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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.

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)

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.

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.

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.

kevin

@Baron95: Why do you think Apple won't go past 20%? I think the days of any vendor getting above 50% unit share are over due to operator preferences, but I don't see any reason why there should be a barrier at 20%.

I agree developers (and advertisers) care more about people who can spend than people who can't. So I agree, it's not just unit share, but revenue share that should be looked at. (I also agree that platforms matter, but Tomi wants to focus on cellular-connected pocketable devices.)

@Mikko: Your "real estate" service could be made available to impulse buyers who are on wifi because they're inside a Starbucks, McDonalds, or a library.

@Bob: I don't think Microsoft abandoned the higher end of the PC market; the OEMs did (excepting the gaming market).

@Bob Shaw: If Google stops updating Android, the OEMs can still move forward, as it is "open" and the source code is available for anyone to fork off of. The OEMs face a bigger danger right now while Google is updating for all; OEMs are afraid to fork now because once they do, it may continually delay the release of Google's updates for their phones, and thus put them behind their competitors. On the other hand, they know they need to differentiate in more than just hardware if they want to succeed longer-term. Rock and hard place.

@Leebase, I agree with you that there are inconsistencies and glad that you explicitly pointed them out. But this is Tomi's blog...

As a non-operator, I still have a hard time seeing how I monetize SMS. I can use it to increase two-way communication which could lead to greater spending by the customer, or greater productivity by the employee, (neither is guaranteed), but I have to continually pay the cellular operators to take that chance. With apps, it costs me to develop an app, but once that's sunk, I don't have to pay anyone anything extra (unless I'm using some external storage or processing service).

Mark

@Leebase

"People are paying big money for smart phones precisely for the ability to run apps."

You think? That's well down the list according to Deloitte.

Mikko Martikainen

@kevin

True, it could work on WiFi too, but it would be in my opinion quite significantly worse. The whole issue is that cellular devices are always connected, and thus you can build services that rely on pushing data instead of the user pulling it. WiFi only devices are somewhere in the middle there: once you're connected, you are pushed data, but you have to connect to the network in the first place (in theory you can autoconnect, but in my experience it leads to more trouble because some places require you to login to use their free WiFi, and also anyway you shouldn't be using unencrypted WiFi networks for pretty much anything).

My example wasn't the best one, I admit that, but it doesn't take away from acknowledging that there are quite a lot of services that either work really much better with an always-on connection, or outright need it. Of course, most of those services deal with time and/or location sensitive things. As an iOS developer myself, I've grown accustomed to think in terms of the limitations of the platform, and quite frankly I also struggle to understand how I could create, bring to market and monetize an SMS service. I don't believe it is as simple and easy as Tomi makes it seem, and as evidenced by my choice of platform, I think that the App Store model is easier and has significantly lower barrier of entry that pretty much any other platform. But it is clear that it is not the only viable option.

enyi

Nobody here is giving Microsoft Windows phone 7 a chance ? They are the darkhorse in my opinion and Apple will bear the brunt of their growth the most.

Bob Shaw

Enyi - I agree Microsoft Window Phone 7 is a dark horse. Many times Microsoft's first version of the product is weaker than the competition. However their ability to learn and improvise their product and bring its subsequent version to mark or exceed is tremendous. Microsoft has shown that it can be a total systems player (i.e. control the software, hardware and ecosystem) with their X-box. Therefore I would not be surprised if it becomes a total systems player in this smart phone segment too like Apple, RIMM and Nokia. I think in the short term, the danger would be to the total non-systems players i.e. the OEMs that make Android based smart phones. Android is highly fragmented and currently their are five competing version of OS in the market.

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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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