iPhone as Classic Melodrama

I'm eagerly awaiting the iPhone introduction, but not just because I want one. I'm looking forward to the drama of Jobs, Apple, and cool gadgets vs. the stock market and financial analysis. I'm hoping that Apple and Steve Jobs can establish coolness as a wild-card measure of long-term health in a stock market world ruled by short-term metrics like gross margins and last quarter's earnings. It's a classic drama, complete with a hero, a fatal flaw, and, I hope, final redemption.

Some of this is standard drama of product launch. What if the iPhone comes out flawed with some problem that didn't show up in the media build-up? What if decision to hold it to the single wireless provider blows up? What if Jobs' media genius has built demand way beyond what Apple can deliver? Will the experts still like iPhone after the launch? Will they call Apple the morning (or quarter) after?

Steve Jobs really knows cool. He called it "insanely great" during the early days of Macintosh. The Macintosh, Steve Jobs' pet project, made computers cool for the first time ever in 1984. I was around Apple a lot back then, consulting to its Latin America group. The word was that Jobs wanted lower pricing. Jobs wanted market share. Jobs wanted Macintosh for everybody, which the ads called "the rest of us." And then Jobs was out.

Some blamed Apple's slide on its decision not to sell system software to other hardware makers, but that was a symptom, not the cause. The real problem, the tragic flaw, was a compensation plan at the highest level meant key decisions tracked stock prices instead of long-term strength. Almost every manager I dealt with agreed that the pricing was hurting share, and that share would be better for the long term, and that The competitors managed 30 percent gross margin while Apple stayed at 50 percent, meaning that companies like Dell, Compaq, IBM, and HP, charged about $2,000 for what cost them $1,400, while Apple charged $2,800. Apple watchers normally cite the as the biggest mistake Apple made. What they don't realize is that focus on stock prices was the real problem. The operating system decision was a symptom, not a cause. The stock price fixation was true for a long time. Apple's premium pricing gave its competition (read: Microsoft Windows) time to catch up.

Before I go on with the drama I should clarify something. I'm not one of those diehard "Apple is good, Microsoft is bad" people. I'm just watching here. My software company develops in Windows and for Windows. I don't think Microsoft is evil. I do own a Macintosh and several iPods, but I work with Windows. And I don't think Apple saves souls.

I should add that I have no objection to premium pricing as sound business strategy. It makes sense in a lot of markets. I like high-priced restaurants and expensive cars. What made premium pricing a mistake for the Macintosh, however, was that it constrained unit sales in a business that depends on a community of software developers, hardware developers, accessory makers, retail stores, and broad compatibility for its ultimate success. The iPod wouldn't have been what it is today if the price hadn't dropped after the initial surge of excitement. The Macintosh could have been the industry standard if Apple had priced it aggressively enough in those formative years. Some high tech products -- computers, entertainment devices, and cell phones among them -- depend on a bandwagon (we call it a platform) as part of their success.

http://www.huffingtonpost.com/tim-berry/iphone-as-classic-drama_b_53326.html