The market still expects Apple Inc. (NASDAQ:AAPL) to blow their minds at each and every product launch. In the recent past, the company has not lived up to these high expectations. There were high hopes from Apple Inc. (NASDAQ:AAPL)’s annual Worldwide Developers Conference. The street had been speculating on the launch of a cheaper iPhone, smartwatch, TV, payment solutions etc. The biggest product news from the WDC was the launch of iOS 7. Apple also launched Macbook Air and announced the new Mac Pro, Apple Inc. (NASDAQ:AAPL)’s fastest computer.
iOS 7
Apple has been a pioneer in its field for so long that consumers do not expect it to play ‘catch-up.’ With the release of iOS 7, Apple is catching up to Google Inc (NASDAQ:GOOG)’s Android and Research In Motion Ltd (NASDAQ:BBRY)’s BB10. The biggest change to the iOS is the new control center feature. This feature allows users to swipe up for various tools such as music, flash light etc. This feature is already a common one for users of Android.
The Google Inc (NASDAQ:GOOG) Drive clone, Airdrop, is also coming to mobile along with some changes to photo features. The company also announced minor changes to their famous digital assistant Siri. The application will now be able to perform a wider range of tasks including a male voice, adjusting brightness or playing voice mail etc.
Apple Inc. (NASDAQ:AAPL) has also made some significant changes to the visual aspects of the iOS. The operating system will have a new color palette and typography. The new icons are attractive and impact the overall attraction of the OS.
The aim of this iOS 7 upgrade is to increase the ‘stickiness’ of the platform. Stickiness refers to increasing the loyalty in existing users by reducing the gap between current offerings and market standards. Improving icons and Siri’s male voice might achieve the goal of increasing platform ‘stickiness’ but does not go a long way in terms of innovation. The control center, application ability to run in the background etc. all seem an effort to catch up to Android.
The new operating system is now available to developers in the beta version, but the consumer launch will be in the fall. Apple Inc. (NASDAQ:AAPL) will match this with the launch of its newer models of iPhones and iPad, also expected in the fall. The operating system has been limited to iPhone 4, iPad 2 and later models.
Streaming Radio
The market has been speculating on Apple launching a radio service similar to Pandora Media Inc (NYSE:P). Bloomberg started the rumors late last year that Apple is planning to provide a streaming radio service from its iTunes platform. The market considered this ‘Apple Radio’ to be the death of Pandora Media Inc (NYSE:P), which still struggles to generate profits despite growth in revenues. A primary weakness of Pandora Media Inc (NYSE:P)’s business model is the high royalty rate it pays to record labels. The high bargaining power and long term relationship of Apple Inc. (NASDAQ:AAPL) with record studios automatically places the giant in a better position to pay lower royalties.
The smartphone giant has officially launched its iTunes Radio streaming service which is ‘inspired’ by companies like Pandora and Spotify. The radio service will have almost 200 channels and will be available for free. The users will be motivated to purchase songs they like on iTunes Radio from the iTunes store. Just like Pandora Media Inc (NYSE:P), this will also be an advertisement supported service. The company has still not announced an advertisement-free subscription which is common to Spotify and Pandora.
Shares of Pandora continue to defy all logic. The stock has already appreciated 80% in the last six months and has shown unprecedented resistance to the iTunes Radio launch. Pandora Media Inc (NYSE:P) currently has almost 200 million users and 40% to 50% come from the iOS platform. As the iTunes Radio is limited to iOS devices, almost half of Pandora users are shielded from its effect. This is still enough to cause irreparable harm to a company trying to build economies of scale to reduce content acquisition costs.
Bottom Line
Once again Apple Inc. (NASDAQ:AAPL) is playing catch up to companies like Google Inc (NASDAQ:GOOG) and Pandora Media Inc (NYSE:P). This is another testament to Google’s newfound innovation leadership in the U.S. technology sector and is the best long term bet in the online advertisement business. The company continues to build new and exciting products such as Google Glass while Apple is stuck upgrading its iPhone and iPad devices with memory, processors and better icons.
Apple continues to disappoint Wall Street, and the Street’s displeasure is showing in the lack of excitement over WWDC launches; valuations have slipped instead of rallying. Long term Investors are better off avoiding Apple Inc. (NASDAQ:AAPL) until the company increases its R&D budget and focuses on rolling out a new class of products. Apple’s valuations will rally once we get into launch season, proving an opportunity for short term profit taking. As expected, the iTunes Radio reinforces the ‘Short’ thesis on Pandora.
The article Lack of Innovation Could Sink Technology’s Titanic originally appeared on Fool.com and is written by Mohsin Saeed.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Mohsin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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