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Has Apple Finally Stretched Itself Too Thin?

 

This is something that I've been thinking about for a while now, but the big announcement of the OUYA Android gaming console earlier this week gave me the final nudge. Here is the latest of many examples of an area where Apple got out in front of the competition with an elegant and easy to use solution, only to see others swoop in, take the core of their idea, and innovate on it faster.

Now, I know that Apple certainly wasn't the first company to put out a set top box capable of streaming media content to a television. However, they were the first to make a second generation product that transitioned from being a hobbyist device for hackers and early adopters, to a more mainstream product that tied in neatly to an ecosystem and became an extension of their other devices.

It was an incredibly bold move when you think about it. In a consumer electronics industry that is completely obsessed with more power and expanding spec sheets, Apple went in the exact opposite direction. They cut the second-generation Apple TV to the bare bones, producing a much slimmer, sleeker, and cheaper, but also much less powerful device. It isn't uncommon to see a competitor swoop in and undercut the price of someone else's device, but it is incredibly rare for a company to do it to one of its own.

However, this was definitely a change for the better. Dumping the internal storage and relying solely on streaming for content delivery made the device dead easy to set up and use. With so many people already using iTunes to purchase their music and movies, nobody really missed that internal storage. Who wants to download a 1-2 GB movie or TV Show that they already own, when they can just stream it on demand.

Apple then went a step further, and added built in apps for popular third-party services like Netflix and MLB TV to broaden the new Apple TVs appeal. Things got even better last Fall, when Apple launched their new iCloud and iTunes match services. iCloud brought instant access to the photos from a user's iOS devices on the big screen via Photo Stream, while iTunes Match delivered entire music collections to home entertainment systems without relying on a computer running iTunes. Then we got even more new goodies with AirPlay, which offers an easy method for getting content from their iOS devices up to the big screen. Now users had the ability to send any of their music, movies, photos, and videos to the Apple TV with a single tap.

All of this was cool, and made perfect sense, but I remember how disappointed I was when Steve Jobs' “one more thing” announcement ended without any mention of an SDK or App Store access. That seemed like such an oversight at the time, with Google TV already released and the Android Market already slated to arrive “soon.” Well, we all know how that went. Hindsight is 20/20, I guess. Google tried to turn the TV into a computer of sorts, and their product floundered. On the flip side, while the Apple TV certainly wasn't a hit on the level of the iPad or iPhone, it definitely outpaced the previous Apple TV's sales, and those of other media streamers available at the time, as well.

Then, to add insult to injury for being totally wrong about adding App Store access to the Apple TV, Apple slapped me and other critical tech bloggers upside the head with the release of iOS 5. They had already unveiled Screen Mirroring for the iPad 2, which was done through the Digital AV Adapter accessory and an HDMI cable connected to a television. It was a cool feature, but the screen mirroring had limited appeal outside of watching video content, business presentations, and education. Gaming was awkward due to the cable tether attached to the side of the tablet, but it was still an intriguing concept.

Enter iOS 5, with its new wireless AirPlay Mirroring. Now, the Apple TV suddenly took on the appearance of a poor man's game console, and developers like Firemint with its Real Racing 2 HD, took notice and showed off what was possible. Who the heck needs another section of the App Store, and the fragmentation that comes with it, if you can leverage the apps that developers have already coded? It was brilliant, and the future of Apple TV looked really bright.

However, all wasn't perfect with this arrangement. As I explained in an article earlier this year, it takes a lot of work to get high speed games, such as Real Racing 2 HD, working without stutters and skips. In a game like that, it only takes a second of lockup to end up with your car in the wall, which definintely puts a damper on the fun. It is possible smooth out the kinks with a higher-end router, running an Ethernet cable to your Apple TV, or using Powerline Adapters to bridge the gap to your entertainment system. However, this isn't something that casual users are going to take the time and effort to do. They are more likely to just give up and move on.

I had renewed hope that Apple might announce some enhancements or improvements to AirPlay Mirroring at the recent iOS 6 unveiling. Unfortunately, that did not happen, as there wasn't a single mention of the Apple TV that I can recall. It's total absence just helps to feed the fire of the Apple HD Television rumors, but it also leaves a vacuum available for others to fill in the meantime.

Apple had the initiative with the re-launch of the Apple TV over a year ago. They had a product that was inexpensive and easy to use, and had a foot in the door of almost impossible to break into console gaming market. But that foot hasn't moved very far since the addition of AirPlay Mirroring in iOS 5, which has not only given the competition the ability to catch up, but even move beyond in key areas. The Xbox 360, which was already the top-selling current generation game console, has not only bridged the gap with Apple, but has moved well beyond the Apple TV's streaming media offerings. And other media streamers, like the Roku, have started adding apps and gaming elements to compete, as well. Standing still isn't going to cut it much longer in this now very competitive space.

So now we are back to Tuesday, when the OUYA rocked Kickstarter like a hurricane. They did so by taking a page out of Apple's book, showing off a focused product with beautiful style and design. However, they took it a step further by not relying solely on touch controls, which have never been accepted in the world of console gaming. OUYA will come with either one or two wireless controllers that have the all too familiar analog stick, d-pad, buttons, and shoulder triggers that longtime gamers are used to. OUYA didn't stop there either, as they are also adding a touchpad to the controller. This allows developers to quickly and easily leverage their already released Android games that are geared toward the touchscreen of a phone or tablet.

Ok, I guess I need to dial it back a little bit here, since the OUYA was only announced as a prototype and design concept earlier this week, and is still vaporware until further notice. Even if it is released on time, who knows how good the execution will be until we get our hands on it. However, the venture is being headed up by a group with a ton of experience in the gaming industry, and now has almost $4 million in the bank. They're off to a pretty roaring start. Also, when you consider that the OUYA is basically just a Galaxy Nexus stuffed into a box with no screen, running a custom build of Android, it shouldn't take a rocket scientist to get this thing into production within 9 months.

The build quality and software stability of the version 1.0 OUYA is irrelivant at this point, however. The point is that Apple has been standing a few inches away from an obviously untapped area of interest that could be quite lucrative for a full year and a half. If Apple had given developers the option to use physical Bluetooth game controllers and taken the time to smooth out the AirPlay Mirroring experience, then I'm pretty confident the OUYA wouldn't have appeared on Kickstarted this week. Apple could have OWNED this lock, stock, and barrel, but through laziness, indecision, stubborness, or mis-prioritization, they have allowed a competitor in that could really challenge them in this space. Remember the early 2000s, when Apple beat the entire music and consumer electronics industires into submission with iTunes and the iPod. They scortched the competition to the point that most of them didn't even bother releasing music players anymore. I miss that Apple. You know, the one that took on the competition in the marketplace instead of the courtroom. The closest we've seen to that senario since is the iPad, and even it isn't quite as dominant as the iPod.

This is the point where Apple needs to sit up and take notice. Sure, the Apple TV isn't going to dry up and blow away, whether the OUYA pans out or not. However, if there wasn't a real demand for this kind of inexpensive foray into gaming on the big screen, then OUYA wouldn't have a commitment for $4 million today (which includes a $129 backing from yours truly). They'd be just another Kickstarter project trying to make their goal and get something out the door. The OUYA team got that money because of people who are frustrated with both Apple's and Google's inability to give the masses a seamless gaming experience with good graphics, solid frame rate, consistent wireless connectivity, and a uniform physical controller. Neither has managed to pull all of the elements together into a product that makes sense.

Then there is Microsoft, who along with Sony, currently own this space. Yesterday was an even greater indictment on them, in my opinion. The high price of console gaming has worn thin with many consumers in a down economy. It's hard to justify $60 for games these days, especially when you can pick up high quality and in-depth tablet titles like Infinity Blade or Real Racing 2 HD for less than $15. If the OUYA hardware is well executed and developers get on board, then this device could fundamentally change console gaming as we know it. It really could be that disruptive “iPhone Moment” for this market, which in my opinion, could really use one. The usual suspects may have missed the big opportunity here, and OUYA is poised to take full advantage.

While the OUYA is the tipping point that got me writing about this topic, it certainly isn't the first instance of Apple watching a competitor take a concept that they pushed forward, and running faster with it. Look no further than the epic battle of the iPhone and the ever-growing throng of Android smartphones for proof of this. I understand that Apple took a very different approach than Google, focusing on the high-end of the market. They went for the big profits by making an aspirational device, and pairing it with an unbeatable ecosystem, and it worked. On the other hand, Google and their hardware partners focused on pushing the envelope with new features and higher specs, while also offering a wider variety of devices. They got the marketshare, but Apple has still maintained a sizable lead in profit share, developer profits, Internet usage rates, and ecosystem buy-in.

However, the last nine months or so have seen Google go in a different direction. Since the hiring of Matias Duarte, they have made cleaning up the Android UI and building their ecosystem a top priority. It's pretty evident that they are focused on taking more control over Android, which is actually a good thing since it has largely been their hardware and carrier partners that have held the platform back over the years. There are still plenty of issues to deal with, like the fact that it still takes a minimum of six months to get new Android updates into the hands of customers, along with the long-running and complicated issue of device upgrades. And don't even get me started on skinning. Yuck. However, Android is starting to noticeably close the gap on iOS in key areas where it has been deficient in the past. The speed and fluidity of the UI and the ecosystem are making strides, and again, Apple needs to take notice.

However, rather than counterpunch with a blockbuster update in iOS 6, Apple gave us a fairly minor refresh that offered some nice refinements, but certainly didn't have a lot of headline grabbing features like the iOS 4 and 5 updates did. It seems that Apple probably devoted the majority of their resources for this update on getting their new Maps platform off the ground. I've been using the beta version, and it's certainly a step up from the old version of the app. However, it simply slides into the place of an app that iOS users have had since the original iPhone. It just doesn't “feel” as big as it is because of this. Also, there are plenty of users who miss things like Google Street View and transit information, so some will choose to focus on features that are no longer there. I'm couldn't care less, myself, but for those who relied on those features, the new Maps app will feel like a downgrade. Since this is an area where Google has a gigantic head start, Apple will have to spend a disproportionate amount of time and effort to make iOS Maps a true competitor.

So now we get to the meat of the argument. Why does it feel like Apple is maybe losing its midas touch? Almost everything they have sent out the door since the iMac of the late nineties has been a hit, and the iPod, MacBook Air, iPhone, and iPad have each had a massive impact on the current shape of the consumer electronics market. What is changing?

First off, the primary competitors have finally learned from watching Apple's success. Look no further than Amazon and Google quickly assembling and refining their content ecosystems and then releasing inexpensive self-branded tablets to sell that content as an example. Now even Microsoft is getting into the hardware game with its new Surface hybrid device, which came as a huge shock to their longtime partners in the PC industry. And then there's Samsung keeping up their copycat ways. They just opened a new store in Canada that is an absolute carbon copy of an Apple Store, right down to the color of the shirts that the employees wear.

All of the above companies have seen the massive profits that Apple has raked in over the last decade, despite the fact that they only hold dominant share advantages in the music player, tablet, and ultra-thin laptop markets. The competition has gotten smarter, and realized that it isn't all about cheap hardware and open availability. You need a cohesive brand and marketing message, and you need products that will generate profits, whether they be in hardware sales, ecosystem sales, or ad sales. Apple can't afford to sit still now that their primary foes are all getting their acts together, and seemingly all at the same time.

I think there's a more critical issue with Apple itself at play here, though. Remember when Steve Jobs returned to Apple and became the interim CEO? One of the first things he did was to slash and burn all unnecessary products from the Apple lineup. Some of his cuts were very unpopular at the time, such as the Newton, for example. However, his refining of Apple's focus and re-shaping of its corporate culture is what set the stage for their current success.

The shift in corporate culture was also absolutely key in Jobs' overhaul of the company, and got a lot of attention in the wake of his retirement and then again after his passing last year. He and his hand-picked executives ran Apple more like a start-up than a Fortune 500 company, putting design at the forefront of product development, and using small teams to run projects. They somehow managed to hold the red tape, overbearing marketing, and focus-group driven mentality of most large companies at bay, keeping Apple at the forefront of consumer electronics.

Now, contrast the philosophy of the lean and very focused Apple at the turn of the century with the Apple of today, and you'll see a very different picture. I can't think of another company on the planet that is producing the widely stretched variety of hardware and software that Apple is today. Sure, Microsoft and Google develop a lot of software, and Samsung makes just about every piece of hardware under the sun. However, does Samsung make two full OSs to go along with that hardware? Also, while Samsung does technically make it all, they do it with many divisions that often act as completely separately entities. Even Google can't claim that title. Chrome OS is a cool idea and has its place, but it isn't in the same realm as OS X. Now, they do technically produce their own hardware thanks to their acquisition of Motorola. However, like Samsung and its multiple divisions, Moto is still run very much like a separate company.

And then there's Microsoft, who until recently was run much like Samsung. The Windows side always seemed at odds with the Office side. Then you had the Xbox group off by itself, doing its own thing, and other divisions like Windows Mobile, and later the ill-fated Kin, struggling to stay above water. Now, Microsoft FINALLY seems to bringing everything together into a more cohesive whole, which should serve them and their customer well. We are starting to see the fruits of this philosophy with the coming of Windows 8, where the mobile and desktop sides of Microsoft's products will finally start to merge together in the same way that Apple's do. However, other than the Xbox, the coming Surface, and some accessories, Microsoft still has a MUCH smaller hardware portfolio than Apple.

So, while all of Apple's competitors are large corporations with large numbers of employees, I would argue that Apple is currently spread far thinner than any of them. According to Wikipedia and a few other sources (in other words, these numbers may not be absolutely correct or up to date), Microsoft has over 90,000 employees, Google has over 33,000, and Apple over 43,000 in the US. I was surprised at how large Apple has become the first time I looked into this months ago, but last week's stories about Apple's retail operations reminded me that over 30,000 of that number work in Apple Stores.

This is the key point. While their competitors have far greater numbers of employees focused on key software or hardware development, Apple only has somewhere around 13,000 people spread between OS X, iOS, iTunes and the App Store, OS X Apps (Safari, iWork, Final Cut, Aperture, etc), iCloud, all Mac Hardware, all iOS Devices, iPods, Apple TV, and accessories. Then thrown in marketing, in-house legal, liasons who deal with carrier and the like, and that number looks even smaller. We're a VERY long way from the Apple that Steve Jobs re-made.

Due to the pressure that their competitors all applying on all sides, and the rapid growth in the number of products that Apple is currently producing and updating, a tipping point is looming on the horizon, if it hasn't already arrived. Tim Cook is going to have to make some tough choices. Is Apple going to cut back their product offerings to preserve their startup-like, small team approach, or will they expand their engineering and programming staffs to keep up with their rapidly growing demands?

At some point in the near future, one of these two outcomes will have to occur. With Apple's product portfolio likely to grow to include televisions and smaller iPads in the near future, the status quo just isn't sustainable. I'm not saying that Apple is in immediate danger here. They have enough cash, consumer credibility, and products in the pipeline, that they won't run out of steam for quite some time. However, just look at the smoldering remains of Palm, RIM, and Nokia to see what happens when companies in a leadership position either get lazy and stop innovating, or get spread themselves too thin and lose their focus on making great products.

For the record, I absolutely do not anticipate disaster for Apple. Not in the least. Steve Jobs left a great team in charge of a company loaded with cash and full of top-notch engineering talent. I believe that the competitive pressure on all fronts will become great enough that Tim Cook and the board will make a call, one way or the other, that will allow Apple to continue on as a leader in the consumer electronics market. I just wonder how long that will take, and how many competitors will benefit from Apple spreading itself so thin across so large a catalog of products and services.

 

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