It’s a tale of two cash positions as Apple prepares to unleash the iPhone 5 (learn more about its release date) on the world with its release date serving as a backdrop for the real Apple story: the company has $76 billion in cash on hand, and while Steve Jobs says he’s merely “keeping the powder dry,” there’s another shoe just waiting to drop. Instead of blowing money on over-marketing its products, or executing buyouts of its competitors and partners, Apple is instead planning on using some of that cash for more than a rainy day. There’s something big coming, and only Jobs knows what it is. But Apple’s cash on hand is significant for another reason: for the moment, thanks to the artificially created “budget crisis” which sees John Boehner and his posse trying to hijack the federal government by cutting off its funding, the United States only has a mere $74 in cash on hand. That’s right: Apple has more cash in its warchest than President Obama currently has in his.
And no, Apple is not planning to buy the United States in a leveraged buyout. But it highlights just what kind of absurd position the company is in upon the eve of the iPhone 5. What is Jobs thinking? This kind of cash means Apple can stick around forever, and that has to be on his mind to an extent. After all, if he hadn’t returned to Apple when he did in the late nineties, it wouldn’t still exist. With this kind of moola on hand, Apple can remain a market force long after Jobs is gone, even if he is fortunate enough to live a full-length life after his series of health issues. But there’s got to be more to it than that. Sure, Apple in the Jobs 2.0 era has been overwhelmingly fiscally conservative even as it’s been aggressive on the innovation front, changing up its most popular products every year even when they’re dominating their respective markets so thoroughly that most other companies would stand still until the tide began to change. It’s that aggression, however, which suggests that Jobs has more specific plans for that cash than he’s letting on. And with the iPhone being the only one of Apple’s major product categories which is currently not dominating its respective market (besides the Mac, which lost its marketshare battle two decades ago after Jobs was ousted from the company), the launch of the iPhone 5 seems the perfect offensive for Jobs to strike out and correct that unusual imbalance…
There’s the iPod, which still has most of the MP3 player market a decade after having been introduced. There’s the iTunes Store, which own the digital music industry despite cheaper prices on AmazonMP3, and in fact dominates thoroughly that its outpaces physical CD sales. There’s the iPad, which has most of the tablet market despite an abundance of Android based competitors. And then there’s the iPhone, the first iOS device to come to market, and it doesn’t even have as much as half of the smartphone market. BlackBerry is dying, Palm is gone, HP and Microsoft are getting nowhere. But people are buying Android in abundance despite the fact that outside of the geekdom actually wants one. And that leaves Jobs with a quandary as he prepares to assign a release date to the iPhone 5.
The ill-fated iPhone exclusivity deal reached with AT&T back in 2007 is of course entirely to blame, and it’s easily the biggest mistake of Apple’s second Jobs era (similar exclusivity deals in other nations compounded the problem and made it a worldwide mistake). The day the original iPhone was introduced, the majority of Americans vowed never to buy one until it arrived on their preferred carrier, and even as AT&T saw unprecedented growth thanks to people switching carriers to get to the iPhone, the majority of those who swore they’d hold out ended up doing exactly that. Fast forward four years, with Apple having desperately clawed itself out of one of the worst five year deals in history a little more than a year early, and now the company faces a landscape in which the Linux-based, geek-oriented, widely disliked, highly fragmented, generally dysfunctional Android platform has managed to assume many or most of those would-be iPhone sales by positioning itself on the other three major carriers in a successful attempt to capture the hordes of crumbs which have fallen its way. And now a platform which would have had almost literally zero sell-though outside of geek circles is instead a major iPhone competitor as Apple unleashes the iPhone 5. Steve Jobs has more cash in his company wallet than the United States of America has in its bank account, and yet what can he do to get Apple out of this hole he dug himself four years ago?
Buy a carrier and set up iPhone 5 shop on it, some circles would say. But that would work about as well as the time Pepsi started buying up fast food franchises like Pizza Hut and KFC and Taco Bell in order to ensure that they switched to Pepsi products. Technically it worked. But competing fast food chains began viewing Pepsi as a competitor and, not wanting to do business with their competition, began switching to Coke. Pepsi ended up having to spin off the food chains just to save itself. Similarly, if Apple were to buy Sprint (or steal T-Mobile away before AT&T can acquire it), Verizon and AT&T would then view Apple as a competitor. Even though they’d continue carrying the iPhone 5 out of necessity, they’d be much less likely to promote it. Instead they’d steer their customers toward Android, which is exactly how Apple got into this iPhone marketshare mess in the first place. What Apple needs, instead, is the opposite.
Apple needs indirect control over both AT&T and Verizon, so as to ensure both carriers give the iPhone 5 its due. As it stands, salesgeeks in carrier retail stores routinely tell one lie about the iPhone after another in a desperate personal bid to steer would-be iPhone buyers toward Android instead, and this goes on whether it’s the carrier’s policy to favor Android or not. What Apple needs is for these salesgeeks to be informed that they’ll be fired if such behavior continues. But a memo isn’t enough. Instead, Steve Jobs needs to be running these carriers. Because it’s not just about getting a customer to buy an iPhone 5. It’s about molding the carriers such that they offer an Apple-like experience to customers, or at least an acceptable one, as opposed to the disastrous experiences which U.S. consumers are routinely subjected to regardless of which carrier they pick their poison from.\
What Jobs really needs government regulation in the U.S. analogous to that of other civilized nations. As it stands, Verizon and AT&T can and do literally anything they want, no matter how heinous; most of it’s legal and the rest isn’t enforced. Networks are barely there because unlike other nations which regulate minimum number of towers per population density, U.S. carriers simply build a fraction of what they should. And they get away with because, despite all U.S. carriers offering a substandard experience which would be considered a joke by anyone in any other nation, Americans are almost perversely loyal to whichever carrier they’ve chosen. That leads back to them choosing to remain with Verizon and its marginally better substandard network and get stuck with an Android phone they hate rather than moving to AT&T with its marginally worse network and the iPhone they’ve wanted all along. But while Jobs can’t change that kind of mentally handicapped behavior on the part of consumers, can he change the nature of the carriers?
Short of getting the law changed (former President-elect Al Gore is on Apple’s board of directors), Jobs may find himself in the position of needing to own all of the carriers. Not that Apple could buy both Verizon and AT&T in terms of cash or legality, nor would it want to as it would need to continue to provide cellular service to competing phones. Instead, Apple may ultimately need to own a minority stake in each of the major carriers. This would give Jobs unofficial influence on all of them, and would allow him to work from within to attempt to simultaneously get the carriers to terminate the fraudulent salesgeeks while also improving the overall network experience. Then again, Jobs had an exclusive contract with AT&T for years which legally gave him influence over the quality of AT&T’s network, and yet a lot of good it did him. Then again, ownership is a different beast than partnership. For instance, through the merger with Pixar, of which Jobs personally owned approximately three-fourths, he now owns enough of a minority stake in Disney that he can call the shots over there if and when he chooses.
But does Jobs really want to get that deeply involved with cesspool entities like Verizon, AT&T, and Sprint just to get the iPhone 5 experience up to where he wants it? After all, Jobs has made no bones about the fact that he sees the iPad as the future, and smartphones are merely pocket-sized extensions of the motif. Still, the future of the iPad is deeply tied to the future of mobile data networks, as the current wifi-only iPad model is mostly a brick once it leaves the house, and accordingly, the percentage of 3G-based iPad sales has risen significantly as users have figured that out. Would Apple dare build its own mobile network for the iPad? It would almost have to be an iPhone network as well, which would put Apple back in the position of competing with the carriers who have the power to fraudulently steer customers to Android. Or is Jobs gambling that the current consumer obsession with remaining carrier-loyal will eventually fade, even as the negative hands-on experiences with Android will cause the platform to collapse under its own weight?
That’s quite the pair of gambles. Studies show the vast majority of current Android users already having decided not to buy another Android phone. But the idea of getting the public to let go of their Stockholm Syndrome-like loyalty to the abuse they receive from their current carrier seems another matter. Current iPhone users would be willing to switch to an Apple-owned cellular network in droves. But getting those who still haven’t found their way to the iPhone to do so could become a greater challenge. Then again, if Apple begins advertising that it’s offering the first U.S. cellular network which doesn’t suck, it may shock consumers into deciding that they’ve indeed had enough abuse and are ready to move if it means moving to an Apple-owned carrier. But if Apple has been secretly building its own 4G LTE nationwide network to coincide with the iPhone 5 release date, then no one’s gotten a whiff of it yet and it would be one of the best-kept secrets in Apple history. Here’s more on the iPhone 5.
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