly popular Carpool Karaoke.

And then there’s the iPhone 8, expected to be unveiled in September. Mr Cook says the key to success in the phone’s second decade is “innovating like crazy”. Reports from Asia, where suppliers and manufacturers are already gearing up to start making the new handset, say it will be waterproof and offer wireless charging. There will be two models – a 4.7in handset with flat display and a premium version with a slightly curved screen. Samsung, however, already offers waterproof phones that come with curved glass.

Does Mr Cook, whose operational prowess contrasts with Mr Jobs’ talent as a visionary product developer, have “one more thing” up his sleeve – a foldable version that turns into an iPad so you don’t have to carry both, perhaps? That’s a question not even Siri can answer.

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