"It was the best of phones, it was the worst of phones." ...It was the phone of wisdom, it was the phone of foolishness... The world of mobile measures time in two eras, the time of Bi Before the iPhone and the time of Ai After the iPhone. The iPhone changed everything about the mobile industry and is now the most copied design and form factor, and has single-handedly re-energized numerous areas of mobile that had been tried before, from touch screen to app stores. And the iPhone is hot and selling well. Yet its time of ascendancy has come to an end. The decline of the iPhone has started. And I want to be the first to write an honest, fair and complete history of what the iPhone did to other mobile phone makers, to the mobile industry, to the IT industry, to the media and advertising industries, and to Apple itself.
UPDATE APRIL 20, 2010 - Apple has jsut reported first quarter sales. They were 8.7M units of iPhones - far better than almost anyone expected. It is important to understand, my forecast of 'Apple iPhone market share has peaked' was based on the pattern that iPhone sales 'always' decline after the Christmas Quarter. The quarterly sales in the Christmas Quarter 2009 was 8.7M and now the Jan-Mar quarter sales was also 8.7M units. That data goes totally against my hypothesis. I am, therefore adding this warning to the top of the blog, current data does not support my view, and we have to continue to monitor the performance. it is still possible Apple iPhone annual market share has peaked, but it is not now 'certain' by any means. I will keep you posted in the coming quarters.
UPDATE 2 APRIL 20, 2010 - I have 'found' the 'missing million' iPhone unit sales that none of the analysts had expected to see. They were due to Chinese New Year gift-giving where the Chinese culture does not celebrate Christmas, but gives gifts at the Lunar New Year which happened Feb 14 this year. I analyzed Apple numbers and foudn that this is where the million were. Read the full blog here Tomi found missing million iPhone sales.
UPDATE APRIL 22, 2010 - Today we know the overall market size of smartphones for Q1 of 2010, which is 52.6 million units. That means we can calculate Apple's market share for this quarter. It did not grow. For the third quarter in a row, Apple's market share is stuck at 17%. Please consider that fact when you evaluate the plausibility of Apple's market share perhaps having peaked. My thesis is looking ever stronger - inspite of Apple's stellar Q1 quarter in unit sales, revenues, profits, iPhone apps etc.
Back to original blog:
You read it right. I am writing the first history of the once-iconic iPhone, written now in early April 2010, before Apple has released its first quarter earnings for 2010. This is literally the peak of the short reign that Apple's iPhone had as the most emulated smartphone. I do not know yet whether Apple's peak market share has already gone or is right now as I write (we w'n' know for sure unti lthe full year 2010 numbers come out which it was) - but I do know what signs will tell us which (coming later in th is blog). And that will become clear long before the year 2010 is gone, we will know the signs by June. And mark my words, the numbers are now very clear, Apple's market share peak among smartphones, and among all handsets, on an annual basis, is being witnessed now. Yes its true, Apple cannot grow market share into 2011. But its not for reasons you might think.
So first, a welcome to Apple fan-boys. We have had hostile visits before by Apple fanatics. We do not shy away from honest debate and argument. Your view is perfectly valid. You will see we have over 3,500 comments posted on this Communities Dominate blog and we reply to all who comment here. I will be most happy to reply to you if you leave a comment. However, I will not tolerate abuse. I will insist on one criterion - you must have read this blog article - and I apologise, it is long even by my standards. But we are writing the first history of our favorite product, so it can't be short, can it? So, if you post a comment to this blog, which suggests you didn't read this blog, I will be deleting your comment without mercy. If you refer to my writing, then yes, your comment will remain howver violently you might disgree with me, and I will reply. But only those who have read the full blog article. You are very welcome here.
iPHONE HAS PASSED ITS PEAK IN MARKET SHARE
Now. To my main theme. I am dead serious. I am now convinced that we have enough data to determine for a fact that Apple will not only see a dramatic decline in quarter-on-quarter sales in units of the iPhone this January-March quarter (which is the predictable pattern and no surprise) but that we will also see a decline in iPhone market share against at least HTC and Blackberry; that would be demoralizing news in itself. I know now that the numbers are clearly stacking up so, that the annual sales level of iPhone units, will result in a decline in iPhone annual market share in 2010. There are only 2 possible scenarios by which that won't happen - I will explain both so we know. I and will give you the signs what to look for, so we'll see clear evidence by June to know if that happened. Even so if not in 2009, the likely scenario would be that 2010 is the peak year and 2011 will decline (I will explain how). Only one extreme, and very unlikely scenario sees Apple growing market share into 2011 (I will explain).
TOMI THE iPHONE GURU
Who am I to make such a wild and preposterous statement? Don't I know Apple has grown sales year-on-year every quarter since the iPhone launced in 2007? Don't I know Apple is expanding its reach with the iPad, having billions of downloads of Apps, and updating its OS and launching an iAd service?
Yes, I know all that. I am a very thorough student of the Apple iPhone. I bet you, that I knew the iPhone was coming before you did. I knew there was going to be an Apple mobile phone before anyone had seen any prototypes and mock-ups of the "iPod phone" that circulated in 2006. I knew there was going to be an Apple phone before the first public interest of Apple in mobile - remember their collaboration on the Motorola Rokr? I knew there was going to be an Apple phone before we started this blog and I was quoted in several sources saying an Apple iPod-style musicphone was coming, and quoted about it in public in 2005. I knew an Apple phone was coming before my first of 9 books was released. I explain the stand-alone iPod/MP3 player and why it will lose to MP3 playing phones literally a year before the world's first MP3 musicphones had been released, in my second book M-Profits - in 2002. I knew an Apple phone was coming before I started my consultanc yin 2001. I knew Apple was coming to mobile way back when I was the Global Head of Strategy Consulting for Nokia. It - an Apple iPod-based musicphone was one of the scenarios we mapped out. We knew a decade ago, that Apple's entry into mobile was inevitable. Inevitable. I dare you to provide any written record of you speculating of an upcoming Apple phone prior to 2002 haha.
So I am not some Johnny-come-lately to the iPhone. I have anticipated and expected and then cherished the arrival of the iPhone. I wrote some of what many in the mobile industry called the best blog articles on the topic, when predicting the impact the iPhone would have to our industry, to other phone makers, and to many other industries from IT to media and advertising. When nobody had even touched the first iPhone I was so versed in its market and opportunity, I correctly estimated its first year sales - not a big achievement as many others managed that too - but only 3 days after teh iPhone had been announcned, before the iPhone launched I correctly told our readers here, where Apple's markets were and how it would do globally - AND I predicted the US vs World balance of the iPhone to an accuracy of 95%. I was very accurate and nobody anywhere gave such projections in the Spring of 2007.
TOMI THE FORECASTER
I am not just a mobile industry enthusiast, author and chronicler, I am also a statistician and forecaster. To set this blog into context, I was the world's first person to say in the summer of 2005 - note that time - that during 2006 Apple's iPod would lose its market share to the brand new MP3-playing musicphones. Those musicphones had launched only two years before, in South Korea of all place, and the West had had its first taste of a supposed 'musicphone' by a major manufacturer with the ill-fated Motorola Rokr. Apple's iconic iPod had witnessed 15 consecutive quarters of sales growth and was headed to its best Christmas season ever, still breaking sales records. In that time in the summer of 2005 any normal and 'reasonable' forecaster took his 'trend' and happily extended the iPod's sales growth at least to the end of the year. And looking at a Rokr, in no way could these new-fangled silly useless toys, MP3-playing 'musicphones' with their puny music storage abilities, lousy user interfaces and poor quality, ever hope to rival the mightly world king of portable musicplayers the Apple iPod.
Nobody. Nobody else saw it coming that rapidly. Some very tuned-in experts did suggest that musicphones might displace the iPod towards the end of the decade, around now, 2010. You can read what I wrote about the iPod vs musicphones on this blog. Or if you haven't read our signature book to this blog, perhaps now is a good reason to pick up a copy of Communities Dominate Brands where we have iTunes as a case study, but where we also make it clear that musicphones will take over from the iPod. And yes, in the summer of 2005 there was nobody in print or on a blog prior to my thoughts, who suggested musicphones would cut iPod's amazing run of hits very short, during 2006. The first publication to quote me was the Financial Times on 31 August 2005 where they wrote that I said of the iPod vs musicphones battle 'Next year the game will be totally over." The version of that argument presented at this blog is here: The Year the iPod Died.
AHONEN HATES APPLE
We were vilified on this blog for that. An army of Apple fanatics descended here to spew their hatered and did not see my point - that we wanted Apple to rush its upcoming phone. That it (the iPhone) was inevitable, but its timing was so urgent. As we then returned to the same theme the next few quarters, iPods vs Musicphones, we heard every kind of argument. But also with each passing quarter the data became ever more clear, and we found more returning readers who admitted they are changing their minds.
Then in January 2007 Apple settled the matter for us, with Steve Jobs explaining at the iPhone announcement event, that they made the iPhone an "iPod phone". Case closed. And we were finally vindicated by Apple CFO Peter Oppenheimer at Apple's official quarterly results on 22 July 2009, when Oppenheimer said, "For traditional MP3 players, we saw a year-over-year decline which we internally had forecasted to occur. This is one of the original reasons we developed the iPhone and the iPod Touch. We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."
You can't get it more clear than that. A music-playing mobile phone (like the iPhone, and earlier Apple had mentioned SonyEricsson's Walkman phones as well) did indeed cannibalize MP3 players like the iPod. Not just that this was a theoretical possibility (at some point in the distant future when musicphones were 'mature') - but no, long before January 2007 at Steve Jobs's announcement. Long before that, Apple had started its iPhone project. Therefore, according to Oppenheimer, Apple had seen 'a decline which we internally had forecasted to occur'. So sometime in 2005 at the latest, Apple saw that their numbers were pushing them to create an iPhone. This was exactly the same timing as my blog! I know my sh*t and I had known an iPhone was inevitable. I did not 'hate' the iPod or 'hate' Apple, I wanted Apple to rush into this industry and bring its stamp of customer-oriented ease-of-use, and innovation. To do to 'my' industry of mobile, what the Mac had done to the PC industry and what the iPod had done to the music industry (and for the real nerds among our readers, also what the Newton did for the PDA industry)
So I have a history of knowing Apple and its market when it relates to mobile (please don't ask me to forecast Mac sales haha). In fact, long before I was employed by Nokia, I was working for New York City's first ISP (a company called OCSNY, still in business today) which was an authorized Apple reseller and I was their Apple trainer. I got to know lots of Mac users on Manhattan two decades ago haha. Always loved Apple.
While past performance is never a guarantee for future success, and in forecasts nobody can be perfect, I am proud of my record and stand my my forecasts and when I am wrong, I am the first to announce it if I change my mind (I am not stubbornly holding to a forecast if the facts prove me wrong) and I try to learn of my mistakes. And for this particular product - the first Apple mobile phone - I have studied that market opportunity incredibly deeply from all angles literally for a decade.
TOMI LOVED THE iPHONE 2G
Minutes after Steve Jobs showed the world the very first glimpse of a prototype iPhon ein January 2007, this is how I welcomed the newest handset maker: "this is very welcome innovation fusion to the handset industry" and (note Cingular changed its brand to AT&T later that year) "apparently the iPhone will be sold by Cingular in America. I wonder how well Apple has managed its network operator reseller channel. Cingular is on GSM, so at least Apple has an excellent chance to sell globally and access about 75% of the world's mobile phone customers. Will there be a CDMA variant, I wonder. The American market would certainly warrant that. Will this Apple superphone be 3G (WCDMA) - if not, then Japan and Korea may be out of its reach. I do hope it is a 3G phone". I clearly liked what I saw right from the start.
But I am the money and business expert for the mobile industry. So next, I wrote a warning to Apple: "Welcome to the carnage, Apple. This is not the "easy" PC market or the dormant musicplayer market where Apple's innovation had an edge. The existing major manufacturers, Nokia, Motorola, Samsung, SonyEricsson and LG - have massive scale - remember the smallest of the big five, LG, sells twice as many cellphones as the total output of Apple's iPods and Mac computers combined. These big five have very deep consumer insights specializing on trends, fashions and preferences. They've beaten a wide range of global challengers who have exited or become only local or niche players. Consider this list of world-class consumer electronics excellence: Sony (yes, when Sony was the sixth largest manufacturer four years ago, they said they cannot sustain their handset business as a profitable venture), Ericsson (which set up its joint venture with Sony, and obviously was also unable to continue alone), NEC, Panasonic, Philips, Alcatel, Sharp, and so forth. Motorola was making massive losses with its handset business a while ago, and Samsung has been complaining last year. Only Nokia has managed to be profitable in this game. It will be tough."
Who else saw all this just minutes after Apple revealed the iPhone. Most were just mesmerized by the 'giant' 3.5 inch screen, the 'amazing' multitouch screen and the sexy looks of the original iPhone 2G. But take that paragraph to any published expert on mobile, and they'll say its all solid, as true in 2010 as it was in January of 2007. And I ended my first blog about the iPhone (obviously with reference to the long wait with iPod troubles) with "Welcome Apple. I only wish you'd been here 18 months ago..."
I have probably written 100,000 words on or related to the Apple phone/iPhone/iPod/iTunes/Apps/iPad area - that would be a 350 page hardcover book haha - so don't worry, I won't be quoting myself for the next 10,000 words. But I do need to mention a few statements I made, to make this very clear. I started my long-running series of pleas, begging Apple to incorporate a full QWERTY keyboard to the iPhone, with an open letter on the second day, January 9, 2007. I am not the only one who has begged for it, but I tried to explain the business reasons for a phone where users can send SMS text messages 'blindly' ie not looking at the phone, with the phone in their pocket. Half of British teenagers, and 42% of American teenagers confess to being able to send SMS text messages blind. I tried to convey the importance of this to Apple. I think its ironic that both Blackberry and Microsoft seem to have 'learned' this lesson while Apple continues to ignore it. But I will say no more about QWERTY, except that on Day 2 I wrote an open letter imploring Apple to give it to us.
Day 3 from the first Apple announcement, I give a major comprehensive analysis of Apple's market chances for its first year. In it I consider Apple's product, its price, its launch strategy, its distribution channel, and its competition. I take the world, show where Apple's markets are, and make early suggestions of how it might do in given market segments. I explain how a 3G model in the future will be vital for entry into many markets such as Japan and South Korea. And you may want to go read that article. I told you 3 days after the iPhone was announced, that it would sell 4.7 million in the USA, with Europe second and Asia its smallest market in the first year. AT&T told us in 2008 that about 45% of iPhones were activated on their network. Damn I'm good! And I told you that it would be summer of 2008 when 3G would arrive to the iPhone. Not whether there would be a 3G version, so much was clear, a 3G version had to come. I also forecasted the first iPhone clones before Apple's European launch. We did see LG's Chocolate in Europe before the iPhone arrived. (I love reading my old forecasts haha)
I told readers on Day 3, that Apple's biggest strengths were with the company, not the iPhoen itself, that Apple was now the industry's best marketing organization by a long shot, superceding the previous master at marketing in the mobile telecoms industry, Nokia. I said the modern phone was becoming so complex, we needed the innovation in the user interface, Apple's core competence "here Apple reigns supreme".
And consider this comment on how Apple will be received, in its home market: "If Apple promises this is the next leap in cellphones, they have the benefit of the doubt, for a long time, from their own backyard, the IT and business press in America. As America lags in the mobile phone market and innovation, American analysts are really not competent to accurately measure how innovative the iPhone is. Obviously Nokia, Samsung, SonyEricsson etc don't bother releasing their top phones first into the American market, and American carriers are still years behind those in Europe and Asia. So Apple also has a strange "boost" out of being in a market that doesn't really understand their product. Expect the most glowing reviews and opinions from the American press; and the most critical reviews and opinions from the Northern Asian and Northern European press. This regardless of how good or bad the iPhone ends up being when it ships." - bear in mind, we are 3 days from Steve Jobs on stage, nobody has touched an iPhone yet. But I am already forecasting perfectly accurately how divergent the IT tech press reviews were going to become for the original iPhone 2G. Exactly as I suggested, US press loved it, Europeans were ok with it, and the Japanese and South Koreans felt it was not particularly interesting.
I UNDERSTOOD iPHONE DISRUPTION
There were many who went gaga about Apple's iPhone slick cool look, 'huge' 3.5 inch screen and its multitouch user interface, as the date of the launch of the iPhone 2G approached. There were many who then felt this was the new dawn of phones, and it was not unusual to have experts suggest future phones would be more like the iPhone of 2007 than the bestselling Nokias of the time. That was the 'easy' prediction. The mobile phone handset industry is a 150 Billion dollar business, worth about a third of the value of the PC industry for example. So a far bigger industry sits near mobile phones in tech, the PC industry. Within mobile, the handsets are the 'small potatos' part, and the operator/carrier business (AT&T, Verizon, Vodafone, T-Mobile, China Mobile, Telefonica etc) is the big part - worth 850 Billion dollars yes twice as big as the PC business. And if it was still reasonable to see impacts of the iPhone to the PC business (Apple being a PC maker), two far more distant industries would be impacted - the media business and the advertising business. Broadcast (TV and radio) is roughly worth half a Trillion dollars and advertising is almost as big. So we have some very VERY big businesses out there, that were not obviously interested in tiny mobile phones and their little SMS messaging etc.
So I wrote in my 'Before iPhone and After iPhone' blog on 18 May 2007 - still a whole month before the launch of the iPhone, about the changes the iPhone would bring. I said that for handsets the "yardstick in usability will from now on be the iPhone" and I said that would hold true into the foreseeable future, that the latest iPhone model would remain the most user-friendly of all smartphones into perpetuity. That was the relatively easy forecast haha and did not take much insight. (obviously was proven right)
I also predicted correctly, that even though browser based services on WAP and other such services, as well as the 'real internet' had existed on mobile phones for years before, it would be the iPhone that is seen as energizing and igniting the 'mobile internet' (as we can now see how pervasively Admob stats are quoted worldwide)
Of Media and Advertising industries I was the first to forecast how massively the media industries and US based advertising would fall in love with the iPhone, as we see today with iPhone apps as 'advertising platforms' - think how crazy that is. Its like doing TV ads that only work on Sony branded TVs, except Sony's penetration of TVs in America is ten times better than Apple's penetration is in mobile phones in the USA, its best market. Even if we add iPod Touch's and iPads, there is an iPhone compatible device in the pockets of only 5% of Americans. But more than half of them have a full HTML capable browser, and 80% can receive MMS multimedia messages, 95% can do basic browsing on a WAP browser and all Americans can receive SMS text messages (64% already use SMS actively according to the latest ComScore stats). What moron ad executive approves an iPhone app project for their 'mobile strategy' before they have first covered the mass reach of SMS, MMS and WAP (or HTML web)? Our friend Martin Wilson has a name for that foolishness, he calls it the iSyndrome, the mistaken belief that building an iPhone app translates into a mobile strategy.
But such is the power of Apple in tech and media. It was immediately the coolest phone, and just like Macs were the de rigeour on the desk of any self-respecting Ad Man. Now the iPhone was the same for any mAd Man..
I did also point out in my big Before iPhone After iPhone blog in May 2007, that the single biggest industry to change would be the IT industry and the West Coast related data tech related industries. Software and hardware. I wrote "And suddenly the iPhone fulfills all the heartbreaking failed promises of PDAs and palmtop computers of the past. A new computer paradigm. And the ability to generate all new sales, new software, new interfaces." Look at the hysteria of 4 Billion iPhone app downloads. Look at Dell rushing to make smartphones, Lenovo, Acer. Look at Microsoft finally taking mobile seriously. And while Google was serious about mobile before the iPhone, it seems Yahoo was on the fence, now they seem to have also woken up. Even IT tech stalwarts like Sybase, best known for databases for giant corporations, now are also a major player in mobile messaging. Sybase? Yeah. A few years ago when I wrote that smartphones were the new era of computing, I had a lot of hostile responses. Today that is accepted. It is seen now as 'a new computer paradigm' and every IT and PC company needs now a mobile strategy. This all was due to the sudden immense interest in the iPhone in the summer of 2007. The mobile industry and the IT tech industry have changed dramatically. And the media and advertising industries are in the process of changing, where the iPhone is at the center of every discussion (whether it merits that position or not).
iPHONE THE BEST OF PHONES
So we had the first iPhone 2G. It was in the end, more like the Lisa to PCs than the Mac. It was a brilliant radical departure from what had existed before, but it was a very incomplete device, which failed in many of the more advanced markets. The first reasonably complete globally acceptable iPhone was the 3G model a year later. But lets start with the iPhone 2G. It was indeed the best of phones, and it was the worst of phones.
Sexy slim. A large part of the desirability of the original iPhone 2G was its supercool looks. Most smartphones looked nerdy, this looked slick and cool. Many early buyers wanted it for none of the iPhone's great features or abilities, only because it was the coolest-looking phone 'ever'. Remember this first iPhone 2G couldn't even do apps. It was the musicphone for all who had an iPod - which crushed SonyWalkman's short-lived surge in global phone sales, by the way. I want to make a clear point about this which pains many who love the iPhone for its technology. Many who bought an iPhone in the beginning did so because it was the best looking phone, thinking "who cares if it didn't do everything some other phones did". This was very typical 'marketing' thinking, better to look good than to feel good. It was the most expensive cameraphone that didn't record video, it didn't do MMS, it wasn't 3G (all other contemporary phones in its price bracked were 3G) and it wasn't even a real smartphone as you couldn't install apps to it. But it was the best looking phone. Apple iPhone owners proudly displayed their brand new gadget on the table of where they were. There had never been such a phone before.
The large 3.5 inch screen was not itself the world record at the time (Nokia's 7710 had a 3.5 inch touch screen two years earlier in 2005, but Nokia did it on a phone that was very bulky and 'ugly' and very undesirable). A contemporary of the iPhone 2G, Nokia's E90 Communicator shipped with a 4 inch screen, hidden in the clamshell 'palmtop' style of all past Nokia Communicators. So Apple's 3.5 inch screen itself was not really radical.
But it is very fair to say, that where others had tried the big screen no-keypad touch-only design for phones, Apple was the first to make it work. Then the iPhone screen became a huge competitive advantage in any media phones. Compare it to the Nokia N95 of the time. The N95 had a 2.5 inch screen. Because we measure screen size diagonally, it means the iPhone had in reality almost twice as big a screen as the Nokia. In a pocketable device, if you give twice the screen size, you have awesome ability to draw attention. Any pictures look far better on screen that is twice the size. Just look at your PC screen now, reading this blog. Imagine your screen at 2x the size? Its dramatic even in this scale. It is overwhelmingly compelling in a pocketable device. We do now consider phones in two eras. Today there is a plethora of large screen phone from Samsung. LG, Motorola and yes Nokia which all seem to have that 3.5 inch size and touch screen user interface. Apple changed media-oriented smartphones overnight.
The biggest technical innovation in the iPhone was their touch screen technology, which incorporated multitouch and capacitive touch. Previous touch screens were based on resistive touch. These two changes helped make the iPhone touch screen seem light-years ahead of all rivals. They also were - typical to Apple remember they first gave us the mouse for the PC - 'intuitive' - helping make the iPhone truly so simple to use, you didn't need buttons. I counted that on my N93, a superphone if there ever was one, far far better in every possible way than the iPhone 2G (except with a smaller screen and no touch, it wqsa also twice as expensive as teh iPhone) that it had 37 buttons. This with no QWERTY keypad, the phone dial pad was typical T9. But because the N93 was designed on the 'prevailing' philosophy, then when you added features to the convering digital pocket device, you had to add buttons. When the camera came along, it is indeed better to have dedicated camera buttons which are set on the 'side' of the phone, rather than using the 'phone buttons' to operate the camera on the phone. And as the N93 had both digital zoom and the more complex and better quality optical zoom, it also had separate zoom controls similar to any good camcorder. This is how we had 'button creep' on phones. One button to get dedicated mobile internet access, another pair of buttons to control the volume of the music player, etc etc etc. 37 buttons on the phone.
But Apple came along, totally blasted the existing paradigm away, and came up with a phone with only one button. And the rest as touch screen. So intuitive, that pre-school age kids knew how to use it, and so easy to use, that our grandparents who hated the tiny clustered buttons on their SonyEricssons, Motorolas and Nokias, totally fell in love with the iPhone. The easiest phone to use, in the world, bar none. And by a wide margin.
That obviously is Apple's secret sauce. They make all their devices at least one whole generation better in their use, than any rivals. That is how the Macintosh PC stayed alive with a steady loyal fan base over the past 26 years. That is how the iPod came to its global dominating position. And that is totally fundamental to the iPhone today, as well as its cousins, the iPod Touch and the iPad.
There also were sensors in the iPhone, which proved less significant. There was some innovation in the way voicemail messages could be retrieved, other such stuff that was actually pretty marginal. But the iPhone had four things going for it. It was the best looking phone, it had a fantasic screen, a great User Interface and it was by far the easiest to use. We have to thank Apple for these and all phones we use today benefit from these innovations by Apple. No matter how you may dislike some aspect of the current N97 by Nokia for example, it would have been far 'worse' had Nokia not had seen an iPhone in 2007, when the N97 design process would have started..
AND A TALE OF TWO CITIES
There is a particular American angle. The USA had been the sleeping giant of the mobile industry. Previous giants like Lucent (world's largest telecoms infrastructure provider in 1999) since bought by the French (Alcatel); Motorola (world's largest mobile phone maker in 1998) now fallen to 6th biggest maker and declining quarter after quarter making losses; Nortel of Canada (once world's fourth largest telecoms infrastructure provider since gone bankrupt) and the big US wireless telecoms giants Bell South (used to own the world's largest empire of wireless carriers/operators around the planet) - which is now part of AT&T, which has retreated to only US shores and sold its empire to foreigners; same of SBC (also huge international footprint all sold, now part of AT&T in USA) and Bell Atlantic which had big international ownings, but sold those and now is known as Verizon, its own Wireless unit 45% owned by the British Vodafone.
The US wireless industry had crumbled and crashed, lost in overseas battles, all while the mobile industry became the world's fastest-growing Trillion dollar industry of all time. Today most of the big giants in mobile telecoms come from European and Asian markets, like Vodafone and Nokia in Europe, China Mobile and Samsung in Asia. And for the first time in any Trillion-dollar industry, the majority of the customers, and a third of the giants of the business come from Emerging World markets like America Movil of Mexico and MTS of Russia. By 2007 the US wireless industry was a shambles and it seemed it had lost the wars similar to what happened in the TV and home electronics industries in the 1970s to the competition from Japan.
But then we saw Apple Computer change its name to Apple, announce and release the iPhone, and lo and behold, suddenly the Americans were back. To quote Admiral Yamamoto after the attack on Pearl Harbor, the sleeping giant had awoken. Microsoft had been in mobile for 5 years by then. Google CEO had been yelling 'Mobile mobile mobile' for two full years before the iPhone, but those did not wake the Americans. It was the iconic iPhone 2G that achieved it.
IT WAS THE WORST OF PHONES
It was repeated often by befuddled European and Asian analysts looking at the first iPhone 2G, that if Nokia had released this device, the industry would have crucified Nokia for it. At this price there is no 3G? The camera is only 2 megapixels? There is no flash with the camera? It doesn't record video? It doesn't support MMS and it doesn't support video calling? What kind of giant leap backwards is this 'smartphone' that can't even do multitasking, cut-and-paste, and users can't install apps.
That does not matter. The iPhone 2G 'shifted the goal-posts'. After the iPhone, some technical specs did not matter and other things became relevant. The usability is far more important than every single bit of technobabble detail. What good is a 2D barcode scanner on your cameraphone like I had on my N93 in 2006 if you can't even find the controls to turn it on? I showed my business card to many colleagues - colleagues - in the mobile industry (it has a 2D barcode of course) and then had to teach the colleague on where to find the 2D barcode scanner on their Nokia haha.. It was there, but so hidden they didn't even know they had it..
But we cannot delude ourselves. The original iPhone 2G was not perfection. Far from it. The iPhone 2G was Apple's very brave attempt to make their first phone. And Apple did a fantastic job at it. The iPhone 2G stems from the work Apple did in collaboration with Motorola. Consider that Motorola's 'lessons learned' from the Apple collaboration gave us the Rokr. A total dog of a phone. Apple took those same lessons and gave us the iPhone 2G, the world's most important phone of all time. The only transformational phone, andthe phone by which all time in mobile is now marked, before or after the iPhone. Understand, that technically, Motorola could have built the exact spec iPhone (only minus Apple's UI, but otherwise even the capacitive touch screen etc) and easily released it 6 months earlier. It could have been the 'must have' Christmas phone for 2006. No, it would not have been an Apple obviously and it wouldn't have been as easy to use, but it would have been the world's biggest hit phone in 2006. But no, Motorola executives were not brave enough, and they only were able to give us the Rokr.
Now, there are very many 'experts' (including myself) who pointed out 'flaws' in the original iPhone 2G. I have famously and repeatedly called for a QWERTY keyboard for example and urged Apple to split the iPhone into more than one model per year, so we get a Summer iPhone and a Christmas iPhone for example, in the style of the iPod Nano. But we honestly do not know any better than Apple does. Apple does not compete in the same game as Nokia. Apple cannot go mass market 50 dollar phones for Africa. They are far too design-intensive and luxury and loyalty-oriented. So it is pretty futile to consider any published criticism 'flaws' of the iPhone. So its camera still does not have a flash? Ok, its not intended to compete with 12 megapixel Cybershot SonyEricsson semi-serious cameraphones. Its an iPhone.
But what we can certainly do, is look at what Apple has 'admitted' that were 'deficiencies' in the original iPhone 2G. There are 2 criteria for this 'admission'. It has to be a change that Apple has since implemented to the iPhone, and it has to have been already in commercial production on other phones by the time the original iPhone 2G was launched.
THE 12 ADMITTED FLAWS IN THE ORIGINAL
There are 12 such 'imperfections' in the original iPhone 2G. And now, please Apple fanboys, don't crush me on this. Apple itself, has found these changes to be worthwhile, that implementing them makes the iPhone better. But yes, 12 'faults' that the industry pundits especially in Europe and advanced markets of Asia, who had already grown accustomed to far more advanced - consumer-oriented - smartphones by 2007. Remember that Americans thought of the smartphone as a business phone like the Blackberry at this time. But as Europeans and Asians had lots of more expensive (!) and 'better' phones than the iPhone 2G, this is the list of 12 'faults' that Apple itself has with hindsight accepted as fair game, and corrected:
3G, MMS, GPS, better camera (3 megapixels), stereo bluetooth, cut-and-paste, voice dial, video record, autofocus for the camera, MS office apps support, user-installed apps and multitasking. Thats actually a very 'damaging' list when you look at it. No wonder the Japanese looked at the iPhone 2G and said its no good for them: its obsolete.
Note that if you take a contemporary June 2007 smartphone from Nokia, the N95, it has all these features as standard.
American readers tend to be surprised by this. Because their understanding of the cellphone space was based on throw-away cheap LG and Motorola (and Nokia) phone models, and their idea of a smartphone was either a Blackberry (ugly) or a stylus-operated Windows Mobile phone from some Asian nobody-ever-heard-of outfit like say HTC, they really didn't understand the smartphone space. Certainly not at all for the consumer market. Because this was 'virgin territory' in the mindset of American pundits about smarphones, it also became the basis for all understanding. If the rival didn't have a 3.5 inch touch screen, how could it be a 'proper' smartphone? And clearly someone like Nokia, who made 'old-fashioned looking' expensive button-ridden bulky smartphones, were 'clueless' and now, equally, when Google Android came along, and we have 'smartphones' from Motorola, Samsung, Dell, HTC, SonyEricsson etc - which conform to the expected looks of 'it looks like an iPhone' that is acceptable, and thus Google Android is obviously the big world rival to Apple.
In reality Nokia makes as many smartphones every quarter as Blackberry and Apple and all Google Android phones put together. The world has had a far longer experience of consumer-oriented smartphones. The European market for smartphones is far larger, and the Asian market almost as big as that of the USA. In fact Americans count only for one quarter of all smartphones sold in the world (and one eighth of all cellphones of any kind, and under one tenth of all mobile phone subscribers globally).
WHO IS COPYING WHOM?
Here is the frustration that non-Americans have with the iPhone and the American hype about its 'innovations'. Please consider these carefully. Look at those twelve deficiencies with the original iPhone 2G.
In 2008 Apple made its first major update to the iPhone with the iPhone 3G. It added (among other changes) 3G, GPS, MMS, stereo bluetooth and user-installed apps (making it finally a 'proper' smartphone by the definition of tech purists). Now, consider how 'amazing' these 'improvements' were.
I am an ex Nokia employee, so I know the Nokia brand the best. These are not necessarily the world's first phones to do this, but look at just from Nokia's angle. 3G was not new tech in 2008. Nokia's first 3G phone, the 7600 was sold in 2004. Four years before. GPS was not new tech. Nokia's first GPS phone was 3585i in 2003, five years before. MMS is a global standard, it has more users than email, why would Apple not support it, who knows, but they added it finally in 2008. Nokia's first MMS phone was the 7650 just six years before in 2002. User-installed apps - and games (and an app store) - had been normal to Nokia smartphones since the N-Gage in 2003, five years before. And the most astonishing blemish for the maker of the iPod and thus any music fans, stereo bluetooth was not high tech in 2008, Nokia's first stereo bluetooth phone was the 8800 released in 2005, three years before.
Then lets look at the changes that came with the 2 year anniversary, the iPhone 3GS in June of 2009. Apple finally fixed the camera but only to 3 megapixels (8 megapixels were common and 12 megapixels the top end by now). But yes, Nokia's first 3 megapixel cameraphone was the N80 in 2006, three years earlier. Then Apple finally included video recording, again a normal feature on all premium cameraphones of this price bracket for many years. Nokia's first video recording cameraphone was the 7600 in 2004, five years prior. (Japanese cameraphones had recorded video since 2001..). The iPhone 3GS was given voice control and dialling, this was first on a Nokia phone in the the 3110 eight years before in 2001. And the iPhone 3GS was given autofocus, something Nokia had first done in its N90 in 2006, three years before.
And on the software updates, Apple has fixed cut-and-paste, Microsoft Office support (both in OS updates in 2009) and multitasking (now in 2010). Nokia's first Symbian smartphone with cut-and-paste was the 9210 Communciator in 2001. Their first Symbian smartphone with full MS Office support was the previous 9110 Communicator model back in 1999. And Nokia's first Symbian smartphone to support multitasking was the 9210 Communicator in 2001. So yes, from the operating system functionality point-of-view, the original iPhone 2G was very flawed, and these three aspects were so common that Symbian has had them for over 8 years, all of them. When launched in 2007, very legitimately, 'smartphone' experts could say the iPhone 2G was at least six years obsolete, and only by 2010 we get the iPhone 3GS and its latest OS update making it 'modern'. Not cutting edge by any means, just 'modern'.
You can understand, that the engineers at Nokia screamed 'bloody murder' when tech analysts were waxing lyrical about the original iPhone 2G, when it was missing all these features that were normal for essentially Nokia smartphones - and that obviously all these were on the N95 for example - some of the features being standard on essentially all phones in the world (video recording, MMS, etc). This was not unlike a non-car maker, lets say bicycle maker Trek were to suddenly announce their first 'car'. And they'd make it really sexy looking and sleek and cool. But while it had an engine, wheels, steering and breaks, it didn't have anti-lock breaks, it didn't have air conditioning, it didn't have windows that rolled down (manually nor electrically), it didn't have a trunk/boot for your gear, and no windshield wipers (we don't think people will use it in the rain.. / Apple said in 2007 they didn't think MMS was necessary, that people didn't use MMS haha). The car makers would yell and scream that it isn't a 'proper' car.
You get my point? In some ways the iPhone was the very best of phones, truly iconic and world-changing. Yet simultaneously, the original iPhone 2G was also a very incomplete phone, far more akin to the Lisa vs the Mac, a kind of 'beta version' of the iPhone, which really needed those updates it got in the 3G, 3GS and the operating system, to be an all-round acceptable smartphone. And in late 2009 the iPhone 3GS was indeed so complete that for many weeks it was teh best-selling phone model inJapan, the world's most advanced and demanding mobile phone market. Yes, the iPhone was the best of phones, it was also the worst of phones.
PHONE WARS 2: ATTACK OF THE CLONES
Now what have you done for me lately, Apple? If we remove all those twelve changes where the iPhone added years-old tech to patch up the iPhone and make it reasonably 'modern', what happened to Apple's iconic design? Where are the cool new innovations? Where is the excitement? The iPad drew a lot of attention but the iPhone 3G and the iPhone 3GS have not done much of anything, other than the dozen 'bug fixes' I listed in the above. And its still not the 'ultimate' smartphone? How long will it take for the message to sink in at Cupertino, that SMS is addictive, and you can't send SMS text messages blind with an iPhone (four out of ten US teenagers and five out of British teenagers are able to send SMS blind). The Blackberry outsells the iPhone comfortably by a wide margin and is loved by the 16-24 year segment for that very reason. Where is Apple's slider/folder QWERTY keyboard? Apple would double it sales if it did that.
But yes, what is there since the iPhone 2G that has been radical? On the phone hardware, nothing. Everything else is a copy. And very legitimately, almost all of Apple's changes have been copying Nokia (and/or Symbian). Thats fair. But there is one huge thing that Apple did. Their App Store was not their invention. Japan did it first and Nokia had an app store for years before Apple. But applications sold to consumers were a dead space, totally no excitement or innovation there. That changed totally with Apple. Apple did not give you the best deal in mobile apps and services (on NTT DoCoMo's iMode in Japan, the content owners get 91% of their content revenues) but the 70% revenue share was far better than most, especially US based developers had seen in mobile. A great innovation.
APP STORE MANIA
The app store was brilliantly designed helping make it easier to get apps onto it, and for consumers to find apps they liked. The success was immediate and enormous. 4 billion apps downloaded, Apple just told us yesterday. This in under two years. Awesome, considering their total possible accessable market is under 85 million devices shipped counting all iPhones, iPod Touch's and iPads. Apple single-handedly took a tired under-performing opportunity and made it a platform for commercial success. Who cares if only one in ten app developers makes money (its typical of any hits business like music or movies etc) but the fact is, that apps from farts to books have a new market on the iPhone and its cousins. Its similar to what Apple did for the music industry a decade before with the iPod and iTunes. Apple have the knack to turn a dead market into something vibrant. And when they do it, they make it far more user-friendly.
(Oh, let me make one observation here, about the iAd platform. We have had mobile advertising for 10 years in the world. Now Apple comes in and promises change. Better take notice. They have a knack at fixing things.. Could be big)
But beyond the App Store, what else? The iPhone looks the same, has the same screen size and resolution. It still doesn't do many commonly expected things like accepting a memory card or have a replaceable battery (guess what is the number 1 complaint of iPhone users? Battery. What is it with Cupertino that they are so stubborn about some 'obvious' things? The more we cram ability into the pocketable device, the more it will drain the battery. If we allow users to carry a spare battery, we get far more use out of it too, as the user won't be afraid to run the battery down...)
But we have seen the invasion of the clones. Today any self-respecting consumer-oriented smartphone has a touch screen (many have also a slider QWERTY, which siphons off some prospective iPhone buyers). Before the iPhone launched, all touch screen phones counted for less than 1% of global phones shipped. In 2009 the world shipped 184 million touch screen phones (not all smartphones obviously) according to Gartner. So Apple (re-)invented this space, briefly controlled it, and today their market share of all touch screen phones is 14%. That was a short ride. Samsung, LG and Nokia all ship more touch screen phones annually than Apple.
EVERYONE IS GUNNING FOR iPHONE NOW
Then we have the aptly-named Androids. Google's OS has seen an explosive growth in the past 21 months. Two dozen manufacturers already, including of the world's top 10 biggest phone makers, numbers 2, 3, 4, 5, 6 and 8 have released Android based smartphones. Bearing in mind that these 6 handset makers sell 550 million phones worldwide yes, 20 times more than all Apple iPhones that sell per year (obviously most of the 550 million are not smartphones) - the market is severely stacked now against Apple. Android smartphones have gobbled up smartphone market share, and this while most makers have not even ramped up their full production yet.
Then we have Nokia. Nokia is the elephant in the room. They alone sell 430 million phones worldwide. Their smartphones outsell Apple by 2.5 to one. Nokia sells more touch screen phones than Apple, more musicphones than Apple, more GPS phones than Apple. etc. If you are impressed with Apple's iAd strategy - a handset maker who launches their own Ad agency (by buying an existing mobile ad provider Quattro). I wonder where Apple got that idea? Nokia bought Enpocket in 2007 for similar interests (and added Acuity later). Nokia is a double-whammy rival, as it bought out its competitor handset makers from the Symbian alliance and turned Symbian into an open source foundation. And Symbian powers over half of all smartphones in use on the planet. Over half. Apple's iPhone has 9% of the global installed base of smartphones.
Nokia is that big, that it can dedicate one smartphone division to fight its biggest global rival in phones (Samsung) with low-cost smartphones, plus add a second smartphone division to fight its biggest global smarphone maker head-on (that is not Apple, it is the far bigger RIM with its Blackberry). This Nokia does with its E-Series, which roughly speaking sells about as many QWERTY business-oriented smartphones globally as RIM sells Blackberries annually. Then Nokia has the resources to have a third division take on Apple and Android consumer-oriented media and internet smartphones (the N-Series) which in rough terms sells about as many smartphones as Apple does annually. And beyond that, Nokia has the resources to pursue the real high end of smartphones - far more expensive luxury super-premioum 'superphones' like it does with its new Linux based open source operating system MeeGo and the N900. I am not suggesting the N900 is 'better' than the iPhone 3GS, I am suggesting that Nokia's MeeGo platform is set for the 'next' stage of expensive smartphone wars, not the current one. N-Series is the 'attack dog' to battle Apple like E-Series battles RIM.
And then we have Samsung. Samsung makes Symbian smartphones and Android smartphones and Windows Mobile smartphones. If Apple or RIM allowed it, Samsung would also make smartphones for their OS's. And in addion to that Samsung has released its Bada smartphone operating system. Samsung currently is the world's 5th largest smartphone maker, smaller than HTC. Apple outsells Samsung by 4 to 1. Yet by the end of this year 2010, by the fourth quarter, Samsung will run even with Apple and by early 2011, Samsung will pass Apple in smartphone sales. Why? Because they already outsell Apple in touch screen phones.
Samsung operates in 9 global industries from some electonic components like DRAM memory to consumer goods like flat panel TVs, and mobile phones. In every industry Samsung has achieved number 1 or number 2 status in market share. They are the most competitive giant company out of the most competitive country (South Korea - did you notice, in the latest international comparison, South Korean students passed world's long-time best math country, Finland, and are now the best mathematicians on the planet? This while Americans refuse to pay their teachers reasonable wages, and try smoke-and-mirrors of no child left behind?). Samsung has grown consistently and convincingly to second biggest phone maker. Earlier this year they stated they intend to become a major player in smartphones. That means in 'Samsung-speak' that they have an internal mandate to get to either number 1 or number 2 in global market share. Samsung has already promised this year they will sell over 18 million smartphones.
If you model that growth rate from 3 million last quarter on a linear growth, by the fourth quarter Samsung will sell about 6 million smartphones in the Christmas quarter. Then note that Apple sold 7 million smartphones in this quarter and you see why this rings alarm bells. Even if Samsung 'only' achieves this goal, they will be bigger than HTC, and will be challenging Apple. That is, assuming Apple hasn't lost market share in this very competitive year in smartphones. And this, assuming Samsung doesn't get more hungry as it grows. I know a bit about the South Koreans, from my research for my fifth book, Digital Korea. I promise you, Samsung will outperform this goal this year. That is their style. And more than that, it is their work ethic. Nobody works as hard as the South Koreans. Even the Japanese fear the South Koreans (in business, said the Economist this past week). The unofficial national motto in South Korea is 'balli balli' meaning, 'hurry hurry'.
What of Blackberry? The natural rival of the iPhone is not the Blackberry by Canadian RIM. Both are smartphones yes, so both make premium phones, but Blackberry is as different from Apple as a Ferrari is from a Hummer. Blackberry's natural rival is the E-Series from Nokia, like a Ferrari buyer would consider a Porsche (or perhaps a Chevrolet Corvette). The natural rival for the Apple is the various Android phones (in America) and Nokia's N-Series abroad. Similar to how a Hummer's rival is not Ferrari, it is the Range Rover or Cadillac Escallade etc. Blackberry is fighting a different war, it has a very smart global strategy, securing its domestic US base in business/enterprise customers and expanding to some messaging-oriented youth consumer customers. Abroad it is expanding business clients and messaging-oriented youth (because of QWERTY). It says something of how well RIM is doing, that Nokia has modelled its E-Series phones on the Blackberry and has helped market the 'business' oriented E-Series also to youth consumer clients. And now with Microsoft releasing its first ever phones on the 'Pink' platform, they are not targeting touch screen iPhone clones, they are targeting Blackberry consumer users. This is the hottest segment for phones and if you catch a 16-24 year old into your brand now, you can count on decades of loyal purchases from them over the years. But yes, back to the iPhone, as long as Apple does not offer us a QWERTY, it won't challenge the Blackberry in a meaningful degree. And the Blackberry's success (or failure) in the market will not dent Apple's performance in any meaningful degree.
APPLE MARKET LOSSES IN 2010
So we have recounted Apple's short history in phones, and charted its enormous impact. Strategy Analytics monitors the features of new phone models released per quarter. In the first quarter of 2010. the proportion of all new phone models that had QWERTY screens was 38% ! On the one hand, this is an incredible achievement, Apple has single-handedly changed the way our phones look today. Go to any phone store in any country in the world, and whether they are authorized to sell Apple or not, there will be dozens of Apple clones, similar large screen slim touch screen phones. Many are smartphones, but not all.
This is awesome as an achievement but it is also the beginning of the end for Apple's short reign as the king of the touch screen smartphones. Already today we see that in 2007 Apple had over 70% of all touch screen phones sold, then by 2008 they were under half and by 2009 they had only 14% and falling.
So, like I like to say, "numbers are my buddies". Lets examine. The Christmas quarter is the best quarter for mobile phone sales. Last year was exceptional, in that we were coming out of the recession, so the Christmas sales were even more brisk. Apple had been working hard to get its phone to all significant markets and even the elusive Japan and South Korea had accepted the iPhone. It was finally sold in the world's largest mobile market, China. From the July-Sept 3rd Quarter to the Chrismas 4th quarter, smartphone sales grew 20% (not annual growth, just quarter-to-quarter growth). In this super-hot market, many Android devices appeared. Nokia grew market share in the hot market by two percentage points. HTC grew market share by one percentage point (riding Android). RIM grew market share by one percentage point. What of Apple? Their worst Christmas ever in iPhone, their market share held flat. Yes, Apple did get some added sales, sequentially from the previous quarter, but were not able to grow market share. Apple had peaked in a one quarter market share in smartphones of 17%. Their full-year market share was 15% in smartphones and 3% out of all mobile phones sold.
The Apple iPhone sales pattern differs from all other major smartphone makers because Apple only releases one new model per year. So the sales take off strongly and then decline as the rivals keep releasing newer phones. Apple's best quarter is its Christmas quarter. This year they were not able to grow market share. And we already know, that Apple's January-March quarter was a heavy fall from the Christmas level of sales (as it always is, this is the normal pattern). We know the rough level, because Steve Jobs said yesterday that Apple has now passed the 50 million cumulative sales level. As Apple was at 43 Million at the end of the previous quarter, they have sold about 7 million new iPhones in the Jan-Mar Quarter. That is a drop of 19%. It was only 12% a year ago, while the world was plunging into the economic depresssion. Now its 19%. Pretty catastrophic.
If it was that the whole market also fell 19% after Christmas, it is conceivable that Apple has held its market share. But we've already heard from several makers, most loudly from HTC, which talks of very strong sales in the current quarter. RIM and HTC have already told us that smartphone sales are strong, but Apple sales are down. I won't know the actual market shares until we get all the numbers, but the early ballpark suggests the iPhone market share in the first quarter of 2010 to be in the 14% range. It may well be far worse. But it is undeniable, that Apple has peaked.
SMOKE AND MIRRORS APPLE STYLE
No wonder Apple scheduled and planned so many 'big news' announcements for April 2010. They talk of the iPad (which analysts suggest will sell in the 3M to 5M range so this won't cover for the iPhone market of 25 million per year). They talk of Apple's updates to the iPhone OS (now finally giving developers a limited form or multitasking, why is it that everything Apple does, it does in a limited way, like its Bluetooth?) Apple talks of its exciting iAd advertising platform. They celebrate 4 billion app downloads and 170,000 app titles of the iPhone App Store. And they want all of this out there in the public domain well before Apple reports its quarterly results. Because the investors will not be impressed when RIM reports growth (and gains in market share) and HTC rports growth (and gains in market share) and all the while the wolves are howling outside the window with new smartphone rivals from Android to Microsoft Pink and Samsung Bada; and even noticing there is a real giant out there called Nokia with Symbian.
TOMI FORECAST, 3 SCENARIOS
So, we have 3 scenarios. I am 100% definite that we have reached the peak of the market success of the iPhone 'first wave'. The Apple strategy of only one new model of iPhones per year, released in the summer, and sold in many cases through exclusive carrier relationships (like with AT&T in the USA, Softbank in Japan etc) is not long-term sustainable. Apple has ridden this first wave to its end. They have had their annual peak last year 2009 in terms of annual market share (15%) or perhaps, currently are at their peak in 2010 (conditions to follow). They will be seeing a gradual decline in market share - hidden in overall growth of iPhone unit sales still, but not keeping up with the faster growth rate of smartphones overall.
I have lots of reasons why, some of which were touched upon in this very long article (I'm sorry for its length). But the main reasons are that Apple cannot grow market share beyond this level with only one model per year, in the price bracket where the iPhone currently is. What they need, is a kind of iPhone Nano. Until they do that, they won't grow market share significantly from where they are now.
I have seen enough of the numbers - as I reported before, the Christmas sales were brutal for the iPhone, the first sign of major trouble. The latest first-quarter 2010 numbers just reinforce that view. I am now ready to call it, Apple has peaked.
Two caveats. Apple's next iPhone is coming this June. It may be 'awesome' (I am not that convinced, remembering the 12 'bug-fixes' that Apple has done so far). But even an 'awesome' iPhone will not grow Apple into second place, overtaking RIM for the full year. Not possible. The numbers are too clear. Apple had its chance but couldn't get into the 20% bracket in market share of smartphones. If the new June iPhone is awesome - and I mean, the press has to go crazy about it, totally leaving the Android rivals etc in its dust - then and only then, can Apple grow total annual market share by one or two percentage points, not more. Even then, its 2011 market share will decline. Inevitable. The numbers are too compelling. Please before you write hostile emails and leave replies full of vitriol. remember what I said about the iPod. Inevitable. I am not against Apple. I am here to share my knowledge and insights. And there is a far greater good. You all readers, all of you, know in the long run a 'series' of iPhones is inevitable. Just like don't have only one Macbook or only one model of iPods. Of course there will be a time we'll have a model range of iPhones. Now is the time for Apple to give us that. We need more than one new iPhone per year.
That is the time when the Apple phone fortunes will turn again. When Apple abandons this one phone per year nonsense, and gets into the smartphones race 'for real', then they will (definitely) increase their market share again. But only then.
I cannot say when that may happen. In an ideal world it should happen this June (maybe, but don't count on it). Probably Apple has to take its medicine first, observe its market decline, and then react. I do so hope they also re-read my open letter to them about SMS and QWERTY. Why 'gift' that market to all those iPhone clones that have slider QWERTY keypads? Come on, Apple, pony up, its time to get serious about smartphones.
APPLE LAUGHING ALL THE WAY TO THE BANK
So, please please do not misunderstand me. I love Apple and we have seen our industry transformed totally by the iPhone, and better than that even, Apple's iPhone has drawn in tremendous amount of fresh blood from other industries who 'discovered' mobile and now help drive this industry further.
But where is Apple in all this? Apple has been brilliant at it. When they launched the iPhone 2G, they achieved the greatest tech launch hysteria ever. The biggest airplane launches, car launches, nothing matched the hysteria of June in 2007. Remember all those long lines people waiting patiently for two days before the stores opened, to get their hands on the must-have gadget. The original iPhone was expensive. The current model 3GS, while sold in America for 199 dollars and in some markets given away for free on a 2 year contract, still costs 600 dollars. Its just that the contract monthly payments hide that number, so it feels to ignorant consumers as if there was a price cut. (Handset subsidies are some of the worst distortions in this industry and gradually many markets are working to get rid of them like they did in South Korea, Israel etc). Apple receives the highest average price for its phones from its resellers (the carriers/operators) by a wide margin to the second best (RIM) of the Top 10 phone makers. So just on the iPhone direct revenues alone, Apple is making very healthy margins. Its good business to them.
Then they have the cousins, iPod Touch and iPad. These anciliary devices help expand Apple's reach enormously. The total worldwide market for "PDAs" (which if we're honest, is what the iPod Touch is, its more akin to the Newton than a pure music-playing original iPod) was 10 million units in 2000. Today Apple sells 15 million iPod Touch's per year while all other stand-alone (non cellular) PDA's sell under 7 million. If Apple had been fighting with the Newton, they'd today have perhaps 20% of the "PDA market" and sell 1.4 million Newtons. By shifting its iPhone concept to the near-dead PDA market, Apple re-energized that market to 22 million units annually, where Apple controls a massive 68%.
The same with the iPad. If Apple never had the iPhone and its OS and the App Store, and just entered the 'tablet' market with a Kindle-clone, they's perhaps sell a third of the tablet market or about 1 million tablet PCs. By using the iPhone hype, the iPad is likely to sell more than all Kindles and other tablets (currently on the market) combined. Awesome.
Being an iPod pocketable media player market (ignoring phones), Apple has scale in those devices to make iPod Touch's very efficiently and profitably. Similarly being in the PC market, Apple can make table PC's (iPad) profitably. The reason I say 'ignoring phones' is because the radio parts of a modern mobile phone add tons and tons of complexity. But open up a media player, and its a pretty simple box of electronics. Once Apple had the iPhone, the Touch and iPad are 'easy'. But very importantly, they'd be still-born without apps. A mobile phone can live well without apps, but the iPad needs apps. And then take the role of the taxman. Imagine all the applications ever sold to the Microsoft Windows based computers. What if Microsoft took a 30% tax for all of those (not made by Microsoft) that were sold? They'd have so much money they'd have to burn it just to store it. But Apple has managed to create a platform where we 'want to' install apps, and then Apple gets to take 30% of all we spend. And 4 billion downloaded (granted, the vast majority were free but hundreds of millions of those were paid apps).
Apple is laughing all the way to the bank. They are not in the real rat race of mobile (low cost phones for Africa etc). They are sitting comfortably at the luxury end of the market, with fanatically loyal customers. And Apple is one of, if not the most profitable companies in mobile right now. Brilliant. But even so, their investors will not like to see the iPhone losing market share when Android, HTC, RIM, Nokia etc are growing and even Microsoft seems to be coming back to the game. There needs to be re-thinking of the Apple iPhone strategy.
But yes, take it to the bank. Apple's global market share for the iPhone is at its peak now, when measured on an annual level. They never made it to 20% of all smartphones. Their peak was 15% in 2009 and declining now, or possibly 16%-17% at best, this year - but unlikely. And it will be downhill from there. Until Apple learns that last lesson they still need to learn about this industry. That it moves way too fast for one phone per year. So here's to the memory of the original iPhone, it was the best of phones, it was the worst of phones.
UPDATE APRIL 20 - After Apple's Quarterly Results. We have suddenly many visiting this site, mostly to gloat apparently. Welcome. Please remember, I will let your comments stand - including those calling me an idiot etc - as long as you've read the full article. We have a lot of very intelligent discussion in the comments. I have removed those who just make pointless comments who didn't read the article.
I want to make one clear clarification after the Apple Quarterly Results. I have not 'abandoned' my forecast. I have not said I was wrong in my analysis. I have admitted clearly that I did not foresee such as strong iPhone sales quarter of 8.75 Million units - but neither did any other major published analyst. The really relevant point is - that while iPhone sales of 8.75 M units were flat from the previous quarter, Apple did not grow sales sequentially from the Christmas Quarter. Meanwhile we have already heard from RIM, HTC and Google - all reporting increased unit sales from the previous quarter. It is absolutely undeniable as a fact - that compared to HTC and RIM in smartphone unit sales, and compared to Google Android smartphone operating system shipments, Apple has lost market share in relative terms to those 3 major rivals. And this is before we hear form Nokia or Samsung.
Please do not misunderstand me, currently Google Android is growting unit sales. HTC and RIM are growing unit sales. They are performing better in the market than Apple. My forecast still stands. But - it must be noted, that Apples first quarter is not consistent with my expectation. It is possible that my forecast ended up premature. I am not yet ready to call it wrong. But we will be monitoring this space on this blog as the numbers come in now, thsi quarter, in the subsequent quarters of 2010, and the final numbers of 2010. I am still confident that Apple annual global market share in smartphones has peaked.