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« Smartphones Form Book 2012 part 1: for Samsung it is 'Leadwatch' | Main | The Convergence of Megatrends? When All Roads Lead to 'Mobile' »

December 30, 2011



You say you don't want fragmentation, but you then tell Apple not only to introduce a nano (a possibility), but also a QWERTY version? Sorry, I don't think you "get" Apple. A slider keyboard doesn't make for a good aesthetic, and I don't see that happening as long as the current management team (all hand picked by Steve Jobs) is in place. Apple has never been a company to produce focus group-designed products.

You mention Porsche as an example. Look what happened to them when their growth aspirations got too big. They expanded their product line beyond recognition, then tried to swallow up Volkswagen and wound up getting swallowed up by them instead. It would be better for Apple to stick to a premium strategy and continue occupying the high end of the market rather than chase market share growth for its own sake.

Apple is more likely to expand into new markets than it is to expand within an existing market. The Mac is a perfect example. They have refused to sell a full-featured PC for less than $999, no matter how many "experts" have told them they should make netbooks or compete in the sub-$499 PC market. Steve Jobs expanded Apple's reach not by building cheaper PCs, but by building music players, then phones, then tablets, finding a natural market share for them and then moving on to the next big thing. Likely TV will be the next move.

What Apple does 5, 10, or 15 years from now is anyone's guess. That's the strategic challenge for the Board and the new management team. However, for the next few years, I think we'll see the move into TVs, while seeing the iPhone settle into its current niche. We'll also likely see the phase-out of the standalone iPod line. iPad will be the wild card. It won't continue to have a majority of the market, but it will be interesting to see whether its sales and market share patterns more closely resemble those of the iPod or iPhone in years 3-5. I'm guessing it will follow the iPhone. The lawsuits were there to buy them one more Christmas season on top, which they did.


Also, where is your proof that Apple had a radically new iPhone 5 but delayed it and quickly came out with an iPhone 4S at the behest of the carriers? You say this all the time, but with no proof. The iPhone 4S antenna was revealed in January 2011 by some of the rumor sites (none of whom realized until afterward that's what it was). Also, the 4S was a logical extension of the CDMA iPhone, since that's what it was based on. I'm guessing the delay was for several reasons. First, the iPhone 4 was still selling reasonably well. Second, iOS 5 wasn't ready (Apple has slipped on OS X releases in the past, so slipping on iOS releases isn't unusual). Third, the virtual SIM idea was just recently patented (it usually takes some time for patents to appear in shipping products), and it isn't dead at all - Apple has it ready for when the carriers will finally take the plunge and the ITU endorses it as a standard. Fourth, Apple pushes the envelope with carriers (you called it a "carrier-hostile" attitude yesterday), and so is more likely than anyone else to get done.

Also, you are wrong about the CDMA version having no impact on market share. Remember, the CDMA version is most relevant to the US market, since the rest of the world went with WCDMA. Apple's market share has ticked upward in the US since it added Verizon and Sprint. The latter in particular has made a big push for it here. It was a necessary move to protect their home turf since there is no LTE voice standard yet and CDMA will be around for quite a while.


I don't think you are right about the Nano. Yes, I read the posting and yes your idea of new-Nanos rather than unofficial cheap-last-year-Nano is better. But does Apple need to be brilliant? I think it might just be going with the quick, it's good enough approach. Apple is very secretative and we don't know much about what other issues might be affecting their choice to do this cheap-Nano version.

What we do know is that I could by an iPhone 3GS on contract (in UK) as cheap as last year's Nokia N8, or even cheaper than this year's Lumia. As the advert says "if it's not an iPhone, then it is not an iPhone". Apple may well have got it right, certainly good enough.

Happy New Year!!!

Kalle inventor of many things, accomplisher of nothing

I don't think Apple was first to "invent" virtual SIM cards even though they filed a patent for it. Software implementations of USIM & SIM elements using secure element have been around for quite a while.

Apple has been stagnant in their OS development, while others have caught up in usability, which in iPhone is pretty much nice transitions and animations, they have innovated a lot of new elements into their UI. My year old iPhone 4 even with iOS 5 can't compete with my daugthers new Android and a 100€ Nokia doesn't look so bad considering the money saved.

Vocal minority exited about mobile phones. Most people ask around, go to store and buy what they've heard is good. Tommi is right, if the price is 600€ and your cut off is 200€, then all of a sudden those smooth animations will more irritate than dazzle you.

Hardware innovation is constrained by physics. Everybody can get pretty much the same components. So there is very little Apple can do to really make a difference in that segment. People foam about A4 processors, but they are built by Samsung and they will sell similar chips to who ever wants them. Retina display is nice, but basically it is just a sharp display. Again can be bought off the shelf.

Only thing left is design. Apple has decided, that we need to all have same design in our pockets. The trend has been towards ugly phones recently, but is it going to last?

I think Steve Jobs illness and passing damaged Apple ability to execute their strategy more than we believe. If you think what happened with the iPhone 4S (I don't know if you buy the iPhone 5 virtual sim thing). The phone got newer processor, some could services that I haven't bothered to use and third party app siri. iOS5 gave a notification dropdown copied from Android. That is hardly a bold move in Apples part. When the big dog was out, the little dogs started their turf wars. It is yet to be seen if a coherent strategy, which can be executed efficiently emerges from Cupertino. Apple is at the cross roads and can snatch defeat from the jaws of victory. Just like we've seen happen before.

David Doherty

First I completely agree that this would be a brilliant strategy for Apple but I get the feeling that they haven't yet maxed out on the potential of existing customers.

Just as we don’t see brands like Rolls Royce heading down into the larger ‘premium’ market before they’ve capitalised on the luxury market they have already with bespoke accessories, financing, servicing, warranty packages, approved used sales, etc, etc I think we're going to see Apple explore these opportunities to grow first.

I think we will see Apple take a few more little bites out of the operator revenue pot before they go down market as the features they've already added (eg. billing, iMessage and Facetime) and customer loyalty places them perfectly to supplant operator relationships.

PS All the very best for 2012!


Tomi: There are so many things to comment on here that it is hard to know where to start. I will start with this:

I know you are familiar with Horace Dediu's work at, so I am surprised that you do not even mention the theory that supply (i.e. production capacity) is the real limiting factor for the iPhone. Dediu and others argue that Apple sells as many iPhones as it can make. If so, then the issues is not that they need more models, but that they need to increase production (unless, of course, a low end model would be easier for Apple to produce in much larger quantities).

You mention how Samsung increased it's market share this year. I think a simple explanation is that Samsung has much greater production capacity to make smartphones (though I wonder if they face limitations on their flagship devices), certainly much greater than Apple. Until Apple solves it's production constraints, talk of expanding the product line may be pre-mature.



Similarly to other commentators I think that you are dead wrong on nano iP or QWERTY model. Would they increase Apple marketshare? Yes. Would that increase Apple profits? Hell, no.
To produce other models they would have to significantly invest in new factories, r&d, etc. and they could sell those new models with margins about the same as still produced 3GS or 4. There is no real monetary incentive to produce more models.
Situation of Samsung is different because Big S owns many factories on various levels of sophistication (similar to Nokia). To fully utilize them it *has* to produce various models.



I see two issues that your analysis does not tackle in depth.

1) Your viewpoint is quite terminal-centric. However, Apple devices get their true strength from other pieces of infrastructure and services: iPod from iTunes, iPhone from AppStore, iPad from iBooks, Mac from iCloud (maybe). Let us face it, wthout these services, Apple terminals would be drab affairs -- no matter the good looks (the sheer limitations on the iPhone regarding connectivity make it much less useful without apps than Android or Symbian devices).

Given the fact that Apple continues to develop its service infrastructure (Siri, and the rumoured Apple TV stuff), this should weigh heavily in the analysis, but you do not delve on it.

2) There is a difference between being a manufacturer of select products, and being a mass-producer. This affects a number of aspects, but maintaining quality (there are enough issues with the iPhone 4S already: battery, SIM card, speaker) is a major one -- with all implications in terms of image, after-sales support, and profits.

Do you really think that Apple can become a mass-market manufacturer without deep implications on its organization and business practices?


I think the long-term success is going to be decided by apps. At the moment, Apple is doing very well, I would say that iPhone and Android are about equally strong on apps. But Android is gaining fast -- not only in phone market share, but also because they got a bigger part of the smartphone-beginners, who are only just starting to learn what apps are about. Long-term, Android's strength in apps is going to match its share of the phone market.

We've seen how the Macs have been struggling since their birth. Always having too small a part of the market to get anywhere near the diversity of programs that DOS and later Windows had. Apple's success in other markets has helped the Macs in recent years, but Windows PCs are still the default choice.

Apple desperately needs to avoid a similar situation on iPhones. They need to keep their strength in the apps-market at a level of "main player", rather than "niche". And I think that a 20% phone market share is going to become very close to that tipping point. They need to get to 25% to be really safe. And I quite agree with Tomi that product differentiation is the only way to get there.


How about comparing Apple's growth on mobile phones to the complete market of the phones? Including smartphones and dumbphones? In that chart the growth of the iPhone has not stalled at all. It's just an illusion of the markets transition from dumbphones to the smartphones.

About the iPhone Nano. You seem to be confident that there should be a smaller screensize for that. Why? The cost of producing two different sizes is bigger that making just one size. On the software side that would also fragment the market too much. The cost of including 3.5" screen instead of 3.2" is not an issue if we look at the component costs. So 3.5" screen would just be a sensible thing to do if Apple decides to make a iPhone Nano. If the screen would be a smaller one there should be some other advantage to it. Not just the cost savings of the manufacturing.

NFC - does it just work? Where is the Apple way of doing things in that? It just seems that this technology is not yet matured enough. Users should not have to worry if there is wide enough support for it. If that is done as Apple does things.

Ben Eng

Tomi, maybe I am looking too far ahead into the future in this forecast, but I am thinking Apple or another mobile device vendor needs to work with enterprise software vendors to provide a compelling enterprise collaboration story that will accelerate the obsolescence of traditional office work environments and a rapid shift to take advantage of a mobile always-on work force that uses smart phones and tablets instead of desktop/laptop PCs and desk phones. See


First of all let me say this, an analysis really well done, i vliked your samsung one and im looking forward for more ...

Regarding apple i still cant loose the feeling that all their products are not premium, for me its china made stuff with a really large chunk of profit for the inventor

im not saying other goods are not china made stuff but compared to the price/value ratio i find apple to be a scam literally

also i dont know how about other people but the closed nature of the ecosystem with no option to adjustments-cross platform connectivity without jailbreaking it, is turning me off...

other than that i think you might be right with your diversification forecast for apple ... we shall see

ill wait for those cold winds of nord and see what they bring me :)


Hi Tomi,

I agree when you said that apple could not gain market share because they don't have 2 price point. By having only 1 product / 1 price point, Apple set it self in the "I'm Premium", but I also think that this is the kind of attitude that apple want. Apple want to differ them selves from the rest of the pack, and want to have a stuck up kind of user. Apple think that if apple were producing a lower end of iphone, and getting ordinary user, it might make the brand less premium.....

I also think that you were forgetting to write that other player (android) have catch up with iOS too. So, in the last 2 year the battle were harder for apple. For example, Samsung Galaxy Y sold for around US$ 130 non-contract, it's one of the most successful phone of 2011.



Even though you have been told you were wrong by myself and many others about two points, you still insist on repeating them.

1. You were not the first to suggest that Apple combine the iPod and the phone and create an "iPhone" (the pundits were even calling it that). In an interview in 2003 with Steve Jobs, Fortune magazine was asking about whether Apple would introduce a phone. Not only that, *everyone* knew that Apple was trying to get into the phone business. By the time you recommended the "iPhone", Apple was already partnering with Motorola for iTunes.

2. You are wrong about the virtual SIM delaying the iPhone 4S. Apple has *never* released a new phone without a new OS and has always released the developer preview of iOS about three months before they introduced the new phone. iOS 5, iCloud, iTunes Match, Siri and the accompanying back end services were not ready by March for developers, some pieces were not even ready in October.

Tomi T Ahonen

Hi all, thank you for the comments, I'll reply in small sets

Hi KPOM, Nano, Kalle

KPOM - first, it seems you do agree that a Nano model would make sense? But yes, about the QWERTY - I said its unlikely for now, I do think in the long run it will happen because Apple is leaving so much money on the table. And your argument why my Porsche example is bad is pretty hilarious. You suggest a company should NOT grow so much that it could afford to buy rivals? What is Apple then doing right now with all that cash in its vaults? Why not drop the price of the iPhone and iPad etc and not rake in the profits. You'd want Apple to turn into a not-for-profit charity perhaps? Come on, that Porsche mis-managed its Volkwagen take-over in no way invalidates the decision to expand the product line so much that they generated vastly more profits? (unless you believe in communist/socialist market philosophies obviously where profit is seen as inherently evil haha)

I do agree with you, that Apple will do what it wants. I do think however, that the comparisons you make do not invalidate the Nano strategy. The way I have described it, the Nano would provide minimal redesign of mostly existing designs, bringing mostly last year's model into a slightly smaller casing, adding one or two new features form this year's flagship - and selling that at a far more desirable price point to the same profit margin as the current line of iPhones (and the QWERTY variant actually at higher profit margins when it comes..)

On the iPhone 5 no SIM slot model. I have no 'proof' for you. I report what I know and what I hear and you can believe me or not believe me. I have no proof. I have given you EVERYTHING I have found, including reporting when the idea was first suggested by Apple - and my immediate comment that this will infuriate the carriers (as I as proven right) and that Apple did then redesign its iPhone and delayed its launch. You can believe me or not. Until someone from Apple retires and writes a tell-all book we will probably not have 'evidence' of it haha. But there is no plausible alternate theory that fits the facts why Apple would abandon 3.6 Billion dollars of iPhone sales - especially when it was running against Samsung and the Galaxy was eating up iPhone market share.

Nano - good point but note, selling an older 3GS or iPhone 4 model is not incompatible with my idea of the Nano. A year later, the Nano would have its newer variant again (Nano 5 or whatever) and the previous Nano would be selling at even lower price than the older 'big' iPhones.

Kalle - very good points, thanks. I agree the coming times will be most challenging for Apple and a test of the new management. I think many of the strong rivals were caught napping when the iPhone appeared (starting with Nokia) and Samsung so far has been strongest to react to the iPhone challenge and the Galaxy series is stealing Apple's thunder. Apple will respond and I think the Nano is a natural step into that path. But more strong rivals are taking the fight more seriously (Nokia failing at it, but you can say they are trying, just unfortunately Elop is not up to the task). Look at Sony for example, buying out Ericsson and deciding to go full steam to smartphones. Apple may soon find it is facing a war on many fronts..

Thank you all for writing, I'll return with more comments

Tomi Ahonen :-)


You missed my point about Porsche. They wound up diluting their brand and grew faster than their management could handle, taking risky bets with shareholder money. That's why they wound up being forced to sell out. I don't want Apple trying to turn itself into the next mass-market producer. They would be out of their league. That's also what got them into trouble in the 1990s (commoditizing their portfolio).


"But there is no plausible alternate theory that fits the facts why Apple would abandon 3.6 Billion dollars of iPhone sales - especially when it was running against Samsung and the Galaxy was eating up iPhone market share."


I gave you a "plausible" alternative. Apple is not just trying to sale a mobile phone. Apple sales a platform -- software + hardware. Getting iCloud right especially after the disastrous MobileMe roll out was more important than just releasing a phone. For iCloud to work properly, everything had to work together simultaneously. It involved creating a data center, updating Pages, Numbers, and Keynote for the Mac, iPad, and iPhone, transitioning MobileMe to iCloud, updating iOS, securing licensing agreements with all four major music distributors in the US for iTunes Match and the major TV producers to allow re-downloads. iOS had to not only be updated to iOS 5, they also had to re-engineer their entire iOS distribution strategy to allow incremental over the air updates.

How was Apple going to release the iPhone in June without providing a developer preview in March?

There were never any leaked part designs that showed a different phone was being planned than the iPhone 4S.

Tomi T Ahonen

(more replies)

Hi David and Darwin

David - very good point and there is an alternate and viable stategy for Apple, which is to explicitly not pursue a world domination strategy in smartphones and focus on keeping the 4% or 5% of the world's phone owners, their high-value customers, very happy. And serve them all sorts of premium goodies. Yes, the Rolls Royce strategy. But that is not what Apple is communicating. It is trying to distort the world view that the iPhone (and iPad etc) are taking the world over. That was a feasible story a few years ago, it is now being compared to reality and that diagram I show, with the plateau'ed iPhone market share, is the picture Apple does not want.

If Apple wanted to pursue this strategy, they need to communciate it clearly so their investors are not disappointed to see Android shooting past the iPhone in everything. But the Nano strategy is perfectly viable to restore the growth curve and I think Apple should pursue it to take 10% rather than 5% of the total market and thus be 50% bigger as a tech company haha..

But on the carrier vs Apple battle ie iMessage for example - that is a very dangerous game. That will anger carriers and Apple should move very cautiously there. What Apple cannot sustain, is a sudden global sales boycott against the iPhone.

Darwin - good point about supply issues. I hear the argument, it may be a factor in some cases but most of those same components go into rival phones so its then a market share battle (back to my illustration in the diagram again).

Then on production constraints - actually Apple has the least production limits because Apple does not use its own factories. Apple can give its production contracts to other third-party phone makers and Foxconn itself (Hon Hai) is nowhere near peak capacity - they are adding production capacity far faster than Apple is growing. But Hon Hai are obviously supplying several other manufacturers too.

Tomi Ahonen :-)

Tomi T Ahonen

(more replies)

Hi vvaz

You make a good point that the profit margin on my proposed Nano model is probably about the same as selling last year's models like right now selling iPhone 4 and 3GS. But my point is that for most consumers, the 3GS and 4 are 'last year's models' and for most regular consumers, especially who are buying not their first smartphone - they want 'this year's model' - they know the phones grow old fast, why buy an obsolete model now. Look at them, you'd go back to 3 mp cameras for example while new phones today have 8 mp or 12 mp or 16 mp etc. The rate of tech advance in mobile is faster than any other consumer tech so a one year old smartphone is severely outdated in some ways, two years old is often too old.

But my Nano suggestion is that there are totally modern specs on the phone, including something (a few things ideally) that are BETTER than last year's model such as if this is the time that Apple launches NFC in 2012, then both the main 'big' iPhone 5 and the 'Nano' would of course then have NFC. This type of modernization would make the Nano far more desirable than last year's models. And of course when next year's Nano comes out, this year's Nano is then the old model and sold at a further discount (while still making healthy profit margins, just like the 3GS and 4 sell today)

Thank you all for the comments

Tomi Ahonen :-)


". But my point is that for most consumers, the 3GS and 4 are 'last year's models' and for most regular consumers, especially who are buying not their first smartphone - they want 'this year's model' - they know the phones grow old fast, why buy an obsolete model now."


I hate to sound like a broken record -- but you still don't get it. Apple sales a platform hardware + software. The "obsolete" iPhone 3GS that came out 2-1/2 years ago can still run the latest OS. There are Android phones coming out now that will never run the current Android OS. In the US, the iPhone 3GS is still the second best selling phone -- only behind other iPhones.

Before last year, you always wanted Apple to pursue the Nokia strategy of a 10 or 12 different phones -- where did that get Nokia?

"If Apple wanted to pursue this strategy, they need to communciate it clearly so their investors are not disappointed to see Android shooting past the iPhone in everything"

Investors don't care about market share, they care about profitability. App developers don't care about market share, they care about which platform generates the most app sales (iOS is 4 to 1). Carriers don't care about market share, they care about which customers bring in the highest ARPU (iPhone customers by 50% according to Sprint's CEO).

"Apple can give its production contracts to other third-party phone makers and Foxconn itself (Hon Hai) is nowhere near peak capacity - they are adding production capacity far faster than Apple is growing. But Hon Hai are obviously supplying several other manufacturers too."

"Production capacity" is more than just assembling. It also involves getting components. Only Samsung is producing more smart phones than Apple, but Apple also is producing iPads and iPods. Why else would Apple not expand it's carrier network? Do you really think that there is any carrier in the world who not want the iPhone? The iPhone still is not available on the worlds largest carrier.

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