Handicapping the race: iPhone markets and rivals

UPDATE - There is now a more thorough complete number-crunching of what Apple needs to sell per region, and per quarter, plus significantly more complete analysis of the market potential for Apple at this blog from June: Crunching the Numbers for iPhone.

So Tomi, you are the global guru on phones and 3G, advising the global handset makers, biggest mobile operators (wireless carriers), network vendors, content providers, telecoms suppliers, writing bestselling books and lecturing at Oxford on competition in mobile. Give us your handicapping of the iPhone's chances.

Fair enough. I am not the world expert on stand-alone music players, but hey, I can't escape my reputation in mobile phones. And now the freshly renamed Apple Inc is stepping into "my" backyard. Its a fair request. Here is my view of what Apple are up against.

COMPARING THE PHONE

The iPhone is a fabulous slim, sleek and sexy device. Loaded with most of what you'd expect of a high end smartphone today, with most obviously an enormous bright high-resolution screen of 3.5 inches in size (for comparison my new Nokia N-93 that I was so happy about last week, has a screen of only 2.5" in size.)

The resolution of the screen is also impressive at 320 x 480. That is twice that of its typical music-playing rival smartphones from SonyEricsson, Motorola, Nokia, LG and Samsung. When combining video viewing, internet browsing and Apple's smart touch-screen (they call it Multitouch), this screen size and resolution are both justified, and clearly differentiating from much of the competition. Of course with 1500 mobile phone models currently sold in the world, Apple is not cornering the top end of the market. For example Nokia's 9300i Communicator has an even wider screen of 640 x 200.

The iPhone has the newest and best iPod features built in, so it is a true iPod phone, not like the sad Motorola Rokr was. No matter how much the industry has loved SonyEricsson's Walkmans as "iPod killers" - we can safely trust  that this iPhone will be the best of the bunch for music.

And the rest of the phone features are pretty impressive too for a high-end smartphone, with quad-band GSM, meaning it works in every GSM network, meaning the most wide network coverage in the world, covering almost 80% of the phones in the world. It also has high speed cellular data, on the EDGE standard (what is often called 2.8G, just short of 3G) and WiFi and Bluetooth.

Sadly not being true 3G (WCDMA in the GSM evolution path), this phone won't work in Japan and South Korea. And EDGE does lack speed in comparison with 3G especially on downloading music, videos etc. EDGE is not deployed by all GSM networks, and more have deployed 3G, so in some markets and countries this phone will be seriously handicapped for speed having to resort to 2.5G ie GPRS. The rival high-end musicplaying smartphones are just about all 3G phones. This is a serious flaw for the market outside of America, but not really a major flaw for the American market itself.

Unfortunately adding 3G to the phone involves a complete additional radio unit, increasing weight, complexity, reducing battery life etc. So this is not an easy upgrade to the next iPhone. Adding 3G is a very complex and costly step, and it also requires "double" the amount of testing at all network operators before it is accepted into the supported handset portfolios of any operator. This may be part of the reason why Apple launches in America first (being the laggard market in mobile telecoms and in 3G) and Europe next, with Asia last (as South Korea and Japan are the industry leaders especially for handsets, mobile internet and music on mobile, as well as 3G)

The camera is perhaps the most disappointing feature at only 2 megapixels. That may be borderline ok for January 2007 - but many new cameraphones are now in the 3 to 5 megapixel range, and by June 2007 when this is to hit the market, 2 megapixels may well be very "last year". But it is also something Apple might be able to upgrade rather quickly to at least 3 megapixels.

Size? Very slim at 11.6mm - about the same thickness as the Motorola Slvr, in fact height 115mm is almost identical as well, but the iPhone is 20% wider than the Slvr at 61mm.

Weight? Here the iPhone is quite heavy for its size, at 135g - significantly heavier than the obvious rivals from Moto (Razr V3x) and SonyEricsson (Walkman 950i) and LG (Choco KG800), almost exactly same weight as the "heavyish" Nokia N-80

Storage. This is an interesting one. 4GB or 8GB may sound like much, also when comparing with existing phones. Until you notice that this is not removable media. 4GB for a musicphone/videophone without a slot for a memory chip is quite a drawback (and it is possible the iPhone will have a memory card slot, but they haven't mentioned it). Just about all of the competition offer memory slots, which today go up to 4GB in capacity and we'll have 8GB chips by the time the iPhone ships, and more soon thereafter. For one, the end-user does not have to pay for excess storage in the device when buying it; and for another, the end user can buy low-cost memory chips to upgrade the phone's storage; and use the chips to swap pictures, clips and songs - and take them onto the next phone(s). Not to mention the 10% of all people who have two phones - who may well want to bring the fave music collection onto one phone during the week at work, and onto another phone for the weekend partying etc. Music, pictures and videos stored onto the Apple cannot be removed or swapped (without copying such as using Bluetooth or WiFi)

Battery life seems good enough, 5 hours talk time, 16 hours music time (no word on standby time)

I mentioned the SMS text messaging as the only true killer application in mobile, in my open letter to Apple. I won't speculate here about how good the phone without the keypad but using its Multitouch screen will be. Lets assume SMS text messaging (and IM instant messaging and mobile blogging etc) will be on par with the competition. Like I've said, if not, then this iPhone will definitely disappoint in all markets, and fail in the most advanced mobile markets like Italy, Israel, South Korea, Japan, and Scandinavia.

MARKET SIZE

So its a 500-600 dollar device, a so-called Smartphone. You've maybe read here at the Communities Dominate blogsite that the worldwide mobile phone market is almost a billion devices annually. How many are smartphones? Good question. Smartphones are growing strong. In 2006 they were 8% of all phones sold, and Gartner says in 2007 they will form 12% of all phones. I trust Gartner's forecast will be close enough on target, certainly the proportion of smartphones will grow, as people will upgrade phone abilities when they upgrade phone accounts. And the replacement cycle for phones is already down to 18 months globally.

12%. Even if mobile phone sales grow only marginally in 2007, this means a target market for Apple of 120 million smartphones. And Steve Jobs talked (in his interview on CNBC right after the announcement at Macworld) about capturing 10 million of those, in its first year.  10 million is 1 percent of all phones, that is "reasonable" but 10 million is 8% of the worldwide smartphone market - that is quite a tall order in its first year, and even more so with only two phone models.

More significantly, Apple starts with America. Yes, this is the logical market to start with as Apple's strength is its music side with the iPod, and the USA is iPod's best market (in no other country does the iPod even have 60% market share, not even in Canada - these are by Apple official figures, and most countries are in the teens or below); but even more importantly, as America is last of the industrialized world to get into musicphones. Europe have had them - both as devices and supported by the mobile operators (carriers) for two years now, and they were of course launched in South Korea and Japan over three years ago. Makes sense to start with the "low-hanging fruit" for Apple, where the competition is the weakest and the established phone makers (and carriers) have the least established success.

But. Then we are looking at quite a small market. Out of the 2.7 billion mobile phone subscriptions in the world, only 200 million (7.5%) are in the USA. If we assume that smartphone shipments will roughly correspond with this proportion, then 7.5% of all smartphones would be sold in the USA. What was that number? 120 million. And 7.5% of that is... 9 million handsets. Ouch. Now the target of 10 million in the first year is becoming quite challenging.

If we assume that by June of 2008 Apple's iPhone global sales are split evenly into three, with one third out of America, one third out of Europe and one third out of Asia, and we need 10 million, and we have 12 months of sales in America, 8 months in Europe and 6 months in Asia, it means Apple has to achieve 4.7 million iPhones sold in the USA, 3 million in Europe and 2.3 million in Asia. The European and Asian market shares are somewhat reasonable as these are much larger markets than the USA. But in the USA, this means taking over half of the total smartphone market. Questionable. And that is before we look at the radio standards.

Here is where Apple really suffers. GSM is not the majority of mobile phone uses in America. A little over half of Americans are on an incompatible standard called CDMA. Verizon, Sprint and Alltel are on CDMA. So these customers cannot use an iPhone unless they switch carriers to Cingular. And Cingular is not the only GSM operator, but if I understood CNBC correctly, Cingular has an exclusive on the iPhone. Cingular serves only about 27% of the American phone owners. Now the economics of this strategy really hurt the goal of 10 million units in the first year - and my analysis this means 4.7 million iPhones in America.

If we assign American smartphone users evenly across the operators, and therefore Cingular would have the same proportion of smartphone users as their overall marketshare (not a fair assumption, as for example Nextel and Verizon are very strong in the corporate customer segments where the majority of smartphones are sold), then out of the 9 million smartphones sold in America next year, Cingular has only 2.4 million. OUCH !!!

To reach its target, Apple would have to convince every Cingular smartphone user (probably many very loyal to their Motorolas, Nokias, SonyEricssons etc) to switch to the iPhone. This means all Blackberry users in its network with corporate e-mail clients therefore as well; and then capture AS MANY new customers by stealing them from the rival networks. Cannot be done. Is totally beyond all reason. If the GSM standard based smartphone market in America is about 4.3 million, Apple cannot capture all of that. Not in one year, not even with a miracle phone. And the iPhone is far from a miracle phone.

MUSICPHONES

But all is not lost for Apple in America. While the analysts talk about the smartphone market, I would rather look at the musicphone market. That is much larger. It includes many cheaper musicphones, but for many considering a mid-range musicphone, when the iPhone becomes available, it will well be a worthwhile alternative, even if on the high end of what that customer would be willing to pay.

How big? Gartner tells us they sold 309 million musicphones in 2006 (vs about 40-42 million iPods. Can you guess the theme of my upcoming iPod vs musicphone review next week when Apple releases official numbers for the Christmas quarter of iPod sales?). Musicphone sales rocketed in 2006, more than doubling. It is fair to assume, even at very conservative rates, that musicphone sales will reach 400 million units in 2007. This of course includes most of the 120 million smartphones mentioned above.

Now we are talking about a valid market opportunity for Apple. 10 million means only 2.5%, and that is quite do-able.

So back to America. If we again assume that the 7.5% of all musicphones are sold in America, it gives us a market of 30 million. If under half are on GSM, we're at 14 million, and out of those, if Apple wants 4.7 million - that means 33.5%. A tall order, but it can be done. Out of Cingular's own customers it can be done and not all need to be converted. With a bit of clever marketing - Cingular will want to use this as its competitive advantage in capturing churning customers - it can be a very potent tool to steal customers from the rival networks. Certainly knowing Apple, we will get a massive, exciting and creative launch campaign. Everybody will hear of the iPhone in America in June.

REST OF WORLD

Here it gets more tricky. First, Europe (and Asia) is not one market with a couple of operators (carriers). They are a hodgepodge of markets with about a hundred significant operators. Each will require testing and verification (network specs vary, even on a global standard like GSM). Each will have local rules on subsidies.

If the country allows subsidies like the UK, the phone will be sold to given segments at zero dollars and at that price level obviously will fly off the shelf. If the country doesn't allow subsidies like Italy, it will require very aggressive marketing to succeed, against very well entrenched manufacturers and fickle customers who are very well aware of what they want out of their phone. Much like the world car ideas of the past - whether the VW Beetle or the Ford Escort - this only works in an unsophisticated market (Ford Model T), and in reality in any mature market, the tastes vary so much that segmentation is needed. Someone buys a Kia, while another buys a Jaguar and the third buys a BMW while the fourth buys a Hummer. In Europe where Apple fights on the full price (markets without subsidies), two models is certainly not enough to gain anything like 2.5% of the musicphone market.

But if the country has subsidies, that is no guarantee that Apple will succeed. Then the market is TOTALLY in the hands of the mobile operator (carrier). It is relatively easy for Apple to convince one carrier in America to carry its sexy new world innovation product, the iPhone, especially if that carrier can be the world launch customer. But if you have to go to every tinpot little European country, and haggle with every little one million customer operator about a substantial subsidy for the iPhone - without an exclusive deal - then it is a huge headache indeed.

This means real, long-term customer-service and relationship management with the carriers. Yes, one hundred of them in Europe, another 100 of them in Asia. Does Apple have an army of account managers to manage all of these? Do they have the distribution systems in place with DHL to ship the phones as these customers will then demand to fit their given launches, replacements, upgrade plans etc. Where can I have my Orange logo. Where can I have my Vodafone Live button, etc etc etc.

Europe will be a HUGE mess for Apple, any which way you slice it. Some of the operators will rush to want to launch the iPhone. Others will feel they hurt because their rival got the phone, and will not be eager to push it. In some markets it may work out fine, that one of the giants is the eager one, but in more markets it is probably the hungry smaller players, who are always looking for the chance to make headway against the incumbents. Then you get the promises of smaller players and easy disappointments with their bigger rivals.

In Europe by the fourth quarter, for a high-end smartphone which specializes on data downloads (songs, video and internet content) - the lack of 3G will be a very serious flaw. Already now in Italy, Austria, Portugal, the UK etc some 10% of all customers have migrated to 3G; that will be about 20% by year-end. This phone will be almost obsolete in Europe by then. But also, since Apple has a clear delay between the American launch and the European launch, they may be planning a 3G variant for Europe. That would be most prudent. It does considerably raise the cost and complexity of the device, though. But European smartphone buyers are quite accommodating with high-end phones if they fall in love with them and are willing to pay a lot for a good multipurpose device. But at least all of Europe is GSM.

Asia is another story again. Like Europe, Asia is not one market but a total hodgepodge again of a couple of dozen countries and a hunded operators (carriers). People in China buy 6 million phones every month, in India they buy seven. While Indonesia is a poor country, one of its bestselling phones is the Nokia Communicator, a 1000 dollar smartphone, the most expensive in the Nokia line. The wealthy like to show off that they are wealthy, and a phone is the way to do it in Asia. In South Korea the replacement cycle is down to 6 months so you can always show off the latest phone.

In Asia there are a couple of large markets that will be closed to the iPhone. China's second operator China Unicom is one of the world's largest CDMA operators. India's Reliance and Tata are also CDMA operators. South Korea and Japan have no GSM at all. There are CDMA operators in about half of the Asia-Pacific countries including Indonesia, Taiwan, Australia, New Zealand, and Thailand. Still, the vast majority of Asian subscribers are on GSM networks.

But in Asia the fashion-side of the phone handset market is even more pronounced than in Europe. Thus the variety is even more critical (two models of identical appearance and differing only in storage ability, means one model for fashion-purposes). The phone can very easily find a strong appeal in being cool and desirable. But these customers are totally spoiled for choice already, and most have developed their own preferences. Here the camera resolution of only 2 megapixels is a huge drawback. Remember that Samsung has already released a 10 megapixel cameraphone, the B600 last October, which of course first went on sale in South Korea.

If there was one smartphone market segment in Asia, the iPhone would have a chance in it. But smartphones in Asia break into very well established groupings from the business phone (eg Communicator), the musicphone (Walkman), the cameraphone (Samsung), the digital TV phone (eg LG), the videocam phone (Nokia N-93) etc etc etc. Each of these has of course an MP3 player, camera, video player and internet access, so for the feature set of the iPhone, there are very many variants better at one angle, matching on others. Remember the Ford Escort world car. One model is totally not enough for Asia.

3G will not be a big factor in many countries where 3G has not launched (like China, India). But in Japan and South Korea (both are countries where more than half of all subscribers have already migrated to 3G), it is a death-nail to the proposition. If a phone is not 3G in Japan or South Korea, it is a "cheap phone" for young kids or grandparents or the poor people. Nobody in their right mind would buy one

But Apple has until 2008 to fit 3G into the iPhone, so for South Korea and Japan, this can be fixed by then. Besides, neither country has any GSM, so true 3G (not EDGE) ie WCDMA, is absolutely a must to get into these markets (or a CDMA variant of the phone)

In Asia there will be the same issues with the mobile operators (carriers) as in Europe. Some markets allow subsidies, others don't. Each market has multiple operators, each of the operators will need testing and verification with the network, and then often prolonged and difficult negotiations to get the operators to market and sell the phones (in markets with subsidies) or get into the local distribution systems in markets that don't allow subsidies.

THIS MARKET MOVES FAST

So yes, Apple can capture 4.7 million customers in America, as long as it targets the wider musicphone market, not only the smartphone market. In Europe it can gain its 3 million sales, but it will be costly requiring new sales and marketing efforts, at scales Apple is not used to (and perhaps not staffed to). Europe will need at least a 3G variant. For Asia it can gain its 2.3 million units, but for Asia Apple will have to expand the portofolio with several true variants of the phone, variants which are also visually different (including clamshell).

So then there is the problem of market response. The development of a completely new phone takes about 18 months, but if you can fit it into an ongoing "platform" and modify an existing product, new devices on a given family can be introduced in 9 months. Before Apple launches in Europe, at least a couple of the majors will have released an iPhone clone. Remember there are 1500 phone models out there, by over 20 manufacturers. The iPhone clone will not have Apple's intuitive interface or the iPod functionality. But it will have a better camera, 3G and a memory card slot. And if by any of the top five (Nokia, Motorola, Samsung, SonyEricsson, LG) - it will have an established brand and loyal customers who prefer the way that phone works. None of us like learning the user interface of a new brand of phone.

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.

I've said before, this is a cut-throat market. Very big players with deep pockets and masses of custom customer-research JUST on how phones are used - like Nokia, Motorola, Ericsson - make massive mistakes from time to time, not catching market nuances and trends. This while they release several new phone models every month.

APPLE IS VERY POWERFUL

But Apple has a couple of things going for it, that are truly the envy of the telecoms industry. Apple has fiercely loyal customers who often become evangelists for the brand. Mac users tend to be iPod users, and iPod users tend to become Mac users. I am sure the iPod user base will predominantly expect to upgrade their next cellphone to an iPhone. This will help especially in America.

And Apple is brilliant at marketing. BRILLIANT. I can say when I was still working for Nokia's marketing, we envied Apple. This at the time when all in telecoms envied Nokia as the smartest company in marketing among those in the telecoms industry. Apple is years ahead of the telecoms handset makers and this game is ever more one won on marketing, not technology. Apple comes in with enormous potential.

And most of all, I am convinced that as we move from a voice phone to a multipurpose pocket device built around the phone, the user interface needs to "grow up" past what was the simple numeric keypad idea that is a hundred years old, from the dawn of telephones. We DO need innovation in the user interface. Whether the "magic bullet" is this Multitouch screen now on the iPhone or some other ideas, here Apple reigns supreme.

Remember Windows was Microsoft's Macintosh envy. All of our use of hypertext, screen icons, clicking with our mouse, and print matching what is on the screen - were pioneered by Apple (with the Mac). And the same with all of their major launches. Certainly all love the user interface on the iPod, and the standard line in any review of any MP3 player is that its user interface is not as good as the iPod. This is Apple's core competence. And as we add new functionalities to our phones - from messaging and web browsing and cameras, calendars, MP3 players of today; to TVs, credit cards, keys, barcode scanners etc of the future; the user interface will be ever more vital. Apple totally rules in this area. Even if the first iteration of the iPhone were not perfect (and it may well be) - trust Apple to push this envelope harder and further than we've ever seen by the Nokias and Symbians and Blackberries of the world so far.

But Apple is not infallible. Sometimes its first step is not enough - remember the Lisa, the predecessor of the Macintosh PC? A great computer at the time, and revolutionary in some ways, but did not take the market by storm. Only the Mac did. Same for the Newton, a great and innovative early PDA but its timing was off and other PDA makers took over what Apple pioneered.

SMOKE AND MIRRORS

Apple is also blessed in being based in America, with the IT industry press loving them. While some "deep experts" in the telecoms industry understand the real imporance of SMS text messaging, Apple is not troubled with that. Most IT -oriented technology writers in America - the best-read tech press and business periodicals - will fall for the glitz of the big screen and the American fascination with touch-screens (must be all that Star Trek Next Generation). The rest of the world is addicted to SMS text messaging and appreciate keypads for secret and urgent messages.

Apple can do a lot with its brand, PR machine and reputation. If Apple promises this is the next leap in cellphones, they have the benefit of the doubt, for a long time, from their own backyard, the IT and business press in America. As America lags in the mobile phone market and innovation, American analysts are really not competent to accurately measure how innovative the iPhone is. Obviously Nokia, Samsung, SonyEricsson etc don't bother releasing their top phones first into the American market, and American carriers are still years behind those in Europe and Asia.

So Apple also has a strange "boost" out of being in a market that doesn't really understand their product. Expect the most glowing reviews and opinions from the American press; and the most critical reviews and opinions from the Northern Asian and Northern European press. This regardless of how good or bad the iPhone ends up being when it ships (and obviously I am now assuming it ships on time, ha-ha, wouldn't be the first time a revolutionary product slips in its launch, also with Apple's history ha-ha)

CAN THEY DO IT

I would say 10 million iPhones - with prices in the 499 and 599 dollar range, and with only a GSM model and launching with only Cingular in America first - this is a tall order, but it can be done. I would suggest history will find that this is a much bigger drain on Apple's marketing and sales support resources than they can have imagined, but the writing is honestly on the wall. The reign of the iPod came to an end last year, and this is in reality a "defensive move" by Apple to remain relevant in the MP3 player market. They have to do it. In reality they should have done it a year ago.

With the launch and aim of 10 million sales comes a certain corporate-wide commitment by Apple to make it happen

I would say they will do it. But it will come at a serious cost to profitability. Note that this expands Apple's portfolio and helps a PC maker move into the mobile internet - the future, so this is also a clever move by Macintosh, to gain a foothold into the mobile computer market of the next decade.

Good move by Apple. A lot of worries by major handset makers. An exciting time for the industry. But I want to see a family of iPhones before the end of the year. One (with 2 storage options) is not enough beyond America.

UPDATE - there are two other relevant postings about the iPhone. First, I wrote an Open Letter to Apple urging them to consider SMS Text Messaging abilities. It is the only killer application for mobile (not wireless e-mail such as Blackberry). Read my posting here

http://communities-dominate.blogs.com/brands/2007/01/open_letter_to_.html

I also report on a surprising development, Engadget discovered that one of the LG Chocolate phone's variants - in fact an industrial design award winner, preceeds the iPhone with almost identical form factor, touch screen and all. Read my posting and follow the link to see the pictures side-by-side at:

http://communities-dominate.blogs.com/brands/2007/01/creepy_iphone_i.html

Finally - many of our visitors seem to come from the IT side of technology, who maybe do not know the mobile telecoms industry very intimately. For those visitors, you might be quite surprised in the immense scale of the 750 billlion dollar mobile telecoms industry worldwide, with 2.7 billion cellphone subscriptions worldwide, with contrasts to the other major technologies and industries of our lives, such as automobiles, credit cards, TV, computers and the internet. Read the posting at:

http://communities-dominate.blogs.com/brands/2007/01/putting_27_bill.html

RELATED - At our blogsite we've tracked the rapid shift of consumer tastes away from stand-alone MP3 players like the iPod onto the converged device of the musicphone. Now that Apple has released its final numbers for the Christmas Quarter of 2006, we can calculate the final market share of iPod vs musicphones, with iPod now down to 12.9% and musicphones outselling iPods at a ratio of almost 7 to 1 in 2006 (and the gap is moving further in favour of musicphones). The article is long and full of facts and sources, but may be of interest to those thinking of the iPhone. It is here: Requiem for a Heavyweight: Reign of the iPod is Over

Comments

[GoodApple]

Tomi,

Thank you for very interesting, thoughtful, and in many parts fascinating comments about iPhone and mobile market in general!

I have to agree that it would be very difficult for Apple to compete in this cut-throat market where new models of mobile phones packed with all possible and impossible features introduced almost daily. But is Apple trying to? I suspect that it's not exactly the case.

In other words, iPhone is not going head-to-head with the "best of breed", iPhone IS the new breed. Rather then competing in the "featureset dimension" (even though iPhone offers a pretty impressive set of features) Apple is making inroads into a mobile phone "killer UI". “Bad UI” is probably the biggest factor, which stands in the way of mobile phone makers not selling many more phones then they have already sold.

There could be several reasons people would want to buy iPhone. Personally, if I would buy one in the future, the "killer UI" would be the ONLY reason, with all features being more or less similar to competitors (give or take few megapixels ;-).

I would venture to say that for many users of an “average hi-end mobile phone” the ability to interact with an increasingly complex set of features using much more fluid, intuitive and easy to navigate interface would probably worth more then all the features iPhone is still missing at this point.

[Tomi T Ahonen]

Hi GoodApple

Yes, I very much agree. Its a bit like a Porsche vs a Mercedes S Class. The S-Class is overloaded with every possible luxury. But if you really enjoy driving, you'll sacrifice on some of the silly and some of even the practical (2-seater vs sedan) but what you get is fantastic driving experience.

I am very sure, for its intended functions (lets ignore SMS text messaging) the way Apple imagines cellphone users use their phones - or Apple imagines that usage will evolve - this is BY FAR The best phone. You could not expect anything less from Apple after the massive jumps to the industry they made with the Lisa, the Mac, the Newton, the iPod and iTunes, etc. Of course it will be the best.

But the caveat - Apple is looking at cellphones - and smartphones - with a distinctly American and IT-focused view. It may do very well in America where smartphones are mostly of the RIM/Blackberry, Palm, Treo etc variety. Those are a puny tiny negligable periphery of the much larger smartphone market in Europe and Asia - where top end phones cost more and users replace those very expensive phones more frequently.

It may well be - I honestly don't know - that Apple is very well aware of the European and Asian preferences and has already taken this well into account in its planning. After all they sell already in those markets and the iPhone subcontracting is in Asia. If so, then the next releases, the European model(s) for the fourth quarter and the Asian models for the Spring 2008 will be significantly more advanced than this first USA model, starting with 3G obviously, which adds a lot to the cost, size, weight, battery drain etc to the phone.

My worry is that Apple hasn't done its homework well enough - or perhaps, it has been guided by myopic experts from North America who still think the Blackberry will convert the world. I wonder if Apple knows that Nokia's Communicator - the first phone ever in that price range of the proposed iPhone and twice that of the Blackberries - has sold more every year since 2001 than all Blackberries ever sold? It has a massive following in the corporate world outside of America, and it is radically different in form factor from the PDA-family business-oriented smartphones popular in America.

And then there is the N-Series. I do think when people put them side to side at a Cingular store next June, and they see that for just about the same money they could get an N-95 with its 5 megapixel camera and flash, and its optical zoom (and Carl Zeiss quality lens), its DVD quality video recording and playback on your TV, plus 3G plus speakerphone plus full WiFi plus memory card slot plus interchangeable battery, if you are already a Nokia user and therefore know its menu structure etc, this will be a rough sale for iPhone, even if you want the cool device. It gives up so much in this price range. Or if you're into SonyEricsson then the choice is really the top-of-the-line Walkman phone, the W950i. An awesome phone again packed with tons of features and ability.

No, not all will go for it, of course many who love Apple would have it no other way. And many will want to have it for its appeal and image. Others will want to try it because of frustration with all current phones. But many of these existing phones have strong loyalty. Try to get a Nokia user to borrow a friend's non-Nokia phone and see how hostile they become...

But yes, I agree with you, what Apple hopes to do with the iPhone is what it did with the Mac, at once making all DOS-based IBM-compatible computers obsolete, and forcing Microsoft to copy the Mac operating system and release Windows. Or what Apple did with the iPod, making the Walkman (remember Sony was pushing the minidisk at the time) obsolete. Now Walkmans are SonyEricsson musicphones that mimick the iPod... Yes, they want to move the goalposts and make the iPhone the prototypical next generation phone. They may well accomplish it.

If they ensure that the iPhone is one of the world's best SMS texting phones, and that its texting can be done single-handed and blind, then really they may have cracked this problem. The rest will fall into place, knowing Apple. But if they haven't - ha-ha - being Apple and obsessing with the UI and wanting to conquer the world, I am pretty sure the iPhone version 2 will be an SMS texting masterphone. Too many of their returned phones in Europe and Asia will scream that message loud and clear and Apple will listen...

My two cents very late in the night, or actually its already morning here in Hong Kong

Thanks for writing GoodApple

Tomi Ahonen :-)

[Wolf Fernlund]

First of all - A very good article.

However, I have some points that I think should be added:

Steve Jobs was talking about taking 1% of the total global market in 2008 which he equalled to 10M units. He definitely didn´t mean just the introduced models (4GB + 8GB) but the whole iPhone family (including not yet introduced models). So in order to analyze this prediction we also have to speculate on future models and product extensions.

One fundamental difference with the iPhone (and iPod) is that the concept is PC-centric. I e you MUST have a PC (or Mac) to use the product. This is different from nearly every other (smart)-phone on the market. There are some drawbacks with this but there are also a lot of advantages:
- As soon as you put your iPhone in the charger (and the computer is nearby) you could get sync, software updates, backup of your data etc. This means that you really don´t need separate memory cards because everything is handled by the PC application (iTunes). The only problematic situation would be if you fill up your memory while travelling...but you could of course then delete some already backedup photos, music...
The update function is extremely important for iPhone. No other vendor has this system in place (although some vendors have tests going on with specific models, like Sony Ericsson). Today when you go to the service center with a faulty phone, the first thing they do is to upgrade to the latest software version. In a lot of instances it solves the problem! Allmost all smartphones have been riddled with software problems in the beginning of the life cycle. iPhone will eliminate of lot of these costs and problems for the customer (and reseller and manufacturer).
Of course Apple can also get increased revenue if they can offer extended functionality in a (for the customer) easy way (iTunes One-Click).
If battery capacity increases in the future (you don´t need to charge the phone as often) it is fairly easy to use wifi for the same functionality.

As one can se from Jobs demo you can assume that the iPhone has by far the most capacity (both CPU-power, screen and graphics) of all comparable devices. Combine this with the easy software upgrade mechanism already in place and the result will be very interesting developments. Among other apps we could (should?) see:
- GPS (either built in depending on the hardware) or via Bluetooth GPS-reciever (already today there are units similar in size to two lumps of sugar...), why not built-in in the headset? - I haven´t seen this yet...
- IP-telephony, both via cellular and wifi (Skype, SIP etc).
- Much more advanced camera functionality.
- Video recording.
- All kinds of more corporate centric mail and sync features
- Games! The demos so far indicate capacity on par or exceeding the Sony PSP.

A special application area is (as you Tomi have stated elsewhere) is SMS. So how easy can SMS (or any text input) be with the iPhone touch keyboard? First of all, you have to watch the screen all the time. It is unclear how many users with a "normal" keyboard don´t watch the screen on their phone...so it´s hard to judge if this is a big negative factor... The power in the iPhone gives some good advantages though, we have to see how much Apple will implement. First of all you can use the whole screen for typing (even widescreen mode), this decreases the need for typing precision. You can also use some predictive types of typing help that continually guesses what word you want to write depending on context. Conventional T9 is not needed because you only have one character per key. One-hand operation is not (at least theoretically) excluded. iPhone has probably the potential to provide very good typing capabilities, we have to see how this works in reality. Typing with a conventional phone numeric keyboard requires quite a lot of training to bring up the speed. Number dialing seldom requires typing as the iPhone in most cases will present the number on screen already (phonebook, received call, sent call, external directory, included in mail etc). To conclude I think that the iPhone UI in total makes it easier to type text and there will of course be anysize Bluetooth keyboards for the hardcore typists.

So far I haven´t seen any info regarding what radio-chips Apple is using but they will probably be able to get the must current designs. (Even though the volumes are relatively low in the beginning it´s a golden opportunity for a chipmaker to introduce new designs). Also remember that Apple is extremely cash rich with a big war chest they can (and will) use to secure deliveries of strategic components. (In the past they did it with flash memory and LCD-panels among other things.) A deal like this could include new memory chips, batteries, GPS-chips, hard disks, radio-chips (e.g. 3G/GSM with low energy consumption), high def small LCDs or OLEDs, etc. This could in some instances lock out the competition. Several of these parts could also be used in future iPods which would increase the volume (attraction) for the supplier even more.

So what kind of product portfolio hardware extensions can we expect? Steve has already helped us with this since the iPhone at the MW keynote was positioned as a iPod/Phone/internet device. So what permutations of these three will there be:
1. *iPod/Phone/internet device* A hybrid 3G/GSM as already announced by Steve.
2. *iPod/internet device* The second one is easy. Throw out the GSM parts, leave everything else and you have a new highend iPod that can be introduced worldwide instantly (no lengthy phone certifications).This new iPod would have som very interesting new features compared to the existing iPods:
- A supreme gaming platform
- Wifi handset to use at home (or att wifi-hotspots)
- GPS navigator with external Bluetooth GPS-dongle
- Email, WWW via Wifi
- A screen with bigger size and higher definition
- Still and video camera
- etc etc
All together a very interesting concept for the new highend iPod.
Of course, without the GSM chips it would be easier to fit a (today up to 100GB) hard drive.
3. *iPod/Phone/internet device* iPhones with more flash memory (16 and 32 GB). Apple is in a dominant position already as the most influential flash RAM buyer in the world...
4. *iPod/Phone/internet device* An iPhone with a hard drive (up to 160 GB within a year) instead of flash.
5. *iPod/Phone*A smaller formfactor iPhone without web, mail and wifi but with the same UI on a 2.5 inch screen. The price could be half of the current model...
6. Accessories: A Bluetooth QWERTY keyboard, a Bluetooth GPS receiver, a combined GPS/headset, etc

One of the largest dilemmas the existing handset industry has today is the following: Hardware features are getting cheaper and cheaper to put in the phones BUT the complexity of usage increases to an extent that people don´t use them. (Personally I have had radio, mp3 playback and videorecording features om my last 4-5 phones but I have NEVER used these features - the usage threshold is just to steep...) The current industry doesn´t seem to be able to solve this in an effective way.

This is also why I think the industry statistics is flawed. Nokia is NOT the biggest seller of mp3 players in the world. Most of their customer didn´t buy the mp3-function (ie were willing to pay extra for it) and most of them don´t use it. In contrast, almost 100% of iPod-owner did buy and are using the mp3-function. To same extent this is also true with camera and video functions. It is a big difference what you have and what you use in your phone - with the current products.

The iPhone UI will solve this dilemma by providing extremely low threshold to use new features.The feature usage ratio on iPhone will be much higher because of the lower usage threshold. Hence a much higher perceived value on iPhone...

Apple has one strength and that is to show customers things they didn´t know they wanted. Very few people in the world expressed their need to have ALL their music in their pocket before the iPod. Today a lot of people think it´s very important...In the same way the iPhone will introduce features and applications that the market didn´t demand before but later will seem selfevident.

To summarize: I am very confident that Apple will sell more than 10M units during 2008.

[GoodApple]

It looks like one of the biggest (perceived) iPhone drawbacks - questionable usability of a touch-screen keyboard for SMS - could be overcome by using a technology from Immersion Corp. Interestingly, the first mobile phone maker to incorporate this technology is Samsung with its newest SCH-W559 phone (for Chinese market):
http://downloadcenter.samsung.com/content/UM/200611/20061129135410234_SCH-W559_UG_SC_Final_061129.pdf

Also, very interesting is the comment by Stuart Robinson from Strategy Analytics:

"We believe that market conditions are almost ripe for an explosion in touchscreen phones, and that by 2012 as many as 40% of mobile phones could be using some form of touch sensitive technology," said Stuart Robinson, director of the Handset Component Technologies service at global research and consulting firm Strategy Analytics. "The integration of any technology that improves ease of use will be important for market adoption, and Immersion's VibeTonz technology certainly fits that description."

If such a rate of touch-screens adoption in mobile phones (40% by 2012) would be proven correct, Apple is indeed years ahead of the competition!

============================================
Below is the PR by Immersion:
http://biz.yahoo.com/bw/070117/20070117005098.html?.v=1

Wednesday January 17, 8:30 am ET

SAN JOSE, Calif. (BUSINESS WIRE)--Immersion Corporation, a leading developer and licensor of touch feedback technology, announced today the new Samsung SCH-W559, the first touchscreen-based mobile phone in the world to use Immersion's VibeTonz® System to provide tactile feedback (http://www.immersion.com/industrial/touchscreen/) for touchscreen interactions.

The SCH-W559 uses a large 260,000-color QVGA LCD touchscreen display to replace the traditional mechanical keypad as the primary input mechanism. Users receive confirming tactile cues when they press graphical onscreen controls, and they can customize the response by selecting one of five feedback profiles for these cues.

Immersion's VibeTonz System allows touchscreen-displayed buttons to feel more like mechanical keys. VibeTonz tactile feedback can also help improve usability in situations where controls are obscured by fingers or washed out by glare.

"We believe that market conditions are almost ripe for an explosion in touchscreen phones, and that by 2012 as many as 40% of mobile phones could be using some form of touch sensitive technology," said Stuart Robinson, director of the Handset Component Technologies service at global research and consulting firm Strategy Analytics. "The integration of any technology that improves ease of use will be important for market adoption, and Immersion's VibeTonz technology certainly fits that description."

The new phone is being sold by China Unicom, the third largest mobile operator in the world with 135 million subscribers. Designed to roam globally by working on both CDMA and GSM networks, the SCH-W559 includes handwriting recognition, Bluetooth technology, 1.3 megapixel camera, and audio and video playback functions. VibeTonz capabilities in the phone also provide full-fidelity vibration tracks synchronized with eight preloaded ringtones. Vibe-enhanced ringtones enable personalization and add an element of fun to phone use and can help identify callers in noisy environments.

"Implementing keypad functions in a touchscreen has allowed Samsung to give its customers a first-class multimedia and messaging experience in a remarkably light and slim handset," said Hunbae Kim, Samsung vice president. "As the first to integrate VibeTonz technology for touchscreens, we're giving users the reassuring sense of interacting with a real keypad, supplying gentle touch feedback that unmistakably confirms each of their actions. As far as advanced mobile interfaces go, it offers the best of both worlds."

"Our VibeTonz System can provide mobile device manufacturers with an inexpensive enhancement to touchscreen operation," explains Immersion CEO Vic Viegas. "It also provides a platform for a wide range of additional features that can add fun, engagement, and improved usability to mobile devices."

Since the first VibeTonz-enhanced phone was introduced in April 2005, VibeTonz applications for mobile devices have multiplied. VibeTonz tactile feedback for mobile device touchscreens, announced in June 2006, is only the latest application. Mobile games are more fun and exciting with touch feedback similar to that found in console games. Tactile cues for user interface features, like call dropped, key press, and ringing and busy signals can make phone operation easier and more intuitive. VibeTonz effects accompanying ringtones or music are like turning up the subwoofers. And VibeTonz alerts that can vary from a reverberating gong effect to a subtle tapping can be more discernible and memorable. An enabling platform, the VibeTonz System opens possibilities for a fuller, more multisensory user experience -- for example, for a loved one's message to arrive feeling like a beating heart or for a movie trailer to draw you into the exciting motorcycle chase by letting you feel engine acceleration.

About the VibeTonz System (www.vibetonz.com)

The field-proven VibeTonz System, comprised of VibeTonz Mobile Player and VibeTonz SDK, delivers a broad range of touch feedback effects to make user interface features, applications, and downloadable, multimedia content more intuitive and engaging. Embedded in mobile devices, VibeTonz Mobile Player exerts precise, high-speed control over the vibration actuator to produce tactile effects with unprecedented subtlety and dynamics. VibeTonz SDK provides cross-platform APIs and a suite of authoring tools for making development and customization of touch feedback effects fast and easy.

[Tomi T Ahonen]

Hi Wolf and GoodApple

Thanks for visiting and posting your comments.

Wolf - good insightful analysis, thank you. I am pretty sure Apple is aiming to include a range of iPhones before the first year is up and they are almost certainly tied into the scheduling for European and Asian launches. I agree with you on those points. We'll see what forms they take.

The issue of adding GPS and 3G and upgrading several items as you mention, push this phone MASSIVELY up the price range not to mention adding weight and size, and draining battery endurance. Or then requiring even bigger battery which again adds weight and size. Soon the phone is as bulky as the Nokia N-80 ha-ha...

Apple has a serious drawback in achieving the cost savings to the iPhone in that its total production run is puny compared to the big five. Thus the component costs - and the enormous amount of programming required for the software side of each smartphone - where phones five years ago were 80% hardware and 20% software, modern phones are exactly the opposite, 80% software and 20% hardware - so for a run of 10 million phones per year they get much less cost-savings on the various components (radio, camera, battery, CPU, etc) than someone like Nokia which sold over 300 million phones last year of which 140 million were cameraphones and 70 million were musicphones.

Not that Apple can't do it, but rather that with such a small production run, the marginal cost of adding new components is considerably more expensive than for one of the big five to add the same ability. All small suppliers suffer with this. It is simply the nature of the global scale of this incredibly rapidly changing industry.

On the iPod (vs Nokia musicphones) argument, you probably strongly believe what you wrote to be true, but just the very last few months have brought about several surveys of consumer behaviour which prove your assumption to be misplaced (or more likely perhaps, out of date). I'll discuss it in a moment when Apple releases its iPod numbers. But yes, all survey data now prove that the majority of musicphone owners do use them to listen to music, and the total worldwide installed base of musicphones that are used to listen to music, exceeds the total installed base of iPods by more than 4 to 1. No, it really is true that musicphones - most of them, obviously not all - are used to consume music. But that is not really part of this discussion, and if you do feel compelled to argue it after you've read my iPod posting, please join me there in comments and we can continue the discusion there.

GoodApple - Very interesting view, and you may be right. But note that touch screens and stylus screen PDAs and cellphones have existed for years. They are the darling of the American IT press (and like I have joked about it, perhaps reflect the influence of Star Trek Next Generation) but in real use, in mass market phones - which outsell PDAs more than 100 to 1 - they have so far never managed to capture the affections of the end-user.

That being said, if ANYONE can make it happen, I'd say that is Apple. In some ways the iPhone is a grandson of the Newton, perhaps more than a son of the iPod. And the Newton was definitely ahead of its time.

We'll see...

Thanks for writing.

Tomi Ahonen :-)

[Håkan]

Moi Tomi!

Like most I'm fairly impressed by the iPhone. Still a lot of questions remain about battery-life, third-party software support (a dealbreaker for many if none would be allowed), reception, how well the touchscreen will work and price once it hits the Old World. And while Jobs on stage can claim the most preposterous things, in IRL the iPhone is far from the most advanced phone out there and many of its potential customers will notice so.

To be honest - I believe the iPhone will sell badly. When the iPod was released in 2001 it more or less lacked competition. The main competition, the Nomad, weighted almost three times as much. And the flash-based competition was only in the 32-128 MB range. So a pocketable DAP with a 5 GB drive hit a close to perfect spot. And no brand-loyalty had been developed so snagging customers was easy.

The situation for the iPhone is very different as it will come to a market already dominated by large players with a huge and quickly evolving lineup. But what else is important to notice is brand loyality. Nokia, SE, LG, Motorola, Samsung etc already have their customers, will Apple be able to convince them to drop their $200 handset for a $900 handset (with cost of plan included)? I don't think so.

So - why did Apple release such a bloody expensive phone? They could easily have put out a copy of a W800i or similar phone and priced it at less then half what they ask for the iPhone.

I would say they did it to make a splash. And a splash it has made. It has put Apple on the map as a phone manufacturer and Apple knows that the future of the DAP is spelled P-H-O-N-E.

Once this is done it will be much easier for them to sell a less expensive model. Much the same way the original iPod made way for the Nano and Shuffle, the two models making up for ~70 percent of all iPods sold. Well, that's my take on the iPhone.

Now, take my hand and let's travel back to year 2000 and the Ericsson R380. A phone which by the way failed because of its lack of third-party programs. Still - I believe it's a close to perfect design for smaller Smartphones. The normal keypad made it easy to use, and the flip-design allowed for a large screen. The screen was also protected during normal use by the keypad. http://www.geek.com/hwswrev/pda/ericr380/index.htm

[GoodApple]

More thoughts on UI…(I guess, having spent few years developing mobile phone software I’m more obsessed with UI rather then with how many iPhones Apple would sell in a year, he-he).

Most smartphones on the market implement conventional Windows-like interfaces where controls and options appear on-demand and usually after extensive digging through multi-level menus and key-presses. So, today’s “smart” phone/PDA is only as smart as a person using it. To a degree, this is right for any hi-tech device but the rigid and non-adaptive interfaces of many phones and PDAs (including touch-screen ones) leave users wanting something…And here comes iPhone.

Judging by the presentations (http://www.apple.com/iphone) iPhone has an adaptive, intuitive and “smart” UI in the sense that it’s always a step ahead of what user would possibly require in any particular situation. Another thing is that iPhone UI (again, from the presentation) is amazingly fluid, you have a feeling you are really surfing it, not dragging by it. Add some nice touches, such as multi-touch zoom, automatic portrait-to-landscape feature, proximity sensor, ultra-sleek shape (well, you can make your own paper version of iPhone to get a feel: http://www.sneakmove.com/2007/01/diy-cut-and-fold-paper-iphone.html), and you have a device people would want to own as a replacement phone, as a better iPod, as a second phone etc...

Though it may change in a few years from now, touch screen is probably the only way Apple could realize its "killer UI" paradigm on a mobile phone. Of course, nothing is perfect. We shall see in a year but it’s quite possible that by introducing this (most likely iconic) device and triggering the “me too” response from big five (especially if iPhone sales soar), Apple will radically transform the way users interact with a mobile phone in the nearest future, at least until some new and even more intuitive means of interaction emerge.

[GoodApple]

A few interesting iPhone tidbits...

1. It looks like the iPhone actual retail price is $499/$599 without subsidy, not $900-1000 Tomi was assuming.

http://www.edn.com/article/CA6408292.html
"Cingular is expected to sell the Apple iPhone at full price, without the kind of discount subsidy commonly seen in the mobile-phone business."

2. Given iPhone 50% margin we should see Apple dropping iPhone price agressively.

"iSuppli estimates the 4Gbyte version of the Apple iPhone will carry a $229.85 hardware BoM and manufacturing cost and a $245.83 total expense, yielding a 50.7 percent margin on each unit sold at the $499 retail price," said Andrew Rassweiler , teardown services manager and senior analyst for iSuppli. "Meanwhile, the 8GByte Apple iPhone will sport a $264.85 hardware cost and a $280.83 total expense, amounting to a 53.1 percent margin at the $599 retail price."

"With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, PhD, director and principal analyst with iSuppli.

3. Analylsts estimate that iPhone sales goals are reacheable.

"Shipments of music-enabled mobile phones will rise to 618.1 million units in 2007, up 39.9 percent from 441.7 million units in 2006, iSuppli predicts. By 2010, shipments of such phones will increase to 1 billion units, as presented in Figure 1. iSuppli defines music-enabled phones as those supporting music file formats, and not necessarily as those tailored specifically for music playback. Thus, this number is much larger than the total available market for music-oriented handsets like the Apple iPhone.Apple’s goal is to capture 1 percent of these unit sales, which seems attainable, according to Rebello."

Apple to sell 12 million iPhones in 2008 at reduced price
http://www.itwire.com.au/content/view/8720/53/

4. Here is some talk about iPhone UI. This is almost entirely corresponds to what I was trying to convey...

Apple Ushers in Era of the Fluid UI
http://gigaom.com/2007/01/18/apple-fluid-ui/

5. The iPhone-like device from LG.

http://mobilementalism.com/2007/01/17/videos-of-lg-ke850-prada-and-apple-iphone-compare-and-contrast/

Prada To Compete With Apple's iPhone

SEOUL, South Korea -- A new phone could be perfect for fashionistas who might find something from Apple too common.

South Korea's LG Electronics said it will have a new Prada-branded phone in stores overseas next month that uses a buttonless touch screen that resembles Apple's upcoming iPhone. Like the Apple product, you'll have to dig deep into your wallet to pay for it. LG's Prada phone is being produced in partnership with the Italian fashion brand. It's set to go on sale first in late February for about $780 in Britain, France, Germany and Italy, and in Asia in March. It resembles the Apple iPhone, with a no-button interface on a touch-sensitve screen that covers most of the face. The Apple product was launched this month to great fanfare, though it will not be available until June. It will cost $599 for a model with the same eight megabytes of internal memory as the LG.

[Tomi T Ahonen]

Hi Håkan and Good Apple

Thanks for the comments, and great to see you back Good Apple with so much more

Håkan - I am more and more starting to agree with your view as more info is coming out on what all the iPhone lacks. Jobs was quoted in the press saying that the OS X operating system is not the full OS X but one limited and adjusted for the phones. The OS people out there say this is a surefire recipe for early teething troubles with this, like we saw when Microsoft's Windows OS was ported to the phone. All the more so, as the iPhone project is illustrating a horrifying range of items of evidence that it is a rush job - ie most obviously not even owning the name and yet rushing to announce their first-ever phone 5 months before it even ships.

Other recent discoveries include that it does not support 3rd party applications and users cannot install their own apps, all must be Apple iPhone apps. And its WiFI is crippled (ie no VOIP, no Skype etc).

And you are right, when the Mac was launched the competition on the PC world was an industry that was immature, even IBM's effort was founded on the idea that you studied years at university to learn to operate computers. The Mac had a field day demolising that paradigm and making the PC so user-friendly, you did not have to go to school to operate an extremely complex machine. Brilliant.

The Newton came into a more-or-less virgin market of digital calendars and pocket calculators and pretty well inventing the modern PDA. No competition there.

And when Apple introduced the iPod, that market was dominated by global electronics giant Sony, but at that point Sony had its eyes elsewhere, having concluded there was no relevant money in the portable music business, giving lip service to its minidisk, and focusing on Playstation and PSP, as well as the prospects of its brand new partnership with Ericsson to the much larger phone market. Again the iPod faced no serious competition.

In the phone business you have the big five, and each has stated that the phone is central to their future. And on the periphery about 20 smaller phone makers which tend to push the envelope in innovation and design such as RIM's Blackberry, or in Japan for example NTT DoCoMo - the incumbent mobile phone operator (carrier) is the biggest phone designer and specifies what it then orders from the Sanyos, NECs, Sharps, Panasonics and Sonys who build the devices to NTT DoCoMo's specs.

And there is massive interest from the biggest players in several other industries including the PC industry (eg Microsoft), internet (Google), TV (BBC), music obviously all four global giants, videogaming (EA) etc etc etc. So this is not a dormant backwater industry with puny opponents, this is a very hot industry with very many global marketing brands already in it - think of Disney and its telecoms ventures, Virgin Mobile etc.

Finally there is intensity. The design for a phone takes about 18 months. The lifecycle for a phone is usually 6 months, often even shorter. You have to design into a moving target where essentially two generations of your competitors will shift the game before YOUR product finally hits the streets. That is why so often the major brands falter - and then again recover. Like Nokia missing out on clamshells, and now Motorola finding its Razr slipping out of fashion. What was cool last year, will suddenly also become "so last year". So yes, Apple will find this market much harder than any it has entered before, and the competition much harder.

But here is another vital lesson from Apple. THEY GET IT. They KNOW within their hearts that they have to lead in user ease and satisfaction. Apple won't survive (with its bloated American West Coast IT salary levels in industries typically run by thin margins) - UNLESS it achieves exceptional leadership in its user interface. That delivers the passionate Apple loyalty and it in turn translates into the higher margins (and ultimately higher prices) that Apple consistently charges vs its competitors.

I am certain, that no matter how "incomplete" the first edition of the iPhone may be, the next iteration of the iPhone will be MUCH better. And we should think of this more like the Lisa, not the Mac. The real revolution is in the next salvo from Apple. Watch out for that phone, after Apple has been in this game "for real" and actually talked with the operators in the significant 50 countries for its market.

Good Apple - very good points. I agree with you that the UI is the most important contribution that the iPhone will make and in the long run that is much more important than what exact level of sales the iPhone gets. I do think its pretty pointless to go deep into speculation what the UI can and can't do, before it is out there for us to try it out. I am giving Apple the benefit of the doubt, they have been brilliant at this before, no reason they can't be brilliant at it again. I've said many times the achilles's heel could be a bad SMS text messaging experience - which would doom the phone overseas and cut in half what it can sell in its first year, but even on that - I am certain it CAN be done on a touch screen phone, and the company that could do it best is Apple. That feature does not need to be "better than on the current crop" as long as it is not significantly worse. The other parts of the iPhone shine, so as long as they don't neglect SMS, this is a very compelling device.

I am - like essentially all of us in the phone industry - most interested to try one out and see for myself. Use it for a couple of weeks. Then we can make an honest evaluation of how intuitive and ground-breaking it really is.

For all its simplicity, there are some serious questions about a "buttonless phone" - ie camera function. The trend now in phones is not to remove buttons but to add them. Rather than the soft keys and varying the functionality of what exists, high end phones are adding buttons to the SIDE of the phone, to enhance user experience. This minimizes camera shake when snapping a picture, and provides a much more comfortable picture snapping experience (pressing the shutter on the "top" of the camera, when the phone is held on its side for camera use). My Nokia N-95 has five dedicated camera/video/zoom/flash buttons on its side. When you snap pictures, you don't want to be forced to look at a screen to find soft buttons.

Beyond camera use even more so now with digital TV tuners in South Korea, Italy, Finland etc. When you viewing digital TV (PVR functions like on your TiVo or Sky+ to pause live TV etc) - which is why the Nokia N-95 is a double-slider, one set of controls when you slide it one way (keypad), and another set of controls when you slide it the other way (TV).

All that being said, I am CERTAIN that of any touch screen interface, Apple's will be the one most user-friendly, with the best experience. But I am pretty sure they will have to "reintroduce" a couple of more buttons in subsequent iPhones ha-ha.. Time will tell.

On your second posting. Fascinating info on the subsidy, that Cingular's deal with the iPhone breaks the industry norm. Good news in some ways obviously, meaning the real street price is much less than I thought - but I've seen other analysis suggesting otherwise. We won't know for sure until we get the first phones on the market, SIM-free. The lower the real price of the iPhone, the better it will sell obviously. At 1000 dollars it goes against very powerful superphones (eg N-93) and fights for a tiny market. At 500 dollars (SIM-free) it sits in mainstream smartphones, where its feature set is competitive and nearly 10 times more devices are sold at those price points.

On the "analysts say it is reachable" ha-ha, yes we'll find lots of analysts saying lots of things about the iPhone - and I'm obviously one of them. iSupply is a legitimate outfit, but it is very IT-centric and America-centric. I'd be more interested in what the experts in the phone industry are saying - Informa/IDC, Gartner, Ovum, Yankee etc. If you look at the recent other major thought pieces by experts in telecoms, handicapping the iPhone's chances, they tend to fall into the view that for America this phone is a major threat, but in Europe and Asia it is only lukewarm.

Consider Japan. In my recent breakdown of the musicphone market, I found that 15% of the total musicphone users are in Japan. Japan is gadget-crazy and their consumers are very fashion-conscious so they will easily flock to what is the newest, brightest and best. Over 20% of Japanese already carry two phones like in Europe. Apple is a beloved brand in Japan as is the iPod.

You would think the iPhone is set for Japan (apart from there being no GSM in Japan so we need either a CDMA version or a WCDMA ie 3G version or both). But the future of mobile phones already exists in Japan. There was a story on TV on one of the news channels (I think CNN, could be CNBC or BBC) where they asked Japanese consumers what they thought of the iPhone. No dramatic excitement, nothing like in America.

But here is the killer. In Japan all three mobile operators (carriers) support Felica the mobile payment system. You can pay at over 75% of all points of purchase using Felica in Japan already. All subway train ticket points, vending machines (Japan is vending machine crazy), convenience stores, petrol stations, sushi bars and hamburger restaurants, hotels, airlines, everything. ALL take Felica. Any modern phone in Japan has Felica. Of course. It is that convenient, you couldn't imagine a phone without it.

Now going to the iPhone would be like stepping into the stone ages, like someone offered a cellphone which only worked with a wired connection to the wall...

So you think Felica is easy? Three problems. One, it is yet another radio unit that needs to go into the phone. Weight, size, cost, battery life etc penalties. Then there is the integration with the phone and the payment system. This is rather complex integration into the OS of the phone. Have a guess who controls this, NTT DoCoMo. So suddenly Apple has to yield control of parts of the OS to an operator (which also insists on end-to-end control). Oh, and yes, it means paying a license fee to DoCoMo for every Felica phone sold to operators on any network in Japan.

Yeah, Felica is an absolute deal-breaker for the 47 million in Japan who consume music on their phones today in considering the iPhone. Mind you - Apple will have to do this, like I said, Apple can't really imagine 10 million sales worldwide without including Japan.

Ha ha finally on the LG Prada. I did suggest in my original blog post that the LG Chocolate phone was particularly suited for launching an iPhone clone (in form factor obviously, not in user interface) and here we go. I thought they might get it out by June, but they are already launching next month... And the Chocolate is such a hot musicphone that in America it propelled LG to number two and is the best-selling musicphone with Carphone Warehouse, Europe's largest phone outlet, etc. So this is not like the clumsy Motorola Rokr, this is a seriously popular musicphone already. Toss in iPhone looks, and the mass market won't really "need to understand" why an iPhone user interface is so much better. LG has almost a year to win the hearts of European and Asians who like what the iPhone looks like...

And yes, it won't be the only clone iPhone..

But again, you are right, the big story is the advances in the UI, and how big that lead will be, will only be known for sure in June (assuming it ships on time. I am VERY concerned about all this urgency and lack of completeness to the marketing, not at all like Apple's usually slick marketing machine).

Thanks for writing

Tomi Ahonen :-)

[GoodApple]

Tomi,

Thanks for your very informative reply!

Sure, we should wait an see how iPhone would stand against competition in 8-10 months from now. I bet Jobs and the gang understand the mobile market well enough to do an appropriate adjustments to stay competitive, e.g. reducing price, let's say to $399/$499, and adding few "missing" features before the end of the year.

BTW, press already touting LG's Prada as the "look-a-like" and "touch-a-like" phone, which beat Apple to the market and I guess similar models from Nokia, Samsung and the rest not far away, so Apple should watch out!
http://www.vnu.co.uk/vnunet/news/2173037/lg-beats-apple-touch-screen

[GoodApple]

Interesting Business Week article

http://www.businessweek.com/innovate/content/jan2007/id20070112_349467.htm

The Real Genius of Apple's iPhone

Word is the newly announced phone from Steve Jobs will transcend superficial design and deliver user-friendly function and limitless adaptability

by Jessie Scanlon and Helen Walters

Apple's (AAPL) introduction of the iPhone on Tuesday (see BusinessWeek.com, 1/10/07, "The Future of Apple") underscores the lesson Motorola (MOT) learned with the Razr: A sleek, sexy design can create lots of buzz and drive sales, but without smart, usable interface design, consumers will end up angry and disinclined to buy your next "hot" mobile-phone offering.

Design has nominally been a priority of cell-phone makers for a while now, at least since Nokia took the No. 1 spot in the market, thanks, in part, to its focus on color and style. Samsung played the design card in its rise. Then came LG, with its "Chocolate." But design, as these companies have embraced it, is little more than styling. It is design in the service of product lust, rather than user experience.

In truth, the handset makers aren't entirely to blame for the poor customer experience so typical of the mobile-phone industry. Not only do the carriers control the buying experience (something Nokia is trying to change, see BusinessWeek.com, 6/28/06, "Nokia's Ritzy Flagship in Chicago"), the services, the network that determines the speed and kind of services that can be delivered, and the customer service, they also flex their muscle when it comes to the handset. By the time the handset makers and the carriers have fought out the fine points of a design that will work with the network, and the services that will drive revenue, the user's needs have long been forgotten.

Ready for a Friendly Phone
Now Apple must join with one of those very carriers, and its choice, Cingular, has already proven somewhat controversial with customers unimpressed with its existing service. And while Apple undoubtedly retains the upper hand, the partnership requires Apple Chief Executive Officer Steve Jobs to loosen his famously tight grip. Apple won't have the end-to-end control it has with the iPod, and when the iPhone goes on sale in June, consumers will still have to contend with the typical cell-phone experience: the unappealing store, the confusing plan options, the two-year contract, the less-than-stellar customer service.

But intuitive UI (user interface) and consumer-focused design is something that Apple does know all about—and seems to have retained control over. The navigation system of its iPod was both radical and defiantly simple—and it is with this same philosophy in mind that Apple has mounted its charge on the cell-phone industry. For some, it hasn't come a moment too soon.

"Finally we have what appears to be a cell phone designed for ordinary human beings, not just for children with incredibly thin fingers, brains of scientists, and better than 20-20 vision," says London-based designer Malcolm Garrett, creative director at the Applied Information Group. "Able to build on its proven strengths, Apple has taken the route of adding mobility and connectivity to an established and thoroughly considered operating system to give us a phone, Web browser, and media player that works well for each function."

Mac Operating System
"The clever, context-based navigational system cuts out irrelevant choices and provides the intelligent and gratifying user experience we have come to expect from Apple," agrees Jakob Trollbäck, creative director of New York-based design agency Trollbäck + Co. "By eliminating intermediary input devices such as keyboard or stylus, control has become tactile again. My Blackberry Pearl has 29 keys and you need to use complicated sequences involving modifier keys to do just about anything. Getting rid of them all in one swipe, the iPhone has an interface that is digital in every sense of the word."

Incorporating the existing Mac OS X operating system into the unit is a major step forward, one which Adaptive Path President and usability expert Jesse James Garrett reckons will provide a major headache for competitors. "Apple has been able to work backwards from its own OS, making adjustments to work on a smaller screen," he says. "This is not functionality that you can tack onto the existing phone operating systems out there. That has to be very troubling to the competition because it's going to take them years to develop similar technical sophistication. Mobile-phone Web browsers are uniformly awful." The iPhone, of course, uses Apple's own Safari browser.

Fluid Function
While for now, the functionality is not as extensive as some of the existing smart phones or MP3 players on the market—a reflection of Apple's preference for simplicity—it's clear that the device has the potential to be developed in many ways.

"Its perfectly ambiguous form can take on just about any personal-sized functionality," says Pentagram partner and interaction design specialist Lisa Strausfeld. "It's a truly chameleon device that, in theory, can become something new years after you purchase it. On a more pragmatic and even environmental note, one can now purchase a new phone, camera, PDA, MP3 player, or fill-in-your-personal-size-device-here through a simple software download."

There are a lot of neat touches that will also likely be influential. Sensors in the handset detect when the phone is in use, freezing the screen and preventing an overactive ear lobe from ending a call. Other sensors can alter the landscape of the screen, to make long-form reading less strenuous. In fact, many of the more revolutionary design aspects of the iPhone are—in hindsight—quite simple, provoking the much sought after 'Why didn't I think of that?' envy so often prompted by a genuinely good idea.

Sign Language
One of the biggest challenges the designers faced was how to provide a suitably sized usable keyboard—something every PDA or smartphone maker has struggled with. Apple bypassed the need for a button-based keyboard by providing virtual, on-screen QWERTY keys instead—and incorporated various tricks to enhance the typing experience, such as predictive spelling and what MIT Media Lab professor John Maeda describes as the "hover-expand" behavior of the keys.

"Each key can remain small and within an orderly grid at first glance; then, by hovering your finger, the on-screen key is made bigger so that you can see it better," he explains. "It's a fairly simple idea and probably not brand new, but definitely a step forward in the awkward task of typing on a tiny virtual keyboard."

"The multitouch interface is a breakthrough," adds Jesse James Garrett. "We've seen interfaces like this done as research projects, in academia, but this is the first time that someone has brought it to a consumer product. In [Jobs'] demo, the functionality they showed only scratches the surface of what could be possible."

Opening the Field
"Scratch" is the operative word here, and concerns have already been raised about the practicality and durability of the iPhone's large, unprotected screen (and how to keep it clean). Questions also remain unanswered about the compatibility of a phone (for which battery life is paramount) and a music player (which is often used for hours at a time). Putting the two together could significantly limit a device's lifetime.

"With so much technology packed in and with all its sensors and multitouch screen, there's a lot that could go wrong," says James Tindall, a British Web site and software developer and designer. "But it's clearly a radical step forward. For me, the iPhone is a Phone 2.0. Like Web 2.0, it just does everything it should do, in the simplest, clearest, most intuitive way possible."

One thing is for sure: The gauntlet truly has been thrown down. No doubt between now and June, when the iPhone is released, competing cell-phone, smartphone, and PDA makers will be scrambling to come up with devices that have the look, feel, and functionality of Apple's offering. Let's just hope that the hardware makers and carriers alike grasp the power of user-driven design and great customer experience. Like the music industry before it, the cell-phone industry needs a shakeup.

[GoodApple]

Here is the awesome article (IMHO) about iPhone...

"One thing the analysts do agree about is that, whether the iPhone is a media device, a regular phone, a smart phone or something else entirely, whether it will sell by the boatload and won’t sell at all, it’s very design will change the nature of devices we’ll use in the future."

http://news.yahoo.com/s/macworld/20070119/tc_macworld/iphonemediocre20070119

[GoodApple]

Here is the brilliant unbiased article about iPhone UI by Bruce Tognazzini, who worked at Apple for 14 years and was a founder of the Apple Human Interface Group.

The iPhone User Experience: A First Look
http://www.asktog.com/columns/070iPhoneFirstLook.html

Quotes:

"Who’s talking?
Bruce Tognazzini was hired at Apple by Steve Jobs and Jef Raskin in 1978, where he remained for 14 years, founding the Apple Human Interface Group. He has been a harsh critic of many of Apple’s later innovations, including the notorious round mouse (“farcical”) and the Macintosh Dock (see: Top 10 Reasons the Apple Dock Sucks). He is almost as stingy with his compliments as his partner, Don Norman. That makes this particular column, largely positive, most unusual."

"I have yet to get my hands on an iPhone—frustrating! (You can imagine Bill Gates’s frustration. He probably has a cadre of engineers ready to take it apart, put it back together with a couple of screws missing, and paint it brown.)"

"The industrial design is brilliant. Apple has created another piece of high-tech jewelry. Some fogies of advancing years have suggested the initial price point of $499 is too high. They fail to understand: The “cool” of owning this phone, particularly for the early adopters, is worth an easy $497, bringing the phone itself down to $2 even.

For those who might doubt such a high value of cool, consider the self-winding Rolex, which sports 1/10th the accuracy of a Timex at 1000 times the price. With Rolex, the technology is grossly inferior, and still people will pay thousands to own it. With the iPhone, the technology is clearly superior."

[Tomi T Ahonen]

Hi Good Apple

Nice articles, thanks. Do you want to come over to the Communities Dominate blog and post for us regularly, ha-ha...

Seriously, we really appreciate it. Very good hunting of relevant additional dimensions to the story.

Tomi :-)

[GoodApple]

Hi Tomi,

Thanks for your proposal. I'd love to but not sure if I have much time...

Here is an article, which echoes your comments about iPhone tough sell in Japan:

Sorry iPhone, Japan's Not Impressed
http://www.tranism.com/weblog/2007/01/sorry_iphone_ja.html

Cheers,
GoodApple.

P.S.
BTW, I spent a few years at Nokia as a Software Engineer, so we have something in common ;-).

[michael]

iPhone is cool

Get iPhone Converter
http://www.iphoneconverter.com/

[firstsuper speedway]

I've heard that iPhone has many disadvantages for a very high price

[Ryan]

Hi Tomi

Great article on the iPhone!

I'm an MBA student and I'm analysing the strategy of the iPhone and its sustainability. You mentioned that Apple's core competency was in its ability to develop user friendly interfaces. What then would you say is its competitive advantage, innovation?

I would greatly appreciate any assistance you could provide

[Eric Hadze]

Hi.

To all those living in America (without access to the advanced mobile networks in the rest of the world, and the super-advanced ones in Japan and S.Korea), it cannot be denied the iphone is COOL (I'd really love one, at least a 3G one), but it's definitely NOT technologically superior. Japan is testing 4G for the past two years. and iphone is barely trying to leave 2G.

Analogy: It would be like using firefox on a 14.4kbps dialup modem (iPhone) VS internet explorer on a multi-Mbit broadband connection (Nokia,Sony,Sharp). as good as firefox may be, i'd never get work done or go back to a dialup connection. it is way too inferior. Try using the Nokia, Sony or Samsung yourself. The interface may not be as good as the iPhone, but not bad either.

and apple did not pioneer mouse, icons, windows. these concepts were developed at xerox PARC (http://en.wikipedia.org/wiki/History_of_the_graphical_user_interface). later on some of the same guys from xerox were involved with the macintosh.

[Tomi T Ahonen]

Hi Goodapple, First Super Speedway, Ryan and Eric

Thanks for the comments.

Goodapple - thanks for the article and cheers :-)

firstsuper speedway - yes you could say that, but it also has some fantastic features. Its a bit like perhaps the introduction of sportscars when there were only family cars. Yes, in some ways much better, but in other ways a very serious compromise. Of the price, now that the price is at 400 USD, its near to its feature set in terms of rivals. And it would not really be fair to compare the iPhone at 400 dollars to say the Nokia N95 or Nokia E90 Communicator which are both well over 1,000 dollar phones. For that money you better get a ton of super tech..

Ryan - cool topic for study. About Apple's core competence and competitive advantage. Yes, innovation is there as well, but really, understanding customers and tailoring the product to be supremely well designed for them, that is really Apple's core competence and competitive advantage (in my view, well shared by many other experts, and you may quote me ha-ha..)

So its like say BMW among executive sedans or Porsche among sports cars, exceptionally well engineered to fit the driver's needs. Say an Audi is perhaps more engineered and technological, or a Mercedes (used to be) more luxurious, but for driving pleasure among executive sedans, BMW has rather consistently outperfomed its rivals. Similar comparisons could be made for Porsche and its nearest rivals etc..

Eric - good commments and I'd tend to agree with much of it. What we need to bear in mind - and the early iPhone sales figures in the USA seem to support this - is that for some people the cool factor is actually more important than strict performance.

Thank you all for writing

Tomi :-)

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