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« Open letter to Apple: The killer App is not voice nor music | Main | SecondLife Hype? Or a sign of things to come »

January 10, 2007

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Comments

alex

Hi Tomi,

very well balanced and detailed analysis.

However, I don't believe that a viable iPhone clone can emerge within 6 months.
First, if the "multi-touch" user interface is as sophisticated as it was demoed, it will take time to technically analyse and copy the implementation. Half-baked copies will fail, since it is already hard to believe that the real thing can really meet user's needs outside the US.
Second, Apple claims patent protection. Let's wait though, what the large handeset manufacturers have in their patent portfolios to hold against. Also that will take months or years to settle out.
Third, the established vendors will hardly overnight conclude that Apple's UI is better and thus should be copied. Rather they will stick to the current "UI beliefs" of the phone industry until the market proves the outsider Apple right.
You listed yourself the concerns, such as potentially bad usability for SMS. The industry will go on wondering about that for the next few months.

So rather I'd expect that we'll see iPhone clones only after Apple has had spectacular success (like outperforming that 1% global market share).

Alex

A.C.

Interesting take on the potential pitfalls and successes that might await the Apple iPhone in the years ahead, but I suspect the emphasis on 2.8G vs 3G and the bandwidth limitations are - at least in the US market - irrelevant. Likewise, the lack of a removable media slot (if in fact it does not have one) is also unimportant given how most users will use the device.

iPhone users will not download video or music over the cellular network. They will sync the devices to the iTunes and photo libraries on their computers (after all it's this seamless integration which has helped the iPod become so entrenched and while Apple doesn't make a lot of money from music and video sales, there presumably is no money to be had if users download ringtones and games and YouTube videos straight from the Internet or via the carrier).

All of their major non-PC products (iPod, AppleTV, iPhone) are extensions of the media and communications capabilities of the centralized computer. Video and music and contacts and calendars will sync to it via desktop cradles or bluetooth/wifi/wimax (eventually) and NOT over the cell network.

A.C.

I also agree with Alex above that this paragraph:

-------
I could very well see an iPhone variant of say the Motorola Slvr or a thin LG Chocolate to match much of the iPhone (including a touch screen and no keypad) very "easily" with only a slightly smaller screen. One could well be out by June, and both by the fourth quarter of this year. But these iPhone clones would actually be more complete smartphones by current expectations and standards eg 3-5 megapixel camera, 3G and 3.5G (HSDPA, yes, we are now into 3.5G already), and the memory card slot. Toss in a clamshell variant (think Razr) and suddenly you have outdone Apple's big innovative product.
--------

is *extremely* far-fetched.

3-5 megapixel cameras by June? "easily" match much of the feature set of the iPhone?

Much like the iPod before it, the iPhone has few if any features that haven't already been implemented in competitors products years earlier...but just like the iPod the iPhone's number one feature appears to be integration and ease-of-use.

Do any of the competitors have the OS and Internet/Web browser expertise of Apple? I can't see anyone coming close to the ease-of-use and apparent elegance of the interface any time soon...

Last idle thought: while I suspect Apple is mainly trying to get ahead of the consumer smartphone adoption curve, I am curious how they have implemented their IMAP email features and if they'll try to get ANY penetration into businesses (which is the current target market for most $600 phones in the US). If so, they'll need to have some server side component analogous to Blackberry Enterprise Server or Goodlink Mobile Messaging which would allow IT managers to enforce corporate IT policies.

David McElroy

It amazes me that so much of the space in this analysis is spent on the outward specs. It sounds pretty much like the geeky comparisons of the first-generation iPod to existing MP3 players when the iPod was first announced. Such comparisons miss the point of what Apple is doing, in my opinion. Regardless what specs the existing MP3 players had (bigger hard drives and other things that mattered to the so-called experts), the iPod got the user experience right. Apple took something that was fairly complex before and made it simple to use. Apple is taking an even more bewilderingly frustrating device (the feature-ladden phone) and making it simple to use. This simplicity and (apparently) great user experience will be what allows Apple to win with the iPhone, NOT whether it has a 2 megapixel or 3 megapixel camera. (Quick. Ask a normal person near you what his phone's camera resolution is. There's a high probability that he won't know.)

I suspect that Apple will be wildly successful with this thing. I think it will sell to people who aren't even considering today's so-called smartphones. I'm an example of someone who thinks the current smartphones are junk that I don't want, so I stick with a Razr, which uses an interface which is insultingly bad. I've never paid more than about $200 for any phone, but I'll willingly pay $600 for this thing. (And I spent much of Tuesday talking with others who likewise have never had smartphones, but plan to buy one of them.)

I suspect that people who analyze this phone as just another entry into the smartphone market are going to be very surprised. This is not a product that I knew I wanted, but now that I've seen it, I really want it badly. I suspect there are going to be a lot of people like me in that regard. Of course, I've been wrong before, so we'll just have to wait and see the sales numbers.

jaded

Good post, the only note of contention: Overall lots of mac users are iPod users, but the camp of iPod users is heavily skewed towards PC users. Apple has a huge market of maybe 500M installed iPod users that could migrate to iPhones. That is pretty good (I can already count 3 iPod users out of 3 friends that aim to incorporate iPhones on their short list for their next cell phone upgrade.)

E.J.

A.C. is dead on. Talking features represents about 10% of what the iPhone will bring to the market.

Finally, a simple, friendly, usable phone.

acdeveloper

The fact is is that with a background of shaking up greedy over priced and restrictive industries (i.e., recording and now movie TV) Steve has chosen to roll over and play their game. Does it make sense to you to sign a 2 year contract for a service that you do not know will function for you and have to pay them to leave their bad service? If so I have some bottom land in FL that I would like to sell you.

He could have sold unlocked phones you could have picked and chose the service without a contract could have voted with your feet if it did not work.

Paying for minutes before you use them is another scam, regardless of allowing roll over it is just a bad deal.

We have been sold out by the State and the Feds setting up a uncompetative incompatible cell system and now by Apple with a nice product with a noose attached to it. Further going back to the morbound AT&T is an oxymoron to begin with. Try their phone system and I challenge you to get a human to talk to about your problem.

Pay too much for a phone when there is a contract attached (don't see any real rebate or discount here) is nuts.

Look for some hack to this phone to unlock it before you buy!!!

Alan Smith

Great demo via Mac World. I want one because it will serve as a great true video iPod, phone, and reading e-mail. Access to the web, and text messaging are additions. Who really expects great photos from cameras? I have a Canon EOS Rebel for that. 2.8 vs 3G, GSM vs. Edge? The American market is uneducated for that now and it does not matter. I am sure that by launch dates in Europe and Asia, that the so called flaws will be corrected. Apple sold something in the range of 15-20 million ipods over the Holiday season. 10 million of these in one year is probably a low estimate. It will probably sell 20 million in year one. I have not wanted a Treo or Blacberry. Too difficult to use. But this looks elegant and fun to use. Can't wait to have one.

Martin Geddes

Maybe the right answer for Apple was to swallow pride and sell out. Either Nokia or Sony/SE. Now imagine if every Mac was a Nokia and every Nokia was a Mac... The Windows ecosystem is vulnerable from below, not the side or above.

They're betting the farm on this one. I predict Apple will be taken to the edge of the abyss working out this market, but they'll make it eventually a long way down the line.

Potentially missing is the suite of operator gear that enables a bunch of new services. That's why a Nokia or SE merger is needed. There's not enough "what's in it for me?" for operators -- apart from a horrendously expensive device to subsidise which will make for lots of low-margin video network usage and high support costs ("where do I put my thumbs?").

It's a technological tour-de-force, but I'm afraid it's the Newton of the 2000s, now with added electromagnetic radiation.

Dimitar Vesselinov

The rest of the world welcomes the Apple iPhone
"So why the keen interest from outside the US in this costly gadget most of the world won’t have access to for quite some time? Partial credit certainly belongs to what’s come to be known as the 'Apple Effect', the company’s legendary ability to create pre-release hype around their products, and also to the fact that geeks, no matter where they live, just can’t help it. But perhaps the more compelling reason is the critical role played by mobile technology in the information landscapes of many countries, notably in the developing world."
http://www.globalvoicesonline.org/2007/01/10/the-rest-of-the-world-welcomes-the-apple-iphone/

Cameron Doherty

2.8 vs 3G? Why do we care when the iPhone has 802.11x?

Tomi T Ahonen

Hi Alex, A.C., David, jaded, E.J., acdeveloper, Alan, Martin, Dimitar, and Cameron

Thank you very much for the comments. I will respond to each individually

Alex - on a clone within 6-9 months. I agree TOTALLY with you, it is impossible to copy the Apple experience, the iPhone user experience, the OS and integration. So to consider a Macintosh analogy, to create Windows as the clone of the operating system. I totally agree with you.

But most mass market end users, they see a glitzy slim touch-screen music-playing cameraphone that costs 500 dollars and has 4 GB of storage with a 3.5 inch screen. They don't understand user interfaces. Its a touch-screen device. For that, it is relatively easy for LG to use the Chocolate platform, install a large screen (3 inch for example, as this device is not as wide as the iPhone) and create its own touch-screen interface.

Of course it is not going to be an iPhone, its a clone of the "hardware" not the "software". But that kind of device can be produced in 6-9 months on an existing platform. Thats how our industry works. A whole new phone takes 18 months from ground on up.

So by clone I meant only the hardware side. Certainly I totally agree with you, that we cannot start to reverse engineer the iPhone operating system until it is out, and then it will probably take a good deal of time to make sure all patents etc are avoided etc. But like there was a Windows running after each new release of the Mac OS, so too, if the iPhone is successful, of course some of the manufacturers will copy ideas from it, and am sure some will try to reverse-engineer a true clone. Expect these to come from Asia rather than Europe or America, ha-ha

A.C. - good points. I agree the 2.8G/3G (ie EDGE vs WCDMA) argument is not relevant to America. I did say that. It becomes important in Europe, is absolutely essential for Japan and Korea. The three very big problems are in adding 3G is time (very complex to handle the hand-over successfully), weight (another complete radio unit) and money. It makes the phone considerably bulkier and costly to add 3G. That is why almost all of the iPhone "rivals" that I mentioned are much bulkier in total volume.

But you are right, not a relevant point for America. The removable media slot (and I hope it has one) is a different story. Just about every model of the current crop of smartphones has this feature. If the iPhone doesn't, it will stick out like a sore thumb on a device used as a media consumption and creation device (rather than a communication device where it could be an optional extra).

This need is massively increased with multiple phone ownership. As I've reported here at our blogsite, in Europe already 25% of all phone owners have two (or more) subscriptions, most of those mean two phones as well. With the replacement cycle at 18 months, it means a new phone every 9 months. Now you have two new smartphones, you want to easily control the media files you have, your pictures, videos, music etc. Its cumbersome to transfer back and forth via Bluetooth - and keep deleting some files to have enough space. I have 2 GB now and trust me, with a cameraphone (high resolution video capture) that space is gobbled up in no time at all. Then you're constantly shuffling space to find which file can I safely delete.

With two phones - and both smartphones with heavy users obviously - the removable media is absolutely a must. Won't happen in America? Think again. The CTIA reported that 12% of American phone owners have two phones already, so this phenomenon is just about starting to happen there too. Removable media is a big matter. But it may well be - or become - a feature for the iPhone before June.

Then you said, "iPhone users will not download video or music over the cellular network" and suggested they transfer between Macs and PCs and the iPhone like they do with the iPod now. Fine, that is true for America. It is totally not true for Europe and Asia, where PC penetration is less, where iTunes is marginal, and where already music sold DIRECTLY to phones is cheaper than buying off iTunes. In Korea MP3 files to phones cost typically 50 cents, in Sweden you can buy OTA download MP3 songs to your phone for 8 cents per song. Why on earth would you go through the trouble of transferring songs via a PC when its cheaper to get it straight to your phone? In Britain they are launching a service which allows free downloads in return for some advertising consumption on the phone.

So the PC transfer-model is valid for America, not for the rest of the world.

A.C. - finally on the "all content goes without money to carrier to the iPod/iPhone" - this will just about kill the product for just about every carrier (mobile operator) in the world. Just like Nokia's N-Gage, which allowed people to buy N-Gage games offline, from gaming stores, rather than through the carrier's network. If that is the model, you can be sure most carriers in the world will not buy into this. They won't subsidise the phone and won't carry it in their stores. Then all bets are off, the rest of the world WILL NOT BUY 5 Million iPhones in the first year. Apple's success will be limited to America. Note that in England, I received my Nokia N-93 phone - list price 900 dollars "SIM-free" for zero dollars because of my monthly spending, as I renewed my contract for the next year. No matter what superphone is introduced by what superbrand, if one is similar in features and costs 500 dollars, and another is similar in features and costs zero dollars, this becomes a no-brainer. This is exactly why the Nokia N-Gage died. Because carriers would not support it.

Trust me on this. Carriers hate any services that bypass their revenues. That model will TOTALLY NOT FLY. But, if Apple is willing to allow the carrier to make money in this model, then they can embrace it. So here I think you are wrong, but time will tell.

Then, A.C., on agreeing with Alex, and cloning the phone. As I told Alex, I meant only the superficial outside hardware, not the Apple user interface, "obviously" (and I was not clear about it, in honesty) - you both are totally right, one cannot clone this user interface before it has even been seen in the public, and not that fast. But a "dumb" touch-screen slim MP3 playing cameraphone can be released if the platform supports that form-factor today. That is what I meant, a partial clone, or a dumb clone if you will. Sorry I was not clear enough on this.

3 to 5 megapixel cameras? Why on earth not. We've had 3 megapixel cameras for a year already, several 5 megapixel models now, and Samsung has a 10 megapixel camera already released (in Korea obviously). Why on earth not. Thats not stretching the envelope. Maybe you don't have these in America?

Finally A.C. on the corporate side, very good observation. Its not just integrating with the email server like Blackberry, but its also SLOW WORK to then sell to corporate/enterprise customers who are very reluctant to support new technologies in an ever more complex IT support structure. Even more so if the gadget is seen as an executive toy, not a serious work tool. This is why so many of the business-oriented smartphones don't have a camera (or MP3 player) because corporate customers don't want to buy fleets of digital cameras or musicplayers (or portable video gaming consoles) for their employees. So even if the integration is happening, there needs to be a strong sales support staff to aid Cingular (and the subsequent European and Asian carrier) corporate sales forces in convincing enterprise customers to adopt this device (and platform) in their companies. Tough work, can tell from personal experience, each account, one by one, slow going....

David - VERY GOOD POINT, thank you!! I am falling into my own trap, ouch ouch ouch. So critical of my peers for being technology-oriented, and here I go, with so much of my argument being technology... You are so right, the theme of my analysis is too technology-focused.

Here is what I probably wanted to convey (I've had a night to sleep it over). The iPhone is potentially a radical leap, a whole next generation in the pocketable device experience. I've asked for that in various mobile phone user interface design conferences like the one I spoke at in Taiwan two months ago. If it is done right, and it doesn't fall into the obvious trap of being bad at the only killer app in this industry (SMS text messaging) - it can truly revolutionize the phone biz, like the Mac did for the PC biz. I wrote about that SMS part in my open letter to Apple, obviously, so nothing more about it here.

But this handicapping blog, was supposed to highlight some of the regional differences. I am sure the Apple consultants and senior management understand the American IT market very well, and even the cellular market (as it is today, lagging the world obviously) rather well. But I am afraid Apple doesn't understand the more advanced mobile markets in Europe, and totally misunderstand the futuristic markets such as South Korea and Japan, which even few of my peers understand well. (incidentially, I am discussing future handset development in two weeks in Tokyo at the biggest annual telecoms event of Japan, where I am a regular speaker)

So my purpose was to try to show where opportunities and threats lie. And also, reflecting on my long blog now, I did talk about carrier (mobile operator) needs as well, as some customer preferences. But you are right, this is not unlike the PC technical press in 1984 comparing the CPU speeds of the Mac to the IBM etc, focusing on the trivial missing out on the radical innovation which was the operating system and user experience.

Thanks for the comment. I feel a deep pang of pain in my heart, that I've become a technology pusher, rather than celebrating the innovation in user experience. Point very well taken.

jaded - very good point, thank you. I kind of knew, it, but had forgotten it, that more iPod users own PCs than Macs. Your number is wildly off, however. There is not an installed base of 500 million iPod users. Apple has only shipped 85 million iPods since 2001 and a significant proportion of the went to people who had earlier iPods, so the actual user abse is probably 60 million or so. But good point otherwise, thanks.

E.J. - yes, AC was dead on with features being only 10% of the story, the user interface is the majority of it. I should caution you both, though. Reinventing the phone user experience is not easy, and the clear standard today is the Nokia. We have a multi-function device (camera, messaging, phone, browser, music, TV, wristwatch, calendar, gaming, blogging, etc). Nokia has been pushing the envelope on POCKETABLE experiences on just about all of these for years while Apple perfected the iPod. Note Nokia's N-Gage before the Sony PSP, Nokia's Communicator as the first pocket internet device, the Lifeblog as the first blogging entry into mobile, and now for example very heavy investment into DVB-H digital TV broadcasts to mobile (eg the Helsinki Trial, the Oxford Trial etc).

I don't doubt Apple's ability to innovate. I think they will find Nokia's lead in multi-purpose pocketable device user interfaces to be totally different from how IBM's DOS operating system was with PC's when it was truly horrible to use a computer.

And to be clear, this is not only a Nokia vs Apple game, have you seen what Sony has been up to? They brought their Walkman brand to the phone. They already own Playstation. And they just bought Minolta-Konika to gain the knowhow into the camera biz.

I don't mean that Apple cannot reinvent this industry, only to point out, that they are entering unknown waters where the competitors are huge, customer-focused already, and well resourced. I would argue that even with the iPod launch, Sony was ignoring it, thinking the Walkman era was over, there was no growth in new portable music players left. So Apple had it to itself with Sony not putting up a fight.

But with phones, Nokia, Motorola, SonyEricsson, Samsung and LG all know perfectly well that their whole future depends on phones. Moreover, Microsoft knows and is working hard especially on the smartphone operating system side. And major global non-equpment providers, like Google, Yahoo, Disney, BBC, Electronic Arts etc all know the future of their respective industries is on mobile phones, so they are all maneouvering into this space. Its a crowded space, and very many huge companies are putting their best efforts into making this work best. Apple may have discovered a new and better way to do the mobile phone, but they may well find it isn't that easy...

Again, I am strongly hoping the iPhone will be a huge success and more than that, that it will deliver similar scale of radical innovation and a leap forward as the Mac was to the PC.

acdeveloper - Very good points. I totally agree with you that the current predominant mobile industry model, of bundling the handset and a contract, and preselling these minute and message bundles and handing out "free" phones, is inherently bad. I frequently argue against it in my books and the blog and my conference speakerships. There is some hope. In some countries there are no handset subsidies. The phones are sold separately, at full price, and the networks offer their contracts or pre-paid accounts separately. Then the costs are economically real, not artificial. A lot of real benefits come out of this. And it is no inhibitor to industry growth, Italy - with about 140% subscription penetration per capita (almost twice as many phones per capita as in America) - has no subsidies. Belgium has none, Indonesia has none, etc. But these are the minority. But gradually countries are noticing it makes for a more healthy market, so for example in South Korea and in Israel they have discontinued handset subsidies.

So I totally agree with you, and no, I don't need that plot of land in Florida, ha-ha...

Alan - thanks. I accept your guess is as good as mine. I still stand by my view, that 10 million is do-able, but tough going. I think your guess that 20 million can happen, is too high. I'd say absolute tops is 12 million, and I'd guess the actual number will be about 10.5-11 million because Apple can "manage" its actual sales somewhat with discounts, release dates, etc, and since the 10 million number is out there, if Apple is running at say 9 million rate by April 2008, they will just run extra discounts to make sure they hit the 10 million target.

As to your iPod sales 15-20 million this Christmas season, it will be much closer to 15 than 20. But we'll get the official numbers shortly, so no need to speculate.

Martin (nice to see you as always). Yes, I think the right move would have been in 2004-2005 when they had the discussions with the handset makers, to "sell out" and try to get onto two of the big five, or else one of the big five.

A funny after-thought (with hindsight, this I TOTALLY did not see at the time) - if Apple knew in 2004 or so, that phones were a likely future (they've planned this iPhone apparently for 2.5 years), and therefore they must have analyzed the market back then. Even in 2004 the phone industry was huge compared to PCs (and MP3 players). They could have bought up Siemens's phone unit (that went to BenQ). With it, they would have gained a fully functional production line, about 5% market share of handsets worldwide (five times bigger than Apple's target today) and a TECHNOLOGICALLY excellent unit to deliver high-end smartphones??? Revamp the company, continue selling the Siemens-Apple phones for two years, develop the iPhone in secret, then release a SERIES of iPhones. They could have bought up Siemens phones for a pittance back then, and then turned it into a powerhouse.

Like I've said, the secrets to winning the global market share outside of America, means dealing with about two hundred separate mobile operators (carriers) each requiring their own sales effort and support. Siemens phones would have had that whole organization in place, and every mobile operator in the world knows Siemens phones, so these doors would also all have been open. Now Apple has to go knocking on every door...

But hey, this is hindsight. I honestly never saw it before now.

Ha-ha, Martin, very VERY funny, the Newton of 2000s, but now with electromagnetic radiation. LOL!!! You are so funny.

Dimitar - thanks, yes I liked it, especially yes the Apple effect. Us geeks love Apple...

Cameron - 802.11x vs 3G? Yes, you are probably in America? 3G is mopping the floor with WiFi in the rest of the world, so this is also an America vs rest of the world thing. In America 802.11 is enough to cover for not having 3G. But most of the rest of the world does not have free hotspots to speak of. If you have to pay a subscription to use WiFi at some hotspots, not others, but 3G covers everwhere you go - including abroad - the game very soon tips. I have heard of dozens of colleagues who have abandoned their WiFi subscription once they got onto 3G, and of nobody who abandoned 3G in favour of WiFi (and many who use both).

In the 3G vs WiFi "war" (outside of North America) the winner was 3G. We in the telecoms industry are now bracing for the WiMax (802.16) vs 3.5G (HSDPA) battle which is just now starting in the first dozen or so countries.

Thanks all for writing !

Tomi Ahonen :-)

Aravind

Thats a very good, logical article on iPhone, Tomi. Steve has worked his magic before on products he fathered, as long as it was under his control. Going by that guiding line, this product is a hit. Though there is absolutely no logic to that argument :)

alex

Tomi - I'm afraid that the apparent lack of memory cards matches well with iPhone syncing only via the PC.
Clearly Apple targets PC centric users.
Apple must know the implications of that to non-US sales from the iPod.

So I'd rather assume for 2008 a regional sales split between US and the rest of the world matching with the iPod - not 50:50, you have the numbers probably.
I.e they need more than 5M in the US.

10 M globally in 2008 =
10-15% of iPod installed base(assuming some growth of that in 2007)
That looks doable to me.

(BTW, my hunch is that Apple is trying to carve out a new market segment that does not match with the traditional smartphone or musicphone segments.)

Of course it is possible that Apple overcomes its US/PC bias and creates an appealing iPhone for the rest of the world, but looking at the history of the company and the lack of national diversity in their management team, I would doubt that.
This might even be their highest risk for failure, since - as you pointed out - the US is not the lead market for mobiles.

Further, huge M&A doesn't fit at all to Apple. I cannot imagine that Jobs would have micromanaged and pushed to their limits thousands of Siemens-telco-Germans against a wall of "buts" and "not possibles".

Alex

ngiam st

Even as a relative SMS non-addict (by Singapore standards), I got to agree with Tomi's point that if the SMS implementation is bad, that would kill it in the Asia market.

Most specifically, a flat touch-screen is not going to work for touch-SMS'ing. Unless Apple has something up their sleeves - some way to give tactile feedback so people can SMS without looking at the screen. Or maybe stroke-style character entry ? Apple does seem to be trying a bunch of things (two-finger dragging, variable-speed dragging) with touch-pad interfaces. Graffiti ?

Tomi T Ahonen

Hi Aravind, Alex and ngiam

Thanks for posting.

Aravind - yes, I am very strongly inclined to agree with you. Steve Jobs and Apple certainly have the track record to succeed in something like this, and my gut says this will succeed. Whether its 10 million or 12 or 7, I think its still success at an Apple strategic direction point of view. My pain is more in that they are so "late" with it. A year ago, this move (and Apple's best effort into the smartphone market back then, BEFORE the Walkman Phone, Chocolate, Razr V3 and Nokia's N-Series - that would have been the real revolution in phones, and in that market, an "iPod Shuffle + phone" concept with technology of that period, would have taken several dozen million phones in this same time period. Bear in mind we did sell 309 million musicphones last year. Apple missed its window on this. Now it is only a defensive move. Makes me sad. But yes, I'd certainly bet on Apple succeeding when they set their minds to it. Also like I said, Apple is brilliant at marketing, telecoms phone makers and operators (carriers) are miserably bad at marketing. We as an industry need this kick in our rears to learn real marketing...

Alex - good point about the iPhone being very much tailored for the USA market. But now that I have learned that the 500 dollar / 600 dollar price is AFTER the subsidy by Cingular, meaning this is one of the most expensive phones in the world - ie double that without the contract, or 1000 dollars street price SIM-free for the 4GB model and 1200 dollars for the 8GB model; now we are in very seriously expensive territory. For that price you'll get the Nokia N-95 with "all" that the iPhone has (except its UI of course and a somewhat smaller main screen) plus a 3 megapixel camera, a carl zeiss "professional quality" lens, optical zoom, 3G, hot-swappable memory slot, infra-red, television quality video recording... etc. Or you'll get a top range digital TV tuner in your smartphone - with built-in PVR (TiVo) in Korea at that price, PLUS the phone, 3 megapixel camera, web browsing, MP3 player and 3G. The iPhone is seriously underpowered in the 1000 dollar plus price range. I was handicapping it against phones near half its price..

But yes, to your point about it being "very" USA-focused, because eg the lack of memory card slot. I think you're right. They may have made it too much for American specs. Then we have two big problems. If the aim is to get 10 million mostly in America, say two thirds there - there aren't exact numbers of iPod sales splits, but two thirds in North America is a common assumption for current split. Considering the timing issues, that results in about 8 million sold in America and over 1 million in Europe, under 1 million in Asia. Fine, Europe and Asia became better to achieve. But America, near impossible..

Because of the price we are even more against price perceptions in America. They aren't used to this level of cost of a phone. And as we move higher on the price level, we move away from mainstream musicphones and purely into top smartphone territory.

Now we HAVE to get corporate customers. Then it becomes a perception issue. Why give my mid-managers free iPods (iPhones) rather than real work tools like Blackberry. Its not a new sale into corporates, it is removing the existing Blackberries and other business smartphones like those from SonyEricsson. Very rough going, from something that is so strongly associated with an entertainment device (iPod, video iPod).

I'd say 8 million sales in America for a device which after the subsidy costs 500 dollars in America, out of a smartphone market in America next year of about 9 million, even if we count some sales to existing iPod users, this is way too much to expect. In particular as we remember more than half of those 9 million are on CDMA networks, and it is a VERY big job to get a corporate/enterprise customer to switch from one network provider to another, when that also means a differing network technology. Certainly I'd say an impossible goal.

Now on the 10% of the installed base of iPods. Thats a fascinating viewpoint. I'm estimating that of the 85 million sold, about 60-65 million are discrete users, the rest 20-25 are second and third iPods to existing users (I have no data to support this). Lets also assume two thirds of those users are in America. That gives us about 40-43 million users in America.

Someone said at some Apple discussion board that the announcement of the iPhone kills the iPod market, which is why it was announced only after the Christmas period. Makes sense. Apple will be discounting iPods heavily to keep it afloat. But that pretty well eliminates the new buyers during 2007 of an iPod from wanting immediately to dish out 500 dollars or more after June for another (iPhone).

So we have a market potential in America of about 40-43 million. To get our 10 million out of that we'd have to convert 1 out of 4. Some of them love the iPod but could not justify spending more than 100 dollars or so for a Shuffle. These won't buy iPhones. Some have their "perfect" music solution already and won't bother. Some will want the iPhone for sure, many at Apple-related boards are "drooling" for this phone, so certainly there will be many lining up at the stores to be the first to have them.

But remember, odds are, that 55% of the current iPod ownership in America happen to be on carriers who use the CDMA network. They will be difficult to convert, not impossible, but difficult. In America the replacement rate lags that of the world average (Korea, Hong Kong, Taiwan and Japan lead) so if we say 2 years, that means that perhaps 20 million of the 40-43 million are on GSM. We can safely assume all will own a phone, as by now almost all will with American penetration at 75%. Out of those 20 million, half upgrade during the year. So its that magical 10 million number, we'd have to get EVERY iPod user on GSM to upgrade contracts in the first year to switch to the iPhone when they upgrade. Not feasible, certainly.

But its a good part of their plan. You could say that before the phone is out, today, for most iPod owners who can afford 500 dollars after subsidy for a phone (and qualify for a 2 year contract, obviously) - their new phone of preference is now the iPhone. Whether their network, employer (wife/husband) etc agree with this kind of expenditure is then another thing.

The one other thing to keep in mind is that Apple is quite good at pushing the price perception point up. The Macs were always more expensive than PCs of the same generation. The iPod initially was incredibly expensive, yet people flocked to buy it. Apple does have that ability to get buyers inspite of high prices, not unlike say a Mercedes or BMW etc.

And on Siemens, you're probably right. If Daimler-Chrysler was bad, German meet American automobile engineers; this would have been America/Germany PLUS computers/telecoms. An enormous headache indeed..

ngiam - good point, thanks. Yes, I am hoping hoping hoping that either they really understood SMS, and it is done "right" (one-handed, without looking at the phone), or else they now get the message (my Open Letter has been widely quoted in Apple circles, ha-ha, with positive comments, so I am confident the message got through). I am rather confident, if Apple put their mind to it, and decide to optimise the messaging on the phone for SMS (rather than for e-mail or voicemail) - then it will REALLY be a killer phone. And like you say, if not, then the iPhone will seriously underperform in Asia and Europe.

Thanks for writing

Tomi :-)


alex

According to the German mobile magazine "Connect", Apple stated their awareness that the feature set of the iPhone needs to be adapted for Europe, and possibly also the hardware.
http://www.connect.de/handy/testberichte/apple_iphone.148193.htm
So iPhone fans can hope for 3G and optimal SMS.

Dalibor Kunic

I am not denying iPhone is to some extent game changer in mobile telecom space, but I'll say they went to solve wrong problem.
True, many mobile phone UI's are clunky and not the straight experience. But could we think a bit about SMS ?

Just look how SMS texting is done ( thumbing ). Who would only expect this to be such a huge success but it did. It is horrible user experience from today's iPhonish perspective, but look average user who never used PC or Mac can write SMS ( global ) .

Where's problem then ?
Get me decent phone ( not too expensive for the average user ) which can call, go online fast and straight ( iPhone good at it ) and get me some of those funny pics and noises ( integrate it easly with iTunes catalogue ).
I pressume, It can be done only in partnership with mobile carrier. So, who's the partner here ? Cigular and on exclusive terms. No, that's not smart.
Present situation doesn't explain enough of their distribution strategy exept intention to use marketing muscle as usual ( it's sexy, they will want it ).

Why not go on cheap and take it with Virgin Mobiles, Helios and Amp d' Mobiles and get a scale that can breakeven in two years time ?

Second, I'm hugely curiouse about prototyping/testing of iPhone. How they done it and for how long ? I know it has to be done with very limited resources at hand ( confidental agreements and small teams) . So, what type of people were doing it, do they had fully understood mobile space or they were people with IT background and default heavy internet philosophy cause it's obvious they knew how to make fully capable internet phone ( but is not following W3C guidlines in terms of mobile content rendered for mobile phone ).

Tomi T Ahonen

Hi alex and Dalibor

Thanks for writing.

alex - good point. It makes a lot of sense. Apple has time, 4-6 months to finalize their European variant of the iPhone (with better camera, probably with 3G as well). Then another 3-6 months to finalize their Asian phone(s) - where 3G is vital, CDMA variant quite likely as well, and obviously the camera and removable media will be upgraded. Thanks for mentioning the article in Connect, it validates this presumption.

Dalibor - very good points. I think there is that archetypical Apple "arrogance" of avoiding the consensus and established paradigm (including standards) and going it alone; breaking the mold if you will. Look at the Mac and iPod/iTunes. It has its upsides (new market space potential) but its downsides (cannot truly break mass market with proprietary systems).

The best part from my view, is that this entry - honestly many inside the phone industry have "feared" this would happen for five to six years - will jump-start the thinking of the phone as the seventh mass media. There are controls on the radio, which are inadequate to control TV. Similarly when the mobile phone emerged as a voice device (and gained SMS text messaging) its controls - user interface - could adjust with the alphanumeric keypad - in 1996 there were six incompatible alphanumeric keypad formats by the way, so the industry went onto standardize this as SMS was starting to take off, and today all phones have the same alphanumeric keypad with ABC at number 2 etc.

But this phone-centric (voice-centric) form factor is woefully inadequate to handle the phone as the most versatile mass media ever (the seventh, where TV is the fifth and the internet is the sixth). The phone as the 7th mass media is also the youngest and least understood. At 7 years of age, this media is still a young child and will grow a lot before it is anything like the established media like TV (and obviously with twice the users of TV, three times the users of PC based internet, the 7th mass media on the phone is also by far the biggest media with the widest reach). Apple is entering at a great time for our industry, to help it grow.

And while it looks great and sexy, the iPhone obviously will not push the envelope on a large-screen or even touch-screen innovation (witness LG's preceding phone of very similar configuration). No, Apple's contribution will be from its core competence - user interface - and hopefully will propel the industry far into the future, like the Mac did to the PC, Newton to PDAs and iPod to portable music players. And Apple will also drag the lagging marketing skills of the mobile telecoms industry (can anyone say stone age) to modern times.

Thanks for writing

Tomi Ahonen :-)

radiomoscow

mobile phones have a memory card slot to make money ie; they have 1 extra feature for marketing and they can sell u a 50c card for $50 or wateva they charge

when u walk into your home/office and your phone syncs to your pc automatically
you remove several steps

just like the ipod, data management is done from the computer not from endless button pressing on your phone
you guys need to change the way you think...do u have to defrag your TV or install speaker drivers on your car radio
why do you feel mobiles and computers need to be complicated to use?

as far as cloning the iPhone...haha …did u notice this is not a touchscreen like any other
clone steve jobs its much easier and less patent protection

radiomoscow

i dont actually want a phone (im far to important to be contacted)
i do want a portable os x based website viewer, emailer, camera, ipod, game platform etc

mark

Thanks for a very insightful analysis. Your original post and your responses certainly reveal not only your broad and deep expertise but also your energy, humility, and friendliness. Refreshing.

Just a couple of thoughts to add:

Jobs said "first full year in the market" when referring to the 1% or 10M, so that's CY2008. (The slide also showed 2008.) So it's still a bit ambiguous, but Apple's counting could include from 12 to 18 months of US, 12 to 14 months of Europe, and 9 months of Asia, assuming Apple meets its ship dates.

With that, it's also likely that Apple will reduce prices in Oct-Nov (pre Christmas) 2007 on these announced models and/or add upgraded models, at least upgrade flash capacities). The iPods will certainly be upgraded by then, and as this is the "high-end" iPod, it would have to be upgraded as well. And there will be another price drop and capability upgrade before 2008 is out.

With Apple's "fan" base (and iPod and Mac ecosystem tie-ins), lots of people are more likely waiting for the price to fall below a "magic" threshold such as $400, than comparing prices with other smartphones.

Sleeper Service

Excellent article there. I think the design factor is what Apple are banking on; having dominated the mp3 player market with the iPod they're now looking to merge that device with a mobile communications device and have produced an aesthetically pleasing hybrid to do so.

However, I remain unconvinced by the device itself and it's ability to actually deliver against the more experienced phone manufacturers and the speed of technological development in this market. For example, although the device looks pleasing I wonder about its fragility given its size and open screen. In addition, whilst a touch screen sounds like a good idea, the damage caused by finger grease and scratches will soon mount up. Is it safe to assume that Apple will sell replacement screens at a sensible price or are we looking at another iPod battery replacement scenario?

Looks like a case of form over function to me.

listenclose

Every last one of my co-workers have iPods, cellphones (smart or not), and a few have Sony PSPs for movie veiwing more so than playing videogames. I think Apple shouldn't have named it iPhone because that is the least of its allure. I was sold at Album Flow and 3.5 screen.

Tomi T Ahonen

Hi radiomoscow, mark, Sleeper Service and listenclose

Thanks for dropping by and posting the comments

radiomoscow - you say you don't want a phone as you are too important to be contacted. You must be kidding or else a very lonely person. Even those who refuse to have a business/work phone, have a mobile phone today to reach their kids and spouses. Every economically viable person on the planet has a mobile phone (and 10% have two), although many of
us hate the phone, so we don't "want" a phone, life today without one is impossible, except for the hermits and truly lonely people perhaps.

But on your point of not having the slot for removable memory and connecting to a PC instead. You must be looking at this from an American viewpoint. In the rest of the world it is not automatic that you have a computer (even if you have internet connection). The total population of mobile phones outnumbers personal computers at more than 3 to 1 - and the gap is growing in favour of mobile phones every year. Yes, if you own a PC, you can synch with it. But what if you don't? If your new smartphone (iPhone perhaps) is your only web access device - over half of internet access in Japan, South Korea and China is from people using a cellphone, not a PC. Now this lack of removable media is a serious drawback. Not fatal, but serious. Like I said the removable media is a bigger problem in Europe and Asia than in America.

Then on cloning, radiomoscow, you are very right. I did not mean - although it was not clear in the original posting, it is more clear here in the replies - that anyone can clone the Apple intuitive iPhone user interface. Only the hardware, the look of the device. But that new LG model looks eerily like the iPhone already. This BEFORE they try to clone it ha-ha. But you are right, the Apple UI will be safe for at least a year, and rest assured, Apple will be releasing ever more clever user interfaces to the iPhone, like they do with the Mac. This is the future for Apple.

mark - "humility" ha-ha, hardly, that was very funny. But yes I appreciate the other comments thank you. We take our blogging very seriously here at Communities Dominate. If you feel strongly enough to post a comment, we - Alan and I - want to make sure at least one of us replies to everyone. We do want to practise what we preach ha-ha, with our book promoting engagement with communities...

To your points mark. Yes on the 2008 fiscal year, I have heard that elsewhere, so they have more than strictly 12 months from the June launch of the iPhone in 2007. That makes the 10 million easier. If you count three linear growth rates from June 2007 to May 2008 with my assumptions, then the rate of sales of iPhones in May 2008 is 1.9 million units in that month (each following month selling more per month than the previous, so in the 12th month we sell much more than one twelfth of the total shipments in the year)

If we move those "goal posts" to the end of the FY of Apple, ie end of September, it definitely gives much better chances, as that extends the back-end when all three markets have iPhones. Yes, makes reaching the 10 million significantly "easier". Meanwhile, since my original posting, as I've mentioned here in the responses, the sticker shock is worse, as the 500/600 dollar Cingular price was
after subsidy, meaning the SIM-free price is somewhere in the 800 to 1000 dollar range. This is seriously expensive cellphones, and the worldwide current market for so expensive phones does not sustain 10 million units. It may be like Maybach discovered entering the race vs Rolls Royce and Bentley, that the total market was not big enough at that extremely high price to sustain the initial target sales figures. We'll see. Apple has a history of pushing the envelope for how much people are willing to spend on a given technology, so its not beyond their ability.

On reducing prices and adding models, I am sure this will have to happen during the first year of the sales of iPhones. They will hear this from every carrier they talk to outside of North America, not only what I happen to ramble on here at our blogsite. Its clear from reading hundreds of comments by Asians and Europeans, that for all the excitement in America, the iPhone is less so in the rest of the world, which is more addicted to their phones and do appreciate how the recent phone models have adjusted to meet their needs.

A good example is the camera. I can understand a touch screen for voice, texting and browsing. But for taking pictures? You have to "poke" at the screen to snap a picture. Bad. That is why high end cameraphones have introduced camera oporation buttons to the side of the phone - they then are on top of the gadget when you use it in camera mode. Bear in mind, last year Nokia sold more musicphones than Apple sold iPods, but Nokia sold twice as many cameraphones than musicphones... Most users value the camera more than the MP3 player, even in the most advanced digital country in the world, South Korea. Recent survey again found camera features number one, while MP3 functionality was fourth on the list of what users wanted.

mark, on the fan base. Good point. I would suggest, that if the fan knows the iPhone will shortly become available on his carrier (mobile operator) network, yes, they will wait. But they won't wait a year. If someone in Asia this summer for example wants an iPhone, learns it will be released in say February, they will go and get an upgrade to their current phone now, and worry about hte iPhone next year as their NEXT upgrade. The problem being, that the target customer of the iPhone - someone willing to pay 500 dollars for a phone - is very addicted, very high-spending, and for that customer it won't be the first smartphone. This summer they'll pick up the Nokia N-95 for example which has a 5 megapixel camera, optical zoom, Carl Zeiss optics, built in flash, is 3G, has DVD quality video recording etc etc etc. The iPhone will seem like a bargain-basement model with no flash, no optical zoom, no 3G etc etc.

An important point to bear in mind is that one or two new models during 2007 is totally not enough if Apple wants to sell 10 million phones or more per year. The big boys in the industry release a couple of phone models per month. Not in the 500 dollar range, but certainly, if Apple's iPhone starts to gain traction in this price range, ALL of the big boys will release MORE models into this space, after all its easier to push up your profits selling 500 dollar phones than 50 dollar phones..

Yes, Apple has to release new phones, I'd say they will release one new model for European launch and one for the Asian launch, and then speed up product development so that by 2008 we'll see something like 6 new models per year. That would sound reasonable for this industry, and not beyond Apple's abilities, but not in line with what they've done recently with the Mac or the iPod.

Sleeper Service - good points, I agree with you. Am afraid the screen replacement issue may be significant. Nokia tests its phones to survive multiple drops from a pocket (don't try this at home ha-ha, and I won't guarantee anything). But yes, modern cellphones take horrible beating - and in your pocket you have your keys and coins etc. Will that big flashy screen remain so for 18 months? But they are not alone in this, many modern phones get ever bigger screens and not all users want clamshells.

I'm actually more concerned about this lack of removable battery thing. I believe this will soon be changed with subsequent models. Apple doesn't understand the travelling road-warrier type who may need two extra batteries to get full use of the phone before it can be recharged again... But they are hearing this at very many discussions already and am sure they will adapt to this.

listenclose - interesting view point. Did you notice Nokia doesn't call its N-series "mobile phones" anymore, they are "mobile computers". Maybe it should have been the iComputer or the iMac perhaps?

Thanks all for writing

Tomi Ahonen :-)


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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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