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Sorry, Fanboys, It's a New Day at Apple: Hardware Comes in Second

Apple (AAPL) had a new product release yesterday -- only not the one that people expected. There were plenty of negative comments to be found, and unhappy reaction on Wall Street. Some like Tom Krazit at paidContent desperately clung to belief that iPhone disappointment meant nothing. But they are wrong.

Apple made the biggest mistake it could, because disappointment is a marketing killer. However, specifics of the iPhone event aside, disappointing customers is an issue all handset vendors might face as they shift from an emphasis on hardware fetishism to software-driven service. The question is how eagerly the crowds will follow.

Disappointment is always bad business
Disappointment is a marketing killer because it means that a company failed in either setting expectations or delivering on them. In that sense, Apple definitely failed. To argue that the disappointment was essentially a Shakespearean rose by another name is to miss how badly a company can affect its long-term marketing and brand perception.

Also, to claim that the iPhone 4S will sell lots of units is silly. Of course it will. Might as well say that it's hot on a mid-August afternoon in downtown Miami. Of course, all the Android handsets taken together will also have a big quarter. The smartphone is replacing the traditional feature phone. Everyone will do well... for now.

But unless you're in the business of creating start-ups that will immediately get acquired (if that were even possible on a regular basis), you have to think about long-range strategy. That's where Apple, Samsung, HTC, Google (GOOG), Microsoft (MSFT), and others have an interesting problem facing them.

Got to look sharp
Up until the last year, smartphone marketing was primarily a visual game -- what looked cool. Success was about obvious design, slick interfaces, even long battery life to keep that design and interface running for longer than before. Look at coverage of smartphones and you'll notice that much of it borders on hardware fetishism.

No matter that two phones did roughly the same thing. The sharper the impression one left, the more likely it was to find success in the market. This is pure consumer fashion marketing. But the industry is about to hit a dead end.

Not to say that hardware can't get better. Of course it can. However, as Apple saw yesterday, consumer expectations have raced ahead. Wowing the public becomes ever harder. That's exactly where the trouble comes in for all the companies, because the future is in services.

Show me
In the iPhone 5 -- oh, sorry, 4S -- event, Apple uncharacteristically focused on "speeds and feeds," a term former CEO Steve Jobs has used mockingly. Why was he dismissive of such a mainstay of tech marketing? Because most consumers couldn't care less. They can't hold or feel the numbers, and the vast majority of people don't find specifications exciting.

And yet, you need to excite people to get them to buy. Jobs rightly emphasized what products did, not how they did them. That's why many tech writers and pundits don't get how badly Apple blew the announcement. These people like to talk about the gritty details that bore most of the public.

It's also why the industry is about to hit one honking big challenge. Companies continue to innovate, only they've been moving down a path that isn't necessarily show-me sexy.

Clouds don't care about no hardware
The new area of innovation is in services, particularly cloud-delivered. Apple added the cloud-driven voice command service (by buying an existing app developer, let's remember). A previous big addition? Its iCloud. Add a music storage locker, synching files between devices, or automatically uploading pictures.

Apple isn't the only one. Google pushes for more integration of Web-based services into Android. Even Microsoft has the cloud services bug. But they're all conceptual. You don't really see them. Jobs could try to make such services tangible, but it was hard work and he was an exceptionally good salesman and communicator.

As the market continues to evolve, vendors will increasingly look toward services to drive innovation. Unfortunately, services are hard to make substantial. Think not? Ask yourself how long it took before people realized how much desktop publishing software could accomplish. When this trend is likely to hit hardest is when adoption of smartphones becomes mature and growing business will need far more than waiting for the hordes to come by.


Image: Apple