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« Hyper-individualism, Consumerism & Resentment. A dangerous cocktail | Main | What do, Cyworld, the iPhone, blyk, Admob, MyNuMo, Artists first, Moblog UK have in common? They are all part of the 7th Mass Media: Mobile »

June 24, 2007

Comments

Jeff at www.thenewsroom.com

This iphone video, from Mossberg, is pretty about alternatives...http://thenewsroom.com/details/428470?c_id=wom-bc-js

Tomi T Ahonen

Hi Cewdrywc and Jeff

Thank you for the comments

Cewdrwywc, thank you for the kind comments and yes, the addiction to SMS keeps growing. I remember seeing the first time an offer for free 1000 text messages (which was offered over a 6 month period in Finland back in about 1999 or so) and I thought to myself I'd never get through 1000 texts in six months, but then upon thinking of it I thought, actually, some of my younger relatives certainly could do that.

Today my monthly phone bill on an active texting month is definitely over that ha-ha..

In Switzerland one of the operators had a funny marketing gimmick, they said that everybody deserves to be a millionaire once in their lives, and gave all their customers a million text messages but this expired within a month. In reality they just turned the billing off for their texting for the month.

What they observed afterwards, was that the residual usage level by their customers had jumped a lot during that month, and they were making much more money out of paid SMS texts after that month. But also their customers were incredibly thrilled by this promotion, becoming "SMS millionaires"

Jeff - thanks, we've gotta go take a look what Mossberg says

Thanks for writing

Tomi Ahonen :-)

Javier Marti

Once again, an excellent article.
Thank you very much for sharing your experience with us.
Many intuitions about the Iphone were re-inforced through your interesting words.

Regards

Javier Marti
http://trendirama.com

David Cushman

wow Tomi, burning the midnight oil.
I didn't realise there was no video camera function.
For me that's like your BMW coming without wheels!

Manish

Tomi, good thorough analysis, as usual. One point, though - you say, and I quote, "The phone to fear, the ultimate superphone of its age, the one striking fear into the HQ's of Nokia, Motorola, Samsung, SonyEricsson and LG, is the first re-designed iPhone, after feedback from users in Europe and Asia. That truly re-designed "iPhone II", that may be released in the summer or autumn of 2008 at the earliest, that is the must-have smartphone."

But you had yourself noted earlier that the design cycle is 18 months. So, for iPhone II release in summer 2008, shouldn't they have started the design early this year? When do they have the time to listen to feedback (forget Europe and Asia - even from the US users) and form that as a base for next version?

I would expect iPhone II (not the re-tuned Europe or Asia version) by around 2H08, and that too mainly with US feedback in mind. And I would expect that one to be, once again, behind the European and Asian expectations.

As you can tell, I'm not really an apple fan-boy :-) But realistically, I am judging them based on facts (as you have painstakingly and repeatedly outlined in this forum)

Tomi T Ahonen

Hi Javier, David and Manish

Nice of you guys to visit us, thanks for the comments.

Javier - thanks. We'll also need to see what the real iPhone and its experience brings with.

David - yes, that is the gossip rather strongly around the Mac/iPod/Apple boards. But as I say, I don't have one to play with, don't know until the phone is really released.

I would think that adding the video recording software is a relatively modest addition to a digital camera(phone). So this should be a deficiency rather easily fixed in the near future.

Manish - ha-ha, you've been reading my blog :-)

Seriously, very good point about 18 month development cycle. It would typically be "staggered" so that the original June 2007 iPhone was started in Dec 2005; the Nov 2007 European iPhone design started in May 2006, and the March 2008 Asian iPhone design started in October 2006, and so forth.

The early design goes to the form factor and major size, weight, etc elements. Then the design can be rather much tweaked until perhaps 9 months to launch, when the design would be frozen and then completed.

So if we look at say an August 2008 "iPhone 2" release, the design for that would have been started only February 2007 - after the iPhone was announced and the first global reactions collected etc. Notice that Apple would be setting the "baseline" of what was current competition - at that time, say the LG Prada, the Nokia N-95, etc. and then project 18 months into the future from that baseline.

With this kind of process, Apple would rather rapidly "get in synch" with the mainstream. When they designed the original iPhone from December 2005, few cameraphones had built-in flashes for example..

Now, if we continue with the assumption that its an August launch, Apple would have until about the first of December to collect feedback from its American users, and the first month of European use, before locking the final design concept for the iPhone 2.

Its do-able. I would also say, that Apple will be much more inclined to "push the envelope" in where they put emphasis.

But yes, you're very right, a totally new "from a clean slate" phone - say if the current plan calls for a flat large screen keyboard-less phone, and suddenly Apple says - no, the iPhone 2 has to have a keyboard, make it a slider or clamshell - then we're looking at a total re-design, from the beginning.

I have vibes and reading between the lines, that this already occurred once with the first iPhone project, and this current iPhone is actually Apple's second attempt at a smartphone. But I don't have any solid evidence of it. Just reading the tea-leaves and with my ear to the ground so to speak..

Thanks for writing

Tomi Ahonen :-)

alex

Hi Tomi,

what a refreshing pleasure to read a business analysis about the iPhone with substance.
I agree with most of the assumptions and statements.
However, I see more potential for "game changing", which you acknowledged in the introduction for the user interface, also for the business.
You have in many places assumed that the iPhone market segment is a subset of the existing smartphone user segment.
What if the iPhone appeals largely to mobile users without smartphones?
For people outside the relatively small smartphone segment, the iPhone could bring value that has prevented those people from even considering a smartphone in the past.
You wrote one paragraph to that direction
("First, it has to convince "ordinary" cellphone owners who may have an iPod or Mac, to now upgrade very seriously to the iPhone, and promote it more as a new pocket Mac or a "super iPod", and have the customer think not that they are replacing a 100 dollar phone with a 500 dollar phone, but rather that they are now getting their fave Mac/iPod experience onto their phone."),
but this doesn't seem to be quantitatively explored in your model.

Evidence for a game-changing business plan can be seen from Apple's COO interview in January:

"The traditional way of look at a market you look at products you are selling, you think about the price bands that are currently market, you look at price band your product is in, and you assume you can get a percentage of it. And that's how you get to the addressable market. That kind of analysis doesn't make really great products. The iPod would not have been brought to market if we would have looked at it that way. How many $399 music players were being sold at that time?
Today in the cell phone industry, a lot of people pay zero for the cell phone. Guess what? That's what it's worth! And so, if we offer something that has tremendous value and is sort of this thing that people people didn't have in their consciousness -- it was unimaginable, I think a whole bunch of people will pay $499 and $599. Our target is clearly to hit 10 million and I would guess that some of those people -- there are some of those in the audience -- who are paying zero because it's worth zero, will pay more a bit more because its worth it."


The difference to the iPod is, of course, that the iPhone enters a well-established huge market that you have analyzed so well - based on the existing market behaviour.
However, in the iPhone's addressable market (the wealthy mass-market in the industrialized countries), phones are pretty much perceived as, well, phones. Internet and mediaplayer usage is (still) a minor segment, mainly confined to smartphone users, who are capable and willing to put up with the quirks of these devices and the operator services (voice mail, Internet access etc.).
If Apple really delivers a device, and together with operators a service, which "just works", couldn't this open up a new growth segment for "smartphones", which is little overlapping with the existing smartphone segment?

Under these assumptions, several of your obstacles for Apple become a lot less relevant. E.g. brand loyalty (to existing smartphones), missing camera features, removable memory cards, and the numbers don't look so bad (e.g. 2.6 M needed AT&T iPhone users are 5% of total; 39% of smartphone users is not relevant then).

About 3G in Europe during 2007, I am not quite sure. Yes, it vastly improves the Internet experience. But is it critical for the majority of phone users, who has never before accessed the Internet with the mobile? Maybe, maybe not. If Apple can engineer a Europe version with substantially new hardware until November (maybe, maybe not), then how about 3G in and WLAN out? That would balance out about the size and cost. I think we agree that WLAN is not essential for the 1st iPhone in Europe.

Anyway, I agree that Apple needs to include 3G in Asia, otherwise they have no chance.

I am far more concerned with the SMS. I also find it hard to imagine a target segment in Europe (or Asia), which could be attracted to the iPhone but not appalled by the lack of tactile feedback when writing SMS. Fully agree with you.
But rather than going "backwards" to physical keyboards, I'd rather expect Apple to solve this with new touchscreens that provide tactile feedback. Possible for your conjectured "iPhone II in mid 2008" the earliest.

Biggest unknown factor in my mind is how Apple can deal with the fragmented operator landscape in Europe, which you described so accurately. I agree with you that Apple can solve it over time, but with a huge risk for slow start, which could easily prevent the large sales figures in 2008 to reach the overall0 M. For example, Apple might need the proof of a large initial sales spike in the US to convince the first European operator(s) to overthrow their "holy" principles how to introduce new services and devices. So November for a significant Europe launch looks like a tall order to me, not even counting in new hardware (3G).
On the other hand, Jobs is pragmatic and I don't believe that "exclusive launch with one operator per country" is set in stone anywhere at Apple. They will try to be innovative also in the go-to-market to Europe, and maybe surprise us with a different model.

Asia looks more hopeless to me than you have outlined. cdma version I don't believe in, looking at Apple's history to stick to selected key standard technologies; after all, Apple is pretty profitable and not known to accumulate huge costs just to conquer more market share.

So overall, I would challenge your analysis that it is not "game changing" as Apple probably assumes it to be.
Therefore I would be more optimistic in North America, and more pessimistic in Asia.

Best regards,
Alex

Manish

Tomi, thanks for the response - agree that they can pull off the next version in the incremental cycle. That would land them with the right v2.0 only if they are already learning their lessons.

Alex, I would like to catch one part of your comment, although it's for Tomi to reply in complete. You said "What if the iPhone appeals largely to mobile users without smartphones? For people outside the relatively small smartphone segment, the iPhone could bring value that has prevented those people from even considering a smartphone in the past."

You know of *anyone* who has 500 dollar/euro to blow on a phone (and that too with subsidies. Unlocked one would be much higher as Tomi points out) and doesn't already have a smartphone? I don't think there would be many people in this category, at least not in Europe and Asia. There may be few (besides the few of those who don't really need a smartphone at all no matter how cool or convergent it is e.g. old folks with money) but then, hey, no-one said apple would draw a blank :-)

Piot

Tomi, as others have already said, I commend you on all your hard work.

However I am curious if you could have made your points in less than 16000 words.

It is obvious that you know your business but I feel that you may be getting a little too wrapped up in the figures and statistics of the mobile industry.

Here is my, totally uninformed, prediction. I think that you will have to totally revise your model after the iPhone's 1st quarter of US sales. Maybe even after the first four weeks.

PS. I think you will find that Steve Jobs' 10 million target was for 2008 alone.

alex

Hi Manish,

you have raised the key question.

The answer was "yes" for the iPod, i.e. many people who maybe once had bought maybe a Sony Walkman but never a digital music player (before the iPod) bought iPods and even paid more for the iPod than existing users of digital music players.

Now we don't know whether such a game-changing miracle can happen with the iPhone.

I certainly know many people with smartphones and who have even paid a lot for them, but don't actually use the typical smartphone features (Internet, media player, downloadable applications) - they decide for a "smartphone" for image and style reasons.
This is particularly common in certain Asian and European markets (Tomi mentioned Italy as an example).

So I would say, yes, there are many people who are willing to pay a lot for a phone if it provides value for them.
I think that also Tomi has argued that price is not a critical barrier for the iPhone (besides reducing the accessible market to the wealthy, which I fully agree with).
See also the last quoted statement from the Apple COO.


Next: I do know many "normal" people (who are not technology enthusiasts) who are surprised to hear that phones can access the Internet and have other "smartphone" capabilities.

Apple could create a market perception that "finally phones can show Web pages" if iPhone is so much simpler and better at Web browsing as Apple promises. Never mind that smartphone users will say they have been viewing Web pages for years.

So yes, Manish, I do believe that such users exist in large numbers, but if you would ask them now (in Europe or Asia, outside the iPhone hype bubble) they would probably not believe themselves that they would ever pay that much for a phone. That's the point of "game-changing".


Another way to look at it, is to start from the existing iPod user base, as I suggested in this forum back in January.
For, let's say, 100 Million iPod users (still growing until end of 2008), the price delta to the iPhone does not look extraordinarily big.
Would about 10% of iPod users upgrade their iPod to an iPhone until end of 2008?
How many iPod users have a mobile phone? Probably nearly 100%.
How many iPod users have smartphones and use their smartphones for Internet and media player? Maybe 5%, just a wild guess.

I'm not going to propose here a full-blown analysis like Tomi's, but just would like to point out that a different angle to the assumptions might be needed to capture a "game-change".

Alex


mark

Tomi, thanks for this comprehensive overview, though I must say my brain was in numbers overload and my attention was flagging by the time I got to Asia. So, forgive me, if you covered this and I just missed it.

A question as I got confused. Does the 1.04B target market include all likely cell phone (not smart phone) users in the industrialized world?

A comment. To Apple, the 1% or 10 million is just a statement to others that Apple is serious about being in this market. Whether they actually pull out the stops to reach the target is subordinate to lots of other criteria and factors. In other words, I think Apple is willing in Europe to hook up with smaller new entrants, rather than compromise severely with the larger carriers. Of course, they would first thorougly explore the larger carriers. But in the end, Apple would take the risk to change things, and risk falling short of the 10m target.

A comment. Apple intends to issue upgraded software for its devices. So although new hardware features aren't added to older iPhones, Apple could add capabilities and design via software to make its iPhone retain its newness and coolness. So question, when people keep buying up new phones, esp in Asia, what is it that they are truly looking for? New designs? New software capabilities, including better UI? Or new hardware capabilities?

As for missing capabilities: Agree on 3G and Jobs effectively said it's coming. An extra battery could be attachable to the 30pin connector to do quick recharging. The removable memory card is not needed for moving content from phone to phone because the iPhone syncs seamlessly with iTunes, which flows the content (albums, playlists) onto a new iPhone. Yes, this iTunes use is a new behavior, but Apple surely intends to make iTunes (and .Mac or a renamed Web successor) an integral part of using the iPhone. I'm sure Apple is looking to where the mobile web will be in 2008 and aiming for it. (Jobs quoting Gretzky, something like "Not where the puck is but where the puck is going to be.")

A projection. Apple will release a 3G model with video chat/recording/uploading in Nov 2007 at the same $499/599 price points but 8GB/16GB memory; includes one-button upload to YouTube and .Mac. The EDGE model (either the 4GB or 8GB depending on Flash RAM costs) will get a new price of 399.

mark

Forgot to say this. I agree with alex that your (Tomi) analysis is based too much on the way things are today (which Apple surely knows, if nothing else from reading your blog), and not enough on the game-changing aspects of the iPhone. (You covered the touch-screen GUI but not the other things as much.) These aspects involve user behavior changes; of course there are barriers to adoption. But unlike typical companies, Apple, through marketing and loyal users, will make the actual user benefits sound so glorious that people will do it. The current 5 iPhone ads and 25-minute video clearly demonstrate this.

So a few game-changing aspects:
1. simple seamless link to iTunes (computers) as a digital hub for content
2. regularly upgraded free iPhone software (like for computers) for about two years after purchase
3. dramatically increased use of web services (over 3G or wifi), not just cellular carrier services

Possibly you can comment on these in another post.

Tomi T Ahonen

Hi Alex, Manish and Piot

How nice, you guys are having a conversation here on our blog, I feel like just sitting on the sideline and having you guys explore these issues. Very delightful, honestly.

Alex - Very good point about creating market space and dramatically raising the price levels. Apple did that with the Mac and the iPod. And arguably they were just too early with the Newton, could have repeated it also there.

It is definitely a possibility, and partly, especially for older (middle-aged ha-ha) adults, the iPhone can be a revellation, a novel access to a "pocket internet".

But I do think, that the Mac and iPod situation is drastically different from the current iPhone situation. When Apple took on IBM with the Mac, IBM was still delusional about PCs, and IBM was focusing on mainframes (this was 1984 if you remember, most of IBM's money was made in mainframes still then). And the other giants in computing (the so-called BUNCH - Burroughs, Univac, NCR, Control Data and Honeywell) - were also quite oblivious of the PC market. So Apple's competition in 1984 was not the top line of the computing world. Their competitors were the "farm league" with no real marketing effort or budget etc. In other words, the Mac faced inferior competition.

With the iPod launch, the portable music player belonged to Sony. Sony felt the player market was long since saturated. Sony was trying to migate C-Cassette users to the minidisk player and didn't see an MP3 player as a viable rival. But most of all, Sony's total focus was elsewhere - with Playstation 2. Sony felt it had ridden the Walkman experience and market to its logical conclusion, and again, the strongest rival for the iPod actively ignored the market. So Apple only had to fight tiny rivals like Creative Labs.

Now, in mobile, Apple faces rivals as big as Apple is. Nokia, Motorola, Samsung, SonyEricsson and LG are all completely focused on winning in the mobile phone handset market. But the competition includes in part also other giants such as many of the mobile operators/carriers - NTT DoCoMo in Japan specifies all of its phones, Panasonic, Sanyo, Sharp, NEC etc do not design phones for DoCoMo. So NTT DoCoMo is a direct rival to Apple's iPhone. Same is true of SK Telecom in South Korea - this is the parent of Widerthan (ringback tones) and Cyworld (the world's biggest social networking site by revenues and corporate presense and pictures shared and videos uploaded). And don't forget Microsoft is pushing into the mobile phone operating systems; Google is going mobile; Dell is going mobile; Disney is going mobile; fashion brands like Dolce & Gabbana and Prada are going mobile. And there are the second tier players like RIM with its Blackberry etc. Its not a stagnant neglected market. Mobile is a very active, fiercely competitive and innovating market.

And of Apple's ability to re-invent the smartphone experience. Here it is very late to the party. Nokia's Communicator in 1997 was a truly colossal innovation, the real internet on a mobile phone, on a "pocketable" brick-sized gadget that cost more than three times the price of the second most expensive mobile phone on the market at the time. But that was revolution - and Nokia has milked that super-premium priced Communicator phone line for over ten years; its the best-selling PDA in the world while being far the most expensive one.. That the iPhone has the internet, is to me not re-inventing this market.

Japan's J-Phone really innovated and built a new market space when it became the first mass market provider with a series of cameraphones in 2001. Again, that was revolution, it required courage, and took a lot of heat and ridicule. But today three fourths of all phones sold - and half of all in use - are cameraphones. That was clever. That the iPhone is a cameraphone, this is not really brave by Apple.

Music? Three years after the iPod launched, South Korea innovated with full-track MP3 songs sold directly to smartphones (musicphones). Today 45% of all music sold in Korea is sold to musicphones. Yes the iPhone is a beautiful music device. But as last year 309 million musicphones were sold against 46 million iPods, I'd say it was the South Koreans on SK Telecom's Melon Music service and their first musicphones which created the disruptive technology to the music industry.

Bringing me to the iPod. What we have underneath the iPhone hype, is in reality a desperation move by Apple. They saw the writing on the wall in 2005 when musicphones started to outsell iPods worldwide. And at the same time PC sales growth had stalled. Now Apple admitted in its January investor conference that Japan has become the first PC market where PC sales are in actual decline - while mobile phones sales keep growing. No surprise, two years ago Japan became the first country where the majority of internet access is from mobile phones. It is then a natural shfit, not all PC users will abandon PCs, but the trend starts to go from PC use of internet to mobile use of internet.

So for Apple, they saw the writing on the wall. The iPod was losing its battle and the days of the Mac carrying Apple were also numbered. That is why Apple Computer is now Apple Inc. That is why Steve Jobs announced the iPhone before they even owned the rights to the iPhone name, ha-ha.. They had to do it.

Now, if you "have" to launch a new technology, especially one which is likely to cannibalize your current products (iPods and some Macs/Powerbooks especially for occasional internet access) - then you do it with the best fanfare and most PR hype you can. If anyone will cannibalize my product, it best be me..

So back to the point, Alex, very good point. I think it will happen to some degree - Apple is too good at this game. But I don't see reasonably any major success out of the iPhone creating whole new market spaces because the rivals are too strong and already massively innovating all over the globe.

Manish - good points. But let me also be a bit of a Devil's Advocate here. I do think there is a good, accessable market, for Apple to target. Older, adult employed people, who are somewhat uncomfortable with modern feature phones and smartphones. Our parents for example. Smart people, would perhaps like to explore the internet in their pocket, watch some videos, use a cameraphone, send messages, but don't like the experiences they had on a WAP phone two years ago, or aren't for example willing to learn to tripple-tap SMS text messages on a classic phone keypad.

Any senior exec in business, who is NOT addicted to a Blackberry (lots of them around). Suddenly the ease-of-use of the iPhone, its intuitiveness, and the full alphabet (touch screen) keyboard, these are all good for an older - non-addicted - smartphone prospective customer. Easily wealthy enough to buy one, but really has no interest in learning to use a modern "classic" smartphone.

So yes, there are some niches which can be very attractive to the iPhone, among those who currently are not users. But I do think, this is a small part in the 40s - 50s in age, not very much working with technology, say a medical doctor, a lawyer, etc. And one of these walks into the mobile operator store, looks at a couple of phones, sees how easy an iPhone is to use, and its a very easy sale. This customer is blissfully ignorant of any "superior" phones that might be out there, and will be perfectly happy with the first iPhone, and will upgrade eventually to another and another iPhone. And be proud of the new powerful phone.

But obviosly, Manish, you are totally right that the vast majority of this potential market size, has had phones for a long time, and so my scenario here, is a small exceptional case.. You're very right.

Piot - I'm sure I could have tried to edit this down, and with a couple of days of editing and cleaning of the writing, I could have maybe cut it to half.

I'm very sorry, but this blog is purely a hobby for Alan and me - notice we have no advertisements, we make no money out of the blog, its just here for us to engage with readers of our book Communities Dominate Brands and other random visitors who pop by.

So I have to do a full time day job (I'm a consultant to the telecoms and converging media space) and I really don't have the time to edit every blog here to be "elegant". For that, you have to wait for the next book(s), so we quite deliberately, with Alan, treat these blog entries as very rough early drafts of our thoughts, notes, partially processed ideas.

Then if we find one compelling, we refine it, and it becomes something more palatable - like recently say the 7th Mass Media discussion, which I wrote into a Though Piece and now Alan has released as a White Paper.

But yes, I am sorry, this was a horribly long blog posting. But I am flying out again tomorrow and have really no time to clean up old blogs. I have new ones to write about already, ha-ha..

Piot - you give your forecasts that the iPhone will radically outperform its goals. That my model would need to be re-adjusted in four weeks you say. That may well happen, honestly nobody knows. I am, however, quite confident in my analysis, that there are very significant reasons which limit the potential for Apple. I think you'll find almost all telecoms experts who have commented on the iPhone's chances - saying that the 10 million sales target, is very aggressive, and many express serious doubts that Apple can even reach that.

I've personally gone on record already months ago, that I think Apple will reach 10 M but not much more, as it has so much ability to manage the actual achievement thought things like price cuts (trading profitability for market share)

But you may be right. Let me say this, for the record - I am a huge Apple fan. I am ex Nokia and a very loyal Nokia smartphone user still today. I would love for Apple to strongly exceed that 10 million target. Why? Because the mobile telecoms industry needs the innovation. And if Apple is successful, it will help breed innovation, not conforming to the standard candybar/clamshell concepts.

I wish your forecast the best of luck to come true. But also, in all seriousness, I don't see that happening. But we don't have to wait long, it launches in three days (its 3 AM here in Hong Kong already)

Finally Piot - you said you thought Steve Jobs's 10 M is a target for one year, calendar year 2008. I am very sure from reading carefully the early announcements, that the goal was set for the launch period from June 2007 to end of year 2008.

That may have changed since, but I doubt it. Since Jobs originally set the goal to run 18 months to reach 10 M sales, he would be doing a dis-service for the owners of Apple (stock-owners) by now raising the target (by shortening the time available to reach 10M, in other words, achieve MORE than 10M by December 2008).

But also, I have not checked the last statements. You may be right. I'll look into it. If I find that statement to be wrong, I'll return here and admit my mistake.

Meanwhile, if you happen to have a link to where that was said, I'll be happy to take it and follow it.

Alex (again) - First, I really love it that you and Manish are discussing those issues between you two. Please do continue

But yes, Alex, very good observations about changing the game, and the price expectations. I do agree, that is a very likely scenario, it is more a question of how much of it will happen. We did celebrate the iPod specifically as a brilliant case study of creating market space in our book Communities Dominate Brands, so I can totally agree with all you say, it could be as if lifted from our book, ha-ha...

Thanks all for visiting and writing.

Tomi Ahonen :-)

Tomi T Ahonen

Hi Mark

Thanks for the comments. Just a very brief note, I'm about to go to bed (its 3 AM here in Hong Kong). I'll definitely come back to your comments and we'll discuss them, you make good points. Talk to you tomorrow... :-)

Tomi :-)

Steve

Hey nice blog on the iPhone. I am linking to it off of my Squidoo Lens. If you know of any good iPhone links please add them to the Squidoo Lens. It has all the how to videos that apple released last eek on how to use the phone.
Here is the URL for the lens. http://www.squidoo.com/iphon There is a ton of junk out there right now so if you have any good resources I would be happy to have them.

Manish

Alex: You start by making the assumption that iPhone can be a 'game changer' by targetting people who don't use a smartphone today. When I asked for your estimations of market size of such people i.e. those who can afford to spend 500+ euro/dollar on a (subsidized/locked/contracted) phone and yet don't have a smartphone already, then you pointed out that there are lots of people in this category who have a smartphone but don't use those features!

Hey, but this wasn't the point, no? Sure, apple's iphone can convert some of the non-feature users, but can it bring any *new* numbers by targetting non smartphone *owners*?

Otherwise, as Tomi later points out, we are talking niches.

Oh by the way, for all you know, there might be a decent number of future iPhone owners too who wouldn't use its rich features - purchase it for novelty/coolness value. So..what does that prove?

And again as Tomi pointed out, using the ipod example (that it brought many non users into the game) is not right. The *new* users it attracted were non-consumers of mobile music. And anyway, the music-on-the-go market was hardly was focused and cut-throat.

Robert Seidman

I agree that for many mobile phone users who rely on their camera for video is a downside. Quickness with sending text/SMS will also be a huge deal. Though I am not a camera snob and 2MP is plenty enough for me.

I don't think the 1st release matters all that much so long as there will ultimately be a future stand alone ipod that incorporates many of the features (bigger touch screen handheld with Wifi). I believe Apple's plan is to ultimately own its fair share of media distribution (audio and video). It is already the third largest music distributor in the US and of course the largest digital distributor.

The phone is just one entry into this. Ultimately I believe they will build up AppleTV to the point where it is a full-fledged media server rather than simply the media extender for itunes it currently is. You will be able to access all your content on your media server via WiFi with your iPhone. I will hopefully be able to do this even running Windows Vista and Orb Networks client with the 1st version of the phone.

If there will be a "poor step child" stand alone iPod that has everything but the phone and is ~$200-$300 US, it will be very popular.

The true "video on the go" market (to borrow from Manish) hardly seems focused or cut throat to me here. The iPhone is the first thing that will do what I want. Full portability of my entire media server via wifi in something that fits in my pocket comfortably.

Right now the work I have to go through is fairly complex compared to what a mainstream user will ever do. But over time, I believe Apple will remove this complexity too, or at least certainly has the opportunity to do so.

Unlike music, which was portable long before digital music and the Internet came along, I do not think there is huge pent-up demand today for what I'm talking about. I think I'm just ahead of the curve, but I had my first 300 baud modem in 1982 and all that took another 10-15 years to catch fire.

I'm either ahead of the curve or just plain wrong. Either way, I'm glad the iPhone is coming.

Tomi T Ahonen

First to Mark's two posts yesterday

Thank you for the comments, lots of interesting ideas there.

First on the 1.04 B target market. Yes, that is all cellphone owners in the industrialized world, not just smartphones. Out of the 120 million smartphones sold this year (out of a projected 1B phones overall), the vast majority will hit this market. Outside of that, 1.2 B more people own phones in the developing world, and the total subscription market (allowing for multiple subscriptions) was 2.7 B mobile subscribers by end of 2006, projected to hit over 3B this year.

When you say "1% or 10 million is just a statement" by Apple, I think its very different. Steve Jobs has re-focused all of Apple. When they dropped "Computer" from the name at the same time as iPhone was announced, it was a very clear signal that the company future depends on achieving a position equivalent in mobile handsets, as the Mac had in PCs.

But for the Apple investors, analysts and followers, the 10 M is now the glaring target. It will be reminded and reminded and reminded by all analysts from now until January 2009. Is Apple going to reach this or not. And it IS an aggressive target, by no means an easy achievement.

Remember Research in Motion (RIM) has been offering its Blackberry, the "crackberry" - for six years and has only achieved 8 million subscribers by this spring (latest numbers I have seen, was perhaps February or so, so it might be in the 9 M range by now).

Bear in mind, BB started when phones were much more rare, ie they entered the market when it was growing much stronger; BB was one of the early smartphones so entered that market also early; and the BB model series is significantly cheaper than the iPhone. Yet it took them 6 years, and they still are not even near 10 M users.

Apple's iPhone target IS very ambitious (but like I've shown, I think it can be done, and RIM is no Apple when it comes to marketing resources and skill)

But my point, is that the 10 M is now the "make or break" target for Steve Jobs. If he achieves it by December 2008, he is a hero for successfully breaking into mobile and changing the industry. But if he falls short of that number, he will be seen to have failed - even if an 8 M or 9 M level would be very good performance for a new handset maker in this fiercely competitive market.

Apple has painted itself into this corner, but they must feel that they can reach this level, certainly they are not "dumb" to do this without knowing what they will set themselves up to.

About hooking up with smaller operators in given countries. You're right. Obviously Apple will need to be everywhere in Europe to achieve its goal. So if the number one operator in say Austria says no, they go to number two, then number three, etc.

Then two factors will run a conflicting influence. The appeal of the iPhone will help drive bigger operators to sign up. But the "arrogance factor" ie Apple wanting to control internal operator systems, will work against the iPhone.

About software upgrades - this is an interesting strategy. In theory that has been possible on smartphones in the past, but few smartphone users do much customizing (or upgrading) beyond what they do when the phone is new. Remember the average replacement cycle is 18 months (and shrinking); and for heavily mobile-addicted users with 2 phones, the effective replacement cycle is 9 months. Long before we'd bother to consider upgrading the old phone, we can get a totally new phone :-)

But yes, at the high end of the price range, and where the phone is more of a fashion statement like the iPhone, this can be a very compelling reason to extend the "age" window for the iPhone.

However, that then hurts the replacemnt cycle for iPhone owners to upgrade to newer iPhones, ha-ha. A tricky balance for sure..

My gut feeling, and I have seen no research to expressly support this - is that the American customer, with lots of experience from the IT side (and highest use of stand-alone PDAs) - will feel very comfortable with upgarding and modifying an iPhone.

European customers can well warm up to this concept, as at the top end, they tend to buy very expensive phones, and would then like to get added utility out of it.

But in Asia, the fashion need of having the latest phone would dramatically alter the picture. Rather than trying to get more life out of last year's phone, they will definitely opt for this year's new model.

My two cents on that... We'll see how the iPhone software upgrades will fare in the market. I'm sure some analysts will be asking Apple in the investor conferences to come, in 2008 or so..

On the removable memory card, I hear you, yes, iTunes allows different type of synching, between a PC and the iPhone, or between one iPhone and anther iPhone. But - here is the key in Europe and Asia - if I today have a smartphone with a memory chip with half a gig of memories, and my second phone has its memory chip with 256 MB of more memories, and I now get a new smartphone - I want to bring those stored files with me... Then when I replace the NON-iPhone phone, for THAT which will be a Nokia, SonyEricsson, Motorola etc - I will want to again transplant my memories. Now the lack of a memory card slot is a very serious deficiency. And it is an "expected level" of utility in any modern smartphones. The comparison tables - where the store puts 15 phones on a chart, with features all mapped out - will show this deficiency very rapidly to the random buyer.

Some won't understand. But others will immediately be put off by this. I'd say the heavy user of the camera, video, music or messaging ability of a current phone, will really want this feature. I'm pretty sure Apple will soon bring it on, I'm not the first to be calling for it, and when Apple starts to get the returns - that will be one of the big reasons stated for returns..

LOVED the Gretzky quote, I use that always when I speak to audiences in Canada, handy if you deal with near future topics and then bring in The Great One's excellent line. I also used it in my second book m-Profits.

Onto your second comment. Thanks, I do appreciate it. I find it easier to make this model on the more familiar assumptions of the existing world and market, and project how Apple would need to perform in that, to achieve 10 M, than try to "guess" how a radically innovative Apple strategy of re-inventing the cellular telecoms industry, would perhaps succeed. I am not arguing it can't happen - Apple did it with the Mac and iPod (and iTunes) very successfully. But I do think, this is not a similar market situation, lots of players are already expanding the market for cellphones FAR beyond what Apple is doing - consider Nokia's jewelry line Vertu, of phones that cost tens of thousands of dollars. And watching video or listening to music or surfing the intenet - these are all activities we an do on hundreds of existing phones - with most definitely not as well - but for example, the Nokia Communicator, which has a letterbox style screen, wider than the iPhone. It gives a less cramped view of internet pages, but in letterbox form (very wide but not very tall) - is a very compelling offering for web browsing on a smartphone, and has had WiFi for it since 2004..

So back to my point, yes, I give you the issue, that Apple is very capable of reinventing a market and then driving the price up for its innovation in that market. That may happen with the iPhone. But even so, I'd say my business model here, with the target sales projetions quarterly and regionally, will serve as a guide into what Apple is doing. If Apple is suddenly dramatically performing above the projection, its almost certain, what you said, that they invented a new market for hte iPhone, must have happened.

I don't see it as likely, but it is certainly one scenario, and we will have to see how it develops.

Finally on the Apple fans. This is a REMARKABLE asset for Apple. They are very active, they know how to use networks (and web 2.0 methods) and they are already energized to support the iPhone. This is one of the marketing tools that is almost unique to Apple. Nokia doesn't generate any way near that kind of passion in its users, and much less so Motorola, LG etc..

Thanks for writing.

Tomi Ahonen :-)

Tomi T Ahonen

Hi Steve, Manish and Robert

Thank you for writing.

Steve - thank you for the mention at your blog. I took a look at it, and you have a ton of iPhone stuff over there, so its a good source for our readers to find iPhone-specific news and stories.

Manish - nice discussion with Alex :-)

A few of my observations "from the sidelines" ha-ha..

Its turning into an interesting splitting of potential target customers. One is the current heavily addicted smartphone user, for whom the iPhone price is definitely not a major issue.

One is the current not particularly addicted smartphone (or expensive feature phone) user who will greatly appreciate the looks and cool factor of the iPhone.

Another is the current non-smartphone user who is an existing iPod or Mac user (Apple loyal).

Another is a current non-smartphone user who aspires to high end functionality ie web browsing etc (say older adults who may "fear" current complex phones)

And then there is the rest who are pretty well out of the feasible target market for the iPhone.

Robert - good point about Apple intentions in the content distribution and making more money there. Also yes, the Apple TV initiatives are related and may become ever more closely tied to the iPhone.

Also you touch on another very compelling dimension of the equation. Apart from it being a phone, the iPhone is truly a portable version of our media, a "super-iPod" if you will. Just like the iPod allowed serious music enthusiasts to carry massive amounts of their music always everywhere, now similar ability comes to our video (not enough, obviously to convert our DVD collection ha-ha, but a serious step in that direction)

And it was kind of on the horizon already. Nokia was shipping the movie Mission Impossible 3 on the standard memory chip for the Nokia N-93 in December, so we're kind of bordering on this kind of ability in smartphones. But the large hard drive (8 GB version) goes a long way further into this, far beyond what other top-end smartphones tend to be able to do, as their storage tends to be based on memory chips which currently run 2 GB in storage.

So the iPhone arrives at just the right time, for this kind of media content portability "of a second generation" beyond just music and the iPod. Good point.

In some ways, this could open the market for the kind of customer who is heavily into media, but not into smarphones at all. Perhaps has 1000 DVDs, wants to carry a big sampling of his/her favourite episodes of the Simpsons always with him (to share given episodes with friends at the pub or whatever), or say a big Bond fan (like me) who really would like to have all Bond movies with him. If we can have near-DVD quality movies in under half a gig, then 8 gig would be just about enough for 20 Bond flicks ha-ha, especially if I cut out a few of the real turkeys of the series ha-ha..

Obviously this is a very niche market..

But yes, me too, very happy the iPhone is coming :-)

Thanks for writing

Tomi Ahonen :-)

Piot

Tomi regarding Apple's 10 million target.

Transcript from the January Macworld keynote:

"1% market share equals 10 million phones.... and this is exactly what we are going to try to do in 2008, our first full year in the market, is grab 1 % market share.... and go from there....."

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