Entering iPhone Era: Marking Time in Mobile

UPDATE: There is now a full iPhone market projection with regional and quarterly breakdowns of the numbers, to show what Apple needs to sell to get to 10 M by end of 2008. It is entitled Crunching Numbers for iPhone

Ever since my January keynote on handset design at the big annual 3G event in Tokyo I've mentioned the iPhone in every public presentation. And almost every time I've made the point that June 2007 marks a watershed moment in time. Much like the Western calendar marks time from before and after Jesus Christ, and how the computer world changed totally by the Macintosh - remembering that Windows is Microsoft's copy of the Mac operating system - I am certain that the mobile telecoms world will count its time in two Eras. The Era BI: time Before the iPhone, and the ERA AI: time After the iPhone.

What will change? Pretty much everything. And funnily enough, most of it is not actually caused by the iPhone, they only happen to occur so closely to the iPhone, that the iPhone will be given much of the credit.

Handsets BI and AI

Lets start with the obvious. From June all handset makers will get their first tests of the iPhone. Then Nokia, Motorola, Samsung, SonyEricsson, LG, and the dozens of second and third tier manufacturers will all see what they are up against. Not the outwardly form factor - yes, the iPhone is cool and slick and sexy - but the more important internal software. How do they make it so user-friendly? This is Apple's strong suit. More so than even stunning outwardly design, is the internal software on user interface. The iPhone for most of its parts will definitely be the best phone out there. Yes, it probably will not be perfect at all, not the very first version (although it might be that too) but certainly in most major features, making calls, listening to voice mail, sending and receiving most messages, accessing the web, consuming music and videos - the iPhone will be supreme.

So from June all reviewers around the world will compare all new high-end phones with the iPhone. How near do they arrive in being "almost as good as the iPhone". This is the phrase we will see in most reviews of smartphones. And the yardstick in usability will from now on - and my prediction is that for the fore-seeable future of mobile phones - the latest iPhone. A clear watershed moment in the industry. For the first time a major handset device which was designed from the start to be both a multipurpose smartphone and yet easy to use.

Then the mobile internet, BI and AI

The second and much greater impact is the mobile internet, or the value-add services industry of mobile telecoms. Up to now within the technologists there has festered a dispute about which will rule and why, the fixed broadband internet, the wireless WiFi internet or the cellphone based mobile internet. To what degree they rival and threaten each other, and which might triumph in the end.

It has been a lopsided battle, when most early internet-capable phones were monochrome WAP phones or modest speed GPRS phones with still tiny colour screens. Now we get the glorious sharp 3.5" iPhone screen and its powerful web access software. It was easy to suggest a laptop with a WiFi or WiMax access card would "forever" trump a 2" tiny pocket screen of an early 2.5G or 3G phone. Now we get the big screen iPhone and suddenly the pocket internet seems very plausible. And even at 500 dollars (subsidised) the iPhone costs half that of a laptop. Do we really need a new computer. If all we need is e-mail and music and uploading some pictures to Flickr or Myspace, isn't an iPhone enough?

Watch how all kinds of pundits will suddenly turn their coats and start to sing from the "mobile internet" hymnbook. They will "discover" the internet and data services on cellphones. And then the amazing discoveries that although the wonderful Apple iPod pioneered digital MP3 song files on portable MP3 players, and built a billion dollar industry out of iTunes, actually music on mobile phones is already worth 8.8 B dollars last year, with ringing tones, ringback tones and MP3 files sold to musicphones EACH already larger than all of iTunes.

Similarly there will be all those looking at the various functions on the iPhone and marvel at the mobile internet it "enables" - not knowing there is an 8 year history of it already. Yes, you can play videogames online. But gaming on mobile already makes more money. Yes messaging is a multi-billion dollar business on the web. But messaging is an 80 billion dollar industry on mobile (mostly SMS text messaging). Social networking and digital communties? Yes big on the internet. But at 3.45 billion dollars it is already bigger on mobile. Oh that is why Google has recently been aiming for the next internet, on mobile, they will say in appreciating amazement.

Then some clever analysts will have an "heureka" moment and exclaim that woa, the total content industry on mobile at 31 B dollars in 2006 is larger than on the fixed PC based internet (duh!) and some clever dicks will then observe that actually, since the majority of content revenues on the fixed side of the internet are pornography and gambling, but the biggest content revenues on the mobile internet are from music and social networking - yeah, they will tell you this in amazement, just watch them - some clever media pundits will conclude that while the mobile internet is younger, it is also more mature than the fixed landline internet on PCs. (and our blog readers will say, told you so, if you'd read the book Communities Dominate Brands, you'd have known all this already..)

Advertising BI and AI

And while on the subject of media, then advertising. An industry twice the size of the total internet industry and IT (computer) equipment industry combined - or in other words a little over half the size of the mobile telecoms industry - will also wake up and have their iPhone moment.

Look at this wonderful iPhone !  Look at that big screen. Look at all the internet content and music and gaming and web browsing and video clips. Wait. I'm in advertising. We need to be there. That iPhone is a magnificent advertising media channel. I better have a meeting with the boss...

Yes. Then they start looking for the case studies. Many will discover mobile advertising success stories from the 54% who consume ads on mobile phones in Japan already today, to the 2 billion ads served in just over one year by our friends over at Admob. But yes, then the advertising mind will suddenly "discover" the iPhone. And they start to talk about the mobile media no doubt (ha-ha, and some will even find themselves to our thinking about mobile as the 7th Mass Media channel, but it will take them longer to notice that yes, mobile as an Mass Media is as different from the internest as TV is from radio)

The Media Industry BI and AI

Similarly to the advertising industry, expect the major media moguls to "wake up" to mobile this June. Why? Not that the 50 or 60 year old board members at TimeWarner and Disney and Viacom etc will actually "use" an iPhone, but rather because the top strategist and CxO level execs at the media giants will be exposed to the Apple marketing blitz around the iPhone. Wait. Did they say TV? What was on that iPhone, was it CNN? and so forth. Soon Hollywood, HBO, Fox News, etc will feature iPhone stories and coverage. Conan O'Brian, David Letterman, Jay Leno, the Daily Show and SNL will all parody the iPhone marketing and it will simply be everywhere.

The music industry already has "gotten the message" and they are now trying to recover from the mistakes of ignoring ringing tones. Music is already onboard. Videogaming was the second to discover mobile already, so don't expect panic in the internal memos at EA etc.

But the rest of the media industries. TV? So in addition to satellite, cable, digital, HD and IPTV - there is STILL another new entrant into the game? But also, wait, this iPhone is very compelling. I could see myself having it at work next to the PC and tuned to CNN or CNBC. Actually I think I'll panic and write a memo.

Radio. Yes, the iPod and podcasting. Now this iPhone brings all the web broadcasts also onto the phone. Wake-up time. Expect panic memos in radio broadcasting.

Newspapers? Yes, the readers are either dying of old age or rejecting the paper formats altogether. But it was slow death on the internet and broadband. (didn't someone say TV Guide had lost 55% of its circulation in one year?) Now look at this iPhone. This will accelerate the death spiral. Time to panic. Let me write an internal memo.

Silicon valley BI and AI

The biggest single change I think will be a new gold rush, a klondyke, that grips the West Coast. The IT industry took it on the chin rather badly with the dot-com bubble bursting. They've been in damage control mode for a few years. The Web 2.0 buzz has some up and energized again, and the bravest investors are already returning to the tech space. But wait for the iPhone moment in IT. If Apple drops Computer from its corporate name. And says its future depends not on the Macintosh computers or the succesful iPods, but this latest gadget the iPhone? And suddenly it 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.

New jobs. I need to update my CV. This is the new dawn of the computer age. The real revival after the dot-com bust. Suddenly everybody is rejecting job offers because even better ones are made simultaeously. Except that compared with last time, this time the fastest truly are the Blackberry and SMS generation who snatch the best deals at the last moments with the fastest communications.

Oh, and ironically lost in the shuffle is the fact that Nokia has stopped calling its top-end smartphones, the N-Series as mobile pohnes. The N-Series - the phone series most competitive with the iPhone at launch - has been called Multimedia Computers by Nokia for over two years. But this is something that happened in the dark ages, BI. The true coming of the first honest pocket computer will be attributed to the iPhone (while Nokia N-Series will dramatically outsell iPhones, still this is futile. iPhone will gain the Apple marketing magic)

Microsoft, Dell, HP, Intel, IBM, any IT company will suddenly want a cellphone strategy. Mobile experts will suddenly be in short supply. Crazy job offers will be everywhere. Oh, and if you want a quick boost to your mobile credentials, Oxford runs its short courses on 3G mobile technology in the first weeks of July - featuring also your fave author-blogger-podcasters Alan and Tomi - come there to pick up a certificate in the topmost training in mobile, and be in hot demand in the AI age)

The Family of the Mobilists? BI and AI

There are 80 million bloggers. There are massively more English speaking bloggers in America, in particular the West Coast, than in Europe and Asia and the rest of the world. We've had our expert circles with the Carnival of the Mobilists, the Wireless Watch, our Forum Oxford and so forth. We trust the opinions of the Ajit Jaokars and Russell Buckleys and Walter Adamsons and Chetan Sharmas and Carlo Longinos and Tony Fishes and Paul Goldings and here at Communities Dominate Alan Moore and Tomi Ahonen. But suddenly AI, the massive West Coast blogging community will start to buzz around the iPhone and the "wirelesss" and "cellphone" space. They will think they're discovering it all for the first time. They will make the same mistakes we've made years ago in Japan, in Scandinavia, in South Korea, etc but it won't matter. To the Americans if it wasn't invented there, it isn't really important.

So we will hear all the old stories we've gone through in the past. Should young teenagers get cellphones. Should schools allow cellphones or not. How about restaurants. Is it ok to speak on a phone while in the company of another. How about sending and receiving SMS text messages when speaking to another. Etc. Yes, we all know. But Americans have to go through those lessons as well. Watch the American wireless and cellphone bloggers discover these truths.

SMS texting BI and AI

And finally texting. Again. This is something totally unrelated to the iPhone. But the iPhone will feature SMS texting. Last year 42% of American cellphone owners (ie 30% of the total population) used SMS. This year it will grow, and next year, 2008, it will be about 60% of the total population who use SMS text messaging. It is inevitable. SMS texting is addictive. There is no going back. And soon SMS texting will break through the 100 billion dollar global revenue barrier so everybody will pay attention.

But again the credit will be given to the revolutionary iPhone. No matter that iPhones will form a tiny minority of American cellphones by end of next year. Still, it will be seen as a major contributor to Americans discovering the power of SMS. And then technology historians will write books in the next decade where suddenly all mobile service innovation will be attributed to this device and this moment in time.

Yes the iPhone is a radical device and yes, we need the American IT and media and adveritsing industries to wake up to mobile phones. And yes, the iPhone will bring valuable goals for all user interface design in mobile telecoms, both for handset makers and mobile operators. But all invention didn't happen at Apple or be caused by the iPhone.

But the level of the noise around mobile will double in June. Very many big guns will join the game. That is good. And it will be a change from an old Era, where handset makers like Nokia and Motorola ran the show with the major mobile operators (carriers). Now media giants will join in, as will major IT players and internet companies.

It will be an exciting time, AI.

UPDATE 23 September 2015 (8 years after this blog story was written) - yes now 'in the future' Digg has done a retrospective of what experts wrote about the iPhone at launch, 8 years ago. They included this blog (thank you!). I have done a small reflection myself, about this blog article, and why it turned out so incredibly accurate (I had had LOTS of preparation before writing this blog in 2007). Read all about how this blog article become to be, in this look back from 2015.

FREE INFORMATION - for those who would like to understand the basics of the mobile telecoms industry, its current size, replacement cycles, second subscriptions, mobile content revenues, SMS texting usage etc, I have written a concise 2 page Thought Piece on Size of Mobile Industry. Send me an e-mail to  tomi at tomiahonen dot com   and I'll send it to you for free.

UPDATE - We've had a lot of discussion here in our comments (over 20 comments so far) but this story resonated very widely in the blogosphere and beyond. See Electronic Echoes Part 2 for who all said what. We've been called anything from idiots to best posting of the week

Related postings:

Mobile as 7th Mass Media is as different from internet as TV is from radio

Understanding 2.7 Billion mobile phone owners, the mobile telecoms industry in context

Handicapping the iPhone's chances worldwide

And finally to understand how different the modern mobile phone is from the handset of only 9 years ago, check out this charting how far the pocket device has evolved:

Seven Deadly C's of Cellphones

Comments

[Sumocat]

Your post has one "billion" too many, unless in fact "There are 80 billion bloggers." :)

[Tomi Ahonen]

Thanks Sumocat, yes it should be 80 million not billion. I'll go correct that right away. Thanks !

Tomi :-)

[David Smith]

This article, while informative, is reminiscent of someone's dream-world; an idyllic local where everything falls into place. That said, I must agree to some degree with most of what is written, however it does become monotonous as the story progresses.

[Infomercials]

You are absolutely right:

BI = You can do everything on a mobile phone
AI = You can still do the exact same things you did before, but now it feels cooler and it is easier

Thank you Apple for that "I."

[mxmora]

"music on mobile phones is already worth 8.8 B dollars last year, with ringing tones, ringback tones and MP3 files sold to musicphones EACH already larger than all of iTunes."

The only reason the music on mobile phones is that large is because of the closed nature of the phones today. The only way most people can get music on their phones is to by it from the phone company, even though they already own the CD or have it on their iPod. I predict that no iPhone user will be buying songs from AT&T any longer. They now have their entire music collection on their phone. Now that their music is on their phone they can make any one of those songs their ring tone. So now they no longer have to buy ring tones either.

The phone companies has had a strangle hold on consumers because they lock people out from using the media they already owned on their computers or mp3 players. Getting data to and from the phone costs dearly. With iPhone and a simple connection to the computer, the cell network is no longer needed for transferring all those files over.

" Yes messaging is a multi-billion dollar business on the web. But messaging is an 80 billion dollar industry on mobile"

It's only that big because there is no other way to send text messages. With the iPhone you can use standard Internet tools. You no longer have to get a text messaging plan. You can use iChat to text message anyone because it uses standard Internet messaging. As the iPhone is moved into an area with Wi-fi, the text messaging app auto switches to WiFi seamlessly. iPhone customers will no longer need text messaging plans. The can use the Internet connection. As this catches on, you will see that phone carriers will start to lose a lot of revenue because there are other ways to move data on smart phones.

I could go on and on but life A.I. is bigger than anyone thinks, and cell phone carriers will look fondly back at the days B.I. when they had a stranglehold on the network and the content that went across it.

[Luis Alejandro Masanti]

quote:
Not that the 50 or 60 year old board members at TimeWarner and Disney and Viacom etc will actually "use" an iPhone,...

Hey, man, Steve Jobs is 52, sits at Disney and WILL ACTUALLY "USE" an iPhone!!!

[Tomi Ahonen]

Hi David, Infomercials and mxmora,

Thank you for stopping by and posting the comments.

David - thank you (I think). I'm happy if you found it informative and that you partially agree with the blog entry. I didn't attempt any high prose, this is a blog, the good writing and re-writing I leave to my books and "real" articles, so if it got to be predictable and monotonous, I apologise.

Obviously I'd be most interested in what you disagree with "must agree.. with most" - as that would give us the most useful dialogue. Perhaps if you return David, you might tell me where you see reasons to disagree. I'd enjoy that discussion.

Infomercials - yes we agree. The iPhone will make all on the mobile phone more cool. It won't actually give us much of anything we couldn't do before. But suddenly the pocket internet, phone and messaging experiences will be as desirable as the iPod has made music.

mxmora - wow, you seem to be almost hostile about these matters. I would venture to guess you're based in America as you seem so angry at the mobile telecoms players? You might be pleased to hear that there are clear trends toward fair pricing, open internet access and unrestricted cellphones. The concept started in Japan and South Korea (as most current innovations in mobile telecoms tend to). But now already much of Scandinavia and Northern Europe is in similar state. The UK recently saw the launches of unlimited internet access on very modest monthly packages with VoIP access to Skype etc, headed by the newest 3G carrier, Three/Hutchison and its X-Series. The rest of the industry is following.

I'm very sure like all other innovations for this industry, that too will come to America soon (my calculations have America about 4 years behind the mainstream of Europe, ie about 6-7 years behind South Korea and Japan.

But let me address your specific points. I appreciate your view point, however, you might not know this industry quite as well, some of your assumptions are made probably with incomplete information.

Music - you say the only reason music is 8 times larger than iTunes is because it is a closed system controlled by the mobile operators/carriers. That may be a part of the reason, but I would certainly say it is a relatively small part. Certainly iTunes is also closed system, more so than most music services on mobile networks. So just being closed is no reason to think the iTunes/iPhone model would supercede other music offered on mobile phones.

But more precisely, the music industry has already discovered that the various mobile music services - ringing tones, ringback (ie waiting) tones, welcoming songs, background tones, and push ringtones, all serve DIFFERENT needs and have their own market opportunities which are DIFFERENT from the purchase and private consumption of MP3 files.

A large proportion of the first-time buyers of ringing tones buy a ringing tone of a song they already own ! (obviously the heavy users of ringing tones, the youth, will at times buy songs only for the short duration of their popularity as ringing tones, so this does not apply to heavy users of ringing tones once they get into the habit, and that is the majority of the total ringing tone business)

The same is true of waiting tones, welcoming songs, background tunes, push ringtones, mobile karaoke, music video, music streaming etc. So while yes, for the purchase of "basic" MP3 files, yes you may have a point - but then consider this. In South Korea the average price of a song to a mobile phone is 40 cents. Not 99 cents like iTunes. No wonder 45% of all music sold in South Korea is sold directly to musicphones. And South Korea is not alone. The latest figures from IFPI the international federation of phonographic industry - says real music (excluding ringing tones) to mobiles outsells MP3 files sold online such as iTunes from Japan to Italy to Spain. In Sweden the smallest mobile operator/carrier outsells all of iTunes Sweden - and in Sweden you can buy full track MP3 files to your phone for as little as 8 cents (obviously these are older songs, not current chart hits). And the Swedish model lets you copy the same song both onto your phone and your PC.

Yes, some American carriers are still way behind on this, but in the most advanced mobile music countries the services, the prices, the utility and availability are all much better for the consumer than iTunes or buying songs clumsily on credit cards to PCs and then transferring to portable musicplayers. No, just select the song to the musicphone, hit "buy" and its loaded straight, fast - on real 3G networks, not the rubbish on most American networks still today - and its billed straight to your phone bill. Kids can do it - even if they don't have a credit card, etc.

Better, simpler, faster. You'll see those soon in America too.

Also you take issue with messaging and again accuse the carriers. And again, I do admit the carriers (mobile operators) have been greedy at times but in the case of messaging, you don't know the facts. All surveys in every market - including America - have shown that SMS text messaging is the topmost preferred messaging method preferred not only over email, voicemail and IM instant messaging, it is even preferred over voice calls !

You totally don't understand the power of SMS text messaging. There is NO rival in email, not even on a Blackberry. So yes, the iPhone may make it easier to send "traditional internet messaging" communications, and I'll immediately grant you that on the iPhone especially with WiFi this will be easy to do (by the way, my current Nokia is already my fourth smartphone with WiFi - my first one was in 1994 - so that is nothing that dramatic either)

No. You should go read my longer posting on understanding SMS text messaging, why it is not the dumb little brother of e-mail. It is a far superior method to communicate. And yes, we've reported here at this blogsite that not only is SMS preferred over e-mail, it has now been proven to be preferred over voice calls on cellphones by the general public (not only youth) - in the UK (not a bizarre mobile-crazy country like Finland or Sweden or Japan or South Korea).

So you have a good point but don't know the big picture. Messaging is migrating to the most powerful method and that is SMS text messaging. And that won't change with the iPhone.

Thanks for writing

Tomi Ahonen :-)

[Wolf Fernlund]

Tomi, interesting as always to read your material...

January 10 you wrote the following:

"I would say 10 million iPhones - with prices in the 499 and 599 dollar range, and with only a GSM model and launching with only Cingular in America first - this is a tall order, but it can be done. I would suggest history will find that this is a much bigger drain on Apple's marketing and sales support resources than they can have imagined, but the writing is honestly on the wall."

What do you think about this today? (I get a feeling that you are a little surprised by the volume of iPhone market "hysteria" sofar...)

[iphonehacks]

Tomi, I must say that the article was an interesting read. I loved the Era BI and AI concept.

I would agree with you that the iPhone would infact create the BI and AI feeling in case of the mobile phone industry and we need to thank Apple for it.

Before the iPhone, everyone in the industry was content in following each other, Apple has been brave enough to think out of the box to develop something quite revolutionary.

I have a blog exclusively for the iPhone, and incidentally carried an article on how the iPhone could potentially be a boon for mobile phone advertising.

Article Link - http://www.iphonehacks.com/2007/05/iphone_a_potent.html

Let me know your views!!

[Alan moore]

Hi Wolf,

I am Tomi's co-author at this blog. I am personally not surprised by the huge interest in the iPhone. Apple have been a disruptive technology from day 1. For Apple it is not bravery, it is their DNA. It is the other companies which are driven by technology, not by marketing or a clear view on the end user experience. From their stores to their software, well in fact verything they approach.

There is a very clear vision of purpose. Few if any other companies in this space innovate in the same way.

As i said in my post, start with a laugh and work backwards. Like the Sony Walkman.

Thanks for posting

Alan

[jiarizti]

I'm not a very knowledgeable person in regards of this technologies, but I got caught up by your article and even followed the link and read your posting about Handicapping the iPhone, on doing so, it just hit me and would like to point out something that nobody seems to have thought of.

For what I know, the $500- $600 price point for the iPhone puts Apple already in the profit side (according to some analysis I read on its components). So, why the two years contract? It seems too many people are uneasy with this decision by Apple, so there should be a very good reason behind it. Here is my grain of salt: What could AT&T put into their service worth at lest the cost of the iPhone, which they wont subsidize at all? I think Visual Mail is just a glimpse of what to expect, IMO the other half of the iPhone revolution is in this area, but I’m afraid I just don’t know enough about technologies to speculate here. Do you think we could see some breakthrough implementation here?

[freeformer]

Jiarizti:

I guess its a given that the value chain from manufacture to consumer determines what the end price displays itself as.

If every single part of that chain held precisely the same sociological value (read importance) in new technology then I wonder if prices would look like they do.

I figure not.

You claim your point is something - 'nobody seems to have thought of' - which raises the issue that maybe its the fact that many people take the above value chain assumption 'as read' so then rarely question such pricing models.

Many people would state that the right price (purely commercially speaking) is whatever people will pay for it.

Many people would question whether something with a high (initial) percieved value should be subsidized at all. In fact - they may argue it should be premiumed.

Is it actually a case of trying to equate hardcore commercial 'value' (i.e profitability) with values of a totally different kind (i.e significance to the evolution of socio-technology)?

FF

[Tomi Ahonen]

Hi Luis, Wolf, iPhonehacks, Alan, jiaritzi and freeformer

Thank you all for visiting and posting comments. I'm very happy you've found this topic worth your while enough to comment.

We've also been rather widely picked up by the IT press such as ZD Net and Gizmodo, the Apple websites such as Macbytes and Macrumors, mobile sites such as Smart Mobs, and various other national sites from Denmark, Sweden, Finland onto India etc. Welcome all !

Now to specific responses as it is our custom here at Communities Dominate Blogs.

Luis - Wonderful catch, thank you so much. We must have been posting at the same time, sorry I didn't see yours at the time I posted my last reply. But yes, I'm sure you'll accept that Steve Jobs is very much the exception among 50 year olds and high technology. But ha-ha, funny coincidence. I was just selecting a couple of major media brands and had no idea Steve Jobs sits on the Disney board (but am not surprised).

I would hope - while we are on Disney - that Steve could bring some of his youthful - and now mobile-enthusiastic - views to Disney, which is almost criminally negligent in not taking advantage of its unique insights into mobile media. Disney was among the first Western brands to be signed up for the launch of NTT DoCoMo's global first launch of a mobile portal service, in 1999, in Japan. So Disney has known about this space literally for MORE than 8 years. I happen to have followed Disney right from the start due to knowing of this from the guy who did the negotiations from NTT DoCoMo's side (NTT DoCoMo being one of my reference customers)

And Disney has been consistently among the most profitable and lucrative mobile internet websites in Japan since that launch. So Disney HQ has had in fact the world's best knowledge, of the international potential (ie not local brands and content) in the world's first and most advanced mobile internet service. They have generated so much money out of Japanese mobile phone users that it has probably paid for all of Disney's "real" websites worldwide. This from Japan alone.

But have they capitalized on this knowhow. NO ! Idiots. And I mean it with the best admiration of Disney. But idiots. How much has that goose been laying golden eggs year after year after year in Japan, and where are Disney products, content and services on any other nation? Only NOW we get Pirates of the Caribbean as a multiplayer online game for mobile. NOW ? Eight years later ? and ESPN mobile ? What moron ran that brilliant money-maker into the ground ? And why terminate the European launch of Disney MVNO ? Disney sits on an absolute goldmine and they are poisoning the opportunity. Yes, idiots is putting it mildly. They sorely need Steve Jobs at their board to see some sense into all this. Disney of all media brands ? And they desperately need to read my 7th Mass Media piece ha-ha

Sorry about the tirade. But yes, you are totally right, Steve Jobs as a 52 year old is the exception to prove my rule ha-ha...

Who's next? Wolf.

So Wolf, you say you think I am a little surprised by the iPhone related hysteria? No - didn't you read fully that January 10th posting, in it I very clearly say to expect an Apple media blitz. I know very well the passionate Apple fans (we've been burned here nearly as heretics with our early iPod forecast that turned out remarkably accurate, but the Apple fans are truly fanatical, we know. Both Alan and I are huge fans of Apple and admire how greatly it connects with the passions of users of its technology. No other tech brand has nearly that loyalty and love.

But no, not at all. That is partly why this blog now. If you think its silly that four books on the iPhone are already taking pre-orders - including by the way one of my two publishers, John Wiley the world's biggest publisher of IT and telecoms and engineering books who also own the "for Dummies" paperback books - has already announced the iPhone for Dummies book ! I kid you not. (and no, I did not ghost-write that book ha-ha, although I've advised the For Dummies division on telecoms related titles etc) - if you think this level of hysteria is outrageous for a phone that hasn't even shipped yet (and remembering at any one time there are 1,500 different new phone models sold in the world), think again.

Yes, think again. This is PRE launch iPhone hysteria. I am telling you the iPhone will be a BI and AI moment. It will get MASSIVELY more loud and excited once the first iPhones hit the stores - and every programme will find an excuse to showcase the phones. The breakfast shows and the cooking shows and the latest episodes of cop shows and lawyers shows and reality TV etc will all somehow start to feature iPhones.

And then there is Apple's OWN PR machine. If this is the device to save the company, it will get the appropriate attention by Apple. The ad agency that created the Orwellian 1984 Macintosh launch Superbowl ad has one of the truly iconic TV ads of all time. You can bet that all major ad agencies begged stealed and borrowed to be allowed to pitch for this iPhone launch campaign. And be certain, it will have the absolute topmost creative team on the project. This is an utmost career-making campaign.

So when Apple's own PR machine gets going with the iPhone launch - only THEN do we see the maximum buzz and hysteria around the iPhone. This today, this is a prelude, and very mild in tone compared to what will come next month. Mark my words. We will be sick of the word iPhone by June 30 ha-ha...

So no, not surprised in the least. I did very clearly state in Jan 10 that the Apple PR machine will be one of Apple's strengths going into this challenging 10 million sales target. And I also add that Apple will gain a boost from the American media and domestic market which is not sophisticated enough to truly evaluate the iPhone compared to the real competitors. Like we can see in all European and Asian reviews, they are only lukewarm to the iPhone outside of America (actually very suspicious in Japan and Korea and advanced Asia).

iPhonehacks - thank you. And yes, we agree. And yes, it is Apple being very brave that in the past (Macintosh, Newton, iPod) has gone totally beyond what conventional wisdom and following the herd behaviour had created. This is what we - as in the mobile telecoms industry - need. Apple will bring innovation, and it will be good for all. It will also force Nokia, Motorola, Samsung, SonyEricsson and LG to raise their games. And obviosly the second and third tier players like the Blackberries etc.

I'll come over and visit your site. Thanks for the invitation. And yes, iPhone will dramatically help the advertising industry which does need to get to grips with mobile - its a favourite theme with Alan and me at our workshops and seminars. I was just with the Slovenian Marketing Association last month to help them get this point.

Alan - hi. Yes I always like your Bill Bailey quote...

jiaritzi and freeformer - you raise the point about the subsidies and it in itself is a long treatise, so let me first save this reply. I'll answer you and the subsidy issues of the iPhone next.

Thanks for writing, come back again

Tomi Ahonen :-)

[Tomi Ahonen]

Hi jiaritzi and freeformer

First, thank you freeformer for dealing with part of the issue.

But lets do a bit of the basics. Subsidies. American readers may be surprised to find out that in many countries it is illegal to offer handset subsidies - Italy, South Korea, Belgium, a large minority of the world is in this camp, and a mild movement is in that direction (trying to eliminate handset subsidies, such as they did in South Korea and Israel).

So the iPhone 500 dollar and 600 dollar prices (depending on storage size) is subsidised. A real non-subsidised price is not yet known, but is somewhere in the 800/950 to 1000/1200 dollar range.

And yes, lets take the mid-point for those estimates, and then for example in Italy the "cheaper" iPhone would cost the equivalent of about 900 dollars (ie about 700 Euros). No matter how big your monthly spend is with an operator/carrier in Italy, you have to dish out the 900 dollars for this phone.

Does it hurt sales of phones to pay full price. of course not. Italy has consistently been at the top of cellphone sales and subscription penetration in Europe, and literally Italy has twice the penetration that the USA has (meaning of course two or more phones and subscriptions per person, but thats another story - please search our blog about multiple subscriptions or penetrations to read more about it)

Equally there are lots of countries with handset subsidies where MORE expensive phones than the iPhone are offered for "zero dollars" if your monthly spending is enough and you renew your annual contract. The UK is typical of the many countries with full handset subsidies.

My Nokia N-93 (3 megapixel optical zoom Carl Zeiss lens and flash, DVD quality video recording and video-out connector, 3G and WiFi music/internet smartphone) and definitely nearer a Mercedes Benz or Rolls Royce if the iPhone is more of a BMW - by current exchange rates this topmost Nokia phone is about a 1200 dollar phone in its unsubsidised price - is offered by Vodafone for zero UK pounds, provided you are one of those with massive monthly bills to cover this cost of the upgrade.

So, first, on "real cost" or "real value". We don't know until we learn of the iPhone's "SIM free" price, the non-subsidised "street price" for the phone. But it is likely around 900 dollars for the cheaper version.

Then its somewhat straight-forward mathematics on the subsidy. You estimate what is the monthly billing for the customer over the period of time. There is a wholesale cost to our voice minutes and text messages and mobile web browsing etc. After we pay our costs (the wholesale price) we are left with our sales margin. And from that we have money to cover the cost of the subsidy. If we need to subsidise about 400 dollars (difference of 500 dollar subsidised price and 900 dollar unsubsidised price) then we have to get either 33 dollars for a one year contract, or 17 dollars for a two year contract, just to break even. That means a certain minimun contract price level for that period.

So far so good. if I understood your question, jiaritzi, you wanted to offer services to cover part of the subsidy? And make it cheaper to the end-user (and/or more profits for Apple and Cingular). This is like Sony offering the new Playstation 3, but rather than match the price of the Wii or 360, they would give away 3 gaming titles.

Yes, this is theoretically possible. But then we have the problem we've found in mobile telecoms in the post 2G time - that there is no single killer application. (I should know, I wrote the first book on creating killer apps for mobile in 2002 and have been teaching at Oxford University's 3G courses on killer application development since 2003)

So modern mobile servicess are very similar to watching TV. You have your fave programmes. They are probably very different from what your parents like to watch, and also very different from what your kids like to watch, etc. So imagine if you received a TV which has 3 pre-programmed shows, but you like David Letterman and they give you only Jay Leno. Or you like Sopranos but they give you Desperate Housewives. Etc. This is (one of) the problem(s) with trying to give services bundled with the iPhone.

Not that it can't be done. But for example, would you really like to get Pirates of the Caribbean - the videogame, on your iPhone? Only 8% of the total population play multiplayer online games. And some might not particularly care for the Pirates game. What if you received a free subscription to Flirtomatic? But you are happily married, you don't WANT to flirt around with love-sick youngsters? Or what if I give you a free copy of Elven Legends. What IS Elven Legends? (it is a really cool mobile multiplayer game, coming soon)

If Apple try to do something with a well-known brand like Flickr, MySpace, YouTube etc, then they can't get exclusivity. (the projected user numbers are tiny for getting an exclusive deal on any of the honest mass market brands). But if not a known brand, then they are stuck with that killer app problem, few people would really care enough to give it "value" in their decision.

Ok. there is much more about and around subsidies for handsets. But keep in mind, yes, there will be many countries where the locals have to pay almost twice the price for the iPhone. And there will be plenty of countries where the locals will get an iPhone "for free" ie fully subsidised. In every market they have to make the calculations locally into their domestic competitive market.

Thanks for visiting

Tomi Ahonen :-)

[Tomi Ahonen]

PS - I forgot

Hi, I forgot to mention about the Apple brand premium. Apple is brilliant at this. When the original Macintosh launched, it was "under powered" by some IBM-compatible specifications. Ie comparing "apples to apples" on the IBM related metrics, the Mac seemed "inferior" and thus very expensive. But obviously the Mac had much MORE in its mouse, "windows" ie icons based interface, hypertext, wisywig printing, etc.

So Apple is very competent at changing the game. If you use the old rules, Apple seems expensive and perhaps lesser in specs. But it typically does so much more and better, that it really does create what we call "new market space" in our book Communities Dominate Brands (where the iPod is one of our case studies of how exactly to do that).

And yes, the same is true of the Newton and the iPod. Both were very expensive at launch, compared to their contemporaries, but radically different.

So Apple has a strong track record in getting its customers to pay extra for the Apple experience. And increasngly with the iPod, Apple has become extremely cool and desirable, which helps get more dollars out of the wallets of the paying public.

Ok, that was all I needed to add

Tomi :-)

[James]

Time will show this jackass author how wrong he was. If he doesn't delete this to cover his tracks.

[GR]

>>remembering that Windows is Microsoft's copy of the Mac operating system

And Mac is Apples copy of the PARC operating system.

Steve Jobs: "we have always been shameless about stealing great ideas..."
http://www.pbs.org/cringely/pulpit/2007/pulpit_20070329_001882.html

[Dave Zatz]

"And yes, the same is true of the Newton and the iPod. Both were very expensive at launch, compared to their contemporaries, but radically different. So Apple has a strong track record in getting its customers to pay extra for the Apple experience."

Remember how successful the Newton was? Yeah, me neither. ;)

[Tomi Ahonen]

Hi James, GR and Dave

Thank you for visiting and posting comments

James - Of course we won't delete this, nor even your abusive comment. I hope you would have explained WHAT it is you disagree with? Perhaps you might return to explain a bit why you think the "jackass author" is so wrong?

GR - good point. And I've always also advocating rather learning from other successes (so in some way, attempting to copy success, perhaps in a broad definition that could be called stealing too).

Dave - Ok. Newton was not successful. Considering how radically the Macintosh changed all of personal computing and the iPod changed all of portable music consumption, two out of three commercial successes is a success hit rate any CEO would take. You can't win them all.

With that, bear in mind, most PDA experts do admit that the Newton was significantly ahead of its time and truly radical at launch. It has influenced all subsequent PDAs. But yes, Apple was not able to turn it into a commercial success. However, now considering the iPhone being a combination cellphone, music/media player and pocket computer/internet device, it is certainly fair to suggest the iPhone is the grandson of the Newton, a re-incarnation of that concept, with more modern twists.

In some ways the Newton to the iPhone is what the Lisa computer was to the original Macintosh. A kind of proof-of-concept vehicle, with many of the actual components and concepts trialled, but earlier, before the technology was quite there. This I think suggests that Apple has been very well aware of the pocketable computing device concept and opportunity long before its rivals. Too early? in this case, yes. But it also helps give a VERY strong base of knowhow and experience now when they launch the iPhone.

I'm certain that when compared against any stand-alone PDAs, the iPhone will totally crush them as a pocket computer. Similarly taking the iPod music and media knowhow, here too the iPhone will rule. The only area Apple will struggle to get all the parts right, is the cellphone (incidentially by far the most complex part and most expensive part of the convergence in the iPhone).

But there, I'd put my money on Apple getting it enough right to make the iPhone immediately a hit, and I've been saying, Apple is also excellent at maintaining a usability lead - expect the second release of the iPhone to be the ultimate cellphone/smartphone. If I was at Nokia or SonyEricsson or Motorola, Samsung, LG etc - the second iPhone is the phone to fear. This first edition is Apple only entering the market...

Thank you all for writing and posting your comments

Tomi Ahonen :-)

[Krzysztof]

Hi Tomi,
Great thought provoking article, thnks for that...
I'd better boook my Oxford courses quickly :-)
All the best
Krzysztof