10 things Apple won』t tell you

Aug. 7, 2012, 12:02 a.m. EDT

By Quentin Fottrell

From customer service to app safety and even how its devices affect our relationships, here are 10 things Apple won』t likely tell you about its products and its business.

1. 「Our customers are worn out.」

All that initial excitement over the first iPhone or iPad has quickly given way to what analysts are dubbing 「upgrade fatigue」—with even Apple』s most loyal customers upset about the steady stream of newer models. In fact, when people buy Apple』s (NASDAQ:AAPL) latest product, the company is usually already preparing its replacement, said technology consultant Patchen Barrs, who has owned 25 Apple products over the past 20 years. 「Everything we buy from them is already out of date,」 he says. Take a count: Since 2001, there have been six iPods, two iPod minis, six iPod Nanos, four iPod Shuffles and four editions of the iPod Touch. Apple has released five iPhone models since 2007 and has had three iPads since 2010.

ReutersThe Apple Inc. logo hangs inside the newest Apple Store in New York.

Of course, newer models have their upsides: They』re usually slimmer, faster and have additional features like better cameras and improved screen quality. And Apple, which declined to comment for this story, has said that such improvements more than justify the fast pace of their new additions. (In March, for example, Apple spokeswoman Trudy Muller said the latest iPad delivered a 「stunning」 screen display.) But that argument isn』t enough to appease some cash-strapped consumers. Almost 50% of consumers say they』re increasingly unwilling to buy new products for fear that they will be rendered outdated by even newer versions, according to a recent survey of 2,000 people by Marketing Magazine in the U.K.

It doesn』t stop with devices, said experts: Software upgrades also gently nudge people to buy new hardware. Last month, Apple launched a new version of its Airplay software, which virtually connects Apple gadgets and can beam video from computers to Apple TV. But the new Airplay is not compatible with iMacs and MacBook Air computers bought before mid-2011. Some Mac owners expressed their unhappiness online. One irate Mac customer wrote: 「I don』t care how much you plan for obsolescence, there is no way that new software should not be backward compatible for at least a couple years.」

2. 「Be careful of that app.」

Smurfberries—that virtual red fruit that』s the primary source of nutrition for Smurfs—may sound like cheap fun, but costs can add up. Madison Kay, an eight-year-old from Rockville, Md., unwittingly spent $1,400 buying Smurfberries while playing the game 「Smurfs』 Village」 on the family iPad, the Washington Post reported. After complaining, Madison』s mother received a one-time reimbursement. These games are available in the App Store and referred to as 「freemium.」 They』re free to play, but only for a certain amount of time or before reaching a certain level, says Damon Brown, author of several books on tech culture. Under the tutorship of Papa Smurf, players like Madison are given the option to buy Smurfberries to unlock Smurfs and growth formulas to build their own Smurf Village.

3. 「We』re getting in the way.」

Checking an occasional Facebook update via iPhone during dinner is the least of some couple』s worries. One in five people reach for their phone as a 21st Century replacement for the post-coital cigarette, according to a recent report from mobile security company LookOut.It』s just one more extreme example of how the smartphone has become a third wheel in relationships, says Ursula Ofman, a New York-based therapist. 「People find all sorts of ways to get back to their own personal space, she says. 「But clearly it』s a problem if someone wants to check their iPhone in the bedroom.」

Some people』s relationship with their God is also being interrupted by that familiar buzzing sound in their pocket—or the pockets of their neighbors in the pews. One in 10 people check their phones during religious services, another LookOut survey says. 「People don』t even tend to think about any of this as a breach of etiquette anymore,」 says Chris Young, executive director of The Protocol School of Washington. 「They see their phones as an extension of themselves.」

Personal responsibility and manners aside, there are other theories about why people can』t put their iPhone down. 「Apple』s products are addictive,」 says Larry Rosen, author of 「iDisorder: Understanding Our Obsession with Technology and Overcoming Its Hold on Us.」 In fact, many users are aware of their attachment to their iPhones. Some 25% of people see their iPhone as 「dangerously alluring」 and 41% said losing their iPhone would be 「a tragedy,」 according to a 2010 Stanford University poll.

4. 「You may spend more with our devices.」

Not only do Apple』s products tend to be pricier than those of competitors, people spend more using them. The average iPhone owner, for example, spends over 10% more on their monthly bills than other pre-paid smartphone users—$90 versus $81—according to estimates by Morningstar analyst Michael Hodel. Owners of iPads also tend to spend more at ecommerce sites than other tablet users. iPad owners spend $158 per order—the highest order of any device—versus $105 by people on other mobile devices, according to a recent study by RichRelevance, personalized product recommendation company.

Why the splurge? Some say the iPad feels like a high-end store—the virtual equivalent of Saks Fifth Avenue or Barney』s. Others say it』s because the iPad is easy to use: 「The iPad is a very intuitive and compelling product,」 says Mark Eisenberg, director at Fino, a technology and consulting firm. 「Just like Amazon』s one-click buy, Apple』s iPad encourages people to make impulse purchases.」 Plus, those who can afford $499 or more for an iPad are more likely to have higher disposable income than those who buy Android tablets, says Milton Pedraza, CEO of the Luxury Institute LLC, a marketing firm.

5. 「We need another game-changing gadget.」

Upgrade fatigue isn』t the only thing critics dislike about Apple』s product rollouts; some say the new products aren』t new enough. Investors are growing impatient with Apple』s pipeline and calling for another tech revolution. It』s time for Apple to shake up the mobile market again, says Walt Piecyk, technology analyst with BTIG brokerage. He says a completely new Apple phone that costs less than the $649 starting retail price for the iPhone 4S would be a good start. Other deep-pocketed tech companies are also poised to compete with the iPhone with their own smartphones. Facebook (NASDAQ:FB) is also reportedly considering developing its own phone and Google (NASDAQ:GOOG) , which bought Motorola last year, is reportedly building its own phone. (Facebook and Google declined to comment.)

Apple still has strong iPhone sales, but no company should be so dependent on one mobile phone, Piecyk says. In fact, the iPhone market makes up more than 50% of Apple』s sales, according to research by investment bank Piper Jaffray. 「Remember when Nokia, Motorola and RIM led the mobile phone market?」 he says. 「Market share can change very quickly.」 Another reason for a phone that addresses the lower end of the market: the days of carriers offering massive subsidies to consumers are numbered, Piecyk says. If and when that happens, he says most people won』t pay $600 for a phone. Apple disagrees. A company spokeswoman noted in February that despite its price tag, 「iPhone 4S has been an incredible hit with customers around the world.」

6. 「The iPhone is overpriced—even compared to the iPad.」

The iPhone costs hundreds of dollars less than the iPad, but Apple has much higher profit margins for the phone than the tablet, experts say. Here』s how it breaks down: Apple earned gross margins of up to 58% on its United States iPhone sales between April 2010 and March 2012 and margins of just 23% to 32% on the iPad, according to a statement filed by Apple earlier this month as part of its patent battle with Samsung Electronics Co. It costs Apple $215 to make the 32GB iPhone 4S—less than a third of the original retail price, according to technology research company IHS iSuppli. But it costs $375 to make the 32GB version of the new iPad, around half the retail price. As a result, consumers are paying a bigger premium on iPhones than the iPad, says technology consultant Jeff Kagan. 「Is the iPhone expensive? Yes,」 Kagan says. 「It is overpriced? Yes.」 Consumers think they pay a cheaper price for iPhones as wireless carriers absorb two-thirds of the original retail price, he says. However, customers who keep their iPhone and renew their contract after the initial two-year contract expires are paying a premium for using an old phone, he says.

7. 「Don』t be fooled by our soft sell.」

When Carmine Gallo recently walked into the glass-fronted Apple Store in Pleasanton, Calif., the 「concierge」 wanted to talk to his two children about what Disney movies they could get on the iPad. Only after he had charmed both children did the employee turn to Gallo. 「It was an extremely artful piece of salesmanship,」 says Gallo, author of 「The Apple Experience.」 Art dealer James O』Halloran had a slightly different experience in the San Francisco Apple store when he approached a member of the Genius Bar brandishing a broken iPod. 「It will make a cool paperweight,」 the Genius Bar member told O』Halloran before promptly offering him a new one.

These two stories illustrate two things, experts say: Apple』s staff knows if children want Apple』s products their parents will want them too—and they never bombard customers with tech-talk. 「They always start off by asking you about your lifestyle and your needs,」 says Martin Lindstrom, author of 「Brandwashed.」 「They emotionally engage you so it』s harder to say no to their products.」 Other electronic stores focus on price and technical specifications, but are slowly taking a cue from Apple Stores, he says.

The gleaming, futuristic store designs are another important piece of Apple』s retail puzzle, experts say. 「Entering these spectacular, fantasy retail environments helps people forget about the outside world,」 says Tina M. Lowrey, professor of marketing at the University of Texas in San Antonio. 「They worship the product like they would in a church.」 The approach appears to be working: Apple is the top seller per square foot among major U.S. chains, according to a 2012 survey by market researcher Asymco. For the four quarters to August 2011, Apple sold $5,626 per square foot worldwide versus $330 for mall-based stores, the survey found.

8. 「Our features are falling behind.」

Some consumers want Apple』s iPhone to follow the Android market』s lead by bringing out bigger screens. Nancy Batchelor, a teacher who lives in Washington D.C., recently gave up her iPhone because it was too small. 「I seriously can』t read anything on that phone,」 she says. 「I feel old and, worse, large-thumbed.」 (She』s 42.) Batchelor has plenty of other options to choose from: Motorola Droid Razr Maxx and HTC』s One X both have a 4.3-inch display. And Samsung』s SII has a 4.8-inch display—dwarfing the iPhone』s 3.5 inches. She』s not alone. According to review site TechRadar.com: 「3.5 inch screens just don』t cut it anymore.」

Five years after its launch and several upgrades later, some analysts say the iPhone is starting to feel dated. iPhone users can often be found trying to recharge their batteries in Starbucks, says Yung Trang, president of TechBargains.com. Samsung』s new SIII has a removable battery, allowing consumers to carry a replacement. What』s more, fans point out that the SIII battery has more power than the iPhone—more than 10 hours talk time versus eight hours for the iPhone on 3G. 「The Samsung SIII is the best iPhone competitor in the space today,」 says technology analyst Kagan. In many respects, it』s even better than the iPhone.」 For big talkers, the Razr has 21.5 hours of talk time.

One of the biggest new features on the iPhone 4S—the voice-activated search engine Siri—has not always lived up to customers』 expectations. Siri answers questions correctly 68% of the time, according to recent research by Piper Jaffray. (An Apple spokeswoman recently told the media: 「Siri is one of the most popular features of iPhone 4S and customers love it.」) That said, Apple continues to have one big advantage over the competition, say experts: The cool factor. Plus, it has yet to release the iPhone 5, which is expected later this fall. But tastes can change quickly. In fact, Samsung recently overtook Apple to become the number one smartphone vendor by volume, according to research firm Strategy Analytics.

9. 「We』ll hook you for life.」

Storing digital content like movies, music and books on Apple』s 「ecosystem」—the company』s compatible suite of hardware and software—may lock in customers for life. There』s good reason Apple offers 5GB of memory free on its iCloud virtual storage system , analysts say. 「Once you』re in, it』s a one-stop shop,」 Fino』s Eisenberg says. Apple』s iCloud is different from other companies』 virtual storage systems for one critical reason: It works exclusively with other Apple products, while Google』s Cloud will work with an HTC Thunderbolt, Motorola』s Droid or any device using Google』s operating system, he says. Meanwhile, there are a range of third party clouds like Microsoft』s SkyDrive and Dropbox that allow customers to store files from Microsoft, Android or iPhone.

It』s also difficult to transport digital files from iTunes to a third-party device like the Kindle Fire. (Though it』s not impossible: There are other third-party apps like iSyncr and Double Twist designed to make the transition easier.) Experts say iTunes has other sticky features, too. By rating your library of music on iTunes, for instance, the automatic DJ will shuffle songs and play your favorite music more often. But the feature is not transferrable to non-Apple devices. Tech-culture writer Damon Brown says he has rated hundreds of hours worth of songs on iTunes, but will lose those ratings if he transfers to a Kindle Fire. 「I made a commitment to shop with Apple,」 he says, 「and now I』m stuck with it.」

10. 「Our fans don』t care if we screw up.」

Of course, many customers are happy to be part of Apple』s global community: A Facebook page, 「Fans of Apple,」 has over 935,000 members. And when it comes to controversy about or criticism of the company, experts say the company』s loyal fan base often have a blind spot. Lowrey, the marketing professor, compares Apple』s cult-like following among some users to bikers who own Harley-Davidson motorcycles. 「In the old days these groups didn』t have any way to communicate with each other except in person,」 she says. 「But today there are online communities that rally around brands.」

Indeed, many Apple customers stay loyal to the company even when it disappoints them. Earlier this year a group of Apple customers led by Change.org, a for-profit advocacy group, sent a petition to Apple imploring it to improve working conditions at its factories, especially in China. However, the group』s members said they won』t be discarding their Apple products, or even recycling them. As SmartMoney.com reported, one organizer at Change.org said: 「I love them and I don』t want to stop using them.」 Apple may also have stolen some of its critics』 thunder by being open about its shortcomings. The company released its own report about its factories, admitting that 62% of its suppliers failed to comply with working-hour limits and revealing that five facilities employed underage workers. The report, titled 「Apple Supplier Responsibility,」 stated: 「We require that our suppliers provide safe working conditions」 and 「treat workers with dignity and respect.」

But Apple』s marketing also encourages this tribal following, industry pros say. The company』s borderline 「fairytale」 or 「religious」 language also helps stir up passionate support for the brand and upsets people when apple is criticized, says Lindstrom, the branding expert and author, who adds, 「Apple knows how to inspire its customers.」 Case in point: the company』s website contains this statement about the third incarnation of its tablet computer: 「The iPad is a magical window where nothing comes between you and what you love.」

Quentin Fottrell writes for SmartMoney.com.

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