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The Unconventional Apple iPhone, and What Really Matters

Posted by Frank Gens on January 12th, 2007

[Randy Giusto, who leads IDC's Mobility, Computing, and Consumer Markets research, just posted this piece for clients on idc.com. I liked it, and got his permission to post it here. - fg]

Over the past two days there’s been a whirlwind of opinions, speculation, and additional news around Apple’s iPhone. As I pointed out on January 9th Cisco has more than an opinion; it has a lawsuit. But the focus here is not to argue over the name and how that plays out, but challenge the conventional wisdom that has appeared in the press and in Wall Street comments since Tuesday, as Apple and its iPhone are anything but conventional.

There are a number of firsts in Apple’s announcement to point out. It’s the first major device announcement made before an FCC filing and the first with multi-year operator exclusivity. It’s also the first phone with an accelerometer, with no front buttons, and first to be all fingertip controlled. Again, it’s an unconventional approach from an unconventional company. There is no voice dialing, which should have been included, so true hands-free operation could be an issue as states in the U.S. mandate it. Sure there are execution hurdles ahead, but what groundbreaking product doesn’t have them? Yes 10 million units in 2008 is not a slam-dunk; things have to fall into place.

What matters is that it’s consumers who are going to drive adoption of devices like these, not operators. And it’s high time for everyone to realize that.The noise around the iPhone’s high price points and comparisons to Motorola’s RAZR and LG’s Chocolate phone pricing when they came out is just din. These phones were heavily subsidized quickly, were tied to operators’ walled gardens for content, and suffer for it. Speculation is that consumers may pay up to $80 a month for an iPhone data plan, but why? Most critics are missing the boat. You only need a cellular connection for making calls, email, and browsing, not for content acquisition – the iPhone accesses iTunes content via the iPod connector or a WiFi connection. Outside the U.S. consumers are used to paying more for phones as they are less subsidized, if at all. So I was surprised that Apple did not line up any non-US operators at launch, particularly in Europe and Asia where phones are getting bigger thanks to video and TV, and more expensive.

Handset vendors have been upset with U.S. operators because they will not subsidize and carry their high-end smartphones. Vendors like Nokia are starting to go direct to retail with unlocked GSM phones to counter this. Looking at what’s available on eBay alone shows you the trend as U.S. consumers are fed up with their lack of choice, and with the control exhibited by operators. Apple is the bull in the China shop here and Cingular is playing along. Also, note to Nokia: your legendary battle with operators over the UI has been side lined based on what was released on Tuesday.

What many industry players such as Motorola and Nokia but especially the operators don’t have, is Apple’s rabid user base. The iPhone is not a normal play. Consumers are getting increasingly fed up with the normal play. iPod was not the first to market music player. First to market does not matter. Operators may be unlikely to give Apple special treatment but what matters is that it’s consumers who are going to drive adoption of devices like these, not operators. And it’s high time for everyone to realize that.

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2 Responses to “The Unconventional Apple iPhone, and What Really Matters”

Thanks for posting this article, is very interesting and it takes up a big issue.

Having experience in direct sales from a phone manufacturer in Europe, I can’t do anything but agree with you, customers will drive the demand and knowing Apple’s independence, Operators will have to adapt themselves. This will be a great change for the phone industry (not only the mobile one).

However, there are also some questions that you’ve not considered in this article, iPhone is a EDGE phone and in Western Europe almost every country already have full cover with UMTS. Being a Mac user, and knowing their way of thinking, I tried to figure out why they launched a old technology, my only answer I could find is that Apple s not launching a phone, they’re launching a mobile device. Wi-fi and Bluetooth are the connection they’ll use the most. It’s called iPhone (knowing of Cisco’s patent) and it has Edge but this is just to make it accessible to consumers.

Wi-fi and data-voice convergence are the key to it, the phone bandwidth is limited, there is High Speed UMTS but only available in big cities (actually I live about 5km from Milan, and we’re still on GPRS connections even having UMTS phones) and it’s coverage is quite limited. So, the only alternative left to Apple is to base their iPhone on Wi-Max, I will not be surprised to see the iPhone be launched in Europe as the first Wi-Max ready device.

Another point that could be discussed is how could Vodafone adopt it? They’re used to customize their phones with special menus, but I am quite sure Apple will never allow it, so Vodafone’s customers will ask for the iPhone, Vodafone will ask to customize it and Apple will refuse. Who will win on this battle? In my opinion, Vodafone will lose the battle.

[RANDY GIUSTO responds to Lorenzo's comment:]

Well, handset vendors today have multiple models targeted at different air interfaces, and much of the time the only difference is the radio and network supported. So a UMTS or W-CDMA version of the iPhone for Europe in 2008 is entirely possible. Apple chose to launch in the US first, on EDGE with Cingular. You don’t need 3G for most of the applications on the iPhone anyway. The iPhone with an iPod connector, Bluetooth, and WiFi, means that you bypass the operator’s network to get iTunes content, which is what Apple was adamant about. Cingular is finally giving in when it comes to trying to force everything across its network, which is the flawed mentality of the rest of the operators. Again, other press and analyst reports have beat up Apple on their lack of 3G support, but you don’t need 3G if most of the applications run off-deck. The right Taiwanese contract manufacturer will build an appropriate iPhone for any network anyway, based on an operator’s order or agreement. The volume of 3G phones is also still small, even in Europe, but that will change as we exit 2007, and by then, I’d expect Apple to have a 3G version.

On the Vodafone issue, the operators are losing this battle as well. In fact the smarter ones are turning to platform players like Adobe Systems to help design the UI and richer experiences because they don’t have the resources. Despite their insistence on owning the experience, what they provide today is still flat and not enjoyable from a consumer perspective. Apple owns huge brand cache in the UI space and the iPhone development will finally show operators that they are way behind the times. The battle between Nokia and operators over the UI is legendary, and Apple joining the fray drives it home even harder that UI is not an operator’s specialty, despite what they might think.

iPhone on Wi-Max? It’s far to early to speculate, since the networks aren’t physically being deployed yet. We expect Wi-Max phones in late 2008 but only if a lot of other things happen, and network deployments rarely happen on time.

– Randy

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