Beware iPhone operating system upgrade

Upgraded my iPhone5's operating system to iOS 7.1.1 on Sunday.  Two days later the phone became totally non-responsive.  I was able to get it going twice, but then it died (bricked is the term used by the cognoscenti) Tuesday afternoon.  I then learned that many users are having similar problems.  

My phone was past warranty by five months and the local Apple store manager clearly had been directed to not accept any responsibility for its early demise.  Hopefully my case is a relatively isolated instance, but needless to say we are NOT going to do the same upgrade for the other iPhone in our household.  

Dependability has been a key reason over the years as to why Apple has been able to charge a premium for its products.  Already under pressure from cheaper Android devices, Apple had better hope that this ends up being a small scale problem.  (P.S. Typed on a five year old MacBook Pro.)

Economics of the new iPhone

Today Apple announced the new iPhone 5.  The key features appear to be (1) the phone is thinner and lighter, (2) the display has a much higher resolution, (3) faster performance, (4) a smaller connector and (5) enhanced camera performance, including a tool for shooting panoramic photos.  All of this for $199! 

Sales are expected to be strong, so strong that GDP could get a significant boost in the 4th quarter.  WSJ reports that an economist at J.P. Morgan Chase estimates the phone will add 0.25 to 0.5 percent to economic growth.  That's 8 million phones times $400 value added ($600 price minus $200 imported components). 

Wireless carriers sell the phones at $200 but lock in customers with two year contracts that more than make up the $400 discount.  They have reacted, WSJ reports, by adding upgrade fees and more expensive data plans. 

I am still using a three-year-old iPhone 3, so I think I will be ready for an upgrade.  Will have to think awhile about the best carrier and data plan. 

Apple takes on TV

Over the summer I read Walter Isaacson's bio of Steve Jobs.  Toward the end, Jobs claims that he finally figured out how Apple can be successful in the television market: "I've finally cracked it."  But of course he does not reveal the strategy to Isaacson.

One of the more interesting anecdotes from Jobs' biography shows his thought process concerning the mobile phone -- a piece of equipment he derided with a four-letter fecal expletive.  You could easily say the same thing about the customer interface with television.  Also with the growth of cloud computing, we should be able to watch anything at anytime we want. Try doing that now with the typical cable box!

Last week, there were multiple press reports (here is one from WSJ) hinting that Apple aims to shake up the TV industry the same way it shook up computing, music players, music distribution, mobile phones and tablets.  Apple is reportedly in discussions with both cable companies and entertainment producers.  This case study of market entry will no doubt be a fascinating one.  

Apple fixing book prices?

So says the US Department of Justice, according to WSJ.  What we cannot dispute: as Apple was introducing the iPad in 2010, it signed a contract with five leading book publishers under which (1) publishers could set whatever price they wanted, (2) Apple would take a 30% cut, and (3) publishers would not allow rival retailers to sell at a lower price. 

One might view the last item as an attempt to fix prices, although it would be subject to voluntary contracts between publishers and retailers.  In an op-ed yesterday, WSJ's Gordon Crovitz provides some context.  At the time of the iPad launch, Amazon had 90% of the e-book market and was selling e-books at a loss to encourage sales of Kindle.  It is difficult to see how Apple had much monopoly leverage in this setting.  Given the massive changes in marketing practices and business models that are still taking place in publishing, it may difficult to come up with evidence on harm to consumers, especially if you compare prices of e-books to printed books.

Apple to re-engineer iTunes?

Potentially good news for iTunes customers -- last week WSJ reported that Apple is considering going to a web-based platform for iTunes. Confession: I received an iTunes gift certificate from my staff last year when I was in the hospital. My immediate thought -- I will never use this; they really should not have bothered. Trying to avoid any deadweight loss, I dutifully downloaded iTunes and made a purchase or two of things I was about to buy anyway. Then I got it -- no need to buy an entire album, no need to produce more paper and plastic, plus instant gratification (even Amazon takes at least overnight). I ended up burning through the gift quickly and now run a decent monthly tab while in the process discovering groups like Death Cab for Cutie, Kings of Leon and Portishead.

My problem, however, is that I have bought music on three different computers and it is not easy to keep all the selections synced with each other and the iPhone I purchased about eight months after getting iTunes. Why, I kept asking myself, haven't they figured out how to use the cloud to fix this? Now that Apple has purchased La La Media, which runs a web-based streaming audio business, service is likely to improve.

One would think that making customers happier with better service is totally noncontroversial. However, some antitrust economists and lawyers are already making noises about the anticompetitive consequences of iTunes gaining a larger market share of online music distribution services.