GigaOM » Tim Cook

Apple CEO will detail his corporate tax policy ideas to Congress next week

Erica Ogg — Fri, 17 May 2013 15:04:02 +0000

Apple’s CEO is headed to Washington next week to talk taxes. He’s not just going to be defending Apple’s practice of keeping billions of profits offshore, Tim Cook is going to be armed with some suggestions for future policies too. And no, he doesn’t think Apple should get a free pass on bringing its money back home.

Cook told the Washington Post that he has ideas for how to help convince companies like his own to bring back their overseas earnings to the U.S.:

“If you look at it today, to repatriate cash to the U.S., you need to pay 35 percent of that cash. And that is a very high number,” Cook said in an interview Thursday. “We are not proposing that it be zero. I know many of our peers believe that. But I don’t view that. But I think it has to be reasonable.”

Apple is set to pay $7 billion in taxes in the U.S. this year, he told the paper. He also said he believes that Apple is “likely the largest corporate taxpayer in the U.S.”

But the company has — along with a lot of its peers — found creative ways to make sure that number is not any higher. Apple has $145 billion in its coffers, and $100 billion of that is from profits derived from sales overseas. But the company has not brought that money back to the U.S. because of the current corporate tax rate. Even when the company decided to issue a larger dividend for shareholders, Apple elected to borrow money rather than use profits from overseas to fund that, partly because of the tax burden.

This will be Cook’s first testimony before Congress, but not his first trip to Washington in an official capacity. A year ago he visited with House Speaker John Boehner, signaling his interest in engagement with Washington and public policy would be somewhat of a departure from his predecessor’s.

Cook also told the Post Apple believes “in good corporate citizenship.” And he has made some good U.S. corporate citizen moves since becoming CEO. In addition to instituting a charitable-giving matching program for employees, he’s also laid out plans to bring production back to the U.S. of one model of Mac. Cook told Politico that it would be an existing product that will be made here. Not only will it be put together in the U.S., he said some of the parts would be manufactured in Arizona, Texas, Illinois, Florida and Kentucky.

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GigaOM Reads: A look back at the week in tech

Om Malik and Kristy Korcz — Fri, 26 Apr 2013 23:30:27 +0000

Is Tim Cook like Steve Ballmer? Well that was the discourse in the tech blogs and business news channels this week, following the news of Apple issuing a less-than-stellar earnings report and higher dividends. Apple’s stock has been taking a beating for a while and some analysts want Tim Cook’s head. Remind you of anyone? Nick Wingfield at the New York Times made the connection between Cook and Microsoft’s Steve Ballmer, saying that while stock prices may be down, revenues and profits are the only numbers that really matter to the high-powered CEOs.

So why is it that, with Apple being the maker of all things cool — from the iPod to the iPhone and iPad — its stock would be tanking when profits are up 45 percent? Neil Irwin at The Washington Post ventures to guess it’s because there’s no obvious “next big thing” on the horizon, Apple TV and iWatch be dammed. Well, if it was obvious to columnists, then trust us, it wasn’t worth doing. Remember, gadget reviewers adored the Palm phones.

The Touchscreen Toddlers: Whether it’s video games or TV, children’s use of technology is always up for debate. Some parents might want to limit kids’ screen time and instead want them to focus on playing outside exploring the world, getting fresh air and exercise. The Atlantic looks at how technology affects child development, and how our tech might be causing addictive behaviors that result in major temper tantrums beyond the terrible twos.

In San Francisco, rents get bubbly: The startup boom is having a predictable impact on the San Francisco economy — real estate prices are rising faster than seed funding. When Facebook IPO’d last summer, real estate prices exploded in preparation of new millionaires. And now, it seems that it’s not just homebuyers who are finding it hard to compete with tech-millionaires. One of San Francisco’s coveted Marina district breakfast spots is being forced out due to doubling rent, which is ironic because a large percentage of its daily patrons are work-from-anywhere startup-types that enjoy the all-day breakfast and free-flowing WiFi. Maybe it is time to look at Austin, Boston, LA, Seattle, Philadelphia and others that are coining themselves the “next Silicon Valley”. For now their real estate price tags are in the manageable range.

Got 3D a printer, will print a gun. Debate: 3D printers might be great for homemade action figures, mini model home furniture, and battle-bots, but 3D printers also have the capacity to make dangerous goods. Take guns for example — Cody Wilson of Defense Distributed, a nonprofit focused on defending the 2nd Amendment rights of U.S. citizens, says that for better or worse, 3D printed guns are inevitable. Good sense aside, American’s are still divided on gun control laws. But unfortunately for those who believe that guns should be restricted, they may not have a say in the matter — Wilson says he and his team have successfully fired 11 rounds from a 3D printed firearm already. With 3D printers becoming more affordable and getting mainstream coverage, that’s kind of a scary thought to grapple with.

Netflix and the Future of TV: For a company that has been disrupting the business of television and cable for past few years, we are confident in putting a premium on their outline of the future of TV. During this week’s Q1 earnings call, and in an 11-page whitepaper shared on Netflix’s investor relations site, CEO Reed Hastings laid out his $2 billion+ plan to licence hot content and create original programming to compete with the likes of HBO, Hulu, and Amazon Prime. It’s an ambitious project considering the sheer volume of choices that TV watchers have when it comes to entertainment. Netflix also announced it’s new $12 family plan, which allows subscribers to access Netflix on four screens (instead of two). While some may think that the goal here is to cut down on password sharing, Hastings says it’s not really that big of a deal. Being flippant about password sharing and piracy seems to be the avenue of choice for popular content producers – even HBO says downloading Game of Thrones illegally won’t land you in court.

Rumors at network scale: Nothing reflected the growing role of social media in our lives as does the hack of the Associated Press Twitter account, which was compromised this week. Hackers falsely tweeted that explosions at The White House had injured President Obama. Mass panic ensued and the Dow quickly lost 100 points. It seems the AP was a victim of an email phishing attack purported by the same Syrian propagandists that hacked CBS’s 60 Minutes earlier this month. We think it’s time for Twitter to add in a second layer of account protection. Not only will two-step verification help users keep their accounts safe, but it can also prove to the public that Twitter is serious about security.

And now for some stories you might have missed last week:

How much would you pay win an hour-long coffee date with Tim Cook? Someone is willing to shell out over a half a million. Good news – it’s also for charity.
The PC is now an essential part of life. Much like an appliance.
SciFi flick Oblivion had at least one thing going for it – amazing sound design.
Speaking of sound, for the first time ever, you can now hear Alexander Graham Bell’s voice.

Without a big product launch, don’t expect too much from Apple’s Q2 earnings tomorrow

Erica Ogg — Mon, 22 Apr 2013 17:14:50 +0000

Early signs indicate that Apple’s second fiscal quarter earnings results, set to be announced on Tuesday, are not going to be a blowout.

Why do Apple watchers have muted expectations? Foxconn parent company Hon Hai Precision Co. — whose fortunes are understood to be tied to Apple’s since the iPhone maker is its biggest client – saw its quarterly sales drop nearly 20 percent. Cirrus Logic’s results were also down: many investors read into its weak sales for the quarter as a clue that Apple’s ordering of audio chips for iPhones and iPads was lower than expected. LG, which makes displays for Apple, also saw its profits shrink and its orders slow down.

There are some rather obvious reasons for this slowness. For one thing, it’s the wrong season: the sales period it will report is for January through March, during which consumer electronics makers always see slower sales compared to the October through December holiday buying period. (Still, Apple is anticipating revenues between $41 billion and $43 billion, which is just slightly ahead of the $39.2 billion in revenues it recorded in the same quarter last year.) But there’s another big reason, which we saw coming back in October: all of its major products — iPhone, iPad, iPad mini, Macs — were refreshed in the fall, leaving Apple with no major new device release during the January quarter. That means no huge sales bump and no one big sales statistic to brag about.

That said, Apple is still Apple: people are still buying its products, as Verizon’s recent results showed us. But there are a few things to watch out for during earnings tomorrow:

Did Apple meet its own expectations? Apple has had a few earnings “misses” in recent months, but it was Wall Street’s expectations that it failed to meet. For the first quarter, look for how close Apple’s results come to its own admittedly less ambitious forecast of gross margins between 37.5 percent and 38.5 percent and revenues between $41 billion and $43 billion.
iPad mini versus iPad. Have customers been choosing the smaller, cheaper iPad mini over its larger, pricier tablet brother? If so, that’s going to hit Apple’s profit margins. The company makes more profit on the pricier iPad that starts at $499 than the one that starts at $329.
Did they catch up in Mac production? This is a huge question. Mac unit sales were down 22 percent last quarter and the company repeatedly blamed it on supply constraints with the new iMac. CEO Tim Cook promised next quarter would see improved efficiency in production — but has Apple met that goal?
Mac sales. More importantly, if Apple did catch up, what kind of demand for them was there? The first three months of this year saw the worst PC shipment results in two decades, according to IDC and Gartner. But it’s hard to get a good idea of how Apple did during the quarter: IDC had Mac shipments down 7.5 percent from a year ago, while Gartner saw the opposite, that Mac sales were up 7.4 percent. We’ll find how who was closer on Tuesday.
Dividend talk. Bernstein Research analyst Toni Sacconaghi told his clients that Apple will wait until after earnings to introduce a larger dividend payment for investors. But as we saw with last week’s stock slide, Wall Street is pretty negative about Apple right now. Discussion of a dividend or share buyback on Tuesday (as Morgan Stanley’s Katy Huberty is expecting) would raise analysts’ spirits — and the stock.
China. The country is bound to come up tomorrow — sales of devices in the region are massively important to Apple. But listen to hear if Cook or anyone else addresses the recent tensions between Apple and the government and media there.

Earnings results are expected around 1:30 p.m. PT on Tuesday, with a call with investors and analysts scheduled for 2 p.m.

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Apple back on China’s good side after Tim Cook’s apology

Erica Ogg — Tue, 02 Apr 2013 14:14:19 +0000

A little humility can go a long way — and result in better PR. In the face of an incessant media campaign against its customer service policies in the China and a week or so of being called “arrogant,” Apple chose a response that included a small change to iPhone warranties and a big apology — from its CEO himself, Tim Cook. The effect was nearly instant: just a day later, China’s government-controlled media outlets and a government agency are singing Apple’s praises.

Reuters reports the reactions:

“The company’s apology letter has eased the situation, softening the tense relationship between Apple and the Chinese market … Its reaction is worth respect compared with other American companies,” wrote popular tabloid the Global Times, published by Communist Party mouthpiece the People’s Daily.

The Foreign Ministry praised Apple for “conscientiously” responding to consumers’ demands.

“We approve of what Apple said,” spokesman Hong Lei told a daily news briefing on Tuesday.

It’s quite a change in tune. Over the past two weeks, Apple has been the subject of an orchestrated campaign that included local celebrities bashing Apple’s return and repair policies on social media; a series of editorials calling the company arrogant; and a demand for new warranty policies, including upping the standard one-year warranty to two years for the iPad.

Apple’s decision to have Cook put his name on an apology for the inconsistent warranty and repair policies in the country isn’t unprecedented — he’s apologized for the Apple Maps fiasco, and Steve Jobs apologized for the iPhone 4 antenna — but it’s rare. The outcome was positive for Apple this time: the apology had the immediate effect of changing the increasingly bad PR the company was getting in China. But it will be interesting to see what kind of precedent this sets for how Apple gets along in its No. 2 market with the Chinese media, and more importantly, the Chinese government.

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China extracts personal apology from Apple CEO over iPhone warranty policies

Erica Ogg — Mon, 01 Apr 2013 16:09:26 +0000

Turns out that a good way to get Apple CEO Tim Cook’s attention is a well-orchestrated media campaign against the company. More than a week after the first complaints about Apple’s customer service and repair policies hit the Chinese media, Cook has issued an apology and detailed response to those concerns.

On Monday, an open letter signed by Cook was posted to Apple’s website in China. In it, he apologizes for the company’s lack of communication and he promises changes. Here’s the (slightly rough) translation offered by Google:

In the past two weeks, we have received a lot of feedback about Apple in China repair and warranty policy. We are not only a profound reflection on these views, together with relevant departments to carefully study the “Three Guarantees”, and also look at our maintenance policy communication and combing our management specifications of Apple Authorized Service Provider. We are aware that, due to the lack of external communication in this process and lead to the speculation that Apple arrogance, do not care or do not attach importance to consumer feedback. We express our sincere apologies for any concerns or misunderstandings this gives consumers.

Cook’s letter lays out a change the company will make to its policies: the one-year warranty period for iPhone 4 and 4S will be reset if a major repair has been done or if the device is replaced. He also said that Apple has taken steps to clarify its warranty and repair rules with its authorized resellers in the China (i.e. not Apple Stores), and he explained Apple’s existing policy on iPad warranties (one year for minor components and two-year promise of replacement on major components).

The last part makes it seem like he’s not giving in on China’s top consumer watchdog group demand; that the company start offering two-year warranties for free on iPads, an increase from the company’s standard one-year warranty offered to almost all of its other customers.

The letter is long, but there’s only a very minor change. Following the ongoing campaign in China’s state-run media against Apple’s consumer policies, the true concession Apple is making here is the letter itself. Open letters from the Apple CEO are few and far between, as are apologies. But from Cook they come when he senses that public opinion is turning dangerously against the company — see also “Apple Maps.”

China is crucial to Apple’s future and the company and Cook are still figuring out how to do business there. As he put it in the (roughly translated) letter on Monday, ”we also realize that operating in China, and communicate much we need to learn the place.”

Thumbnail image from Cook’s visit to China in January provided by China’s Ministry of Industry and Information Technology

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Mark Zuckerberg ousts Tim Cook as top employee-approved tech CEO, according to Glassdoor

Erica Ogg — Fri, 15 Mar 2013 12:00:54 +0000

Like his company’s stock, Tim Cook’s employee approval ratings are down this year, at least according to job hunting and review site Glassdoor.

In 2012 Apple’s Cook was the highest-rated CEO on Glassdoor’s rankings, with his employees giving him a 97 percent job approval rating. In 2013, he didn’t register in the top 10 tech CEOs list, but he did come in at No. 18 in the more general Top 50 Highest-Rated CEOs list with an employee approval rating of 93 percent. While the change sent him down the list, it’s not a huge drop from last year, or from his predecessor’s ranking; Steve Jobs received a 95 percent approval rating by his employees, according to Glassdoor’s 2011 survey.

For 2013, the new No. 1 CEO, both in tech and in business in general, is a very familiar face: Facebook CEO Mark Zuckerberg. He received a 99 percent job approval rating from Facebook employees on Glassdoor. SAP’s co-chief executives, Bill McDermott and Jim Hagemann Snabe, also received 99 percent ratings from their employees. Both lists are embedded below.

Glassdoor’s CEO list is compiled from the average approval ratings of each chief executive from anonymous employees of his or her company between Feb. 25, 2012 and Feb. 24 this year.

Cook’s rating drop is so slight that it’s more logical to interpret this list as other companies’ employees being more complimentary of their CEO’s job performance this year as opposed to a new current of disapproval among Apple’s employee ranks, although surely some will take that route. Google’s Larry Page, for example, has the same 95 percent rating in 2013 that he received in 2012, yet he dropped from No. 3 among tech CEOs to No. 6 this year.

Cook’s lower rating could also indicate that after 18 months on the job, his honeymoon period with employees has come to an end. He has amped up the number of company perks Apple offers, like charitable contribution matching, better discounts on Apple products, sabbaticals and designated time for employees’ passion projects, and he has presided over some of the best quarterly earnings results in Apple — and all public corporations’ — history.

But some employees could be ranking him by what they’re seeing in their stock portfolio: at $432.50 today, Apple’s stock is up more than 13 percent since Cook officially became CEO, but it’s down significantly from its high in September 2012 of more than $700.

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Judge rules Apple CEO Tim Cook must testify in ebook antitrust case

Laura Hazard Owen — Wed, 13 Mar 2013 17:54:10 +0000

Apple CEO Tim Cook will have to testify in the the Department of Justice’s ebook antitrust case, federal judge Denise Cote ruled Wednesday, according to a report in Reuters.

Apple hadn’t wanted Cook to testify, writing in a letter to the court on Monday (PDF) that the government’s original complaint didn’t mention him (it only refers to former CEO Steve Jobs) and that Cook — who was previously the company’s chief operating officer — doesn’t possess any “unique knowledge about Apple’s decision to enter the ebooks market and recalls no relevant ‘private conversations’ with Mr. Jobs.”

However, according to Reuters, Judge Cote said in a teleconference Wednesday that because of Jobs’ death, “I think the government is entitled to take testimony from high-level executives within Apple about topics relevant to the government case.” Court documents supporting her decision have not yet been posted to PACER.

The DOJ sued Apple and five book publishers last April for allegedly conspiring to set ebook prices. All five publishers in the case have settled.

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GigaOM Reads: A look back at the week in tech

Om Malik — Sat, 02 Mar 2013 00:30:51 +0000

A quick word: We are kicking off GigaOM Reads, a weekly column that look back at some of the important technology stories of the week and our take on the news. In addition, we will curate some of the more interesting stories and blog posts we find worth sharing – Om & Kristy.

Groupon’s 2-for-1 CEO deal: Groupon, decidedly the most non-tech company pretending to be a tech company fired Andrew Mason, founder & CEO, and replaced him with not one but two CEOs — Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis, who are taking over as co-CEOs. Not to poop on their parade, but weren’t these two gentlemen supposed to prevent the current state of chaos at the company as board members? Something stinks, and it is not kielbasa. In what seems to be a perfect exit interview, Mason had some choice things to say:

“I think in the first phase of our company, we were a glorified mailing list. We had a completely unintelligent email that we sent out once a day and we had a human sales force that was going around and procuring the deals.”

As for Mason, he is looking for a fat farm to lose what he adorably calls “Groupon 40.” I am going to miss his nonsensical utterances.

Everybody hates (or loves) Marissa Mayer & loves(or hates) Sheryl Sandberg: Well, at least everyone in media has something to say about two of the brightest and more powerful women in Silicon Valley, Marissa Mayer and Sheryl Sandberg. They were both making headlines this week for what seems to be all the wrong (or right) reasons.

Mayer wants her remote-working Yahoos to come back to the office, and while some claimed that this was the worst decision possible for the company (and its working parents), others argue that maybe we could all use more separation between work and life. Even we couldn’t decide with Mayer’s idea that the best ideas come from “hallway and cafeteria collaboration,” the fact remains — people are talking about Yahoo again.

Hoping to recreate a Betty Friedian-like social movement empowering women in the workplace, Sheryl Sandberg’s individualized take on feminism outlined in her new book, Lean In, may not strike the cord she had hoped. In fact, prominent entrepreneurial women have denounced the cause as unrealistic, while others insist that men must also become passionate change agents in order for the business world to become more balanced.

By the way, those two news items sparked a lively thread on our internal messaging system.

Technology’s worst dressed guy is emasculated by phones: Google co-founder Sergey Brin, who is not exactly Bernard Arnault (CEO of LVMH, if you must ask), feels that smartphones are “emasculating.” He was speaking at the TED conference and his comments resulted in a flurry of commentary around gender issues.

The general body language of your average smartphone user aside, his comments indicate that Glass could evolve to include cellular phone service, but the truth is that health concerns might hinder adoption by the masses. One thing that might help make Google Glass cool? Its rumored partnership with hipster darling Warby Parker. But those are minor issues, as author Mark Hurst rightfully argues. The real issue is how we as human beings will interact with people with Google glasses and how that will change our daily experiences, he said.

“Google Glass is like one camera car for each of the thousands, possibly millions, of people who will wear the device – every single day, everywhere they go – on sidewalks, into restaurants, up elevators, around your office, into your home. From now on, starting today, anywhere you go within range of a Google Glass device, everything you do could be recorded and uploaded to Google’s cloud, and stored there for the rest of your life. You won’t know if you’re being recorded or not; and even if you do, you’ll have no way to stop it. And that, my friends, is the experience that Google Glass creates. That is the experience we should be thinking about. The most important Google Glass experience is not the user experience – it’s the experience of everyone else. The experience of being a citizen, in public, is about to change.” [Mark Hurst]

Does that future scare you? Then you should read Joel Hladeck’s amusing letter from the future that talks about why Google glasses kinda went the way of AltaVista.

Getty Images

Oscars & Hard times at CGI Corral: Darlings of the big screen and red carpet took home their golden statues at the Oscars last Sunday, but not all is well for the behind-the-scenes crew. The visual effects industry is facing hard times due to foreign outsourcing and subsidies, with large and small studios alike facing layoffs and closures. You may have caught Bill Westenhofer attempting to broach the subject after winning the Academy Award for Best Visual Effects for Life of Pi before being ushered off the stage to the theme of Jaws, which now seems oddly appropriate given that thousands of jobs are dead in the water.

Talking about Oscars, congrats to PopSugar for launching PopSugar Live. Their live red carpet show from the Oscars got about a million views, putting them in the cable television territory. Who needs cable (TV) when you have broadband?

Getty Images

Fashion and tech in one place! What could go wrong: Conde Nast rolled out the red carpet for geeks during this years’ New York Mercedes-Benz Fashion Week by hosting a first-of-its-kind fashion and tech hackathon to create new ideas around how to use technology in the industry. We do admit that does sound kinda crazy and, well, Conde Nast isn’t who we turn to for innovation tips. But then again, the fashion industry is so far behind that they need to start somewhere. We would also recommend watching out for a whole new breed of fashion media upstarts that are frankly more fun and engaging than perusing dowdy Conde Nast.

Beyond Fashion Week, a handful of forward-thinking companies are already capitalizing on the use of technology in fashion, and creating a brand new way to shop, and find the perfect fit online

It is now the Internet of things:

“We are beginning to learn what it is like to use the Internet to communicate with things that are not humans.” — Vint Cerf at TED2013 (via Twitter)

We at GigaOM have been on it for a while, writing about the topic for a few years now. But now we are taking the show on the road and are hosting a series of meetups like the most recent one in San Francisco and the next one in Boulder, Colorado. Our belief: Ideally, the internet of things should fade into the background; what matters is what it allows people to do.

And what here are some stories from this week you might have missed.

Battle of the campuses: Google told Vanity Fair that it would soon be breaking ground on a new 1.1-million square foot campus, and it’s quite the contrast from Apple’s upcoming futuristic spaceship-like HQ coming in 2016. Richie King at Quartz explored what these vastly opposing architectural footprints say about the personality of each company.
Jimmy Iovine needs to make up his mind: He can’t undermine music curation without undermining Music by Beats, the company he owns and will disown soon.
Microsoft wants to be cool: And it will never be cool, according to a former Apple guy and a former Microsoft guy.
Tim Cook & Apple versus Wall Street: The New Yorker’s John Cassidy rightfully argued that we shouldn’t pity the hedgies.
The problem with Facebook data: Well, there is a lot to dislike about Facebook’s “Like” argued Alan Wolk.

Read this and other in-depth articles on GigaOM’s Flipboard channel

Apple institutes stock-holding rule for CEO, directors, executives

Erica Ogg — Fri, 01 Mar 2013 18:45:14 +0000

There’s a new rule at Apple: if you’re an executive or board member, you’re not allowed to let your holdings of Apple shares get below a certain threshold. The company recently instituted new requirements that CEO Tim Cook has to hold stock worth 10 times his base salary, that other executives hold three times their base salary, and that members of the board of directors who are not Apple employees keep Apple stock worth five times their annual retainer, according to new company stock ownership guidelines published in February.

Cook’s annual base salary is $1.4 million; which means he’ll be required to keep a minimum of $14 million in stock as long as he’s chief executive. Apple’s proxy statement identifies the following as “executive officers”: SVP of Internet Software and Services Eddy Cue, SVP of Software Engineering Craig Federighi, SVP of Technologies Bob Mansfield, CFO Peter Oppenheimer, SVP of Hardware Engineering Dan Riccio, SVP of Marketing Phil Schiller, General Counsel Bruce Sewell and SVP of Operations Jeffrey Williams.

The timing of the rule change is interesting because it came right before Apple shareholders voted down a broader proposal earlier this week that would have required Apple senior executives — as opposed to executive officers — to keep a certain amount of company stock on hand. And it comes in the midst of a six-month-long stock slide from just above $700 to around $430.

Apple’s stock has been slipping, and while he never comments on the stock price, Cook actually told investors at the annual meeting that he “didn’t like” Apple’s falling share price.

The new rule’s insinuation is that Apple must prove its executives are as invested in Apple’s stock value — and by extension the future of the company — as the rest of the investors who own stock in the company. Which seems unnecessary and odd. If anything, Cook’s been remarkably sensitive to shareholders’ concerns — far more than his predecessor, between reinstating Apple’s dividend last year, to public promises to consider schemes cooked up by publicity-hungry hedge fund managers. But it’s extremely unlikely that being personally sensitive to the stock price is going to somehow change what Apple executives are doing on a regular basis right now.

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Apple in India: a lost opportunity?

Om Malik — Mon, 25 Feb 2013 19:17:25 +0000

J.J. Valaya is one of India’s preeminent couturiers and is a self-confessed arbitrator and curator of good taste. I know that for a fact because I have known him from the time when he was a student at India’s National Institute of Fashion Technology. If you enter his store, you can see that tasteful elegance on full display. And he also likes gadgets — a lot of them. He walks around with a Samsung Note and a Blackberry Bold.

His Bold is on its last breath so he asked me: what should I buy? Well, since he and I have a similar taste palette, I recommended iPhone 5. But that didn’t impress him — he said, well, it didn’t feel that different than iPhone 4S. When I asked him if he had spent time on it, he answered in the negative.

And that’s when it hit me — the reason he can’t be convinced was because he had not been able to experience what is quintessentially Apple and what converts a regular person into an Apple customer: the immersive Apple Store experience.

Many phones for many folks

To understand the Indian mobile phone market – about 900 million total connections — one has to understand that it is literally different strokes for different folks. The low end, budget and medium end of the Android-based smartphone market is being swept by local brands such as MicroMax, whose Canvas devices are red hot. And there are the no-brand Chinese handsets gunning for that low end. Add two Chinese biggies, ZTE and Huawei, to the mix and you have a lively smartphone marketplace. Sure there is Nokia and Blackberry and Sony, but it is hard to tell if they are doing well or not.

Apple Store in Shanghai

However, when it comes to the top end of the market, it is Samsung all the way. Sure, there is Apple, but frankly it is a distant second. In November 2012, Apple launched the iPhone 5 in India and in the three months ending Dec. 31, 2012, the Cupertino, Calif.-company sold a mere 252,000 iPhones in that country. The data prompted everyone from the Wall Street Journal to Reuters to claim that Apple was doing well in India, but is it really doing well?

If you ask me, the answer is no and frankly they could be doing better. Yes, compared to China, India’s smartphone market is puny: According to Canalys data, there will be about 26.5 million subscribers in 2013 (though I get a feeling they are underestimating the potential and demand). But it will grow bigger, and it will grow fast. IDC says the market will be 108 million units in 2016 versus total smartphone sales of 19 million in 2012. In other words, it is a big enough opportunity for Cupertino to wake up and smell the curry.

Samsung side up

I walked around stores in and around Delhi about a week ago, which is where my parents live. And even as a casual observer, it was clear that in India, Apple’s place in the market had been reduced to just another handset. The Samsung Galaxy branding was in your face — from television to in-store displays to the newspapers. The Korean giant was basically everywhere. I had walked into many stores where iPhones and iPads were on display, except they were lost in a confusing array of other phones. (In September 2012 the company partnered with local distributors like Ingram Micro and Redington to get to retailers in smaller towns.)

People want a lot of features on stuff they buy — more buttons, bigger screens, more memory — more is just better, in some parts of the world. And that is why larger phones and hideous phablets are so much in demand. That plus incessant advertising by Samsung has turned the (attention and thus the) conversation away from everyone else, Apple included. Samsung sold 40 percent of the 5.2 million smartphones sold in India in the three months ending December 2012.

Ignorance is not bliss

I am just baffled that a company that would insist that Best Buy and Target create an in-store experience that has some resemblance to the Apple Store outsource its sales to carriers and third parties, who sell phones like a street cart vendor sells vegetables and fast food. My eyes bleed every time I have to enter one of those carrier stores in India. They are the antithesis of the Apple brand.

I am frankly amazed that Apple has left the second-largest mobile market — India, that is — to its own devices. I don’t understand why. It is not that there is a lack of people with money. There are probably more potential customers of iPhones and iPads in India than in say Germany, the U.K. or in the Netherlands. They all have multiple Apple stores, so why not India? When someone asked him last year about company’s strategy in BRIC countries, Apple CEO Tim Cook said that of all the countries, it is likely to go after Brazil after China instead of India and Russia.

And maybe it is time for Apple to go back to the drawing board and come up with a new plan. One that involves opening a handful of Apple’s own stores in India — say in Delhi, Bombay and Bangalore. There are relatively few stumbling blocks. Last year India allowed 100 percent foreign ownership in the single-brand retail segment, which is great for a company that sells its own brand of goods. Apple does just that.

Rachel Lashford, managing director for mobile at Canalys, told the Wall Street Journal, “Until Apple is able to reach lower price points, it will continue to be overtaken by competitors in India.” I couldn’t disagree with her more.

Go ahead be elitist

I admit, that I normally spend most of my time in India in big cities — Delhi and Bombay — but I can tell from the wall-to-wall advertising and all the talk, Indians love their mobile phones as much as their cars. For a certain class of people — the upwardly mobile and the real estate rich — their phones are often a badge of success, much like the cars they drive. For these folks it is either the very best or nothing.

Apple simply has to stop thinking that it can sell cheaper iPhone 4 and iPhone 4S models to Indian consumers. Just like Chinese buyers, Indian buyers are very “badge” conscious and want to get the latest and the greatest. It is time for Tim Cook & Co. to embrace their internal elitist and go for the premium positioning of the brand.

And it all starts with an Apple Store. As far as I am concerned, an Apple Store is the gateway drug to the all-Apple experience. It is where you touch, feel and fall in love with Apple products. The interaction with iPhone and iPad and just the complete retail experience makes you either one of the “fruits” or not. It is also perfect place for up-selling different products.

Fear of an Android (only) nation

I even found the perfect location for the first Apple Store: the DLF Emporio mall, which is arguably is one of the plushest shopping malls in Delhi. This is where wealthy (and I mean crazy rich even by American standards) go shopping for luxury items from Chopard, Gucci, Roberto Cavalli, Chanel and Louis Vutton. The prices there would induce rapid gulps in any sane person, but on my last visit (which was about 10 days ago) I saw people walking with more shopping bags than one sees in say Rodeo Drive. The whole mall was based on the notion of up-selling.

The same buying dynamics — brands as a badge of one’s success — that work in China, work in India too. Imagine if there was an Apple Store right in middle of this opulent (and over the top) building — the iPhones will fly, and so will iPads and Macs. Apple’s brand has a level of luxe associated with it and I think Apple would become the ultimate badge phone.

Otherwise, Apple will continue to lose mind share to the likes of Samsung, which has done a good job of branding itself for the “status symbol” end of the market. Cook is a pragmatist and I am sure he realizes that it is important to play to win in India. If he doesn’t, then India becomes an Android Nation — it already is, to some extent. For folks like Valaya who should be ideal Apple customers, there is no reason to think about them.

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