This Gaffe May Destroy AAPL

Apple (NASDAQ: AAPL) doesn’t make mistakes often. You don’t become the largest company – boasting a $620 billion market capitalization – by making mistakes.

When it boils down to products and services, surveys consistently rank Apple as the best among its peers.

However, Apple made a huge mistake with the new iPhone 5.

And if this mistake continues to occur in future devices, it will mark the end of Apple’s dominance in the industry.

In fact, AAPL shares have declined by 5% since this gaffe became public – a decline I think has further room to run. In fact, a drop below $600 isn’t out of the question.

Rumors are circulating that Apple will unveil a newer, smaller, iPad. Though Apple’s mistake originated in the iPhone, they have a chance to address the problem in their new iPad.

Forget the fancy screens, lightning-fast software and an easy-to-use interface. If AAPL doesn’t address this single mistake, the stock is likely heading lower.

To some, this mistake will not seem like a big deal … at first. However, it may have marked an important change in the way Apple does business. And this change could spell Apple’s unraveling.

The map feature on the new iPhone 5 is terrible. That’s because Apple opted to use its own less-than-precise mapping application.

Apple decided to use their own crappy maps and drop Google (NASDAQ: GOOG) Maps, a marquee service that Apple had used in the past. Moreover, they made this decision despite having another year left on their Google Maps contract.

Nevertheless, Apple devotees purchased five million iPhones within days of the launch … creating a tremendous profit opportunity for one, little-known company (click here for details). 

But the quality of Apple’s new service isn’t as damaging as the message the company sent to its customers.

In the past, Apple went the extra mile with its products, using the best hardware, software and technology available. Combined with sleek designs, these state-of-the-art components put Apple products a step – and in some cases, several steps – above the competition. And the company and its share price flourished because of it.

Apple developed a diehard fan base because these people understood they were buying top-of-the-line goods. These consumers stuck with Apple for years, refusing to buy other brands. Even now, droves of people wait in line overnight to get their hands on any new Apple product. Few companies have achieved such a devoted customer base.

This zealot base is Apple’s greatest resource … and the company screwed them over.

Apple put its best asset in jeopardy by releasing a product with substandard features. And the worst part? Management knew they were doing it.

Apple has never put its successes above the consumer … until the iPhone 5. Why now?

You see, Google and Apple are in a little tiff because Android is gaining too much traction and Apple doesn’t like it. To stick it to Google, Apple decided not to use Google services in the iPhone 5.

By taking that stand, Apple put its corporate interests (winning the Google skirmish and expanding their location-based advertising business) ahead of their loyal consumers. Apple maps are just not as good as Google Maps, and Apple management knows it. In fact, they’ve even publicly admitted it.

Apple is a great company – Google, too – and it will remain an industry leader in the near term. In fact, if this were any company besides Apple, not only would this map flop not be a big deal, it would be heralded as a great strategic decision. After all, mobile advertising is a future moneymaker.

However, this isn’t any other business … it’s Apple. Devoted customers expect more from the company. The long-term prospects for Apple are grim if the company continues to provide sub-standard products and puts its interests ahead of the consumer. People will move onto other brands and Apple will lose their ability to charge a premium for products, resulting in margin contraction.

Unless Apple upgrades its map application ahead of the mini iPad launch, it should strongly consider bringing Google Maps back. Apple is not known for producing average products with average features. If that becomes the expectation, fans will leave and Apple’s market share and  market capitalization will shrink.