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How does Apple get its mojo back?

Philip Pearlman
Philip Pearlman
The Exchange
An Apple logo is seen during Black Friday in San Francisco, California in this file photo from November 29, 2013. REUTERS/Stephen Lam/Files

Apple (AAPL) reported earnings Monday night that failed to meet expectations. The stock is down 7% in early trade today and at least six sell-side research firms are cutting price targets.

So what is Apple doing wrong and what could it do better going forward?

Here are a few thoughts...

1. Stop Idealizing Your Devices

The new Apple advertisement with Robin Williams riffing poetic over a bunch of dreamy images is beautifully produced and profound in many ways. It makes me want to gather rosebuds while I may and so forth.

Nevertheless, its a terrible commercial for Apple at this moment in time. It's terrible because it reveals something about Apple's outward strategy and possible self-perception that is hindering the company.

That is, the idealization of Apple products is stifling critical self-examination and improvement.

When you idealize something, you split off the bad parts and sweep them under the rug. You feel great but completely miss the things you're doing wrong. You have no chance to fix mistakes because you don't even acknowledge they exist.

Apple would be much better off thinking about the utility of its devices in the real world rather than fantasizing about them.

It's not art, it's just phones.

2. Focus on the Future, Formulate a Vision and Live It

What is Apple's vision of the future?

It's odd to even ask this question because there was a time Apple represented the future of consumer technology better than any other company in the world.

Now, not so much. Maybe you can repeat the party line with something like "make great devices" but that feels stale already, especially when you're missing real-world expectations.

Google (GOOG) is out with their version two of Glass Tuesday morning and, even though it's still beta, dorky and much-maligned, they are moving in the right direction, iterating and reiterating, with an innovative product. By the time they get to version five, Glass will be insanely great.

At such time, will Apple still be pondering the wrist?

3. Loosen Up

CEO Tim Cook and design head Jonathan Ive seem like they are playing tight.

Sports fans will know what I mean here. Sometimes, at a big game, one of the teams will come out too nervous and they'll play tight, unwilling to take risks or missing easy shots.

There are a bunch of examples but here's one: It's now excruciatingly clear Apple missed the bigger-screen phone trend. They missed due to stubbornness and a flawed ethos. They claimed  they would only put out such a phone if they could create one that lived up to the Apple quality standard. This was nonsense and so they missed the trend.

If Apple had been more willing to take the risk and put out a phone with a larger screen faster, it may not have been perfect but Apple would have at least stayed in that ballgame.

4. Diversify

Many years ago, Apple was close to going out of business. Not only did it take $200 million from Microsoft (MSFT) but it also trimmed the majority of its products to focus only on the core. This was a great move at the time because it allowed Apple to make a small number of things incredibly well.

Times are different now, however, and Apple's situation is also very different. It has a huge pile of cash and needs to be incredibly aggressive to continue to grow from such a large revenue base. Apple reported $57.6 billion in revenue this quarter. Sure, that's amazing but it was still a failure.

Now is the time for Apple to be expansive and to broaden revenue bases. This means more products in multiple areas. For example...

5. Decisively Move Into Payments Already

It has been astonishing that Apple has failed to move aggressively into payments. They already have millions of iTunes users who provide their credit cards. In addition, Apple makes the phones and tablets people will use to make payments. It seems like a no-brainer that Apple would move into this space decisively and aggressively. They should have done this three years ago.

Square, given the complementarity and similar product ethos, would make a seamless match. It will be a huge positive for the company, if and when it uses some of its cash hoard, to buy into this space.

6. Spend More Cash in General

It's not just payments. Apple is generating huge amounts of cash every quarter and has a $160 billion war chest. Certainly the executives there are smart enough to figure out how to spend some of that cash in a way that will generate returns better than buying back shares, or paying a regular dividend or special dividend.

Apple is a great company. It's one of the great ones in history. Still, it seems like it's beginning to squander its gifts by refusing to ruthlessly self-assess, formulate a vision for the future and act aggressively.