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Reality Check: Apple’s remarkable week

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

I have just finished a second view (the total event was about two hours long), and quite frankly was both amazed and disappointed in the session. Amazed at what Apple has been able to accomplish in the past two years (when the iPhone 4 launched in June 2010, Apple’s stock price was a hair above $250), but also disappointed in Apple’s presentation of their many achievements and the absence of YouTube. It’s not going to result in Apple’s stock crash, but they have left the door wide open for Android (and perhaps Nokia/Windows) with their anti-Android tactics. In short, the new Apple is starting to behave like the old Apple which is both disturbing and disappointing.

First, the good news. Apple has been hard at work, and it clearly shows in their line-up for the holidays:

–More stores in more places: Tim Cook led with stores as a symbol of the distribution excellence he demands for all products. I experienced this first hand in New York City, Boston, Dallas and both Kansas City locations this year. After you go into an Apple store, you will not go back to Best Buy or any other Apple distributor if you can help it (except for phone-specific issues). It’s important to remember, but the in-store experience serves as the second-most prominent manifestation of the Apple brand (the device being the most important). Controlling the experience starts with the purchase, and Apple’s extremely devoted to hands-on help.

–A revived iTunes platform: This has been my biggest beef with Apple in the past, as iTunes is the software bridge between third-party content and Apple devices. The current iTunes platform is slow (over both mobile and computing devices) and it’s not intuitive. It was just two releases back when Apple allowed apps to be purchased over the air (as opposed to through the iTunes Mac/PC interface). The changes they demonstrated on Wednesday, along with some caching improvements they could make in the future, will change the discovery process in the app store. While they did not fix discovery (still too many clicks to find apps that fit my needs), they made it much better. Many of you might remember the column I wrote three years called “When Nordstrom runs the iTunes App Store.” Apple is aiming too low with their improved iTunes experience. They need to move beyond my Facebook friends, and develop a world-class recommendations engine, one that is border-line scary because it’s so useful.

–An iPhone Steve would be proud of: When I watched the iPhone part of the Apple presentation for the second time, I was struck by their emphasis on precision. From the video, the words “personalized and perfect fit” come to mind. Perhaps this part appeals only to fans of “How It’s Made” on the Science Channel, but the customer impact is no longer merely “beautiful design” (Apple’s trademark), but is now appended with “made especially for me.” How a store representative conveys this to a prospective customer is simple (have the customer hold both a Galaxy S3 and an Apple iPhone5), and, if the customer wants to know more, there are great videos on the website and in stores. This leads back to observation No. 1 (Apple-owned and controlled stores).

For those who want to upgrade from another Apple device (and the most likely device will be the iPhone 4 which was introduced in June 2010), the iPhone 5 is likely to attract some upgrades. Many of these customers have had their iPhones for over two years and are eligible for contract deals. Second, the iPhone 4 was the device that had the “antenna issue” which required a bumper to be placed on the phone to fix. The changes to the antenna, speakers and back cover fix that problem. Finally, while the iPhone 4 had a good camera, the iPhone 4S and iPhone 5 have really come a long way. I especially like the panoramic feature on the iPhone 5 and think it will be a differentiator for more advanced smartphone photographers.

Apple’s announcement was encompassing – it’s one of those sessions that will take weeks to digest. Recent media reports place focus on technologies that are included and excluded (namely that near field communications is out), but the biggest bust with the iPhone is the omission of YouTube as a pre-loaded application. There will still be a YouTube app available on iTunes, but customers will have to download it. For a device that delivers more bandwidth (and every iPhone except for Sprint Nextel in the United States will come with a metered plan) with higher resolution, the omission of YouTube as a pre-loaded application is adolescent. If Apple had replaced YouTube with another application (Vevo?) as they did with maps, the argument would be different. But to remove without replacing – that’s nuts.

The motivations appear to be obvious: Google is more of a competitor with Motorola. YouTube is one of if not the single most used pre-loaded application (ask any teen). So make it harder, just like Apple did with Google Voice.

Underlying the competitive enablement motivation is something far deeper, however. Within Apple, there is a “zero sum game”-type of cancerous mentality building. The argument goes like this: Smartphone market growth is slowing, and Google is building share. There’s a fixed pie of future purchases. Every share point of projected growth that Google gets comes at our expense. Google must be stopped, and we should start with Maps and YouTube.

I’ll allow each of you to develop your own thesis as to why a $600-plus billion company would entertain zero-sum behavior (especially when the past decade has been built on openness and partnerships), but I’d like to meet the analyst/consultant who knows with zero-sum precision the size of the future market for both LTE-enabled smartphones and all of the related services that will blossom from them (especially the future trajectory of each of the companies in the latest Comscore video analysis). It’s troubling because it incorporates Microsoft-esque thinking (we “own” this market) with old-Apple thinking (we must “own” all of this market). Applying the vertical integration techniques of a smaller player (old Apple) within a company that is clearly a market leader could in fact stifle the innovation that has made iTunes and the iPhone successful.

Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at jim@pattersonadvice.com and you can follow him on Twitter @pattersonadvice.

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