Apple Co-ops Media to Spin Unsustainable Narrative

Nothing should shock me anymore about  Apple  (AAPL) and the shrewdness of its marketing department. But I will admit to being a little distressed last week at watching the technology titan sucker the investment media into covering the release of its new iPhone 6 mobile phones as if something really special had happened.

My favorite station to watch during the trading day, besides ESPN and the MLB Network, is Bloomberg TV. They have the smartest reporters and anchors and the best guests. But even they gave into the hype, as the normally excellent anchor Emily Chang asked veteran reporter Cory Johnson and his guest, Gene Munster, which new iPhones they were planning to buy, then dug for details on color and memory. They happily divulged their purchases, with an underlying message that the only sane response to the release of new iPhones was to buy one immediately.  On the web, meanwhile, was an iPhone 6 review video by Bloomberg editor Sam Grobart that signed off with the message that, with the bigger screen sizes, now there was no reason for people to buy an Android phone.

The slavish attention to Apple's product releases is unseemly. The financial press, including the major New York outlets, has been fully co-opted into the Apple marketing machine.  Editors will  defend themselves by saying they are just  giving viewers what they want. Yet there is a sinister side of all this that was illuminated in a report Sunday by Frederic Filloux.

He observed that "corporate journalism" is slowly overtaking "real journalism" as companies hire ex-reporters and editors, give them higher compensation, and order them to pump out articles that goes under the new category of "native advertising" or "branded content." The companies pay for this content to be included in newspapers, magazines and websites as if it were real journalism, though increasingly it is just seeping into the news infrastructure without payment.

Filloux recalled an Economist article from 2011 that noted public relations personnel vastly outnumber reporters now. The piece ran with the chart above in 2011, and you can be sure the weighting toward PR is even heavier now. He notes that while journalist staffing is shrinking dramatically in every mature market, "the public relation crowd is rising in a spectacular fashion" in two dimensions: Spinning of the news by seasoned ex-reporters who know what real reporters will bite on, and the growing inclination for PR firms, communication agencies and corporations themselves to build fully staffed newsrooms of their own.

Secondly, Filloux observes, the evolution of corporate communication departs from the traditional advertising codes and has shifted toward "a more subtle and mature approach based on storytelling." This means that instead of advertising that tells you the merits of a new product, the new branded content spins a compelling but false narrative about a company to encourage adoption.

As a result, spin, story-telling and journalism are blending in ways that result in the fawning attention given to the release of a pedestrian new mobile phone from Apple. To be sure, the iPhone 6 is a major step forward from a company that has lagged in mobile hardware development for two years, but nothing special in an industry where Android-powered devices have offered the same or better functionality for a couple of years.

Journalists really need to ask themselves why they are so addicted to the Apple narrative that they feel compelled to give it hours and days of attention for a product release -- focus that no other company on earth commands.

The new screens are very nice, by the way, though the phones' thinness makes them ridiculously slippery. Apple has always made good hardware. It's software that has tripped them up (iTunes, ugh!), and will prove to be their Achilles heel.

This is important because while the public is trained to lust after the iPhone 6 now, it is actually rival mobile operating system maker   Google that is in a position to completely shake up the industry as part of its effort to greatly reduce the price of handsets.

Apple is trying their hardest to entice customers to pay for what it argues is a premium device, but the reality is that Chinese companies like Xoami and Oppo already make incredibly good handsets that cost half as much as an iPhone and deliver the same or better experience via the Android operating system they license very cheaply from Google.  Even the new Moto X, a lovely and innovation-packed Android phone that comes in a multitude of colors and trims, including leather and wood, is $300 less than an iPhone 6. And check out the Oneplus One and its story.

The upshot is that prices are going to come down for premium devices -- and that means Apple's margins are in jeopardy. No wonder that Apple has hired so many people from the fashion and music industries of late. Selling glitz will be the only way to preserve margins.

Google is control of the future of mobile handsets because it controls the services people want on a mobile device: YouTube, Google Maps, Gmail, Google Search, the Chrome browser and Google Now, whose voice recognition blows away both Siri and the Microsoft contender Cortana. Apple's version of all of these will lose every time in a head-to-head comparison. All Google has to do is degrade the experience of these on iPhones, and you would see the tide turn. They may not want to, but they could.

Hardware is the glamor on the outside but software is the brains and spirit on the inside. Although Google has not yet made its big move to defeat Apple in mobile I do think it has the capacity and desire. It's just waiting for the right time.

In sum, Apple may have gone full tilt boogie to persuade the media of its products' inevitability through superior spin, but as hardware features from competitors converge with lower prices, it will struggle.

Apple's margins will come under attack as great smartphones become less expensive and special, and more part of the urban landscape. If you're older, think of how cool and expensive and lifestyle-indicating stereos were in the 1970s; they are an inexpensive afterthought today.

Apple won't disappear, but looking forward Google is more capable of surviving this development as software always wins the profit wars.

(Disclosure: I own both Apple and Google shares.)