For better or worse, Apple addicted to the rumor cycle

For years, Apple(s AAPL) has directly and indirectly promoted and inspired the rumor industry that envelops the company. Its cryptic event invitations, avoidance of any industry spotlight not of its own creation and its overall corporate culture of tight-lipped secrecy have inspired both amateur bloggers and mainstream tech outlets to grasp at any clue for a hint of new Apple products to come.
The result is a relentless rumor machine that moves on to speculating on the next iPhone or iPad just as soon as the last one is announced: and sometimes even beforehand. Apple has long benefited from this arrangement with long lines outside Apple Stores and lavish media attention paid to all of its public events. But the rumors are, by its own admission, now hurting its sales.
For the second quarterly earnings call in less than a year, Apple failed to meet revenue and earnings expectations set by Wall Street investors. In particular this quarter, Apple’s iPhone sales were not as strong as the previous quarter (though they were up 28 percent from the same quarter a year ago). In explaining this sequential dropoff in iPhone sales, Apple pointed to a couple of factors: a weak economy in Western Europe, and rumors regarding the next iPhone’s availability.
“iPhone sales continued to be impacted by rumor and speculation about new products,” CFO Peter Oppenheimer said Tuesday. And later, he said, “We’re reading the same rumors and sepculation you are about new iPhone, and we think this has caused some pause in customers purchasing.” This was a theme, along with economic conditions, the call kept coming back to. I counted four different references to “rumors and speculation.” Oppenheimer also mentioned that Mac sales were affected by the same phenomenon in the company’s second fiscal quarter of 2012.
But Apple is talking out of both sides of its mouth. CEO Tim Cook is very clearly a fan of the speculation — at least the underlying meaning of it — even calling the amount of rumormongering taking place “reasonable” because it means people want to buy his products.
Therein lies the problem for Apple. Apple’s tremendous growth over the past few years has been partly the result of its ability to surprise customers and investors with great products, but its product release schedules have become more predictable with the established success of the iPhone and iPad. And the company wants it both ways, as Cook made clear on the call Tuesday:

We try hard to keep our product roadmaps secret and confidential and we go to extreme activities to try to do that. That, however, doesn’t stop people from speculating or wondering. … That’s the great thing about this country is that you can say what you think. I’m not going to spend any energy trying to change that — that’s just the environment we’re in. I’m glad people want the next thing. I’m super happy about it. … I’m not going to spend any energy into getting people to stop speculating. I don’t think that’s going to amount to anything.

He sounds resigned to the clearly impossible task of stopping people from wanting to know what Apple is making next. And he is right — as problems go, this is one that Samsung, Motorola(s GOOG), HTC, Nokia(s NOK), RIM(s RIMM), and nearly any consumer electronics company would love to have. It’s not just Apple customers that pay attention to these stories either — this also works in Apple’s favor for customers who are on the fence about buying a competing product. (“Should I get this Nexus 7 because it’s a 7-inch tablet that’s available now? Or should I wait to see if the rumors about a smaller iPad are true?”)
The company knows what it is doing too: Oppenheimer managed to lament the pause in iPhone sales due to rumors and speculation while multiple times saying he was “excited” about “the amazing products in the pipeline” during the same call. Later he mentioned a “product transition” coming this fall. When Cook was asked about this transition, he chuckled and declined to talk about it.
Apple is famous for its ability to make tradeoffs with its product-design decisions. It seems that in this case it’s decided that the benefits it gets from being the center of attention are worth introducing seasonal patterns into iPhone sales (which, to be clear, were still quite spectacular) that can dent the expectations of Wall Street. So Apple is in a place where it is addicted to the rumor mill. It wants investors and buyers to get excited about upcoming products, so it doesn’t want to discourage all speculation. And it really can’t stop it anyway, especially because there’s no obvious way to do that without letting competitors get a glimpse of the company’s playbook.
Apple executives can blame these rumors for somewhat disappointing sales results all they want, but at this point, they really should be pointing the finger at themselves too. Still, chances are that any “pain” caused by the incessant rumor mill still does the company more good than harm, and Apple knows it.
Image courtesy of Flickr user zalouk webdesign