Apple: Box By Box

Apple's profits come from its high-margin hardware, but while those machines all look great, they are not without their shortcomings. Here, Michael Fitzgerald, author of the "Prototype" column for The New York Times, assesses Apple's competitive vulnerabilities.

iPhone

Shortcomings: Look past the lovely screen, and there are plenty of warts. Call quality is iffy (worse than other phones on the AT&T network, according to several reviews), the virtual keyboard is a challenge, and the device doesn't support 3G wireless networks, voice dialing, or stereo Bluetooth headsets. The camera doesn't shoot video. Apple says it will open the phone to much-needed third-party applications, but not until February 2008.

Potential Impact: Fashionistas may buy 10 million iPhones by the end of 2008, as Apple predicted. But the iPhone's lead in interface technology won't last long, and it lags behind other smartphones in many ways. Unless it closes the gap fast, it's destined to be a niche product.

iPod Touch

Shortcomings: Apple made brilliant design decisions with the iPod. So why add the iPhone's touch screen to it—creating what should be the best iPod for video—without giving it a big hard drive? That had iSuppli senior analyst Chris Crotty scratch­ing his head.

Potential Impact: Although that seems like a glaring miscue, Apple still has a good-size margin of error with the iPod. But the company needs to patch this hole.

Macintosh

Shortcomings: Apple has greatly improved its Macs over the past few years in ways obvious (its move to Intel chips), and less so (adding support for the Samba protocol, which allows the Mac to share networks with PCs). Still, it will be a challenge for Apple to be a mass-market player because of its pricing.

Potential Impact: Worldwide, Apple's market share rose only 0.3% in 2007. Any continued gains will mostly come in rich nations such as the United States.

AppleTV

Shortcomings: AppleTV exists to stream iTunes content onto HD TVs. But there's no HD content available from iTunes. And AppleTV doesn't play DVDs, let alone video games. Nor is it a DVR. You can't plug your iPod into it or connect directly to the iTunes store, though the hardware should let you do both (and don't bother using AppleTV without iTunes). It supports only two video formats, MPEG-4 and H.264, freezing out other media formats. File size is limited to 4 gigabytes. Data transfer is slow.

Potential Impact: As a key leg of Apple's strategy, AppleTV is a flop. It needs a major mutation to evolve into the centerpiece of the living room.

The Google Factor

One executive close to Apple thinks there's only one real threat to the company: Google. That's because technology is shifting from the desktop to the Web. "On the Web, I don't need a computer," he notes, and that makes Apple's famous interface and design considerably less important. A simple Google interface that lived on the Web rather than in a given piece of hardware could be the basis of an iTunes killer or a living-room hub open to anyone. PC makers such as HP and Dell could then use their scale to undermine Apple's share in MP3 players and PCs alike. Google chairman and CEO Eric Schmidt may sit on Apple's board, but that won't protect Jobs from competition.

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