Waiting for Apple's next big thing

It's been one year since Steve Jobs died and Apple is as strong as ever. Does CEO Tim Cook need another "holy cow" product to keep his company rolling?

Tim Cook with Steve Jobs at Apple headquarters in 2007 (Credit: James Martin/CNET)

Steve Jobs would surely be pleased.

A year after his death, the company he co-founded and brought back from near-ruin is on a tear. With its top executive team still in place, Apple is set to close out its most profitable year ever. Its stock, now up 65 percent for the year, gives Apple a market value far more than Google's and Microsoft's combined. The iPhone 5 is selling at a record pace, and fans continue to line up and even camp out for a chance to be one of the first with a new Apple product.

Now comes the hard part: Maintaining the formula for that wild success. It's CEO Tim Cook's biggest challenge as he moves beyond the keeper of the Jobs flame and puts his own stamp on the company. Jobs once said Apple is the biggest startup on the planet. Despite its more than 70,000 employees and hundreds of millions of customers, Apple's greatest strength has been its ability to reinvent a market, from the iPod to the iPhone to the iPad.

Now, nearly three years since the the iPad was released, longtime Apple watchers are wondering when Apple's next big thing will arrive. Tackling a new market is a must if Apple is going to maintain that historic success. Certainly, it could continue to improve on its main categories for years to come, squeezing profits from a customer base that's the envy of corporate America. But that kind of complacency isn't how Jobs took his company back from the brink in the late '90s. It's simply not an Apple thing to do.

"That's how Apple has done it," said Charlie Wolf, a vice president with research firm Needham and Company who has followed Apple since 1985. "But I can't identify any market that Apple can easily enter and disrupt right now -- that's with Steve Jobs, or without Steve Jobs."

To say that Apple is in trouble, of course, would be silly. But tech industry history buffs know it's when companies are on top that they make the mistakes that cause problems years later. IBM didn't take the PC revolution seriously enough. Sun didn't respond quickly enough to cheap Linux servers. Microsoft missed the boat on phones and tablets, and is still playing catch-up. RIM didn't have a good answer to the iPhone (it still doesn't). The list goes on and on.

Turning markets on their head is what Apple did best under Jobs. That leads to the obvious question: What's the next act in Apple's decade of market disruptions? Is it an Apple TV? Something else? And do Cook and his executive team have what it takes to do it again?

Keeping the band together
We know one thing: Cook has kept top executives from bolting. That includes Jony Ive, Apple's chief of industrial design, who Jobs said in Walter Isaacson's biography was left with "more operational power" at than anyone else at the company.

Cook's team: Jony Ive, Eddy Cue, Scott Forstall, Phil Schiller, Bob Mansfield

(Credit: Apple/CNET )

The band also includes most of Jobs' team since the mid-'90s, including marketing head Phil Schiller, iOS chief Scott Forstall, hardware honcho Bob Mansfield, and Eddy Cue, the man who oversees iTunes and has been a key negotiator the content companies. It helps, of course, that Cook showered them with huge stock packages, but Apple watchers are impressed nonetheless. "Not only have they stayed, but they seem to have renewed enthusiasm," said Jeffrey Sonnenfeld, a senior associate dean at the Yale School of Management.

So the backup band is still in place and we know what they can do. What's not so clear is whether someone can step in and make deals the way Jobs did. The stories of Jobs the mercurial and demanding boss are widely chronicled. But he was also persistent. When Jobs wanted to buy a startup called Siri, for instance, he called CEO Dag Kittlaus 30 times over a span of 35 days to persuade him to sell, according to a former Siri board member. Jobs was successful, and Apple went on to turn the software into the marquee feature of the iPhone 4S.

That was classic Jobs, determined to get his way. Cook, the master of operations, also is clearly driven, but we don't yet know how his Apple will separate from Jobs' Apple on the design of a new product. We don't know how obsessively he will drive to get what he believes is needed done. The iPhone 5 was probably the last product for which Jobs fully applied his obsessive attention to detail. Will Ive fill that role? Will several people?

In the interim, all eyes have been on Cook to see how he handles the pressure. Already, he appears more willing than his old boss to admit an error, and do it faster.

In 2010, users began complaining that the iPhone 4 lost reception when held along its new exterior antenna. Apple stayed quiet on the matter, short of a widely-posted e-mail between Jobs and a customer, with Jobs telling him to "just avoid holding it in that way." The company followed up saying the issue was "just a fact of life for every wireless phone." When the issue persisted, Apple held a press conference at its headquarters where an agitated Jobs offered unhappy buyers a refund, or a free rubber case. That was after a 32-minute presentation pointing out that competing devices experienced the issue too.

Steve Jobs in 2010, during "Antennagate"

Spin forward to last month. When it became clear after the release of the latest iPhone that a homemade replacement for Google maps on iPhones and iPads was flawed, there was no foot-dragging from Cook. He owned up to the mistake.

"At Apple, we strive to make world-class products that deliver the best experience possible to our customers," Cook said in a letter posted on Apple's Web site. "With the launch of our new Maps last week, we fell short on this commitment."

Cook went one step beyond, urging upset customers to try out software from competitors, including Google. It's hard to imagine that moment from Jobs, who told Isaacson that he was "willing to go thermonuclear war" against Google over Android.

Plenty of pundits have argued whether Jobs would have even released that flawed product, but one thing seems indisputable: Jobs was no friend of Google, and Google's refusal to provide turn-by-turn voice navigation for maps, as it does on Android is reportedly what pushed Apple to take on maps itself.

An ability to make a public apology, of course, has little do with with innovating and creating great products. That's the real job of Cook and his core team. And without the autocratic, deal-making Jobs at the helm, there are new challenges. Already, there are reports of infighting and turf battles inside Apple, a company that for the past decade has seemingly moved with a single purpose. And without Jobs' intense influence, can Cook and his well-compensated management team balance their existing lines with the search for the next big thing?

Apple's 'hobby' TV product

Set on TV?
Ever since Jobs told Isaacson that he wanted "to create an integrated television set that is completely easy to use" and that he "finally cracked it," the Apple speculation apparatus has ginned up a series of inconclusive reports. Yes, Apple makes its $99 set top box, but Cook himself still refers to it as a "hobby." Jobs seemed to be referring to a bigger vision. Was Jobs talking about Apple's next billion-dollar opportunity, a complete reinvention of the way people watch TV shows and movies at home? Or something more modest?

Everyone hates the messy interface of most televisions providers, not to mention confusing, button-heavy remote controls. Yet companies like TiVo, which have offered slick alternatives have not produced sweeping changes. Early speculation was that Apple would skip the box game entirely and instead come out with its own TV set, aiming, naturally, to upend the entire TV market in the way it did with the iPhone and hopefully do away with those god-awful remote control buttons.

But there's a big sticking point if Apple really does want to reinvent the TV entertainment experience: the entertainment industry. Two years ago, Jobs was trying to cut deals to for TV shows and movies that it wanted to offer on iTunes for deeply discounted rates. But Jobs ran up against roadblock after roadblock in Hollywood. The studios and TV networks were determined not to end up like the music industry and let Apple grab too much control of their digital distribution. The exception was Disney. He was, after all, the studio's biggest shareholder and a member of its board.

And Jobs managed to cut a personal deal with News Corp. boss Rupert Murdoch: News Corp. won Apple's assistance in launching The Daily, an iPad-focused news app that debuted in February 2011, but has since struggled. In return, Fox signed on, along with Disney, to offer TV shows for rent on iTunes for 99-cents. Up to that point, iTunes sold individual episodes of TV shows for download for as much as $3.99. Ultimately, the 99-cent rentals didn't go far. Disney and Fox were the only majors to participate and the discounted rentals were halted after a year.

Point is, not even the esteemed and respected Jobs could budge the Hollywood poobahs. Now, the task of reinventing TV is left for Cook and Jobs' former deal-making partner, Eddy Cue. "The one who would step in and did a lot of the work is Eddy Cue," said Wolf. "Eddy is good, but nobody's as good as Steve. So consequently, that increases the challenge in trying to obtain content, and Apple may never succeed."

Dealmaker Eddy Cue showing off iTunes 11 at the company's iPhone 5 unveiling last month

(Credit: CNET/James Martin )

Others think Apple still has options to grow in the proverbial living room business.

"I totally don't believe there's a TV set in the works. That makes no sense," said Tim Bajarin, an analyst with Creative Strategies."The real opportunity is the to retrofit TVs, not make TVs. The TV business itself is cutthroat and nobody is making any money."

Instead, Bajarin says Apple should play to its strengths and focus on on-demand content, applications and interactivity. Yes, the stuff that even Jobs had a hard time nailing down.

There are signs Apple's still has sights on the content piece of the puzzle. Last month, Apple tested the waters with live video broadcasting in its month-long iTunes Festival. For the first time, the annual concert was available for both live and on-demand streaming on its current Apple TV set top box. Apple has also become more democratic about allowing potential competitors, like Hulu as apps on the Apple TV. Hulu subscribers can now watch TV shows they might otherwise purchase outright through iTunes.

"There's a lot of people who have gotten rid of the cable system, who only have Roku or Apple TV. That fundamentally suggests a business model that is totally on-demand," Bajarin said.

In the near term, Apple is said to be simply trying to extend its set-top box idea, and turn it into a product with the reach the likes of an iPod, iPhone or iPad. Recent reports from Bloomberg and The Wall Street Journal say Apple is working on something more like a traditional cable box that would include more live content. It could even be offered through cable companies.

Whether you can imagine Apple handing over tech support duties for its hardware to the likes of a Comcast or a Time Warner is, perhaps, beside the point. Those are the current rules, and way of doing business in the TV world. Of course, keep in mind that Apple shattered through similar the "way the phone industry worked" on its way to rolling out the iPhone.

"I've got more confidence in the iPad than the iPhone. I don't think we've even seen what the iPad can do -- it's astonishing - particularly since invading the business market," said Wolf. "That, to me, is the big story."

Will the iPad become Apple's biggest money maker?

So what then should Apple do next -- an iTV, wearable computing, robots? None of the above? More than a few are still beating on a foray into television. Critics may scoff, but remember this is a company that's made a habit of proving it knows its business better than its critics. Not that long ago, plenty of people said Apple stores were a terrible idea and Apple was headed for trouble by trying to compete with tough companies like, ahem, Best Buy and Circuit City.

The original iPod was a clunky thing that couldn't store many songs and were no better than MP3 players on the market, critics scoffed. The iPhone was headed into a crowded market. And the iPad, well, what was the point of a large iPhone without the phone? Jobs & Co. always had the last laugh.

"If someone asked you about your leadership, you'd probably say give me more than 12 months," said Michael Useem, director of the Center for Leadership and Change Management at the Wharton School. "It would be shocking if there was anything significant in a year. But over two or three years, it will be apparent."

Now it's time to see if Cook & Co., whatever it is they do next or even if they stand pat with the current product lineup, get the last laugh, too.

The addition of google maps on the 1st iphone was a last minute action

The map problems were an embarrassing misstep that strives for perfection in its products and,in the  eyes of consumers,often gets pretty close to the mark.Its track record in delivering quality is one reason Apple is now the most valuable public company in the world.

According to a story by The New York Times,the Maps app was not at all part of the original plans for the iphone. Steve jobs thoughts of having the application on the phone just weeks before the announcement because he thought it would help show off the multi touch display better.

After that he appoints Two engineers who put together a maps app for the presentation in three weeks, said a former Apple engineer who worked on iPhone software, and who declined to be named because he did not want to speak publicly about his previous employer. The company hastily cut a deal with Google to use its map data.
The last minute inclusion of Maps also tells us why the original iPhone did not have GPS, which was then added in the iPhone 3G next year

At the time, Apple and Google had generally friendly relations, and Google’s chief executive at the time, Eric E. Schmidt, served on Apple’s board.

But the relationship chilled in 2008 after Google began building more and more iPhone-like features into Android. That year, Mr. Jobs drove to Google’s headquarters and got into a screaming match with Google’s founders, Larry Page and Sergey Brin, and the head of its Android development team, Andy Rubin, as he tried to discourage them from copying the iPhone, according to an account of the meeting in Walter Isaacson’s biography of Mr. Jobs.

As the iPhone began to catch on with the public, Apple executives were surprised by the popularity of the map function, according to a former Apple executive who did not want to be named so as not to damage his relations with the company. It began to bother executives how much data about the behavior of iPhone users was flowing back to Google, which could see the coordinates of every iPhone user who downloaded a map, the former executive said.

MobileMe logo (Photo credit: methodshop.com)

That same year, Apple suffered an embarrassing black eye when it introduced MobileMe, a service that was intended to give iPhone users a convenient way to wirelessly synchronize e-mail, contacts and calendar appointments with computer applications. The summer introduction was so seriously marred by technology problems that Mr. Jobs fired the head of the MobileMe team and replaced him with Eddy Cue, a trusted executive who oversaw the company’s iTunes Store.

Former Apple executives said the MobileMe fiasco was a symptom of a lack of appreciation among Apple executives, including Mr. Jobs, of the differences between running an online store like iTunes, where people download music, apps and books, and an online service that is used constantly and must be reliable, like e-mail and maps. Apple’s secrecy around new products also makes it hard to adequately stress-test such services. While MobileMe operated well in private tests by Apple employees, it melted down once it became available to the public, these executives said.

“The MobileMe launch clearly demonstrates that we have more to learn about Internet services,” Mr. Jobs wrote in an e-mail to Apple employees at the time. “And learn we will.”

With that experience behind him and tensions with Google increasing, Mr. Jobs set out to build Apple’s own map service in 2009, with the acquisition of a start-up called Placebase. Later, Apple bought two other start-ups focused on 3-D mapping technologies.

Apple executives have said they felt the company needed to get out of the Google relationship in part because under the terms of their deal, Google would not let Apple offer important map features like turn-by-turn spoken directions. A Google spokesman, Nate Tyler, declined to comment.

While Google knew that Apple eventually wanted to build its own maps, there had been no indication that it would do so this year, since there was about a year left on the contract between the two companies, according to people briefed on the negotiations who did not want to be named discussing internal matters.

So Google was blindsided when Apple announced in June that it would replace Google’s maps with its own in a new version of its iOS mobile operating system, and was left scrambling to figure out how to respond, these people said.

Google is now developing its own maps app for iOS and plans to release it before the end of the year.

According to a former Apple executive who has been in touch with his old colleagues, Apple was caught off guard by the map problems. “They’re embarrassed by it,” he said. Many of the problems are a result of merging map data, some of it flawed, from many sources.

At the same time, the complaints do not seem to have damaged the response to the iPhone 5, which was released just over a week ago with the new operating system on it. Apple said it sold more than five million of the phones by the end of the first weekend of sales. People with older iPhones and iPads have installed the iOS 6 software with the new maps service on more than 100 million devices, Apple said.

The company has had better luck with other online efforts. The iTunes store remains the biggest seller of music in the country, and the iCloud service that replaced MobileMe has been relatively trouble-free.

But other Internet efforts have been disappointments, including Ping, a social network for iTunes users that Apple is shutting down after customers largely ignored it. Siri, a feature first introduced with the iPhone 4S last year, has been criticized for its unreliability and frequent downtime.

VIA