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How To Respond To The iPhone

With the introduction of the iPhone coming soon, there's been plenty of talk about whether or not it will succeed. Many analyst firms are weighing in and giving their thoughts on the iPhone. However, a much more interesting discussion may be about how it changes the rest of the market. Given the various strengths and weaknesses of the iPhone, how will other device vendors and mobile operators respond? We, at Techdirt, are raising this issue ourselves, and depending on the results, will help promote the winners on Techdirt, highlighting your analysis as a guest post while providing links back to your own site.

12 Insights

 


There is one significant change embodied in the iPhone: Wireless access that is not controlled by the carrier. This is huge because they got AT&T to agree to this which means they can't charge the consumer for every little web service. No more extras for chat, SMS, video channels, Internet, email (web-based), etc. Because the browser appears to be a full-fledged version of Safari, any web service available for Safari should work and be free on any free wireless connection. This is a huge change and one which the other carriers must be tearing their hair out over. That's why they're having problems getting a partner in Europe.

It also drives the release of Safari for Windows. Windows app developers moving to web apps can now ensure they work in Safari so they can enter the iPhone ecosystem. It's a Trojan horse approach to acquiring support among Windows users and developers.

Finally you cannot underestimate the marketing they are doing. I have already overheard three different conversations in malls with teenage girls talking about iPhone commercials. This is the market of the future and once they use this technology there will be no going back. No one is going to pay extra for wireless access on a phone again. 

Apple are marketing the iPhone as a "revolutionary new phone", but really it's just like any other phone at the moment, with Mac-like features. The only thing Apple is doing right now that is different to anyone else is creating a cool brand. That's the key though, Apple have sat back, watched everyone else do it cheaper, quicker, faster, more, then come along with a well developed, good looking, cool product. That's what they did with the iPod, and now everyone has one. That's what they will do with phones. It will be this summer's must have accessory, and they have timed it exactly for this. I don't think that's really anything that needs further wondering about, they know their market.

This is the market they have cornered gradually over the years, whilst Microsoft became the geeks, Apple stayed cool. And it is one which will never disappear for them if they play it properly, only become larger. So, the affect on the rest of the market is for them to either try to become more fashionable (hard), or to become niche products - not something the mobile phone industry has yet had to do. Until now they have just had demand at incredible rates, so the quality and diversity of their products has been pretty hit and miss. Some phones, like the Nokia 6230, Motorola RAZR, etc. have been very popular across the board, some have been popular with women, Samsung A800 for example, some have bombed completely. There are other niches of course, but it has been very much a case of bulk buying by operators to give away with specially targeted packages, the phones haven't really had to be anything special. Now we all have our packages, complete with tie-ins and discounts, home phone, broadband and television packages, we need something on top. Apple will have that cornered whilst everyone else tries to catch up on "cool".

The device vendors will be crazy to try and beat Apple at their own "cool" game. These people will not succeed easily. The new niches will be the traditional ones: very low-end commodity type phones for kids and people with less ready cash, very high end "luxury" phones, (expect to see some stupid offerings co-branded with Cartier, Tiffany's, etc.), and established PDAs being able to keep in with the "PC vs Mac" argument. Some people are very attached to their PDAs, but these will need to be updated.

I don't see this particularly as an operator issue, unless the device vendors get in early and tie themselves to a particular service. They may have tie-ins already due to previous deals, in which case they will be OK for a while, but it will not mean any new sales, and I expect most operators will be wary of this by now.

There’s a reason why mobile phones today suck. The guys who manufacture these phones literally have no control over what goes into them. That control instead lies with the powerful wireless carriers who often have the final say over how the phones are bundled and sold. Now, did we miss anyone in this equation? For sure and here lies the industry’s root cause for misery: an absolute disconnect with the customer. Of all the companies out there, it’s Apple that’s decided to boldly turn this industry head over heels by wresting control away from the carriers and making an attempt to reestablish that connect with customers, with its revolutionary iPhone.

I believe that the concepts behind the design and marketing of the iPhone are sure to sweep in unprecedented changes not just to mobile phone manufacturers but also to mobile network operators. It’s not realistic to expect an overnight turnaround in the industry, but I think it will certainly happen over the next two to three years - but only after the other device vendors have made a quick trip to the bottom trying to copy Apple.

The effect of the iPhone on device vendors

When was the last time you found your Nokia whatever-series-phone usable as a phone? Anyone remember the N90 weapon of mass destruction? Do you long for those times when your mobile phone offered crystal clear call quality, exceptional battery life, rugged reliability, and clean interfaces? I sure do.

The iPhone is Apple’s message to other device vendors that it’s OK to experiment but experiment while religiously keeping the end user’s sentiments and needs in mind. Your customers want their mobile phones to be, above all, phones. Don’t try to differentiate yourself from the competition by dreaming up and then dumping hare-brained features on your customers. And worse, don’t copy. But that’s exactly how Nokia, Samsung, LG etc. are responding to the iPhone. And so long as they do, they’re never going to be able to really respond. Nokia’s CTO Tero Ojanpera recently said that "Optical sensors and touch will be the next big things...I believe there will be a lot of innovation around these." I’d like to ask him this question: "Mate, is copying a proxy for innovation in your dictionary?"

And finally, there’s Apple’s crystal clear message that it’s quite OK too to stand up against a bullying carrier, but make sure that you have a killer product - that other carriers would die for - in your pocket.

In the next few months, we’ll probably only see iPhone clones (optical sensors, touch screens et al.) from most of the device vendors hoping to ride the iPhone bandwagon. But in reality, it’s going to be a very quick to the bottom of the ocean. A few manufacturers might trumpet the lack of 3G on the iPhone, but how many people are really happy with the crappy 3G services out there?

The effect of the iPhone on network operators/carriers

The Apple and Cingular deal represents a paradigm shift in the relationship between mobile phone manufacturers and network operators. It is the first instance since the explosive growth of the telecom business that a phone manufacturer has the network operator pinned to the wall. Reportedly, Apple retains complete control over the handset and what runs on it (design aspect). Apple also controls how and where the phones can be sold (marketing aspect). Further, Cingular stores cannot undercut the Apple stores on price, thereby marking the start of a trend where network operators no longer subsidize phones. Where I come from (i.e. India) this has always been the trend - you buy the phone and then pick the operator. Apple gets a cut from each subscriber’s monthly bill. The strategy here is to project the iPhone as a data-centric consumer phone and then get more and more customers to use more and more data services.

As reported in the Wall Street Journal, Steve Jobs referred to telecom operators as "orifices" that other companies, including phone makers, must go through to reach consumers. While meeting with Cingular and other wireless operators he often reminded them of his view, dismissing them as commodities and telling them that they would never understand the Web and entertainment industry the way Apple does. For today’s carriers, accepting the fact that their networks are nothing more than dumb pipes is very humbling indeed.

Verizon, Sprint, and T-Mobile all say that they are geared up to battle the iPhone, but to date none of them has outlined a strategy for doing so. Verizon stands to lose the most from the launch of the iPhone and their management should be ruining the day they declined Steve Jobs’ proposition. Probably they were thinking of the failed Moto ROKR - iTunes - Cingular combination. I bet that a huge chunk of Verizon customers will switch over to Cingular even though the associated cost of iPhone ownership is high. Verizon has clearly lost the first-mover advantage and will probably adopt a wait-and-watch approach. Sprint is anyway losing customers to AT&T and has other headaches to grapple with. T-Mobile is small chow and will probably ride on the iPhone’s data services bandwagon to get its customers to use data services.

It is reported that more than 1 million potential customers have made inquiries about the iPhone and, interestingly, about 40% are with the competition today. Many of them have apparently declined to re-sign annual commitments with their current providers so they'll have a chance to check out the iPhone.

Final comments

Apple is slowly, but surely, building an industry around itself: a product awaited with bated breath; a hungry carrier eager to please Apple in every which way; an ever expanding entertainment portal in the form of iTunes; content deals with YouTube - the current Mecca of the Internet (and who could ever have imagined YouTube converting their videos into H.264 just for Apple!); and who knows what’s up next. I think this is what Andy Grove refers to as the 10X change in the marketplace that catches you sleeping.

And as Brendon McLean over at The Register says, "What could be more scary than an organization capable of working in total secrecy, with a track record of creating highly desirable products, headed by a man who's beaten cancer and an SEC investigation and comes equipped with a Reality Distortion Field that would make Darth Vader jealous? Frankly, it’s just what the doctor ordered for this very sick industry."

The real question then is: "Can anyone respond?"
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Derek Kerton
Wed Jun 27 6:25pm
Quality post, as usual. And I agree that this is the 10x change.

I just disagree that it caught us sleeping. Clearly you and I, and many others, are on board. What's more, I've been begging for a shake-up like this since 2002, and we've been beleiving the iPhone rumors for years. Sure, a few key stakeholders are sleeping, and those people are will be getting their wake-up call shortly.

The Apple iPhone, of course, comes at the whole arena of smartphones completely from left-field and seemingly reinvents everything. And, although the iPhone has some huge omissions and flaws, there are some lessons from which existing smartphone manufacturers and smartphone owners can draw.

Apple's cleverness is not, in my opinion in the way they've produced the first practical mass market capacitive touchscreen device(!), although that's an impressive start, but in the way they've managed not to over complicate the whole idea of a smartphone.

Because S60, UIQ, Palm OS and Windows Mobile have 'grown up', so to speak, evolving over many years, features and functions have been incrementally added, to the point where something of the simplicity of the iPhone seems a breath of fresh air. Now, there's a direct relationship between simplicity and ease of use, between functionality and complexity, but in Apple's case they've bent this usually straightforward relationship, allowing perhaps 70% of (say) a S60 smartphone's power and functions while being twice as easy to use, for a newcomer at least.

Of course, it's that last 20% of functionality which is the most techy and the hardest to introduce in a non-confusing way, which is where the challenge lies for the likes of Nokia, Sony Ericsson, Motorola and HTC (to name the top 4 smartphone makers in terms of market share).

The iPhone has raised the bar in terms of ease of use, as many observers have already commented. It's not just about having a touchscreen (which is why the HTC Touch will fail miserably) - it's about keeping the user in the loop about what options are available at every single point. It's all very well an application on a S60 or Windows Mobile 6 device having 100 different functions and menu options, but if only 10% of them ever get used because most people never find them, then there's a big usability issue to overcome.

In addition to greater use of context-sensitive menus (from which items which aren't relevant are omitted), there's scope for hiding many application functions behind an 'Advanced' menu or on-screen button, so that users themselves can decide which bits to use and which to ignore. Perhaps applications could themselves be run in 'novice' or 'advanced' mode, along the lines of what Eudora Mail did five or six years ago. With 'Novice' set as a system-wide setting, new users would get along faster and could graduate to 'Advanced' when they felt ready.

Steve Litchfield, 27 June 2007

The iPhone isn't yet released, and the hype bandwagon is running at full steam. And for once, sign me up. I'll run shotgun on that bandwagon. Why do I think the iPhone is worthy of the hype:

  • You will benefit from the iPhone.

How can I say this when I don't even know if you will buy one or not? Well, it's simple. It's like the advent of Local Number Portability - for those customers who changed providers, they were able to access a different phone, feature, or pricing plan that they wanted. But for all those who did NOT switch, they also benefited from the fact that the carriers needed to suddenly respond to the fact that they had to compete for existing customers. Customer benefits such as "rollover minutes" and VZW's pro-rated early-exit fees are direct results of WLNP-based competitive responses.

In a similar vein, the iPhone is forcing all other phone vendors and carriers to up their game. Responses have been numerous such as Sony EricssonW580, W200, or the older K790a (all much cheaper), the Helio Ocean (a great multimedia 3G phone), the HTC Touch. And with AT&T set to have a much more compelling music service through iTunes, Sprint and Verizon have to completely re-think their mobile music stores. Do you really think their drops in prices were made in a vacuum.

So, my point is that even before it's release, other competitors have doubled their efforts, lowered prices, and improved devices in anticipation of the Apple device. That's already done - in the bag. Imagine what happens to the market if the iPhone actually IS successful and other vendors copy the best practices from it.

  • It shakes up the balance of power.

Talk about important. The carriers have had an iron grip on device design, features, and a furiously tenacious grip on content and services that they make available to their subscribers. This has been to the great detriment of the wireless Value Added Services industry (just ask any developer, off the record, when there isn't a carrier within earshot). By being autocratic and trying to control everything, they have stifled creativity. By taking 50% cuts of all VAS, they have snuffed incentives. But that is about to change. You would think that in a competitive market (which I believe wireless is), you would have one or more carriers compete by...giving customers what they want! (duh) Hutch 3UK did it. Yet what we have, in most markets including the US, is an oligopolists Prisoner's Dilemma: all carriers are choking the market in a similar way, and none have defected from this silent pact. Driven by fear, they think this is best for them. Yet, when one of them defects, the game is over and they will all end up worse off. And AT&T has flinched.

The iTunes model will work around the carriers (somewhat) and we can expect to see more music, video, and content get on the phones through a batch-sync over USB. Because of this, the carrier has relinquished some power to Apple. When customers learn of how easy it can be to get more from their device, they will flock to this model (note I say 'model' if not necessarily the iPhone.) Other carriers will not be able to compete with AT&T on a VAS basis until they tear down their walled gardens.

Content providers, SaaS providers, application vendors, all of them finally will get a little bit of power. And certainly a new power player, Apple, will have entered the game. With Apple demonstrating a method of being a power-player, is it long before Nokia, Moto, Sammy, S-E etc. all want a similar role?

  • It actually churns customers.

Carriers often launch apps and content on an exclusive basis. Think Shakira videos and ringtones with VZW, or SMS that was not inter-carriers, or VZW PTT. Each one was launched in the hope of differentiating from competitors, and stealing subscribers from those competitors. Yet we've seen these apps come and go - and NONE have been important enough to steal customers, and any good ones are quickly matched by competitors. It remains that the only thing that actually drives churn is bad service from a current provider (negative differentiators). Hyped up phone features that were supposed to rock our worlds. But in reality, so far, only two non-voice apps have been remotely "killer". That's SMS and email, and no carrier really has any differentiation in these.

But this is different. The iPhone IS probably the first positive differentiator that WILL churn customers. We know this from research, analogical evidence, and the fact that a million people have requested the device from AT&T. Four days before the launch, people are camping in front of AT&T and Apple stores. Has that ever happened before in the telecom space? eBay and Craigslist have "professional waiters" offering to hold a place in line for a fee. But if you want an iPhone, you'll need to switch to AT&T. That's powerful.

And it goes beyond those who churn to AT&T for an iPhone. The brand cachet gained by AT&T will be significant. They will be cool again (wait, were they ever?). People will enter AT&T stores just to have a look. Minus one subscriber for VZW and plus one sub for AT&T - each churner is a double victory. I clearly think that the exclusive deal is good for AT&T because of the reasons listed above, and I think it is actually a painless move because of the below...

And there will be ancillary benefits. We think that the carriers historic desire for control has been self-destructive. We think they have shrunk the pie, and claimed a big piece. Apple is forcing AT&T to open up, and they will be the first carrier to do so, and have a leadership advantage in the new, larger pie. More content, more services, more activity, more revenue. Hey, I warned you I was on the bandwagon.

Of course, this is theirs to lose. If the phone totally flops, or if the network flops (as AT&T Wireless did when their new subscriber provisioning system failed years ago), they will have a lot of egg on their faces. BTW, I also think the exclusive deal is a positive for Apple, because they could never have negotiated for as tough terms from  carrier without offering exclusivity. Yet without the terms Apple extracted, this whole event would be ho-hum.

  • It actually tries to give the people what they want.

Foreign concept, but that's what Apple does. Well, OK, Apple isn't 100% committed either, as we know they benefit from locking down the music with DRM that also locks it to iPods, but hey, they are a radical step in the right direction vis a vis the telecom industry. The iPhone does, and will continue to innovate in ways the customer wants, with less restrictions put in by what the telco wants. The end result is better overall for society - even if it is not better for ever individual stakeholder.

  • The UI was "job one".

Finally - a phone made by a company for whom UI is the leading feature. Motorola, Nokia, et al can say what they want about how important they think UI is. It just isn't to them. Not compared to Apple. And the reality is that it IS the most important thing in any device. Every other feature is hidden behind the UI. Current state telephones started with features and functions, and build a UI around them. The iPhone is different: eschewing any legacy processes, this device was built from the UI down. This avoids the silos that plague conventional devices.

Now, I have some issues with the iPhone UI, don't get me wrong. I hate devices that have just one hardware button. There are some functions that I want one click away, with tactile feedback. I want to be able to move a few switches with the device in my pocket. But that's a relatively small gripe.

  • The right sacrifices were made.

A lot has been made of the fact that this phone only has an EDGE modem. But space/power/cost trade-offs must be made. And those complaining about this have just bought in too much to the 3G hype. Don't get me wrong, 3G is awesome when needed, like a laptop modem. But Blackberry, for example, works perfectly well on the 19,800kbps Mobitex network. The key is to having little need for fast data, and a slick UI that hides the latency. RIM figured it out, and got a 7-year head-start in the mobile email space.

So why doesn't the iPhone NEED 3G? Well, the notion is not that users will be actively using data-traffic-intensive applications while mobile. The notion is that they will sideload a variety of content and apps from their desktop into the device. How stupid is that? Let me see...using a 480Mbps (USB) connection that is free for data traffic vs. using a 600Kbps 3G connection that uses battery, increases hardware costs, and is billed by the carrier. If that's stupid, then call me Gump. 3G will come in later devices, as the market determines.

No Keyboard. Well, this one hurts the device for the most active email users. But there is a clever text input mechanism, so for SMS messages and short entries, it works fine. And is this device really targeting the Blackberry crowd. I don't think so. RIM can relax and sit this one out, for now. This is clearly a consumer device, and keyboards are mostly an enterprise feature.

  • Phones are officially CE.

The other cool thing about this is that phones have historically been a utilitarian part of the network. The industry name we use for them is "terminals". We see them as the end point on the network, linked to the network provider and provisioned by them. But with the iPhone, the mobile phone is becoming Consumer Electronics for real. Phones will start to be devices bought by consumers, and simply connected to a network. Call it a pipe, if you will. From there, what's next? Gameboys connected to the network, cameras? What other CE will follow this leader.

  • I'm not getting one.

That said, it's not for me.  I find that phone choice is made mostly by the second priority rule. You haven't heard of that rule because I just made it up. But basically almost everyone's first priority for a mobile phone is voice connectivity. But every phone delivers that. So people end up choosing the kind of phone they carry by their second priority. These range from:

  • gaming (BREW phones)
  • size
  • design (the RAZRs success)
  • price (developing world)
  • email (um..Blackberry)
  • enterprise apps (Windows mobile or RIM)
  • camera (Nokia N95)
  • SMS text
  • music (Sony Ericsson, iPhone)
  • UI (the iPhone, I think)
  • WiFi
  • Data speed
  • video (MediaFlo phones).

But a phone today, being the size it is, cannot be great at ALL these things. Compromises have to be made. So some are better at one thing, and others at another thing. For me, my second priority is email, and I don't consider the iPhone a contender.

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Derek Kerton
Thu Jun 28 10:34am
OK, so I didn't hit the question very much in there. Here's an addendum:

How it changes the rest of the market:
Carriers: AT&T will actually attract customers away from other carriers. Their brand will improve. They will see increased use of VAS because of the benefit of tearing down their walled garden. That benefit is clearly visible to developers and consumers, but even though carriers "don't get it" it will actually benefit AT&T as well. AT&T's brand will improve. Other carriers will need to respond by offering better mobile media services, at lower prices. Other carriers will need to respond by making content more accessible on their devices using all the available ports (Bluetooth, USB, SD) not just the antenna port. They will need to lower their walled gardens.

Market Prices: The acceptable market price for mobile music and mobile video will be lowered to the iTunes standard.

Mobile Video Plans: MediaFLO and DVB-H mobile video broadcast efforts will suffer compared to the price and simplicity of the iTunes sideload. Few will pay $15/mo for broadcast TV when others can sideload TV shows with PVR functionality for $1 a pop.

Device Vendors: Other device vendors will need to scramble to catch up with the iPhone's features and slick UI. But Apple will continue to innovate, so they will remain one step behind for a while. They will lose market share. But on the upside for the Nokias, and seldom mentioned, Apple has broken the grip the Telco had on the device supply chain. Other vendors can take advantage of the breach in the wall, and sneak features through (don't forget that carriers block any feature/content that threatens their preferred biz model).

Media Companies / Developers:
Now they've got a channel into the moble device that isn't bottlenecked by the...um..less informed carriers. They have an easy route to distribute and monetize their content. They are, without a doubt, sick and tired of carriers getting in their way, and then taking 50%. Wow, 50%! Apple makes basically nothing on the iTunes content, charging instead for the hardware. Does that sound appealing for a content company, or what?!

Given the various strengths and weaknesses of the iPhone, how will other device vendors and mobile operators respond?

RIM: Some competitors are outside the iPhone's reach initially. The iPhone is world-changing, yes, but it IS a device with only one hardware button. This doesn't bode well for working on extensive email or word documents. People want tactile feedback when they type. For the moment, keyboard devices are largely unthreatened (Treo, RIM). But high-end consumer phones are going to lose customers to the iPhone.

Pricing: As a weakness, price is probably the iPhone's greatest. But consumers have indicated a willingness to pay for Consumer Electronics, especially great products. The price will definitely reduce the market for the i, and leave ample opportunity for the other vendors. If they produce a good product, it will almost certainly be not-as-good. But it may be a better value if it only comes in at 2-3 hundred dollars. This should be their goal: a second-best product at hundreds of dollars less.

Battery: Other vendors are making fun of the iPhone's battery. I heard a Motorola exec make a poke at it last week on stage, but I think that's a red herring. I don't think the iPhone battery is bad at all. The only real problem is that it is not replaceable. This will manifest itself in a couple of years when the cells wear down. But this IS a weakness they are trying to poke at...sour grapes in my mind.

Mobile Operators: lower music prices. Allowing music to be moved to phones over Local networks. Lower video prices. Adjusting video plans. Emphasizing price advantages of their products over a iPhone+service TCO (Even though TCO of a similar device+service+content package from them is probably higher.) Carriers will not likely lower their service prices to compete with iPhone, but will try to offer competing devices and services. They will lose some customers to AT&T.
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Vinaya HS
Thu Jun 28 8:18pm
Thoughtful insight indeed.

But do you think the device vendors will get anywhere by trying to ape the iPhone's features? I think it's time for Nokia, Motorola, Sony Ericsson et al. to do some deep soul searching and get back on the innovation train they were, once upon a time, known to be the engines of.

I too agree that the iPhone is not immediately attacking RIM's market segment. For now, the iPhone is being projected more as a data-centric consumer device and not as an enterprise-level device. I don't see users dumping their Blackberries anytime soon.

I've never been a big fan of ring tones. But iTunes is sure to change the ring tone market in a BIG way. Why would you pay top dollar for a 10-second clip when you can get the real thing dirt cheap on iTunes?

$500 plus $60 per month 

 What'd you pay for your last phone.  I paid $50 for my Motorola Razor, which was the hot phone, and it took a lot to get me to fork over the $50 and not take the phone they were giving away for free.

For years now there have been two major options in cellphones.  You get the hot free one offered with your plan, or you pay a few hundred for a blackberry type device.

The t-mobile sidekick was hot 2 years ago, when those typically selecting the free phone option paid $200 for a cool flip device.

 

500.  For a phone (yeah, Mr. Jobs, it's an iPod and an Internet Device too).  It's a cool, expensive phone.  It will sell.  Really well.

Phones are cool again.

What THAT means is that Motorola can create a really awesome phone for about $300 and NOT give it away for free.  It means that technological development in the US, all the cool devices have been in South Korea for years, will start popping up, because there's MONEY to be made...and people will SPEND money again. 

"Wow look how cool this phone is, it does even more than the iPhone and is only 200"  No more freemiums to sign people up for 2 year plans.

How Verizon, T-Mobile, Motorola, Samsung et all should respond:  Do one thing REALLY cool.  The iPhone may be spreading itselfto thin.  Forget music, Apple is king.  Apple is not the king of the internet, or games (how bout a PSP enabled phone that's smaller?), or email, or gps...be the BEST at one of those...corner a small market, and let iPhone users deal with the 2 hour battery life.  

 

 

Other manufacturers will look at the iPhone and note the importance of two things: the user experience given through the user interface and the importance of marketing. The iPhone, outside its creen, has only a mid level specification; the majority of the innovation is in the user interface and software. The wider applicability of this software innovation is open to question. It is too early to evaluate the success or failure of the iPhone user experience model and it is worth noting that several usage scenarios are not handled well by the current implementation (e.g. one handed use, use with gloves, glance lookups). Furthermore such a user interface is not necessarily suited to mass market devices. To a certain extent a touch driven interface dictates a large screen and places limits on both form factors and the minimum size of the device. It is also worth considering how far the current implementation can be extended with new features before it becomes unwieldy to use. Apple has sensibly focused on core features, but in order to be sucessful outside of the US market it will have to extend current features and functionality. Maintaining the same ease of use and Apple ethos will be difficult as Apple moves out of its traditional areas of expertise.

However it is clear that the iPhone will give manufacturers and software providers a reason to reassess their current offerings. Apple has offered alternative directions to investigate and while these may not be new Apple's very use of them legitimises them as areas for further study.

Marketing is perhaps the area that both manufacturers and operators could pay close attention to. Apple has managed to generate a large amount of pre-publicity about the iPhone. While some of this is down to its status as innovative product rational assessment of its competitors would suggest the innovation angle is over exaggerated, there are a variety of devices that can do more. The importance of a loyal community, especially a web-based one has been clearly demonstrated. Numerous blogs, forums postings and mainstream media sites have examined and deconstructed every detail. Apple has also sort to educated potential users about the benefits of the device - something which is rarely seen from other high end phone manufacturers. Even potentially negative areas (such as the lack of true third party developer support) have been spun in a positive way. Of course replicating this marketing juggernaut is extremely difficult, but it is an area that is worth pursuing.

Operators will like the iPhone because of the high level of awareness around it. The awareness of its capabilities will help increase consumer awareness of non-communication features in phones. This should have a beneficial knock on effect on other models. I would expect to see increased sales of high end handsets. This effect will likely be most noticeable in the US where the consumer market (as opposed to enterprise) for high end phones is relatively small.

However operators will also be distinctly unimpressed by the revenue generation prospects of the iPhone for themselves out side of the phone contract. Operators are well aware then revenue from voice and data can only decline and thus are actively seeking other revenue generating areas. With the iPhone these areas are controlled and monopolised by Apple. More over Apple seeks to promote its own branding over that of the operators. Operators will be very wary of becoming nothing more than 'pipe' providers.

Operators seeking to build software software platform strategies and build future growth around ecosystem of mobile companies will also be wary of Apple's desire to control the product end to end. It makes it difficult for anyone other than Apple to innovate and that is very dangerous for the industry as a whole.

However despite all of this it is worth noting that the importance of the iPhone is easily overstated. If it reaches it sales target it will still only represent 1% of phone sales. There will be more successful product out there and though they may not receive the same media attention they are just able (often more so) to add to the bottom line.

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Vinaya HS
Thu Jun 28 8:31pm
I don't agree when you say that Apple's desire to control the product end to end is very dangerous for the industry. What innovation have you seen from the other device vendors who have bowed down to the whims of the carriers?

It is perfectly reasonable for Apple to have end to end control over their product. Apple thrives on exclusivity and it is easy to mistake this for dominance.

Also, does Apple interfere with the way AT&T builds and maintains its cellular network?
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Rafe Blandford
Fri Jun 29 2:45am
I think both carriers and operators have provided a lot of innovation.

Nokia entire S60 platform represents a considerable innovation and they are continuing to build stuff around this. For example they today announced a new service to allow you to order photo prints directly from your phone. An install is necessary, but I imagine it will be a default item in future phones. Whether operators choose to allow this in locked phones or would provide their own solution is of course unclear. You could look at other Nokia initiatives such as Video Sharing or Content Loader. The forthcoming Bluetooth Low Power was originally a Nokia research product. Similarly Sony Ericsson has created a strong market for its Walkman brand by creating a music experience and innovating around it (TrackID, use of accelerometers, etc.).

Operators have also sort to innovate themselves. Operator portals and the download of extra software, services and ringtones were all innovation at one time and new services continue to emerge.

Much innovation comes from third parties which the bigger companies license. For example Orange through its Orange Partner program uses a large number of products to enhance its offering. Abaxia for HomeScreens, Musiwave for its music platform/ products. Orange is especially notable because it carries out a triple/ quad play strategy and some of it services cross multiple segments (e.g. Pikeo photo sharing is both web and mobile enabled, Video content in France is broadcast over the web, IPTV and to mobile). Much of this comes from companies working together.

Apple may consider it perfectly reasonable to have end to end control, but I very much doubt operators would agree.

The point I was trying to make is that iPhone model is different from all of this. Apple will only work with those it wants too. This can be considered a good and a bad thing of course, but does change the industry.

Note I think you have to draw a distinction between the US and the rest of the world / Europe. The US does have the same innovation in its carriers. Whether it is less mature is open to debate, but it is definitely different.

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 fo 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.

- Tim Marman

icon
Vinaya HS
Thu Jun 28 8:38pm
Yup. That's exactly what happens in India. We buy the phone and then have a bunch of network operators to choose from. Don't like Operator A? No problem. Operator B will be at your doorstep in minutes. In the long run, I believe this is the model most mobile markets will turn to.

The iPhone is clearly poised to be a successful product and very likely to set a powerful new standard for hand held devices. The extremely innovative touchscreen user interface and navigation of the "real web" and not just the mobile web was particularly insightful.

The bar has now been set very high for high-end mobile devices making both of these two responses likely:

1) Embrace the iPhone. Apple's iPhone will clearly set a new standard and for other companies, which can now save years of prototyping. As reviews come in minor changes should be made to accommodate user needs and concerns, but clearly the iPhone is meeting a powerful need at the high end mobile phone market. Maximizing the size of the viewing screen without adding weight and bulk is a key challenge of mobile devices and this area could be ripe for innovation as screen technologies improve. An interesting accessory for the iPhone would be a way to expand the screen size several times, perhaps using new thin plasma technologies, although initially this approach seems extravagant, and far more likely are simple cheap "iCopycat" approaches that will in some ways be analogous to the legion of MP3 players that are much cheaper than the Apple iPOD but somewhat less elegant in design and functionality. iPod has remained the key MP3 player standard thanks to Apple's initial powerful hardware and marketing play. The iPhone has the potential to do the same thing in the mobile phone space though I'd predict it will be harder for Apple to dominate this far more complex and lucrative space.

Treo and Blackberry, as the current leaders in the high end phone market, are potentially most threatened by the iPhone. Both are certainly watching the response to the iPhone carefully. They will be collecting extensive hardware and consumer behavior information before making significant changes to their existing successful formats. As a Treo 650 owner I don't plan to switch to the iPhone immediately, but I'm extremely impressed by the *dramatic* superiority of the iPhone user interface to the Treos. Especially compelling is the large screen for internet browing. I certainly hope Treo copies Apple's brilliant functionality in future phones. If they do not I, and certainly many other Treo users, will switch to the iPhone or other devices that better accommodate the need for quality surfing. The Treos limitations as a browsing device and it's failure as a viable laptop modem have been extremely disappointing to me and I suspect to many other users. The best advice to mobile makers right now is "Copy the iPhone!". A killer device would have iPhone functionality but cost much less. Although it seems highly unlikely that a phone maker could create most of the iPhone features yet offer it at a price in the mobile sweetspot of $150, this move could immediately threaten Apple's market. Cost and size appear to be the only two serious roadblocks to the iPhone capturing a huge segment of the mobile market in a short time.

2) iGnore the iPhone and "feature hungry" users and focus on those who just want basic phone functionality - calls, pictures, and text messaging. Much of the mobile market remains unlikely for at least the next several years to require and be willing to pay for devices that show video and take videos. Web surfing and email are close to becoming standard features but they are not quite there yet, thus there is still some room for simpler devices though this market is likely shrinking and is spread across a large number of companies and phone makers.

The huge advantage of dispensing with these iThings is that you can obtain a very small form factor. Thus there is a limited amount of room for innovation in the "just a phone please" space along the lines of lighter, thinner, more stylish phones, though there currently exists a rich assortment of phones and it seems unlikely a company could create a "breakthrough" simple device that was significantly better than those that are available now. Possible significant improvements would be along the lines of *better voice quality*, *high camera quality*, and *longer range* all in the small form factor.

Summary points:

Apple's iPhone has set a new standard for high end mobile phones with an extraordinary interface and rich feature set. Competing with the iPhone will require similar features and rely on the advantages of observing the reactions of users and markets to the iPhone.

Treo and Blackberry should consider the iPhone a "shot over the bow", and offer significant innovation in their own devices to avoid a potential rapid loss of market share. Customer loyalty will extend the period they have for iPhone-like innovations but it will not eliminat the need for those innovations.

The market for lower end devices is likely to shrink but not quickly, so current makers should continue to innovate in this space to capture the many users who are not in the market for high-end phones.


Many manufacturers are already working on their iPhone clones but as we have seen with iPod-like mp3 players they likely will not prevail. Why? Apple has a powerful brand in consumer electronics (think Sony in the 90's) that is unlikely to be deterred for the foreseeable future. It's quite obvious that it will succeed in the consumer market. But it's success is likely to come much later for several reasons: 1) it's expensive 2) people who have bought a 4g iPod in the last few years are unlikely to fork over more cash for the "same" device 3) other than early adopters, consumers are fearful of version 1, and 4) everyone knows 2G iPhones will be released in the next year.

The iPhone will help push the 'smartphone' to the masses but will unlikely be successful in the business user's hands - which is where the entire market for this type of connected phone is. Although Apple will very likely create the market for consumers it will be a slow growth area not picking up until the 2G or 3G iPhones arrive over the next couple years. Still at that time I think we will see a market segmentation between consumer and business users.

One of the biggest changes the iPhone will bring, aside from pushing hardware innovation, is the mass migration to mobile web connectivity. It's been heralded for years and although successful in Asia has not caught on in the United States. Now web developers must make it a priority to ensure their websites are accessible via mobile devices like the iPhone. 

Not having tried the iPhone, it is hard to say whether it is better or worse than other phones. Designing a mobile phone is not that easy, after all. And while it may have some interesting features, those are sure to turn off as many users as they turn on. Just look to the plethora of phone models introduced every quarter in Japan, some of which have much more interesting features than the iPhone, and look at which survive. Users are surprisingly conservative, and their tolerance threshold for even the smallest malfunction incredibly low. That is why phones still have buttons (the SonyEricsson P900 series, and the P800 before it, had touch screens (P800 was some five years ago now) - not a great feature as it turned out).

 That said, tweaking is always good but the real difference the iPhone can make is becoming open for applications developers. Other smartphones have problems with this. The Symbian phones sacrifice the openness for security in the system (i.e. they make certain you always can make a call, but this may detract from the ability of applications to work). The Windows phones, well, they sometimes work, and the OS is hardly as robust as you could wish for this type of applicaitons.

Mac OS X is of course really robust, has a well-established developer community, and would be able to handle phone-based interrupts really well (by the way, this may sound silly that you are required to receive and make phone calls, but it is actually a legal requirement - you MUST be able to make 911 or similar calls as long as the phone can be switched on at all. And in choosing between being banned from selling the phone, and letting developers muck around with the core, what do you choose?). So, that will be the sole feature which can make the iPhone great. 

 Other than that, it is a nice piece of styling, but do not overestimate that. Nokia will trump them with next years models. If not them, SonyEricsson or Samsung. To change the industry, and have staying power, they have to have openness.

Hope this helps.

//Johan 

Let's make one thing clear: the iPhone is not revolutionary. Repeat after me: the iPhone is not revolutionary. In that sense, I believe that it will not change the market radically. For many cell phone users, the phone is still a one-handed device. Getting them to use both their hands in order to do something as trivial as making a phone call isn't all that attractive.

The iPhone is being touted as a better iPod. Available in just 4 and 8 GB capacities, that is hardly the case. One of the other drawbacks of the iPhone is the lack of 3G support. Sure, there's Wi-Fi on the iPhone, but that's not sufficient.

If anything, I would expect other manufacturers to try and emulate the kind of buzz that is being generated for the iPhone based solely on the great folks at Apple PR. It's not even out (at least as of today) and there are positive previews, tons of accessories and what not!

The cheapest individual rate plan will put you back by $60/month or $720 for the year. For the 2-year service contract, that's a total investment of nearly $2,000 (including the cost of the 4GB model). Something you cannot really justify.

Despite this, I am sure Apple will enjoy healthy sales of the iPhone in the next couple of months. Will I be getting one? No, thanks. As any gadgetophile, sure, I'd love to play with it - but that's about as I am interested in it.
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