Kass: Apple's Cycle of Abuse

This column originally appeared on Real Money Pro at 12:35 p.m. EDT on Oct. 12.

NEW YORK (Real Money) --

Part of me wishes that Apple had not been so kind of arrogant and feeling we're the only one with the right clue.... I wish they had made a small and a large version of the iPhone; that would have been great for me. Keep the aspect ratio the same, horizontal and vertical the same, but just grow it in the other way.... I think Apple tricked itself and said, "Oh you could reach everything with one thumb," and I don't see anybody having any trouble using the larger screens. Apple said that as a defensive move because when the other phones came out, they all had larger screens. Apple is now trying to run with that defense, saying "We are right," and really there's a mix of people. Not all people want the same thing and a lot of people really like the big screens.

-- Steve Wozniak (Apple co-founder), TalkCentral interview

With so much discussion of Apple (AAPL) over the past few weeks, I thought it appropriate to end the week with some additional comments and concerns.

Arrogance has been the subject of some of my criticism recently on Apple. (It is also often the downfall of many companies.) It seems this is also a concern to Apple Co-founder Steve Wozniak.

Wozniak's view (above) raises some more issues.

Did Apple not deliver a larger-screen phone because:

A. there is an issue with the OS or existing apps or cost that prevents the company from doing so (any of these are or will be a problem);

B. the company actually believes that the current form factor is better than existing large-screen phones, in contrast with what many consumers think (Wozniak's point about arrogance);

C. the company purposely did not do a larger screen, following its pattern of lagging the market on common features to capture a one-year upgrade cycle with the next release of the phone, in this case the big difference in the next phone for all intents and purposes would be the larger screen.

If point C is the answer, then perhaps the company has purposely left common features out of its phones to incentivize annual upgrades when that feature is released in the next phone. In the past, this practice has worked for Apple -- even though customer-unfriendly, the company has gotten away with it and captured extra revenue and hugely incremental margin by doing so.

I guess then my key question would be, Is this strategy, which has been good in the past, now starting to backfire on Apple for the following two reasons?:

1. Apple may be losing more sales by not having these features now that competitors have caught up and passed the company in some instances -- in which case, Apple will gain by increasing churn when the company finally releases the device a year behind the market.
2. Even worse, Apple might be doing more damage to its brand, market position and customer position by losing the perception as the market leader and the company with the coolest product on the market (see Samsung Galaxy ad that mocks Apple).

Also, if you believe the current Apple form factor is the best answer and Apple won't or can't do a larger-screen device (and will stick to one phone at a time for cost reasons), what is the next iPhone going to have that will really matter and get customers excited to buy it and help the company gain additional share? Is the bulk of the innovation done? And, yes, I know it's easy to say that Apple always thinks of something new, but the reality is that the last few iterations of iPhone have been evolutionary and not revolutionary -- and, arguably, they now lag the market.

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