Subba’s Serendipitous moments

February 11, 2007

Is Apple overly optimistic with the iPhone?

Filed under: Business,Innovation,Model,Strategy — Subbaraman Iyer @ 10:10 pm

It’s been a month that Apple announced the iPhone, amidst a lot of expectations. Steve Jobs took the world and especially his fans by storm in his inimitable way. Everyone has talked about the “cool” factor, the visual voicemail, and the great user interface, for which Apple is really famous. However several doubts remain about whether Apple will indeed ship 10 million phones in 2008? What’s the iPhone’s long term future?

Will Apple create the same success with iPhone, as it did with the iPod?

The iPod succeeded partly because the existing incumbents in the media player segment was weak. It also introduced iTunes and it succeeded surpassing everyone’s expectations as it was just coming out of the Napster era. it was just the combination of the iPod-iTunes that made it a great success. But now, will Apple create killer applications that will provide the much needed ARPU for the mobile operator and how will the sharing of such incremental revenues be effective? Hence, clear challenges ahead!

Will Apple beat the competition?

The Big 4 (Nokia, Samsung, Motorola and sony Ericsson) account for 75% of the billion phones shipped in 2006. Even in the Smartphone segment (about 5% of the overall phone market), Apple has to contend with the likes of Nokia, RIM, HP, HTC, Sony Ericsson who together hold more than 80% of the Smartphone market. They are no ordinary pushovers, having known the market, channels, and the consumer for a long time. Hence interesting wars ahead!

Is iPhone all that revolutionary?

  • Great user interface and feature integration of MP3, WiFi, phone — YES
  • Visual voicemail — YES. (Is that revolutionary?)
  • HSPDA,UMTS, VoIP, 3G , GPS — NO.
  • Expansion slot — NO (comes with built in 4GB and 8GB memory. But dont’t people want more with falling memory prices?)

The iPhone will hence find it difficult to drive traffic to the mobile operator’s network and increase the data usage. Hence it remains a seek sexy 2G phone and simple applications.

Is Cingular good enough?

Cingular has a 5 year contract with Apple, and Apple has managed to get Cingular to re-engineer its infrastructure to accommodate the iPhone’s visual voicemail. An optimistic forecast is that just less than 4 million of the 60 million subscribers in 2008 (Cingular’s customers) constitute the total target market for iPhone. Hence Apple will have to woo other mobile operators. Can it woo 400 other GSM operators across the world to change their infrastructure if it indeed sees the iPhone as a global offering ?

Is iPhone a consumer phone, a business phone or just a ‘cool’ toy?

  • A Business phone — NO (RIM / Blackberry is deeply entrenched for the typical road warrior segment and there are other contenders as well)
  • A Consumer phone — YES (But why pay so high a price)
  • Cool Toy — An emphatic YES and an expensive one at that ($ 499 for the 4GB model and $599 for a 8GB model). Apple fans will definitely like to have one, though the price would be a deterring factor.

Hence, interesting times ahead for Apple as it takes on a whole new set of competitors in a completely new market.

_______________________________________________________________

As an aside, I heard this story from an old Apple fan about the history of desk top publishing and hence can’t vouch for it accuracy.

When the original Mac was being released there was a big discussion and debate about its positioning and all options were being considered — including selling to enterprises, extending its hold on education (where it was strong) and so on..! Steve Jobs framed the debate brilliantly — Instead of having a 5% market share in a large market, he wanted to look for a market where he could have a 95% market share. The search began and ended with the creative market and with a whole new set of tools like the Page Maker, the laser printer, the desk top publishing market was born.

  • So, with the iPhone is Apple trying to play in a crowded market or create a niche market?
  • Can it rest content with creating a niche market after it has created a mass market with the iPod?

Over to you, Steve !

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