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January 18, 2011

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Mark

@kaj

You can walk into any store in the UK - one of Apple's key markets - and walk out with an iPhone 4. 3.75 million represents 23% of total quarterly sales or, put another way, about two to three weeks supply.

Having a backlog of orders - which is to carriers, not individuals - which they're struggling to fulfill is true but that could refer to months down the line. Current reserves indicate that there isn't an immediate supply problem in terms of demand.

So, no. Not buying it.

@Bob

Yes, I know. Like Phil says it'll be interesting in 2011.

@Jonathan

I agree with some of your arguments. The problem is that it doesn't make economic sense at the moment.

As for JavaMe, it's on 2.1 billion mobile phones and PDAs so it actually is the dominant platform. The problem is Apple and Android don't use it.

Bob

Mikko,

games with a social flavor, Q&A services like chacha etc. Limited and good question. But I think he was talking more with respect to advertising, marketing and branding. Coca-Cola could have something like get updates by SMS via user subscribing to coca-cola SMS channel.

Bob Shaw

Interesting article on the split between smart phones and dumb phones primarily in United States. Even in United States, 72% of the mobile phone owners have web free dumb phones. The cost of ownership which is largely the cost of the carrier plans offered with smart phones appear to be the major issue in switching over.

http://www.thestreet.com/story/10971941/1/many-still-resist-call-of-the-smartphone.html

Brad

Mark

I suspect a million or two of the supply is the stockpile of CDMA phones for the release on Verizon in several weeks. If they don't sell a million in the first 48 hours they will be disappointed.

Bob

very informative link Mr Bob Shaw, I thought US was well on the way to becoming all smartphone by this year-end.

Leebase

What I'd like to see here is some consistence, not to mention sanity. Apple is not playing Nokia's game. But hey, I'm not telling Tomi or the Nokia fans anything when I say that. Whenever someone dares to talk about Apple's profits, the Nokia fans quickly retort that Apple is a "luxury car" brand and it's not reasonable to compare their financial performance to Nokia.

But when speaking of market share -- somehow it makes perfect sence to report Apple's percentage of ALL mobile phones...or even against "smart" phones that are nowhere in the iPhone's league.

So which is it? Apple is a luxury niche player, intentionally, and should be evaluated as such? Or the proper evaluation of Apple is to the market as a whole? Pick one -- but be consistent. Apple looks gooe either way.

Or -- how about being consistent when talking of RIM or Apple. RIM's 3Q numbers were not what Tomi had predicted. So, he was quick to talk about how RIM grew sales and profits rather nicely. In no way was RIM's position painted as dire. Apple -- well, other than trying to dismiss the obvious that Apple is the most profitable, there is no quarter given due to Tomi's desire to paint Apple in a negative light.

How about some consistency in the big picture? If SMS is "uber alles" and "apps are meaningless" -- then why even break out smart phone sales for discussion at all? All mobile phones can txt and most of the can MMS. If smart phones are interesting enough to track their sales, shouldn't the part that labels them "smart" be of interest as well?

Platforms. Makes perfect sense to talk about platforms. Convergence? Yep, that's a big an interesting story too. But how does it makes sense to talk about mobile platforms and convergence, and then consider the iOS platform outside of the iPhone as irrelevant?

Profits, can we be consistent about them too? All the profits are supposed to be in SMS/MMS. Ok, I'm listening. My mind has been boggled at the size and scale of the SMS/MMS market. I totally credit Tomi with awakening me to the opportunity. But seriously, if one is interested in talking about profits to be made in the mobile industry, then how in the WORLD can Apple's profits NOT be of interest? Either one likes profits and cheers them on wherever they are found, or one simply isn't interested in profits. But to be interested in SOME profits but not others -- is just inconsistent.

Lee

Bob

Lee,

yes Apple's profits are extremely good and wonderful, but the US press talks as if iOS app platform is the only thing that matters, that is wrong. As you yourself said we need to take a holistic view, and if we do that iOS is one among the many platforms. Web itself is a big platform and probably the biggest, facebook has a platform which has huge companies like Zynga making massive amount of money out of it(just curious any apple appstore company making as much money as zynga ~ 600 million in 2010)

Leebase

@Bob, "the US Press" is not a monolithic thing that I can comment on. Are you suggesting that THIS blog is biased but "that's ok" cuz "the US Press" is more biased? There are plenty of US based news outlets and blogs that don't drink Apple's Kool-Aid. Not so many of them are enthralled with Nokia, true -- but there hasn't been much in recent years to be really thrilled about from an objective view.

RIM is not a US company, but it has been a mainstay of corporate America. Samsung sells very well in the US, as does HTC and everyone else -- except Nokia.

Apple products, except for the iPod, have never dominated even the US markets...ok, you can add the iPad now too. But the iPod dominated globally as well, as does the iPad. There are iHaters aplenty in the US.

There are some very misinformed "memes" on this board. I have no idea why Nokia can't make deals with the US carriers, but it's not because we only work with American companies. Sure, there are a lot of rich Americans -- but those Rich Americans love foreign luxury brands (Mercedes, Lexus, Gucci, etc.) There are plenty of poor folks in the US too who will never be able to buy an iPhone, nor a Samsung Galaxy S nor any other top end smart phone.

I have no problem with folks pointing out bias. But if one cares about bias -- should one not strive to be UN-biased in one's own writings?

Now, you brought up bias, not me. I merely spoke of inconsistency. I gave no thought as to there being any nefarious roots to said inconsistency.

Lee

kevin

@Mark:
Over the past decade under Tim Cook, Apple has repeatedly said that they aim to carry 4 to 6 weeks of inventory of Macs and iPods. Anything less and they'll say they are constrained (or in a demand-supply imbalance). They did not mention their aim for iPhone, but 3.75m is less (even by your calculations) than 4 to 6 weeks of inventory for 90 countries and 185 operators (involving many thousands of points of sale) and 324 Apple stores.

Inventory is not only what's on the store shelves but also includes units on the loading dock and in transit to the operators and stores.

vvaz

This blog isn't really for mobile enthusiasts, fanboys of some company (like various gadgets sites) or stock-watchers. This blog - and whole Tomi business - is for people who make money on hardware delivered to clients. This is slightly another plane of reality and looks like many commenters here don't understand this. For those people *really* doesn't matter that Apple is more profitable than Nokia. For them important is how much money they can make on existing hardware by Apple or Nokia.

Leebase

I'm no representative of the US, but I can say that I find far more interesting about mobile than just Apple.

I'm waking up to the SMS opportunity, thank you Tomi. I still gon't 'get it' yet, but I am listening. I would not have found the topic interesting AT ALL were it not for Tomi's evangelism on the topic.

Samsung fascinates me. They may not appear to invent much, but they darn well implement other folks' ideas well, price well, and manufacture most all the parts. Samsung, not Apple, is the straight up competitor to Nokia.

Android. Just because I love my iPhone and iPad does not keep the geek in me from loving Android. The massive adoption of Android, and it's rapid maturity, and the amazing variety of Android devices -- what person interested in mobile technology wouldn't be fascinated in the Android story? I don't think it's the same "Microsoft vs. Apple" battle all over again, but there ARE interesting parallels.

Windows Phone 7. Seems nice. It's an intesting combination of the Apple story and the Google story. Control of the OS ala Apple and manufactured by many companies ala Android. Add in Microsoft's money for advertising, and committment to the market...and I just can't count them out.

HP/Palm. As a web developer, I can't help rooting for this platform. It's dead...but can HP revive it? HP is another behemoth of a company so it's hard to just assume that nothing will come of the pairing.

Nokia. I have to admit, Tomi has educated me about Nokia as well. I do dispute the US press being lock stop in step with Apple, but there's no doubt that Nokia is all but ignored in the US. So, now I'm interested. The vast size of Nokia's market share is something that should impress or amazae anyone. I can't say I'm impressed with their top end smart phones because I've never seen one. I'd never shell out $600 for a phone, not even an iPhone. Until Nokia makes deals for subsidized phones, it'll be hard for those in the US to "understand Nokia". I do like linux and am interested to see Nokia succeed with Meego. I'm also interested in the financial performance of Nokia and do not think "makes profits every quarter" is telling the tale. But I've been forbidden to speak further on that subject.

And yes, I am fascinated by Apple. I never was a Mac guy. I was DOS, then Windows and then Windows plus Linux. Never bought an iPod, I bought cheaper "mp3 players". But I love my iPhone, and my kids loved their iPod Touches, and I love my iPad. And yes, I'm really fascinated by Apple's financial success -- but I can't understand why anyone would fail to be impressed who's interested in this industry.

Lee

Mark

@kevin

That's a nice comfort blanket for them, however it doesn't detract from the fact that the iPhone is immediately available in Apple's key markets (CPW for example will deliver on-line orders in two days, have stock in store and are currently even offering a £50 off deal which is not something you do if inventory is tight) and they have nearly three weeks inventory in stock. That indicates the outlets have local inventory as well as Apple's reserves.

The fact Apple would like more is irrelevant - there is no immediate supply shortage and current consumer demand is satisified.

kevin

@Bob Shaw: That echoes what I wrote here previously about data plan cost.

As of end of 3Q10, AT&T reported ~33.5m subscribers with 3G smartphones out of 68m postpaid subscribers, or almost 50%. Verizon reported that only 23% of their 82.3m postpaid subscribers have smartphones. Sprint and T-mobile are likely in the same ballpark, though closer to 30%. And those on prepaid accounts are overwhelmingly non-smartphone owners.

Conclusion: AT&T is fairly saturated. Verizon is not.

Jonathan

@mark

The point I was trying to make with the JavaME example was that the number of supporting handsets is not all there is to determine the desirability of a platform, from a software developers point of view.

JavaME is huge by units, but the platform is very fragmented. The devices that can run the app can be of all sizes and shapes and with or without a keyboard, acceleration sensors and so on. Also the JavaME implementation is different from device to device. The promise of Write once Run everywhere is not reality and JavaME does not cater all the features that native smartphone apps can use via native APIs.

This means that it is very hard to design and implement an app that would be *great* on a broad range of those devices. It would almost inevitably lead to compromises, sacrificing quality for user base.

In addition to that the devices that support it are in average less capable than the super smartphones like N900, iPhone or Nexus S. Also the users are less likely to buy your app. First, because the users are less technology oriented, have less money to spend and because the buying process is much harder than in the dedicated App stores.

The desktop like APIs, capable baseline for phones with reasonable amount of RAM and GPU as default and the App store are the biggest things that have changed in the smart phone after iPhone came to market. Because of the first two things Apps are now much easier for developers to create, for iOS, Andoid and soon Symbian, when Qt gets some wind under it’s wings. Those apps are then much easier to find and buy because of the App stores, that standardize the rules, give confidence of the payment process and stores your credit card information.

Leebase

RE Apple's pipeline/inventory. It matters. Let's say that Apple COULD have made a deal with Verizon a year ago. They could not have met the demand for Verizon customers, they are barely meeting demand now. This is not to say that there are no iPhones anywhere to be had, but that new markets can't be persued until capacity is increased.

Why not launch on Verizon and Sprint and the China CDMA network all at once? Because Apple is barely going to be able to keep up with the demand that adding Verizon will bring.

Tim Cook said they did not have the amount of iPhones in the pipeline as they would like as it is. It's not a 2-day window they are shooting for. They want to have 4 to 6 weeks worth of inventory in the pipline at any time.

Lee

Mikko Martikainen

@Bob

I understand your point, and I agree with Tomi that there is huge potential for the right kind of SMS and MMS services. I would honestly like to know what kind of hoops a startup would have to jump through to get their new pay-by-SMS-service up and running in the US and all EU countries, in all carriers' networks? That would mean reaching around 800 million potential users. And how much is the carriers' cut of the SMS payments? Would the startup need to negotiate carrier billing deals with all carriers or how does it work?

kevin

@brad,
Since Apple's quarter ended on Dec 25, and since the Verizon iPhone isn't available until Feb 3, I highly the inventory includes many CDMA iPhones. If there were "a million or two", then 3.75m is way too low, and Apple's inventory management and supply chain must really suck.

kevin

@Mark,
That might be true at CPW. But in the US, Walmart, Sam's Club, and Radio Shack have been more or less out of stock since at least two weeks before Christmas. Each advertised a $50 off weeklong-sale on iPhone 4s, but none of them had more than a couple of hours of inventory for the first day, with no more stock arriving for the rest of the week.

Regardless, 3.75m is not a large number for a product with an expected 16+m in sales across 90 countries.

Baron95

I generally agree with Tomi's analysis. I think the still in use iPhone/iPodTouch devices are a bit higher, by about 10-15M (but that is detail).

I also think that all analysts have already acknowledged and baked in the fact that the iPhone has reached its natural smartphone market share of 15% (currently supply constrained). I think Apple will slowly move a bit closer to 20%, but not much more.

Here is where Tomi continues to miss the picture. Apple last quarter, probably passed Nokia in total mobile phone revenue - you need to parse Nokia's numbers as they mix service (e.g. Ovi) with handset revenue - but, most likely Apple passed it. Not in smartphone, mind you, but in total phone revenues.

So, by revenue, Apple is likely now the number one mobile phone maker in the world. And that is not even adding the iPad, etc.

Why is this important? Because Apple's customers are now the biggest spenders on mobile phones on the planet. So naturally, they are likely the biggest spenders on appa, music, and all the other stuff advertisers care about.

IIRC, 2/3 of iPhone buyers make over $100K/year.

So, no Tomi, app developers don't care about unit market share. They care (or should care) about revenue share.

I'll guarantee you that the average American iPhone buyers, making $125K/year will buy *A LOT* more apps than a Nigerian Nokia C3 buyers making $10K/year.

That is the issue.

Nokia is losing the high spenders to Apple (and to a lesser extent to HTC, Moto, SE, Samsung). And so is RIM.

So Apple customers will buy more apps, and will be more valuable to advertisers for ad supported aps.

So developers to iOS will make more money than developers for Symbian - even though there may be twice as many Symbian devices being sold compared to iPhone.

Add in iPodTouch, iPad and the soon to be release iTV, and it is a no brainer.

So, if you are a developer, do yourself a favor. Stop looking at unit share and look at revenue share for the ENTIRE universe of compatible devices. I.e. if your app is an iPad app or an Android Tablet app - look just at revenue share on tablets. If your app is an all iOS or all Android device app look at iPad+iPodTouch+iPhone and Xoom+GalaxyTab+Androidphones.

I'm sorry Tomi, you can't look at unit share alone. That is not sufficient to paint the correct picture. And you can't look at "phones" only, you need to look at all the other devices that are compatible (on that point I think you agreed).

It would be silly for example to exclude laptops and windows net books when looking at PC market share, because a PC is defined as a desktop computer.

Same with phones. I now make more calls (video calls) using skype/fring/facetime over Wifi to/from iPHone to iPodTouch than celular calls.

Mikko Martikainen

@Baron95

I tend to agree with you since I'm and iOS developer, but I have to also say that there is a logic in Tomi's argument for not including non-cellular devices. His point of view is all about the possibilities that being always connected and reachable brings. Now, in the current situation, WiFi-only connectivity is enough to cover a big part of the use cases, but you can't rely on it to use FaceTime, for example. Take your iPod Touch, go on a hike outside and you won't be able to receive calls. That doesn't happen (or rarely happens) with devices that have a cellular connection, and thus developers will be able to design different kinds of services, applications and experiences that rely on near 100% reachability.

As an example, and I know Tomi is not so into location based services but still, imagine a service for home buyers (I don't know if this already exists so bear with me): stroll around a nice area of town on a Sunday afternoon and think how nice it would be to live there. Activate the service to let it know you're interested in apartments around your current location, and you'll start getting notifications of apartments that are on the market and which have public showings in the next couple of hours. Go to the showing and show the message you got and you'll get a small discount on the real estate agent fees if you choose to buy. And the next Sunday, if you happen to be in the area again, you'll get notified again. Think of it as an "impulse buying" service for apartments and properties.

A service like that won't work with WiFi-only. Hence, the distinction between smartphones and other smart devices can be important. But as I said, I agree with you that you can't just look at the size of the installed base of a certain feature or manufacturer and say it's all that matters. Disposable income of the users is important, as is having easy channels to reach the whole user base. Those parts Apple excels in, and will continue to do so.

 Tomi T Ahonen

Wow, I was away for a day, and you guys have over 40 comments. Cool. Keep the discussion going.

I am travelling this week (am in Malmo Sweden to deliver a keynote at a conference and attend a couple of workshops). I hope to find time to come and discuss with you, but if not, will be here next week. Keep the discussion going.

Tomi Ahonen :-)

Bob

Baron95,
good analysis and Google knows this, so they are not trying to pigeonhole android into just low and mid-end devices, they are leaving the pigeonholing android to low and mid-end to the OEMs,chipset vendors,carriers to figure out, and Google is actually trying quite hard to match iOS with dazzling features and add innovative stuff. Their honeycomb UI was pretty slick and good looking. Motorola Atrix looks quite nice, although their execution of laptop dock is not great, but a fantastic start, if you look at Microsoft v/s Apple war of the previous era, microsoft pretty much abandoned the higher-end of the PC/laptop market to Apple a critical mistake on the part of microsoft.
And of course Google is trying to build stickiness around its core google services like search,maps, mail, youtube, google voice etc. Sure Iphone gets all the google services, but a top-end Android phone is the best way to enjoy google services. This is a fascinating and way different battle than the Mac v/s PC of the previous era. On top of it, Google execs actually like macs, IPhones,IPods and IPads and Apple execs like Google services like maps, mail, search, youtube

Bob

even if Google don't get the content/UI right like how Apple does, others can step in like Amazon. Amazon can and will provide a great 'content' experience on android, this is what makes Android so formidable(maybe amazon kindle or amazon appstore succeeding may not be a great thing for google financially, but for android it is absolutely great), sometimes I am reminded of Sun, Sun had this hugely popular application platform in java, but they never made enough money out of it. I hope Google does not end up in the same spot, maybe they need to deliver a kickass phone. Google owes OEMs nothing, those guys are getting a free world class OS

Bob Shaw

Since Google does not charge the OEMs for the use of its OS, this is a real danger for OEMs. It takes a lot of money to keep updating the OS. If Google does not get adequate return on its investment from advertising revenues in the mobile space they may curtail or halt the OS innovation needed to keep up with iOS and others. The smart phone is still evolving and the space is going to be hyper competitive with multiple OSes for atleast few years. The players especially the integrated players like Apple, Nokia, RIMM, and future player HP with WebOS in this space have deep pockets and global reach. Anything free is good in the short term but turns out to be much more expensive in the long run. Considering this, I would not be surprised if the OEMs using Android also hedge their bets with Windows or develop their own OS as Samsung is doing with Bada.

Leebase

Careful with the mixing and matching. The "always connected" does NOT apply to smart phones. What/Why? Because you have to add the SCALE of SMS to get that fantastic opportunity that has Tomi so excited and why he thinks apps aren't important at all. So not only is the iPod Touch a fail due to being wifi only, all smart phones are a fail for not having the scale.

Of course, it's oil and tennis shoes. People are paying big money for smart phones precisely for the ability to run apps. So the scale of SMS and the opportunities it brings does not negate, in any way, the attractiveness of the app market for those wanting to reach for that opportunity.

So, we have a problem here. If we start to talk about the value and market opportunity of smart phones and the apps they run, then you cannot ignore the iOS ecosystem. You also can't speak of individual Android manufacturers but the platform that is Android (which is also branching out into non-phone devices).

How long Tomi can walk this inconsistent line on this blog remains to be seen. SMS is his current true passion, and that has nothing whatsoever to do with smart phones and why people actually want smart phones.

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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