Apple Event Fails to Dazzle

The new iPods feature cosmetic changes and lower prices, but Steve Jobs didn’t announce any game-changing innovations many have come to expect

Apple watchers have high expectations for the company’s signature events. There’s always a palpable buzz in the air as Chief Executive Officer Steve Jobs takes the stage, followed by a virtuosic keynote, filled with humor and digs at the competition. And there’s almost always some game-changing product or service—often more impressive than anyone expected.

So what happened on Sept. 9? Apple’s presentation was held at San Francisco’s Yerba Buena Center for the Arts, a smaller venue than usual. Moscone West, where Apple has held many events in past years, had been booked for a wireless industry show. And this time, Jobs calmly walked through a series of more workaday announcements, all of which had been predicted in the blogosphere in the previous days and weeks.

Indeed, the big news about Apple’s holiday lineup of iPods had little to do with gee-whiz innovations or breakthrough new products, and more to do with cosmetic changes and lower prices for existing items. Both the iPod nano and iPod touch are now thinner than ever, and the nano now comes in nine eye-popping colors. The company doubled the memory in the base-model iPod nano, leaving the price at $149, and cut $70 off the iPod touch, to $229. All in all, Wall Street was unimpressed, driving Apple’s stock down almost 4% by day’s end. “We really don’t see a game-changer announcement in there,” says Scott Craig, an analyst at Banc of America Securities.

Wooing Nervous Consumers

Why didn’t Apple put more oomph into the announcements? Part of the answer, say analysts, is that it didn’t have to. The fact is, there are no rivals capable of eating into Apple’s 70%-plus market share for its iPod devices and iTunes software. And the company gave consumers enough reason to stick with Apple—in particular, with cheaper prices that will appeal to consumers nervous about the economy. “There’s no Apple tax anymore,” says Michael Gartenberg, vice-president of mobile strategy for Jupitermedia (JUPM), who notes that the new iPods now cost the same as new versions of Microsoft’s (MSFT) Zune player.

It’s not that Apple isn’t innovating. A new version of the iTunes online music store now features a “Genius” button that automatically generates a playlist of songs similar to the one being listened to. Similar capabilities have long been available on the Net, on such sites as Pandora Media’s Internet radio station or the social networking site iMeem. But Jobs points out that Genius lets iPod owners find fresh new tunes when they are not connected to the Net, which is most of the time. “People have a lot of music on their devices that they haven’t listened to in ages,” Jobs says. “That’s what Genius does. It helps them rediscover music they already have.”

A nice new feature, but is it enough to bring throngs of new shoppers into their local Apple store? Probably not. Still, analysts say Apple is smart not to mess too much with a good thing. “You have to keep innovating, but you don’t want to keep dreaming up new designs when the market is happy with what you’ve already got,” says Gartner Group (IT) analyst Mike McGuire. Jobs agrees. “How have we managed to get such a great market share and hold on to it for so long?” he asked rhetorically in a post-event interview. “Most companies get lazy and complacent when they get this kind of market share. But we recognized a long time ago that we couldn’t rely on competitors for competition. We had to compete with ourselves. This is how we’re going to stay No. 1.”

iPhone Update on Sept. 13

Keeping that prime position will also require making improvements when Apple products fail to meet expectations. On Sept. 13, the company will issue an update for its iPhone 3G that Jobs says will go far to resolve a litany of complaints from users. Jobs says roughly 5% of iPhone 3G owners have had some problems of one sort or another. He says the sweeping update to the device’s software, to be delivered over the Net, contains more than 100 bug fixes that should reduce the number of dropped calls and the tendency of the phone to crash when users have downloaded too many programs from the company’s online App Store. “This release fixes all that stuff—and it significantly improves battery life,” Jobs says. “It’s a great release, so we encourage everyone to get it.” A previous software fix failed to solve all the issues.

Despite the glitches, Jobs says he’s pleased with iPhone sales and says that complaints over performance haven’t eaten into sales. Apple says iPhone owners have downloaded 100 million programs from the App Store in just 60 days.

Users are especially fond of downloading some of the 700 games currently available at the online bazaar. This could be serious business for Apple if fans of Sony’s (SNE) PSP or Nintendo’s DX begin gravitating toward the iPhone instead. Aware of the opportunity, Phil Schiller, Apple product marketing vice-president, used a large chunk of the event to demonstrate how games such as Electronic Arts’ (ERTS) Spore and Need for Speed work on the device. Indeed, some analysts think the relatively small iPod price cuts—widely predicted, given that Apple has said it planned to lower margins through the end of the year—were designed to push fence-sitting customers to buy an iPhone rather than an iPod. Jobs admits that cannibalization of iPod sales by the higher-priced iPhone is not anything to worry about. “I’d love it if every iPod turned into an iPhone,” he says with a smile.

Jack Johnson Performs

Either way, Apple needs to expand the overall digital music market to really increase its iPod business. The new lower entry prices for a base-model iPod should help in that regard, but it remains to be seen if the refreshed lineup will attract vast numbers of new customers into the Apple fold this Christmas. Then again, Apple will undoubtedly attract more than any other company. Jokes Jupitermedia’s Gartenberg: “People come to these events and say, ‘That was good, but why didn’t you bring John Lennon out to perform.” Don’t forget, though, that Apple did bring Jack Johnson—and he’s the top seller on iTunes.

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