Saturday, September 15, 2007

The Apple Of My Eye

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Like Caesar in De Bello Gallico, the iphone came.  saw. and conquered. And now they say they've sold a million - in less than 3 months - faster than they sold a million of the original ipod. I'm not sure that's a valid comparison - an unestablished product into an unestablished market, creative's mp3 players notwithstanding (I still have my original 64mb creative player). 

Perhaps a better comparison would be how long did it take to sell a million RAZRs?  Turns out that they beat that too.  But there are 100 million RAZRs in circulation now, probably about the same as the number of ipods (and, frankly, whilst the RAZR looked great I always thought the interface was designed so that you never rang anyone - keeping your call costs down -and letting you look cool just answering the phone without pressing any buttons).

Rumour has it that this Tuesday will see the launch event for the UK iphone, on the O2 network.  Rumour also has it that it will still not be a 3g phone.  Funnily enough, when I took the sim out of my US iphone, it's clearly marked "AT&T 3g" on both sides - in a sort of orange "go faster" blur. I guess the Americans have a different idea of what 3g means.

What seems plain is that Apple is up-ending the cellphone market.  Here's why I think that:

  • The traditional model is get phone for near-nothing (newer, hotter phones cost more but if you have a high monthly spend then any phone is available for near nothing). Apple is making you pay pretty much close to full price for the phone.  On top of that, Apple has extracted a percentage of the monthly forward contract spend.  They appear to be doing some interesting revenue recognition on those two different types of revenue too.
  • Apple have fixed some of the problems with nearly every previous phone I've had.  To name one massive improvement - the proximity sensor that detects when the phone is close to your face and therefore stops you from pushing random buttons.  There are few, if any, phones that have that - none in my current collection, including the latest Windows Mobile 6 phones such as the HTC Touch (looking forward, by the by, to the settlement negotiations between Apple and HTC over that one)
  • They're moving everyone to a 2 year contract.  Most UK contracts are 12 months although some appear to be 18 months now.  It won't be long before we're buying our gas, electricity and even our travel cards on the same basis.
  • They've dropped the price faster than even the PS3 dropped its price.  That could be because they wanted to goose the market in the run up to Christmas, it could be because component prices have dropped and they see that they can maintain their normal margins at a lower price, it could be because the price gap between the touch and the phone was too great or it could be because they want to make room for an enhanced version at a premium price very soon.  But they're definitely going to goose sales.  And with the various unlocking hacks available, as long as they're making money on the base price, they're going to do just fine, even without the forward revenue from AT&T and other carriers.  But there will be plenty of people who want it through the proper carrier, so that they can use visual voicemail, so that they don't have to worry about software releases invalidating their hack or so that they can just get on with using what really is a beautiful phone. 
  • They've released an almost entirely software upgradeable phone. It's rare to see patches for current phones.  Palm have released a couple of operating system upgrades for their phones in the past that have improved stability - my Treo 750v recently saw an upgrade to Windows Mobile 6 that is not widely available but made it into the wild at least. But the idea that a phone company - stand up Nokia, Sony and so on - would actually issue regular patches to their phones, not only fixing problems, improving stability but - omg - adding features?  That's unheard of.  Apple are already on their second release since launch and a 3rd is due anytime, rumoured to add support for wifi downloading via itunes. Like Sony and Microsoft, they may use these releases to tie down security features that have been exploited by hackers seeking to exploit their phones or they may be more relaxed; history says "relaxed" is an unlikely attitude for Apple to adopt. That said, I look forward to ever new features on the iphone.
  • Because they're not subsidising the phone at point of purchase, Apple seem to be betting that at least once, and maybe even twice, in the 2 year contract, you'll be prepared to spring for a new version of the hardware - one that brings things that can't be added by software.  One such feature is, obviously, a 3g radio.  Others might be slimmer phones (let's hope they don't go in for a phone with a smaller screen - that keyboard is tough enough as it is with my fat fingers), or maybe WiMax capability.  That's how the ipod model works after all - you want to buy the latest, slimmest, smallest, coolest gadget and, at �129 for an 8gb Nano, many millions of people will.
  • And on top of that, they're creating a layered market; one that will appeal to every segment.  You can have a shuffle - small and simple.  You can have a classic - high capacity.  You can have a nano - low capacity, flash memory, beautiful screen.  You can have a fully featured phone.  Or you can have an ipod Touch - for those who want the very best ipod but don't want the phone functionality added in.  Various journalists are seeing this as a weak strategy by Apple, desperate perhaps to find a chink in the armour (one that is certainly dented by the lack of 3g capability), saying "The new iPod [touch] will most definitely impact sales of the iPhone." Will it?  I'm not convinced.  I have an (several actually) ipods now, I have several phones including an iphone.  My ipod is for when I'm out and about.  I don't always want to carry a phone.  Some parents will buy an ipod touch for their kids instead of a PSP, but they won't buy them a phone as well - least of all on a 2 year contract without pricing subsidy.  No, I see Apple opening up the market and having a product for every sector.

People will, of course, debate this back and forth.  On the web, in the press and on blogs.  The good thing is that it will play out in the public eye. You'll be able to walk into the Apple store on Regent Street and see how things are selling or visit an O2 store and see if the HTC Touch is taking the iphone touch or the iphone out the back and shooting it quietly in the head.

All things considered, I think this will bust the mobile phone sector wide open. I'm looking forward to two things - a rising Apple stock price (now that I've made my money on the short side) and to sifting through the fallout in the rest of the sector because it will force new innovation and design changes that will only benefit the rest of the market that doesn't want to buy an iphone (and there will be more that don't want to than do want to I'm sure).

3 comments:

  1. Anonymous1:29 pm

    Veni, Vidi, Vici, VD.

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  2. jerry1:49 pm

    For me the area of interest is more slanted to iTunes Wi-fi and ringtones announcement.

    Jobs seems to be preparing the massive market vehicle, that are cellphones, to be the chariot for the next wave of music and video media sales!

    Most people don't give a fig about phone features, but they will pay cash for media - so Apple is going to help them!

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  3. Agree, wifi downloads and fully editable ringtones drawn from the itunes store are both very interesting. the margins on a single download are tiny so adding a second download fee for the right to use as a ringtone is an interesting gambit - i don't know where the extra revenue goes, maybe all to apple? i have never downloaded a song to a mobile phone, maybe wifi will change that. but jobs himself says that 99% of music on ipods is uploaded from CD, not downloaded from itunes.

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