TECHNOLOGY SPECTATOR: Apple's iPhone 5 misfires

The launch of the iPhone 5 emphasises more than ever that Apple is now focused on maintaining a high margin of profitability rather than innovation.

Technology Spectator

Apple’s iPhone 5 launch was a tightly scripted affair and was so similar to those of Microsoft’s, Nokia’s and Google’s that it is hard to tell what is more disappointing. The fact that Apple can’t be bothered to alter the format or that there wasn’t a slither of novelty in what was announced.

What’s interesting about these events is not the features that are included in Apple’s latest devices but those that are left out. With the latest announcement of the new iPhone 5 and the revamped music player range, these omissions were significant and telling.

The two principles that rule Apple

What Apple left out of its latest product launch emphasises two things about the company. First, its products are not about innovation, they are about maintaining a very high margin of profitability. Second, and this is really an extension of the first principle, Apple does not go into a business area unless they can control that business and charge a high margin, usually 30 per cent.

Apple is essentially operating as the McDonald’s of the technology world. What McDonald’s and Apple have in common is that they know everything about manufacturing, supply and corporate consistency. They can deliver a consistent, scalable and profitable service on a global scale. What they aren’t are reckless innovators, experimenting with radical ideas.

Apple’s mode of operation is illustrated really clearly in two things that were missing in the Apple announcement, the iPhone 5’s lack of support for NFC and the iPod nano’s redesign from a wearable device to something you hide away.

NFC

At AllThingsD, Apple Senior VP Phil Schiller dismissed the importance of NFC saying that the new iOS 6 application Passbook does everything that a customer would need. Well, actually that isn’t true. Passbook doesn’t allow you to pay for things in the physical world. It’s interface with retailers, airlines and others will be limited to barcodes. This technology is extremely limited, as anyone who has tried to get barcode scanners to scan loyalty cards stored on an iPhone will tell you.

The reason Apple is not pursuing NFC is that it hasn’t yet managed to convince the banks or credit card companies to pass on charges when phones are used to make payments. Given the lack of financial returns, there would seem little point in adding a component to a phone that would drive up costs and decrease margins.

The inclusion of NFC hardware in the iPhone 5 could have potentially provided a timely boost to the adoption of the emerging technology but for now Google Wallet can continue to extend its reach.

And the credit card companies are understandably quick to point out that Apple’s absence won’t hurt NFC’s future. Both MasterCard and Visa’s Asia-Pacific innovation directors have told The Australian that the payment system will continue to gain momentum with or without Apple.

The key message here is that there is adequate take up of non-Apple phones among consumers with the necessary NFC hardware that will guarantee continued evolution of the contactless payments story. Once NFC reaches critical mass, Apple will well and truly be chasing Google in the space.

Wearable computing

The second big thing that was missing was something that has gone largely unnoticed but symbolises a fundamental lack of vision and innovation at Apple. The previous sixth generation iPod nano was designed in such a way as to be worn as a watch. The clock software that comes with the iPod nano allowed for different faces to be selected and for the iPod to show the clock when powered on.

This represented a real opportunity for Apple to take this idea and develop further functionality into the watch. To truly integrate with an iPhone for example. But the new iPod nano reverts back to an earlier form factor that constrains it to be just a music player.

Ironically, Apple chief executive Tim Cook said at the iPhone 5 launch "Only Apple could create such amazing software hardware and services and put them together into such a powerful, integrated solution”. It isn’t really clear what he was referring to here. It may have been the Amazon-like ability to synchronise your position in a video or book across different devices?

What it wasn’t, was an opportunity to extend the capabilities of different devices to share functionality in a truly integrated way.

Others can do it, why not Apple?

As another indication of how popular this idea could be, the Pebble watch that launched on Kickstarter, has raised over $10 million in funding. This watch allows installable apps, integrates with iPhones and Android phones via Bluetooth and provides a programming interface.

Apple’s product strategy is in stark contrast to Google’s. Even though Google is pulling back from their past "let a thousand flowers bloom” approach to innovation, they are still willing to invest in technologies and projects that have no immediate prospects of financial return. In the wearable computing area for example, they are pushing boundaries with the Google’s Project Glass.

The iPhone has reached a level of maturity where we will not see significant changes in its fundamental design. As we complete our move from the PC to mobile computing platforms, the integration of computing capabilities into everyday objects or the Internet of Things will take us into the next stage of this evolution. At this stage, it is hard to see Apple playing a significant part in that process.

David Glance is a director at the Centre for Software Practice at The University of Western Australia.

(Additional reporting by Supratim Adhikari)