US West Coast 'Drunk' on iPhone, yes still drunk, but Android is not 'the answer'

I am not attending the Heroes of the Mobile Screen - a very good event clearly, that attracted a massive amount of Tweets, on comments by very smart people presenting.

One thought hit me, and I'm sorry, I don't know for a fact who said it but I believe it was Andrew J Scott, the CEO of Rummble out of London. But it was tweeted that someone (probably Andrew) said: "People on the West Coast of the US are iPhone drunk; its time to wake up to Android."

ORIGINAL WAS TRANSFORMATIONAL PHONE

Very clever line, congrats. And the first half is totally true. While the iPhone has indeed been a transformational phone, the single most important handset in the 30 year history of mobile phones, not so much because it is iconic (which it is) nor because now so many other phones are now copying it (a major achievement definitely) nor that it has redefined what we as consumers should expect from a well-designed user interface to our phone (which it has achieved) not even how easy it is to use (by far the most easy-to-use smartphone, so simple your parents can learn it without any manuals). All that is great. But, the far bigger impact of the iPhone was to the industries beyond telecoms, bringing in new giant industry players to mobile, including the IT industry to phones (Dell is now the latest to annouce a line of smartphones and just today, 3M announced its intention to enter the mobile telecoms industry) and the advertising industry and the various media industries from print to TV to hollywood. No other phone has transformed the total mobile business environment nearly as much, as the iPhone has. And yes yes, also it has a popular Apps store as well..

Now, about that 'being drunk' on the iPhone. Yes, it is the West Coast of the USA which is still very much drunk, delirious about the iPhone. The rest of the world outside of the USA saw the (original 2G) iPhone in 2007, was bemused, at times mildly interested, and didn't really think it that revolutionary. It wasn't that spectacular of a 'phone' after all. Then over the past two and a half years, we've seen gradual improvements to the iPhone, that the 3GS model is now a very competitive high-end luxury/premium smartphone, even able to sell well in that most demanding and advanced mobile phone market, Japan. But if the US West Coast went gaga over the original iPhone 2G back in 2007 - and yes, the UI was revolutionary and its usability and gorgeous large screen (although done in several Asian phones by then) was amazing. But that was two and a half years ago.

What have you done for me lately iPhone? Why the continued hype? Why are they still drunk, today in December 2009? The 3G iPhone was very much a bug-fix - bringing the original 2007 spec iPhone 2G near to the specs of many rival smartphones - and made the upgrade in 2008 current against rival smartphones from 2006! Apple added 3G network speeds and GPS to the iPhone in 2008 and made it capable of accepting third party applications - all features that were 'normal' for rival smartphones in the high end of the price range. Even then it was not up to 'modern specs' of its rivals, as it did not upgrade its camera - 2 megapixels was underperforming in this price range in 2008 - or give a flash (still missing), or autofocus or provide MMS compatibility or record video. Those - also totally common features of rival high-end smartphones years before the original iPhone was launched - were only added to the model in the summer of 2009.

Now, lets ignore apps stores for now. If you think the original 2G iPhone was a 'revolutionary' or 'innovative' or 'transformational' smartphone - due to its form factor, big screen, ease-of-use, user interface and operating system - those were all introduced in 2007. Why the continued 'drunkedness' about the iPhone since then? All upgrades to the iPhone since 2007 have been bringing the iPhone up to equivalent status on what most rivals have offered for years.

It cannot be 'cause to celebrate the iPhone' now, if it 'reaches parity' on some of the abilities the original 2G iPhone did not have. I am not saying the original iPhone was not worth celebrating. But since 2008, when the first revised iPhone, the 3G was introduced - if the iPhone adds 3G which Samsung and LG smartphones have had since 2002, or GPS which was first offered in Japanese smartphones in 2001, and 'third party apps' which all other smartphones had a decade earlier - why are these newer abilities of the iPhone causing any reason to be drunk now?

And even today, Apple does not offer a flash, its 3 megapixel camera is pretty puny for 2009 when high end rivals offer 8 megapixel to 12 megapixel performance. The iPhone still 'doesn't have removable memory cards etc. After those features and abilities it offered in 2007, in the two upgrades of 2008 and 2009, there is nothing 'innovative' or 'competitively appealing' that the iPhone has added. All of its 'improvements' were abilities its major rivals had had for years. (and I will deal with Apps Stores here below, hold on...) 

iPHONE THE CADILLAC OF PHONES

Now a dose of reality. For all that ridiculous reporting extrapolating outrageous conclusions from Admob data etc (nothing wrong with Admob data but we have to see what they report. They report, that iPhone owners get spammed more by ads, than owners of any other phones on the planet. Americans obsessed with the 'free but advertising-spammed model' - I wonder why..) Yes, iPhones receive more ads. But receiving more ads does not mean there are somehow magically more iPhones  in the world. It is ludicrous.

The reality is that there are 35 million iPhones that have ever been made. Out of 4.6 billion mobile phone subscribers on the planet, it means that 0.7 percent - under one percent - of all mobile phone subscribers on the planet have an iPhone. It is not in any way, anything more than a super-premium luxury product, similar to say the Cadilllac brand of cars (which have globally under 1 percent total market share). Look at Samsung for example. Just this year, in the first eleven months of the year, Samsung sold 50 million touch-screen phones, 42% more in just eleven months, than all iPhones ever manufactured and sold in two and a half years. Yes, the Samsung is not quite as sexy and hot and it does not have Apple's PR glitz and glamour, but is this exactly fair? Most US based pundits 'drunk on the iPhone' will just compare the iPhone to the Blackberry and the Palm Pre, and ignore far more widely selling touch screen phones like Samsung, or far more widely selling smartphones like those by Nokia (whose smartphones alone outsell the iPhone by more than 2 to 1).

AMERICA IS DIFFERENT

If you think that 'the rest of the world really doesn't matter' and one should only really care about what happens in the USA, then fine, how about the USA? The US has 280 million cellphone subscribers (yes, American cellphone owners consist only of 6% of all the mobile phone subscribers on the planet). How many US phone owners havs an iPhone? This June, AT&T reported that they had reached 10 million iPhone subscribers. And they are the only network that has the iPhone. Ten million out of 280 million. How many is that? 3.5% that is what it is. In fact, quite similar to my Cadillac analogy - that Cadillac also has by far its best market in the USA, and while Americans love their Escallades, the rest of the world is not going gaga over the gigantic gas-guzzling vehicles and many many other cars of other 'form factors' but of similar price, outsell the Cadillac line worldwide. Just like say Samsung and Nokia and SonyEricsson and LG and Blackberry and Motorola all outsell their mobile phones over Apple branded phones globally.

The media pundits and IT press all have iPhones and tend to think that because they personally have iPhones, therefore 'everybody' has the iPhone. That is simply not true. For 96.5% of Americans with a cellphone - they do not have an iPhone. The numbers do not lie. Do not fool yourself looking at some Admob data or think everybody is like you, or because you see some iPhones near you, in offices of the IT/tech/media/telecoms industry - that everybody has an iPhone. They do not. Even in America - over HALF of all smartphones are... Blackberries. Of the total installed base of smartphones in the USA, Apple's iPhones rank in far less than a quarter of smartphones, roughly in line with numbers of those of Windows Mobile based smartphones. Don't be misled by one quarter's good sales numbers like this summer quarter for Apple. You only need to look at the spring quarter to find dismal Apple sales of iPhones. And again, most smartphones in the USA are far cheaper than the iPhone. And three out of every four Americans does not own a smartphone of any kind. Lets be real. If you really loved the iPhone in 2007, isn't it about time we stop being drunk about it, and get real, that since 2007, there hasn't been that much to celebrate about. Nothing where the iPhone has pushed the (global) leadership in cellphones, and only very modest contributions to the US market and its smartphone offering.

APPS STORES 

Now the Apps Store is gaining enormous press and praise all over. First, remember, all 'normal' smartphones except the original iPhone 2G, were able to accept 3rd party applications. So this was a deficiency in the original iPhone.

And for all the tens of thousands of apps on the Apps Store today, Apple is accused by many developers for being draconian in its control of who gets on the Apps Store and how and why or why not. Before you celebrate Apple too much, I have to point out that they did not invent the Apps Store - the world's first mobile phone applications store was launched in Japan by NTT DoCoMo in 2001, as the i-Appli and the Japanese mobile content, apps and services eco-system is far more robust and healthy and wealthy than the 'hits-based' system that Apple now has created. Plus, the Japanese are far less greedy than Apple in taking a cut of the application developer's money (in Japan the app developer gets to keep 90 cents out of ever dollar, vs 70 cents on the Apps Store).

But yes, that is a finer point of knowing this industry on a global basis. If we 'ignore the world' and focus just on the USA, as so often US based pundits, authors and bloggers do, then yes, for the USA, the Apps Store is a big innovation and while many smartphone makers and platforms had offered 3rd party apps for years before Apple's 'Apps Store' - the older platforms like Symbian and Nokia (now as an Apps Store under the Ovi brand) or RIM/Blackberry or Windows Mobile etc - these were not branded as 'applications stores' similar to what Apple obviously had with the iTunes Store. So offering apps to a smartphone is nothing new whatsover. Packaging the store was a clever move by Apple for the Western markets including the USA.

But the Apps Store was an innovation of June of 2008 !  It was innovative a year and a half ago. If you had not observed that some apps stores did exist globally before the Apple iPhone Apps Store, that is understandable, as they were very nerdy geeky aspects of Japan etc. But if you think the Apps Store deserves to be celebrated with Apple, then it is an idea from a year and a half ago. Nothing whatsoever innovative since then. Why would there still be this 'drunkedness' about the iPhone today in December 2009? Apple, what have you done for me lately?

I want to make one more comment about explicitly the Apps Store. Now we have a totally ridiculous 'race' of a platform of tiny user numbers, consuming enormous amounts of data and apps, of a miniscule impact to the industry. Understand what I say. Tiny user numbers, miniscule impact. It does not matter whether there are 10,000 apps or 100,000 apps, or as some have predicted, by the end of the year, Apple to have 300,000 apps in its Apps Store. That does not remove the fact, that there are only 35 million iPhone users globally (with some growth to the end of the year, and yes, also some iPod Touch users). Focusing on the enormous growth of applications in the Apps Store does not make the iPhone user base any bigger at all. It is STILL zero point seven percent of all mobile phones on the planet. Zero point seven percent. If you take one percent of wealthiest people on the planet, you can sell almost anything to them. Kindle book readers and George Foreman grills and Seqway personal transport things. And iPhone apps.

Think how silly this logic is. Cadillac has under 1% of all cars on the planet, and is priced in the luxury end, so it cannot capture a mass audience. Then we hear that hey, the Cadillac can be made with two dozen separate leather trims (it still is a luxury car with under 1% of market). Now, hey, we expanded the interior options, and you can have 100 different leathers (but it still has under 1%). Or, hey, the Cadillac offers 100,000 separate types of leather interiors. That seems comical - as nobody would go through all 100,000 to try to find what they really like - think of that with Apps Stores - but still, Cadillac has no more cars sold. This is only of interest to makers of leather interiors.

And there we have our parallel. The Apps Store hysteria is irrelevant to the giant mobile telecoms industry. It is even pretty meaningless to Apple in terms of any revenue contribution to Apple's bottom line. Apple has said repeatedly that its iTunes store is not there to make big profits to Apple, it is to help sell more iPod music players. Similarly, the iPhone Apps Store will not be a meaningful revenue or profit engine for Apple directly, but its purpose is to help sell more iPhones. So if there are 10,000 or 100,000 or one million apps, that does not change the fact, that as of the third quarter of this year, there were only a global installed base of 35 million iPhones. The Apps Store measurements are of interest only to "application developers" desperate from vanishing sales in the PC industry, now panning for some possible gold on the latest intelligent operating system platform onto which they can develop apps. But then the developers themselves then become deluded by stats such as the Admob numbers and how cleverly Apple ignores the big market, and focuses only on its smartphone maker share.

343 MILLION DOLLARS IS LESS THAN PEANUTS

The number that matters, is that all apps sold in all 'apps stores' this year, 2009, will be worth 343 million dollars, as measured by the Yankee Group just a week ago. If you think that is ''impressive' and numbers in the 'millions' impress you - then you clearly are not part of the mobile telecoms industry. The mere value of 'mobile apps' BEYOND apps stores was worth 7 BILLION dollars last year, as measured by Juniper Research. So this market, 20x bigger than all apps stores combined, is where those other mobile applications were sold globally, to smartphones such as RIM Blackberries (often business/enterprise apps, not sold through apps stores) or Symbian apps such as the installed base of over 250 million Nokia branded smartphones - or the various other mobile applications pre-installed to several billion non-smartphone type of more basic phones.

And before you have had time to 'catch your breath' on that 7 Billion dollar total worldwide mobile applications market - wait, the mobile 'services' industry is worth... 72 BILLION dollars last year (according to Netsize Guide). And that was before we even counted mobile messaging - about 130 billion dollars said Portio Research (and yes, 26 billion dollars worth of MMS picture messaging services globally, this is why Apple had to add MMS to its iPhone, inspite of Apple's own protestations)

Only those totally clueless to the big picture of mobile, could be so obsessed by a 343 million dollar tiny corner of the mobile data, apps and services opportunity. All smartphone apps, sold this year on all apps stores, including Apple Apps Store and Windows Mobile and Palm and RIM and Ovi etc etc etc, account for ...zero point two percent, 0.2% - 0.002 out of the global mobile data industry annual revenues. The total apps store market opportunity, can grow by DOUBLING in value, for each of the next ten years - utterly impossible economically and statistically speaking - and not be as big as the mobile data industry is TODAY.

It is possible, that some day, the mobile application data opportunity from 'Apps Stores' does become a billion dollar industry - give it a couple of years of solid growth and we may get there - and then we can start to consider its relevance. (For context, the 11 year old 'basic' ringing tone business is worth 5 billion dollars - three times as big as total Apple iTunes sales worldwide - and these basic ringing tones are only but one of a dozen new music formats we have on mobile phones, totalling over 12 billion dollars in annual revenues.)

Anything worth less than a billion dollars is honestly not worth drooling about in this mobile telecoms industry that towers at 1 Trillion dollars far bigger than the global IT or internet or TV or advertising, or indeed the fixed landline telecoms industries). But today, if you want to deliver your news or advertising or entertainment to the 4.6 Billion people on the planet who have a mobile phone subscription, then you need to start with the three globally available technologies - SMS, MMS and WAP. Only about 17% of the planet has any kind of smartphone - and over half of all smartphones in use have a Symbian operating system, and even the installed base of Blackberries outnumber iPhones globally by 2 to 1.  But 3 Billion people are active users of SMS and 1.4 Billion people are active users of MMS multimedia messaging. In most cases of interactive services, newsletters, advertising and coupons - rather than create an iPhone app, you could deliver the same interactive multimedia apps - and reach 1.4 Billion active users on the planet - and 2.6 Billion total phones that are MMS enabled. Here is your chance, not apps stores. MMS annual revenues alone are 75x bigger globally than all apps store applications this year.

TIME TO SOBER UP

So yes, I totally agree with the first part of the clever quotation, that the US market has been drunk on the iPhone, obsessing about it, and it is time to get past thatn drunkedness. Its time to 'sober up." The iPhone is now, two total revisions later, a reasonably complete, high-end luxury phone costing 600 dollars (obviously the AT&T contract hides this fact, in reality the iPhone is not a 200 dollar phone - even Apple's CFO Oppenheimer openly admits that the average cost of an iPhone is about 600 dollars as he did in the quarterly results investor call this summer). That puts the iPhone far beyond the reach of most normal consumers. The average price of a smartphone worldwide is half the cost of the iPhone, at 300 dollars. The average cost of a mobile phone of any kind is under 100 dollars. The iPhone is priced like a Cadillac and will thus find a similar 'niche' market only. It cannot - cannot - cannot - ever cannot - become a 'mass market' phone with 10% or more of market share (of all phones) unless Apple totally revises its pricing strategy (and I am not talking of contract gimmicks like with AT&T and 'lowering' the contract price to 200 dollars or 100 dollars. I am meaning radical real price cuts like it did with the iPod turning that premium niche luxury product into a mass market product).

I am not against the iPhone. There is NOTHING wrong with a luxury strategy, and arguably, Apple is better suited to provide a premium line of luxury products with premium prices, like the Mac personal computers and the iPhone, rather than try to do main stream mass market like say Dell in computers or LG in phones. There is nothing wrong with being a luxury brand and a 1 percent global market share can be a very lucrative opportunity - BMW is often the most profitable car maker and it has that roughly 1% market share, a bit more than Cadillac, globally. And profits are inherently a better target for a business corporation, than revenues. And Apple is very profitable with its iPhone.

But it is time for the West Coast IT/tech industry to stop being drunk about the iPhone. Recognize it was innovative back in 2007, a truly transformational phone. Since then all of Apple's changes to the iPhone have been 'catching up' type of repairs to deficiencies, when compared existing rival smartphones. Apple has given no globally relevant innovation since the first model. And the only major contribution that can be argued, that it was not 'catching up to the neighbors' was the packaging of 3rd party application sales into an 'Apps Store' (copying the idea from Japan) and that too was far more marketing and smoke-and-mirrors in 'the store' as all major smartphone makers did offer third party apps to their platforms; and apps stores themselves already existed years before Apple introduced its own.

FROM CADILLAC TO MASERATI

Now, the second part of that quotation - "People on the West Coast of the US are iPhone drunk; its time to wake up to Android."  takes the right premise, and then jumps to the totally wrong conclusion. If the iPhone is the Cadillac, then the Android is not Ford or Toyota, the Android is Maserati. If Apple is the Cadillac as a niche luxury product, then Android as Maserati, is a far far more niche, more rare luxury product.

The Android based smartphones are, and will absolutely definitely be for at least the next year 2010, a smaller niche smartphone segment, than even the iPhone. So if anyone is 'drunk' on the iPhone today, then the wrong thing to do is to go and now get even more drunk or 'hammered' on Android. It is possible, that Android may grow at rates even as good as the Apple managed in its first two years. It is most unlikely that Android can achieve this, for a wide range of reasons, most of all, because Apple's brand and launch marketing was so powerful, and so many of the Android brands are unknown or relatively weak brands in the mobile phone global market, like HTC and Motorola. But even if Android somehow manages to grow as enormously as Apple did in the greatest new technology launch in history, then Android in December of next year will still be smaller than Apple, far smaller than RIM/Blackberry, and obviously smaller than Nokia in smartphones and not have one percent of the global handset market.

No, the time is not to 'wake up to Android'. No, the time is to perhaps pay a bit of attention to Android. It is going to fight for that 'fourth' place finish, against Windows Mobile and Palm and Linux Mobile and other of the 'also-ran' smartphone makers, whose total market share of all phones is far less than half of one percent. I do not mean Android cannot become big, but just like I said when the Apple iPhone launched, that the 10 million initial annual sales target was very ambitious (but I went on record, that I believed Apple could do it), I am saying, lets not be deluded that the mobile phone business is like some consumer electronics industries or the PC industry.

Having the 'best phone' is nearly irrelevant to global market success as I have explained, and certainly, having a 'better' operating system will not bring Android success or failure. It will not be up to the OS, it will be up to - as always in mobile telecoms - to the distribution channel. Read my blog article if you didn't know this. Yes, its time to sober up, and not be drunk about the iPhone, but lets not go binge-drinking now and get newly drunk about the Android. Lets deal with reality today.

Comments

[Terence Eden]

Hi Tommi,

I disagree, on two counts.
1) As was mentioned at #HoTMS, American companies have two division. America and ROW (Rest Of World). America is drunk on American success - and rightly so. But they rarely see outside their borders.

2) The reason Android won't remain niche is that is a cheap and stable OS that *any* company can use. In the UK, we're seeing Android devices on pre-pay for ~£150. The iPhone is a premium product and will never allow an iPhone-lite to sell for that little. Next year, I'm sure we'll see the first sub £100 Android phones. Will they have 8MP cameras? No. Will they have 16GB of storage? No. But they'll be cheap, fast, stable, have a huge range of apps, have killer browsers, play flash and a have lot more functionality and usability than the iPhone.

T
(Disclaimer, I work for an MNO but I do not speak for them).

[alex]

Hi Tomi,

in my opinion, your analysis of the Apps store is flawed. If Apps store were only of interest to app developers, why would Apple have it in the first place?
I see the Apps store as a tool for Apple to attract customers and, more importantly, to keep them. Users get attached to some of their apps and will consider their availability before switching phone brands.

Inevitably other smart phone vendors are catching up in sleek UI and usability, but the volume market leaders are not even trying to catch up in software platforms.
Take Nokia as an example. They have in fact fragmented their platforms recently even further by adding S60 5.x and Maemo to S60 3.x, not even talking about continued fragmentation in the hardware (screen sizes, input methods), which make application development very hard.
So I don't see Ovi Store creating anything near the value of Apple Apps Store.
In long-term, Nokia seems on a better track, with Qt as common application UI platform across multiple operating system platforms. I expect 2010 to become interesting, when this bears first fruits. But we don't know Apple's moves in 2010.

It will be interesting to see an analysis that puts a value on the Apple Apps Store in terms of Apple's reduced customer acquisition and retention costs.

Also the Cadillac analogy is somewhat flawed.
Cadillac's market share is relatively stable, whereas iPhone's is still growing.
And installed base capable of running the same apps is growing very rapidly, compared to others who repeatedly start from zero base - how many phones can run Facebook's new app for S60 5.x ?

Point is, we don't know yet where is the ceiling for iPhone, is it 1% or 10%, or what. And we don't know how Apple might adapt their product strategy by the time the current "one-expensive-model strategy" saturates.
So not at all comparable to Cadillac, where we know that they are confined to a luxury niche.

I agree with your analysis regarding Android for 2010. Android's potential lies in the longer term.

[ARJWright]

Ah, nice analogy (from this USAmerican's opinion). And nearly befitting. Caddy did manage to change the luxury industry though, and that's caused the incumbants (BMW, Merc, etc.) to respond not just here, but aborad with suitablily more innovative, and better priced, models.

Android will be something to worry about in time, but the networks have to catch up the software's personality. When/if that happens, Android would be well positioned to be another Caddy (or Hyundai).

As for the west cost of the US being drunk on the iPhone; I agree. And mainly because I don't live there and it still echos here on the east coast. Too bad that mindshare and reputation matters to folks over here more than ability, else this post would not have been needed.

By the way, when are more mobile analysts going to take the chance of living off of their smartphones - where the *smart* in these mobiles can be put to a real test? Its easier to be sober when you are actually drinking and not just going along with the party music holding a glass.

[Tomi T Ahonen]

Hi Terence, alex and ARJ

Thank you for the comments. I will reply to each individually.

Terence - on your first point of disagreement, that American companies have two divisions, one for the US market and one for the rest of the world, I don't see that as a problem, it seems pretty smart to me, and what I'd do myself. The US market is very different from the rest of the world, and it makes sense not to try to think of the world mobile phone market as uniform. It is not. I don't see really where this is a disagreement with me, but I'll happily agree with you on this. It doesn't in any way invalidate my main argument, that the US is drunk on past iPhone achievements and its about time to sober up, and think, what can you do for me today.

Your second point, that Android won't remain a niche is a good prediction. Nobody obviously can know, and your guess is just as good as mine. What I do want to say, is that Apple did the world's most amazing new product launch, for a smartphone called the iPhone, in 2007, and then committed the whole company resources to gaining 10 million annual sales in the first full year. They even changed the company name to achieve this. I would bet quite a big amount of money and my reputation, that next year, Android will not match Apple's first year splash with the iPhone, regardless of what price point there is a given Android phone. The global market has such many factors arrayed against rapid growth - look at RIM, by far the world's best texting phone in an era when texting is found to be addictive - and simultaneously the world's best business phone - and it took them 5 years to sell their first 5 million cumulative phones. Today they sell 5 million phones every six weeks. Its the economics of the mobile phone market, which dictate, that a new player, new phone, new OS etc, cannot gain rapid market share. Can't be done.

Maybe I am wrong. Feel free to come back to this blog and lets examine in December 2010. But you might look at my various forecasts on this blog, in my six hardcover books, in my various quotes in Business Week, Wall Street Journal, Financial Times, Economist etc. my track record is pretty solid haha, but nobody knows. Its the future...

alex - You make good points, and yes, there is obviously a significant customer segment of many mililons, willing to download tens of thousands of Apple Apps Store apps to their iPhones. My point is, that in the big picture - it is TOTALLY irrelevant. Not 'marginally' relevant. TOTAL apps stores, not Apple Apps Stores, sell one fifth of one percent - of the value of mobile data, content and services this year. Any content owner or developer who has a tiny speck of intelligence, will look at that degree of mathematics, and re-calibrate. Yes, its good to develop for the iPhone because it is easy to get up and running, and if you're lucky, you might even make a little bit of money out of it. But nobody is going to earn billions on the iPhoen Apps Store, not even Apple, for years to come. But 200 Billion dollars worth of mobile data apps and services were sold last year, how much bigger is that this year. The total Apple Apps Store contribution to the mobile data global market economics, is so small, to be lost in the rounding off error. Literally. alex - one fifth of one percent? Where is the real opportunity here?

But yes, you make a very good point, that within that tiny market of 35 million users - remember the mnobile industry counts in billions, not millions - then yes, of course for Apple the loyalty factor is a good point out of apps stores. But its still tiny. Zero point seven percent of the planet's mobile phone owners have an iPhone. Who cares. Its a super premium luxury product like a Cadillac or a Rolex. yeah, cool to see on MTV cribs, watch how the rich and wealthy do, but for hte main stream market where the money is made - the mass market - that is where every consumer brand currently so hot on the iPhone, should focus on. Not the iPhone... Thats my point.

On Cadillac analogy. Yes, you make a good point, if Apple drops its price dramatically (or in other ways totally changes its marketing strategy - such as what I have been advocating on this blog for two years now, to spread their product range to more than one current phone model per year) then yes, they can break away from the Cadillac analogy. But as long as its a 600 dollar phone, it will be under 1% globally. Can't escape that.

ARJ - thanks, haha, yeah... Actually we are seeing 'awesome' smartness coming - where else, from Japan. The NTT DoCoMo mobile consierge service is really one that users say 'wow' and think their phones really are smart and read the minds of the owners.. we have some hope haha...

Thank you all for comments

Tomi Ahonen :-)

[Henry Sinn]

Great article. Maybe the Cadillac and leather analogy might get through to some readers. Management at Vlingo understand. [Is voice control going to be the beginning of the end of the keyboard? Implemented via mobile first?]. From their blog: "While we have attracted a significant and loyal following through BlackBerry and iPhone downloads, we also recognize that S60 and in particular Nokia represents by far the largest single path to widespread distribution.”
Others are very drunk as you say. From a small, albeit niche developer I recently stumbled upon after a request for symbian product [http://melloware.com] “While symbian is a great platform, I don't think I will port any of my apps to it. I think the iPhone and Google Android are going to dominate the marketplace. I can't go to dinner without seeing 5+ iPhones and 2+ Android phones around me. I think that trend is going to continue.”

PS Who needs an app for anything [history of personal computing] when you have a browser?

[Andrew J Scott]

Tomi- yes, I'm guilty of the 'drunk on iphone' comment and thanks for the citation! However, I think you're wrong about Android. Android is license free, it has multiple operators and MNO's backing it. It's reach will rapidly become very big indeed. It will overtake iPhone in 2010, it is seriously challenging incumbants; and I'd expect to see a Nokia phone running Android within 3 years (if they are still even building hardware then! ;-)

[andraz]

Ehm, what is a cadillac to the rest of the world? I would say majority of "the rest of the world" probably has never seen it and probably do not even know its a car brand name :). I guess very similar thing to iphone.

[Tomi T Ahonen]

Hi Henry and Andrew

Thank you both for stopping by. I already mentioned that you're here on Twitter so your followers can also come and join the discussion haha.. I'll reply to both individually.

Henry - first of all, a totally brilliant comment 'who needs an app for anything when you have a browser?' Loved it, and twittered it already. I'll be quoting you on it haha...

On understanding Symbian and its reach, very very valid examples, thanks. Yes, some do 'get it' and others do not. And are drunk on the hype about the iPhone (and Android). I am telling people, if they are going to launch apps, then it is yes very good to do an iPhone apps first, in most Industrialized World markets (and obviously only where Apple has a reasonable market share among smartphones like say UK or France or Australia etc). The iPhone is easiest to develop to, and you might even make some money on the app. But then, depending on where you are based, to go next to the big platform. In North America that is obviously RIM, not Android, WinMo, Palm or Symbian. RIM has over half of all smartphones in America and currently sell 3 out of 5 bestselling phones - not smartphones, all phones - in America including the topselling phone model. RIM is the giant smartphone platform in North America. And most of the rest of the world, that is Symbian, including Japan haha where its NTT DoCoMo's smartphone platform so essentially all smartphones on the network for half of the Japanese will be Symbian. But yes, with Symbian there is a lot of fragmentation, so its not 'easy' but it is far bigger.

Then as I always say, try to imagine your customer experience as a service (for example via a browser) rather than as a stand-alone app. If offered as a service, you get the option of monthly fees - a long reliable revenue stream if your service is truly useful. And obviously the other globally deployed mass market service platforms, SMS and MMS. My fave is certainly MMS...

Andrew - hey, thanks for stopping by, and good quotation haha. Obviously we see the chances of Android a bit differently, but as you are a bit biased, haha, it is certainly understandable. About that market success... Android to become 'very big indeed' and 'overtake iPhone in 2010' - I really don't think so, but it may happen. Let me give my quick thoughts why I think not.

First, six out of the big 7 are not going to support Android in smartphones. Biggest handset and smartphone maker Nokia (Symbian & Maemo) won't abandon its own operating systems. Number 2 in phones and numnber 5 in smartphones, Samsung has just announced its own OS, Bada, and while they offer token smartphones on all major OS's including Android, Samsung won't be pushing Android next year, they want to establish Bada. RIM the second biggest smartphone maker and number 6 in total handsets has its own OS.

Then we have 3rd and 4th biggest handset makers, LG and SonyEricsson, who are nowhere to be seen, in trivial market shares in smartphones. We have 3rd biggest smartphone maker and 7th biggest handset maker, Apple with its own OS. Thats six out of the seven biggest handset makers.

The only major maker to do Android 'seriously' is Motorola in what many see as a desperation move. The Moto brand is severely damaged in all markets outside of North America, and both consumers and mobile operators are wary of investing too much effort and trust in 'yet another former giant US global brand that is near bankruptcy' as many see Motorola... Plus its handsets since the Razr have been dogs.

Motorola may have a hit with its Android phones. May have. But its TOTAL phone sales are only about twice what Apple sells iPhones currently, and the Moto Android smartphones would appear at the top end of Moto's line of phones. It is unreasonable to assume it would sell more smartphones than basic phones where its current mass of revenues is.

Then it comes to HTC, the fourth biggest smartphone maker and world's approx 8th-9th-10th biggest handset maker. HTC was the launch customer for Windows Mobile and at one point said they had delivered 80% of all WinMo phones in use in the world. That HTC is switching from WinMo to Android is a big coup for Google, and a huge - possibly even deadly - strike at Microsoft. So, just with the HTC move, it is likely that Android will pass Windows Mobile and become the fourth best-selling smartphone platform, as early as 2010. Yes, this I can see. We agree on the overall trend line.

How strong is Android then? Nokia - inspite of all the silly hype - is consistently selling better market share in smartphones than it does with all phones. It is as big as number 2 and 3 combined in all phones, and Nokia smartphones are as big as number 2 and 3 combined in smartphones. Nokia has also said frequently, that it does not want to exceed 40% market share, and will focus on being profitable, rather than pursuing half of the global phone market. They just paid a billion dollars to buy out Symbian which they made open source, and aim to make their low and mid-price smartphone platform. And Nokia have established Maemo as their premium smartphone OS for top end phones. Separately consider this - in those markets where there are no handset subsidies - ie where competition is truly open - in those markets Nokia is doing its best, and Nokia has its worst markets in those countries with heavy subsidies where operators control the market, like the US and Japan. So what do we read out of this, that Nokia knows how to sell to mass markets, globally, and the only reason they don't have 45% market share today is because in some markets the operators lock Nokia out... So, don't count Nokia out of the smartphones race. If they consistently do better in market share in smartphones, than regular handsets, then Nokia is 'doing everything right' even if some analysts does not like the current model of E71 or N97... Nokia won't 'lose' much market share I'd say, they'll be pretty much guaranteed to be in 35%-40% in smartphones next year.

Then RIM. Blackerry's CEO just said a few weeks ago that they sell currently 70% of their phones to residential customers, not business/enterprise custoemrs. RIM has a 'lock' on the enterprise/business customer base, a recent survey of US businesses said that in 74% of corporations they only use one OS for smartphones and refuse to add a second platform. Blackberry has most of those and is very safe in the next replacement phones for those enterprise/business executives, will be Blackberries. But now BB is also the preferred texting phone for teenagers, from countries as far apart as Indonesia and Venezuela. Blackberry is set to grow market share, not lose it.

Apple is number 3 in smartphones. Apple has been growing steadily. And they have gradually added new countries and markets - Japan, South Korea and China all this year. They also are expanding the offering across more carriers/operators, ie the rumor is that AT&T's exclusive deal will expire next year, and in many countries like Italy, Australia, France etc the iPhone is offered on several networks. Because of this expansion in the distribution chain, even if the 2010 summer edition of iPhone 3Gx was to be somehow a 'dud' or a 'dog' the overall iPhone market share for the full year 2010 will be better than it was for the full year 2009 globally, for no other reason than that Apple is still expanding its footprint.

Thats 75% of the global smartphone market, and one won't shrink, two are guaranteed to grow. It may well be 80% by end of 2010, split among these 3. And then we have Samsung, very hungrily NOW coming to smartphones. Samsung was not very aggressive in the space before. But Samsung has very consistently outperformed all rivals in all markets it has entered, not just phones but laptop PCs, plasma screen TVs, etc. They are a very strong rival to begin with, and much more, they are launching their own OS, giving them all the reason to focus very formidable marketing resources to support Bada.

Android has HTC, that is good. Android has Moto which is pretty meaningless in smartphones. And most of the other two dozen or so brands are names most people do not recognize. They are third tier manufacturers from China, Taiwan etc, who yes, some can be big one day, but none are in the class of say RIM in total sales, not even HTC.

And we have WinMo fighting back, Palm fighting for their share, Linux Mobile also, etc. The remaining 25% to 20% of the smartphone market in 2010 will be a dogfight among 'the rest' and yes, Android seems quite strong in that field, mainly because of HTC. Seems stronger than WinMo or Palm at least...

So that is how I see it. I do agree you see it differently. Prices of the Android phones will be a factor. The mobile operator/carrier support will be a big factor. But the established big players are currently very strong and I don't see this market changing dramatically in the next year. In a few years Android can become a real rival to the iPhone, but not now, not next year.

Finally, you may want to read that blog I have at the link at the end of this article, about what is the real cause for winning/losing in market share in smartphones - the distribution channel. I think you'll find some valuable insights in that article..

Thank you both for writing

Tomi Ahonen :-)

[Liz Coker]

Hi Tomi -

Nice analysis. In particular, I'm glad to see you highlight the distinction between App Store apps and the much bigger market for enterprise apps and mobile services. this IS often lost on investors and marketing folks in the US.

As for why the US is still drunk on the iPhone & starting to drool over Android? Personally, I think that Apple and now Google (and the US carriers) are working their marketing magic to drive US consumers to let loose of their now, tightly held, disposable income. We are a country that has been motivated by "Keeping up with the Jones's" for two full decades. That behavior is slowly changing (out of necessity) and when an item is a nice to have, vs. a have to have item, the likelihood and cost of losing your market momentum is very high. These are American brands, so while there may not be any real new innovation, they "show" very well.

From a technical perspective, my original WM smartphone did everything the original iPhone did - a year before the iPhone came out. Apple just did a MUCH BETTER job of marketing than did HTC or AT&T. Apples' marketing was good for the entire smartphone industry - people finally paid attention. Good corporate marketing (and of course good financials) drives up stock prices. When you have no new innovation, you better look like you do if you want to see stock prices continue to climb (app store, developer programs, GPS, faster networks - that was AT&T, but Apple got the credit for a new iPhone release) . From a marketing perspective this is brilliant. I know these comments may be a bit cynical, but as is the case with many things, the perception is often more powerful than the reality. The best technology does not always win - or at least not always grab the headlines.

[Richard Spence]

The problem I have with this analysis is calling Symbian devices smartphones. To me they are just phones. The iphone is iconic because it has defined what a smartphone is - upgradable os, apps, app store, great browser, good development tools, accelerometer etc. Android fits this description too.

Comparing iPhones to symbian devices is like comparing a checkout Till to a PC. Sure they are both have a chip and memory and a screen etc but they are not the same thing - so a lot of the stats are not valid.

I am pretty active in the development community and I rarely if ever meet anyone developing for Symbian - really. This is nothing to do with iPhone drunkeness just that Symbian development is laughably bad and plain uneconomic the vast vast majority of developers. Without developer support, particularly small developers the platform is doomed.

If I was going to use a car analogy the iPhone is the model t-ford while Symbian is a horse and cart.

[American finance solution]

Good article and a nice summation of the problem. My only problem with the analysis is given that much of the population joined the chorus of deregulatory mythology, given vested interest is inclined toward perpetuation of the current system and given a lack of a popular cheerleader for your arguments, I'm not seeing much in the way of change.

[Mobilereflex]

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[Tomi T Ahonen]

Hi Liz and Richard

Thanks.

Liz - very good points and totally agree with you. Yes, its in the fizz haha, the marketing competence that is a major reason why. It doesn't stop me from feeling frustrated haha, and having to post countless comments here on this blog and on various forums, because the misguided understanding now when so many seem to think that Apple and Google invented a mobile internet for us etc..

Richard - fair enough. I agree to a certain degree. You remember I called the iPhone the dividing line, we'll count time before and after iPhone. So in terms of the 'second generation of phones' yes - but not for those reasons you list. The original iPhone did not even have an operating system for which users could install apps. There was a huge global vibrant apps industry for smartphones - mostly business apps obviously at the time - that existed prior to the iPhone. And a year after the iPhoen 2G we still didn't get to install apps to it...

So I agree with your conclusion but not the reasons to get to it haha.. The original iPhone (2G) was FAR LESS a 'proper' smartphone than a Nokia 9110 Communicator was from 1999.

Now, if you want to argue that some Symbian phones are not suitable for smartphone use, I would beg to differ. If you are wealthy enough to afford a 600 dollar iPhone then you can be picky. Most of the people on the planet cannot afford that. For many a 50 dollar basic phone is a stretch. And now Nokia has released its first sub 100 dollar 3G smartphone. Those will be used with apps and full web browsing etc just like the iPhone is. Its not as good, but to say yo ucan't count Symbian phones is pretty snobbish, its like saying anything less than a BMW is not a proper car and should not be counted.

As to developers. Obviously there is a ton of them, but mostly US based developers don't even know how to spell Symbian - for good reason, it is not significant in their home market. But what of Japan where half of the installed base of phones - not smartphones, all phones - support Symbian? The phones are not proper smartphones because they are totally locked by the carriers but the OS is Symbian (or Linux) so if you develop in Japan you develop only on Symbian or Android (until now, that suddenly last year iPhone 3GS took off, and from 2009 the Japanese would also develop for the iPhone if they want apps on only one network, the smallest of the three haha...

Thank you all for writing

Tomi Ahonen :-)

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Good article and a nice summation of the problem.

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Ah, nice analogy (from this USAmerican's opinion). And nearly befitting. Caddy did manage to change the luxury industry though, and that's caused the incumbants (BMW, Merc, etc.) to respond not just here, but aborad with suitablily more innovative, and better priced, models.

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Now the Apps Store is gaining enormous press and praise all over. First, remember, all 'normal' smartphones except the original iPhone 2G, were able to accept 3rd party applications. So this was a deficiency in the original iPhone.

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The interesting information, the tonic on a note!Ah, nice analogy (from this USAmerican's opinion). And nearly befitting. Caddy did manage to change the luxury industry though, and that's caused the incumbants (BMW, Merc, etc.) to respond not just here, but aborad with suitablily more innovative, and better priced, models. Android will be something to worry about in time, but the networks have to catch up the software's personality. When/if that happens, Android would be well positioned to be another Caddy (or Hyundai).

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Android has Moto which is pretty meaningless in smartphones. And most of the other two dozen or so brands are names most people do not recognize. They are third tier manufacturers from China, Taiwan etc, who yes, some can be big one day, but none are in the class of say RIM in total sales, not even HTC.

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you may want to read that blog I have at the link at the end of this article, about what is the real cause for winning/losing in market share in smartphones - the distribution channel. I think you'll find some valuable insights in that article..

[Japan map]

A good blog! The iphone is iconic because it has defined what a smartphone is - upgradable os, apps, app store, great browser, good development tools, accelerometer etc. Android fits this description too.

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What remarkable post! Those - also totally common features of rival high-end smartphones years before the original iPhone was launched - were only added to the model in the summer of 2009.

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This theme has interested me! Maybe I am wrong. Feel free to come back to this blog and lets examine in December 2010. But you might look at my various forecasts on this blog, in my six hardcover books, in my various quotes in Business Week, Wall Street Journal, Financial Times, Economist etc. my track record is pretty solid haha, but nobody knows. Its the future...

[Adam Lang]

This article would be a little different today, as the android market is over taking the iphone.