How To Respond To The iPhone?

from the Insight Community by Tim Marman

Om Malik says that, in a sense, the iPhone has already changed the mobile business because they're "making it okay to experiment with new ideas, and throw out previously taboo notions."

A likely area for innovation is with optical sensors and touch interfaces, which Nokia CTO Tero Ojanpera predicts "will be the next big things." Based on past experience, many have expressed concern that the on-screen keyboard of the iPhone will not be as efficient as the tactile physical keyboards of most of today's smartphones. Apple has demonstrated a number of innovative features designed to improve the accuracy and efficiency using the iPhone keyboard. For example, the prediction engine recognizes common misspellings and generally adapts the keyboard to the task at hand. Building on these kinds of improvements, other device manufacturers will turn to other common complaints such as tactile feedback and smudging. An adaptable on-screen keyboard that somehow provides tactile feedback might finally overtake an actual physical keyboard.

Aside from features, I think we're also likely to see a shift in the distribution model for phones, particularly with the GSM carriers that have less control over what devices join their network. In that sense, the activation could prove to be one of the most important changes that the iPhone brings. Unlike other phones that require a service contract, you can simply walk in and purchase the iPhone in any Apple or AT&T store.  The phone and service contract is then activated through iTunes, allowing you to start a new line of service or transfer an existing line from your computer at home.

Of course, the iPhone must be activated with AT&T today, effectively tying the service and device. Recently, we saw Verizon employ such a strategy securing exclusive distribution contracts for various Windows Mobile smartphones. Many switched to, or stayed with, Verizon for a device that was simply not available with a different carrier. Ultimately, I see a shift towards a model where the device purchase and service contract are separate purchases. This is something Apple can easily do within iTunes once their exclusivity agreement with AT&T expires. We've already seen a move towards this model for high-end devices, as Dell recently began selling unlocked Nokia phones. The iPhone and its offspring represent a shift away from the mobile phone a mere commodity.

If the mobile phone is truly to be more than a commodity, other manufacturers will have to reduce the number of models and focus more on building individual, strong brands based around a handful of SKUs.  This is something that Apple has traditionally done well - offering very few models and in most cases the choice was between one or two capacities and perhaps a few different colors. The sheer volume of devices that many other manufacturers put out can be create the - perception that any one device is not that important, and thus dilutes the strength of the device brand. Underpinning this is also Apple's emphasis on design, simplicity and beauty, and I expect the next generation of mobile devices to focus a lot on these elements.

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