On December 30th Apple was faced with a class action lawsuit. It involves the amount of storage capacity that is actually available to users. The claim is that Apple misrepresents the amount of storage that will be available on its devices for media content. The update to IOS 8 also supposedly required more storage than was expected by the consumer. This lawsuit is important because it may affect how the company markets its products in the future. Therefore, I think it is prudent for investors to analyze the merits of the case to determine the possible effects that it may have on the company. I will be describing the case in detail and giving my opinions on the outcome that I believe is most likely.
This chart represents the crux of the problem that the class action lawsuit has with Apple. There are two separate groups in this lawsuit. The first group is those who recently purchased an iPhone, iPad, or iPod with 16 GB of storage only to find that all of it is not available to the user. The second group is those people who tried to upgrade to the new IOS only to find out that they needed more storage than they realized would be necessary for the update.
The lawsuit claims that Apple misrepresented the amount of storage that was in their devices. It claims that it is not obvious to the consumer that devices actually have less than the amount of storage that is advertised. If you look back in time there are other cases that have been made about this exact issue. Back in 2007, Apple was sued for misrepresenting the amount of storage that was in the iPod. It was advertised that the iPod had 8GB of storage, when in fact only 7.45 GB of storage was available to the users. The case was eventually dismissed in 2012. Recently in 2012 Microsoft was sued for its storage claims which were much more inaccurate than any of Apple’s claims. The Surface tablet was advertised to have 32 GB of usage, when in fact it only has 16 GB of usage. This represents only 50% of storage being available to users which is much more than the approximately 20% of storage that is not available to Apple devices running IOS 8. As of now, the case with Microsoft has yet to be settled.
Users that upgraded to IOS 8 from IOS 7 needed about 5 GB in storage available to have the update be installed. This update costs the user between 600 MB and 1.3 GB of space according to the lawsuit. The case complains that this update was more than previous updates and the consumers were then pounced on by Apple to purchase iCloud storage space which costs between $.99 and $29.99 per month. Another problem that consumers face is that the company does not allow them to downgrade from IOS 8 to IOS 7, if they feel the increased level of storage needed is not worth the increased level of functionality.
This case has very little merit, in my opinion. This is because installing the new updated IOS is a choice that consumers make. If they do not want the updated IOS, then they do not have to download it. I personally have an iPad 3 and I have yet to update it from IOS 7 to IOS 8. In the case a consumer was mentioned to have an iPhone 4 8GB that only has 6.37 GB of storage. The new IOS does not run on those devices, so it doesn’t really make sense to include that story. I find the idea that consumers are complaining about storage issues running older devices fairly ludicrous. This is because Apple has the best track record in the industry of allowing older devices to run its latest software. Back in 2012 when Windows 8 was released on mobile phones, phones that were currently selling at the time did not receive the update. They had to stay at Windows 7.8 because the company stated that hardware issues did not allow older phones to get the latest software. The oldest phone that can run the IOS 8 software is the iPhone 4s which was released all the way back in 2011.
If you compare Apple products’ ability to update to the latest software to Android devices, the differential is stark. Android devices usually are only allowed to have the latest software after the product has been out for 18 months. The latest IOS 8 software has had slower adoption rates than IOS 7, but it still beats out Android by far; after 2 months IOS 8 had 60% adoption compared to the 78% adoption that IOS 7 had after the same amount of time. If you look at the two charts below, Apple has way more of its active devices running its latest software. Android has less than .1% of its active devices running its latest software which is named Lollipop. The fact that Apple could be penalized for having its older devices run the latest software sounds absurd.
Now we must look at the other smartphones on the market to see if Apple products make more or less of the marketed storage available to the consumer. The Galaxy S5 only gives users 7.86 GB of free space on the 16 GB model. This is much less than what is available on iPhones. I just checked my Lumia Icon which is running Windows 8 and it only has 26GB available for media content compared to the 32GB that it is marketed to have. That means that it has 18.75% of storage unavailable to me which is in line with most Apple products. The HTC M8 on Android has only 25GB available to users which compares to the 32 GB that it is marketed to have.
The conclusion to draw from these numbers is obvious. Apple devices which have 16 GB of storage actually have similar percentages of it available to consumers to that of comparable devices with 32 GB of storage. All of the recent iPhones that were presented in the court case actually have way more storage available than the Samsung Galaxy S5 which is marketed to have 16 GB of storage. Every single product that runs software does not have all of the marketed storage available to consumers. Just because the newest iteration of the IOS software takes up slightly more storage than what previous generations of the software took up doesn’t mean that Apple is using deceitful marketing tactics that hurt the consumers’ ability to make a decision. Therefore, I believe that the court case will be dismissed, just like the one that was dismissed in 2012 regarding the storage of the iPod.