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« Hyper-individualism, Consumerism & Resentment. A dangerous cocktail | Main | What do, Cyworld, the iPhone, blyk, Admob, MyNuMo, Artists first, Moblog UK have in common? They are all part of the 7th Mass Media: Mobile »

June 24, 2007

Comments

Mark

Tomi,

I agree with the broad strokes of your analysis though I think you underestimate Apple's software advantage vs. Nokia et al (witness the pitiful Symbian UIs and development environments). They'll fix GPS and video recording in software not hardware I suspect.

That being said the part I'm most disconnected with is your price assumptions. I expect the European iPhone to sell for a near equivalent price to the NA flavours (with perhaps some modest uptick for higher camera res and true 3G) not the $800-900 ticket you propose. I don't think the AT&T subsidy is that large. Do you have reason to think otherwise?

Mark

PekkaR

Whoah, what a read! I'm hours past my intended bed time tonight, but just had to read it all at once. Great comments, too. I can't really say the original post was too long, I just feel like we've been treated to a professional depth analysis on the level that Tomi's clients would expect to have the matter explained - and it's important for him to answer many arguments before they even pop up to show they've been considered. Only way to significantly shorten it would've been to leave out (more than already done) things already covered on this blog before, but I think this write up will be linked and read by many people who haven't been regular readers. ;)

This is a long commenting post, in the spirit of the original post I guess... Just making some observations and presenting possibilities, not trying to give better insight into mobile market than Tomi here.

The media/marketing/word-of-mouth blitz for the iPhone is huge in the US, completely unbelievable really. Many of the Internet news sources I normally follow are full of it. I'd feel safe wagering that the US/NA sales surpass this model if measured in percentage per capita versus the same in Europe. 150% minimum. But like Tomi's post said, even doubling those sales would still require significant success in Europe if things still basically follow the model without overly dramatic game changing.

Like Alex said, good initial NA sales will probably provide leverage for negotiations in Europe (and to some extent Asia), but if Apple needs that leverage badly, then the factored November 1st launch is looking really tough. Personally I hope they abandon the idea of being tied to a single operator, even at the cost of visual voice mail. (Which seems like an idea that any big operator would want to implement in their network anyway, and then write software so any phones they sell use it.) Give consumers choice! Suppose iPhone is a runaway game-changing mega-success in the US. Then it would help make the operator business one-sided (like giving AT&T half of all subscribers or something as unrealistic) and even Apple would come to regret it in their later dealings with AT&T.

South Korean and Japanese markets are so very different (like NTT DoCoMo's business model) and seem costly/risky... Maybe they could focus efforts on the West and the other parts of Asia-Pasific (less than half of the current smartphone market there, yeah) while making sure that they have presence in China and India in 3-8 years? Thinking of Asia mostly in the long term. Nokia stopped even trying to sell their phones in South Korea some time back, didn't they? Apple might need to rethink tying iPhone software (and other content) management to computers for the Asian market anyway, what with the less ubiquitous PCs. I'll be actually surprised if they can convince many big European operators about skipping the operators' own music and video stores, too.

The rest is my 2 cents about the potential game changing by the iPhone and its text entry. I don't really have any solid expectations here, things could go many ways. We live in interesting times.

Tomi said: "Mobile is a very active, fiercely competitive and innovating market."

You've shown this time and time again. Yet you're also giving Apple some benefit of doubt about user experience/interface. I'd go as far as to say that mostly the smartphone operating systems have been the least innovated part and have held back (slowed down) the adoption of hardware features (anything else than basic phone and SMS use) in the mainstream. In South Korea and Japan the operators seem to have taken the lead in strongly defining the user experience with things like NTT DoCoMo's content delivery system, Cyworld, or making a single barcode link system ubiquitous so it can really become part of normal life. Or so it seems to me.

Mobile devices are screen-challenged and text entry challenged. I can really see the allure of getting rid of (most of) space wasting hardware buttons and completely adapting the UI to whatever task is currently at hand. Great opportunity to bring decent picture and video editing or music composing/mixing (all traditionally popular on Macs) to mobile phones, for example. The text entry is then the greatest problem to tackle, and very relevant to the whole mobiles-replacing-computers-for-many-people thing.

I'm also a touch screen SMS doubter, yet hopeful despite my doubts... Couple of ways they could avoid hardware keyboard in iPhone II (assuming there's need to significantly improve from what iPhone can do):

1) Tactile feedback. Already mentioned by Alex. I fear it's not advanced enough yet. AFAIK, only the feeling of sharp edges can be realistically replicated, and anything complex doesn't really work well yet. Samsung or HTC launched a tactile feedback touch screen phone in China in January (http://www.gizmag.com/go/6745/). I haven't heard much about it since. The few reviews I found in English seemed to say that it wasn't all that great to use.

2) New and different software solution for touch screen text entry, easier to learn than T1 once was. Possible candidate is Z1 (http://www.forwordinput.com/Z1_Large_1.4.mov) If you go Learn More and check the videos, you'll see that this could be a gesture/shape based system with a lot shorter learning time than any previous (stylus-based) offerings. Because it's based on QWERTY. End of the last video shows that you don't necessarily need to hit the exact key and it could be used with finger tips. Usable blind and one-handed? I dunno.

Tomi T Ahonen

Hi Piot, mark, Mark, PekkaR and ihponefan

Thanks for writing.

First a quick observation. Its Thursday, am in London, the hype about iPhone is reaching fever pitch. Yesterday's Wall Street Journal had a very upbeat review by Mossberg based on 2 weeks of iPhone use; International Herald Tribune had a more evenly-split review finding both great innovations and also considerable drawbacks, also based on 2 weeks of iPhone trials. Meanwhile the Financial Times reported (Tuesday I think) that rumours have it that Vodafone is in the lead for the iPhone European contract, which rumour then fuelled considerable Vodafone stock price gains in the London stock market.

Now to the commments - Piot. Thank you for the source and direct quote, obviously you are right and I am wrong. I wish I had had that specific bit of info, it means that the 2008 sales need to achieve 10 M within the calendar year. In the current model they do 1.7 M in the rest of 2007, and 8.3 M during 2008.

For those reading this blog (and specifically this thread of comments, ha-ha) and who are inclined to use the model as a measure of Apple's performance, please note the 2008 numbers need to be "upgraded" by 12% to reach 10 M during the calendar year 2008. Also, this means that during the ramp-up of 2007, the final numbers in December 2007 should be up by at least 8%-10% from my model, to allow for 2007 to be 12% more.

Thank you Piot, sorry about that. Shame, would have of course preferred that the numbers were aiming for the right goal, not the wrong goal ha-ha..

mark - thanks. I can see very well where you're coming from, and those markets are definitely out there, remains to see how well the iPhone does in them. But, note, I'd argue that the SAME needs exist also in Europe and Asia among older people etc. So if we count only iPhone target markets in these three regions (without specifying which customer segments form them) then, probably if for example the older well employed but not happy with WAP users, who will be attracted to iPhone - will exist not only in America, but also in Europe and Asia. And therefore, if the iPhone does sell well to that segment in America, it should also do well in Europe and Asia into that segment (with the relative size assumptions I have, ie somewhat less into Europe, even less to Asia).

So what I'd like to say, is that you mark are nicely supporting the main blog, by helping explain what markets are possible for the iPhone to reach - but I'd add to it, that those are not exclusively American options.

mark, also on the "Post PC Apple" you are most definitely right, and I was too hasty in my view - I should have known better, yes you are very right, that Apple is clearly aiming also for the media player markets (beyond just mobile ones) ie home TV etc - and also the entertainment content and software business ie iTunes. That was something I had not thought carefully through, thanks.

Mark (as in the other Mark ha ha) - First on the software advantage. This is Apple's strong suit, and one that the mobile handset manufacturers all suffer with. I am certain that Apple will immediately establish a lead (starting tomorrow when the iPhone goes on sale ha-ha) and will never relinquish that lead in how the best user interface and the software and applications on Apple branded phones will operate, compared to the rest of all manufacturers in the world. A bold view, but why, because Apple's done that consistently in the PC side with the Mac OS and usability.

But what is its exact relevance? That we can't say. I would argue, that on a PC the form factor is mostly desktop vs laptop; and then on the laptop perhaps a bit on weight/size/screen But if we are buying a current laptop, whether its a Toshiba or HP or Lenovo/IBM or FujitsuSiemens or Dell or whatever, is almost "irrelevant" for the random single buyer-user and for a given price point there is strong harmony in features/functionality (speed of CPU, memory size, hard drive size, type of DVD/CD drive, etc). Now yes, I left out Apple from that list, as Apple is somewhat in its own class among PCs, and tends to adopt new technologies before the others.

But on mobile phones, for a given mid to high price phone range, there is ENORMOUS variance in what capabilities you get and that is expanding now. We have music-oriented phones like SonyEricsson Walkmans, still picture -oriented phones like Samsungs 10 megapixel cameraphone, TV viewing -oriented phones like LG's phones with digital TV tuners, videocamera oriented phones like the Nokia I love, my N-93 (which just ran out of its battery today at a critical point, ouch, am now on my N-80 and hating it ha-ha), and web-browsing oriented phones like the iPHone, e-mail oriented phones like Blackberry, gaming oriented phones like the now-defunct N-Gage, now GPS oriented phones like N-95, etc etc etc.

The pocket device is constrained as a compromise, it can't do everything well. When the basic functionalities of the phone are so critical to us (like for me, I don't own a car, don't really need GPS, but totally love my camera and video on my N-93, I wouldn't take the N-95 if I had to give up on the N-93) - I think the operating system and ease-of-use are less relevant than in the PC world. Not insignificant, but less relevant. The main functionalities will probably matter more.

But yes, this is an Apple strength, I totally give that to you (and said so in the blog many times) but yes, it may be even more pronounced than I thought. Time will tell.

Note that this does mean that all other handsets will definitely get more user-friendly over time, as they adopt Apple innovations and try to reverse-engineer the iPhone (like Microsoft copied the Mac with Windows)

On GPS and video done in software. On video, yes I agree, but not on GPS - that would require an additional very expensive radio component, it can't be done in current radio technology in software alone (software defined radio is coming, but its still years from mass market products)

On price - you questioned my analysis on the subsidy premium. Time will tell. Often operators subsidise more than half, I was guessing. But many other experts in mobile have had similar guesses and felt my gut was close to the mark. We'll know as soon as Apple releases its SIM-free, unlocked phone (which it will have to do in many European markets where it is illegal to bundle phones with the services of the mobile operator/carrier). I would be extremely surprised if that is less than 800 dollars this year.

PekkaR - Nice to see you here again, and thank you for very kind words indeed. Great comments too, and we obviously agree on most of it.

About the single-operator strategy. I find it curious that Apple is pursuing this, but the grapevine definitely is sure that there are ongoing negotiations that Apple is specifically wanting this, and they expect they bring exceptional value to the market - and in the Herald Tribune article, it said that Apple gets some revenue-sharing from the operator/carrier (at least with AT&T).

This is a VERY big no-no for just about all mobile operators. I am very sure that Apple won't get anything "meaningful" in terms of revenue-sharing on telecoms operator/carrier traffic in Europe or Asia. The markets are too far advanced, the operators too clearly focused on their core competence and future. This is what is delaying the negotiations and why operators say Apple is "arrogant" etc. Apple is trying to leverage its brand to get there, am totally sure operators won't budge. But because (according to Herald Tribune) they already got this concession from AT&T, it is worth Apple's while to try it on other markets too.

The BIG money, the holy grail, is traffic revenues. The world's largest internet company by revenues (and by profits!) is not Google or eBay or Amazon or AOL or Yahoo - its NTT DoCoMo's domestic iMode service in Japan - the mobile internet service of the Japanese incumbent. The total mobile data services industry (75% of which is SMS) is already worth 110 B dollars and has over 80 billion dollars of profits in it.

And thats not counting mobile voice which is a half-a-trillion dollar industry, bigger than global advertising for example. No, this is the core business of operators (traffic) and I can understand Apple tries to get a piece of that juicy pie (EBITDA margins for mobile telecoms - mostly voice business, is 35% globally - consider that from a PC maker perspective and then think where you want your future to be).

But they're no dummies. No, this is a battle Apple will definitely lose. But its what's causing added delay and obviously astonishment by the operators about the perceived arrogance of Apple.

Very good observations PekkaR about the strategic options for Apple in Europe and Asia. Totally agree.

Also very valid points on the operating system on current smartphones being the least-innovative part, and that those cases where the mobile operator takes the design lead (eg Japan, Korea etc) then the innovation is glaringing obvious.

Agree with your points about SMS and tactile feedback etc. Thanks

iphonefan - thank you for you comments too

PS tomorrow we'll start to get the blogosphere exploding with first user-reviews by (mostly Apple-loyalist) earliest iPhone users. Expect a lot of super-positive first opinions, and the occasional "but what I didn't expect was" kind of gradual noticing of the deficiencies too. But will be a very interesting time in the blogosphere tomorrow, officially the first day or our new Era, Ai (After the iPhone vs Bi Before iPhone)

Thank you all for writing

Tomi Ahonen :-)

alecia biscotti

the only thing i didn't like about the iphone was the fact that the battery is sealed and can't be replaced UNTIL i learned that you can actually get a iphone battery from any number of places online like ipodjuice.com and replace it your self. Yeah! I am getting my iPhone on!

mark

Tomi, thanks again for responding. Your site has provided me with much to think over. With your contribution, the web has really made me much more knowledgeable.

Just wanted to point out a couple of sites I've come across that intersect with this post:
Paul Paetz's last 2 entries on disruption and Apple: thewaythingsare.typepad.com/antimarketer
Michael Mace's last 3 entries on mobile video, Palm, and Nokia: mobileopportunity.blogspot.com/

Thanks again!

Melissa

Hi, I just happened upon this page while looking for Asia-related iPhone analysis, and thoroughly thoroughly enjoyed this in-depth discussion of the topic. I'm going to bookmark it and follow the comments to see what interesting comments pop up after tomorrow. Thanks for sharing your valuable insights!

Tomi T Ahonen

Hi Alecia, mark and Melissa

Thank you for posting comments to our blog

Alecia - good point. There is also some analysis about the durability of the battery (some say it will drop off after 400 recharges) so in just after a year of solid use, the old iPhone population will be heading for new battery territory..

mark - thank you. And also good postings. Michael Mace is a regular thought-leader for the mobile space, among the best-read blogs etc, so yes, regularly follow his writing. Paul Paetz's looked also good, have to keep an eye on his writing.

Melissa - thank you to you too. And you have no idea how much this kind of dialogue is a great pleasure for Alan and me. For me, Communities Dominate Brands is already my fourth book. For the first three there was no blogsite (there was really no viable mass market blogosphere until when we were researching this book). So with my earlies books, I'd very rarely bump into a random person with one (or all) of my book(s). It might be several meetings into a business relationship, until in passing my new colleague tells me that he found me from reading one of my books - or seeing it referenced in another book etc.

The old-style relationship between author and readership was very distant. I'd meet one or two at a conference who brought a book asking me to sign it, etc. I'd be totally thrilled (I have fans?)

But now this blogsite, we hear from our readers (mostly who only read the blog obviously, but also many who've read the book) and we form a longer, continuing relationship with many - such as David Cushman and PekkaR in this comment thread for example.

So yes, am very happy you liked reading this stuff. But you have no idea how much we like interacting with our readers. It makes it all so much more rich.

PS - now that the iPhone has been released, we'll see what reality holds - and how the rivals will react.

We will return to this projection of course once Apple starts to report on those quarterly numbers - so expect an update at least in October (after the September quarter data has come in) and in January (when the December quarter sales figures are reported)

Thanks for writing.

Tomi Ahonen :-)

Doug

Wow, this site is very convienient. I am a 23 year old marketing major and i am currently writing an International Marketing Strategy for my internatioinal marketing class. I have to market the iPhone in Japan. ive already done all of my analysis and market analysis and what have you. but i'm wondering if anyone could offer any insignt or advice about the marketing mix for the iphone in Japan? I've already covered the product, but am kind of stuck as to good ideas for distribution (channels, strategies to attain economies of scale, import/export regulations, etc.) Pricing (skim or penetrate? value-based? product mix pricing?) and the promotion in japan (advertising, sales force, publicity, etc.). We are supposed to gain all of our ideas and research from the good ole' world wide web, so i am reaching out to those experts out there who know the japanese market and have been following the iPhone. any help at all would be greatly appreciated.

Tomi T Ahonen

Hi Doug

First, thanks for writing. Secondly I've already written to you off-line with some assistance.

Now, specifically on the mobile industry and Japan, a brilliant resource is of course Wireless Watch Japan, which is the English language site to report on mobile telecoms matters relating to Japan. An excellent resource, I use it regularly.

Good luck with your paper

Tomi Ahonen :-)

Louis

Are you going to update your model with the first sales numbers? 270k iPhones in the first 30 hours.

Tomi T Ahonen

Hi Louis

Yes of course I will. But not now, this was the launch hysteria. I'll wait until we have full quarter sales and then track the performance against my projection to see how they are doing.

Some news with iPhone is better than my model early on - USA initial sales - while others are worse - the delay announcements for Europe... So we'll see how it plays out.

I'm still pretty confident Apple will hit its 10 million target, but not much more in 2008. If you've tracked the opionions, the rest of the world is at best lukewarm to the iPhone while Americans obviously love it.

Thanks for writing

Tomi Ahonen :-)

Paul

Interesting model and mobile market analysis. The numbers make sense within current market assumptions, but I think there is a big hole which ignores that the iPhone is not targeted at the market you describe.

Specifically, it isn't a smartphone, or even a cell phone. It is a full fledged mobile computer which happens to have calling capability. Yes, there is significant overlap with the smartphone market, and a large chunk of early users will come from that (necessarily in order for Apple to reach its numbers), but I think in the long term, the model you propose won't hold much validity because more of the users will be buying the something in the 'i' line (note the redesign of the iPod as an iPhone without a phone), as a replacement for their notebook computer, not as a replacement for their phone. Along this line of thought, watch for an iPhone Sr. model, which is much more capable from a business perspective and includes a richer array of web-enabled business apps, MS Office compatibility (see recent announcemnent of Apple-office software being rounded out to include full suite), security, connectivity, integration to corporate apps, etc. If I could do the equivalent of a Powerpoint presentation from my iWhatever, my notebook would probably stay at home 90+% of the time.

I agree with many of the observations about requirements for adoption. The 2G networks in the US are too slow to really use the capabilities the iPhone offers, but the problem here is that a) Apple wanted to build a GSM phone, not something incompatible with most of the rest of the world, b) they wanted visual voicemail as a key interface and integration feature which required network upgrades, and c) only AT&T would agree to let Apple dictate the design (without that, it wouldn't be the iPhone that everyone raves about, so despite Euro-carriers feelings that this is arrogant, they might be better to listen to Apple who usually gets it right when it comes to features that excite consumers). Since AT&T doesn't have 3G widely deployed yet (only about 15% of the country can get it), the first version was hobbled by the necessity to have internet access through their inferior EDGE network.

We already know that the iPhone has been designed for 3G, but even that is slow if you start to think about using this toy as your new mobile computer. WiMAX will be the new game, and it is expected to cover most major US markets by end of '08. If I have this, then I have the speed I need, universal connectivity, and VOIP replaces the need for any cellular carrier at all. This will happen faster than anyone currently thinks. The mobile network will become the backup and the way we get coverage between major metropolitan areas, not the primary way we use the iPhone.

But I think it is reasonable to expect that Apple will adapt the iPhone to whatever standards necessary to satisfy the market they are entering, and that this has already been planned for. Negotiating with carriers to abide by Apple's rules, rather than theirs, and getting the licensing and approvals in each country are much bigger deals. But, this is not related to acceptance of the product, only how long it takes to get into a market. I don't think Apple will necessarily go with a single carrier per market -- the exclusivity in the US was more a matter of convenience and AT&T's national coverage versus what T-Mobile can offer.

Verizon (the biggest carrier) flat out didn't want Apple's interference in how they run the network and refused the product. Also, when they were approached by Apple, Apple had no track record so the risk of agreeing to Apple's terms would have appeared much higher than it does today. I doubt in markets that offer 4 or 5 carriers with equivalent networks that the same competitive dynamics will be in play.

A bigger issue which you didn't point out is how deeply AT&T is despised as a carrier and how poor their customer service is. On the one hand, AT&T has seen significant switching, with something like 80% of the calls and inquiries they get about iPhones coming from people on other networks. On the other hand, many people hate AT&T so much that they wouldn't agree to switch if it was the only pathway to heaven. Especially people who used to be on AT&T and still have bitter memories of the experience. So, iPhone sales figures are a bit ahead of what was originally forecast, but if AT&T remains the only US carrier, future uptake will get increasingly difficult to recruit because the resistance to switching has nothing to do with the products on offer.

Completely outside of your model is the un- or under-served market for a truly mobile PC. Granted, many smartphone users in Europe try to use their devices for this purpose, but what they have isn't really up to the task. Nor are even the best smartphones as elegantly designed or as nice to use. The integration and superiority of Apple's OSX user interface make this a much more practical reality. The recent availability of the Safari browser on the PC brings us another step closer to Apple truly penetrating the office environment with a a complete package driven by the iPhone-toting execs (who after all, are the most senior management and salespeople who drive corporate revenues, which means they are listened to).

This will take off in the US first, precisely because it is so far behind in smartphone penetration. But, there's a really big elephant in the room that we're ignoring. I remember when travelling in Europe used to be a major pain and security nightmare relative to travel within the US. Today, however, Europe is a piece of cake compared with dealing with the personal insults and frustration of dealing with Homeland Security especially at airports in NY and DC. The faster we can dump unnecessary carry-ons, and eliminate the extra hassle, even if that means leaving useful things behind, the better. So, as much as you believe SMS is the killer app in Europe, in the US, getting through security checkpoints more efficiently and with less pain is probably the biggest driver here. SMS is gaining ground (although I'll never understand what it offers), and will be an equally important feature as it has become in Europe, but issues at airports trumps that for us.

So, in the short term, our economic forecasts probably aren't far apart, but we arrive at our numbers differently. In the long term, I believe that the iPhone will be seen as the first shot across the bough in a new mobile computing battlefield, and a truly disruptive innovation, so any models which don't account for this will come up with bad numbers. DI's tend to grow slowly for a few years before hitting a tipping point and exploding into general consciousness. Expect a similar growth curve to the iPod after its release, perhaps a bit faster.

re: your comment about the rest of the world being lukewarm. The rest of the world hasn't seen it, and if I was in Europe and took for granted the assumption of 2G support only, I wouldn't be hot to get one either. When Apple a) secures carriers, and b) turns up the buzz generating machine to the levels we saw here in the months preceding release, it will be a different story.

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