Apple’s Bumper band-aid won’t heal everything

Jul 16, 2010
Finance

Apple’s (AAPL) offer to give ticked-off iPhone 4 owners a case sounds about as satisfying as if Ford (F) in the 1970s sent exploding Pinto owners a fire extinguisher. “This has been blown so out of proportion that it is incredible,” Steve Jobs said at a press conference at Apple headquarters. So, then, why did […]

Apple’s (AAPL) offer to give ticked-off iPhone 4 owners a case sounds about as satisfying as if Ford (F) in the 1970s sent exploding Pinto owners a fire extinguisher.

“This has been blown so out of proportion that it is incredible,” Steve Jobs said at a press conference at Apple headquarters. So, then, why did he feel he had to go onstage to defend Apple?

The issue is never the actual significance of a technological or mechanical problem in a popular product – it’s always the perception of the significance. And the perception is that Apple screwed up on the iPhone 4, and now it’s offering a band-aid solution.

Good luck with that, Apple.

Public still perceives flawed product

The iPhone 4 problem is fairly straightforward. If, as you’re holding the phone, you put your finger on the little crack in the lower left side of the wrap-around metal antenna, the antenna can’t do its job and the signal strength drops off dramatically. Now, for most users, this is not a huge deal. Jobs today said that just one half of one percent of iPhone buyers have complained, and AT&T (T) reports that the return rate for the iPhone 4 is one-third of what it was for the iPhone 3GS.

And yet, YouTube videos poke fun at the iPhone 4 reception problem. Jay Leno is making jokes. (“Now if you buy an iPhone, they’ll throw in a Verizon (VZ) Blackberry (RIM) so you can make a call.”) The problem – real or perceived – has become part of the public conversation.

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“Let me tell you what we’re going to do,” Jobs said today. Apple will give iPhone 4 owners a case, Jobs revealed, because a case will prevent users from touching the phone in the wrong place.  If people still aren’t happy, they can bring the phone back for a full refund. “We are going to take care of everyone,” Jobs said

No mea culpa. No sense of regret that Apple messed up. Just – we’ll send you a case. (Most cost $10 to $25.)

The case for a more “paranoid” response

Corporations have gotten burned in the past by taking such an approach. The closest example is Intel’s (INTC) Pentium chip problem in 1994. At the pinnacle of Intel’s power, it released a chip with a flaw so insignificant few users would ever be affected by it. As then-CEO Andy Grove put it in his book, Only the Paranoid Survive, an average spreadsheet user would run into the problem only once every 27,000 years of spreadsheet use.

When the first reports of the flaw landed on the Web, Grove saw no reason to fix it. But in a flash, the Pentium got a reputation for having a problem. TV reporters camped out in front of Intel’s headquarters. Pentium jokes sprung up:  What algorithm did Intel use in the Pentium’s floating point divider? “Life is like a box of chocolates…” (You know – geek humor.)

The Pentium brand stood on the verge of getting trashed. “I was one of the last to understand the implications of the Pentium crisis,” Grove wrote. Intel saved the brand by, essentially, overreacting. It offered to replace every chip and took a $500 million charge against revenue that year.

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Fifteen years earlier, Ford got trashed when it decided not to make a cheap repair on its Pinto line that would have helped prevent fires if the car was hit in a rear-end collision. Studies later showed that Pintos were no more dangerous than other cars of its time, but the public was not convinced. In fact, it was angry. Ford in fact did less than sending Pinto owners a fire extinguisher. It did nothing. The Pinto brand was destroyed, and Ford’s almost went with it.

Antenna issue will never disappear

Jobs is right – the iPhone 4 problems are overblown. He’s right that the iPhone 4 is otherwise a terrific product. He may even be right in his implied calculation that Apple can ride out this storm without serious long-term damage.

But if history is a guide, he could find it was a mistake to defend Apple and tell users that the fix will be a piece of neoprene stretched across the iPhone’s backside. He may have ensured that the antenna issue won’t disappear from the public conversation anytime soon.

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Kevin Maney

Kevin Maney is the author of Trade-Off: Why Some Things Catch On, and Others Don't. Check it out here.

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