The Association with AT&T Is Hurting Apple. So Why Would Blackberry Choose Them for the Blackberry Pad?

Talk to anyone who carries an I-Phone and one gets two reactions: 1) they love the phone, and 2) they hate AT&T, the telecom carrier that Apple chose as a partner for its phone. Verizon had been approached early on but would not accept the conditions that Apple imposed. AT&T, needing a major success, accepted Apple's conditions and gave itself significant revenue and prominence. A large portion of its customers are with AT&T only because it is the only carrier for the I-Phone.

If an when Apple gives the I-Phone to other carriers, AT&T will likely loose customers. They may not depart for T-Mobile, which may get the I-Phone, but if and when Verizon gets the I-Phone, the exodus of customers will be by the thousands, if not millions.

Brand associations are important. Partners are important. As our mother's always told us, "we will be known by the company we keep". The I-Phone is negatively impacted by its association with AT&T. It is a true testament to the brand strength of Apple and the quality of the I-Phone that customers are willing to put up with dropped calls and poor customer service to stay with Apple.

Now comes word that Research in Motion, the maker of Blackberry has a competitor to the I-Pad ready for shipment in the fall. To be known as Blackberry Pad ( or at least that is the name that Blackberry has licensed), the device is supposed to offer improvements over the I-Pad, including a front and rear camera to offer Skype conferencing. Obviously this is something that Apple can offer in its next generation I-Pad, but Blackberry has owned the corporate market and will further secure that position. So, why is Blackberry ready to give its "pad" to AT&T? Can the deal be that good from AT&T that it is worth damaging the Blackberry brand?

AT&T offers Blackberry, but so does Verizon. Those I know who have their Blackberry with Verizon seem much more pleased with the quality of calls and the lack of dropped calls compared with those who have their phones with AT&T.

Verizon may not be as willing to compromise and deal as is AT&T, but I hope that Blackberry's marketing team realizes that its brand will be partially associated with the carrier it chooses. If it really wants to establish clear differentiation from Apple, it should select Verizon and demonstrate the full value of its new product, and not allow the problems at AT&T to diminish its offering.

As Predicted, Jobs Gets "Smacked" for Comments

As predicted in my last post, the comments by Steve Jobs about other smart phones and their equally problematic design generated a lot of negative backlash from competitors. Blackberry and Samsung, among others, were quick to point out that their phones do not have the problem with the antenna and dropped calls that Jobs claimed to be common amongst smart phones. The others were likely irritated, but also delighted that Jobs gave them an opening to make comparisons against I-Phone.

This was a dumb statement by Jobs. Regardless of whether others have the same problem, it was tantamount to a kid coming home from school accused of cheating and who defends him/herself by saying that everyone does the same thing. Leaders are expected to live to higher standards and take responsibility for their actions and problems, not blame others. A quick news story has become a continuing investigation. Jobs stepped into this. He should not have and didn't have to. He acted like the class brain who when found to have made a mistake cannot take the criticism.

Apple is a leader and a leader should remain on the offense. It does not need to be defensive. Leaders have two moves; followers have just one. Apple had the ability to apologize, correct the problem, and stress the value of the I-Phone. Let competitors attempt to criticize the design. What Apple did was awful, because it "broke into jail" by allowing competitors an opening and a sense of parity. Apple simply needed to apologize, offer the casing to protect phones and eliminate the problem, and move on. Let competitors squeal about Apple's faults. Leaders move on.

Apple needs to mature. By that, I mean that Jobs needs to mature. He doesn't have to prove that he is the smartest kid in the class. He has shown that he is the most innovative and that customers love what he produces. All technology has problems. It is inevitable. Correct the problem and move on. Remain the leader. This is a far cry from what we would expect of a leading brand.

Is the Sheen Coming off Apple?

Apple is in the midst of controversy concerning its I-Phone4. It seems that if someone holds the phone in a certain way, it drops calls. The problem is that the antenna is housed under a small fissure in the side of the case. It is fairly easy to inadvertently cover the antenna with ones hand.

Apple acknowledges that it knew about the problem before the I-Phone4 was released, but that Steve Jobs liked the design and authorized shipment. Following the controversy, Jobs said that it was not "big deal" because all smart phones have the same design flaw.

Regardless of whether or not other smart phones have a similar design flaw, we have come to expect more of Apple than the rest of the industry. Apple's products cost considerably more than comparable products. They sell at higher price because their are perceived to be of higher value. Apple diminished their perceived value by arguing that they are no different from others. If they are just like others, then their cost advantage disappears. Perceived value is a ceiling on price. If one were to plot a Kano Model analysis or perceptual map, it would show that Apple was--in Kano language--"a delighter", that constantly exceeds the expectations of its customers. Other phones would be fairly similar in their perceived qualities, and fall along a line of expectations--that is, they meet expected standards. Is Apple suggesting that it is no longer a "delighter"? Is it suggesting that it is now at parity rather than differentiated from others? I doubt that was what was meant. The argument by Jobs was a lousy one for any company, let alone Apple.

The solution Apple offered was admirable. They have offered a special casing to all I-Phone4 purchasers free. The casing will cover the fissure and eliminate the problem. That is a good solution, but it was not handled well at all. Apple should have apologized, noted that the design flaw was below the expectations of customers and not up to Apple standards, and then given the protective casing. There is nothing wrong with an apology. Those who apologize are forgiven and respected if they also offer a solution, which Apple did.

This incident shows that while Apple is an outstanding innovator--perhaps the very best--it remains arrogant and a bit immature. I have read articles suggesting that Apple's reputation has been tarnished. I don't think so. This was, as someone I used to work with called "a drop of water on a piece of granite". It doesn't cause much of a problem, unless the water drops continue and start to erode the granite.

There will be critics, fueled in part by a dislike for Apple or Jobs, or fueled by competitors who would love to knock Apple off its pinnacle. However, I doubt that customers will be bothered by the situation, considering that there was a quick solution. I was at an Apple store recently. The crowds were just as large and sales of the I-Phone4 seemed brisk.

This situation was a warning to Apple, though, that it needs to recognize and live up to the standards by which it expects to be judged. It has raised expectations of stakeholders above that of peers and competitors. It is now the most admired company, according to Fortune magazine. It must continue to meet or exceed the high expectations it has created, or it will risk damaging its brand and reputation.

Apple is the New Reputation Leader in Fortune Study

Apple is the new #1 in the Fortune Magazine study of "Most Admired Companies". It seems that Apple continues to delight us and operate above the line of expectations associated with most other electronics companies.

Consider that Apple has so much reservoir of reputation capital that it created lines waiting for the chance to plunk down US$500 to buy the new I-Pod, something few people really understood. In other words, lines were waiting for the chance to pay to see what this new product was. At the same time, no one bothered to pay far less to try out the much touted (by Palm; not by many others) Palm Pre.

Reputations are built by what others say, not what the company says. We are very immune to all the hype companies can generate. It's when other like us get excited that we get excited.

Apple has been so successful that it has managed to commoditize the entire PC industry. It is no longer Apple against HP or Lenovo or Dell. It is now Apple vs. PC. The others seem to lack differentiation. So much so that Apple is able to be priced at twice that of a PC.

Apple will likely disappoint us at some time, but as we have seen with other companies that have excessive amounts of reputation capital stored (J&J and Toyota come to mind), the damage from a mistake will not be as dire as it would be if the company were less admired.

Reputation capital matters. It can carry a company a long way. The I-Pod might not be Apple's finest hour, but go tell that to the consumer of electronics. They still see Apple as king.

Google vs. Apple--Battle of the Titans

The new Droid operating system by Google has raised a lot of interest in what this will mean to both Apple's I-Phone and RIM's Blackberry. Everyone keeps looking for the I-Phone "killer" the way people a decade ago looked for the Palm killer. What killed the Palm was the smartphone--a different category. The industry moved from the Palm, which was a PDA, to a smartphone, a convergence technology that combined PDA with mobile technology (phone and e-mail).

So, when people start looking for comparisons with what happened to Palm, they need to be cognizant of the fact that there was a category shift or a new category created. People stay within a category when their needs are being met. They switch only when they determine that the new offering provides greater benefits than they are receiving and the price of those benefits is worth it. In other words, there is value ("worth what's paid for").

Droid is not a new category. It is an operating system. I-Phone has its own operating system, as does Blackberry. However, we are talking about an operating system by Google, the most valuable and respected technology brand in the world--beating even Apple. We now have set up the "Battle of the Titans".

So, who is going to win and who is going to loose? My students have been asking me this since they first heard about Droid. So, here is my prediction and my rationale. I think that Droid will erode Blackberry, not I-Phone. I do not think that I-Phone users will switch, but there will likely be a significant number of Blackberry users who will. Droid is an improvement over Blackberry in many respects, although it will need to improve its e-mail functions to hurt Blackberry significantly.

Why will I-Phone continue to survive? This is no longer a matter of phone, but Apple brand. Apple has a community brand-- a "cult", similar to what we see in brands like Abercrombie and Fitch, Aeropostale, and the like. It is a reference group brand. We know that others are part of our same community because they have the same brand--it is entry into membership.

Google is loved as a search engine and one of the smartest companies around. I believe that Google will eventually use cloud technology to do to the technology space what Wal-Mart did to the retail space--many companies will become suppliers to Google. Google is becoming a brand beyond search engines the way Apple became a brand beyond computers.

Google will soon be selling its own branded mobile phones. It will create its own community. Blackberry has users; Apple and Google have community. Blackberry likely will be in trouble.

What does trouble mean? There are several things happening. First, there is what Boston Consulting Group calls the "market of three". That is, when an industry begins to mature, it devolves into three main players. Others either are squeezed out or become niche players. We also can look at this from a perceptual map and see the variables that drive mobile phone selection and map them. I think that Google and Apple will squeeze Blackberry into the middle, a dangerous place to be in any market--neither here nor there. Blackberry will remain the phone of choice for corporations, but for how long is the question. If Google is an accepted operating system, it will make inroads. To date, the CIOs in companies have resisted I-Phone, preferring Blackberry. How they react to Google and Droid will be interesting to watch. Clearly, there will be pressure coming from users to open the corporate market to another system. Younger users have wanted that to be I-Phone.

This is going to be an interesting battle between two very smart, very rich, very talented giants with incredible brand communities. I have talked with a number of people who are part of the "Apple community" who are starting to dislike Google because it threatens their beloved brand. We are likely to see battles between Google and Apple--the future Coke and Pepsi of the technology industry. Those caught in the middle, like Blackberry will be in a tougher position than ever.

Brands are Alive and Well

I have read a number of articles and books in recent years suggesting that brands are dead. Don Tapscott, author of all things digital, suggested that young people do not care about brands. Even one of the people I admire most, Regis McKenna, suggested that brands were dead. Nothing can be further from the truth.

I don't really understand these arguments. The Internet has changed branding, from something owned and controlled by the company, to something co-owned and co-created with the customer, but this has not killed brands. In fact,there is evidence that brands are getting stronger. Look, for example, at Apple. The fact that people are willing to pay twice as much to get an Apple computer as a PC is ample evidence of the power of brand. Brands build perceived value and interrupt the natural tendency of markets to move to commoditization. The PC world is filled with brands battling for attention. Their brands may be eroding--the really powerful brand in the PC world is Intel, which is not the PC but which is the most powerful ingredient brand in electronics.

Same thing with the I-Phone. I talked to my students about the new Droid phone being offered by Verizon. It is supposed to be an amazing smart phone that may erode the positions of both Blackberry and I-Phone. Verizon sees it as their I-Phone offering. Most of the students were impressed with the potential of the Droid, but not willing to switch from their I-Phones. Apple has become a brand community--people feel connected to Apple--it seems to "get them". There is a true emotional connection with its customers. Powerful brand.

We can see many examples of where brands are being eroded and I can see where Tapscott and McKenna might have found evidence. AT&T long ago said that brand preference in telecom services was dying. Brands die when the value proposition no longer makes sense to consumers. If the AT&T brand was dying it meant that customers couldn't determine why they would select AT&T over Verizon or Sprint or others.

Brands are far from being dead. Where ever one finds a product or service that commands more attention than another in the same category, one can find the power of brands.