Communities Dominate Brands

Some Nanothoughts for an iPhone 5 World: Why Apple Needs to Split its Product Range in Smartphones

I had a nice chat on Twitter with my friends Brian Katz @bmkatz and Sitaram "Maaliskuu Born" Shastri @seetu about some Apple and Google things. I thought it might make sense to expand those thoughts a bit into a blog..  Lets do some Nano-thoughts for an iPhone 5 World. Apple already makes almost all the money - and I mean profits - in the mobile handset industry, why would they need to bother changing anything? Isn't their strategy so uber-perfect, it is beyond even the slightest remark?

NANO-THOUGHTS ON A MEGA-RACE

Well. No. The battle for the smartphone market share and yes, profit share is not about who is the biggest smartphone maker of this year or next, or even 2015. That is the prelude to the big war, the battle for the pocket. Who gets to be the biggest HANDSET maker of 2020. Smartphones today are only about one quarter of the total handset industry. While yes, the big PC makers are now all panicking about 'mobile' because smartphones now sell more than all types of personal computers: desktops, laptops, netbooks and tablet PCs (including iPad and clones) combined. Toss in servers, toss in mainframes (yes, even those are still manufactured) and smartphones alone outsell all other types of devices classified commonly as 'computers'.

You'd think thats big. Yes, its huge for the computer industry. But in the big picture of the world, thats still peanuts. Thats only similar scale to say television sets or DVD/Blueray players etc. The biggest tech game is the mobile handsets. Non-smartphone 'dumbphone' mobile handsets outsell smartphones still today by 3 to 1. THAT is a big industry. THAT is where all the marbles are.

Just over the past decade, mobile has become the biggest industry on the planet by number of usersm(5.3 Billion active paid accounts as of now, out of a planet approaching 7.0 Billion total population). No technology has ever come anywhere near as close to this as mobile. More people use a mobile phone than watch TV (mobile phone users outnumber the total number of television sets on the planet by 3 to 1). More people use a mobile phone than a fixed landline phone (by 4 to 1). More people use mobile than have a personal computer of any kind by 4 to 1, and more people have a mobile phone than a car, by 5 to 1. Etc etc etc. Mobile phones now reach villages and towns that have no electricity; mobile phones are used by people who have no access to running water; more people speak on a mobile phone than use a toothbrush. There is no comparison! The world's bestselling wristwatch, Timex, sold a cumulative 1 billion timepieces for our wrists. The mobile handset industry sells another billion new phones - every one with a clock - every 8 months. Illiterate people chat happily on mobile phones in the deeps of Africa, Latin America and parts of Asia. Mobile phones go where the pen and paper cannot go.

And to put it in context, Nokia is the world's most used camera brand, the world's most used music player brand, the worlds' most used clock brand, the world's most used alarm brand, the world's most used calendar brand, the world's most used brand to access internet content (including WAP obviously on low-cost phones), the world's most used brand for messaging, the worlds' most used brand for gaming (Nokia Snake has had more than 1 Billion users) etc. Coca Cola told us earlier this year that 1 Billion servings of Coke are served every day. Many of those servings go to the same user, so the total daily user base of Coca Cola is a fraction of one billion. But 1.3 Billion people use a mobile with Nokia branding - and they use it for phone calls daily, for messages, daily, for telling time, daily etc. The world's second-most used brand is Coca Cola, with much under 1 Billion daily users, many who only use the brand once per day; the world's most used brand - by a huge margin - is Nokia at 1.3 Billlion users almost all of whom use it dozens of times per day or more. The world's most recognized song is not White Christmas or Happy Birthday or Elvis's Love Me Tender. It is Francisco Tarrega's guitar classic 'Gran Vals'. We do not know know the song by its original name, we know it as the 'Nokia Tune' the defauilt ringing tone of Nokia phones, which is the only song recognzied by most of the population in all countries of the world.

Ok. Thats the big picture. Apple (or Google etc) is not in mobile to win the smartphones race. This is only the prelued. They are in smartphones to win the overall mobile phone handset race. To be in the pockets of as many consumers as possible, on the most widely spread, most widely used technology on the planet. Because the internet is headed into the moblie phone. The TV content is headed into our pockets. News, entertainment, music, gaming, movies are headed into the cellphone. Advertising is rushing towards the 7th Mass Medium. MONEY, for heaven's sake - Visa was the first major Financial Industry brand to say just this May, that the future of payments is the mobile phone. Yes, cash will die, and it will be killed by the mobile wallet. THAT is the race for all the marbles. That is why Apple stopped calling itself Apple Computer, and now calls itself a mobile company (as does Google again).

APPLE PERFECTION

I have studied the Apple entry into mobile from literally six years before it happened (when I was Global Head of Consulting for Nokia HQ, we knew already back in 2001, that one day Apple would come to mobile, as a handset maker - and we also said at Nokia HQ at the time that it would be the day, when Nokia's world would change forever, because back then, Nokia stood for best customer satisfaction, best user experience, best ease-of-use, best loyalty of any handset brand - but we knew back in 2001 that Apple was the global tech master of that - we could see it in the Mac and the iPod - and we knew it was only a matter of time before Apple would make its own branded phones, and take all those accolades away from Nokia. If it was up to Nokia vs Apple, it was clear - to many of us, not all of us at Nokia HQ haha - that Apple would inevitably take the highest ground in loyatly, customer satisfaction and that would be driven by user-interface and ease-of use.). That is why I was able to do such comprehensive and detailed analysis of the brand new iPhone weeks BEFORE it launched, including predicting almost exactly the global regional splits of how the iPhone would sell on its three main continents of early sales - North America, Europe and Asia. Go back and read my stuff, it was pretty incredibly accurate, looking at Apple how it preformed since.

I celebrated the iPhone's launch, called it a landmark moment in the industry, that we would measure time in handsets as 'Before the iPhone' and 'After the iPhone' - as we now clearly do, we see phones from the 2006-2007 time period to be hopelessly outdeated but most modern phones to have that 'iPhone-esque' look and feel. And yes, my blog is the root of the term 'jesusphone' - even though I personally never used that term, it was mistakenly attributed to me and my blog. If you hear or read anyone talking of the iPhone as a jesusphone, you know where that came from haha..

I correctly predicted that the iPhone would hit the 10 million sales - this before one iPhone had been sold - (many reputable experts felt it was way too optimistic for Apple), but would have to make severe price cuts to get to that point and that it would not be dramatically over that (many Apple fanatics felt Apple would do even double that in one year). I not just explained what Apple would do, I explained why it would reach that level in one year, and how the sales woudl be split, in what markets.

I said back in 2008 that it was not the time to split the product range into various models (yet) but that the time would come (soon). I was the first analyst to call it that Apple's dramatic growth in smartphone market share had stalled. I wrote a very controversial blog here saying Apple had peaked. Apple had 17.4% market share in Q3 of 2009. In the first 24 months, or 8 quarters of Apple iPhone sales, Apple had grown about 2.1 points of market share per quarter on an annualized growth rate, per quarter. But in the next 24 monts up to now, Apple has only managed to add 1.2 total points of market share - over a 2 year period! Its market share is 18.6% now as of Q2 in 2011, the highest level Apple has ever achieved. What happened?

I was first ridiculed for my forecast of Apple having peaked. Then several analyst houses reported as fact, that Apple iPhone market share growth had in fact peaked as of Q3 in 2009 and was in gradual decline in early 2010. I was then clear to point out, I did not mean 'quarterly' peak, I meant 'annual' peak, and that it was still too early to tell if I was right. As it turns out, I missed my call by one market share point, Apple did not peak in 2009, it did manage to grow a measily one market share point in all of 2010, but yes, I was wrong. I was the first analyst anywhere to write that Apple's phenomenal growth rate in smartphone market share had ended. I was a bit too bold in my claim, calling it a peak. It ended up being flat. But I was off by one percentage point. If you want to crucify me for being that much off on a bold prediction, feel free to stop reading this blog. Which other analysts do you know who immediately Tweet and blog on the same day, whenever one of their forecasts is found to be wrong? And as far as forecasters go, in our industry, if you miss your target by one percent, that is considered accurate haha..

Anyway. I called it then in early 2010, that now was the time to release an iPhone Nano. That because Apple's market share growth had stalled, it meant that Apple had now reached the saturation level for global market demand of the 600 dollar price superphones (remember, the iPhone 4 today, has a real unsubsidised price we all pay of 600 dollars. If for example in the USA you buy the iPhone from AT&T or Verzion for say 199 dollars, then you are committing to a 2 year contract where the rest of the 401 dollar price is forced upon you - with interest added - on a two year payment plan, hidden in AT&T's or Verizon's monthly basic fee part of your contract. The real cost of your iPhone 4 is 600 dollars plus any local taxes etc which means in many countries its far more expensive than that even)

A NANO-STORY OF AN AUDI-BRAND

So lets talk about one of my fave car brands, Audi. Audi (Auto Union, Horsch, NSU etc) goes back to 1910. It was an innovative clever and often racing-pedigree car brand from Germany They gave us the idea of the left-side steering wheel for example (on roads where we drive on the right-hand side) which was a great boost to car safety when overtaking.. After the second world war, the Audi factories landed on the East German side, were confiscated by the communist government who manufactured pre-WW2 design cars under the Ifa brand - some VERY old readers of this blog might remember that brand haha..

The Audi brand was reorganized and new factories were set up in Bavaria in Southern (parts of what was then West) Germany in Ingolstadt. And Audi was owned partly by Volkwagen and partly by Daimler-Benz (ie Mercedes Benz) and in the mid 1960s, Volkswagen bouught out Daimler-Benz to take 99% ownership of Audi. The reason was not Audi's cool new cheap light-weight very efficent car model it was making at the time. It was because the Volkswagen Beetle was so much in high global demand, that Volkswagen simply needed more factory capacity so they bought the Audi factories to make more Beetles.

But Audi did have some nifty nice little plans and one nice little mid-sized car we would recognize as the predecessor to the Audi 80 (in the USA, the Audi Fox). This was no luxury brand in any way, not comparable to say a Jaguar or BMW by any means, but a nice little family car selling in very modest numbers throiughout the 1970s without much real obvious market niche focus. They added a second, larger model (we would know as the early Audi 100/Audi 5000). The Audi purchase by Volkswagen also brought to Volkswagen ownership some motorcycle making and some high performance engineering for racing. And with that, Audi entered the 1980 world rallye series with a radical racing car, using four wheel drive called the Audi Quattro and a turbocharged engine.

The Audi Quattro utterly dominated the world rallying scene (one of its illustrious world champions would be Finnish rallye driver Hannu Mikkola) and as evidence of domination of any type of race, when they have to change the rules because of you, you know you've achieved the ultimate. That is what ended up killing the Audi/Volkswagen brand interest in rallye racing because the Quattro was too dominant and the rules were then changed to allow others to catch up. And yes, of course, Audi sold a 'street car' version of the Quattro for consumers as a sports car from Audi. using a less powerful turbocharged engine and the permanent Quatto four-wheel drive.

So from the early 1980s, Audi had a great racing reputation, and one of the only full-time four-wheel drive systems suitable for road cars (as opposed to military vehicles and serious off-road jeeps and landrovers). They were also mastering the early often difficult reliability of turbocharged engines. So Audi decided to use the Quattro image and build a supercar, not as a sports car, but to challenge the top Mercedes Benz, BMW and Jaguar models of the time.

They used their big model car (the 100 body) and gave it a futuristic streamlined new body shape - the prototype of what all modern cars look like, kind of 'jellybean' shape, with flush windows etc to minimize air resistance. Now compared to all contemporary cars, the Audi 100/5000 was iconic in shape, instantly recognizable. Then they used lightweight construction - alumnimun for much of the car, to reduce weight. They used a 5 cylinder engine where most contemporaries had 6 or 8 cylinder engines - but Audi added the turbocharger. Now, with the car significantly lighter than rivals, the smaller engine with turbocharger could deliver equivalent performance to a large luxury sedan. That meant savings in fuel costs - remember we are near the big oil crisis in timing so fuel economy was very important. And to top it off, the topmost model had one feature no other large sedan had - Audi's world champion technology of permanent four wheel drive, the Quattro drive. Instantly in any country with difficult, slippery driving conditions like say Finland, Sweden, Norway, Canada etc - the Quattro was the ultimate safety feature for any car. The top Audi also added all the luxury and safety items of the day such as anti-lock brakes etc. In Europe to distinguish this car from the basic sedan Audi 100, the new supercar was branded the Audi 200. In America both were part of the Audi 5000 model range.

Overnight, from being a mid-range mid-price ho-hum who-cares car brand, Audi had a supercar, a real Jaguar-beater, a real BMW-crusher, and yes, dare we say it, Audi was more high tech than the Mercedes Benz S-Class. The Quattro drive helped Audi achieve that status especially among car geeks and would soon spawn many of the rivals to also release four-wheel-drive versions of their premium/luxury cars.

Since then Audi has continued its association with Quattro, brough the four-wheel-drive concept to ever cheaper cars too and has also continued in racing, now doing LeMans style endurance racing with turbo-diesel powered Audi prototype cars that tend to win LeMans most years (and again this year). And yes, in America the brand almost died due to 'unintended acceleration' which forced Audi to rebrand the line of cars etc. But my point is, Audi was once a nobody in cars. Then it used a gimmick one might say, of particular racing and perhaps an opening and tech opporutnity nobody else saw, and established itself as a top racing brand. And using that reputation to turn mid-range mediocre Audi brand into a highly desirable and always performance-oriented luxury car brand, for the Volkswagen corporation. And Audi has fierce loyalty, commands a huge premium for its badge on cars built on the same platform compared to Volkswagen brand or Seat brand or Skoda brand etc. And after they had the top end of the luxury range covered, in cars that were very favorably compared to the 7 Series BMW, the S-Class Mercedes and other top cars (while in reality should be considered a closer rival to the 5 Series and C-Class etc), then Audi expanded its range mid-field and low-cost to expand Audi reach - while retaining the luxury brand, into lower cost cars. And last point, after that was done, Audi came with ever more expensive supercars - the Audi A8 (and its mad version Quattro based S8) was a step above in price and luxury into the top of the luxury cars; and then the Audi TT and Audi RS8 were steps into the sports and hypercar directions to challenge Porsche etc.

There is a story there for another tech company with fierce loyalty starting the letter A.. And sorry about the history lesson, I love the Audi brand haha..  

FROM iPHONE 4 TO NANO

We know Apple is working on the iPhone 4 replacement. We have not heard for sure when it will come, but the gossip expects the new perhaps iPhone 5 model (could be sold as iPhone 4G or iPhone 4S or whatever) to come about the end of September, to help generate a few hot days of Q3 sales, and then propel Apple to its best Christmas sales ever.

Where is Apple now? Its the most desirable phone brand by a mile. It is able to charge twice for similar performance compared to any of its major rivals and makes massive profits. Its iPhone mania is propelling Mac sales and iPad sales and its App Store is yet another revenue source as the world's most used smartphone app store market. Apple is poised to become the most profitable company in the world in this Q3 quarter and all looks peachy. Apple's brand loyalty is by far the best in the business, probably better than that in most other businesses too. What makes Apple almost unique among tech brands, is the fanaticism of its users, they actively seek to recruit non-Apple-users to become Apple loyalists. This didn't start with the iPhone, no no no. It goes back to the Mac. It is part of being indoctrinated, you then go - some might say like a cult - and recruit others to join in the religion - sorry, Apple experience. It worked iwth the iPod and iTunes, it still works now with the iPad. If Apple introduced a soft drink like say iCola, all Apple loyalists would buy it and then convert the rest of the planet to try it as well...  (and it would cost twice that of Pepsi or Coca Cola for a similar size haha)

This is all wonderful. Now whats all this we hear about you Ahonen pushing a silly Nano idea? Yeah, I meant to tell you about that. The Nano.. So, if we consider the Audi story, lets think of sportscars as the analogy to smartphones. As Audi came to sportcars and forever changed rallying, so too Apple came to smartphones and forever changed the smartphone. Before Audi, the major car manufacturers did not believe in four-wheel-drive for mass market cars, similarly before Apple, many had tried touch screens but the phone industry didn't believe in it. Today most successful smartphones have a touch screen interface.

Obviously my analogy is not perfect, as we can't exactly say that all cars of the future would be sports cars, or would have four-wheel drive haha. But note, if Porsche today were to tell us that they have 20% market share of sportscars (I honestly don't know what share they have), then the logical question is of course, wow, what is your share Porsche of all cars. So yes, Apple has almost 19% market share in smartphones, but what is its share of all phones. Ah. That is where the Apple story still falls short. The world sold about 370 million mobile phones in the quarter that just ended. And Apple's iPhone had a share of ... 5.5% ... out of all phones sold. That is very impressive for a new brand only 4 years into the industry - but remember, the Macintosh PC typically had about an 8% market share in the PC market for most of the past decade. This is still below even what the Mac was able to do. And Apple was smart enough to give the world more than one Mac model haha, so why restrict the iPhone to one model now?

Remember the iPhone grew market share, gobbled it up, by over to percentage points per quarter for the first two years, now the iPhone has been flat, managing just over one percentage point gain over the next two years in total. So something has happened. I say the iPhone 4 model has reached pretty close to saturation level of its price point. When Morgan Stanley did theri price pyramid for the global mobile phone market in 2009 (sorry I don't have more updated global numbers by any other analyst house released into the public domain, except my own consultancy numbers) they said the premium phone maket of over 500 US dollar phones was 2% of the global phone industry. Apple has clearly expanded that well beyond what Morgan Stanley calculated and proven that there is at least 3 times bigger market at the top, if Apple alone can take 5.5% of the top market with its iPhone costing 600 dollars on average (real price, after removing carrier subsidies). But look hoiw skewed the price pyramid is. The phones costing on average 350 dollars in 2009 were only 11% of the global market. And the vast majority of all phones sold worldwide - 87% of them - cost on average 100 dollars.

If your daily income in say an African country is one US dollar per day, you will never be buying a 600 dollar iPhone. Even a 300 dollar HTC or Blackberry is utterly beyond your reach. You will buy a 30 dollar basic phone by ZTE or Huawei or Samsung and perhaps dream of a Nokia entry-level smartphone if you some day become 'rich' in that context.

That is global market realities. Now, Apple can certainly sell into the rapidly emerging middle class in the Emerging World countries. But even there, a 600 dollar iPhone 4 is massively too expensive. But the Apple brand is very strong, they could sell in modest numbers at a 300 dollar price point, if Apple gave the market a cool new phone at that price point. I am not talking about last year's phone. The customers in Emerging World countries are not stupid. They are very price-conscious and smart buyers. Most of the Emerging World customers do not get handset subsidy benefits, so they are not fooled by the 'one dollar Microsoft Phone based smartphone' or the '99 dollar iPhone' etc. They pay full price for every phone, no subsidies. They also research carefully the real value of what they buy.

NANO SPECS FOR 2011

So here is my idea of the Nano version of the iPhone for 2011, to be sold from end of Q3 or early Q4, well in time for Christmas 2011 sales. First, I think it has to be physically smaller than the current line of iPhones since 2007. Why smaller? So that it is clearly, visibly, distinguishable from the big-brother model(s) like an BMW 3 series is clearly smaller than the 5 Series, the Audi A4 is smaller than the A6 etc. This helps maintain the desirability of the bigger more expensive model and prevents cannibalization. The iPhone Nano needs to be carefully marketed so, that it HELPS sell more iPhone 5 models, not cannibalize those sales.

Secondly, it has to be in some ways 'better' than the 'old model' ie the iPhone 4 that will be replaced this September by the iPhone 5. The Nano needs to be positioned as honestly new and a 2011 model, not just a smaller body 2010 model, thus quite obsolete by 2012, half way into its production run as the model needs to be sold until 2013 (by current Apple patterns, each iPhone model has been sold for 2 years). 

So think of this as creating a sports car model, from the sedan model. Like Audi did with the Quattro from the Audi 80, or how in more modern times, they created the Audi TT from the Audi A4 base model. You add some things and you remove some things. And you tailor it to that need. So lets start with the iPhone 4 as we know it today. Part of its premium quality in 2010 was the 'retina display' screen. That is good for premium iPhones, but it is expensive. I say lets make the Nano physically smaller, noticeably, smaller, but in a similar flat slate glass design like the iPhone 4. As the Nano is smaller physically, we can't fit a 3.5 inch screen, lets make it 3 inches. This gives us a far smaller physical size, and helps make the Nano fit in tight jeans etc far more comfortably. Because the sceen is smaller, it is cheaper. We remove the Retina Display - ie same normal resolution as the iPhone 3GS, we have a far cheaper display component to the iPhone Nano, and the side benefit, the screen eats up most of the battery life, this helps save battery life, we can fit a smaller battery to the Nano as well, further shrinking our size.

That makes it a dumber-cheaper iPhone and 'downgrades' it from 2010 specs to 2009 specs one might say - its like taking a 4 door car, and removing 2 doors to make it more sporty. Then lets beef up the engine. Rather than the 5 megapixel camera in the iPhone, lets make the new Nano with an 8 megapixel camera - the most powerful camera in any iPhone up to now. That is a clear upgrade that makes this a 2011 model, not just a repackaged 2009 model haha. And as Apple is rumored to have Near Field (NFC) in the new iPhone and for it to have a microSIM card slot rather than standard size SIM, do both of these as well to the Nano. Now it is very modern but also very distinct from the iPhone 4 - and critically, most of the components of the Nano would be cheaper than those going into the iPhone 4, so the Nano could be manufactured at far lower cost. When we factor in Moore's Law to the cost of the CPU and memory etc, the price of production of the Nano for late Q3 launch is close to half of what the iPhone 4 cost in June of 2010 - that means, that the profitability of the Nano would be about the same in 2011, as Apple had for the iPhone 4 in 2009. Thus any new customer sales (as long as is not cannibaliizing existing customers) of the Nano would boost Apple profits at the same rate (percent) as with the iPhone 4, and in absolute terms, if the Nano is priced at half point, it means for every 2 Nano's sold, Apple gets as much more profit as one iPhone 4...

Yes, we can do more specs but I think this is the main point,. the Nano needs to be physically different and in some ways 'obviously' less than the iPhone 4 (or iPhone 5) to justify why it is that much cheaper - but also - it needs to be totally modern for 2011, so it has to have some things the latest iPhone 4 did not have.

TARGET MARKETS

Who is the Nano for? It is not for you and me, reading this blog. We are hardcore smartphone users, we drool after the iPhone 5 and we can easily afford to pay 600 dollars for a new gadget to show off at the airport lounge haha.. No, its not for us. Apple will prepare an iPhone 5 for us.

The primary market for the Nano is middle class consumers who just can't afford to spend 600 dollars for their first Apple branded smartphone today. It is - the wealthier half of the middle class in the Emerging World countries. It is kids, students, teenagers in the Western World who really want the iPhone like the kids in class who have rich parents, but who really know their own parents can't afford it - or the kids themselves, really can't get savings enough to buy it on their own money. It is for the family members of current iPhone 4 or iPhone 3GS owners - who love Apple, who want to give an iPhone for their loved one as a gift, but that loved one is not really sold - so the current Apple owner wants to convert them via trial. The next Christmas gift, an iPhone Nano. Try it, honey, if you don't like it, we can always return it, etc.

A secondary market is the SECOND pocket of the current iPhone 4 owners. The really die-hard Apple loyalists, who love their iPhone 4, have bought all previous iPhones and have cabinets full of older iPods etc. For that person who loves the iPhone but feels sometimes it is simply too big and bulky, so like going out partying, and you don't take two phones (most people in the Industrialized world with a job, have two phones now) so you just want the slim small tiny nice cool phone - and yeah, having an 8 megapixel camera on the Nano iPhone, that fits the party needs just fine.. Note, this works particularly well for those who signed on for example on AT&T for another two years, but want a new iPhone in 2011.. So go to Verizon and don't take the same iPhone 4 you already have, take the Nano...

So the Nano would also help displace the SECOND phone from the second pocket, to add iPhone sales to already loyal iPhone users. Make sense?

THE OPPOSITE OF NANO IS..

Ok.. Now the other half of the story. If the Nano is poised for the under iPhone 4 price point at 300 dollars, like the cheap Audis, what of the top range. I think now Apple has clearly a possibillity to go like Audi, above its current model range, like the Audi S8 in luxury sedans or the Audi RS8 in sports cars etc.

I would actually split the iPhone model range not into two, but into three. I would do an upgrade to the iPhone 4 as we know it, upgarde the camera to 8 megapixels yes, add near field, do the microSIM slot, add more memory and faster CPU, that kind of stuff, and keep its price range in the 600 dollar range. Call this model the iPhone 4S (or 4G or whatever). Keep its form factor the same more-or-less. Upgrade the screen size to maximum you can fit onto the form, glass all from edge-to-edge, so up from the current 3.5 inch screen to about 4.2 inches, but also keep the retina display. With Moore's Law, this phone model should cost less to make and some of the electronics be smaller, so we can add some new features. Like maybe Xenon flash or HD TV out, etc. But position the iPhone 4S as Apple's new mid-priced smartphone and make it clearly better than the iPhone 4. In no way worse than the iPhone 4. This is the phone, that every loyal Apple iPhone owner today, will of course want for their next phone ... unless they've seen the iPhone 5.

THE iPHONE

What the iPhone as in 2007 was radical and there was nothing like it. Today many will claim an HTC or Samsung Galaxy will be more-or-less similar, some might even argue 'better'. So its time to go ballistic. Here is what Apple should do. The iPhone 5 - make it an honest hyperphone. Leapfrog the competition. So make this so much beyond what anyone has seen (outside of Japan or South Korea) that the iPhone again sets the stage for all others. LG is rolling out 3D displays that don't need glasses, and they have stereoscopic cameras (to shoot 3D video in HD, wow, that is cool). If LG can do that, of course Apple can do that too. But now think of the gaming world, what is Angry Birds on 3D? Then what of Samsung, they did the pico projector on the Samsung Galaxy Beam last year (I love it on my Beam). Why not put a pico projector into the iPhone 5? Suddenly 98% of rivals are instantly obsolete. And yes, do all the other things we hear about like Near Field and microSIM. Yes, add Xenon flash - and put in a 12 megapixel camera and make it waterprooft, that kind of stuff that superphones now have. And toss in WiMax ie what in the USA is called '4G' haha..  For its screen, like the iPhone 4S, the screen would be the full width glass about 4.2 inch screen size with of course retina display resolution.

But that combination? Nobody has that combination. It would mean that the iPhone 5 would have to be 'thicker' but not more so than say the iPhone 3G, so its still perfectly fine for most users. If you want small, get the Nano, but if you want the very best in the world - there is only one iPhone 5. What in future all phones will have, you now only get on this one phone...

And price it into the stratosphere! 1,200 US dollars without subsidy. On an AT&T or Verizon contract, price it in the 599 dollar range where still the monthly minimum payment is 10 dollars more per month than the contract with the iPhone 4 today..

THIS is the phone that everybody will line up for days to get. The loyal Apple army will show up and buy this iPhone 5 in unbelievable numbers. It will of course not sell as many as the iPhone 4S, and that won't sell as many as the Nano, but think. If you really can afford a thousand dollars for a new phone - and most in the West who have a full-time job can easily afford that, we pay much more for our plasma sceen TV or our last notebook when you add the software we bought for it as well -  haha - this is only about changing the mindset of what is the 'new black' in iPhone pricing. The lines will be long for the iPhone 5. And it will have distinctive features dual cameras haha, stereoscopic video to start - and be noticably bulkier due to the pico projector, etc. So all real Apple hardcore fans can immediately tell what is the superhot iPhone 5 and who is the rich dude who could afford it haha..

Like the S-Series Benz helps sell more C-Series; like the A8 helps sell more A6, like how BMW 7-Series helps sell more 5-series, the new iPhone 5 would help sell more iPhone 4S models. But all iPhone users would asipre to own the iPhone 5. In fact all smartphone owners, whether Blackberry, Galaxy, N-Series, Xperia etc - will now want the iPhone 5. Do it like Nokia once was famous for with the Communicator, or like how the S-Series is for cars, the showcase of the ultimate what can be done in phones now, what all phones of the future some day will have. Price it accordingly so that it is clearly a rich person's toy. And make tons of profits out of it and build Apple's brand leadership image deep into the decade.

That is how I would do it. That way Apple gains more sales, more profits, more loyalty, more customers and more future sales - now when the smarpthone is in hypergrowth stage. 

The Nano model is how Apple can expand its reach past the 5.5% market share it has in all mobile phones. During this decade, all mobile phones will go from dumbphones to smartphones. Appple cannot sit still. It has the chance to gain a bigger share in mobile phones, than it had with the Mac in PCs, but to do that, it has to build that Apple brand loyalty now, get the non-users to try the Nano now, so they can buy the next mid and premium price iPhones in years to come - and buy all other sorts of Apple goodies like the Macs, iPads and if they ever launch it haha, the iCoke too..

Thats what I think today in my little nanomind about some nanothoughts. But Apple obviously doesn't listen to anyone, they certainly won't be listening to me... 

Musings From the Sidelines Observing the Bloodbath in Smartphones Nearing Q2 Final Results

We have already heard from 3 of the 4 big analyst houses, on their count of the total size of the smartphone market for Q2. I await for the last of the 4, then use their average as my 'official' number and will be doing the market shares and analysis of each brand as usual when we get it (hopefully tomorrow or very soon).

But a lot is happenin' in the smartphones space in this Year 2 of the Bloodbath. So some musings in no particular order about some of our brands in the news (or perhaps, not in the news, but could be/should be).

APPLE, WHAT HAPPENED

So, Apple became the biggest smartphone maker in Q2, by a big margin too. Nokia the previous number one (was 30% bigger than Apple in smartphones just one quarter before) has been crushed. The whole range of Nokia branded smartphones is now 20% smaller than Apple's iPhone. And yes, we cheer and celebrate. But lets dig a bit into the situation. Apple is proud of its huge annual growth rates in smartphone sales. But the industry itself has also experienced hypergrowth. Who noticed what happened to Apple in the past two years?

In Q3 of 2009 - two years ago this quarter, Apple's iPhone market share of smartphones was 17.4%. That had grown to a massive.... 17.6% by a year later, Q3 of 2010. And now in Q2 of 2011, the iPhone market share had managed to capture a total of.... 18.6% (note that is preliminary as we await the final analyst count). But still. So in the first two years, Apple iPhone rockets to the stage, takes market share in giant gobbles, and captures one out of every seven smartphones sold in the world. While iPhone's market share growth had not been linear (due to releasing only one iPhone model per year, so Apple always has a kind of 'ladder' shaped growth curve) in its first 8 quarters, Apple grew 17 points of market share. Over 2 market share points per quarter, if averaged over the first two years. And then it stalled. In the next two years, Apple has grown less than one and a half percentage points of market share - in TOTAL ! Apple averaged that every quarter-on-quarter, now it can't match that level of growth even in two full years.

To put it in another way, the global smartphone market grew by (about) 8% from Q1 to Q2. And Apple's iPhone grew 9% from Q1 to Q2. That is essentially the same as holding steady to the market growth. Motorola and SonyEricsson did just about the same, SE grew 8% and Moto 7% from Q1. I don't think Motorola and SonyEricsson followers are superbly giddy about how well their brands are managing the growth in this era of hypergrowth in smartphones. But Apple, of course Apple is Apple, so no matter what Steve Jobs does, that is always perfection..

And lets not forget, Apple is the most profitable tech company in the world while Moto and SE are perennially tinkering around making losses, so it is NOT a fair comparison. But we should be honest, and Apple is growing unit sales in smartphones yes, and it has the best loyalty and customer satisfaction, yes, but is it growing faster than the market? No. The iPhone huge growth engine stalled two years ago and since then, Apple has only held station.

SO ACTUALLY NOKIA FELL

So, when we look at the Q2 results, while yes, Apple sold more iPhones than Nokia, the reason that happened was that Nokia sales collapsed. This is like the Marathon runners, where one is clearly far behind the other, then the leading runner has a muscle cramp and stops. And then the number two guy continues on his own pace and eventually passes to take the lead. This was not really a victory that Apple 'fought' to achieve, it was Nokia abandoning the race. So Nokia gifted this win to Apple (and let Samsung past it as well)

ITS THE 5, STUPID

So its all about the iPhone 5. What makes the above so special, is that typically in Q2, when Apple has before launched the new iPhone model in late June, they sold about 3 million new iPhones in the dying days of June for the Q2 sales. This year we had none of that. So imagine if there was a new iPhone 5, we'd have had long lines at all Apple stores in June, and rather than Apple selling 20.3 million, they'd have sold maybe 23.3 million new iPhones in the quarter. And they'd have about 21% market share. This is what Apple is now abandoning with the delays to releasing the new iPhone 5. Apple REALLY needs to get the new iPhone model (some say it will be called the iPhone 4G or 4S) onto the market before the end of September, to get some serious growth now and capture the opportunity.

AND WHAT OF NANO

So also, there are rumors of the cheaper parallel new model, possibly smaller in form factor, that could be called a Nano iPhonem to be sold at roughly half-price of the iPhone (ie 300 dollars vs 600 dollars in unsubsidised price). That Nano model would do Apple very much good right now, as Nokia is struggling and the market is shifting to cheaper smartphones. Android smarpthones are now appearing in the sub 100 euro price bracket. I hope Apple gets its Nano act together, a Nano was not the right thing to do back in 2008 (as I wrote on this blog) but it is now desperately needed to expand the fight that Apple can do - and it would not cannibalize iPhone 5 sales if done right, and it would expand Apple's reach to lower-cost markets and consumers, and add a ton of more profit to Apple, and build first-time loyalty to the Apple religion, sorry, brand, into the future, in the Emerging World markets. A Nano buyer today is an iPhone 6 buyer late next year haha..

WHATS WITH SAMSUNG

So, we had two analyst houses (IDC and Strategy Analytics) count 19 million Samsung branded smarpthones for Q2, but Canalys only gave Samsung 17 million, only edging Nokia there. And Sammy itself is being tight-lipped about their total sales. It makes me queasy. If they have honestly passed Nokia ie sold more than 16.7 million Samsung branded smartphones, surely Samsung should be celebrating this and kicking their dear rival of a decade-long battle, while its down. Why all the silence from Seoul? And how is bada doing? My calculations said we passed bada installed base at 10 million many moons ago, but no word from Samsung. The stats say Samsung grew 51% in just one quarter in smartphones. That is a monster quarter. But why no official word. I am a bit suspicious of those instances where the company won't commit to a number. It may well be less than the 19 million we heard. It might even be less than the 17 million. I wish they'd give us a number..

WHATS WITH MICROSOFT

But if Samsung has some news that might not be quite as good as we expect, Microsoft is having news that is worse than we expect. Microsoft partners sold 1.6 million Windows Phone based smartphones last quarter. Canalys now pegs the number down, to under 1.5 million - so Microsoft is truly losing not just market share, but losing actual unit sales, with its new wonder-platform. It may still be that even in Q2, Windows Mobile their obsolete platform outsells Windows Phone.

TWO HUNGRY CHINESE

And then we are likely going to see a switcheroo happenin' in the Electric Boogaloo. Two long-term veteran top 10 smartphone brands, Sharp and Fujitsu out of Japan, are likely to be dumped by two young and hungry Chinese brands, ZTE and Huawei. Huawei recently upgraded their 2011 smartphone sales target from 15 million to 20 million total units, that would put them safely bigger than Sharp or Fujitsu now.. ZTE is not far behind.

HTC TALKS THIRTEEN

And HTC tends to be very solid on its short-term guidance. They sold 12.2 million smartphones in Q2 and their guidance is now that they expect to sell about 13 million in Q3. Thats RIM right there, as their target, we will see a nice race to who ends up bigger in Q3. I think the trajectories are clear, HTC will certainly pass RIM but will it be in Q3 or not until Q4. It will probably be close.

AND NOKIA FALLS BELOW BOTH?

And meanwhile, the Nokia crash continues. In Q3 they will fall to below 12% market share, and HTC will definitely pass Nokia, the question is, how badly will RIM do, whether Nokia falls to only 4th biggest or will Nokia fall below RIM into 5th biggest smartphone maker by Q3. How quickly can we grow accustomed to thinking of Nokia as having under 12% market share in smartphones? Thats like what Palm had (well before the iPhone haha)

THE TROUBLED GIANT

And the Nokianews keeps getting worse and worse. Today Standard & Poors downgraded Nokia share price to BBB, a level two notches above junk status. And S&P gives a negative outlook to Nokia as well. And their thinking still assumes only modest loss in market share and some profits to be earned this year (dream on, that won't happen. Nokia will be giving us a profit warning shortly, all the signs say their business is worse in Q3 than it was in Q2 when the handset unit made its first loss ever).

Meanwhile Nokia is trying to be in the news with some other news. They bravely announced today that they are scrapping the current naming scheme as too complex and difficult for customers to understand. So what does Nokia think? It thinks them numbericals they be good, but them alphabeticals they be bad. Apparently if an E-series phone for 'Enterprise' is too complex to understand compared to say the N-series as Nokia's top consumer phones or X-series for entertainment phones, now we'll only get numbers. The first new phone, the Nokia 500 is launched with this principle.

And the news from all corners is bad for Nokia. Just today German newsmagazine Handelsblatt reports that Nokia, previously dominating Europe's biggest smartphone market of Germany, has fallen to fourth place there, as HTC has passed Nokia now also in Germany. The sales boycott of Nokia Symbian phones is strangling Nokia..

WE LIKES THEM NUMBERS. NUMBERS IS NOT CONFUSING

And yes. We on this blog celebrated when Nokia's new Chief Marketing Officer, Keith Pardy, came from Coca Cola, a genuine consumer marketing brand, and one of his first decisions was to change the cryptic Nokia naming scheme and introduce real names for Nokia phones. Unfortunately, Keith is no longer with the company. And now the engineers have taken over the asylum. If a 'name' has too many of them complex alphabeticalisms, then yes, a pure numbers-oriented naming scheme fits nicely with them engineering brains. Smart move Sherlock, going EXACTLY the opposite way of what the top consumer brand marketing guy told you to do. And is it just me, Stephen Elop is destroying everything he can find of Nokia heritage of any kind. So the N8 and N9 were flagship phones. No more. Next expect a 903 or an 872 or whatever number they come up with. I'm sure it makes sense in the first dozen phones but three years later, are you really going to remember and fondly recall your Nokia 781, or wait, was it the 872, or the 767 or the 794. And all this while Rome burns, eh? I am reminded of the phrase rearranging deck chairs while the Titanic sinks.

Well, its one way to be sure the Nokia PR people cannot even accidentially be promoting Nokia's hottest phone, the N9 (or its highly desirable cousin, the N950) but rather to further underline how obsolete they are, they even have the old-fashioned Nokia names. Stephen Elop is certainly an evil genius, he'd make a Bond villain proud for his psycopathical obsession with destroying Nokia.

Thats whats on my mind today. I will return with the smartphones market share analysis, all the numbers and rankings and my grades for the different brands in how they did in Q2 of 2011. Stay tuned.. 

Decision Matrix for Nokia - Compare Microsoft Windows strategy vs Symbian/MeeGo strategy, side-by-side, by all relevant metrics

We have looked at Nokia and the Microsoft Windows Phone smartphone strategy here on this blog now, and seen that it will under the very best scenario produce big losses to Nokia this year, and plunge what was Nokia's huge market share lead in smartphones into 7% by the end of the year. The Microsoft strategy seemed promising back in February, but since then we have seen that it is catastrophic and cannot rescue Nokia but will rather bring Nokia to the brink of extinction. We have calcuated that both in the short run and in the long run, abandoning Microsoft and going back to the previous strategy of Symbian+MeeGo is better financially, from a total revenues point of view, total market share point of view and total profitability point of view. The Symbian/MeeGo ecosystem is far stronger and the phones and components are more suitable for Nokia suppliers, designs etc. So lets put the whole shebang into a decision matrix. On the left, the item. In the middle column is the Symbian+MeeGo option. In the right column is the Microsoft Windows Phone 7 column. Lets compare these two strategies side-by-side

ITEM . . . . . . . . . . . . . . . . . . SYMBIAN+MEEGO . . . . . . . . . . . . MICROSOFT WINDOWS PHONE

Installed base . . . . . . . . . . . . 230M Nokia branded (biggest). . . . . 10M (smallest)
                                             (plus 30M+ more other brands)

New sales Q2 . . . . . . . . . . . . 17M (second biggest). . . . . . . . . . . 1M (smallest)

Average Sales Price . . . . . . . .mild decline (Symbian) . . . . . . . . . fell in half in 1 year
(of handsets)                          strong growth (MeeGo)                    to fall further by half in next year

Compatibility:
- with Nokia factories . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . no
- with Nokia suppliers . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . no
- with Nokia components . . . . .yes / yes . . . . . . . . . . . . . . . . . . . no
- with Nokia processes . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . no

Match existing Nokia . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . no
features & abilities

Migration path for developers . . yes / yes . . . . . . . . . . . . . . . . . . no

Brand image parent company . friendly eco-warrier . . . . . . . . . . . . the evil empire

brand image of OS . . . . . . . . . old / hot . . . . . . . . . . . . . . . . . . . hated (Windows) buggy, crashes

carrier partners . . . . . . . . . . . . NTT DoCoMo Japan (60M subs) . . none
                                              China Mobile (600M subs)

Carrier billing contracts . . . . . . 130 carriers (by far most) . . . . . . . none

number of apps . . . . . . . . . . . .50,000 (third most) . . . . . . . . . . . . 25,000 (sixth most)

app downloads . . . . . . . . . . . . 2.5B per year (third most) . . . . . . . miniscule (8th best)

Biggest App Store in Country:
China (biggest mobile market) . . yes . . . . . . . . . . . . . . . . . . . . . . no
India (2nd biggest) . . . . . . . . . . yes . . . . . . . . . . . . . . . . . . . . . . no
Indonesia (4th biggest) . . . . . . . yes . . . . . . . . . . . . . . . . . . . . . . no
Brazil . . . . . . . . . . . . . . . . . . . yes . . . . . . . . . . . . . . . . . . . . . . no
Russia . . . . . . . . . . . . . . . . . . yes . . . . . . . . . . . . . . . . . . . . . .  no

Suitable for low-cost handsets . . .  yes / no . . . . . . . . . . . . . . . . . no

REGIONAL COMPARISON

INSTALLED BASE BY CONTINENT
- Asia (3B people) . . . . . . . . . . biggest . . . . . . . . . . . . . . . . . . . . 8th
- Africa (1B) . . . . . . . . . . . . . . .biggest . . . . . . . . . . . . . . . . . . . . 7th
- Europe (700M) . . . . . . . . . . . .biggest . . . . . . . . . . . . . . . . . . . . 8th
- Latin America (600M) . . . . . . .biggest . . . . . . . . . . . . . . . . . . . . 6th
- North America (340M) . . . . . . 5th . . . . . . . . . . . . . . . . . . . . . . . 6th
- Oceania (30M) . . . . . . . . . . .  biggest . . . . . . . . . . . . . . . . . . . . 6th

NEW SMARTPHONE SALES BY CONTINENT Q2 OF 2011
- Asia (3B people) . . . . . . . . . . biggest . . . . . . . . . . . . . . . . . . . . 7th
- Africa (1B) . . . . . . . . . . . . . . .biggest . . . . . . . . . . . . . . . . . . . . 6th
- Europe (700M) . . . . . . . . . . . .2nd . . . . . . . . . . . . . . . . . . . . . . .7th
- Latin America (600M) . . . . . . .biggest . . . . . . . . . . . . . . . . . . . . 5th
- North America (340M) . . . . . . 6th . . . . . . . . . . . . . . . . . . . . . . . 5th
- Oceania (30M) . . . . . . . . . . .  2nd . . . . . . . . . . . . . . . . . . . . . .  5th

Language support . . . . . . . . . . 46 languages . . . . . . . . . . . . . . . . 5 languages

Countries covered . . . . . . . . . .190 . . . . . . . . . . . . . . . . . . . . . . . 30

MS Office support . . . . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . yes

open source . . . . . . . . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . no

Linux based . . . . . . . . . . . . . . no / yes . . . . . . . . . . . . . . . . . . . . no

advertising controlled by . . . . . Nokia . . . . . . . . . . . . . . . . . . . . . . Microsoft

Spyware controlled by . . . . . . Nokia . . . . . . . . . . . . . . . . . . . . . . Microsoft

Royalty free to Nokia . . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . . no

best regional market share . . . 70% Africa . . . . . . . . . . . . . . . . . . . 1% North America

Compatible with Nokia tools . . yes / yes . . . . . . . . . . . . . . . . . . . .  no
(Qt the developer tools)

compatible with building . . . . . yes / yes . . . . . . . . . . . . . . . . . . . .  no
apps for Android (using Qt)

Developer community size . . .  by far biggest (over 400K in size) . . .  mid-size

suitable for small screens . . . .  yes / no . . . . . . . . . . . . . . . . . . . . . no
(low-cost smartphones of future)

suitable for no-button design . . no / yes . . . . . . . . . . . . . . . . . . . . . . no
(touch screen phones of future)

pent-up demand today by . . . . big / huge . . . . . . . . . . . . . . . . . . . . . none whatsoever (can't give
consumers (if ignore reseller                                                              away even at $1 price)
boycotts)

tech press buzz . . . . . . . . . . some / huge . . . . . . . . . . . . . . . . . . . . some

partner manufacturer support . declining / growing . . . . . . . . . . . . . . . declining

carrier boycott . . . . . . . . . . .  yes / no . . . . . . . . . . . . . . . . . . . . . . . yes

carrier boycott cause . . . . . . "end of Symbian" / none . . . . . . . . . . . . "Microsoft bought Skype"

carrier boycott reversable . . . . yes, if end Microsoft partnership . . . . .  not reversable

stock market under Elop: . . .  first 4 months up by 11% . . . . . . . . . . . second 4 months down by 57%
                                            (This was when Nokia's formal strategy   (this is from Feb 11, after MS
                                            was Symbian+MeeGo and Nokia            strategy announced and Nokia
                                            smartphone sales up, ASP's up and       sales collapsed and smartphone
                                            profits up 68% !!)                                   profits turned into huge losses)

stock one-day jump . . . . . . . . big bounce due N9 + MeeGo . . . . . . . . instant crash due Microsoft WP7
                                             (bounce killed by Elop showing WP7)

phones available in mass . . . . now / Q4 . . . . . . . . . . . . . . . . . . . . . . Spring of 2012

phones available to launch . . . now / now (4 models) . . . . . . . . . . . . .  December 2011 (1 model)

launch phone markets . . . . . . global / global . . . . . . . . . . . . . . . . . . . Limited to few countries

Factories used to make . . . . . own / own . . . . . . . . . . . . . . . . . . . . . . Taiwanese factories (while Nokia
                                                                                                         factories sit idle)

Volume sales support . . . . . . yes / yes . . . . . . . . . . . . . . . . . . . . . . . no
Nokia featurephone sales

Historical carrier trust . . . . . . strong / strong . . . . . . . . . . . . . . . . . . . very distrustful

OS development in control of . Nokia . . . . . . . . . . . . . . . . . . . . . . . . . Microsoft

Of big 5 'dumbphone . . . . . . . Best, eggs in 2 very strong baskets . . .  Worst: all eggs in 1 worst basket
makers' strategies migrating    (even Samsung strategy less strong)      (even Motorola strategy stronger,
to smartphones, Nokia would                                                              because at least Moto with
have..                                                                                                Android)

Near term potential (2011) . . . stop market share crash, return to . . . . . market share collapse, make
                                             profits                                                   losses

Midterm potential (2012) . . . . recover to about 20% market share . . . . . market share bottom 6%, try
                                            while reasonable profitability                     to recover to zero profits

Longterm potential (3 year+) . hold about 20% market share, make . . . . recover at best to 8% market
                                            reasonable profits, control own destiny      share, tiny profits, slave to MS


That is what the strategic options look like. The items are not in 'order of importance', more just a listing of what I think are relevant points to consider if you were to decide between two platforms. It is pretty obvious that on EVERY item, the Symbian/MeeGo option is better than Microsoft Windows Phone. On every item, today, and in the future. Handsets, carriers, apps, app stores, ecosystems, developers, unit sales, installed bases, components, profitability, you name it. Going from Symbian/MeeGo (as we now know the full Symbian truth from Q4 and have seen MeeGo and the N9 after Elop has deliberately been hiding it from us) to Microsoft WP7 is the decision of someone who is soft in their head. Microsoft in fact. Because the Microsoft strategy has no redeeming qualities, it cannot in any way outperform the Symbian/MeeGo strategy - and because of one other thing - Nokia HAS to release 10 more Symbian phones to sell in the months from August of 2011 to December of 2011, therefore Nokia will destroy itself it if continues on the mad Microsoft path. Its time to admit that the Microsoft misadventure was a failure and get back to Symbian/MeeGo. And now, every day Nokia waits, it costs Nokia another 10 million dollars of abandoned profits. Nokia cannot afford to wait.