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« Smartphone Bloodbath: Report Card at Half Point of Year 2010 for all major brands | Main | 5 - 4 - 3 - 2 - 1, as in Billions. What do these gigantic numbers mean? »

August 05, 2010

Comments

Antoine RJ Wright

Need to find you a developer who can add a button on your posts that says "download to read later." ;)

I like, but do have a (simple) question: isn't the iPad the execution of the Drug Dealer strategy you speak about? And digging a bit further, wouldn't the iPhone be such an execution of that same strategy for iTunes and eventual cloud services run by Apple?

cycnus

Hi Tomi,

Nice... very nice...
I think I owe you more than 1 cup of coffee :)

I have to argue a bit about strategy for apple.
I think that even though apple make the q or the n (nano) model, it would only raise it's market share in 1-2 years only. and it's already a bit too late too. because nokia right now is closing in with a VERY big teeth and claws.

Nokia (ans also samsung) ability in creating a AFFORDABLE product is surely make non-american market more challenging to concur for apple. For example, the nokia 5xxx series have a touch screen product ranging from US$ 150 - US$ 220. And samsung also have several touch screen product ranging from US$ 100. I know this doesn't compare to the high end market of apple iphone and other smartphone, but i'm just saying that apple nano could bring more sales to apple, but they should have done it a long time ago. but, hey... better late than never :).

And as you already said it..... it also seems that Symbain^3/Android/Bada would drag the price of multi-touch smartphone to a new low level. Apple can't compete in the country that doesn't have network subsidies. Not to mention iOS is only apple. So, Don't you think that apple need to license their iOS to other phone maker to gain more market? I know that Steve Jobs kill the Mac Clone when he reign the Apple empire again. And iphone clone using a real iOS might make him angry, but don't you think it might be the right strategy to do it? Look at nokia. Even nokia, with the biggest symbian market share, were trying to share symbian with others... and nokia try to do it when symbian is STILL HOT.


Charles

I don't disagree with the need to diversify the iPhone offerings and follow the strategy Apple eventually adopted for the iPod. I've always assumed they would at an appropriate time.

However, I think you do your argument harm by trying to show parallels with Apple's PC history. From about 1989 to the return of Steve Jobs, Apple was one of the most poorly run companies ever. It wasn't the premium brand that we know now - that is an artifact of the 2nd Steve Jobs era. It's also not even remotely an even comparison, since the PC industry has always been wide open, where the mobile industry (especially in the U.S.) is straight-jacketed. This has been my chief complaint of the market share argument: the lack of the iPhone access for most carriers in the world artificially limits the extent of market share Apple could enjoy. Adding an iPhone Nano won't change this. Meanwhile Android, being divorced from hardware and carrier, has a much larger potential market share.

Frankly, I'm not convinced that consumers care about mobile operating system as much as we believe they do. I think the rise in Android has much more to do about manufacturers and carriers than it has to do about consumers. Consumers are simply responding to what is available from their carrier - and Windows Mobile is terrible.

kevin

Tomi, you are an anti-Apple idiot. Haha!

Seriously, thank you for spending so much time and energy thinking about mobile strategy. My evening (or evenings) is now shot, as I will have to set aside megatime to read it carefully, think about your "facts" and your interpretation, and respond.

For now, even though I expect I will disagree with you on several points, I just wanted to thank you for this, and say I will be looking forward to the rest of your strategy articles.

Riccardo

Thank you for this insightful analysis!

Recently I noticed that people who bought an iPad are pushing friends and collegues to buy one, given its fair price and extreme versatility. This looks like the Drug Dealer strategy (as Antoine noticed).

Maybe Apple wants to keep its premium position in the phone market (and consequent small MS) while trying to dominate the emerging "portable gadget market" with iPad.

Alexander

Spot on, all the way. (with maybe 10% fat to trim ;))
This is one of the posts that really bring a lot of things together in one cogent picture. Not anti-Apple (or pro-Nokia) in any way - just facts.
Thanks a lot!

Why you're promoting yourself so hard?

"The math is devastating"... hmm, not to Apple for sure. They get a share of the revenue from the operator, something I never heard was custom before apple did it. Second point, if you replace every 24 months instead of 18 (assuming you upgrade 100% of install base), you lose 1/4th not 1/3. Lastly, it's not really important for a company that is also trying to leverage the service side (ie. for a company not that is not a pure OEM).

You're not an idiot but you definitively come across as someone who's trying to make self-promotion. Last time I comment and visit this site, sorry (I'm sure you are thinking that I should be sorry for myself)

Sebastian Werner

Toni, thank you for the article. Looks like a lot of time went into this. Would really like to have more compact reports from you. If one reads more than just this single article buy you, then there is clearly a lot of facts repeated all over.

But let's continue to the bare facts. You basically say that the current strategy of Apple is wrong for 2010. You say that Apple should offer at least one alternative iPhone e.g. a nano version with slightly reduced screen size and features.

I must say that the attention to detail, which went into Apple products, is outstanding in the whole industry. Even if it wouldn't be bad to have another model to choose from I am not exactly sure whether Apple would be able to keep the product quality at the current level. This is the thing which you seem to overlook here like maybe other analysts do as well.

You say that the N8 or Galaxy S are comparable. Yes, they came close, at least for a five minute inspection. Sure they might be successful with these products. Still it does not seem that the customers are as happy as iPhone buyers. And here comes the problem: what does it help me, as an Apple customer, to have more products to choose from when all of the offerings are not quite on the same level like the products today. We do not really need another HTC. I have the feeling that a lot of people at Apple think the same. There are so many ugly unusable products out there. It's good to have Apple with it's current quality level.

Finally: They focus. They focus on quality. They focus on outstanding products. They focus on customer satisfaction. They might not focus on growing to the biggest mobile phone player in the market. Without knowing the exact reasons behind there acting it might be problematic to suggest them doing anything other. They are profitable. They make customers happy. Why should they grow if it might risk these ideals?

Slimjim

Hi Tomi,
I found your blog by way of the link from brianshall (smartphonewars) and, I must admit, did tend to agree with his assertion that you were making excuses for the nokia CEO and that that particular post seemed naive. 

However, as a long time Mac user and iPhone 3G and 4 user (who is now using the iphone4 at home to surf the net in preference to my MacBook pro, iPad, and iMac due to it's screen, portability, and speed) I must admit that your last couple of posts on your blog have been very interesting and convincing. 

I am concerned that apple could lose enough market share to android that a similar situation to that which happened with Adobe producing substandard apps on the Mac (late with Osx support, insistence on staying with carbon instead of cocoa) could happen with the iPhone with the majority of developers. 

I thought that the selling of the prior gen iPhone at $99 subsidized was a brilliant move but can see and agree with your point about needing a cheaper non-contract phone that is somewhat current gen but distinct from the flagship model so as not to cannibalize sales. I have read the iPhone nano rumors and always thought that anything smaller than a 3.5" screen was too small but the palm centro proved that there was a market for a cheaper than flagship smartphone with a smaller screen not being a hindrance. Admittedly this did have a hardware keyboard but I believe the example works. 

Anyway, I did nit agree with your rose tinted nokia view on the smartphone market but I did bookmark your site on my iPhone and am glad I did because I much prefer reading this kind of analysis. 

Btw, Antoine, instapaper is exactly what you are looking for but it is for iphone only. I hit my read later link in firefox or mobile safari all the time and when i open up instapaper on my iPhone, formatted articles get uploaded quickly for reading offline. I do this all the time for reading long articles on the NYC subway. I can even hit link in an instapaper saved article while on the subway and it will give me the option to read later so I can keep queuing up articles even when underground with no data connection. It has really changed my life. 

Tomi T Ahonen

Hi Antoine, cygnus, Charles, kevin, Riccardo, Alexander and Why

I will respond to each individually as we do on this blog

Antoine - thanks. Good quetion about the iPad. In a way, the iPad is the 'drug dealer' strategy yes, but not for the iPhone, more for the Macintosh haha.. The strict text-book drug dealer strategy is to give the first addictive samples for free, and then when the customer is hooked, you start to charge. SMS is often marketed this way, you give new users a couple of months for free - tell them its a trial period - and before they know it, they are hooked and will be addicted and will pay. Now, my Apple version is the paid 'discount' version so for the Nano, the point is to be significantly cheaper than the iPhone to get a similar effect. That way the iPad really isn't valid, its too expensive. But it would work for the Mac.. On eventual cloud services and iTunes, well yeah, kinda..

cygnus - we do agree, Apple should have done this in 2009 but yeah, if Chrismas 2010 or spring 2011, its better late than never. But they have already gifted a good deal of the market to rivals. I do think that the 'smart' move by Apple is to stay in the mid price smartphones that Apple can today do profitably, rather than join the race with Nokia, Samsung, LG, ZTE, Lenovo etc to the cheapest smartphones. Of licencing iOS - I think that would be a good idea and a major brand like say Lenovo (or before they bought Palm, HP for example) would be a natural partner for Apple, premium, kind of PC oriented, West Coast, apps-oriented 'pocket computer' type of companies. Why not. They'd love the affiliation with the most desirable smartphone and Apple would build reach. But yeah, probably won't happen with Jobs in charge haha.

Charles - great point about the carrier relationships. It would yes, increase Apple's market share. But there are not that many significant markets where it can be done in a meaningful way. In many advanced markets like the UK, France, Australia etc the iPhone is on all networks. So in many cases its already been done. In other markets, very relevantly the USA, China, Japan - there are other standard networks which would make it very costly to release a parallel version (and then to maintain both versions). And they are not the same networks either.

So in America its CDMA if you want Verizon or Sprint (ie both obviously). But in China if you want China Mobile, you have to do TD-SCDMA.. These different 3G radio interfaces would be very expensive to develop, and potentially generate very modest gains. In the USA, if the iPhone is given to T-Mobile, it would be another GSM network and theoretically nearly double the reach of the iPhone (not quite, as T-Mobile is the smallest of the big 4). But that could be done without a new technology version. In Japan, if they expand to NTT DoCoMo - thats another WCDMA network (the 3G version of GSM) like Softbank but DoCoMo is twice the size of Softbank in subscribers, so without doing the CDMA version (for KDDI in Japan) - keeping the current GSM version, iPhone could go to DoCoMo.

The issue to expand from AT&T to T-Mobile or Softbank to NTT DoCoMo is primarily a contractual situation, between Apple and their current network partner. The issue to expand to networks on rival technologies like CDMA (Verizon, Sprint, KDDI and for example other South Korean networks, some in India, Taiwan, Canada etc) or TD-SCDMA (China Mobile the world's biggest operator) are not just contractual with the current exclusive partner, but also technical. I think the addition of a 'second' network in any one country will not 'double' iPhone sales, because currently many who 'really want' the iPhone will get a second subscription on the current network. And after 2 networks, the third or fourth network per country brings ever diminishing returns.

I do agree Apple should expand the availability, but compared to the Nano strategy - that would work in every market and even more pronouncedly in Emerging World markets where price sensitivity is greater - the networks expansion would not yield nearly as good gains to Apple, while creating probably contractual and possibly technical issues..

As to 'consumers don't care about OS' - I almost totally agree. They don't know about it and care about it. In the US market most of all, some 'technically savvy' consumers do care, but its a small minority of smartphone buyers. Why most in the US, because it has the longest mass-market history of the PC and a similar OS and apps environment. But even there, most get a phone based on the cool things they can touch and feel - the screen, the camera etc - not what OS it has.

kevin - haha, great! you did know that my surname, Ahonen, if pronounced 'Aho-Nen' in Japanese means literally 'I am crazy' (as in cooky, weird, loopy, not so much insane as in the clinical term). So yeah, love being the idiot. And can't wait to read your considered comments. I will try to make the rest of the series as thorough too haha..

Riccardo - good observation. I do think that Apple is the master at 'creating new market spaces' as we made the iTunes the case study in the signature book to this blog, Communities Dominate Brands. Its a classic case of creating market space - in that case you have no rivals (until they discover the space and try to compete). So with the iPad, there were many tablet PCs prior to the iPad, but Apple managed to make it 'different enough' and yet so desirable, that it became the 'media tablet' which kind of has been promised by technologist and futurologists but the Kindle etc has not really become it. The iPad is now fulfilling that prophesy and Apple seems to have the market all to itself. Rivals will come of course. But yes, this is what they did very successfully with the iPad, but not so successfully with the Mac or the Newton or the iPhone. They DID succeed a year after the iPhone with the App Store but now all are jumping on that bandwagon so Apple's exclusivity in it is ending..

Alexander - thanks! And about the 10% fat, sorry about it but after 3 days of editing it down, I had reached the point where I could not edit it anymore haha..

Why - on the math devastating. Yes its for Apple. They are abandoning sales to loyal Apple owners who want a new iPhone. The 24 / 18 math is simple - if I grow from 3 phones per 6 years to 4 - that is growth of one third. So Apple lost a third. But if you decline from 4 phones per 6 years to 3, then you lost a fourth. The typical percentages error, sorry, you better check your math again. Yes, if Apple did what I suggested, Apple would gain a THIRD not a fourth.

As to the services side, come on, the same reach applies. If Apple makes 30% on the 5 billion downloads now, they'll make the same 30% on the bigger market they'd have if they had sold more iPhones. That Apple earns service income in no way invalidates the benefits - and profits - of selling those services to a far bigger reach.

About promoting myself, sorry about that, yes I am an arrogant son of a b*tch, but I am an old geezer, have written my bestsellers and have my gold plated reference customers. I do this blog with no money out of it, we have no advertising here, we don't sell our mailing lists, I don't even have a newsletter. So this blog has been here for 5 years purely to share information. Try to find someone else who has written 2 million words on mobile and offers so much free info. In exchange for that, you gotta put up with my wordiness and my arrogance. Some of my readers are regular and would have it no other way. If you feel this blog gave you no value, please do not come back and spend so much time here. I hope only to talk to those people who honestly are interested in digital convergence, the future of media and tech and their strategy and marketing.

Thank you all for writing

Tomi Ahonen :-)

HCE


Not a bad article and I agree with quite a bit of it. Yes, Apple needs to change its strategy a bit (and probably will). However, there are certain things that they will simply not do - and one of them is violating their sense of what is aesthetic. So, we will never see a phone with a physical keyboard - not while Steve Jobs is in charge at least. However, I do believe that there are a bunch of things we will see sooner or later.

1. A model with a smaller (say, 3.2 inch) screen. Perhaps, one with a larger screen. I know that Steve Jobs made fun of the 4.3 inch screen phones but I think that, nonetheless, they are a possibility.

2. More frequent model updates. I think there is a reasonable possibility that they might put out new phone models twice a year.

3. Availability on more carriers. This will almost certainly happen. Apple needs to be on every carrier that has an Android phone.

That said, I do not think Apple is in any danger of losing market share any time soon. Looking at the Canalys numbers, it looks as if they are growing faster than the market (if you do year-over-year comparisons rather than comparing consecutive quarters). That growth will slow but unless Nokia, RIM and Microsoft can get competitive in the next year or two, I don't think it will stop. RIM's latest efforts with the Blackberry Torch have been underwhelming as have Nokia's with the N8/Symbian^3. Windows Phone 7 looks promising and we don't know enough about Symbian^4 and MeeGo. So I don't see that there is any tearing hurry to make big changes to their business but it could become necessary - particularly if Nokia and Microsoft get their act together (after what I have seen of the Blackberry Torch, I have few hopes for RIM).

Finally, enough with the Mac vs PC and VHS vs BetaMax comparisons - particularly since you insist that apps are unimportant. The barrier to switching from VHS to BetaMax was that I could not play my VHS tapes on my Betamax player. The barrier to switching from PC to Mac is that I cannot run my PC apps on OS X. Is there any reason at all why one would stick to a particular mobile phone platform? The only significant reason I can possibly think of is apps - but if everything becomes web services then this reason goes away. If apps remain important then Apple is the one in the driver's seat. Lesser reasons for sticking with one platform could include user experience and brand loyalty - Apple does better in these areas than anyone else.

To put it another way, the game at the high end of the smartphone market is Apple's to lose. They could screw up - which is unlikely, given their track record since Steve Jobs returned to the company - or the market could get commoditized, in which case Apple will move the business to the back burner.

- HCE

David E. Albert, MD

tomi:

Incredible piece of work! Bravo! While I don't agree with many things you say, I agree that Apple needs to broaden its product line. While the Android hoardes are going bigger, Apple should be going smaller. The iPad is going nuts for ebooks and email and workplaces like healthcare but Apple needs to push its counter-culture and counter-intuitive strategy. Make a iPhone nano-- absolutely! I still believe that the Apple "community" and "network" including Macs, iPads, iPhones, appstore, iTunes, Macbooks, etc has everyone else on the ropes-- the Apple Community is dominating others' brands. Q3 will certainly be huge for Apple with giant sales (back to school) of all product lines (except ipods). With all that money, they need to double down. Now I want to know what kind of coffee you have been drinking because your post was voluminous.

thanks for sharing it with us.

Dave Albert, MD

Fernando Guillan

Hi Tomi, give me a minute please. Hi Mr Why you're promoting yourself so hard? or whoever you are. Why don´t you have the "balls" to promote yourself just a little bit and show us your real name. If you don´t like what you see here, do all us a favor and don´t ever come back if all you are going to post here are comments with no added value for the rest of us.Rest in peace, smartass. Amen.

Tomi another masterpiece from you. I am fascinated by your attention to detail. If only Steve Jobs or anyone close to him would read your post... Well you would have to charge them millions of dollars just for the free advice. What makes me real sad is that some idiots come here and post comments that are simply a waste of time and show clearly their lack of knowledge of the mobile business and yet they have the balls to doubt you with nonsense arguments.
Definitely, Apple are on the wrong path. They think they are the best right now,and they can make no wrong. And that is a problem in business and in your personal life. It´s been a smooth ride for them the last three years. We will see how they manage from now on the bumps they will encounter along the way. So far, with the Antennagate thing it was a disaster. If this is a sign of things to come, I would be concerned if I was Apple.
Tomi thanks for all your hard work on this blog and sharing your wisdom with us(free of charge).I hope someday you get all the credit you deserve in this business.You are the best in the business bar none.
( I am not Tomi Ahonen nor do I get any money from him).

Matt Johnston

That was a lot of text to tell us that Apple needs to bring out a cheap iPhone - much the same way that Apple has been told for years to bring out the sub $500 Mac that everyone apparently wants.

There's too much poor logic in here to warrant a full reply. The App Store is much like the iTunes store - it's not much more than a break even business for Apple - put in place essentially to provide the ecosystem that the market failed to provide for the Mac twenty years ago.

Apple doesn't have to have a dominant market share to 'win'. They're still probably two years ahead of Android (even though they debuted within months of each other) and the average consumer is already balking at carrier-mandated software installs and anti-hack systems like eFuse. In the future mobile market, Android also has a place and it may (when you take into account all of the different flavours) have a larger market share than Apple. So what? We're still talking hundreds of millions of devices across dozens of countries. It's obvious that iOS isn't going away. Therefore they don't need to differentiate to win in every niche. Look at Nokia - their average price on their handsets is $61 and the average profit per handset is $2. Apple doesn't want to be in that market - where they have cannibalised their own profits in order to fit into every niche.

And they have hurt RIM. RIM is the only company which the UK government has given a security classification. Therefore Blackberry is the only device used for mobile messaging in the government. But this does not extend across all business and public sector where we have need immense interest in iPhone. Entire universities standardising on the iPhone at the expense of NOKIA and RIM. In the future I see RIM, Apple and Android (representing many companies and occupying the lowest common denominator role). That race to the bottom will be hotly contested by RIM and Android clones; they already offer Buy One Get One Free in many stores which serves to inflate market share (and provide a steady stream of phones for eBay).

You have to remember that iOS is not about the OS. Nor really about market share. It's all about the carriers. And the battle in the future will be between the companies which treat the carrier as god (Android) and the companies which treat the carrier as data lines (Apple, RIM).

BTW Apple has a cheap iPhone already - it's called the iPod touch. Add in Fring, Skype and you've got a mobile phone for when you want to be called.

Sachendra Yadav

Completely agree with you that Apple needs to lower the price of iPhone to cater to a larger market that Android is all set to eat up alone. However, the biggest strength that iPhone now has is the App store... how will the the apps fare when you have a iPhone nano with a smaller screen

Mark

@Matt

"There's too much poor logic in here to warrant a full reply."

And yet you manage 7 paragraphs. It did make me smile ironically though although I'll leave it to Tomi to tell you why. :)

Anyway...

Good post, Tomi. I've felt that Apple have needed to diversify for a while now because the current model is approaching saturation - the increasing repeat customer rate indicates this. I had it pegged a a 25-30 million a year product but it looks like a 35-40 million now. However peak it will.

Magnus

My take on this:

Apple is where they are today because they keep challenging traditional wisdom.

Apple came in and disrupted the smartphone business (maybe even the mobile phone business) by not doing what the experts said they had to do. I seriously doubt that their strategy going forward is to start doing what the experts tell them they have to do.

/Magnus

Fernando Guillan

@Matt "There's too much poor logic in here to warrant a full reply." Mark I agree with your 100%. It is better to wait for Tomi reply to this comment. I enjoy his replies immensely.

Oh well, Matt you do not know what you are getting into. Please next time you come around check your facts, as they are full of inaccuracies to say the least. I leave you to Tomi, he will take good care of you and shred your arguments to pieces. Poor boy.

Tomi T Ahonen

(doing replies in sets again, so many comments here..)

Hi Sebastian, Slimjim, HCE and David

Sebastian - first, I hear you about repetition. Secondly that 'articles without repetition' desire, well kind of haha, beware what you ask for, you might get it.. (I've told many of you that I am working on my 50 year birthday and 1 million page views to this blog and starting 10th year in consulting - gift - to all the visitors of the blog, so yeah, something is coming but its not ready yet.. you'll like it)

Now on the practical side. The repetition. Those who are here regularly (most who posted comments here for example haha, you know each other here virtually already, right?) will recognize the regular repetition, subscription rates are counted per capita, blah-blah-blah, or the real price of an iPhone is 600 dollars, not 199 dollars blah-blah-blah etc. The reason for that, is that this blog attracts a very broad readership, many who are new to mobile and often my articles are widely referenced. Just this week the smartphone market share blog was referenced with excerpts, on a Fortune article, etc. The blog is widely syndicated from NY Times and CNBC to Brighter Side of News and Motley Fool. So we get a very eclectic mix of visitors, often who are quite new to mobile.

Early on when I was blogging I found that when I skipped parts, I would then have to explain them in the comments anyway. So yes, its tedious for you regular readers - but at least I try to subtitle my longer blogs to help you skip the parts you know by heart haha...

Getting to your points. The quality issue is a great point and needs to be carefully managed. But here is my counter. I would make it a 'stealth clone' of the 3GS. EVERYTHING internally the same, except we upgrade iOS to 4 (that was already cleared by Apple that it works fine on iPhone 4, and will work on an upgrade to 3GS. With that, add processing power and memory if needed to make it snappier on the Nano version, but otherwise keep the innards of the Nano pretty much exactly the same as the 3GS. Only add the LED flash from the 4, and thats about it. Package it into a smaller case with the 3.2 inch screen - which eats up less battery power so with 18 months of improvements in battery capacity, we have a better battery for the same space, and ample power to cover the more powerful CPU.. With Moore's law the innards electonically can be made essentially into half the space, not in reality obviously but at least 10% smaller. So I am not asking for any new design, just shrink the existing 3GS, and use all of it in the Nano. Yes, its still a redesign job, but clearly the 3GS was an excellent smartphone - even the picky Japanese and Koreans loved it - so if thats essentially what we now recreate, the risks for tech errors are modest at best. Apple do manage multiple lines of products easily with the iPod and Mac..

On Galaxy and customer satisfaction - I am TOTALLY with you on it. Yes, the Samsung is still just a Samsung and it endears nothing like Blackberry or iPhone style addiction and loyalty. Samsung is there in the same class as Motorola and SonyEricsson and Nokia, nothing to write home about. If the consumer of a smartphone were allowed to take a phone for an 'overnight test drive' and compared an iPhone and a Galaxy, I am certain in 90% of the cases the customers went to the iPhone - they are night and day.

But also, like you said, the decision in the store is often made in that 5 minutes that the salesguy pushes his 'hot tip' phone of today (which means the one for which he gets the best commission, usually, not the best phone for that customer) the typical customer will not hold the two rival phones for more than 5 minutes before one is discarded - and remember, its not just iPhone vs Galaxy, its also vs Droid X and N8 and Blackberry Torch and whatever other similar phones are in the store. The customer mostly spends less than a minute on most phones until considering the final 2 or 3, on which the customer might then seek the salesguy's advice..

But you seem to be an Apple loyal customer already. You are pretty well committed, seriously speaking. You appreciate the value you get out of the iPhone and almost no matter what wonder-phone was released by the gods of mobile, you'd still go to the iPhone. That is typical of Apple loyalty. Once you start to use their products, you really appreciate the little aspects that make them so much better. You are not the target customer for the N8 or the Galaxy or Droid X or - in my blog case - the Nano either. You will love the iPhone 4 and you will love the next iPhone 5 even more. The Nano is not for the existing iPhone users.

But think of this - if you are an iPhone user, and are not a millionaire, and you have three teenage kids - and they all love your iPhone, all have iPods and Macs and all are begging to get iPhones. Wouldn't you LIKE it, if there was a 'kids' iPhone, the Nano, which does 'everything' a proper iPhone does, it is a clone of the 3GS of today, except with a slightly smaller screen - and half the price of the iPhone 4? Wouldn't you love to be able to give that as the first iPhone to your kids, rather than a full priced iPhone - in case they break it or lose it etc..

Finally on the 'why grow' question. The opposite of growing is shrinking. 8 million smartphones sold per quarter may seem like a lot, but if Apple now starts to shrink - that turns far too easily into 6 million soon, 4 million later and 2 million and before you can say Palm or Motorola, there you go. This is a very fast-moving industry, and its expensive to design and market smartphones in all countries of the world. Each new phone has to be approved by the domestic carriers/operators and their local regulator - for operation in that country, that network, that environment. Even as most of the world is all on GSM, that still means almost every country has peculiar differences in antenna heights and transmission power requirements etc etc etc and getting your phone approved per country is a headache - every time. If you have a solid pipeline of new prodcuts, and a standard system for doing this, you get good at it and can do it efficiently - and with scale you can distribute those costs across millions of phones. But if you turn from growth to shrinking market share (in significant numbers, over a couple of years) - it means all your organization is scaled way too big - and you become unprofitable remarkably fast - like Motorola or SonyEricsson when they saw catastrophic declines in market share after the original iPhone 2G launched.. What I mean, is that the phones business is so complex and expensive and dynamic, if you are not growing with it, you are dying. Witness Siemens, Sony, Philips, Ericsson, Alcatel, etc..

Slimjim - great to have you here and I appreciate the honesty in your evaluation. I just went back and re-read that OPK piece, here is what I suggest for you. I know you thought it was far off the mark. Why not try to re-read it in about a month from now. You may find, that some of the points I made in it, have actually 'matured' in your mind, and don't seem so absurd, and that there is evidence to what I was talking about, that you will have discovered in the mean time. There are many - real experts of mobile, I mean published authors in it etc - who say its one of my best articles. I don't mean it is, I mean, since you felt it was so alien to how you saw the world, and made me seem biased and out of touch, perhaps its possible I was right, but you were not quite in tune enough with the situation, to fully appreciate it. Or not. You can well come to the conclusion a year from now that Tomi is still way off on Nokia, looking at the company with his blue-colored glasses haha, an Ex Nokia guy, what else can you expect.. :-)

I do appreciate your honesty, and even more, that inspite of it, you gave me a chance and stayed to read more of my horribly long rambling blog articles haha..

Now to your points. Yes, that is something thats been crawling in the back of my mind, I KNEW there was more to the Mac/PC war that I had forgotten - yes, once the platform war shifted clearly, then some developers did give Apple lip service, poor versions of the same apps. Of cousre that made sense too - if the majority of the users - and the money - was on another platform - that is where any prudent developer puts their biggest investment (all other things being equal, obviously). EXCELLENT POINT ! I remember that vividly too (early in my career I worked for an Apple authorized reseller on Manhattan which happened to become the first ISP on the East Coast, so I Was there in the trenches witnessing the PC/Mac battle as well as the birth of the consumer internet in person haha)

Then on the older 99 dollar iPhone. That looks very good as a value proposition, to a US consumer on AT&T. Get the new hot iPhone for 199 dollars or last year's model that used to cost 199 dollars, now discounted to 99 dollars. The price ratio to age seems 'about right'. But consider non-subsidised markets. The unsubsidised iPhone 4 costs 600 dollars, the unsubsidised one year old 3GS costs 500 dollars (same 100 dollar difference). The old model is hideously overpriced. Note this is what Apple tells us in the conference call, that the average price they get for the iPhone line is 600 dollars, so after some international shipping costs and currency fluctuation insurance etc, the real prices end up probably at 650 dollars unsubsidised iPhone 4 and 550 dollars unsubsidised 3GS.. The price differential is completely out of whack. But equally, imagine what happens to the iPhone profitability if the price of the iPhone 3GS was 'really' cut in half? Yes, the iPhone product line profitability would be cut roughly by a fourth. Huge damage. This is where the subsidies dramatically distort the picture. But a new Nano phone designed today with today's parts can be made for half the cost of the 3GS in summer of 2009 - thanks to Moore's Law - therefore its profitability would not be damaged if sold at 300 dollars (unsubsidised) and in China, India, Russia - that is a HUGE price difference..

HCE - THANKS ! Nice to see someone whose been coming here for a long while and having many Apple related arguments, to find a lot to agree in this one. We are growing to appreciate each others' thoughts? Hey, I hear you about QWERTY. It will probably never happen. But imagine, if Steve Jobs gave that mission to the Apple engineers to do the best physical slider keyboard on any phone - it would be magnificent! It would be a sheer delight to use and you'd think, why isn't my laptop keyboard this good...

On the larger screen - yeah, me too. It could well be part of iPhone 5. The rivals are now moving the goalposts in size, while Apple did the Retina display. By next year, with miniaturization continuing, Apple should be able to fit rather easily a 4 inch screen on the iPhone 5, but obviously, do that with retina display to keep ahead of the Joneses...

I do think there is space in the market for a 'Maxi' iPhone, a 'super iPhone' in the 999 dollar price range. Move the goal posts again, do some truly spectacular bits into it (pico projector maybe, 3D display maybe) and beef up all the other parts, and go 'upstream' with the product range, for a true 'flagship' iPhone. The 'envy product' that everybody wishes they had, but at a ludicrous price (and profit). Something like what the early Nokia Communicators were. But that is far less than 1% of the market. The big move they have to make is down-stream to the 300 dollar bracket, roughly.

HCE, on the Canalys numbers and year-on-year growth - first, note that it is by definition at least 12 months lagging any possible peak. If there was a peak in 2009, we won't know until 15 months after the peak happened, in any YoY stats. Its physically impossible to measure the peak prior to that, because of the metric of YoY. Now, the signs to look for, before that is revealed in YoY is, obviously, is there a 'slowing down' of the growth rate prior to the expected peak. And Canalys shows clearly that the market share comparing Q1 2009 to Q1 2010 was strong growth - but comparing Q2 2009 to Q2 of 2010 - shows a slight DECLINE. IF there is a slowing of the growth, the Canalys data is consistent with a possible peak in 2009. It is NOT consistent with Apple continuing to grow.. (market share, obviously Apple grew unit sales YoY)

Carrier availability - yes, Apple is striving to open every market. It seems their contract with AT&T has some severe exit clauses by the AT&T lawyers haha, or unbelievable benefits to Apple on the revenue-sharing side (something no other country gave to the same degree and where they did, mostly have been already abandoned. AT&T was by far the most willing to surrender revenue sharing of data traffic to Apple, perhaps reflecting the fact the US market was so backwards, the Europeans and Asians knew more the value of what they were negotiating about and wouldn't give as much to Apple haha)

On the market share, we will know by January 2011 if the peak I have found, really existed and if Apple is now in real decline in market share, on annual basis. Its still possible it isn't but all numbers suggest I was right. We'll see. I am totally sure the Q3 of 2010 will be Apple's best iPhone quarter ever well passing the 10 million unit sales level somewhere to 11 to 12 million or so. But thats not enough to recover from the hole they've fallen into in Q1 and Q2..

Dr Dave - Thanks! Oh, my coffee haha, I alternate between the neighborhood coffee shop Cappuchinos, my home brew instant coffee, the several cans of Pepsi and the occasional boost of Mountain Doom to keep me reasonably caffeinated haha.. I even remember to eat something every few days or so haha..

On the points, we mostly agree obviously. I love the point about counter culture, yes the rebel has to live in Apple and the iPad is perfect example of where Apple did better than following the advice of some old farts like Mr know-it-all Ahonen haha begging for a QWERTY iPhone. The iPad was pure brilliance. And I am pretty sure we have not seen the last surprise attack of the iOS cousins. But they are not phones. They do not satisfy the 'ringing in the pocket test' as I teach as the second stage beyond McGuire's Law (that increasing mobility incrases utility). So they are good for Apple yes, but will not help in the big battle. Its a bit like American aircraft carriers - they are great for fighting an enemy near the sea, but if your enemy is Switzerland or the Central African Republic or Mongolia, then you have to send in the army to fight them, and the investment in the expensive aircract carrier is useless..

That was a lot for a quick reply haha, you guys are forcing me to think, ouch haha..

Keep it coming, great discussions and will be back with more!

Tomi Ahonen :-)

Manu

@ Tomi :- Thanks for the mamoth info/observation.

I have had a decade long association with Nokia as a customer. But last year in beginning of Q3, I gave up Nokia for HTC & Apple. Now using "Legend" & iPhone 3GS. So basically, i won't be saying that I don't see any Nokia bias bcoz I can feel soft cornor for Nokia here at this blog.

I enjoy reading good discussions with decent counter-arguments. In  recent months, I've enjoyed reading discussions here especially Kevin & HCE do provide worth reading stuff. 

However, I wasn't excited to see @Kevin, your reply in this article. Please I'm not trying to single you out here but you can imagine that as a reader of this blog as a whole which surely comprise comments of regular & relatively more aware readers, I expect decent expression. Not to mention, I'm bit disappointed to read your comment.

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