What is the single biggest factor, one that totally overrides all other factors in the global market success of any given smartphone? Is it design? Is it brand? Is it the Operating System (OS)? Is it ease-of-use? Is it the features set? Is it touch screen? Is it size of the phone? Is it size of the screen? Is it battery life? Is it camera resolution? Is it QWERTY keyboard? Is it price? Is it the apps store? What is it?
I'll tell you what it is. The smartphone market, differing from other markets for consumer technologies, like home electonics, the PC industry and cars for example, is not ruled by normal free market economics.
Yes, the smartphone market has two dramatic peculiarities, which so totally distort the market, that if you don't understand these two, you will never succeed in the market as a global player. And yes, the biggest factor to smartphone success is none out of the above list.
In the first essay about the realities of smartphones, I wrote about the scale of the smartphones market which now approaches 200 million units sold annually and is growing very strongly inspite of the economic downturn. In this second essay I'll discuss the role of the sales channel and of what is called "carrier relationships" ie operator relationships for the handset makers.
Within carrier relationships lie two factors. The handset subsidy distorts the market opportunity enormously for all countries where it exists. And the other distorting factor is that many smartphones in use are not actually purchased by the person using the phone. They are often provided as employee phones by larger enterprise/corporate users. Together these two factors cover about two thirds of all smartphones sold around the world. True free-market economics, where a smartphone is judged primarily on its merits and its marketing, only applies to one out of three smartphones sold worldwide.
GROUP 1 - ENTERPRISE
Lets start with the easiest part to consider: the enterprise/corporate sales of smartphones. By enterprise/corporate customer I mean the big employers in any country, the big industry and government institutions. This type of larger customer will negotiate with the carriers/operators, to purchase thousands of handsets as company-provided employee phones. They may be referenced as enterprise, corporate or business customers, but in this essay I will use the term enterprise customer to mean the largest types of corporate and government customers. There also are far more companies in the so-called SME (Small and Medium Enterprise) business customer cateogry. As SME customers tend to follow the large enterprise customers when it comes to choice of mobile telecoms providers and handsets, I will not devote time to the SME sector of business/corporate customers. The distortion with smartphone sales is most pronounced at the largest enterprise customer end of business users of smartphones.
With (large) enterprise customers, the employees get typically business-oriented smartphones like a Blackberry or Nokia E-Series, and the enterprise customer negotiates a heavily discounted rate for the telecoms traffic, usually the bigger the client, the bigger the discount. The enterprise customer usually has custom services such as secure connectivity like VPN (Virtual Private Netork). Secure wireless email was one of RIM's early competitive advantages in bringing the Blackberry to the market. Recently the Blackberry was even accepted for President Obama's use (with premium level security systems added).
CARRIERS SERVING ENTERPRISE CUSTOMER
While all operators/carriers will want to catch the big enterprise customers in every country, the reality is that serving dozens of large corporate clients with tens of thousands of employees is very different from serving millions of individual consumer customers. The larger the enterprise customer, the more they need specialized services and sales attention from their suppliers. So in the natural evolution of any liberalized telecoms market, there usually emerges one or two main national operators/carriers who have most of the enterprise customer market, and the other rivals have very few of these. So for example in the UK, arguably the most competitive mobile telecoms market in terms of parity of network operators/carriers in the world, of the five operators/carriers, Vodafone and O2 have the majority of enterprise customers, while Orange, T-Mobile and Three have very few enterprise customers.
This becomes a virtuous cycle, where the enterprise oriented carriers/operators become ever better at serving the needs of enterprise customers, and get ever more of that total business customer market segment including SME customers; and can devote more resources (sales support product management and other such staff) to serve the enterprise customers ever better. The remaining operators/carriers almost abandon the top-end of the corporate/enterprise customer segment, and only provide telecoms services (and handsets/smartphones) to some SME (Small and Medium Enterprise) clients and tend to have a far smaller slice of the total business/corporate and enterprise customer market segment in that country.
SALES TO THE ENTERPRISE CUSTOMER
For the operator/carrier which serves the enterprise/corporate segment, the actual Sales Representatives (Key Account Managers) of the biggest enterprise clients are the real "kings" of the company. They personally deliver so much of the total sales volume, telecoms traffic, and profits to the operator/carrier, that what they want, they get.
If you have not worked inside a telecoms operator/carrier, you cannot imagine how powerful these key account managers are. They have absolute rule as it relates to their "own" enterprise customer inside the operator/carrier. They have dedicated support staff serving only their one customer. The key account managers can perform all kinds of special favors to some key staff in that enterprise/corporate customer. Oh, your executive Tomi Ahonen is a James Bond fan, and he would like a 007 phone number onto his company phone? No problem, let me find one and get back to you...
TRAFFIC AND HANDSETS
Let me show you the math. Take a typical large enterprise customer in a major European country, with 5,000 company phones. Those phones could be expected to be replaced very roughly speaking, every 2 years. So we can count new phone sales of 2,500 units per year. If we say an average smartphone costs 200 dollars, that means a total sales volume of half a million dollars. Sounds quite impressive. But remember, if those phones are sold to the customer by the carrier/operator (this is not necessarily so), then the operator/carrier was a bulk sales "store" and sold the smartphones on dramatic discount with truly bottom-barrel profit margins (far more likley with zero profit). So lets say for the sake of argument, that there was a 5% mark-up on the smartphones. So the actual sales commission that the operator/carrier earned on those 2,500 smartphones sold this year, was 25,000 dollars. The rest of the 475,000 dollars is money paid directly to the smartphone manufacturers who provided the phones, ie RIM Blackberry or Nokia E-Series etc. The operator/carrier only earned 25,000 dollars (in the "best case" scenario) out of this "sale".
But the telecoms traffic, generated by this customer annually, with 5,000 company phones, in a typical European large country say like the UK, would be about 60 dollars per enterprise subscription per month. Doing the math, the total value of that one enterprise customer annual contract is 3.6 million dollars in actual traffic revenues generated onto the mobile operator/carrier's network. Where typical mobile operators/carriers globally have about 35% EBITDA margins ("gross profit") this means that the annual contract would deliver 1.26 million dollars of profits to the operator/carrier.
In reality the industry is competitive and the enterprise customers are most aggressive in their price negotiations, so this number is certainly much smaller, probably half or less even, but if we say half, it means 630,000 dollars of profit earned on telecoms traffic, compared with 25,000 dollars earned on the handset sales (in the best case). So the profits from the traffic generate 25 times more profits than even the best case of handset sales. Any competent salesperson looks at this equation, and never let the part - handsets - threaten his livelihood and the 3.6 million dollar annual contract.
And as the handset manufacturer is a separate entity, the mobile operator/carrier often agrees to sell the handsets at zero margin. It makes sense to "cut the profit" to zero on the smaller amount, and show the customer that you are offering good value to them, while attempting to hold the maximum profit on the larger item that they are buying (the annual contract).
PURCHASING AT ENTERPRISE CUSTOMER
Meanwhile, on the side of the "client" ie the enterprise customer making purchases for thousands of handsets and bulk telecoms services; the driving factor is... IT maintenance. Yes. While enterprise customers are so large that they have a professional purchasing department and some staff to cover the telecoms services, who do handle the actual contract negotiations for the enterprise customer, that telecoms purchasing executive is a very modest power executive, compared to the IT department. The purchasing decision specifically relating to any smartphones, is for all practical purposes overridden by the enterprise custormer's IT department. And the IT department are not looking to find the "best smartphone" for their employees (??) but rather, they seek to prevent more headaches in the IT maintenance department.
I need to explain this a bit. The enterprise/corporate customer IT departments are all overwhelmed by ever escallating maintenance costs of sustaining multiple redundant and rival IT solutions of different departments. In many cases of IT costs, the maintenance costs can be as high as 80% of the total costs related to a given system in a given year. The last thing IT support in any enterprise/corporate customer wants, is to add complexity to their support headache. Because of typically dozens of separate IT systems interconnected, any new element introduces many dimensions of potential contlicts.
Please also note, that the existing enterprise/corporate smartphones tend to have either a Blackberry or Symbian or Windows Mobile operating system or mix of those. The IT department knows if they accept a new smartphone platform now, they have to support it for years to come with ever increasing staff, plus handle all conflicts that inevitably arise when their employees start to mess with these new phones and interacting with company soffware solutions and also with their private interests, you know, like wanting to Twitter or do Facebook updates ("for work reasons") etc. So the IT department resists doggedly the addition of any new systems to their world.
PLAY IT SAFE
Lets think back to the Key Account Manager (Sales Rep) at the operator/carrier who's full-time job all year is to sell to that one big enterprise customer. The key account manager will focus all effort to make sure that next year, when the multi-million dollar contract comes up for renewal, the customer will sign for another contract period with him/her and not switch to a rival network. Understand this dynamic. The phones are not what the operator/carrier makes its money on. The phones are only a risk that the enterprise customer may become upset with the operator/carrier. The Key Account Manager will not jeopardize that contract worth millions for the sake of some fancy new smartphone.
This means that for any smartphones that want to invade the enterprise phones space, they have to start from the smaller businesses, and then build up a porfolio of services, apps and reference customers. Then they can hope to start to sell to enterprise customers. This is a VERY long process. This is years not months.
It does not mean that Android or iPhone or whatever new device cannot break into this segment, only that the decision is not based on 'which phone is best' type of logic. The decision is a long process. Here for example Windows Mobile has a long track record and obvious points of inter-operability with the Windows PC environment in the enterprise/corporate customer base.
For RIM it took five years of consistent sales effort to grow from zero to 5.5 million subscribers globally to their enterprise service. Comparing that to today when RIM has shifted to consumer markets, they sell another 5.5 million new phones every 2 months.
Or take Apple iPhone. Apple CFO Peter Oppenheimer revealed this week that out of Apple's total sales of 5.2 million iPhones for the April-June quarter of 2009, the iPhone had done well to Apple's opinion in the business customer segment. Then Oppenheimer revealed that the total number of iPhones sold to business customes of any size was 35,000 units. That is 0.7% of all iPhones sold that quarter.
INERTIA RULES IN BUSINESS PHONES
What does this mean? It means that for business-oriented smartphones, the market has severe 'damping' effects which reduce volatility, promote stability and reduce opportunity. Or in other words, inertia rules. Whether the next Blackberry or E-Series phone is truly a great phone or only mediocre; or even below par as a smartphone against its supposed rivals; it will still automatically get significant market success in the enterprise segment, because all variables are stacked against innovation and change.
How many of all smartphones are used as employee phones in businesses of any size? Early on almost all smartphones were sold for business use, but today, very roughly speaking, I'd say about a third of all smartphones fall into the business-oriented category, including sales to SME customers.
GROUP 2 - SUBSIDIES
After we remove employee phones, we are left with consumer oriented smartphones which is about twice as big as he first group. For this market, the world has roughly speaking two relatively similar-size markets, with one glaring difference between markets: handset subsidies.
Most who read this blog essay understand the industry well enough, to know that the real price paid in America for an iPhone 3GS is not 200 dollars. The 3GS is subsidised by AT&T. It is sold with a 2 year contract, which then includes an embedded mandatory installment payment plan for the rest of the price of the 3GS. Even so, many will not know the exact price of the 3GS. And worse, the public press talk of the 3GS being a 200 dollar phone, or talk of its 200 dollar price tag, so the mass market perception is that the latest iPhone costs only 200 dollars.
HOW MUCH DID YOU PAY FOR YOUR CAR
This is the murky science of handset subsidies and how it confuses markets. Let me explain. Imagine you are buying a car. The car costs 25,000 dollars. You come to the dealership and see a special financing deal for you, that you only have to pay 20% down payment and pay the rest over three years. So you have to have 5,000 dollars in cash to pay the car dealer, and the rest of the 20,000 dollars (plus usually quite a lot of interest) you pay in same size monthly payments for the next three years.
So you paid 5,000 dollars today and drove home in your fabulous new car. But you know fully well, that you are not buying a "5,000 dollar car" even though that is all you actually handed to the car dealer today. You are buying a 25,000 dollar car. You know that it was partial payment, you committed to three years of installment payments to pay off the remaining 20.000 dollars of the price of the car.
700 IS 700 IS 700
I can tell you that the real consumer price for the iPhone 3GS is about 700 dollars which is what customers pay in those markets where there are no subsidies, like Italy. Yes, anyone who thinks in America that the price of the iPhone 3GS is 200 dollars, has been fooled. Exactly like the 25,000 dollar car that you bought paying 5,000 dollars up front, did not transform into a "5,000 dollar car" the real cost 700 dollar iPhone 3GS is not somehow with a magic wand converted to a "200 dollar smartphone".
The iPhone 3GS is and continues to be a 700 dollar phone, in every country, whatever the actual payment plan. (Same is true of the N97 which in Italy costs about 700 dollars and in the UK is available "for free" with contract). Hidden within your two year contract, AT&T has factored in the monthly installment payment of about 21 dollars per month for 24 months (plus interest). AT&T then gives you some package or bundle of voice minutes, text messages and data access, and estimates how much that would cost; then adds some factor for fraud and delinquent customers; then adds a healthy profit margin, and forces you to pay that amount. Say 100 dollars per month.
It does not have to be that way. In advanced markets in the industrialized world, nobody flinches that a premium phone like the iPhone 3GS or Nokia N97 costs 700 dollars, and if you want it, you pay that amount. Its not a dramatic cost. Our plasma TVs and our laptop PCs can cost significantly more than that.
Meanwhile, in the developing world, almost always. almost all phones and mobile phone subscriptions are sold without any kind of subsidy and where subsidies might exist, they tend to be of more modest value to the full cost of the handset, typically far less than half subsidy of the full price of the phone.
IMPACT TO SMARTPHONE SALES
The psychological effect of the price differential in cases of a subsidy for one phone and not for another, is enormous, totally distorting the decision-making process for the average consumer. Then it doesn't matter how great your touch screen is, or how fancy your camera resolution is, or which operating system your smartphone runs, or how many apps you have in your apps store. In the USA where the 3GS was subsidised and the N97 was not, the 3GS outsold the N97. And in the UK, where the 3GS is subsidised to about 200 UK Pound cost, but the N97 is subsidised to be "free", the N97 outsold the 3GS. The subsidy totally distorts the market.
In markets where there are subsidies, the operator/carrier usually sells the phones in their stores. The carrier/operator will select a specific relatively small portfolio of between 50 and 100 phone handset models at any one time, as the total offering in their stores. That includes non-smartphones and smartphones. And the carrier/operator may not offer subsidies to all of those phones, or may offer differing levels of subsidies (some offered "for free" while others offered for a portion subsidy out of the total cost). To understand how rare it is for a given phone model to receive a subsidy with one carrier in one country, the world has between 500 and 1,000 actual phone models in production by over 30 manufacturers at any one point in time and the big 3, Nokia, Samsung and LG each have more than 50 models in production at any one time.
Who decides? The only entity that can decide and will decide, whether there is a subsidy for any given phone model (in those countries where subsidies are allowed, obviously) is the carrier/operator. The carrier/operator extends credit to that customer for 24 months, and takes a risk the customer runs away with the phone and defaults on the remaining payments.
BUT MY SMARTPHONE IS BETTER
But understand what this means in countries of subsidies. It does not matter one iota, in a subsidied phones market, if your phone is "the world's best superphone" by all reviews and experts, and is the coolest, slimmest, hottest, best smartphone with all the bells and whistles, endorsed by all supermodels and superstar athletes (and rap stars), with the best user interface and biggest apps store and all sorts of content. If the local carriers/operators decide not to offer subsidies for your phone, but there are significant subsidies for some of your direct rivals, then your phone will not become a hit phone in that country.
GROUP 3 - UNSUBSIDISED MARKETS
That leaves roughly speaking one third of the smartphone market. If the carrier/operator does not subsidise phones, and customers tend to pay full price, then there is little incentive for the operators/carriers to support an expensive sales outlet network of carrier/operator stores. The phones are then often sold through independent dealerships, various electronics stores and dedicated handset stores etc.
That means many resellers. And for the handset maker, its totally a game of pure marketing. You have to build your brand. You have to have a good product that fits the current trends and is appealing to consumers. You have to segment your customer base and then offer targeted phones to each segment you want to compete in. The phone has to fit the local expectations which differ greatly between regions (ie Americans love clamshells, Europeans love candybars, etc).
The phone has to offer locally relevant technologies, ie in South Korea you need to install a DMB TV tuner or in Italy a DVB-H TV tuner or in Japan a 1seg TV tuner. You have to be available in as many retail outlets as possible and then manage your distribution channel(s). You have to price your phone competitively with thin margins. You have to promote your phone very visibly within that market so it means massive TV advertising, sponsoring the local sports teams, billboards, newspapers, magazines; and lots of internet advertising. And you have to have regionally localized after-sales support and service.
This group of countries with no or very few subsidies includes essentially the whole developing world. While the total living standards in the developing world are far lower than in the industrialized world, there still are wealthy people even in the poorest of nations. And those wealthy people will want fancy mobile phones, which tend to be smartphones. So any smartphone maker who wishes to be big, cannot ignore the customers of say Rio de Janeiro or Nairobi or Mumbai or Moscow or Manilla.
Have a guess who is the grand master at this game? Nokia. Yes, in the countries and for the segment where the decision is made by the individual phone user, and when the playing field is as even as it can be, that is where Nokia totally rules. In countries where there are no subsidies (excluding obviously the home markets of the handset makers), Nokia is the runaway master. Tends to have far over 50% market shares. Apple by contrast said just at the quarterly results call earlier this week, that they tend to do better in markets with subsidies, and do poorly in markets with no subsidies. It says something about being able to convince consumers, that your product is perfect for them (even if it technically might not be the ultimate phone).
SO THERE
Thats it. There are roughly speaking three main market segments for smartphones. One third is enterprise/corporate markets. The second is countries with subsidies. And the last group is the rest of the smartphones, where customers have to pay full price for phones. The enterprise oriented business smartphones for employees, are effectively selected by an IT department at any major corporation, that wants desperately to avoid any new systems to add to their complexity. Then in the markets where subsidies distort competition, the decisions of essentially awarding markets to given brands of phones and given phone models is with the carriers/operators; not with the handset manufacturers. Only in the unsubsidised consumer market, is there real undistorted competition to weed out the strong from the pack.
I know it will feel very "unfair" to many who believe that their fave smartphone (or maybe fave OS) is somehow "inherently superior" to all others, and "deserves to be the best-selling phone in the world". I hope this article helped bring some realism to that understanding. The smartphone game is not a free market economy. The smartphone handset market is particularly unfair.
THIS SERIES CONTINUES
Now, before you start to say, Tomi you did not discuss the role of the user interface or the apps store or whatever you think is also relevant, please remember, this is a series of blog essays about the smartphone market. I will get to all of those
However, I am 100% convinced that this one issue, the carrier relationships, is the single biggest determinant to which smartphone model prospers in the next quarter and which doesn't. But yes, there are many other matters to smartphones, which then take an effect, after we get past carrier relationshiops; and I will return to this series of essays to discuss the next issues that I think are relevant.
FURTHER READING
Part 1 in this series of Realism was on 13 July about the overall smarthone market size and who are the major players in Smartphone Hysteria
Earlier I also wrote about Comparison of Smarpthones vs Netbooks
The effect of the iPhone - Two Eras, Before iPhone and After iPhone (note this was written a month before original iPhone was launched, back in May of 2007)
Good essay, Tomi! Nokia really rules in the unsubsidised markets as they are masters in distribution and logistics. But it doesn't mean they should rest on their laurels. Apple's strategy is to milk the current market to the fullest as evidenced by the fact Apple and RIM are expected to have almost 60 % of total operating profits in the market (http://news.cnet.com/8301-1035_3-10290660-94.html). Why bother going to developing markets building distribution and logistics networks when you can just reap the developed markets as long as it goes? When Apple decides to target the developing world is up to them, but they usually eschew this market. It's a game of maximum returns for Apple, not the economies of scale.
Posted by: Marat | July 24, 2009 at 10:38 AM
Hi Marat
Very true and I think from those three industry sectors, there is fascinating movement. On the business phones side, Blackberry is shifting aggressively to consumer phones, while Apple is cautiously adding to its focus on the enterprise side. Then in consumer phones, I think fascinating rumors that T-Mobile in the UK is trying to source grey market iPhones, because O2 UK the operator with exclusive iPhone deal, is taking so many T-Mobile customers.. Meanwhile big NOK is pushing very aggressively to mid-price smartphones, at price points below the N-Series; and obviously Palm Pre is also a strong move to shift Palm more to the consumer oriented smartphone field.
Thanks for writing
Tomi Ahonen :-)
Posted by: Tomi T Ahonen | July 24, 2009 at 11:12 AM
Except for Oi/Brasil Telecom operator, the Brazilian handset market is mostly subsidized.
(Full disclosure: I work for Oi/BrT. Since we don't have the Scale of Carlos Slim or Telefonica/PT, we'd rather not subsidize the handsets, instead offering credit for the costumers.)
Posted by: Acauã | July 24, 2009 at 06:07 PM
Hi Tomi,
Very interesting as usual. never crossed my mind to look at the industry like this.
But maybe just some observations. To tell the truth, I've never seen Nokia as a strong player in enterprise before. My own organisation (we have 200k employees worldwide) only uses carrier tied Windows mobile devices. I've not even seen Blackberry devices listed as supported on my Company's Intranet IT support site. It's just Windows and Windows all the way. Conversely, I think I've seen articles somewhere else that says Nokia's E-series is more popular with consumers, or in your classification - those unsubsidized phone buyers. Do you have any numbers to share with you with regards to E-series sales to corporate customers?
Posted by: Shelter28 | July 25, 2009 at 04:54 AM
Hi Tomi,
Another excellent article.
3 markets: Corporate, subsidised and the rest. In line with my e-mail to you the other day [sorry readers], I think there is an un-tapped opening to sway a potential purchaser down an alternative track that they may go down on the subsidised path. For those of you that don’t know about the likes of http://www.phonescoop.com/phones/finder.php or http://www.phonearena.com/htmls/phone_filter_advanced.php I highly recommend a look. Most people I know that have purchased an iPhone [for example] have been astounded by the fact that they can’t [until 3GS] forward an SMS [along with a few other things readers here know all too well about]. Ie They DO NOT KNOW WHAT THEIR PHONE CAN and CAN’T DO.
Would they have” bought it” if they knew about or were frequent visitors to site as those above? Regardless of subsidy? There is a way to change this market and consumers buying habits.
Henry
Posted by: Henry Sinn | July 25, 2009 at 09:23 AM
Thanks, Tomi, good article that gives us insight into the business of selling smartphones.
I'd like to add though that in the subsidized markets, the carriers/operators aren't just whimsical in determining which phones get subsidies and how much. The phones that the carriers expect to be the best in bringing in new subscribers (enterprise or consumers), reducing churn, and increasing ARPU, are the phones that will get the highest subsidies and get the most co-marketing. I also know the world isn't ideal, and there could be other non-merit factors that are a bigger factor. Handset makers either can bend to the carriers demands for only a certain set of features, or make a phone that directly appeals to consumers. Apple chose this latter more unusual route -- we need more time to fully determine how successful it will be, and whether other handset makers can follow in this path.
In unsubsidized markets, handset makers need to rely on appealing directly to users, AND on having the most efficient production and distribution systems. Nokia, Apple, and Samsung have excellent production systems in place. Nokia clearly has the best worldwide distribution system. Apple has been building its distribution system through its iPod line in many countries (but still not as many or as extensively as Nokia). But as you can see, subsidized or not, building the "best" or "most appealing" phones is still important - on that note, I'll wait for the next parts of your series.
Posted by: kevin | July 26, 2009 at 02:28 AM
Hi Acaua, Shelter28, Henry and kevin
Thank you for the comments, I will respond to each individually
Ciao Acaua. Thank you, I was generally aware of the Brazilian market but not intimately aware of it. I hope to learn much more when I visit with Mobile Monday in Sao Paulo now shortly. Hoping to see you there?
Shelter28 - good comments, and no, I don't have any deeper data on E-Series and its penetration into the enterprise market, as Nokia does not release such details and I haven't seen independent analyses of that market either, broken down that way. But you make a really good point which kind of proves my point. The individual enterprise customer will certainly pick only one or two of the platforms to support - like in your case Windows Mobile; and will resist all urges to expand that - even to the point that they have not approved the Blackberry to your organization. This is so typical in concept, only the actual selected platform will vary by maker.
I should mention, that Windows Mobile has probably its best natural market any US based global corporation. Blackberry also would have best penetration into North American enterprises, and where Apple iPhone has been making inroads, they would probably me the media and advertising oriented corporations with HQ's in the USA.
Nokia's E-Series would probably have best natural market share in global 500 companies that are based out of Europe. Japanese and South Korean global giant corporations would obviously prefer their domestic suppliers and the enterprise solutions offered by those (plus perhaps the industry further tilted by the Keiretsu and Chaebol style of families of industrial companies that group together; so each of the mobile operators/carriers will have their own family of auto maker, home electronics maker, bank etc within their group).
And the rest of the world is mostly open to competition ha-ha..
Henry - very good point, yes, most people especially who buy an iPhone, are stunned to find there are some things you really expected "every phone" to be able to do, and then find that the iPhone is not able to do that. Very true. This is what has been causing some very dissatisfied iPhone users - the vast majority are very satisfied, but there is a minority who are really upset, where they really wanted something they're already accustomed to (like in past, MMS and video recording for example) or even now, replacing a battery or having a memory card slot - which all rivals have but only iPhone doesn't. It will make some users of high-end smartphones, ie Europeans and Asians - very upset. In the US, where smartphones were far more simple and used far less, there are relatively few who would even have been exposed to these matters and thus are far less "upset" with the iPhone..
kevin - excellent point, and I am so sorry if I left the impression that the carriers/operators are "whimsical" (ha-ha, great word) in selecting the handset brands and models. No, they are very systematic (mostly) and have real strategic reasons with their decisions. They start off with phones that fit the carrier/operator services portfolio and intended strategic direction. In the early part of this decade, that was what forced Nokia to incorporate the second (VGA) camera to 3G phones, as early Nokia 3G phones did not support video calling, but the operators/carriers insisted it had to be there. Nokia must be pretty steamed that then the carriers/operators conveniently forgot this (somehwat expensive) additional element when they saw the iPhone and still today, third iPhone model does not support video calling. But yea, the carriers do not make those selections whimsically, you are totally right, and in the blog article, I did not more clearly explain, that this is a thoughtful process and is driven by the carrier/operator strategies (and partnerships). Good point, thanks
Thank you all for writing
Tomi Ahonen :-)
Posted by: Tomi Ahonen | July 27, 2009 at 05:02 PM
We've been hearing rumors for a few days now that an 8GB 3GS iPhone was on its way, destined to be the replacement for the 3G at the $99 price point. Of course, this is extremely exciting news, especially for anyone looking to get a budget smartphone. Selling 3GS's at that low a cost would give Apple even more of an edge than they already have.For more details http://www.i4u.com/article26294.html.
Posted by: Jonathon | August 12, 2009 at 08:01 AM
I was really glad to read your writing.
Thank you for the great post .
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Posted by: arabyana | August 27, 2009 at 09:22 PM
This is great news. Best of luck for the future and keep up the good work.
Posted by: A&F | December 07, 2009 at 02:19 AM
Hi Jonathon, arabayan and A&F.
arabayna and A&F, thank you kindly for the comments.
Jonathon, I will respond to your point a bit more in detail. Yes, it may seem like 'good news' when the price seemed to be dropped to 200 dollars (3GS) and 100 dollars (3G) but in reality there was no price change. Apple's CFO Oppenheimer clearly admitted in the Apple investors quarterly call, that the iPhone series has an average price of 600 dollars.
That means, that the AT&T price 'drop' was totally just a marketing trick, a bogus price drop, to fool consumers. The real price has to be paid and Apple says the real price is 600 dollars. AT&T will not eat that price and Apple gives no discount. The consumer pays it on a 'must take' 2 year annual contract, paying the missing hundreds of dollars in monthly payments.
So while it looked good, this is totally the standard pricing trick that the industry uses - and in the USA unfortunately often in very under-handed ways. The consumer is not even told the real value of what they are committing to. In most other more mature and more user-friendly markets, if the consumer is offered a phone under contract with a big subsidy - ie a 600 dollar phone sold for 200 dollars (or free, as for example many similar phones sold in the UK) - then the consumer is told what is the 'sim free' ie non-contract price - in this case obviously 600 dollars - and you the consumer are offered the identical phone for that price if you want to take it without the onerous 2 year contract. This is for example the situation in the UK.
So yes, it did superficially seem like a nice deal, that suddenly the super-expensive iPhone became very cheap - but in reality, no change. The price did not change, only the 'cash down' prepayment portion to get an iPhone was reduced. The final price did not change. And again, in many countries such as Australia, Italy etc the consumer pays the full price without any complaints...
Thank you all for writing
Tomi Ahonen :-)
Posted by: Tomi T Ahonen | December 08, 2009 at 01:59 PM
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Posted by: KristaIg | January 18, 2010 at 11:06 AM
Hi Tomi,
Great article. I would give you another insight to 3rd world country in term of handset subsidizing.
I live in Indonesia, and as most operator in 3rd world country didn't do much subsidizing in american/iphone way, we have a different kind of market subsidizing here.
First, the iphone way. Telkomsel, the largest network provider in Indonesia sell iphone the apple way. US$200 up front, and the rest of payment were settled by credit card. Only the one that have good credit card history can buy it.
For the rest of the customer that don't have credit card there were another kind of subsidize. If that person gonna buy a US$ 240 phone. The phone operator would be giving the phone + US$20/month top up value inside my sim card. and a 1 year active period. So, when it's active it have a US$20 inside, and each month the operator will be giving a US$20. Until it reach US$240. The money didn't get lost if not being used it's carried over to the following months. It's a prepaid system since this type of buyer don't have credit history. By doing this, the operator hope that after 1 year using their number, the number become attached to the user, and the user would still use the number. The handset manufacture that often sell this way were: Nokia, Huawei, ZTE, Haier
The Nokia handset is the better handset, whereas the Huawei, ZTE & Haier handset mostly priced around US$10-US$30.
Posted by: cycnus | January 18, 2010 at 03:40 PM
Obama's "Blackberry" is actually a Windows Mobile phone.
http://news.cnet.com/obamas-new-blackberry-the-nsas-secure-pda/
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Posted by: Five fingers shoes | May 19, 2010 at 09:12 AM
Here's another look at how this program is a clunker. I had an old SUV on which I put about 1000 miles a year. It ran fine, but it was 15 years old and would just die of old age and rust within a few years. I took the Feds $4500 and bought a new SUV. Does it get better gas mileage? Absolutely! However, since I only put on about 1,000 miles a year, the 'advantage' to the environment on the 20 gallons less a year in gas I'm using is more than outweighed by the energy expended in building my new SUV by perhaps 100 fold! I hurt the environment and added to the budget deficit at the same time. But who turns down free money?? The program is nuts.
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Of all the topics I've explored and experimented with over my time working on web applications those two have had the greatest pay-off in terms of changes of my development as an architect and an engineer.
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