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Archive for April 3rd, 2008

What’s Apple Up To?

Posted by Bob Warfield on April 3, 2008

The most successful brand in the world is in the news quite a lot lately.

The latest startling statistic just in from a leaked memo is that Apple has officially passed Wal-Mart to become the world’s largest music retailler, and not by just a little bit.  Apple apparently has cornered 19% of the market while Wal-mart clocks in with 15%.  Despite offering DRM-free music, Amazon is a distant #4 at 6%.  There’s 28% still up for grabs from no-names.

What this tells us is that people will pay for a convenient user experience, which is what iTunes boils down to.  Not only that, but they will shift their behaviour very rapidly if they like the experience.  More alarming I’m sure for the music industry was that according to the same research in thememo, 48% of US teens didn’t buy a signle CD in 2007 compared to 38% in 2006.  I can’t remember the last time I bought one personally, but it was sometime shortly after I got my first iPod and there was only 1 or 2 and then I quit buying them altogether.  Music has moved into the clouds and off of discs.  Most of the rest of digital activity will eventually follow suit.

Here’s another couple of wild statistics on Apple from Larry Dignan based on a Rubicon survey.  First, one third of iPhone users carry two phones.  That’s kind of a toe stumper to me.  I know one iPhone user with multiple phones and that’s because he’s in the wireless business and has to demo multiple handsets.  The other phones include a Blackberry, a Windows Mobile device, and a Motorola.  I find myself relaly wondering what the survey said as these statistics are often misleading.  It is such a hassle to have multiple phones that I find it hard to believe.  FWIW, the survey said the alternates were for basic voice calling and composing e-mail.  The iPhone was being used largely as an e-mail reader.  Again, FWIW, the most common use for mine is web access followed by e-mail followed by voice.

Of the many interesting notes in the article, another that caught my eye is that 28% of respondents say they often carry the iPhone instead of notebook PC’s.  Ditto here.  It’s another reason I want my data in the clouds, BTW.  I had my iPhone with me on my recent Hawaiian trip and never missed the notebook.  Interestingly, it will increasingly be an Apple notebook that you may choose to leave behind.  Apple now sells 21% of consumer PC’s.  Certainly here in Silicon Valley, it’s cool to have fruit on your machine.  I was just at the Googleplex yesterday for lunch and didn’t see anything but Apple notebooks other than the PC I used to self-service a visitor badge.

Next up on the Apple front (sorry, this is a laundry list, but that’s how it comes to me) is their push into digital lifestryle fitness.  They’ve filed a bunch of patents accoding to AppleInsider that relate to an iTunes-like software application, hardware-based heart rate and physiological sensors, a rewards tracker, and a component to facilitate synchronous group activities.  It will be cool to have these toys from Apple (I love the idea of my phone tracking fitness info that I can use to get healthier), but I am troubled by the patents.  It’s SOP I know to patent it all, but these ideas are far from new.  My old mentor Philippe Kahn has a company called FullPower that’s been working in this area for years and no doubt has their own patents.  I’ve even got a note going back 10 years in my list of startup ideas to look at the idea of a “Sports Phone” that has calorie tracking, an accelerometer/pedometer, and a heart rate monitor.  Apple is pretty late where prior art is concerned it seems to me.

But the really BIG news is the iPhone shortage and what it means.  Folks like Om Malik and others have discovered Apple stores are basically out of stock on iPhones.  Initial speculation is that this means the 3G phones are imminent and Apple wanted to minimize the chance for obsolete inventory so they sold out.  This is not a bad guess.  I know my iPhone will be upgraded shortly after the 3G is available, and my wife will find herself suddenly with a slightly used “original flavor” iPhone.  That trickledown of the used but perfectly usable iPhones would make it tough to justify buying a new one for a while.  It will also likely mean good news for AT&T as I can’t imagine taking a working iPhone and sticking it in a desk drawer the same way I’ve done every other time I upgraded phones.  They’re just too cool to ignore like that.

Here’s an odd thing though.  Nearly all (well actually ALL that I read about in blogs) Apple stores have no iPhones in stock, but AT&T Wireless does have them.  Granted, Apple doesn’t control AT&T who may have decided to keep right on selling rather than follow Apple’s plan (if it exists).  While Piper Jaffray views the shortage as an indication there is an 80% likelihood of an imminent new model, other explanations are possible.  For example, there could be a component shortage or manufacturing hiccup.  In that case, accounting rules benefit Apple if they ship available supplies to partners instead of their own stores.  A phone sitting in an Apple store is inventory.  A phone shipped to a partner is revenue.

But there is another possibility I’m surprised none of these analysts have mentioned.  There was plenty of discussion about the economics of Apple locking up the iPhone.  They make more money when a partner like AT&T sell the phone than when someone buys the phone and hacks it to another unpartnered service provider.  Clearly if you buy the phone at AT&T, they will insist you buy their service.  So how do you get a phone without service?  Why you get it from an Apple store.  At least until they ran out.

Keep your fingers crossed on the 3G, but I don’t see the likelihood as 80%!

Posted in Marketing | 6 Comments »

The Airlines Are An Incredible Mess

Posted by Bob Warfield on April 3, 2008

Even our kids were amazed at how poorly our recent vacation to Hawaii went when it came to air travel.  Aside from the usual airport conditions, United Airlines was a disaster. 

We were flying United from the mainland to Oahu, and then Aloha to Kona.  Despite being partners and having the whole thing booked as one, United and Aloha’s computers couldn’t talk to one another, so we had no boarding passes on Aloha.  We barely got our seats on United as they were way overbooked, so it was a mad scramble on the way over.

On the way back, we had two legs:  Kona to Honolulu and then Honolulu to San Francisco.  We got off in Honolulu an hour late and ran all the way to the connecting gate.  According to typical airport Murphy’s Law, when you’re late for a connection you’ll find you have to run the longest possible distance in the airport to make it.  So we ran.  But when we got to the gate, it was completely desserted.  This didn’t look right, and there was absolutely nobody there.  Our assumption was they’d changed the gate.  The reality was worse:  the United flight had been cancelled.  Why they couldn’t leave someone at the gate or at least provide a sign is a mystery. 

So we ran down to see some actual agents, and met our next disaster.  They had 3 agents dealing with it, there was more than one flight cancelled, there was a giant line, and it wasn’t moving.  As usual, those customers wanting to take advantage of the “screamer” policy to get themselves a better deal were monopolizing all available agents.  They argued for over an hour while everyone else waited.  There was one customer service person nominally in charge who was completely useless.  At one point she wanted everyone flying directly to SFO to come with here.  That turned out to be just us, but what the heck, we were being pulled from the back of the line to the front.  Trouble was, about the time we got out of the line and in the middle of nowhere, the screamers started screaming, literally.  So she forgot about us and went to calm them down.  Thirty minutes of limbo later where we asked another agent who became available to help and were told to wait on the customer service rep, and eventually I decided to become a screamer in order to get even a modicum of service.

The agent, of course, had been so long away from being an agent because of the new self-service kiosks, that they could barely remember how to run the UI on the computer to get our seat assignments.   The cryptic commands they were trading back and forth were truly scary.  Cutting edge of 1950’s COBOL would be my guess.

Eventually , we got vouchered into a hotel and booked on a flight late the next day, and left the scene in disgust.  We later heard some passengers were there upwards of three hours and that some were being told it would literally take them 3 days to get where they were going.  Note that this was spring break and people were trying to get their kids back to school.  Someone else said they worked for United and the flight was cancelled because United was short 30 or 40 planes as they were redoing maintenance procedures similar to what happened with Southwest recently.

I could go on about all the crazy ways United still screwed up the customer experience further (you’d think that wasn’t possible), but let me just end the story by saying the culmination was pulling the plane up to the gate, shutting off the engines, and waiting 15 minutes while the pilot plaintively called for someone to extend the jetway.  He finally got on the intercom, clearly disgusted himself, and said he’d called multiple times, assumed someone was on the way, but that there wasn’t much else he could do.

Meanwhile, back at the ranch, Aloha went bankrupt and cancelled all flights and ATA went bankrupt yesterday, cancelling all flights.  We have friends holding tickets on both airlines to go to Hawaii.  One will get their money back via credit card reversal, the other is out of luck.  At this rate, we’ll have to paddle a canoe to get to Hawaii the next time we go.

The airlines complain about fuel costs, but I see a different reality.  Despite every flight being overbooked, and no possibility for an upgrade on any flight I’ve been on recently, the airlines can’t seem to make a profit.  It’s the old, “We lose money on every transaction but we can make it up in volume.”  Meanwhile planes are full, families are scattered all over, flights are randomly cancelled due to maintenance issues, there is no communication, but most of all, nobody on the airline really seems in charge.  They’re all reacting, and reacting poorly.  Frankly, some of them need to go bankrupt and disappear for good because clearly these airlines need to raise their proces and get a grip on things. 

This all reminds me of Jeff Jarvis’s article in Business Week where he says:

Here’s some free advice: Go to Google, enter any of your company’s brands followed by the word “sucks,” and you will see the true consumers’ reports. Brace yourself, for it won’t be pretty. Wal-Mart’s unofficial Google Sucks Index turns up 165,000 results; Disney 530,000; Google 767,000. What’s yours?

United Airlines definitely sucks, but I’m not sure they are a standout in the lousy industry they’re a part of.

Posted in Marketing | 4 Comments »

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