Apple's growth, an unwinnable iPhone war and a reputation at risk

Apple is clearly in a war with hackers over the iPhone and its most loyal fans could take a few hits. How Apple performs through these battles will determine the company’s overall reputation going forward.

Today’s angst over iPhones becoming iBricks because they were modified is really just the beginning. There are a few reports of non-hacked iPhones going dark following Apple’s latest firmware update. Adrian Kingsley-Hughes and others note that Apple has a PR problem on its hands. These issues could affect how Apple is perceived in its core markets.

The iPhone issues are really just a side effect of a much larger issue. As Apple grows it increasingly loses that feel-good underdog image. It starts looking like every other large company. Apple even starts to look like a bully–even to large media players that merely want to try different pricing schemes on iTunes. To make matters worse Apple is alienating its base. Add it up and customer service declines. Customer service declines won’t happen overnight, but Apple will have issues simply based on numbers–the more customers it has the more people it can annoy. Steve Jobs is treated as a messiah able to leap over options scandals and create a never-ending stream of delightful products, but that won’t last forever.

It’s one thing to preach to the converted Mac and iPod fans. It’s quite another to bring on new iPhone customers and then annoy them. And if the reports are accurate about Apple’s iPhone update Steve Jobs & Co. is annoying some folks.

The iPhone update is just the latest example. Consider the following moving parts:

• Apple cut the price of the premium iPhone by $200 just weeks after die-hards waited in line to pay $599 for it. Steve Jobs met these early adopters half way and gave them a $100 store credit. Where’s the other $100? If Steve really cared about you perhaps Apple would have made you better than whole, say a $250 credit.
• The iPhone sticks you with one carrier–AT&T–that few people want. Why? Apple got the best deal from AT&T. We aren’t privy to the math behind the AT&T and Apple deal, but we do know none of these hacks to unlock the iPhone would be necessary if we had carrier choice. What’s the cost differential between adding a few carriers to the iPhone and wasting time developing software to outflank hackers?
• Apple has the best tech support in the business and could put it at risk over the iPhone. According to Consumer Reports June 2007 rankings Apple had a reader score of 81 out of a possible 100 when servicing desktops and laptops. On laptops the next best score was Lenovo’s 66 and Dell’s 60. One theory behind Apple’s score: Apple owners are an elite–some would say elitist–club. These folks will get whatever Apple pumps out of the product pipeline. Consumer Reports bases its scores on reader surveys. In these surveys perception matters. With the iPhone Apple is going mass market scores for Apple are only going to decline based on the laws of large numbers.

Simply put, the wireless market is a different ballgame. Apple may become a dominant mobile phone player with the iPhone but it is going to suffer a few black eyes along the way. The key for Apple will be to quarantine the iPhone issues without infecting its corporate reputation.

Update: Check out MacDailyNews for a rebuttal (in addition to all the talkbacks of course) to the above post. For the record, I’m not overwrought. But it does seem quite possible that an Apple backlash could brew. It’s called success and a big bulls eye often comes with it.

Update 2: Macalope has another rebuttal. Best quote:

But let the Macalope get this straight, Larry. You’re asking Apple to refund early adopters more than the price drop? That’s um, well, nuts is what that is. The Macalope didn’t think it was possible but you may have out-Enderled Rob Enderle. There’s a feather in your cap.