Saturday 3 December 2016

Storm clouds gather for Apple uber-brand

EC Commissioner Margrethe Vestager landed Apple with a massive €13bn tax bill over its Irish operations this week, presenting the corporation with a huge ­headache. But it's not the only challenge facing the coolest brand in the planet

Published 04/09/2016 | 02:30

Taxing times: European Commissioner Margrethe Vestager at a news conference on Ireland’s tax dealings with Apple in Brussels, Belgium
Taxing times: European Commissioner Margrethe Vestager at a news conference on Ireland’s tax dealings with Apple in Brussels, Belgium
Tough times: Apple CEO Tim Cook

It was broadcast just once -on January 22, 1984 - during a break in that year's Super Bowl, but Apple's commercial to introduce its new Macintosh computer is still regarded by many industry insiders as the greatest television ad ever made. It is certainly one of the most fabled.

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Directed by Ridley Scott, and heavily inspired by George Orwell's Nineteen Eighty-Four, the film depicted Apple as the non-conforming little guy taking on Big Brother, in the form of IBM. It was 60 seconds that encapsulated how Apple viewed itself then - and now: the plucky outsider sticking it to the Man.

On Tuesday, Apple CEO Tim Cook tried a similar tactic, only this time it wasn't IBM that was in his sights, but the European Commission. Margrethe Vestager's decision to force Apple to pay Ireland €13bn in unpaid taxes was strongly criticised by Cook, whose open letter suggested "the European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process".

He was in a similarly combative mood in an interview with the Irish Independent's technology editor, Adrian Weckler, on Thursday when he dismissed the Commission's ruling as "total political crap".

But efforts to portray the brand as the underdog failed abysmally according to Cult of Mac, an Apple-obsessed website with 765,000 Twitter followers. "While railing against the EU's massive assessment of €13bn in back taxes owed by Apple," the site notes, "Cook ignores the facts of the matter - and seems tone-deaf about painting the world's biggest company as an underdog.

"The discrepancy between what Apple pays and what smaller companies must pay is the big story here - not the way Cook frames it, as plucky underdogs Apple and Ireland against the monstrous European Commission. EU member states are compelled by law to follow approved taxation laws. Turning this into a story about Ireland's place in the EU is sleight of hand on a grand level."

Apple's estimated $200bn cash reserve means it can comfortably afford to meet the EU's demand, but what about the impact such a ruling will have on its brand and that carefully nurtured outsider image?

Michael Cullen, editor of Marketing magazine, believes it's bound to cause damage. "It's likely that this story will rumble on and on," he says. "Any appeal taken by Ireland and Apple could take years and that's a lot of time for the company to be in the news for the wrong reasons."

Cook, who become CEO in 2011 following the death of founder Steve Jobs, will be hoping that next week's launch of the new iPhone 7 will generate the sort of positive publicity the company has long been used to. Yet, with most of the expected new features already leaked - not least the removal of the headphone jack - there's something of an air of ennui.

"Apple launches don't attract quite the sort of excitement they used to," Cullen says, "and many of those who admire the company might feel that it's been a while since they introduced something completely new rather than simply improve on the products they already have."

The iPhone is the firm's most important product in sales terms - accounting for almost two thirds of its revenue - and it's rumoured that it will be thoroughly reinvented next year in time for its 10th anniversary (it was released in 2007 in the US, and the following year in this country). With that in mind, some would-be buyers of the iPhone 7 may hold off upgrading. There's already plenty of evidence that customers hang on to their existing phones longer than Apple might like.

The most recent sales figures make for stark reading for bigwigs at Apple's HQ in Cupertino, California. In the second quarter of this year, Apple reported that the company's iPhone sales slowed for the first time ever since the product's launch - down 16.3pc (from 61.17 million units sold in Q2 2015 to 51.19 million in Q2 2016). As a result, Apple also reported a quarterly sales decline for the first time since 2003.

"There's no doubt about it; Apple's iPhone business is in a slump," noted America's leading business magazine, Forbes, in June.

"Although Apple is still the largest company in the world by market capitalisation, Wall Street has soured on the company as its main growth engine slows. Apple's stock is trading down more than 20pc over the past 12 months. The real question is whether the slowing growth signals a sustained decline in iPhone sales or only a temporary setback for the company."

It's not the only setback the company has faced. Its heavily hyped smart-watch has largely failed to excite since its launch in April last year, with sales far lower than originally projected. US-based business magazine Quartz gave the product a withering appraisal on its first anniversary. Writer Mike Murphy noted: "I wear it every day, possibly out of determination to get something out of the $400 I spent on it, but when someone asks me if I think they should buy one, I usually tell them no."

It was Apple's first entirely new product in five years -the first since the death of Steve Jobs and the first to be entirely conceived and developed under Cook's tenure. That it has failed to connect in the way the iPod or the iPad did is likely to have been a major disappointed to Cook while also giving fuel to the fire of those who feel the company desperately misses the messianic zeal of Steve Jobs.

As Walter Isaacson's award-winning biography demonstrates, Jobs was an obsessive perfectionist who demanded everything of his staff. He worked out early on that in order to survive and thrive in Silicon Valley one needed to innovate constantly - to merely rest on laurels was verboten.

He was also a brilliant marketeer who had a genius for grasping the emotional pull of his products. A feature-length documentary from earlier this year, The Man in the Machine, made by the respected filmmaker Alex Gibney, zeroed in on Jobs' unerring ability to arouse passions whenever he was launching a new product - whether that was the Macintosh in 1984 or the iPod in 2001. He was so gifted at talking his 'babies' up that it became common for Apple's most ardent fans to queue overnight in order to be among the first to own such and such a product.

"I do think a revision is overdue," Gibney said at the time of the film's release.

"And I think also we're beginning to understand partially as a result of what we're seeing with Facebook and also Google - but also with Apple - that these companies have enormous power over our lives. They exert enormous influence, and I think we're beginning to reckon with the idea that it may not all be that good and we better understand what they're about. That we've bought into a kind of myth that they're automatically all good and that's not necessarily so.

"We're all a little bit less innocent. I did intuit the idea that somehow by using Apple products I was sticking it to the Man, without realising I was working for the Man. And so I think I've come to view the products themselves differently."

While Apple was seen as the innovative upstart in the late '70s and the brave challenger in the 1980s, it had a rough 1990s following Jobs's forced departure at the hands of the Apple board. His return in 1997 - facilitated by Apple's acquisition of the NeXT computer firm, of which Jobs was a founder - immediately helped turn its fortunes around and for the best part of a decade between the iPod launch in 2001 and the unveiling of the iPad in 2010, the company could hardly put a foot wrong.

But there were rumblings of discontent about the way the company operated, particularly when it came to labour practices in Foxxconn, the giant Chinese firm that makes most of its products.

The revelation that it had been compelled to erect safety nets around the perimeter of its factory in order to put a halt to the spate of suicides caused by desperate staff jumping to their deaths caused shock-waves around the world. There have been other threats too, especially from rival firms whose game has been upped significantly. While the iPhone felt ahead of the pack in 1997, challengers like Samsung are now delivering handsets that are routinely cited as being comfortably the match of the latest iPhone, if not better for certain features.

Despite its troubles, the brand is still seen as aspirational according to Michael Cullen and that appears to be borne out in the annual CoolBrands survey conducted by a UK ad agency: it's been number one for four consecutive years, ahead of the likes of Ray Ban, Sonos and Spotify.

The price point of its products - from its MacBooks to iPad Pros - reinforces that aspirational ideal and the firm appears to be content to ignore a mass market by offering more ­affordable devices. It's little ­wonder, then, that Apple's iOS ­operating ­system accounts for just 20pc of the global market. Android is so far ahead that its lead looks unassailable.

It will be intriguing to see if Cook tackles the EU head-on at Apple's launch day on Wednesday, or if he will let the new iPhone and the much trumpeted iOS 10 do the talking. One thing is for sure, Apple appear up for the fight - that's been the case since Jobs and his friend Steve Wozniak founded the company 40 years ago.

THE WOMAN WHO TOOK A BITE OUT OF APPLE

She was the inspiration behind Borgen - the cult Danish political TV drama -  but this week Margrethe Vestager (48) became famous in her own right when she delivered the Europe Commission's verdict on Apple's fast and loose tax arrangements with Ireland.

The EU Competition Commissioner ordered Apple to pay Ireland unpaid taxes of up to €13bn - plus expenses - in a verdict that shook the financial world and drew a shaky Irish Government into a fresh crisis.

In Borgen the main character is Birgitte Nyborg, a feminist leader of a political party who finds herself becoming Prime Minister of Denmark.

Nyborg actress Sidse Babett Knudsen reportedly spent a few days shadowing Vestager before she began shooting the drama.

Vestager, the mother-of-three daughters, served as an MP from 2001 until 2014, representing the Social Liberals.

As Deputy Prime Minister and Economic Minister she rode her bicycle to meet the Danish Queen.

She was regarded by political commentators media as the most powerful person in government.

But this weekend her influence is global.

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