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« Walking ads with Donald Trumps Apprentice reality TV show | Main | Bi & Ai »

May 18, 2007

Comments

Al

I like the dream you have - it is a pity reality will soon be faced by both you and Apple.

The biggest problem they have is to get the consumer to use it - and love it so much that it creates a buzz similar to the iPod. Outside of America they are using the same tactic of selling with one operator - this will be a big barrier.

Next is the price - it will cost even when the operator subsidies the cost over 12 months.

Then there is the size - too large for most consumers - no matter how friendly it is.

Then there is the greasy screen which time and time again has been shown to be a complaint of people.

They may get around the screen grease and in 2 years time they may get around the operator lock-in, hopefully they will do as with the iPod and create a iPhone micro and nano to get around the size issues. Then the cost must be dealt with - phones are commodity now - not high price, if you want volume you need to drop the price - or offer something unique for the price - there is nothing that unique apart from the logo. Unfortunately a consumer in a shop will not understand how friendly it is to use - and most of them have now been trained to cope with the unfriendliness of Nokia and Motorola - so they will not "get" it straight away. By the time it picks up a consumer conciousness for friendly it will be copied and no longer unique.

It should try and go for the business market - compete with RIM and microsoft - there is money there - but also a need for email integration. They are going to be a consumer device in a market that is saturated and not valued.

All of these hurdles must be jumped before they can even expect it to become the remarkable achievement the iPod was.

There maybe a BI and AI but no more than there is a BB and AB (blackberry), BN and AN (Nokia) and BM and AM (Microsoft).

Mehnaz

I have reading a lot on the iPhone for some time now... Sramana Mitra has been written a series of articles on the iPhone and its impact on the laptop and mobile ecosystem. Read more about the iPhone and the Future by Sramana Mitra.
http://sramanamitra.com/articles/iphone-and-the-future-by-sramana-mitra

Tomi Ahonen

Hi Krzysztof, Al and Mehnaz

Thank you for stopping by and posting comments

Krzysztof - hi, thanks !!

Al - good comments and we probably agree to a good degree. I think you are commenting on this story, when you probably would enjoy much my January blog about Handicapping the chances for the iPhone worldwide. I discussed some of your specific points way back then. But I'll briefly comment also here:

On "the dream you have" and you Al think we share Apple's dream, please understand this Communities Dominate blogsite is not an Apple site. We focus on social networking, digital communities, engagement marketing and convergence. Apple is not a major leader in this space (we closely track companies like YouTube, MySpace, Flicrk, World of Warcraft, Habbo Hotel, Cyworld, Ohmy News, Second Life etc). So the dream we have here at this blog is for companies to learn to engage with communities. Apple is not one of the more established companies to do this well, we'd site such companies as MTV, the Guardian newspaper, Three/Hutchison operator and Nokia among equipment makers much more communities-oriented than Apple.

Please re-read the blog entry, we do not in any way "promote" or "hype" the success of the iPhone. We here at this site, recognize there is growing hype around the iPhone, and we examine its impacts to those industries we work closely with, such as media like music and gaming and TV, equipment makers in the converging area, internet and mobile players etc. So while Alan and I are Apple fans, we are not particularly "hoping" or "wishing" for the iPhone to succeed any more than we wish a SonyEricsson or Nokia or Motorola device to succeed or fail. If we like a product or what it brings, we'll celebrate that.

We have been very critical of Apple also in the past, if you search this site on the iPod you'll find hundreds of angered Apple fans accusing us of being heretics.

With all that, no, Al, we don't "share" a dream with Apple. No doubt Apple DOES "dream" or hope that the iPhone will be a hit product like the iPod rather than a failure like an equally impressive technology product, the Newton before the iPod.

So then you Al take a hit at various shortcomings of the iPhone. I think many you state are fair, some more relevant than others. Some you may have missed, which is why I urge you to read my January iPhone Handicapping posting.

Also it is most important at this point - when we are only weeks from launch, to point out that we won't really know until it launches, and the actual manufactured product is in the hands of first reviewers. When it was announced in January, that is a good time to look at the specs and early info, to put it in context, in particular to those who are not experts of the mobile space, to see how it stacks up against the competition. Now, months later and a few weeks to launch, its rather futile to compare a vaporware product to today's rivals until it actually launches and we actually see exactly what the iPhone is like.

But lets look at your points

Create buzz - this is already happening, long before the iPhone is launched and before Apple's own PR machine gets into gear. No doubt they have created an iconic item of design. The buzz will naturally extend through June. Your point that the buzz needs to be sustained is not relevant to our posting here, whether American major media houses, advertising agencies, IT companies and internet players will wake up to mobile as a new channel. So whether the buzz is sustained past the summer is pretty irrelevant to our posting here. I do expect it to continue, time will tell.

Price. Here you probably are an American and not accustomed to modern, high-end smartphones. The Motorola Razr or LG Chocolate or Blackberry etc are very low-end products. Nokia's top products (a cameraphone with optical zoom and DVD quality recording), the Nokia Communicator series superphones, Samsung's top end (10 megapixel cameraphone) and SonyEricsson's top Walkman phones and Cybershot phones etc are not even considered by American customers. 499 dollars (for the cheaper model iPhone) subsidised with 2 year contract, may seem steep in America. Without the subsidy its somewhere near 800 dollars to 900 dollars as an unsubsidised price. Well, phones costing well in excess of 1000 dollars unsubsidised price sell in the millions in South Korea, Japan, Hong Kong, Singapore, UK, Italy, Israel, etc.

Here simply American audiences (and IT experts) have not been exposed to the best that is out there, that is why American reviews of the iPHone tend to be glowing, and the European and Asian reviews only lukewarm.

But on the price, Apple is a past master of creating new market space, of re-setting the rules and price expectations. The Mac was significantly more expensive than its contemporaries, and every successive Mac model has held an Apple price premium over other PCs. Same for the Newton, same for the iPod. Apple is definitely capable of extracting extra dollars for their products. Am certain they will repeat this with the iPhone.

Weight - this is a mid-range phone for its weight, in the smartphone category. Not a valid point. The Nokia N-80 weighs almost exactly the same. Many much heavier smartphones are out there. You need to understand the iPhone won't compete with the tiny simple featurephones out there. It is a very rich mixture of mid to top abilities. Weight, at this weight - Nokia Communicators (always the heaviest cellphone on the market at every release since 1997) have sold more than any PDA every quarter, the ultimate most-sold PDA in the world, and more than twice as expensive as the average price of PDAs, and nearly twice as heavy as the average PDAs (and having no stylus). But yes, the best-selling high end PDA-smartphone year after year, quarter after quarter. And twice as heavy as the iPhone. Weight? this is not an issue.

Greasy screen - you have a point here. But when I had my Nokia 6630 and my 6680 - both which had 2.5 inch screens exposed (not sliders or clamshells) and placed against the face when making calls, it was a problem sometimes on say a hot day, but not a major problem. The iPhone screen is 3.5 inches in size. Its by no means the first phone with such large screen (the LG Prada is nearly identical in outwardly measurements) - this won't deter those who like it otherwise. It won't be returned because the screen gets greasy...

Commodity - ok, the phones at the bottom end are becoming commodities. But cellphones as commodities in 2007 are MUCH LESS SO than PC's as commodities this decade, yet the Mac continued to sustain a loyal customer base to its computer series. And as to commodities. Water is a commodity. Clean water is available from the tap in all industrialized countries. Yet billions of dollars worth of branded expensive water is shipped in as Evian and Perrier from France to all industrialized countries - even countries with their own mountains and glaciers and the world's most clear and clean environments, like Switzerland and Sweden. If you can turn free water into a branded commodity with so little to differentiate as Perrier and Evian, CERTAINLY an Apple can with the excitement around the iPhone, build customer passions to sustain differentiation with iPhone.

Apple logo only differentiator - that is the critical one no doubt. But here look at the Mac and iPod. Again the Apple logo has held the customer loyalty. A logo alone won't do it, the company behind the logo needs to fulfill the promise, and Apple has been truthful to its customers. Expect this to continue with iPhone, don't see a problem.

iPhone micro and nano? Not anytime soon. Apple has to integrate 3G into the phone and at least a 3 megapixel camera and flash and video recording (for the iPhone to have any chance in Europe and Asia where customers are more demanding). All this adds size, more software, more drain on the CPU and battery, more size, and cost. No, you'll get LARGER iPhones with 3G, not smaller.

Saturated? Hold on. Did you say the cellphone market is saturated? You've been reading the wrong (probably American) analysts on telecoms who don't understand cellular. USA has slipped to second-to-last in the industrialized world in cellphone adoption (with Canada dead-last) with only about 75% cellphone penetration (measured per capita, not per household like broadband or PC). One of the world's leading countries in cellphone penetration is Hong Kong. I was chairing at the biggest telecoms event of Japan in Tokyo in January where Hong Kong wireless carrier/mobile operator Peoples presented. Hong Kong has 130% cellphone (subscription) penetration, yes meaning 1.3 cellphones for every living person, babies and great-grandparents all included. And what did Peoples say? They said Hong Kong is STILL growing.

You have nearly TWICE as many cellphones and subscriptions to sell in America before you approach saturation. European AVERAGE penetration is 105% (source Informa) and leading European countries like Italy and UK are at 120%. Sorry, saturation is a total red herring as I've explained in Business Week, Wall Street Journal etc. This one Al you simply had wrong.

Go for business market, attack Blackberry - this also Al you have wrong. You probably think "because iPhone is a smartphone, and Blackberry is a smartphone, iPhone needs to target Blackberry". But now consider rather, the Blackberry is a Hummer, the iPhone is a Ferrari. Perhaps rather than try to convert Hummer users to drive Ferraris, its better for Ferrari to target Porsche, Corvette, Jaguar etc owners.

And they are totally different products with totally different customers and needs and buying patterns. Blackberry is sold as a corporate/enterprise e-mail device and sold with company e-mail integration. The Blackberry is poor at media consumption (music players, cameras, videoplayers, etc) because it is a business tool

The iPhone is a mediaphone, an entertainment phone, with great music and video, modest camera, probably good internet access - but no integrated corporate e-mail system. It is bad for business real needs, and very expensive "executive toy" with too many frills, to satisfy price-conscious corporate communication tool buyers. That is why most early Nokia E-Series business phones did not have built-in cameras or shipped without pre-loaded games etc. It is because the corporate buyer does not want to subsidise its employees with freebie entertainment toys.

Here you have it wrong. Apple can't go against Blackberry just like a current model line Ferrari is hopeless to get Hummer buyers (no ground clearance, no "weight" or heavy "protection" in case of crash, no back seat, no cargo space, etc).
Apple has to go against Nokia N-Series, SonyEricsson Walkman phones (not Cybershot phones), LG Chocolate, etc.

Also Al, what you miss is things such as no 3G, the one carrier per market strategy, a very diverse and complex operator/carrier market outside of North America.

Most of all, Apple has never experienced this market situation. When the Apple 2 launched or the Newton, they had no major branded global players to fight against. When the Mac and iPod launched, they had only one major global rival (IBM and Sony respectively) and in BOTH of those cases, the global rival had decided this market was not strategic, so the global rival was ignoring Apple. With IBM in 1984 when the Mac launched, IBM was still delusional about the relevance of the PC. When the iPod launched in 2001, Sony was focused on the Playstation, its major profit engine, and with portable music players was peddling the minidisk digital recorders.

Never before has Apple had well-entrenched, global players with larger sales volumes, global footprints, established reseller channels. The big five (Nokia, Motorola, Samsung, SonyEricsson and LG) each have seen Apple coming to this space, and the handset makers DEFEATED Apple already in "Round 1" - the battle of the iPod vs the musicphone. Last year Apple sold under 50 million iPods and today have shipped a total of just over 100 million in six years. Last year 309 million musicphones were sold. Nokia, Motorola, Samsung and SonyEricsson each have sold more musicphones - portable MP3 players - than ALL Apple iPods sold last year. Even LG is catching up, the LG Chocolate (a musicphone) is LG's best-selling phone model in Europe and America.

So Apple has never went into this battle before, where it has forewarned its rivals, they are very well entrenched competitors, and they are TOTALLY focused on keeping this market. Sony - the world's largest consumer electronics company - decided it can't compete in cellphones alone anymore, and joined with Ericsson. Before Sony made this decision they were selling nearly 100 million handsets per year. iPhone hopes to sell 10 million. Sony said 100 million made them too small. In this market of almost 1 billion handsets sold worldwide per year, profits are very difficult to come by, with Motorola, LG and Samsung each reporting loss of profits in at least one quarter over the past two years. Nokia diverged its networking business to focus just on its phone market. Siemens, the world's largest engineering company, and ranked 6th largest phone maker, quit the phone business altogether.

Its a rough hard market, Apple will find. That is the toughest part of trying to reach 10 million in sales.

But current Mac owners, and most iPod owners, are sharing the Apple dream, they want the iPhone. And if it delivers on THEIR expectations, even if it is "outrageously" expensive the existing Apple customer base is big enough to get close to the 10 million sales level.

Finally you say "all this needed to become remarkable achievement that the iPod was" - you again miss the whole point of our blog. We are talking of a watershed moment - for industries OUTSIDE telacoms. All major handset makers - Nokia, Motorola, etc - have already said the launch of the iPhone will be a watershed moment in the handset manufacturing business. Future phones will be compared to the iPhone. What we talk about in our blog, is that there is a BIGGER story, the impact to media, advertising, IT and internet industries especially those with headquarters in America (most major media and advertising, many IT and internet players).

For that audience it is irrelevant if the iPhone is a hit or flop. They either will wake up during this summer or they dont. And if the buzz around the iPhone is big enough, they will wake up.

That was our point. Thanks for writing Al

Mehnaz, I think your posting is somewhat an advertisement, but yes since you do say you discuss the iPhone, I'll let it be here.

Thank you for writing

Tomi Ahonen :-)

OIM

Trackback: La Era iPhone

Summary: Anda la blogosfera tecnológica tremendamente revuelta a raíz de un artículo del célebre Tomi Ahonen en la que predecía la llegada de una...

Blog: El Observatorio de Internet Móvil

Paul Jardine

Hi Tomi,

I liked the article and I very much hope that things do happen as you predict, however I was interested in mxmora's comments and your response to them.
If, and it's a big if, Apple gets the iPhone right and they are not 'walled in' by their partnerships with the operators, then I think that what we will see is the arrival of the real internet on the mobile platform.
Think about the reasons that SMS is successful. It's because it's easy to use, it works and you can send a message to anyone you can make a call to. Typically the other messaging channels, such as email, IM etc did not meet those criteria, but with the iPhone, maybe they will.
I think one of the biggest effects of AI will be the demise of Symbian (even though it's installed on a lot of handsets), I would expect that Windows & Linux platforms start to become more prevalent on the new AI devices. The services will become more transport-agnostic (e.g. SMS/IM - the distinction will blur, the service will become more similar).
As you rightly said in your response to mxmora, there are plenty examples where mobile is the preferred delivery mode for services, but these are in instances where the price is right. The mobile operators are learning that, but slowly, and the launch of the iPhone will bring increased price pressure on the current mobile content services.
Will AI kill the 'golden goose' and make the internet on mobile the same as the normal internet? I'm not sure, but things will definitely get cheaper and the volumes of users of the 'internet on mobile' (I refuse to call it mobile internet) will go up exponentially. In the end, the mobile operators should be opening up and pulling down the walled garden, because if they don't then people will find other ways to get out, and the iPhone will probably make it easy.
I'm not the first to make this comparison, but it's probably a similar kind of event to the launch of the Apple II computer; the game changed, but in the end Apple were not the major benefactors.

hardman
Charles Gordon

Very interesting post. Insomuch as I must strongly resemble "the massive West Coast blogging community" discovering mobile devices for the first time via the iPhone, I am reminded of Leif Ericson. He may landed in North America, but it wasn't until Columbus that it was really discovered. There may have been plenty of devices that much earlier had the features of the iPhone, but you have to give Apple credit for finally making it relevant to the masses. The other manufacturers were stooping to the level of swapping out color faceplates to sell to the fashion crowd. Times are exciting again, thanks to Apple.

Alan moore

Charles, I think you are right.

The iPhone may not be perfect, but it has broken the mold, created interest, and given the handset manufacturers a bit of a fright.

Thanks for posting

Alan

wansai ounkeo

Absolutely amazing Posting you have here! Unfortunately I just have enough time to write this before I log off to go home. I will continue with some of my own responses once I get to my abode. I just had to tell you that my thoughts were almost in sync with your own on this matter and you had it well written out. Cheers =)

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Tomi Ahonen

Ciao OIM and hello Paul

Thank you for writing.

OIM - thank you.

Paul - interesting point. Notice first, that it is sheer fantasy to ever expect the internet as we now know it - ie PC based - to be "free" on phones, just like it is sheer fantasy to expect voice or SMS text messages to become free on phones.

There is a fundamental law of nature that is at play. The spectrum is a finite resource, there is not enough capacity to give it for free. There will always be a price for our mobile services. No matter how great Skype is doing killing the traditional fixed landline business with truly free calls, they won't be free on mobile. Some providers may offer free calls (like Blyk) but then we face the economic realities of a much smaller advertising industry, that is unable to sustain mobile telecoms. Yes, for given small players, but not the whole industry.

So the premise, that while voice prices, text messaging prices and mobile internet access prices are declining - that is true - it will not become zero, not in the net ten years at least (maybe in the 4.5G or 5G eras, near 2020 but not even by the launch of 4G near 2012). The premise is flawed.

We can build so much capacity in fibre (and essentially often just light up dark fibre already laid into the ground) that the cost of data transmission is near zero. We can very easily provide basic data transfer services - on broadband - for nearly free. But not on mobile. There is very limited spectrum. In 2G we ate it all up already. The incumbent 2G operator business cases were built on the concept of unsustainable business in 2G, they had to have 3G just to handle the voice and text messaging traffic. Now we add dramatically more data traffic (internet on mobile as you say). Soon we are again at congestion. Then we need 4G. And that will again run to congestion well before the network licenses run out.

But it doesn't have to be free, to be dramatically more used. That is clear from Apple iPhone users - on 2.5G technology, not 3G - and they use the internet on the phones dramatically more than non-iPhone users.

So that trend will be strongly supported by the iPhone.

As to your prediction that Symbian will suffer out of this? Ha-ha, well, I think very differently about that. We need to understand mobile phone handset economics for this. They sold 1.15 billion mobile phones last year. Apple will sell probably 10 million this year (just under 1 percent). About 150 million of the phones this year will be smartphones - and over half of those Symbian devices. All other smartphone operating system makers (RIM, Microsoft, Apple, Google Android etc) will have trivial market shares.

Why would Symbian die out of this? Nokia is using Symbian in its smartphones - that alone will keep Symbian very much alive for a considerable period of time...

But good talking with you Paul, lets see how this all plays

Tomi Ahonen :-)

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