After $30 Billion Mistake, Can Tim Cook Manage Apple?

Steve Williams

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Peter Cohan, Contributor-Forbes


The flaws with Apple Maps and previously with Apple’s voice recognition software, Siri, reveal some deep flaws with Tim Cook’s work as CEO. You might think that Tim Cook is doing a spectacular job. After all, since taking over as CEO on August 24, 2011, Apple stock has risen 74%, and its revenues and profits have soared 66% and 85% in the last year.

But since the Apple Maps fiasco, Apple has lost $30 billion in stock market value, reports The Guardian. At the core of this loss in value may well be the gap between the technical reality of a new product and the way that product is sold to the public. Plenty of technologies are imperfect when they are first sold to the public. It appears as though Apple Maps had so many flaws — I pointed out its six most epic fails – that Apple could be rotting from the stem down.

How so? Either Cook was not aware of the problems with Apple Maps — in which case he is showing that he does not care about the quality of the products that Apple makes. Or Cook knew about the flaws and decided to launch the iPhone 5 anyway. And if he did the latter, the messaging Cook used to describe the product set expectations that were far better than the reality. And one of the most basic principles of marketing anything is that it is far better to exceed diminished expectations than to fall short of exuberant ones.

A case in point is the way Apple’s web site described the product before the launch. As TheGuardian pointed out, the words were: “Designed by Apple from the ground up, maps gives you turn-by-turn spoken directions, interactive 3D views, and the stunning flyover feature. All of which may just make this app the most beautiful, powerful mapping service ever.” Those italics are mine — and they highlight just how oversold Apple Maps was.

The core of Apple’s problem may be an Apple executive by the name of Scott Forstall. As former Apple executive Jean-Louis Gasse pointed out, Forstall was behind the flawless Apple Maps demo and those flowery adjectives. And Forstall’s demo of the buggy Siri “seemed not only to understand every question he put to it, but to have a snappy answer. It has not worked so well in the wild, at least not for me,” according to Fortune’s Phillip Elmer-Dewitt.

Perhaps the long knives are out in the hallways of Apple. But an October 2011 BusinessWeek profile of Forstall paints him as a mercurial, polarizing figure who has all the traits of a successful corporate politician. That is he stabs his rivals in the back and does a wonderful job of making his bosses feel like he is the greatest thing since sliced bread.

To wit, the article points out that other executives will not attend Tim Cook-led meetings with Forstall and “Some former associates of Forstall, none of whom would comment on the record for fear of alienating Apple, say he routinely takes credit for collaborative successes [and] deflects blame for mistakes.”

Unfortunately, there is something deeply wrong if Cook cannot manage Apple well enough to keep such basic mistakes from happening. And this does not even include the terrible problems Apple’s supplier, FoxConn has been having — the 23 killed making your iWorld, the 32,000 students forced to build your iPhone 5 or face expulsion, or the 1,000 FoxConn workers rioting to protest bad working conditions — that do not seem to concern Apple investors or customers.

While those worker issues do not cost Apple shareholders money or seem to trouble its customers enough for them to stop buying its products, they are a further indictment of the problems with Tim Cook’s management approach.

He should solve them. If not, Apple’s board should find someone who will.
 

amirm

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I don't have any insight into Apple as to know what he says is true or not. But I do have plenty of insight around similar situations. I can't tell you how many times someone showed up in front of Bill Gates and showed a miraculous invention for which we got beat up in the next meeting with him asking why we had not shipped it as product, only to find out it was a "90% solution." That is what I call something that seems to work majority of times but it has corner cases that don't. Now if those corner cases don't matter, all is well. Sadly, sometimes the bar is higher than 90% for mass consumer usage. We took some of those technologies and in the process of getting it higher to 90%, often we had to totally re-write and re-invent the thing! We could do that in my team because I had a number of researches who had chosen to work in a product group but had deep expertise like the people who hand invented such things. So we had the ability to find the problem areas and know right away how much of the problem was solvable. Not so with many other groups at Microsoft who often would fall in the same ditch as Apple. Often we would find them spending millions of dollars licensing things that we knew could not fully do what it said it would do. The temptation was high to get that top-line feature list of the new release so people would jump in there with both feet, not realizing what they were getting themselves into.

I think part of the problem with apple is this secrecy thing. If you have a service that gets better with use, then you better use it before you release it. That doesn't work when you don't let anyone see your new release and likely severely curtail how much employees can be caught with it externally.

Is Cook at fault? At some level the buck must stop at him. He should have lived with the new release for a few weeks himself. One can't help but wonder if he is the typical CEO of a big company sitting at the top and not personally involved in the technology. Jobs was a technologies. He loved knowing what made these things tick. Cook is a businessman. He needs to fix that by hiring an expert at his side that does what Jobs used to also do in that position. Given the history of a company that could do no wrong here, it is predictable that he would fall pray to such mistakes. Hopefully he will learn from it and fixes the real problems, not the symptoms.
 

ack

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The news of the day is that the 5/iOS6 is sucking up cellular bandwidth even when connected to WiFi http://money.cnn.com/2012/10/01/technology/iphone-5-data-overage/index.html?iid=Lead
I am so glad I never upgraded to iOS6. This release has not been managed well, and whoever is behind all these issues (Forstall and others) need to go. This is how Cook will re-gain trust. BTW, I never thought he'd be a good CEO ever since this "New iPad" name that he chose.
 

DaveyF

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Yesterday, I was in LA and asked Siri to direct me to a well known landmark...using ios6, she directed me pretty well to within three (3) blocks of the landmark:(...OTOH, my older Garmin didn't have any info on the landmark at all! Good thing my older memory knew appx where it was, LOL:D
 

Steve Williams

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The news of the day is that the 5/iOS6 is sucking up cellular bandwidth even when connected to WiFi http://money.cnn.com/2012/10/01/technology/iphone-5-data-overage/index.html?iid=Lead
I am so glad I never upgraded to iOS6. This release has not been managed well, and whoever is behind all these issues (Forstall and others) need to go. This is how Cook will re-gain trust. BTW, I never thought he'd be a good CEO ever since this "New iPad" name that he chose.


Relax Peter

Help is on the way (for Verizon initially)

Verizon iPhone 5 carrier update fixes WiFi and 3G issue...

http://www.slashgear.com/verizon-iph...ssue-01249811/
 

FrantzM

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I sincerely don't know how this Wall Street unsustainable expectations work. it is beyond reason IMHO and it will perforce backfire.. What does he have to do? Really the stock is 74% higher since last year .. How much should he do? What are these mistakes that can't be corrected? Really??? The map thing may require an about face but is it that damaging? I disagree with Amir on the fact that he should have used the app himself ... How many apps should he have used? And what about if he did and they worked for him .. Would that constitute a valid test? A sample of one? When the darn thing would have been vetted by his army of talented software people? Bad things happen and good companies quickly correct their mistakes , that is how they survive and strive, the best software companies are fairly good at that ... Will it tarnish their reputation? Of course? Could it be a good thing to happen to them ? Definitely, they become more focused and likely will produce better product with Samsung and (stealthily Motorola) breathing hard on their neck... Cook has done good so far even if it is on simple inertia , you know whatever Steve put in place is still working ... It is waaay too early to judge him . I hope the Apple board doesn't have such hair-triggered mentality. It is unfortunately the way the Casino ...err .. Wall Street ..works though ... Unfortunately...


I am putting on hold my iPhone 5 purchase .. May well get a 4s and be done , doesn't it have the retina display too?
 

ack

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No retina display indeed. What about this... Forstall is being set up to get booted and be defeated in his own political game.
 

ack

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rblnr

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Hi

I sincerely don't know how this Wall Street unsustainable expectations work. it is beyond reason IMHO and it will perforce backfire.. What does he have to do? Really the stock is 74% higher since last year .. How much should he do? What are these mistakes that can't be corrected? Really??? The map thing may require an about face but is it that damaging? I disagree with Amir on the fact that he should have used the app himself ... How many apps should he have used? And what about if he did and they worked for him .. Would that constitute a valid test? A sample of one? When the darn thing would have been vetted by his army of talented software people? Bad things happen and good companies quickly correct their mistakes , that is how they survive and strive, the best software companies are fairly good at that ... Will it tarnish their reputation? Of course? Could it be a good thing to happen to them ? Definitely, they become more focused and likely will produce better product with Samsung and (stealthily Motorola) breathing hard on their neck... Cook has done good so far even if it is on simple inertia , you know whatever Steve put in place is still working ... It is waaay too early to judge him . I hope the Apple board doesn't have such hair-triggered mentality. It is unfortunately the way the Casino ...err .. Wall Street ..works though ... Unfortunately...


I am putting on hold my iPhone 5 purchase .. May well get a 4s and be done , doesn't it have the retina display too?

Agreed on all counts about valuation, Wall St., etc. Now way board is even considering it. And this 30bil 'loss' could vanish in a couple of weeks with a stock swing. Remember antenna gate? I think this maps issue is more meaningful but will fade as well.

4S absolutely does have retina display - this refers to pixel density. Lacks latest screen tech on five which brings display closer to surface resulting in somewhat greater clarity and saturation. It's repeatedly tested to be the most color accurate display out there if that matters to you. Out of curiosity, why would you get a 4S over the 5? Only reason I can think of is $$$, but otherwise, the 5 is nicer hardware. Both will come preloaded w/iOS6 btw. Also, my Verizon 5 which was delivered on day 1 has the 'fixed' 13.1 carrier software already (or this was download upon initial setup of the 5), so I've had no issues. Wonder how many people this can really be happening to.
 
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ack

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Sorry, you are right it does have a retina display. Looks really nice on my 4S
 

Phelonious Ponk

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How do you gain 74% on your stock price and lose 30 billion in stock value? How does that work? This stinks of the rarified air of Wall Street, which smells more and more like a crack pipe every day.

With that said, Cook should fix it. That's his job. If he has a senior manager so bad that the press knows about it, that manager should be fired. Well, unless his boss actually knows more about the guy than Forbes does. It could happen though, we've all known that guy who is great a managing up but can't manage anything else.

To the basic question - can Cook manage after a $30 billion (or whatever is real) mistake? Let's hope so. Let's hope mistakes can be made (Jobs made plenty of them), courses can be corrected and the CEO doesn't need to be publicly sacrificed. Fear isn't a particularly good motivator of innovation. Zero tolerance for error creates lengthy, expensive, mind-numbing processes in which seas of senior managers who have little idea what they're looking at are asked for approval, resulting in dull, pedestrian solutions. A big mistake won't hurt Apple much. Are people returning their iPhones because they don't like the map program? Are sales slumping? Have they even reached the point where they can make enough of them to meet demand yet? I don't think this will hurt Apple much. An atmosphere marked by fear of error would put an arrow through its heart.

Tim
 
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Keith_W

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A big mistake won't hurt Apple much. Are people returning their iPhones because they don't like the map program? Are sales slumping? Have they even reached the point where they can make enough of them to meet demand yet? I don't think this will hurt Apple much.

Tim, remember that a successful product is defined by the rate at which it is sold multiplied by the time that the rate is sustained. In other words, it is the area under the curve. The iPhone 4 was profoundly profitable for Apple because it maintained its high sales volume for almost the whole year until the 4S was released. As we have seen from the 4S, which also broke sales records and was sold out for months after release (but failed to maintain its sales volume) ... initial sales is not an indicator of how well a product will do long term.

I have said in the past that danger looms in the horizon for Apple. In October, Windows 8 will be released along with new phones from Nokia, Toshiba, HTC, and others. Remember that Nokia is a formidable competitor and a former market leader. I would expect it to claw back market share at the expense of both Apple and Android. I have also pointed out that 75% of Apple's profits come from iOS products ... that is a lot of eggs in one basket which is facing severe pressure from competitors. The last thing they need to do is release a substandard product, like iOS 6.
 

Phelonious Ponk

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Tim, remember that a successful product is defined by the rate at which it is sold multiplied by the time that the rate is sustained. In other words, it is the area under the curve. The iPhone 4 was profoundly profitable for Apple because it maintained its high sales volume for almost the whole year until the 4S was released. As we have seen from the 4S, which also broke sales records and was sold out for months after release (but failed to maintain its sales volume) ... initial sales is not an indicator of how well a product will do long term.

I have said in the past that danger looms in the horizon for Apple. In October, Windows 8 will be released along with new phones from Nokia, Toshiba, HTC, and others. Remember that Nokia is a formidable competitor and a former market leader. I would expect it to claw back market share at the expense of both Apple and Android. I have also pointed out that 75% of Apple's profits come from iOS products ... that is a lot of eggs in one basket which is facing severe pressure from competitors. The last thing they need to do is release a substandard product, like iOS 6.

* I don't know what's wrong with this story, but something is missing, or amiss. See if you can make this math add up:

* The success of a product is defined by sustained sales.

* The iPhone 4S failed to maintain its sales volume (this is the same as "sustained sales," yes?)

* Just before the release of the iPhone 5 (that would be at the end of the year of the failure of the iPhone 4S), analysts announced Apple earnings were only 75% above the same period last year (hopefully the irony of the "only" is not lost on anyone)

* 75% of Apple's profits come from iOS products

So they had a 75% earnings gain in a year and 75% of profits were from iOS products in a year that the iPhone was failing? All iPad2?

That just doesn't seem very likely, Keith, but if you've got some numbers I'd like to see them. In the meantime, I think the answer may be a very simple one: That a successful business model for a product with a very short lifespan can be built on an initial rush of volume followed by a leveling, or even a steady tapering off of sales until the new model is released and the cycle begins again. In fact, I suspect that is the successful business model for a product that has a lifespan of a year, and that expecting such a product with such a lifespan to maintain its initial sales volume for the entire year would be, well, not a great plan.

Tim
 

Keith_W

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Sorry Tim, I should have said "iOS ecosystem" to make it clearer. That includes iPods, accessories, and all sales through iTunes. Remember, Apple takes a 30% cut for any song or app sold through iTunes. This is a massive money spinner for them. I do have figures, and I did post them in the other thread. I would look it up for you but right now I am just about to jump on a train :)
 

Steve Williams

Site Founder, Site Owner, Administrator
and that expecting such a product with such a lifespan to maintain its initial sales volume for the entire year would be, well, not a great plan.

Tim

IMO this statement applies to all smartphones and not just Apple
 

Phelonious Ponk

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Tim

IMO this statement applies to all smartphones and not just Apple

I agree. I think Keith is trying to fit a new world product cycle into an old school business model.

Tim
 

Steve Williams

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I agree. I think Keith is trying to fit a new world product cycle into an old school business model.

Tim

Certainly an old business model in this hobby of ours as well
 

Keith_W

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I agree. I think Keith is trying to fit a new world product cycle into an old school business model.

Well Tim, believe it or not, but that is Apple's business model. I really don't see what you find so difficult to understand - if you release one new product per year, you want sales of the product to be as high and as sustained as possible.

iphone-chart-464x400.jpg
This graph shows how the per-quarter unit sales of each iPhone model. Unfortunately I could not find a graph comparing the performance of the 4S vs. the 4, but I assure you that the sustained peak of the 4 was longer than the 4S. Sales of the 4S really flagged off in the final quarter. The iPhone 4 was a truly revolutionary product - it was substantially superior to its competition. No other Smartphone had a high density display. At the time the iPhone 4 came to market, Android was still languishing at v2.2 ("Frozen Yoghurt"). Windows Phone 7 was still a few months from release. The build quality was second to none. In contrast, ask yourself how many features of the new iPhone 5 are market leading? In 2010, iOS users did not have to go on the defensive. In 2012, the situation is quite different.

apple-sales-figures-q1-2012.jpg
This graph shows two things - the pulsatile nature of product launches, and how much of Apple's revenue is invested in iOS devices. The y-axis is per million units.

13.jpg
This pie chart shows where Apple's revenue comes from. iOS devices make up 81% of Apple's revenue.
 

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