How the iPhone 4 could be Apple’s Waterloo

What is Apple hiding? That’s the question Apple shouldn’t want people asking. But the company seems to be going out of its way to force customers to ask it, assuming that the passion many users have for Apple products will overcome any doubt, as the faithful continue to buy the iPhone 4 in droves. After all, Apple has gotten away with such behavior before.

But I don’t think that particular cat has many more lives left.

As soon as the iPhone 4 shipped last month, reports streamed in about unexpected signal drops, which apparently occur when the user places his or her fingers over one corner of the iPhone’s case — coincidentally, also its antenna. Apple CEO Steve Jobs told a customer via email to not hold it that way — an unhelpful response, to say the least. Then Apple announced the problem wasn’t its phone after all, but a bad 3G signal display algorithm that overstated the AT&T signal strength; in other words, you didn’t have the signal you thought you did and would have lost the signal anyhow. Few were convinced about this explanation.

Now, Consumer Reports has taken the extraordinary step of withdrawing its recommendation for the iPhone 4, after its controlled testing revealed that the iPhone 4’s case antenna does in fact lose signal receptivity when held in certain places; a person’s fingers disrupt the radio waves enough to cause AT&Ts already-weak signals to be blocked at that location. If true — and I don’t doubt the testing — Apple has shipped a flawed or defective product that should be recalled for repair or replacement.

Consumer Reports noted that, in every other respect, the iPhone is by far the best smartphone available. But let’s be honest: A smartphone that can’t connect reliably to the cellular network is a failure, and no respectable product watchdog could let that fatal flaw slide.

Whatever the cause of this technical issue, the real problem concerns Apple’s handling of the matter. Like Napoleon fighting one battle too many in his quest to conquer Europe and getting unexpectedly beaten at Waterloo, the iPhone 4 incident could be where Apple’s arrogance leads it to a stinging defeat from which it may never recover.

As I said, Apple has been here before. In the mid-1980s, the Mac was a cult product, despite several issues, and its aficionados lapped up whatever Apple dished them. But by the mid-1990s, Apple had gotten drunk on its own Kool-Aid, believing its customers would accept whatever it delivered. For a variety of reasons, Apple began producing shlocky products, epitomized by the Performa family. The Mac faithful became a dead-end cult, attracting no new members, and the company soon found itself at the edge of death by 1997.

Jobs returned to the company and did an amazing job in restoring the company’s magic — this time, creating products that became megahits beyond the Mac faithful, first the iPod, then the iPhone, and perhaps now the iPad. It also resurrected the Mac and set it on a course of growth unseen for nearly two decades.

But with all that success came arrogance and an attitude that Apple didn’t need to explain itself to anyone. That made some sense in the late 1990s and early 2000s when nearly everyone had written Apple off, and explaining itself to an unreceptive audience would have been a waste of time. But Apple is now a megastar company that has defined the music and mobile markets and may be redefining the computer market. It has a position of authority and influence that demands it take the high road.

Instead, Apple is saying nothing, circling the wagons with a cone of silence. It is even deleting posts on its support website that refer to the Consumer Reports tests. That shows Apple to be in denial at best and executing a cover-up at worst.

Not even a year ago, Apple pulled the same stunt — twice.

First, when iPhone OS 3.2 came out and fixed a flaw in the previous iPhone OS, thousands of users lost the ability to connect to Microsoft Exchange servers. It turns out that iPhone OS 3.0 and 3.1 falsely reported to Exchange that they supported some security policies, so users who should not have been granted access to corporate systems gained access. Apple didn’t bother to tell anyone, leaving its business customers at risk. Only when the fix appeared and the older iPhones truthfully reported their security support did the issue become apparent. Apple stayed quiet through this whole scene, without so much as an apology.

Then, after its new 27-inch iMacs shipped around Thanksgiving 2009, users began having screen-flicker issues. Apple said nothing. It did, however, quietly halt production while it investigated the issue, then released a software patch by year’s end. That didn’t work for many users, so Apple went back to the drawing board and issued another fix after another month of quiet.

I fear the same pattern will occur with the iPhone 4: denial and/or silence, one or more belated fixes, and never an apology. This “strategy” is likely to hurt Apple, even if not immediately. Already skeptical corporate IT will have one more reason not to trust Apple or its products. Consumers will be less trusting of the Apple brand. Worse, the feverish iPhone 4 buyers who’ve created such a large back order for the new devices will eventually move past their puppy love phase and evaluate the iPhone 4 based on their day-to-day experience. Dropped calls and data connections will leave a sour taste that will make them think twice about getting a new model later or a Mac or an iPad. And these influential users will have other choices eagerly awaiting them.

It’s certainly true that Android, WebOS, and the like are not as good as the iPhone’s iOS, and very few devices using the competitors’ operating systems come close to Apple’s hardware. But they’re getting good enough that people will switch to them if they start distrusting Apple. Apple should remember that from Windows 95’s triumph over the System 7 Mac OS.

It’s clear now that Apple can’t just foist the blame on hapless AT&T, as it tried subtly with that “it’s the signal meter” claim. Sure, AT&T’s network in major cities can’t handle the customer load, but the iPhone 4 has connection problems on the AT&T network that the iPhone 3G S and non-Apple phones do not. You can’t blame AT&T for the iPhone 4’s specific problems.

What Apple needs to do is simple, even if it goes against company culture: Stop stonewalling. Admit what it does know. Perhaps Apple can’t yet duplicate Consumer Reports tests or hasn’t found a fix. Fine — say that. But say something that indicates you are aware that there is at least a possible problem, that you are sincerely looking into it, and you will fix it if you can and make it right through a refund if you can’t.

If Apple is lucky, it might be able to fix the problem by offering the $29 iPhone bumper enclosures to all customers at no charge. (There’s evidence they shield the case/antenna from such finger interference.) And if a recall is warranted — which it could be, since the antenna is integral to the iPhone 4 — Apple should proactively recall the existing units and stop selling any more iPhone 4s until it can make nondefective units and fix or replace those already sold.

Such directness, honesty, and customer-first methods would go a long way to earning user forgiveness. After all, mistakes do happen, and people accept that. Apple has earned the right to be proud of its accomplishments, and people will give it a pass on that pride being expressed as arrogance from time to time. But what people won’t accept indefinitely is blind arrogance.

It’s up to Apple whether it can avoid Napoleon’s mistake and save its empire. It almost died once going down this path. It should know better than to start down that road again.

This article, “How the iPhone 4 could be Apple’s Waterloo,” was originally published at InfoWorld.com. Read more of Gruman et al.’s Mobile Edge blog and follow the latest developments in mobile computing at InfoWorld.com.