iPhone in Memoriam: A History from its Peak Moment of Success. But who copied whom?

"It was the best of phones, it was the worst of phones." ...It was the phone of wisdom, it was the phone of foolishness... The world of mobile measures time in two eras, the time of Bi Before the iPhone and the time of Ai After the iPhone. The iPhone changed everything about the mobile industry and is now the most copied design and form factor, and has single-handedly re-energized numerous areas of mobile that had been tried before, from touch screen to app stores. And the iPhone is hot and selling well. Yet its time of ascendancy has come to an end. The decline of the iPhone has started. And I want to be the first to write an honest, fair and complete history of what the iPhone did to other mobile phone makers, to the mobile industry, to the IT industry, to the media and advertising industries, and to Apple itself. 

UPDATE APRIL 20, 2010 - Apple has jsut reported first quarter sales. They were 8.7M units of iPhones - far better than almost anyone expected. It is important to understand, my forecast of 'Apple iPhone market share has peaked' was based on the pattern that iPhone sales 'always' decline after the Christmas Quarter. The quarterly sales in the Christmas Quarter 2009 was 8.7M and now the Jan-Mar quarter sales was also 8.7M units. That data goes totally against my hypothesis. I am, therefore adding this warning to the top of the blog, current data does not support my view, and we have to continue to monitor the performance. it is still possible Apple iPhone annual market share has peaked, but it is not now 'certain' by any means. I will keep you posted in the coming quarters.

UPDATE 2 APRIL 20, 2010 - I have 'found' the 'missing million' iPhone unit sales that none of the analysts had expected to see. They were due to Chinese New Year gift-giving where the Chinese culture does not celebrate Christmas, but gives gifts at the Lunar New Year which happened Feb 14 this year. I analyzed Apple numbers and foudn that this is where the million were. Read the full blog here Tomi found missing million iPhone sales.

UPDATE APRIL 22, 2010 - Today we know the overall market size of smartphones for Q1 of 2010, which is 52.6 million units. That means we can calculate Apple's market share for this quarter. It did not grow. For the third quarter in a row, Apple's market share is stuck at 17%. Please consider that fact when you evaluate the plausibility of Apple's market share perhaps having peaked. My thesis is looking ever stronger - inspite of Apple's stellar Q1 quarter in unit sales, revenues, profits, iPhone apps etc.

Back to original blog:

You read it right. I am writing the first history of the once-iconic iPhone, written now in early April 2010, before Apple has released its first quarter earnings for 2010. This is literally the peak of the short reign that Apple's iPhone had as the most emulated smartphone. I do not know yet whether Apple's peak market share has already gone or is right now as I write (we w'n' know for sure unti lthe full year 2010 numbers come out which it was) - but I do know what signs will tell us which (coming later in th is blog). And that will become clear long before the year 2010 is gone, we will know the signs by June. And mark my words, the numbers are now very clear, Apple's market share peak among smartphones, and among all handsets, on an annual basis, is being witnessed now. Yes its true, Apple cannot grow market share into 2011. But its not for reasons you might think.

So first, a welcome to Apple fan-boys. We have had hostile visits before by Apple fanatics. We do not shy away from honest debate and argument. Your view is perfectly valid. You will see we have over 3,500 comments posted on this Communities Dominate blog and we reply to all who comment here. I will be most happy to reply to you if you leave a comment. However, I will not tolerate abuse. I will insist on one criterion - you must have read this blog article - and I apologise, it is long even by my standards. But we are writing the first history of our favorite product, so it can't be short, can it? So, if you post a comment to this blog, which suggests you didn't read this blog, I will be deleting your comment without mercy. If you refer to my writing, then yes, your comment will remain howver violently you might disgree with me, and I will reply. But only those who have read the full blog article. You are very welcome here.

iPHONE HAS PASSED ITS PEAK IN MARKET SHARE

Now. To my main theme. I am dead serious. I am now convinced that we have enough data to determine for a fact that Apple will not only see a dramatic decline in quarter-on-quarter sales in units of the iPhone this January-March quarter (which is the predictable pattern and no surprise) but that we will also see a decline in iPhone market share against at least HTC and Blackberry; that would be demoralizing news in itself. I know now that the numbers are clearly stacking up so, that the annual sales level of iPhone units, will result in a decline in iPhone annual market share in 2010. There are only 2 possible scenarios by which that won't happen - I will explain both so we know. I and will give you the signs what to look for, so we'll see clear evidence by June to know if that happened. Even so if not in 2009, the likely scenario would be that 2010 is the peak year and 2011 will decline (I will explain how). Only one extreme, and very unlikely scenario sees Apple growing market share into 2011 (I will explain).

TOMI THE iPHONE GURU

Who am I to make such a wild and preposterous statement? Don't I know Apple has grown sales year-on-year every quarter since the iPhone launced in 2007? Don't I know Apple is expanding its reach with the iPad, having billions of downloads of Apps, and updating its OS and launching an iAd service?

Yes, I know all that. I am a very thorough student of the Apple iPhone. I bet you, that I knew the iPhone was coming before you did. I knew there was going to be an Apple mobile phone before anyone had seen any prototypes and mock-ups of the "iPod phone" that circulated in 2006. I knew there was going to be an Apple phone before the first public interest of Apple in mobile - remember their collaboration on the Motorola Rokr? I knew there was going to be an Apple phone before we started this blog and I was quoted in several sources saying an Apple iPod-style musicphone was coming, and quoted about it in public in 2005. I knew an Apple phone was coming before my first of 9 books was released. I explain the stand-alone iPod/MP3 player and why it will lose to MP3 playing phones literally a year before the world's first MP3 musicphones had been released, in my second book M-Profits - in 2002. I knew an Apple phone was coming before I started my consultanc yin 2001. I knew Apple was coming to mobile way back when I was the Global Head of Strategy Consulting for Nokia. It - an Apple iPod-based musicphone was one of the scenarios we mapped out. We knew a decade ago, that Apple's entry into mobile was inevitable. Inevitable. I dare you to provide any written record of you speculating of an upcoming Apple phone prior to 2002 haha.

So I am not some Johnny-come-lately to the iPhone. I have anticipated and expected and then cherished the arrival of the iPhone. I wrote some of what many in the mobile industry called the best blog articles on the topic, when predicting the impact the iPhone would have to our industry, to other phone makers, and to many other industries from IT to media and advertising. When nobody had even touched the first iPhone I was so versed in its market and opportunity, I correctly estimated its first year sales - not a big achievement as many others managed that too - but only 3 days after teh iPhone had been announcned, before the iPhone launched I correctly told our readers here, where Apple's markets were and how it would do globally - AND I predicted the US vs World balance of the iPhone to an accuracy of 95%. I was very accurate and nobody anywhere gave such projections in the Spring of 2007.

TOMI THE FORECASTER

I am not just a mobile industry enthusiast, author and chronicler, I am also a statistician and forecaster. To set this blog into context, I was the world's first person to say in the summer of 2005 - note that time - that during 2006 Apple's iPod would lose its market share to the brand new MP3-playing musicphones. Those musicphones had launched only two years before, in South Korea of all place, and the West had had its first taste of a supposed 'musicphone' by a major manufacturer with the ill-fated Motorola Rokr. Apple's iconic iPod had witnessed 15 consecutive quarters of sales growth and was headed to its best Christmas season ever, still breaking sales records. In that time in the summer of 2005 any normal and 'reasonable' forecaster took his 'trend' and happily extended the iPod's sales growth at least to the end of the year. And looking at a Rokr, in no way could these new-fangled silly useless toys, MP3-playing 'musicphones' with their puny music storage abilities, lousy user interfaces and poor quality, ever hope to rival the mightly world king of portable musicplayers the Apple iPod.

Nobody. Nobody else saw it coming that rapidly. Some very tuned-in experts did suggest that musicphones might displace the iPod towards the end of the decade, around now, 2010. You can read what I wrote about the iPod vs musicphones on this blog. Or if you haven't read our signature book to this blog, perhaps now is a good reason to pick up a copy of Communities Dominate Brands where we have iTunes as a case study, but where we also make it clear that musicphones will take over from the iPod. And yes, in the summer of 2005 there was nobody in print or on a blog prior to my thoughts, who suggested musicphones would cut iPod's amazing run of hits very short, during 2006. The first publication to quote me was the Financial Times on 31 August 2005 where they wrote that I said of the iPod vs musicphones battle 'Next year the game will be totally over." The version of that argument presented at this blog is here: The Year the iPod Died.

AHONEN  HATES APPLE

We were vilified on this blog for that. An army of Apple fanatics descended here to spew their hatered and did not see my point - that we wanted Apple to rush its upcoming phone. That it (the iPhone) was inevitable, but its timing was so urgent. As we then returned to the same theme the next few quarters, iPods vs Musicphones, we heard every kind of argument. But also with each passing quarter the data became ever more clear, and we found more returning readers who admitted they are changing their minds.

Then in January 2007 Apple settled the matter for us, with Steve Jobs explaining at the iPhone announcement event, that they made the iPhone an "iPod phone". Case closed. And we were finally vindicated by Apple CFO Peter Oppenheimer at Apple's official quarterly results on 22 July 2009, when Oppenheimer said, "For traditional MP3 players, we saw a year-over-year decline which we internally had forecasted to occur. This is one of the original reasons we developed the iPhone and the iPod Touch. We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone."

You can't get it more clear than that. A music-playing mobile phone (like the iPhone, and earlier Apple had mentioned SonyEricsson's Walkman phones as well) did indeed cannibalize MP3 players like the iPod. Not just that this was a theoretical possibility (at some point in the distant future when musicphones were 'mature') - but no, long before January 2007 at Steve Jobs's announcement. Long before that, Apple had started its iPhone project. Therefore, according to Oppenheimer, Apple had seen 'a decline which we internally had forecasted to occur'. So sometime in 2005 at the latest, Apple saw that their numbers were pushing them to create an iPhone. This was exactly the same timing as my blog! I know my sh*t and I had known an iPhone was inevitable. I did not 'hate' the iPod or 'hate' Apple, I wanted Apple to rush into this industry and bring its stamp of customer-oriented ease-of-use, and innovation. To do to 'my' industry of mobile, what the Mac had done to the PC industry and what the iPod had done to the music industry (and for the real nerds among our readers, also what the Newton did for the PDA industry)

So I have a history of knowing Apple and its market when it relates to mobile (please don't ask me to forecast Mac sales haha). In fact, long before I was employed by Nokia, I was working for New York City's first ISP (a company called OCSNY, still in business today) which was an authorized Apple reseller and I was their Apple trainer. I got to know lots of Mac users on Manhattan two decades ago haha. Always loved Apple.

 While past performance is never a guarantee for future success, and in forecasts nobody can be perfect, I am proud of my record and stand my my forecasts and when I am wrong, I am the first to announce it if I change my mind (I am not stubbornly holding to a forecast if the facts prove me wrong) and I try to learn of my mistakes. And for this particular product - the first Apple mobile phone - I have studied that market opportunity incredibly deeply from all angles literally for a decade.

TOMI LOVED THE iPHONE 2G

Minutes after Steve Jobs showed the world the very first glimpse of a prototype iPhon ein January 2007, this is how I welcomed the newest handset maker: "this is very welcome innovation fusion to the handset industry" and (note Cingular changed its brand to AT&T later that year) "apparently the iPhone will be sold by Cingular in America. I wonder how well Apple has managed its network operator reseller channel. Cingular is on GSM, so at least Apple has an excellent chance to sell globally and access about 75% of the world's mobile phone customers. Will there be a CDMA variant, I wonder. The American market would certainly warrant that. Will this Apple superphone be 3G (WCDMA) - if not, then Japan and Korea may be out of its reach. I do hope it is a 3G phone". I clearly liked what I saw right from the start.

But I am the money and business expert for the mobile industry. So next, I wrote a warning to Apple: "Welcome to the carnage, Apple. This is not the "easy" PC market or the dormant musicplayer market where Apple's innovation had an edge. The existing major manufacturers, Nokia, Motorola, Samsung, SonyEricsson and LG - have massive scale - remember the smallest of the big five, LG, sells twice as many cellphones as the total output of Apple's iPods and Mac computers combined. These big five have very deep consumer insights specializing on trends, fashions and preferences. They've beaten a wide range of global challengers who have exited or become only local or niche players. Consider this list of world-class consumer electronics excellence: Sony (yes, when Sony was the sixth largest manufacturer four years ago, they said they cannot sustain their handset business as a profitable venture), Ericsson (which set up its joint venture with Sony, and obviously was also unable to continue alone), NEC, Panasonic, Philips, Alcatel, Sharp, and so forth. Motorola was making massive losses with its handset business a while ago, and Samsung has been complaining last year. Only Nokia has managed to be profitable in this game. It will be tough."

Who else saw all this just minutes after Apple revealed the iPhone. Most were just mesmerized by the 'giant' 3.5 inch screen, the 'amazing' multitouch screen and the sexy looks of the original iPhone 2G. But take that paragraph to any published expert on mobile, and they'll say its all solid, as true in 2010 as it was in January of 2007. And I ended my first blog about the iPhone (obviously with reference to the long wait with iPod troubles) with "Welcome Apple. I only wish you'd been here 18 months ago..."

I have probably written 100,000 words on or related to the Apple phone/iPhone/iPod/iTunes/Apps/iPad area - that would be a 350 page hardcover book haha - so don't worry, I won't be quoting myself for the next 10,000 words. But I do need to mention a few statements I made, to make this very clear. I started my long-running series of pleas, begging Apple to incorporate a full QWERTY keyboard to the iPhone, with an open letter on the second day, January 9, 2007. I am not the only one who has begged for it, but I tried to explain the business reasons for a phone where users can send SMS text messages 'blindly' ie not looking at the phone, with the phone in their pocket. Half of British teenagers, and 42% of American teenagers confess to being able to send SMS text messages blind. I tried to convey the importance of this to Apple. I think its ironic that both Blackberry and Microsoft seem to have 'learned' this lesson while Apple continues to ignore it. But I will say no more about QWERTY, except that on Day 2 I wrote an open letter imploring Apple to give it to us.

Day 3 from the first Apple announcement, I give a major comprehensive analysis of Apple's market chances for its first year. In it I  consider Apple's product, its price, its launch strategy, its distribution channel, and its competition. I take the world, show where Apple's markets are, and make early suggestions of how it might do in given market segments. I explain how a 3G model in the future will be vital for entry into many markets such as Japan and South Korea. And you may want to go read that article. I told you 3 days after the iPhone was announced, that it would sell 4.7 million in the USA, with Europe second and Asia its smallest market in the first year. AT&T told us in 2008 that about 45% of iPhones were activated on their network. Damn I'm good! And I told you that it would be summer of 2008 when 3G would arrive to the iPhone. Not whether there would be a 3G version, so much was clear, a 3G version had to come. I also forecasted the first iPhone clones before Apple's European launch. We did see LG's Chocolate in Europe before the iPhone arrived. (I love reading my old forecasts haha)

I told readers on Day 3, that Apple's biggest strengths were with the company, not the iPhoen itself, that Apple was now the industry's best marketing organization by a long shot, superceding the previous master at marketing in the mobile telecoms industry, Nokia. I said the modern phone was becoming so complex, we needed the innovation in the user interface, Apple's core competence "here Apple reigns supreme".

And consider this comment on how Apple will be received, in its home market: "If Apple promises this is the next leap in cellphones, they have the benefit of the doubt, for a long time, from their own backyard, the IT and business press in America. As America lags in the mobile phone market and innovation, American analysts are really not competent to accurately measure how innovative the iPhone is. Obviously Nokia, Samsung, SonyEricsson etc don't bother releasing their top phones first into the American market, and American carriers are still years behind those in Europe and Asia. So Apple also has a strange "boost" out of being in a market that doesn't really understand their product. Expect the most glowing reviews and opinions from the American press; and the most critical reviews and opinions from the Northern Asian and Northern European press. This regardless of how good or bad the iPhone ends up being when it ships." - bear in mind, we are 3 days from Steve Jobs on stage, nobody has touched an iPhone yet. But I am already forecasting perfectly accurately how divergent the IT tech press reviews were going to become for the original iPhone 2G. Exactly as I suggested, US press loved it, Europeans were ok with it, and the Japanese and South Koreans felt it was not particularly interesting.

I UNDERSTOOD iPHONE DISRUPTION

There were many who went gaga about Apple's iPhone slick cool look, 'huge' 3.5 inch screen and its multitouch user interface, as the date of the launch of the iPhone 2G approached. There were many who then felt this was the new dawn of phones, and it was not unusual to have experts suggest future phones would be more like the iPhone of 2007 than the bestselling Nokias of the time. That was the 'easy' prediction. The mobile phone handset industry is a 150 Billion dollar business, worth about a third of the value of the PC industry for example. So a far bigger industry sits near mobile phones in tech, the PC industry. Within mobile, the handsets are the 'small potatos' part, and the operator/carrier business (AT&T, Verizon, Vodafone, T-Mobile, China Mobile, Telefonica etc) is the big part - worth 850 Billion dollars yes twice as big as the PC business. And if it was still reasonable to see impacts of the iPhone to the PC business (Apple being a PC maker), two far more distant industries would be impacted - the media business and the advertising business. Broadcast (TV and radio) is roughly worth half a Trillion dollars and advertising is almost as big. So we have some very VERY big businesses out there, that were not obviously interested in tiny mobile phones and their little SMS messaging etc.

So I wrote in my 'Before iPhone and After iPhone' blog on 18 May 2007 - still a whole month before the launch of the iPhone, about the changes the iPhone would bring. I said that for handsets the "yardstick in usability will from now on be the iPhone" and I said that would hold true into the foreseeable future, that the latest iPhone model would remain the most user-friendly of all smartphones into perpetuity. That was the relatively easy forecast haha and did not take much insight. (obviously was proven right)

I also predicted correctly, that even though browser based services on WAP and other such services, as well as the 'real internet' had existed on mobile phones for years before, it would be the iPhone that is seen as energizing and igniting the 'mobile internet' (as we can now see how pervasively Admob stats are quoted worldwide)

Of Media and Advertising industries I was the first to forecast how massively the media industries and US based advertising would fall in love with the iPhone, as we see today with iPhone apps as 'advertising platforms' - think how crazy that is. Its like doing TV ads that only work on Sony branded TVs, except Sony's penetration of TVs in America is ten times better than Apple's penetration is in mobile phones in the USA, its best market. Even if we add iPod Touch's and iPads, there is an iPhone compatible device in the pockets of only 5% of Americans. But more than half of them have a full HTML capable browser, and 80% can receive MMS multimedia messages, 95% can do basic browsing on a WAP browser and all Americans can receive SMS text messages (64% already use SMS actively according to the latest ComScore stats). What moron ad executive approves an iPhone app project for their 'mobile strategy' before they have first covered the mass reach of SMS, MMS and WAP (or HTML web)? Our friend Martin Wilson has a name for that foolishness, he calls it the iSyndrome, the mistaken belief that building an iPhone app translates into a mobile strategy.

But such is the power of Apple in tech and media. It was immediately the coolest phone, and just like Macs were the de rigeour on the desk of any self-respecting Ad Man. Now the iPhone was the same for any mAd Man..

I did also point out in my big Before iPhone After iPhone blog in May 2007, that the single biggest industry to change would be the IT industry and the West Coast related data tech related industries. Software and hardware. I wrote "And suddenly the iPhone 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." Look at the hysteria of 4 Billion iPhone app downloads. Look at Dell rushing to make smartphones, Lenovo, Acer. Look at Microsoft finally taking mobile seriously. And while Google was serious about mobile before the iPhone, it seems Yahoo was on the fence, now they seem to have also woken up. Even IT tech stalwarts like Sybase, best known for databases for giant corporations, now are also a major player in mobile messaging. Sybase? Yeah. A few years ago when I wrote that smartphones were the new era of computing, I had a lot of hostile responses. Today that is accepted. It is seen now as 'a new computer paradigm' and every IT and PC company needs now a mobile strategy. This all was due to the sudden immense interest in the iPhone in the summer of 2007. The mobile industry and the IT tech industry have changed dramatically. And the media and advertising industries are in the process of changing, where the iPhone is at the center of every discussion (whether it merits that position or not).

iPHONE THE BEST OF PHONES

So we had the first iPhone 2G. It was in the end, more like the Lisa to PCs than the Mac. It was a brilliant radical departure from what had existed before, but it was a very incomplete device, which failed in many of the more advanced markets. The first reasonably complete globally acceptable iPhone was the 3G model a year later. But lets start with the iPhone 2G. It was indeed the best of phones, and it was the worst of phones.

Sexy slim. A large part of the desirability of the original iPhone 2G was its supercool looks. Most smartphones looked nerdy, this looked slick and cool. Many early buyers wanted it for none of the iPhone's great features or abilities, only because it was the coolest-looking phone 'ever'. Remember this first iPhone 2G couldn't even do apps. It was the musicphone for all who had an iPod - which crushed SonyWalkman's short-lived surge in global phone sales, by the way. I want to make a clear point about this which pains many who love the iPhone for its technology. Many who bought an iPhone in the beginning did so because it was the best looking phone, thinking "who cares if it didn't do everything some other phones did". This was very typical 'marketing' thinking, better to look good than to feel good. It was the most expensive cameraphone that didn't record video, it didn't do MMS, it wasn't 3G (all other contemporary phones in its price bracked were 3G) and it wasn't even a real smartphone as you couldn't install apps to it. But it was the best looking phone. Apple iPhone owners proudly displayed their brand new gadget on the table of where they were. There had never been such a phone before.

The large 3.5 inch screen was not itself the world record at the time (Nokia's 7710 had a 3.5 inch touch screen two years earlier in 2005, but Nokia did it on a phone that was very bulky and 'ugly' and very undesirable). A contemporary of the iPhone 2G, Nokia's E90 Communicator shipped with a 4 inch screen, hidden in the clamshell 'palmtop' style of all past Nokia Communicators. So Apple's 3.5 inch screen itself was not really radical.

But it is very fair to say, that where others had tried the big screen no-keypad touch-only design for phones, Apple was the first to make it work. Then the iPhone screen became a huge competitive advantage in any media phones. Compare it to the Nokia N95 of the time. The N95 had a 2.5 inch screen. Because we measure screen size diagonally, it means the iPhone had in reality almost twice as big a screen as the Nokia. In a pocketable device, if you give twice the screen size, you have awesome ability to draw attention. Any pictures look far better on screen that is twice the size. Just look at your PC screen now, reading this blog. Imagine your screen at 2x the size? Its dramatic even in this scale. It is overwhelmingly compelling in a pocketable device. We do now consider phones in two eras. Today there is a plethora of large screen phone from Samsung. LG, Motorola and yes Nokia which all seem to have that 3.5 inch size and touch screen user interface. Apple changed media-oriented smartphones overnight.

The biggest technical innovation in the iPhone was their touch screen technology, which incorporated multitouch and capacitive touch. Previous touch screens were based on resistive touch. These two changes helped make the iPhone touch screen seem light-years ahead of all rivals. They also were - typical to Apple remember they first gave us the mouse for the PC - 'intuitive' - helping make the iPhone truly so simple to use, you didn't need buttons. I counted that on my N93, a superphone if there ever was one, far far better in every possible way than the iPhone 2G (except with a smaller screen and no touch, it wqsa also twice as expensive as teh iPhone) that it had 37 buttons. This with no QWERTY keypad, the phone dial pad was typical T9. But because the N93 was designed on the 'prevailing' philosophy, then when you added features to the convering digital pocket device, you had to add buttons. When the camera came along, it is indeed better to have dedicated camera buttons which are set on the 'side' of the phone, rather than using the 'phone buttons' to operate the camera on the phone. And as the N93 had both digital zoom and the more complex and better quality optical zoom, it also had separate zoom controls similar to any good camcorder. This is how we had 'button creep' on phones. One button to get dedicated mobile internet access, another pair of buttons to control the volume of the music player, etc etc etc. 37 buttons on the phone.

But Apple came along, totally blasted the existing paradigm away, and came up with a phone with only one button. And the rest as touch screen. So intuitive, that pre-school age kids knew how to use it, and so easy to use, that our grandparents who hated the tiny clustered buttons on their SonyEricssons, Motorolas and Nokias, totally fell in love with the iPhone. The easiest phone to use, in the world, bar none. And by a wide margin.

That obviously is Apple's secret sauce. They make all their devices at least one whole generation better in their use, than any rivals. That is how the Macintosh PC stayed alive with a steady loyal fan base over the past 26 years. That is how the iPod came to its global dominating position. And that is totally fundamental to the iPhone today, as well as its cousins, the iPod Touch and the iPad.

There also were sensors in the iPhone, which proved less significant. There was some innovation in the way voicemail messages could be retrieved, other such stuff that was actually pretty marginal. But the iPhone had four things going for it. It was the best looking phone, it had a fantasic screen, a great User Interface and it was by far the easiest to use. We have to thank Apple for these and all phones we use today benefit from these innovations by Apple. No matter how you may dislike some aspect of the current N97 by Nokia for example, it would have been far 'worse' had Nokia not had seen an iPhone in 2007, when the N97 design process would have started..

AND A TALE OF TWO CITIES

There is a particular American angle. The USA had been the sleeping giant of the mobile industry. Previous giants like Lucent (world's largest telecoms infrastructure provider in 1999) since bought by the French (Alcatel); Motorola (world's largest mobile phone maker in 1998) now fallen to 6th biggest maker and declining quarter after quarter making losses; Nortel of Canada (once world's fourth largest telecoms infrastructure provider since gone bankrupt) and the big US wireless telecoms giants Bell South (used to own the world's largest empire of wireless carriers/operators around the planet) - which is now part of AT&T, which has retreated to only US shores and sold its empire to foreigners; same of SBC (also huge international footprint all sold, now part of AT&T in USA) and Bell Atlantic which had big international ownings, but sold those and now is known as Verizon, its own Wireless unit 45% owned by the British Vodafone.

The US wireless industry had crumbled and crashed, lost in overseas battles, all while the mobile industry became the world's fastest-growing Trillion dollar industry of all time. Today most of the big giants in mobile telecoms come from European and Asian markets, like Vodafone and Nokia in Europe, China Mobile and Samsung in Asia. And for the first time in any Trillion-dollar industry, the majority of the customers, and a third of the giants of the business come from Emerging World markets like America Movil of Mexico and MTS of Russia. By 2007 the US wireless industry was a shambles and it seemed it had lost the wars similar to what happened in the TV and home electronics industries in the 1970s to the competition from Japan.

But then we saw Apple Computer change its name to Apple, announce and release the iPhone, and lo and behold, suddenly the Americans were back. To quote Admiral Yamamoto after the attack on Pearl Harbor, the sleeping giant had awoken. Microsoft had been in mobile for 5 years by then. Google CEO had been yelling 'Mobile mobile mobile' for two full years before the iPhone, but those did not wake the Americans. It was the iconic iPhone 2G that achieved it.

IT WAS THE WORST OF PHONES

It was repeated often by befuddled European and Asian analysts looking at the first iPhone 2G, that if Nokia had released this device, the industry would have crucified Nokia for it. At this price there is no 3G? The camera is only 2 megapixels? There is no flash with the camera? It doesn't record video? It doesn't support MMS and it doesn't support video calling? What kind of giant leap backwards is this 'smartphone' that can't even do multitasking, cut-and-paste, and users can't install apps.

That does not matter. The iPhone 2G 'shifted the goal-posts'. After the iPhone, some technical specs did not matter and other things became relevant. The usability is far more important than every single bit of technobabble detail. What good is a 2D barcode scanner on your cameraphone like I had on my N93 in 2006 if you can't even find the controls to turn it on? I showed my business card to many colleagues - colleagues - in the mobile industry (it has a 2D barcode of course) and then had to teach the colleague on where to find the 2D barcode scanner on their Nokia haha.. It was there, but so hidden they didn't even know they had it..

But we cannot delude ourselves. The original iPhone 2G was not perfection. Far from it. The iPhone 2G was Apple's very brave attempt to make their first phone. And Apple did a fantastic job at it. The iPhone 2G stems from the work Apple did in collaboration with Motorola. Consider that Motorola's 'lessons learned' from the Apple collaboration gave us the Rokr. A total dog of a phone. Apple took those same lessons and gave us the iPhone 2G, the world's most important phone of all time. The only transformational phone, andthe phone by which all time in mobile is now marked, before or after the iPhone. Understand, that technically, Motorola could have built the exact spec iPhone (only minus Apple's UI, but otherwise even the capacitive touch screen etc) and easily released it 6 months earlier. It could have been the 'must have' Christmas phone for 2006. No, it would not have been an Apple obviously and it wouldn't have been as easy to use, but it would have been the world's biggest hit phone in 2006. But no, Motorola executives were not brave enough, and they only were able to give us the Rokr.

Now, there are very many 'experts' (including myself) who pointed out 'flaws' in the original iPhone 2G. I have famously and repeatedly called for a QWERTY keyboard for example and urged Apple to split the iPhone into more than one model per year, so we get a Summer iPhone and a Christmas iPhone for example, in the style of the iPod Nano. But we honestly do not know any better than Apple does. Apple does not compete in the same game as Nokia. Apple cannot go mass market 50 dollar phones for Africa. They are far too design-intensive and luxury and loyalty-oriented. So it is pretty futile to consider any published criticism 'flaws' of the iPhone. So its camera still does not have a flash? Ok, its not intended to compete with 12 megapixel Cybershot SonyEricsson semi-serious cameraphones. Its an iPhone.

But what we can certainly do, is look at what Apple has 'admitted' that were 'deficiencies' in the original iPhone 2G. There are 2 criteria for this 'admission'. It has to be a change that Apple has since implemented to the iPhone, and it has to have been already in commercial production on other phones by the time the original iPhone 2G was launched.

THE 12 ADMITTED FLAWS IN THE ORIGINAL

There are 12 such 'imperfections' in the original iPhone 2G. And now, please Apple fanboys, don't crush me on this. Apple itself, has found these changes to be worthwhile, that implementing them makes the iPhone better. But yes, 12 'faults' that the industry pundits especially in Europe and advanced markets of Asia, who had already grown accustomed to far more advanced - consumer-oriented - smartphones by 2007. Remember that Americans thought of the smartphone as a business phone like the Blackberry at this time. But as Europeans and Asians had lots of more expensive (!) and 'better' phones than the iPhone 2G, this is the list of 12 'faults' that Apple itself has with hindsight accepted as fair game, and corrected:

3G, MMS, GPS, better camera (3 megapixels), stereo bluetooth, cut-and-paste, voice dial, video record, autofocus for the camera, MS office apps support, user-installed apps and multitasking. Thats actually a very 'damaging' list when you look at it. No wonder the Japanese looked at the iPhone 2G and said its no good for them: its obsolete.

Note that if you take a contemporary June 2007 smartphone from Nokia, the N95, it has all these features as standard.

American readers tend to be surprised by this. Because their understanding of the cellphone space was based on throw-away cheap LG and Motorola (and Nokia) phone models, and their idea of a smartphone was either a Blackberry (ugly) or a stylus-operated Windows Mobile phone from some Asian nobody-ever-heard-of outfit like say HTC, they really didn't understand the smartphone space. Certainly not at all for the consumer market. Because this was 'virgin territory' in the mindset of American pundits about smarphones, it also became the basis for all understanding. If the rival didn't have a 3.5 inch touch screen, how could it be a 'proper' smartphone? And clearly someone like Nokia, who made 'old-fashioned looking' expensive button-ridden bulky smartphones, were 'clueless' and now, equally, when Google Android came along, and we have 'smartphones' from Motorola, Samsung, Dell, HTC, SonyEricsson etc - which conform to the expected looks of 'it looks like an iPhone' that is acceptable, and thus Google Android is obviously the big world rival to Apple.

In reality Nokia makes as many smartphones every quarter as Blackberry and Apple and all Google Android phones put together. The world has had a far longer experience of consumer-oriented smartphones. The European market for smartphones is far larger, and the Asian market almost as big as that of the USA. In fact Americans count only for one quarter of all smartphones sold in the world (and one eighth of all cellphones of any kind, and under one tenth of all mobile phone subscribers globally).

WHO IS COPYING WHOM?

Here is the frustration that non-Americans have with the iPhone and the American hype about its 'innovations'. Please consider these carefully. Look at those twelve deficiencies with the original iPhone 2G.

In 2008 Apple made its first major update to the iPhone with the iPhone 3G. It added (among other changes) 3G, GPS, MMS, stereo bluetooth and user-installed apps (making it finally a 'proper' smartphone by the definition of tech purists). Now, consider how 'amazing' these 'improvements' were.

I am an ex Nokia employee, so I know the Nokia brand the best. These are not necessarily the world's first phones to do this, but look at just from Nokia's angle. 3G was not new tech in 2008. Nokia's first 3G phone, the 7600 was sold in 2004. Four years before. GPS was not new tech. Nokia's first GPS phone was 3585i in 2003, five years before. MMS is a global standard, it has more users than email, why would Apple not support it, who knows, but they added it finally in 2008. Nokia's first MMS phone was the 7650 just six years before in 2002. User-installed apps - and games (and an app store) - had been normal to Nokia smartphones since the N-Gage in 2003, five years before. And the most astonishing blemish for the maker of the iPod and thus any music fans, stereo bluetooth was not high tech in 2008, Nokia's first stereo bluetooth phone was the 8800 released in 2005, three years before.

Then lets look at the changes that came with the 2 year anniversary, the iPhone 3GS in June of 2009. Apple finally fixed the camera but only to 3 megapixels (8 megapixels were common and 12 megapixels the top end by now). But yes, Nokia's first 3 megapixel cameraphone was the N80 in 2006, three years earlier. Then Apple finally included video recording, again a normal feature on all premium cameraphones of this price bracket for many years. Nokia's first video recording cameraphone was the 7600 in 2004, five years prior. (Japanese cameraphones had recorded video since 2001..). The iPhone 3GS was given voice control and dialling, this was first on a Nokia phone in the the 3110 eight years before in 2001. And the iPhone 3GS was given autofocus, something Nokia had first done in its N90 in 2006, three years before.

And on the software updates, Apple has fixed cut-and-paste, Microsoft Office support  (both in OS updates in 2009) and multitasking (now in 2010). Nokia's first Symbian smartphone with cut-and-paste was the 9210 Communciator in 2001. Their first Symbian smartphone with full MS Office support was the previous 9110 Communicator model back in 1999. And Nokia's first Symbian smartphone to support multitasking was the 9210 Communicator in 2001. So yes, from the operating system functionality point-of-view, the original iPhone 2G was very flawed, and these three aspects were so common that Symbian has had them for over 8 years, all of them. When launched in 2007, very legitimately, 'smartphone' experts could say the iPhone 2G was at least six years obsolete, and only by 2010 we get the iPhone 3GS and its latest OS update making it 'modern'. Not cutting edge by any means, just 'modern'.

You can understand, that the engineers at Nokia screamed 'bloody murder' when tech analysts were waxing lyrical about the original iPhone 2G, when it was missing all these features that were normal for essentially Nokia smartphones - and that obviously all these were on the N95 for example - some of the features being standard on essentially all phones in the world (video recording, MMS, etc). This was not unlike a non-car maker, lets say bicycle maker Trek were to suddenly announce their first 'car'. And they'd make it really sexy looking and sleek and cool. But while it had an engine, wheels, steering and breaks, it didn't have anti-lock breaks, it didn't have air conditioning, it didn't have windows that rolled down (manually nor electrically), it didn't have a trunk/boot for your gear, and no windshield wipers (we don't think people will use it in the rain.. / Apple said in 2007 they didn't think MMS was necessary, that people didn't use MMS haha). The car makers would yell and scream that it isn't a 'proper' car.

You get my point? In some ways the iPhone was the very best of phones, truly iconic and world-changing. Yet simultaneously, the original iPhone 2G was also a very incomplete phone, far more akin to the Lisa vs the Mac, a kind of 'beta version' of the iPhone, which really needed those updates it got in the 3G, 3GS and the operating system, to be an all-round acceptable smartphone. And in late 2009 the iPhone 3GS was indeed so complete that for many weeks it was teh best-selling phone model inJapan, the world's most advanced and demanding mobile phone market. Yes, the iPhone was the best of phones, it was also the worst of phones.

PHONE WARS 2: ATTACK OF THE CLONES

Now what have you done for me lately, Apple? If we remove all those twelve changes where the iPhone added years-old tech to patch up the iPhone and make it reasonably 'modern', what happened to Apple's iconic design? Where are the cool new innovations? Where is the excitement? The iPad drew a lot of attention but the iPhone 3G and the iPhone 3GS have not done much of anything, other than the dozen 'bug fixes' I listed in the above. And its still not the 'ultimate' smartphone? How long will it take for the message to sink in at Cupertino, that SMS is addictive, and you can't send SMS text messages blind with an iPhone (four out of ten US teenagers and five out of British teenagers are able to send SMS blind). The Blackberry outsells the iPhone comfortably by a wide margin and is loved by the 16-24 year segment for that very reason. Where is Apple's slider/folder QWERTY keyboard? Apple would double it sales if it did that.

But yes, what is there since the iPhone 2G that has been radical? On the phone hardware, nothing. Everything else is a copy. And very legitimately, almost all of Apple's changes have been copying Nokia (and/or Symbian). Thats fair. But there is one huge thing that Apple did. Their App Store was not their invention. Japan did it first and Nokia had an app store for years before Apple. But applications sold to consumers were a dead space, totally no excitement or innovation there. That changed totally with Apple. Apple did not give you the best deal in mobile apps and services (on NTT DoCoMo's iMode in Japan, the content owners get 91% of their content revenues) but the 70% revenue share was far better than most, especially US based developers had seen in mobile. A great innovation.

APP STORE MANIA

The app store was brilliantly designed helping make it easier to get apps onto it, and for consumers to find apps they liked. The success was immediate and enormous. 4 billion apps downloaded, Apple just told us yesterday. This in under two years. Awesome, considering their total possible accessable market is under 85 million devices shipped counting all iPhones, iPod Touch's and iPads. Apple single-handedly took a tired under-performing opportunity and made it a platform for commercial success. Who cares if only one in ten app developers makes money (its typical of any hits business like music or movies etc) but the fact is, that apps from farts to books have a new market on the iPhone and its cousins. Its similar to what Apple did for the music industry a decade before with the iPod and iTunes. Apple have the knack to turn a dead market into something vibrant. And when they do it, they make it far more user-friendly.

(Oh, let me make one observation here, about the iAd platform. We have had mobile advertising for 10 years in the world. Now Apple comes in and promises change. Better take notice. They have a knack at fixing things.. Could be big)

But beyond the App Store, what else? The iPhone looks the same, has the same screen size and resolution. It still doesn't do many commonly expected things like accepting a memory card or have a replaceable battery (guess what is the number 1 complaint of iPhone users? Battery. What is it with Cupertino that they are so stubborn about some 'obvious' things? The more we cram ability into the pocketable device, the more it will drain the battery. If we allow users to carry a spare battery, we get far more use out of it too, as the user won't be afraid to run the battery down...)

But we have seen the invasion of the clones. Today any self-respecting consumer-oriented smartphone has a touch screen (many have also a slider QWERTY, which siphons off some prospective iPhone buyers). Before the iPhone launched, all touch screen phones counted for less than 1% of global phones shipped. In 2009 the world shipped 184 million touch screen phones (not all smartphones obviously) according to Gartner. So Apple (re-)invented this space, briefly controlled it, and today their market share of all touch screen phones is 14%. That was a short ride. Samsung, LG and Nokia all ship more touch screen phones annually than Apple.

EVERYONE IS GUNNING FOR iPHONE NOW

Then we have the aptly-named Androids. Google's OS has seen an explosive growth in the past 21 months. Two dozen manufacturers already, including of the world's top 10 biggest phone makers, numbers 2, 3, 4, 5, 6 and 8 have released Android based smartphones. Bearing in mind that these 6 handset makers sell 550 million phones worldwide yes, 20 times more than all Apple iPhones that sell per year (obviously most of the 550 million are not smartphones) - the market is severely stacked now against Apple. Android smartphones have gobbled up smartphone market share, and this while most makers have not even ramped up their full production yet.

Then we have Nokia. Nokia is the elephant in the room. They alone sell 430 million phones worldwide. Their smartphones outsell Apple by 2.5 to one. Nokia sells more touch screen phones than Apple, more musicphones than Apple, more GPS phones than Apple. etc. If you are impressed with Apple's iAd strategy - a handset maker who launches their own Ad agency (by buying an existing mobile ad provider Quattro). I wonder where Apple got that idea? Nokia bought Enpocket in 2007 for similar interests (and added Acuity later). Nokia is a double-whammy rival, as it bought out its competitor handset makers from the Symbian alliance and turned Symbian into an open source foundation. And Symbian powers over half of all smartphones in use on the planet. Over half. Apple's iPhone has 9% of the global installed base of smartphones.

Nokia is that big, that it can dedicate one smartphone division to fight its biggest global rival in phones (Samsung) with low-cost smartphones, plus add a second smartphone division to fight its biggest global smarphone maker head-on (that is not Apple, it is the far bigger RIM with its Blackberry). This Nokia does with its E-Series, which roughly speaking sells about as many QWERTY business-oriented smartphones globally as RIM sells Blackberries annually. Then Nokia has the resources to have a third division take on Apple and Android consumer-oriented media and internet smartphones (the N-Series) which in rough terms sells about as many smartphones as Apple does annually. And beyond that, Nokia has the resources to pursue the real high end of smartphones - far more expensive luxury super-premioum 'superphones' like it does with its new Linux based open source operating system MeeGo and the N900. I am not suggesting the N900 is 'better' than the iPhone 3GS, I am suggesting that Nokia's MeeGo platform is set for the 'next' stage of expensive smartphone wars, not the current one. N-Series is the 'attack dog' to battle Apple like E-Series battles RIM.

And then we have Samsung. Samsung makes Symbian smartphones and Android smartphones and Windows Mobile smartphones. If Apple or RIM allowed it, Samsung would also make smartphones for their OS's. And in addion to that Samsung has released its Bada smartphone operating system. Samsung currently is the world's 5th largest smartphone maker, smaller than HTC. Apple outsells Samsung by 4 to 1. Yet by the end of this year 2010, by the fourth quarter, Samsung will run even with Apple and by early 2011, Samsung will pass Apple in smartphone sales. Why? Because they already outsell Apple in touch screen phones.

Samsung operates in 9 global industries from some electonic components like DRAM memory to consumer goods like flat panel TVs, and mobile phones. In every industry Samsung has achieved number 1 or number 2 status in market share. They are the most competitive giant company out of the most competitive country (South Korea - did you notice, in the latest international comparison, South Korean students passed world's long-time best math country, Finland, and are now the best mathematicians on the planet? This while Americans refuse to pay their teachers reasonable wages, and try smoke-and-mirrors of no child left behind?). Samsung has grown consistently and convincingly to second biggest phone maker. Earlier this year they stated they intend to become a major player in smartphones. That means in 'Samsung-speak' that they have an internal mandate to get to either number 1 or number 2 in global market share. Samsung has already promised this year they will sell over 18 million smartphones.

If you model that growth rate from 3 million last quarter on a linear growth, by the fourth quarter Samsung will sell about 6 million smartphones in the Christmas quarter. Then note that Apple sold 7 million smartphones in this quarter and you see why this rings alarm bells. Even if Samsung 'only' achieves this goal, they will be bigger than HTC, and will be challenging Apple. That is, assuming Apple hasn't lost market share in this very competitive year in smartphones. And this, assuming Samsung doesn't get more hungry as it grows. I know a bit about the South Koreans, from my research for my fifth book, Digital Korea. I promise you, Samsung will outperform this goal this year. That is their style. And more than that, it is their work ethic. Nobody works as hard as the South Koreans. Even the Japanese fear the South Koreans (in business, said the Economist this past week). The unofficial national motto in South Korea is 'balli balli' meaning, 'hurry hurry'.

What of Blackberry? The natural rival of the iPhone is not the Blackberry by Canadian RIM. Both are smartphones yes, so both make premium phones, but Blackberry is as different from Apple as a Ferrari is from a Hummer. Blackberry's natural rival is the E-Series from Nokia, like a Ferrari buyer would consider a Porsche (or perhaps a Chevrolet Corvette). The natural rival for the Apple is the various Android phones (in America) and Nokia's N-Series abroad. Similar to how a Hummer's rival is not Ferrari, it is the Range Rover or Cadillac Escallade etc. Blackberry is fighting a different war, it has a very smart global strategy, securing its domestic US base in business/enterprise customers and expanding to some messaging-oriented youth consumer customers. Abroad it is expanding business clients and messaging-oriented youth (because of QWERTY). It says something of how well RIM is doing, that Nokia has modelled its E-Series phones on the Blackberry and has helped market the 'business' oriented E-Series also to youth consumer clients. And now with Microsoft releasing its first ever phones on the 'Pink' platform, they are not targeting touch screen iPhone clones, they are targeting Blackberry consumer users. This is the hottest segment for phones and if you catch a 16-24 year old into your brand now, you can count on decades of loyal purchases from them over the years. But yes, back to the iPhone, as long as Apple does not offer us a QWERTY, it won't challenge the Blackberry in a meaningful degree. And the Blackberry's success (or failure) in the market will not dent Apple's performance in any meaningful degree.

APPLE MARKET LOSSES IN 2010

So we have recounted Apple's short history in phones, and charted its enormous impact. Strategy Analytics monitors the features of new phone models released per quarter. In the first quarter of 2010. the proportion of all new phone models that had QWERTY screens was 38% ! On the one hand, this is an incredible achievement, Apple has single-handedly changed the way our phones look today. Go to any phone store in any country in the world, and whether they are authorized to sell Apple or not, there will be dozens of Apple clones, similar large screen slim touch screen phones. Many are smartphones, but not all.

This is awesome as an achievement but it is also the beginning of the end for Apple's short reign as the king of the touch screen smartphones. Already today we see that in 2007 Apple had over 70% of all touch screen phones sold, then by 2008 they were under half and by 2009 they had only 14% and falling.

So, like I like to say, "numbers are my buddies". Lets examine. The Christmas quarter is the best quarter for mobile phone sales. Last year was exceptional, in that we were coming out of the recession, so the Christmas sales were even more brisk. Apple had been working hard to get its phone to all significant markets and even the elusive Japan and South Korea had accepted the iPhone. It was finally sold in the world's largest mobile market, China. From the July-Sept 3rd Quarter to the Chrismas 4th quarter, smartphone sales grew 20% (not annual growth, just quarter-to-quarter growth). In this super-hot market, many Android devices appeared. Nokia grew market share in the hot market by two percentage points. HTC grew market share by one percentage point (riding Android). RIM grew market share by one percentage point. What of Apple? Their worst Christmas ever in iPhone, their market share held flat. Yes, Apple did get some added sales, sequentially from the previous quarter, but were not able to grow market share. Apple had peaked in a one quarter market share in smartphones of 17%. Their full-year market share was 15% in smartphones and 3% out of all mobile phones sold.

The Apple iPhone sales pattern differs from all other major smartphone makers because Apple only releases one new model per year. So the sales take off strongly and then decline as the rivals keep releasing newer phones. Apple's best quarter is its Christmas quarter. This year they were not able to grow market share. And we already know, that Apple's January-March quarter was a heavy fall from the Christmas level of sales (as it always is, this is the normal pattern). We know the rough level, because Steve Jobs said yesterday that Apple has now passed the 50 million cumulative sales level. As Apple was at 43 Million at the end of the previous quarter, they have sold about 7 million new iPhones in the Jan-Mar Quarter. That is a drop of 19%. It was only 12% a year ago, while the world was plunging into the economic depresssion. Now its 19%. Pretty catastrophic.

If it was that the whole market also fell 19% after Christmas, it is conceivable that Apple has held its market share. But we've already heard from several makers, most loudly from HTC, which talks of very strong sales in the current quarter. RIM and HTC have already told us that smartphone sales are strong, but Apple sales are down. I won't know the actual market shares until we get all the numbers, but the early ballpark suggests the iPhone market share in the first quarter of 2010 to be in the 14% range. It may well be far worse. But it is undeniable, that Apple has peaked.

SMOKE AND MIRRORS APPLE STYLE

No wonder Apple scheduled and planned so many 'big news' announcements for April 2010. They talk of the iPad (which analysts suggest will sell in the 3M to 5M range so this won't cover for the iPhone market of 25 million per year). They talk of Apple's updates to the iPhone OS (now finally giving developers a limited form or multitasking, why is it that everything Apple does, it does in a limited way, like its Bluetooth?) Apple talks of its exciting iAd advertising platform. They celebrate 4 billion app downloads and 170,000 app titles of the iPhone App Store. And they want all of this out there in the public domain well before Apple reports its quarterly results. Because the investors will not be impressed when RIM reports growth (and gains in market share) and HTC rports growth (and gains in market share) and all the while the wolves are howling outside the window with new smartphone rivals from Android to Microsoft Pink and Samsung Bada; and even noticing there is a real giant out there called Nokia with Symbian.

TOMI FORECAST, 3 SCENARIOS

So, we have 3 scenarios. I am 100% definite that we have reached the peak of the market success of the iPhone 'first wave'. The Apple strategy of only one new model of iPhones per year, released in the summer, and sold in many cases through exclusive carrier relationships (like with AT&T in the USA, Softbank in Japan etc) is not long-term sustainable. Apple has ridden this first wave to its end. They have had their annual peak last year 2009 in terms of annual market share (15%) or perhaps, currently are at their peak in 2010 (conditions to follow). They will be seeing a gradual decline in market share - hidden in overall growth of iPhone unit sales still, but not keeping up with the faster growth rate of smartphones overall.

I have lots of reasons why, some of which were touched upon in this very long article (I'm sorry for its length). But the main reasons are that Apple cannot grow market share beyond this level with only one model per year, in the price bracket where the iPhone currently is. What they need, is a kind of iPhone Nano. Until they do that, they won't grow market share significantly from where they are now.

I have seen enough of the numbers - as I reported before, the Christmas sales were brutal for the iPhone, the first sign of major trouble. The latest first-quarter 2010 numbers just reinforce that view. I am now ready to call it, Apple has peaked.

Two caveats. Apple's next iPhone is coming this June. It may be 'awesome' (I am not that convinced, remembering the 12 'bug-fixes' that Apple has done so far). But even an 'awesome' iPhone will not grow Apple into second place, overtaking RIM for the full year. Not possible. The numbers are too clear. Apple had its chance but couldn't get into the 20% bracket in market share of smartphones. If the new June iPhone is awesome - and I mean, the press has to go crazy about it, totally leaving the Android rivals etc in its dust - then and only then, can Apple grow total annual market share by one or two percentage points, not more. Even then, its 2011 market share will decline. Inevitable. The numbers are too compelling. Please before you write hostile emails and leave replies full of vitriol. remember what I said about the iPod. Inevitable. I am not against Apple. I am here to share my knowledge and insights. And there is a far greater good. You all readers, all of you, know in the long run a 'series' of iPhones is inevitable. Just like don't have only one Macbook or only one model of iPods. Of course there will be a time we'll have a model range of iPhones. Now is the time for Apple to give us that. We need more than one new iPhone per year.

That is the time when the Apple phone fortunes will turn again. When Apple abandons this one phone per year nonsense, and gets into the smartphones race 'for real', then they will (definitely) increase their market share again. But only then.

I cannot say when that may happen. In an ideal world it should happen this June (maybe, but don't count on it). Probably Apple has to take its medicine first, observe its market decline, and then react. I do so hope they also re-read my open letter to them about SMS and QWERTY. Why 'gift' that market to all those iPhone clones that have slider QWERTY keypads? Come on, Apple, pony up, its time to get serious about smartphones.

APPLE LAUGHING ALL THE WAY TO THE BANK

So, please please do not misunderstand me. I love Apple and we have seen our industry transformed totally by the iPhone, and better than that even, Apple's iPhone has drawn in tremendous amount of fresh blood from other industries who 'discovered' mobile and now help drive this industry further.

But where is Apple in all this? Apple has been brilliant at it. When they launched the iPhone 2G, they achieved the greatest tech launch hysteria ever. The biggest airplane launches, car launches, nothing matched the hysteria of June in 2007. Remember all those long lines people waiting patiently for two days before the stores opened, to get their hands on the must-have gadget. The original iPhone was expensive. The current model 3GS, while sold in America for 199 dollars and in some markets given away for free on a 2 year contract, still costs 600 dollars. Its just that the contract monthly payments hide that number, so it feels to ignorant consumers as if there was a price cut. (Handset subsidies are some of the worst distortions in this industry and gradually many markets are working to get rid of them like they did in South Korea, Israel etc). Apple receives the highest average price for its phones from its resellers (the carriers/operators) by a wide margin to the second best (RIM) of the Top 10 phone makers. So just on the iPhone direct revenues alone, Apple is making very healthy margins. Its good business to them.

Then they have the cousins, iPod Touch and iPad. These anciliary devices help expand Apple's reach enormously. The total worldwide market for "PDAs" (which if we're honest, is what the iPod Touch is, its more akin to the Newton than a pure music-playing original iPod) was 10 million units in 2000. Today Apple sells 15 million iPod Touch's per year while all other stand-alone (non cellular) PDA's sell under 7 million. If Apple had been fighting with the Newton, they'd today have perhaps 20% of the "PDA market" and sell 1.4 million Newtons. By shifting its iPhone concept to the near-dead PDA market, Apple re-energized that market to 22 million units annually, where Apple controls a massive 68%.

The same with the iPad. If Apple never had the iPhone and its OS and the App Store, and just entered the 'tablet' market with a Kindle-clone, they's perhaps sell a third of the tablet market or about 1 million tablet PCs. By using the iPhone hype, the iPad is likely to sell more than all Kindles and other tablets (currently on the market) combined. Awesome.

Being an iPod pocketable media player market (ignoring phones), Apple has scale in those devices to make iPod Touch's very efficiently and profitably. Similarly being in the PC market, Apple can make table PC's (iPad) profitably. The reason I say 'ignoring phones' is because the radio parts of a modern mobile phone add tons and tons of complexity. But open up a media player, and its a pretty simple box of electronics. Once Apple had the iPhone, the Touch and iPad are 'easy'. But very importantly, they'd be still-born without apps. A mobile phone can live well without apps, but the iPad needs apps. And then take the role of the taxman. Imagine all the applications ever sold to the Microsoft Windows based computers. What if Microsoft took a 30% tax for all of those (not made by Microsoft) that were sold? They'd have so much money they'd have to burn it just to store it. But Apple has managed to create a platform where we 'want to' install apps, and then Apple gets to take 30% of all we spend. And 4 billion downloaded (granted, the vast majority were free but hundreds of millions of those were paid apps).

Apple is laughing all the way to the bank. They are not in the real rat race of mobile (low cost phones for Africa etc). They are sitting comfortably at the luxury end of the market, with fanatically loyal customers. And Apple is one of, if not the most profitable companies in mobile right now. Brilliant. But even so, their investors will not like to see the iPhone losing market share when Android, HTC, RIM, Nokia etc are growing and even Microsoft seems to be coming back to the game. There needs to be re-thinking of the Apple iPhone strategy.

But yes, take it to the bank. Apple's global market share for the iPhone is at its peak now, when measured on an annual level. They never made it to 20% of all smartphones. Their peak was 15% in 2009 and declining now, or possibly 16%-17% at best, this year - but unlikely. And it will be downhill from there. Until Apple learns that last lesson they still need to learn about this industry. That it moves way too fast for one phone per year. So here's to the memory of the original iPhone, it was the best of phones, it was the worst of phones.

UPDATE APRIL 20 - After Apple's Quarterly Results. We have suddenly many visiting this site, mostly to gloat apparently. Welcome. Please remember, I will let your comments stand - including those calling me an idiot etc - as long as you've read the full article. We have a lot of very intelligent discussion in the comments. I have removed those who just make pointless comments who didn't read the article.

I want to make one clear clarification after the Apple Quarterly Results. I have not 'abandoned' my forecast. I have not said I was wrong in my analysis. I have admitted clearly that I did not foresee such as strong iPhone sales quarter of 8.75 Million units - but neither did any other major published analyst. The really relevant point is - that while iPhone sales of 8.75 M units were flat from the previous quarter, Apple did not grow sales sequentially from the Christmas Quarter. Meanwhile we have already heard from RIM, HTC and Google - all reporting increased unit sales from the previous quarter. It is absolutely undeniable as a fact - that compared to HTC and RIM in smartphone unit sales, and compared to Google Android smartphone operating system shipments, Apple has lost market share in relative terms to those 3 major rivals. And this is before we hear form Nokia or Samsung.

Please do not misunderstand me, currently Google Android is growting unit sales. HTC and RIM are growing unit sales. They are performing better in the market than Apple. My forecast still stands. But - it must be noted, that Apples first quarter is not consistent with my expectation. It is possible that my forecast ended up premature. I am not yet ready to call it wrong. But we will be monitoring this space on this blog as the numbers come in now, thsi quarter, in the subsequent quarters of 2010, and the final numbers of 2010. I am still confident that Apple annual global market share in smartphones has peaked.

Comments

[Keith]

Tom,

While I agree with several of your points, I think the whole "Android is coming apart" line is severely overblown fanboy talk. Yes, there are apps that might not work from handset to handset. But that's very, very rare (something like 90%+ of all apps do run across the Android line-up) and has more to do with the OS version each handset is running (and occassionally the lack of hardware support for certain features). That's true for the iPhone too. There are apps on the iPhone that pretty much need a 3G or 3GS handset to run. They won't run well (if at all) on a 2G iPhone.

On Android, I chalk this up to breathless pace at which Google has put out OS updates and the lack of foresight on the OEM's part to future-proof their handsets. However, that's all starting to change. Google is slowing down the number of updates (if only to give handset manufacturers a breather) and OEMs are starting to realize that they have to design phones that are current for more than 3-6 months. I half suspect that Google's motivation behind the Nexus One was precisely because it wanted to push the OEMs forward. Give them a kick in the bum to remind them not to sit still. They've set a solid hardware benchmark which all the recent and planned hardware releases pretty much match (I don't think iPhone fans always understand the purpose of the Nexus One when they gloat about the lack of sales).

[Keith]

"The thing is that a Mercedes is $10,000 or $20,000 more expensive than the competing brands. And iPhone is only a few $100 more than a feature phone. "

Tom,

A few $100 is not a trivial matter, even in the developed world. If it was, then Apple would not need carrier subsidies of $400. And disposable incomes outside the US, but in the developed world, still vary widely and are often lower, making that "few $100" that much more expensive.

"It's up to Apple's product design and marketing if today's average jaded consumer would rather spend their $10,000+ disposible income on low sugar fast food, on teeth whitening chewing gums, on Fiji water, on Nike shoes, on a gym membership they never use, on pills they don't need, in a bar with $15 cocktails... on all kinds of things that make them feel healthy, young, pretty, accepted or just make them forget their anxieties...

At least the iPhone is a real product with tangible innovation..... "

While I love phones, both love and admire the iPhone and appreciate the content of this blog, we all know that nobody really NEEDS an iPhone. $50 dumbphone maybe. But needing an iPhone? No. It's a luxury item exactly on par with many of those other things you've listed. To suggest that the iPhone is somehow manna from above is a little over the top. People will spend their disposable income as they see fit. Some on smartphones like the iPhone. And some on bottled water that costs more than petrol.

[Vic]

Tomi,

I have read and appreciate the article. I'll tell you where I think the error in your thinking lies. Apple really doesn't care about market share, Apple cares about net income. Similar to the PC market where Apple has about a 10% share but is one of if not the most profitable hardware companies out there, Apple doesn't care to play the volume game. So you come along and point out that there market share will drop. Of course it will. RIM and Android and doing BOGO galores to stem the bleeding from iPhone, of course market share will drop. I think it would be more pertinent for you to analyze and forecast net income. With a 15% share of the smartphone market, and what, maybe 5% share of total cellphone market, they are one of if not the most profitable cell phone hardware companies around.

Therein lies the rub.

I'll call what you're doing the Wilt Chamberlain affect. He was one of the best basketball players around but he couldn't shoot a free throw to save his life. So, if effect, you're calling out Wilt Chamberlain and saying his career will not be amazing cause he can't shoot free throws. Wilt Chamberlain didn't care about free throws. And Apple doesn't care about market share.

Thanks for the discourse.

[mark]

Keith (and Tomi and all):

I read everything; disagree with 90%. You bring up other things but I think you, bottom line, basically called supporters of Apple's strategy ignorant Americans or "fanboy". You used the provoking word. That's lazy thinking. Why do that if you can defend your position with data (as Tomi says, numbers are my buddies)?

So to confirm I read everything, here are specific comments.

1st, I am Chinese and there is a written Chinese. No need for snarky comments.

2nd, all my comments are written on a Dell. I own/use more Windows PCs than Macs. No blinders there. Maybe American-blinders? It may be hard to think it, but at some point, you may want to not reject out of hand that the leading edge of smartphone innovation/use might be moving to the US because of iPhone/Android and unlimited data plans. (I'm sure this comment will provoke more anti-American rage.)

3rd, what data do you have of the world seeing the App Store as a restrictive model? Has it started or is it speculation? Also, what data do you have that non-US, non-English apps take longer for Apple to approve? Or is that a wild-ass guess?

4th, for every iPod model, shuffle included, there's always been cheaper competitors like Sandisk. Sometimes over 50% cheaper, even in US; see Amazon. Yet Apple maintains over 70% share in most and adding share in other countries.

5th, your main topic (and Tomi's too): limits to iPhone growth.

a. Market size, Apple has 3% of cellphone market, 17% of smartphone market. More than half of all cellphone market growth are smartphones, So the market itself is not the issue.

b. Pricing. As others note, Apple starts at top end and moves down in price over time. The after-iPhone era (kudos to Tomi) smartphone market is nearing three years old - it's still in infancy. Do you really think iPhones will forever cost $700-$1000?

In countries with carrier subsidy, Apple has already put pressure on consumer handset prices - no US smartphone vendor dares to price over $199 (with contract and no rebate). Palm boasted it would, yet used a clumsy rebate and Tomi told us where it is. And if you haven't noticed, there is a $99 iPhone model. In the US, consumers have already been conditioned to wait for buy one, get one free on all smartphones EXCEPT iPhone. That "wait-for-a-deal" mentality is what led to the downfall of GM and Chrysler.

As for countries without subsidy, Apple management said they're studying how to do better. Apple is not static. Divide and conquer; take the easy pickings first. More specific to your India-centric view, I already said Apple is doing nothing yet in India (and also Indonesia).

But even doing nothing, need we look further than Nokia's results? ASP dropped from 190 to 155 euro reflecting CEO's comments on high-end pressure. Nokia too embarrassed (my view) to break out N-series units this time; need we guess the bloodbath there? Nokia increased 300K units in China qoq while Tomi says Apple increased by at least 1M units. Nokia says there is price pressure even with the current $700-$1000 only prices for iPhone. Can you see what will happen once iPhone starts moving down further in price, maybe even as early as this June before Symbian^3/MeeGo arrives?

Apple averages 55-60% margins on $600-800 iPhone (Nokia devices average 32%). Apple is selling 16GB iPad 3G for $630 at about 30% margin and that's with a $95 screen, 2x battery, and aluminum frame; can't you see how Apple could price a non-contract iPhone if it wanted to?

As Tomi said, Apple is like BMW/Mercedes/Porsche. Everyone aspires to own one, even when they can't afford it. The richer will get it now (and better yet, repeat every two years - isn't this the greatest market ever???). But even BMW/Mercedes started selling lower-priced models, and so will Apple when the time is right. Is it really so hard to see? If you still think the market is limited, then that's where the blinders are.

[mark]

The above post should say "Nokia increased "possibly 1.5-1.6M converged device" units in China" instead of "300K."

Big calculation boo-boo, but I think it still makes the point, though much less strongly.

[kevin]

Keith,

Just a couple of tiny rebuttals.

Those 2G iPhones are 2 to 3 years old. The oldest Androids are at most 1.5 years old. You should also know that Tomi has said he believes 15% of iPhones to have been deactivated, that would be 7.5M iPhones, which is more than all 6.1M 2G iPhones Apple has ever sold. If Tomi is correct (and I think he's not), there should be no 2G iPhone users out there being vexed by new App software, whereas, many of those Androids are still months away from finishing their 2-year contract.

As for disposable income and the developing world: Many years ago, most people in the US were on dial-up, which was rapidly decreasing in cost from $30 to $10/month. Then along came broadband (and DSL) at $30-50. People said "every $100 counts" and "broadband is a luxury item." For a couple of years, broadband adoption in US increased slowly and the US fell behind the rest of the world. Then it started to grow - now it's at over 65%, which is about the same as dial-up was back then.

As Tomi tells me, outside of the US and in many countries thought of as developing world, cellphones including optional SMS/MMS have been adopted much more and much more rapidly than the US. People are much more likely to spend on cell and data. People buy more expensive new phones, and buy them more often. I know iPhone adoption has been slow in some countries but it may have more to do with lack of physical QWERTY keyboards and exclusive carriers than cost. Do you know of any studies on this?

[Tomi T Ahonen]

Hi kevin, Keith and Tom

Please continue the dialogue, its very interesting. I will only comment on a few tidbits where I can, as I try to catch up with all the comments here..

Tomi Ahonen :-)

[Tomi T Ahonen]

hi Godfail, Knute, Neil, Steve, Brian and kevin

Replies to each individually

Godfail - first about next model upgrade. Yes, that is part of the problem not the solution. Today there are many who want an iPhone - who would be willing to buy the newest model and who have their 'replacement period' already authorized by their mobile operator/carriers - who are unnecessarily waiting for June. They know the 3GS is going to be obsolete in a few months, they want the new model. Now, if Apple had 2 new models per year, they'd buy the 'December iPhone' now, and not be waiting for the June model. You describe exactly the problem that a one-model-per-year cycle has. Because phones are replaced so much more rapidly than PCs (PC replacement cycle 3.5 years says Semiconductor Industry Association who say phone replacement is 18 months) the concept is not as well understood by traditional PC makers like Apple, as it is by traditional phone makers like Nokia. What happens for maker of both - witness Samsung big maker of both PCs and phones - their new phone cycle is just like Nokia..

Then you say that 'more phones destroy a brand' - but Godfail, did more than one iPod model destroy Apple as a musicplayer brand or more than one Mac model destroy Apple as a PC maker. Your argument does not stand with Apple examples even. I am only urging Apple to do the same with the iPhone as it already did with the Mac and iPod. And most Apple loyalists even know in their heart that Apple has to expand their product line sooner or later... I want it now haha, not when Apple has lost its market share growth and fighting back would be far more difficult.

Knute - of Apple utilizing its iPhone/iPod Touch/iPad platform - I make that point clearly towards the end of the article, you may have missed it.. We totally agree. But iPads and Touch's are not phones, thus if you are for example a ringtone maker - ringtones alone are 7x bigger global market than ALL iPhone App Store Apps were last year - the typical readers of this blog are interested in the mobile services industry - worth 284 Billion dollars (said Morgan Stanley) vs the 740 million dollar iPhone Apps market (also same report by Morgan Stanley) so you can understand why this blog is not looking at the tiny market opportunity of the iPhone OS 'platform'. It is literally less than one fifth of one percent of my readers' business. If I devoted one blog article per year on the App Store and its eco-system, it would be 'over emphasizing it' haha..

I don't mean to be flippant, Knute - but the reality is that it is a miniscule side-show totally blown out of proportion by the US iSyndrome enamoured tech press. This is NOT an Apple blog. This is a blog about social networking with focus on mobile, and digital media. My industry covers over a Trillion dollars. The total Mobile phone sector of it is only 15%. Most of those are 'dumbphones' and we discuss Africa cheap phones here etc. And of the smartphones, half of the worlds' installed base and 41% of all new smartphones sold are Nokia, so obviously we talk more here about Nokia than Apple. And out of Apple, there are very many other reasons to buy a smartphone than its apps. This is not a smartphone app developer blog... You get my point? My readers are interested in the overall economics of these industries and any economic opportunities in them. The Apple iPhone App Store including Touch and iPad is worth - please understand how meaningless this is - one fifth of one percent - of the total business we cover here...

Then you write 'But unlike the past, where Apple was always the niche player, the minority, Apple is now a major player' - this is no doubt what you read and receive very much positive reinforcement of that claim to believe it must be true. Again, it is totally not true. Apple does have the hype and the glamor and the 'mindshare' of the press. But it is meaningless to the real revenues and profits made in mobile. The US application-maker industry from the PC and internet are rushing to the iPhone and Android because they seem familiar and its easy to develop and they don't need to go through the carriers and conform to all sorts of tedious rules and face fragmentation covering - literally - thousands of devices. Its 'easy' to do iPhone.

Its also easy to set up a website and try to sell your goods on it. Some may make money that way. Some companies may even grow to be giant in it like Amazon or Ebay. But the millions who have little web business sites are not millionaires. The App Store eco-system is even worse. The early numbers are starting to come in, but it looks like its far worse of a business gamble than Hollywood or the pop music business (where roughly one in ten products breaks even, and only a few blockbusters make the industry profits).

So yes, Apple has the mind-share of this elusive 'opportunity' but I promise you most who develop for the App Store will never get their development money back. Meanwhile little new companies are emerging all over who make very simple services on SMS - and are almost instantly profitable.. I am sure the money will drive the resource deployment to the real economic opportunities over time. I try to help illustrate that on this blog and in my books obviously.

We do agree on Apple fierce loyalty (as I say in the blog article) and yes, Apple's smartphone user loyalty is by far the best in the industry (Blackberry running second)

steve - I was tempted to delete your comment as having not read the blog... I explain in my blog that I have several reasons why I think iPhone has peaked in market share, only one of which is the seasonal sales pattern which predicted that Apple should now have declined sales for Q1 and obviously that pattern has been busted. Please understand first, what it means annually.

The new 'second Christmas' peak that I first exposed and now has been verified by several experts - means a bonus 'peak' for Apple - which barely covered the actual decline in the 'non-China' rest of the world. There WAS a decline in the rest of the world in iPhone sales, its proven for example in AT&T numbers (iPhone's best market in the USA) - down 14% from the Christmas period. iPhone sales in the rest of the world declined and will decline FURTHER now as customers wait for the next iPhone out in June (like we heard from Godfail just here now).

What happens in China in Q2? Chinese iPhone sales will ALSO decline. So that means, that there is a HUGE hole for April and May and most of June sales of iPhones, that now have to be covered in the 'rush' sales of the new iPhone in the last days of June. The challenge will be even harder for Apple to maintain market share...

Brian - that was very unfair. I did not say iPhone market share will peak 'some day' - I said it has peaked now. That is definite. Just like my iPod market share prediction, I said in 2005 - read the Financial Times to see it - that iPod reaches its peak the very next year ie 2006. I did not say sometime in the future, I was very specific. And you can check, obviously that is what happened.

As to who dominates - yes the Apple fanbase is incredibly loyal. It is like an 'army of fanatics' like Jonathan MacDonald the author and engagement marketing guru from the UK is calling for. But Apple has a very tight 'control' of its fans, so they are also often 'cited' as not conforming to fully open dialog, letting the fans help co-create the marketing experience etc. So they have a tremendous resource in their fans but don't really use it to 'communities dominate' power as they could.. Apple is probably too profitable currently to 'bother' to learn and change. Over time that will change of course. Social networking was said to be the biggest change since the industrial revolution (said the Business Week in its editorial) and the biggest change in mankind (said the Economist in its editorial) and we only said in our book its the biggest change in the past 100 years haha - and now for example Google CEO Eric Schidmt says social networking is the defining aspect of humanity for the next 20 years.. So yeah, this blog is a tiny bit of it. Twitter is far more of it. CNN iReport is an even bigger part of it. Obama's campaign used it to great change in government - overthrowing the 'dynasty' of the Clintons and first time Senator overthrew the most popular Republican candidate with cross-party appeal since Reagan - and did both with landslides. Thats the power of communities dominate haha..

kevin - hey, cool, very good thinking yes, and we mostly agree actually. Let me address your four points indidivually

1 ease of use - yes, totally absolutely unequivically true. Totally agree, this is part of Apple's magic sauce and their core competence. The iPhone is simply the best phone in the world for ease of use. Note, this need is becoming far more relevant the more the pocketable phone experiences 'convergence' ie more digital abilities are added. You may think of it as voice + messaging + camera + internet but the real cutting edge phones say in South Korea and Japan are also your wallet, your house keys, your credit cards, your car keys, the remote control for your home robot (yes, South Korea all major malls already have home robot stores - they expect a robot in every home in 10 years - have you ever even visited a home robot store to see whats on offer from Hyundai and Samsung and other major robot makers) etc...

But - just like the Mac. Original Mac vs DOS based IBM-compatible computers was like space monsters vs earthlings, a total mismatch. Then came Microsoft's revenge. Never as good as the Mac OS, yet Windows became better by every release and eventually for most users, the usability was nearly on par. Not as good, but good enough. The pursuit of perfection is expensive and is no guarantee to get you the market. Betamax was the better home VCR in every generation, VHS won.

2 platform - very good. This means Apple has the ability to build 'market space' that is inherently different from what any other smartphone maker can do. The iPhone apps are available on PDA and tablets (the iPod Touch and iPad obviously) while Nokia Ovi apps are only available on Symbian phones. Apple is redefining the market for its own good - obviously - and this is brilliant, and something only a few brands can hope to do. Potentially a Sony could leverage its Playstation or a Microsoft could leverage its Windows etc, but Nokia has nothing like that. Neither does RIM nor Samsung nor HTC etc.. We agree. But it helps Apple make profits and sell OTHER devices, not iPhones... My premise, iPhone market share has peaked - is not affected by the other parts of the platform..

3 brand - Apple has best brand in tech, we totally agree. Not just the most loyal fans, but fanatical fans. How often do we see Mac users trying to convince some PC user to switch brands haha..

4 strategy - here I think Apple has its problems. Apple strategy is made in Cupertino, and very typical Apple, 'Steve knows best' kind of thinking. It is great for invention and bold radical attempts, but is no guarantee of success (consider Lisa and Newton). And in mobile, it only gets you so far. Apple HAD to conform or it would have died. Like now, the iPhone 3GS is Japan's bestselling smartphone - and the bestselling smartphone in South Korea - literally the worlds' most advanced mobile phone markets. Was the original 2G iPhone welcome there, no. The original which so excited the laggard US market, was literally obsolete in Japan and South Korea. What did Apple have to do to get their attention? Exactly what I wrote on this blog three days after the original iPhone 2G was introduced by Steve Jobs on stage in January 2007, half a year before anyone had touched one. I said it needs 3G and a better camera just to be considered in Japan and Korea... And remember the 3G model was not even enough, only the 3GS model had caught up to world expectations, with MMS etc...

So I think Cupertino is struggling with the Steve vision and the world expectation. It is both good and bad. And obviously, it means the evolution of the iPhone has been far more to 'mainstream' phones than 'further away in exotic direction'...

With all that - the next 4-5 years? Apple will have its fierce loyal fan base. But look at PCs. Apple was once the world's largest PC maker. With the Mac it once had nearly 15% market share. Now its at 3% (says Gartner). I see the same arch of the iPhone market success. They only sell under 3% of the world's phones now. Smartphones will some day be most of all phones, perhaps even all, but Apple is going to be bleeding market share while sitting at the top of the price point. Like Rolls Royce, who once was a 'major' car maker, but insisted on making the 'best car money could buy' and see their market share diminish and vanish over the decades while rival early makers like Daimer-Benz (Mercedes Benz) and Ford took over the world.

In 4-5 years, if Apple spreads its model range to 3 - 6 models, they'll easily hold something like 10% - 15% of the smartphone market, and smartphones will by then be about half of all phones sold. But if Apple stays with only one new model per year, their market share in smartphones will be under 5%... No matter how great their device, how fanatically loyal their customer base and great their platform and strategy. That is the nature of this handset business and competition here. Don't you see how much 'closer' the 'iPhone rivals' of today are to iPhone than those in 2007? Apple is not pulling away, its the others who are closing in on it. If Apple only tries to compete at the top with one model, it can't possibly satisfy every variation in tastes..

But kevin, as you know, we'll be here in 2014, be sure to come back, and remind me of this discussion we had, ok? We'll see how accurate I was - or not haha..

Thank you all for writing

Tomi Ahonen :-)

[Tomi T Ahonen]

Hi Steve, Roger, Adam, JayWilmont, Garance, Keith, mark, Keith (again)

Steve - thank you very much. Good point about its a matter of timing and iPod also good lessons (you hit it just at the right time, congratulations). About the evidence you see of iPods and iPhones used for music - that is no doubt true where you live. But remember we are here a global blog - I am a Finn now living here in Hong Kong - and globally its no contest. The total lifetime shipments of iPods are about 250 million. Toss in 50 million iPhones. Assume all of them are in use and no overlap, the ceiling of Apple portable products used for music is 250 million. Just in 2006 the world sold 309 million musicphones. The installed base - removing replacement phones - of MP3-playing phones is almost 2 BILLION. And while not all who own an iPod or iPhone are actually paying to use the iTunes store - there are 1.5 Billion people who download paid content to their phones - a vast majority of that population has downloaded music to their phones (of which of course the most popular type is the basic ringing tones).

For most people on the planet who listen to recorded music, the most prevalent music player is their phone. Most do not have a stand-alone MP3 player. Many do not even have a CD player. So for most who listen to music globally, there is no option, it is either the musicphone, with its modest ability - or nothing. There are many in Africa for example who have never owned an FM radio in their family before they get it 'for free' on their basic Nokia phone. Why does Nokia stick the FM radio on all our phones, not for us in the West who have a dozen radios in everything from our cars to our HiFi sets to our boom boxes to our kitchen radios to bedside clockradios, but to a poor person its often the only radio...

So yes, we may be wealthy enough to own both. And if you are 'serious' about music so much that you want to carry it everywhere - youth typically - you'll have a separate music player. But for most people for whom its not the most important thing, but they still like to have some music when they jog or take the dog for a walk or whatever, they won't buy a separate MP3 player, the one on their phone is 'good enough'... And yeah, as Apple itself said they saw SonyEricsson Walkman musicphones eating into iPod sales, they yeah, we know they compete for the music consumer. But I've never said a compromise musicplayer on a phone is as good as a dedicated one, just like the wedding photographer will not show up with a cameraphone haha..

Roger - thank you for the rough judgement, haha. Well, if you look at ALL others who forecasted iPhone sales for Q1, the average was 7.1 million iPhone sales and the range of most was between 6.8 million and 7.5 million. Nobody forecasted iPhone sales growth. So are you also accusing all others of being incompetent? As to my accuracy, I had said 7.4 million (see this blog) so I was one of the best forecasters, with the least amount of error. So do you suggest Roger we should now listen to those who said its 6.8 million rather than listen to Ahonen?

And as to China - that has now been accepted and independently discovered by many analysts as the reason - I just happen to know this business so well, I was again able to be first to report it. The Guardian newspaper has said that was the reason - and the world's largest smartphone maker Nokia which sells about 2.5 times as many smartphones than Apple, said in its quarterly results that they also saw a big increase of phone sales in China in Q1 when other markets declined in unit sales - and Nokia expressly stated that the reason was Lunar New Year gift-giving season. I am sure you're man enough Roger to come back and admit I was actually pretty sharp on that, do you? I'll happily leave your comment here for all to see?

Adam - you make a great point and I was probably not clear enough. Yes, with Macs in particular, its very much not just usability choice, but also technology choice. And I'm sure if you did a correlation of income level or education level, you'd find Mac users well above the average. Totally agree with you.

I didn't mean to say iPhone users were only buying it because it was good-looking. I DID mean that EARLY iPhone buyers, especially in the USA in 2007 and in Europe and Australia etc in early 2008 - when it was very new and undeniably a unique-looking handset, there were many who bought it not for its functionality, but purely on the good looks. I am sure there still is some part of the population who do that, but by now so many similar-looking devices are out there, if you strip the brand off the product, and show an iPhone ad to a buyer at home, then send the buyer to a store where the phones don't show the brand, the (non-Apple owning potential) buyer could not pick the iPhone from among other large screen touch-screen phones by its looks. In 2007 that was easy to do as it was the only kid on the block..

And some have said that the look is starting to appear dated. As the iPhone outwardly appearance has been so similar across the 3 models so far, some who want their phone to look new and cool will actually want something that looks different. A new iPhone model looks like the old one, a bit of a problem like the Porsche 911 where the same body style still exists after 50 years haha.. But very true, most Apple product users become so attached to how easy they are to use, and how intuitive, they have no desire ever to leave the brand.. This is why the iPhone has currently the best customer loyalty of any phone brand (Blackberry being second)

JayWillmont - you misunderstood me. The iPod was launched in 2001. Musicphones were launched in 2003 in South Korea. The iPod kept increasing annual sales at an breathtaking speed through 2005. I was the first person in the world to predict in the summer of 2005 - while I witnessed the enormous growth of iPod sales - that by 2006 musicphones would outsell iPods. I did not say 'Apple branded' musicphones (like the iPhone). No, you are very correct, even today Apple sells more iPods than iPhones. That was not my forecast. My forecast was very specific - and shocking - and widely reported - and violently hated by Apple fans - that by 2006 more musicphones would sell globally than iPods. I was proven right. Apple CFO Oppenheimer said in 2009 that yes, it was the SonyEricsson Walkman and other such musicphones which forced Apple to develop the iPhone. And Apple's other statements have revealed that their iPhone development started sometime in 2004-2005.

So it was not cheating with forecasts haha, saying 'some day it will happen'. I was most explicit, 'next year' I said in the Financial Times for example in the summer of 2005. And obviously I was right. Apple sold something like 45 million iPods if I remember now correctly in 2006, while the phone industry sold 309 million musicphones that year. I just knew my mobile business, and saw enough of the data in 2005 (same data that obviously Apple tracked being in the MP3 player business) to take a stand and make a most bold prediction.

And now I have made another such prediction, and its looking solid as we speak, for 9 months straight, Apple's iPhone market share has held stagnant at 17% refusing to climb, while Nokia, RIM and HTC have all achieved market share growth over the past 9 months. Apple growth has very likely stalled. I stand by my prediction, because the rest of this year is far worse for Apple in terms of more competitors, lower prices by competitors, more smartphone operating systems, and more actual smartphone models by the existing makers. Plus every maker is aiming to develop an iPhone-killer. The Nokia N95 was never going to be an iPhone killer. The N97 was flawed too, but its a big leap closer to the iPhone by Nokia. Their next attempt could bring them to striking distance and the N900 is gaining a lot of love around the planet...

Garance - thanks. Very good comments. I agree, lets see if my forecast ends up accurate, please do return here in early 2011 and we'll see. Either way I will be blogging about it, whether I got it right or not.

About the iPad 3G, very good point. In some way it is kind of a 'big iPhone' and thus perhaps could be seen as expanding the iPhone model line. But that to me is more like BMW making cars and motorcycles. The iPad fails the 'ringing in the pocket test' which is what drives addiction to mobile phones. It is why we carry our phone everywhere, even to bed and to the bathroom - but we do not carry our PSP or iPod or digital camera literally everywhere. We take our phone to the theatre and movies even though we know we are not allowed to use it there (actually four out of ten teenagers in America do use their cellphone in the cinema haha). So yes, the iPad may be a replacement to our home PC and home fixed landline phone, but it won't replace the mobile phone because it fails the ringing in the pocket test. Same for the Touch obviously, it fits in the pocket but won't ring there when we go about our business about town. It could theoretically ring within a WiFi zone but that again is not enough unless everywhere is part of the same WiFi network..

We do agree that the eco-system Apple has built is significant with the iPod touch at 80 million combined shipments of iPhone-compatible devices so far (not all in use anymore, obviously but still) and iPad only adds to it. So Apple has a different ability that Samsung, Nokia, RIM etc can't match because they don't have the 'cousin' devices for their platforms.. Again, it (that we agree) obviously doesn't detract from my forecast haha..

Keith - very very good deep considered comments and adding a lot of value to the discussion. I often highlight the differences of the world market vs US market in my lectures and writing, but you give wonderful flavor and detail to it. Yes, the iPhone - just like the Mac and iPod - can be safely assumed to hold its best market share amongst any countries in the USA, for many of the reasons you give. And very very true is the point, that the iPhone seemed most magical to US consumers whose previous concept of a 'premioum' phone was the 400 dollar Motorola Razr, and their idea of a smartphone was the early (monochrome) Blackberries, that seemed very weird and definitely anything other than sexy or desirable.

Meanwhile in Korea the iPhone 'standard' appearance was already set in 2006 by LG's industrial-design winning 3.5 inch touch screen phone that was commerically released as the Chocolate. It was not a smartphone but for the 'cool' looks, Asia was there well before the iPhone. And as to high-end superphones, the Nokia N93 from 2006 is in every possible way as good or better than the iPhone 3GS, except for the touch screen. Of course the N93 cost twice as much as the original iPhone 2G so yes, maybe it was 'twice the phone' but it was also 'twice the price' haha. Americans never saw the top phones from SonyEricsson or Samsung or Nokia, their idea of an expensive phone was the Razr which by 2006 was truly pretty pedestrian and by specs, obsolete.

mark - some of your comments to Keith may have some merit but mostly you are now taking quite an extreme view. This is the first time ever, Q1 of 2010, that two thirds of iPhones sold outside of the USA. The rest of the world has 92% of all mobile phone subscribers but the 8% of US consumers buy a third of all iPhones. Its very much still a US-centric device. And where is the rest, I think its very clear that the iPhone sells in only a few very rich countries - wealthy Western Europeans, Japanese, Koreans and a few others. Now with New Year's they sold well in China - expect that to fall quite dramatically in Q2 in China.

Keith (second, addressed to mark) - good points, I agree with them obviously. The point most Americans do not know, is that the 'original' iPhone 2G, when it was released by AT&T did not cost 600 dollars, it cost about 800 dollars. Imagine that price point. Yet the same phone sold for 800 dollars in Italy for example where there are no handset subsidies and the customers pay full price. So yes, today if you had to fork over 650 dollars for an iPhone 3GS, or 550 dollars for an iPhone 3G, suddenly that Google Android Nexus One (or say Nokia N97) will start to look a lot more attractive..

Thank you all for writing. Please do come back and we'll discuss more.

Tomi Ahonen :-)

[Kendall Helmstetter Gelner]

One last comment, in response to your response to me...

You state:

"But the Touch and iPad cannot do things any normal mobile phone can do. You can't call someone on an iPad or Touch and for example summons them (anywhere, ie in a car, on a bus, walking in the park etc, outside of WiFi coverage)"

This is false in two ways. First, it's false outright for the iPad with 3G built in. That device, you can initiate and receive calls anywhere. Again you might think it's absurd because of the form factor, but it could be an option for some people, and one that has really been untried until now.

Secondly, even the iPod touch can be used in this way when paired with one of the many cellular WiFi hubs like the MiFi. Basically, you totally glossed over my point that the thing to consider is the transformation of the cellular network to truly being all data instead of a mix of data and voice, from the standpoint of the carrier.

On the 3G being $100 - sure the cost is hidden, but to a consumer it doesn't matter. You state in places the cost is not hidden, that $200 noikia phones outsell the iPhone. Cheap is cheap, when you have to pay for a phone plan anyway you don't care you need a two-year contract. Cheap phones are fine but irrelevant since they are not 2G smartphone devices. They are not where the future is.

[Tomi T Ahonen]

Hi Keith, Tom, Vic, Kendall, mark and kevin

Keith, Tom, mark and kevin - as you have your own discussions going here, will only comment a few thoughts to you at the end. Let me take Vic and Kendall first

Vic - good point, and I agree you have a very valid position. It is indeed far more important to be profitable at a given market share point than strive to gain market share and see profitability vanish. The two are not mutually exclusive, but often one is lost when the other is gained - just witness SonyEricsson's past quarter where they finally climbed back to slight profits. They did that by jettisoning over half of their customers over a 2 year period of meking losses.

But this blog is NOT a financial analyst blog. I really do have a day job advisinig the mobile industry how to make money on things like SMS, ringing tones, MMS, mobile news, mobile advertising etc. For me to look at smartphones is a great stretch to what I really know well, and I am alone, I have totally no resources to go do a reasonably serious analysis of each major handset maker's profitability. I think we have to leave that to other websites that focus on the financial aspects. As I explained many times in the responses here, our main readership is more interested in the mobile services and apps, thus the market share of the platform is of great interest, and which of the big rivals made a bit more profit than the next is of nearly no interest to them. I know it is of interest to Apple fans or Nokia fans or Samsung fans haha, but not to most of our readers here. And not to me and my professional job, I am interested in how my readership - the mobile service providers and app developers - how they make their profits, not the handset makers haha..

But Vic, I have to point out something that is very easily misunderstood. And your comment suggests there might be that misunderstanding at play. Remember that Apple's market share currently 17% of new smartphones sold, is not 17% of the population who buy a new phone. It is 17% of a sub-sector of phones. Apple's actual global market share in phones is 2% - that is FAR BELOW what it has in the Mac PC market share.

That 3% of global PC sales is very likely the top of the range of where Apple's total iPhone reach will also peak - for exactly the same reasons as Mac - too expensive and too much non-conforming. Yes, its the best for many uses (not all) but its not for the masses, and won't reach mass appeal. Nothing at all like the iPod. Teh iPod once had 75% of all MP3 players made on the planet, and still today in the USA they sell about 3 out of every 4 stand-alone pocketable MP3 players today, and even globally they are near mid-point of all stand-alone pocketable MP3 players made.

So if Apple continues on this current path, and only has one phone per year, while Android makers release 60 'iPhone killer' smartphone models by 14 separate handset manufacturers - 6 of which are larger than Apple as phone manufacturers mind you - this year - some of them will get close and deliver a very close 'iPhone killer' while obviously nobody will ever make a better iPhone - and those close rivals, sold cheaper than the Apple, can actually dent Apple's sales.

More importantly as Apple offers one model, other Androids will attract customers who want something else, like say QWERTY keyboards or better cameras or better video or a digital TV tuner or the mobile wallet or whatever. Its like cars, if one maker refuses to offer a diesel engine, and the car only comes in a 4 door sedan model, etc. Others who offer different engines, 2 door models, hatchback models, station wagon models, convertible models etc will pick up some customers who want that feature.

So please don't think 17% in smartphones today will be 17% of all mobile phones in a few years. No, it wont. Apple is pretty close to the maximum ie the ceiling one phone model can achieve globally, if they can sell 3% of all phones maybe in 2011.

Kendall - welcome back. I am not sure if I was clear. I use the 'ringing in the pocket test' - if you can walk on the street or in a park or shopping mall or sit in a bus and the device can ring in your pocket, it is a mobile phone. If you have to find a WiFi network and log onto it (and have its payment plan or it has to be a free WiFi network with abundant capacity etc) - it won't ring in your pocket. Yes, you can work-around it so you can receive calls to any PC using Skype - but you can also 'work-around' the mobility of a fixed landline phone with a long-enough cord. Couple of miles of cord could let you walk to the neighborhood 7-Eleven haha..

I don't mean to be flippant. I am serious. It is a serious test. Its an adaptation of McGuire's Law (the utility of any activity increases with its mobility) and I say the Ahonen 'Ringing in the Pocket Test' reveals which gadget we will be addicted to and which not. The evidence is overwhelming that most people actually take their phones to bed with them. They take the phones to the bathroom with them. Morgan Stanely reported in 2008 that 91% of mobile pohne owners keep their phone within arm's distance literally 24 hours a day, and a 2009 study by Lightspeed in the UK found that 53% of the British not only keep their phone in bed or by the bedside table at night - they, over half of the British, today will not even turn the phone to silent for the night. We actually are so addicted to the phone, we want to be awaken by 'emergency' news or the incoming SMS text message or call at night. A study by the University of Leuven in Belgium found that 40% of the youth will wake up to incoming messages at night, its that common already with the youth.

So its not that technically you can do Skype on a WiFi device or have 3G on the iPad, its the ringing in the pocket test. This is why we dont' walk around 24 hours a day with our iPod in our ears or the PSP in our hand or the GPS receiver in our pocket or the digital camera hanging around our neck. Yes, obviously there are weird fanatics who do that, but its nowhere near 10% of the total population for any those gadgets. But nine out of ten of us, will have the phone literally within arm's reach 24 hours a day of every single day, wake and night.

So back to my point, it has to be a 'mobile phone' to be viable in this market. It won't be a 'must have' gadget otherwise. People in Bangladesh who cannot afford a cup of tea, will have a mobile phone. They don't own an MP3 player or a Kindle or a netbook or even own an FM radio in their family, but the one gadget they have to have - because it changes their lives and enables their livelihood or doubles their annual income because they can find better part-time jobs with it and because of it, is the mobile phone. Kendall, we can build work-arounds, but they are not a 'mobile phone.' The ringing in the pocket test tells you what it is. A smartphone fulfills this test. The Touch and iPad do not. Even the iPad 3G is not, because it can't ring in our pocket, because its too big. Its exactly like netbooks and notebooks, which are by definition always going to be a smaller total market size than mobile phones, because they do not 'ring in the pocket'. I hope this helped?

Then on the 99 dollar subsidised cost. Lets first move away from the USA, ok? 92% of all mobile phone subscribers on the planet are outside of the USA. Msot of those do not have subsidies to buy their phones. Lets start with the 'simple' market equation, ok? Take Italy. In Italy the price of the iPhone 3G would be a little under 600 dollars (there are some shipping etc costs) and thus about 400 Euros in its local currency. Now, the iPhone 3G has 'features' of a 3.5 inch touch screen, with a 3G network connection, WiFi, and 2 megapixel camera. And this has a price tag of about 600 dollars.

Then next to it Nokia puts its Nuron 5230 (an update to the 5230 Xpress Music). This touch screen phone has a slightly smaller screen, 3.2 inch touch screen, but it also has 3G and 2 megapixel camera. It does not have WiFi but it has the typical features that were so exciting in the original iPhone like the accelerometers so when you flip the phone, the picture goes from portrait to landscape. But the price - the real price of this phone is 99 dollars.

Now it becomes very tedious indeed for the sales guy to show the two phones side-by-side, and try to convince the Italian customer to pony up 600 dollars for the iPhone, when the Nokia has essentially all the same but costs 99 dollars. The only 'advantage' the iPhone has is WiFi. That is a big advantage yes, but not one to warrant a 500 dollar price jump.

Meanwhile there is the Apple brand yes. But the Nokia offers Xpress Music, free Ovi maps and navigation, Gmail, several instant messaging clients all out of the box.

Now listen to the sales guy. He points out that the Nokia but not the Apple can accept memory expansion cards on micro SD. Why will the salesguy do this? He wants to sell accessories on which he makes a bigger commission. He starts to sell 'against' the iPhone. The Nokia also have a replacement battery - this is a good time to spin some horror stories of a supposed past client whose iPhone battery dies and he lost all his memories when the iPhone was sent to be repaired etc. Then he compares the cameras - both have 2 megapixel cameras yes, but only the Nokia records video (why, he wants you to eat up that memory with video so he'll sell you more memory cards).

Superficially they look the same, are same size, and seem to have almost identical specs. The only big difference in the mechanical specs is that Nokia doesn't have WiFi. But it has tons that the iPhone 3G does not have. And the iPhone costs in real out-of-pocket terms today, pay now, 500 dollars more. So is it 600 dollars for the WiFi version or 99 dollars without it. If the customer at all starts to really want the WiFi, he sells you a Nokia costing 200 dollars that includes WiFi...

See what I mean about price. Yes, you and I know they are not the same, and the iPhone is far better for the user than the Nokia. But thats not the normal consumer who walks into a normal store in a normal city in normal buying conditions. The sales guy wants to make a quick easy sale, and make maximum commission. If that week the iPhone has some special sales bonus, he'll be telling that same customer about how much easier the iPhone is to use, how the Symbian system is slow and old, how Apple has so many more apps, etc. Whatever to make the sale. But nonetheless, if its 600 dollars vs 500 dollars, something like WiFi or the Apple brand can matter. Like say comparing the iPhone 3GS to the Google Nexus One or Nokia N97. But it its 600 dollars vs 100 dollars, no matter how great the Apple brand, the 100 dollar device will sell 10 times more than the 600 dollar device if their superficial specs are similar.

Make sense?

Now, about handset subsidy case. Here yes, if the consumer thinks the iPhone 3G costs 99 dollars like they think in the USA, that is of course a pretty effectively duped customer. I think that most British customers for example - a market where about half of the phones are sold with subsidies on contract and half are sold full price with prepaid phones - the consumer knows, because in every store the consumer sees always the 'SIM Free' price, ie the unsubsidised price of the handset. And they often have price ranges, you can get this phone for 400 pounds SIM free, or of your monthly contract is 25 pounds (40 dollars) you get it for 200 pounds, or if your monthly contract is over 40 pounds (60 dollars) you get the same phone for free. Those price points are my best guess as its a few years since I last lived in the UK, but that is typical of the pattern.

So back to the USA. If we have the iPhone 3G today for '99 dollars' and a 2 year contract, then Apple could still offer a cheaper model for say 49 dollars and 18 month contract. Or 99 dollars but the monthly commitment would not be 50 dollars but say 30 dollars. Those kinds of gimmicks are typical to adjust for the different prices.

I hope this helped

Now, to Keith, Tom, mark and kevin - Keith, you asked about profit share - yes, I'd love to see that too, but like I've written elsewhere, I don't have the resources to do a good job of that, and as that is mostly of interest to investors and this is not an investment advice blog, I wouldn't want to tackle that issue haha. It easy to see that Apple has the biggest share of profits in the smartphone space, with RIM and Nokia the only two others with major profit share, all others miniscule or loss-making like Palm haha..

Tom - sorry for the piece being so long. Yes you got my point and it may seem obvious or irrelevant - most who commented here and when this blog was selected as one of the best blog articles of the week by the Carnival of Mobilists seem to disagree. But happy that you see it as pretty obvious. On QWERTY I never said they have to do it, I say it would be the best way to get a big jump in market share because now they are gifting that market to Blackberry, Nokia E-Series and the upcoming Microsoft Kin phones. But no, am not saying that is the only way.

You also want to argue PC market and iPod. Fine. On the PC market once Apple was world's largest PC maker (with Apple II). They lost that. With the Mac their peak was 12% global market share, now they are 3%. That didn't go very well either. They had it, but they threw it away. They saw the laptop PCs launched by Toshiba in 1995 and pigheadedly resisted laptops until long after that market opportunity had gone and ever even took 5% of laptops globally. But with the iPod they took a different path from their peak and fought hard with expanding their product line and follwoing consumer trends - and remained the world's largest stand-alone MP3 player. I see the fork in the road. Apple can take the Mac road with the iPhone, and they'll end up with 3% of all mobile phones sold (like Macs sell 3% of all PCs). Apple's 15% global market share in smartphones in 2009 translated to 1.9% of total mobile phone handset market share for that year. They are luckly to hit 3% unless they change their strategy soon.

Tom - on unified platforms very good point. So far Apple has a nearly harmonious platform (iPad now adding some further fragmentation but its still miniscule compared to Android and totally irrelevant compared to Symbian or WinMo)

Tom - on the disoposable income argument, please see what I wrote in the above to Kendall.

mark - very good points on Apple advancing still into more markets. China only now 'happened' ie last year was development. There are opportunities in the wealthy parts of Africa, Latin America etc. Growth is not over by any means, but I am still sure the overall market share growth with one model per year, that has passed. But there are many markets still to go where Apple can pick gains.

kevin - you asked me specifically about launches of iPhone into the rest of the world and what are barriers. The big single reason is the carrier/mobile operator. They have to approve the handset first techncially, then be willing to support it in their own stores (if the carriers sell most phones) or else be willing to be sold by the independent retailers which means learning each country market individually and how their phones are sold. Note that for the iPhone it then means the carrier has to set suitable data tariffs. Apple was early on insisting on a revenue share out of the traffic generated by the iPhone. This was a big source of friction between carriers and Apple and a lot of bad blood. Apple has abandoned that requiremement but also then not offering exlcusive deals. The carriers had hoped to use Apple as exclusive so they could 'steal customers' from the rivals. If everybody has the iPhone its no longer a competitive advantage.

The interest to sit with Apple sales reps for such meetings was far bigger in those markets where iPhone could be expected to sell in reasonably large volumes ie Europe and advanced Asia. But Apple does have to send sales reps to each of the about 600 mobile operators/carriers of the world to do these discussions, or more accurately the approx 500 operators/carriers who run GSM based networks. Those discussion Apple would prioritize by their expected size of market. So they'd go to the UK before Belgium, Japan before Taiwan, Brazil before Chile etc. I wrote in my original iPhone target sales performance blog in January 2007 that this would be Apple's biggest hurdle (And again, it turned out to be true haha).

Ok, gang, that should bring me up-to-date with all responses so far. Please do continue the dialogue here amongst each other and with me, I am greatly enjoying this and learning a lot.

Tomi T Ahonen :-)

[T. Gregory]

Your logic is flawed on one little item. iPhone users are locked into the iPhone ecosystem. Every new phone (i.e. Handheld computer) they buy next will be an iPhone due to their investment in apps and now the iPad.

Also, you have made the top of the iPhone Death Watch.
http://aaplinvestors.net/stats/iphone/iphonedeathwatch/

Congratulations.

[T. Gregory]

Toni, you really don't get it. By bringing up old PC history and using your antiquated belief about the smartphone industry just shows how out of tune you are.

IBM and Apple lost in the PC wars because they both believed it was the hardware. Apple and IBM thought the consumer would still buy quality hardware, but went for price instead and turned the PC box industry into a commodity. Microsoft said it was the software and they were right. Apple has survived because they kept the vertical integration model. They make the whole widget and can do whatever they want with it.

The desktop computer industry is shrinking. Most people use laptops (or net books) as their primary computer. Apple leads, by a wide margin, in the +$1,000 category in laptops. The iPhone brought the power of the laptop into your pocket. The iPad is taking the iPhone OS and putting it in your living room and office (not desk, but the whole office, you can carry it with you). Apple is doing something that no one can compete with. Not even Microsoft knows how to get Windows 7 into a device smaller than a toaster.

Apple's OS X is scaleable. That is a huge advantage for Apple. First they shrunk OS X to fit in an iPhone, and now they are expanding it to fit desktop class devices (iPad). If you can code for OS X, you can code for iPhone/iPad.

In other words, the smart phone category is going away. The iPhone is a computer that just happens to have a phone. Nokia, HTC, etc are all handset makers. They are not operating system developers.

The medical industry, for example, loves the iPhone and now they have the iPad which even fits in lab coats. All iPhone apps work on iPads. The publishing & marketing industries, which are my industries, are embracing this truly disruptive tech.

Your old school thinking compares to what Henry Ford once said: "If I asked customers what they wanted, they would have told me a faster horse." You still think that the answer is a faster horse.

[Andrew]

Tomi, the first part of your blog/piece was a whole lot of Tarzan style chest beating, possibly partly justified. So After reading through that and getting to nitty gritty, you say Nokia introduced this feature, that feature, long before the iphone. But you miss the point. Nokia handsets, well thier designer teams are stuck in a hole. Nokia's touted Symbian O.S. is slow, especially on startup, and susceptible to virii. And most damning of all, Nokia release up to 20 "software update packages" for each handset model, due to functional flaws or carrier specific branding, so much so that shop sold handsets are sometimes 3 updates behind. Apple, on the other hand, well, it works out of the box, doesn't "need" a software update to work, it won't crash, reboot or lock up, the updates are enhancements. So lets compare the software updates between the example you gave, the N95. You tell me and everyone how many software releases have been made. Now tell how many for the iPhone 3G. You, and Nokia, and to an extent other manufacturers, you just don't get it.

[Hillshire]

Tomi, having read through this article and another recent article of yours concerning the Q1 results from Apple, AT&T, and Nokia as well as most of the comments I have three observations to make:

1. Many times you state your interpretations of data as fact. Not always but often enough to discount your credibility. I grant your knowledge and experience. Maybe it's your writing style but interpretations are not facts.

2. Your conclusion that holding at 17% in the quarter prior to a new release is a negative and supports your theory that the iPhone has peaked is hard to credit. There are certainly enough potential buyers who know that a new model is expected fairly soon that a dip in sales was expected in addition to the typical seasonal rhythm of a down swing (as indicated by just about every analyst). That there was sufficient demand worldwide to overcome those who are holding out and the expected post-holidays dip should surely be seen as a positive.

3. Which ties in with this: do you seriously believe that with a new generation of the iPhone arriving that Apple's market share will merely hold steady, let alone decline? Let alone the possibilities of new carriers in the US and abroad? Because with even a fraction of a percentage up tic, your premise that the iPhone has peaked will have been proven false. I do not accept your moving of the goal posts from "take it to the bank. Apple's global market share for the iPhone is at its peak now" to "we will be monitoring this space on this blog as the numbers come in now, thsi quarter, in the subsequent quarters of 2010, and the final numbers of 2010."

Hopefully this post does not come across being accusatory, that would not be my intention. I simply believe that you have misinterpreted the data and wanted to make sure my reasoning is clear.

Hillshire

[Tomi T Ahonen]

Hi T (twice), Andrew and Hillshire

Thank you for the comments

T (first comment) - haha, thanks. And yeah, good point, Apple's loyalty is above any other brand in mobile (perhaps above any other brand in tech haha). But that only helps them hold onto old customers, not grow the market share. So even if you are totally true, it won't in any way invalidate my hypothesis. If Apple only retains its current customer base as the total world market for mobile phones and smartphones grows, they would lose market share. Apple has to do 'better' than only repeat customers - but also - having the most loyal customers means they have far less 'lost customers' to recover than any other phone brand. In that way their loyalty makes it 'easier' to get new customers. Note that even with Apple's high loyalty, there is some loss where some customers did not like their iPhone or for whatever reason, switch to another brand next time.

T (second comment) - on PC analogy. I am not sure if we don't totally agree? I have been arguing for years that the mobile phone is going the way of the PC, and we have many lessons we can learn from the PC industry, that apply to the mobile industry including the diminishing margins of a more commoditized product. I think the low-cost 'Africa phones' of Nokia are perfect example of it, similar to how Dell ran razor-thin PC margins. You either had to have scale (in phones, Nokia, Samsung) to remain viable or else move away from the mass market to specialized niches like Apple did in PCs and now is doing in phones. Another example of that strategy is RIM.

I do think we totally agree? As to whether the mobile phone handset disappears into being a bit of low-cost electronics in a decade and most of the industry is in the cloud (there is that view) - I think you'll find that the major handset maker who first suggested this as a possible future scenario was Nokia and compared to their long-term rivals (Apple not being one of those) ie Motorola, SonyEricsson, Samsung and LG - Nokia has been far more aggressive in moving its company to becoming 'an internet company' and embracing the services part of mobile. Apple had certain advantages coming into it from the PC side (and Google from the internet side) but those are not Nokia's big rivals, Nokia's big rivals are Moto, SonyE, Samsung and LG - and these four are far behind Nokia in this transition if that is the future scenario you believe in.

Its not the only vision by the way.. The future could also be smartphones (moving up the scale of complexity) or a media world where the phone becomes a media platform etc. Nokia has taken an early lead in all of those scenarios, including taking control of the Symbian partnership and a more hands-on approach to future smartpohne OS with MeeGo.

Andrew - you make a good point. And yes, both Apple and Nokia (and most other brands) release periodic software updates. When Nokia release a bad phone (or very buggy OS version) they end up doing a lot of such updates. But don't say Apple didn't do any. We are up to the fourth edition of the iPhone OS and they support only one new phone model per year. The original iPhone 2G did not support MMS, did not record video from its camera, did not support the Office Suite apps, did not have folders, didn't do multi-tasking etc.. Don't tell me it was a complete OS out of the box haha.

But you have a good point. It is something that Apple has definitely done better than Nokia (updates) and recently it seems Nokia has been forced to do many updates, for example with the N97. Does that invalidate my thesis in any way? I don't think so. Most normal consumers - who don't know what a smartphone is - don't even know there is an operating system on their phone, and can't name it on their smartphone if they have one. For most normal people they want the camera to work, the internet to work, the SMS to work, etc. And then perhaps they find some apps and download some, perhaps. The iPhone users are very often already familiar with Apple products and services, so they'll know to expect something like the Mac user experience and the iTunes music store type of market. Those are not the mass market. Remember that globally only 1% of all mobile phones in use are iPhones. Those are still very much the geeks - obviously not every iPhone user is a geek - but marketing theory says when its 1% that is the very early part of the "Early Adopter" segment, not the early majority which won't start until after a given technology's adoption passes 10% or 12% of the total population.

So you are right but it really won't help Apple gain mass market customers haha.. Sorry..

Hillshire - thanks. I do hope that all of my claims of data are verifyable as provided by some widely reported third party trusted source. Mostly when they relate to reasonably recent data, like last year's numbers - there will be public sources to verify that, like in the case of market shares, when reported by Gartner, IDC or Canalys, the three sources for handset market shares.

As to very recent data, this quarter's market shares for example - I say when I am unable to calculate them (until recently) and only when enough data points are out, I can give a preliminary TomiAhonen Consulting measurement - like we now have last week. I try to be clear when any data is from muy company (like listed in the published and frequently referenced TomiAhonen Almnanac 2010). But I understand that at times I have not been very clear and it may seem like I am pushing 'my opinion' where in reality I am giving a fact. I am sorry for those misconceptions and I appreciate your feedback, I will try to be more clear.

If you had some point in mind that bugs you, and want to get it clarified - I would love to answer you here and go correct it if the blog story is misleading. Please tell me.

I do try to go by the facts and many of my peers whose livelihood is in mobile tech stats, regularly use my numbers and this blog as a resource. But you can't know that haha... Let me address whats on your mind? What numbers seemed like my opinion where I claimed them as facts.

On the point of 17% could be caused by customers waiting for the next model is valid - it actually is expected to be in effect right now in April and May and most of June, so the last days of June Apple hopes for a very strong sales pattern to fill those who waited these past few months. You are totally right, that it is a feasible pattern, that we get 3 periods of flat sales, and then again we restore growth. But - if we look at 3 years of sales, and we find the hottest period of smartphone sales ever, as the world emerges from the economic recession, if Apple was not able to gain even one percentage point of market share in 9 months, its at least as likely - and many statisticians without explicit knowledge of the mobile market specifically - would say its more likely - that the peak has passed and the market share will turn to decline after this pattern.

Now, we will know soon enough, so please come back. I will of course report it when we get the next market share data for the iPhone in July for this current quarter. I have been very clear that both patterns are possible - and that my hypothesis that Apple's market share has peaked - is not solely based on the January pattern, it is based on many factors mostly relating to competitors, Android and Samsung Bada in particular.

Your point number 3 is exactly correct. Yes, I said we were at the peak when I wrote that in early April. If we see increase in market share of one percentage point - then its too much yes, and I am wrong. But I am confident, all data seems to support it - especially now that as Apple market share held flat for 9 months, its 3 biggest rivals in smartphones, Nokia, HTC and RIM have all grown market share. Apple market share has peaked. I am sure of it. But we will see - if Apple market share is in 18% from April to June - you win and I lose haha, and I'll blog it here of course. Please also go read my assumptions part - if Apple releases more than one phone - which I am hoping for - then they will resume to gaining market share. Current gossip does not suggest Apple is doing that. And its possible Apple's June iPhone is as revolutionary as the original iPhone 2G and all tech press go gaga over it - in that case, the iPhone market share peak would shift by one year - but still won't grow. For Apple to grow, they need more than one model per year.

But you are totally right, its an absolute statement, very VERY easy to prove come July 20120 and January 2011. Please do come back here at those times and we can see. But I trust you will acknowledge that if I turn out to be right, thats a gutsy call this April, eh? Obviously if it turns out wrong - I've got egg on my face publically on this widely-read and syndicated blog haha.. And I'll be here to eat the humble pie. Won't be the first time I got it wrong in a published forecast..

Thank you for visiting

Tomi Ahonen :-)

[T. Gregory]

Tomi again you are missing the point (ha ha). By Apple's ability to MAINTAIN customers grows market share. Their customers are not leaving the platform, but others are leaving. Your logic is so flawed that you made an assumption that no one will buy an iPhone after their contract is up. Apple has an ecosystem. Do you know what that means? The iPod was the Trojan Horse and is the basis of the Digital Hub that Jobs envisioned with the first iMac in 1998. Everything works together.

What other company has vertical integration like this?

None. The smartphone industry is over just when it started. It is no longer going to be run by handset makers. The commuter people are taking it over. The old school players, Nokia, Samsung, HTC, etc will need to reinvent themselves if they want to survive the next 25 years.

Apple, like many others have told you, is not motivated by market share. If they were, they would have licensed OSX years ago. Nokia used to make a quality cell phone, but technology got in their way so much that they ignored the consumer. Give em a device tat has an owners manual that weighs more than a phone book and you will fool them into thinking they have something great. The magic is not making things more complicated, the magic comes when it becomes intuitive. The iPads instruction manual is a postcard.

Your ignorance to disruptive tech is overwhelming.

And I mean this in the most condescending way I can say it as your response defies basic logic as well as the data.

[Tomi T Ahonen]

Hi T

Welcome back. But that new comment now is not fair. I did specifically say, you have to have read the actual blog article before posting comments here. Your comments now suggest that you didn't read the article. Because I let your previous comments stay, I will now respond to you, but be careful what you write.

Your point is totally - 100% - in line with my original blog. I said - read section at end of blog 'Apple laughing all the way to the bank' that the iPod Touch and iPad extend the reach of iPhone and both support each other and that none of Apple's rivals have this and Apple is making a killing with its wider range.

So you, T, and I mean this haha to quote you 'in the most condescending way I can say' - didn't read the article and are now arguing a point I have already established to be true. You are the ignorant visitor here to this blog making a bogus argument. Your next comment better reflect that you read the full article or else I will delete it as I have deleted about a dozen comments so far. Sorry. I am not going to waste my time 'responding' to comments by those who didn't read the article.

Tomi Ahonen :-)

[Andrew]

"When Nokia release a bad phone (or very buggy OS version) they end up doing a lot of such updates. But don't say Apple didn't do any. We are up to the fourth edition of the iPhone OS and they support only one new phone model per year. The original iPhone 2G did not support MMS, did not record video from its camera, did not support the Office Suite apps, did not have folders, didn't do multi-tasking etc.. Don't tell me it was a complete OS out of the box haha."

Correct, the 2G iphone didn't have those features, no arguement there. But it never purported to, and what it did have, well it worked. 4 editions of the Iphone OS, no arguement there. But that is the sum total for thier complete lineup of 3g and 3gs. 20 "updates" on average for each Nokia model because something is buggy or broken.......whew! And you skipped the part about the Synbian OS being a target for virii.
Anyway lets go down to the all hail the conquering saviour, the Android based handsets from other manufacturers. HTC Desire for example. Released (rushed) with much fanfare to Australian consumers last week, consumers who at time of writing are still lost because the GPS just doesn't work (google whirlpool forums) and still waiting for a fix on that. Yet another manufacturer whose product didn't function out of the box.
Apple not only know how to design a product to be something to behold as being crafted finely on the outside, they know how to make it work for what they say it will do, and no more.

[Mathew Bracken]

Written a nice post. I read & appreciate it.