Apple (AAPL) is a wealth-generating machine. Not only does the stock keep climbing, but so do the technology titan's revenue and profits. Yet the company's enormous success in recent years may obscure another salient fact -- that this winning strategy may contain the seeds of its own decline.
Part of that strategy involves harnessing may be thought of as "other people's brainpower," extending the old concept in the financial world of generating profits by using other people's money. More specifically, Apple outsources work and acquires expertise, technology and even products to further its growth and market power. However, these pillars of the company's approach are showing cracks, such as the mishaps with Apple's recently launched iPhone 5.
Of course, this isn't the first time that new Apple products, including the previous generations of iPhones, Macs and iPods, have had problems. But the iPhone 5 seems to have arrived with more issues than usual:
- The early units are
- Replacing Google Maps with has drawn fire, even from diehard fans. And there's no-quick fix. CEO Tim Cook issued a written apology over the bum map application, while Apple has summarily stopped calling the new system the "most powerful mapping service ever."
- Verizon (VZ) iPhone customers found that a bug would sometimes use the cellular network to transfer data, even when there was an existing Wi-Fi connection. There are also questions of whether the bug will affect users on other carriers.
- At least one Apple employee told a customer that purple flaring in pictures is "normal," even though some other Apple phones, including the iPhone 4S, haven't experienced such problems.
Lack of control
Some of these problems seem to arise because, despite its reputation for technological ingenuity, Apple is not quite the center of innovation and industry that the company has sought to cultivate in the past. Mobile devices have to work with telecom carriers, which increases the complexity of design and testing. That becomes only more complicated when the carriers operate differently. For example, Verizon uses a different underlying mobile technology than AT&T (T). And that means that Apple, long known as a corporate control freak, lacks the very control required to ensure that its products work as a designed.
Apple's mapping app issues after it jettisoned Google's (GOOG) map tool reveal a similar loss of control over development. Apple not only had to create its own app, but also work with another source of geographic data. The problems were likely some combination of the data it had and the use it made of that data.
As for manufacturing flaws with the new iPhone, electronics contractor Foxconn has experienced more rounds of labor problems, including charges that it forced students to assemble iPhones as well as riots by workers in at least one of its facilities. Foxconn "declined to say whether the Taiyuan plant made products for the Apple iPhone 5," according to the New York Times.
Whether the result of worker sabotage or some problem in the assembly process, there are indications that the problem may be widespread.
Aside from a lack of control, Apple also may face some culture clash as it acquires startups and other young companies with attractive technology. The roster would include companies behind the iPhone's voice-activated Siri virtual assistant, the device's underlying touch interface capabilities and the processors that power Apple's various devices, to name a few.
Apple's particular culture -- secrecy, a drive for perfection, exacting standards for internal and contract employees -- has played a large part in its success. New people can have an effect on corporate culture, as can the death of Steve Jobs. For example, senior vice president of iPhone software, Scott Forstall, was ultimately in charge of both Siri and Apple Maps, both of which have had significant problems.
And yet Forstall came to Apple with Jobs from NeXT, the computer company Jobs formed in the 1980s after leaving Apple. Would one person have been responsible for two major flubs and remained an employee under Jobs? And would the company's late co-founder have released the mapping software at all?
Despite it enormous success, in short, all is not right at Apple. Its recent stumbles seem related to the partnering and outsourcing strategies that company formerly used so well. To avoid further public blunders that could affect the brand and customer relations, Apple will need to either reconsider its approach to business, which seems unlikely, or find ways to gain more control and cultural unity.
Image: Apple Inc