iPhone 3G: Totally new

July 24, 2008


It has been over a year since the launch of the much ballyhooed iPhone. Much has been said. Many have been bought. Let’s take a look back and a look ahead.


First there is a difference between a brand having loyal enthusiastic following and becoming a blockbuster mass market success. Second there is a difference between making a better product and winning in marketplace.


Being better isn’t enough


In fact, the reality is the better product often doesn’t win. Just look at Macintosh. There is little dispute that Mac is better than Windows. Yet Microsoft has a worldwide market share of 94 percent and Apple has 4 percent. Apple is cool but Microsoft makes a LOT more money.


Most taste test show Pepsi tastes better than Coca-Cola. But Coke has a brand sales index of 100, while Pepsi is at 65.


I am not here to argue whether or not the iPhone is cool and fun. I am here is analyze the strategy of the iPhone and Apple’s expansion into the cellphone market.


My fear is that by expanding into phones Apple runs the risk of spreading itself too thin. My fear is that by expanding the number of functions for the iPhone (phone, email, music player, internet, camera, video, etc) Apple runs the risk of its phone falling into the convergence trap of becoming a jack of all trades but a master of none.


If you love your iPhone, that is great. I know a lot of people that do. But is it for everyone? Will it be profitable (they keep dropping the price)? Will it survive intense and focused competition coming from all sides? Or will Apple undermine its own coolness once again and eventually lag behind in technology by taking on too much? We will see.


The first iPhone was all about convergence, putting lots of existing functions together in one device. In contrast, the iPhone’s second generation is a story more about divergence.


Remember that convergence was basically the main benefit touted for the original iPhone. Phone. Music. Camera. Web. Video. And it is Apple’s focus on convergence that I have the biggest problem with.


Convergence is what killed the Newton, the PlayStation 3, the TV/PC, the media center PC, the flying car and more. Convergence means compromise and most consumers aren’t willing to do that. Some consumers will accept some compromises for convenience sake but most will not.


Shampoo plus conditioner might be easier, faster and cheaper but most people use separate shampoos and conditioners because they believe they are better and worth the time.


The first iPhone was a cool gadget that combined a lot of functions in a beautiful device. With Steve Job’s unbelievable showmanship it received massive PR and word of mouth. But the future for a Swiss-Army-knife cellphone is limited, as is the market for the real Swiss-Army knife.


Steve Jobs obviously felt the same because we have an almost totally-different device in the second generation iPhone. The second generation is not just better and faster; it is different. It incorporates two incredibly important elements missing from the original iPhone: GPS and 3G. This allows faster Internet access and precise location information. Combining the web with GPS opens up a whole new world of applications that can be of incredible value and which make this phone a totally new kind of device. Recently we have seen applications for the new iPhone explode.


A mobi-phone is one that takes advantage of being a phone, GPS and web device. It does not simply replace an existing device making the new iPhone about divergence. Just like the BlackBerry is about divergence in being the first wireless email device.


(Of course, only the latest iPhone has GPS. This is why the first iPhone was so problematic.)


Of course, Apple is still promoting surfing the “real” Internet on an iPhone when the real advantage is using the dotMobi Internet or sites designed for small screens. I would forget the real Internet and promote the mobi-Internet.


Divergence of the Internet


Divergence happening even on the Internet itself. The .com Internet is getting grander as consumers buy faster computers with larger monitors using ever higher access speeds. Even with 3G, the small screen on an iPhone makes Internet surfing a far from ideal experience.


There is a whole new species of the Internet emerging. Like AM/FM/Satellite. We have the Internet and the dotMobi net. A new class of sites and brands that are being built just to be used on mobile devices. These sites would also incorporate GPS information making it a killer combination.


The iPhone is one of the first devices in a new class of cellphones we call mobi-phones.


While the iPhone has gotten enormous PR about being a must have gadget for the with-it crowd, it has not established a clear position and message in the mind.


That wasn’t the case for the iPod. The iPod the best and most important new brand of the 21st century.  iPod established it’s brand with the message “1,000 songs in your pocket” and “.99 cents a song.” It was a simple device with a singular function and a solid message. And it has brought Apple back from the brink.


The cellphone market


In a market with weak competition, even a flawed strategy can succeed. The success we have seen with the iPhone speaks more to the mess in cellphone market than the pure brilliance of Apple’s strategy.


All the cellphone brands are a mess. Everybody makes everything. Everybody has the same features. Everybody looks the same. No brand stands for anything. And most don’t even focus on phones. Motorola, LG, Samsung, Erickson all make a wide range of electronics.


BlackBerry is one exception. And as a result, BlackBerry has built a very strong and powerful brand by dominating the business market and wireless email. Nobody loves their phone like the CrackBerry addicts do.


Nokia is the other exception. As a company from Finland, Nokia once made everything from rubber boots & tires to television sets to cellphones. But by getting out of every other business and focusing on exclusively on cellphones, Nokia has become the worldwide market leader. Of course Nokia has chased the convergence dream too with products like the Communicator, a brick-sized all-in-one phone that went nowhere and the N-Gage a cellphone/game player combo. These distractions have meant that Nokia hasn’t launched a killer high-end consumer phone model in years.


The last really successful cellphone brand was Motorola’s RAZR. It became a bestseller in 2005 by being small and sleek. But Motorola has since killed that brand with ridiculous line-extensions like ROKR, KRZR, RIZR, RAZR2, SLVR. etc.


To predict the future, one only has to look at the past. There was a time that everybody thought Apple, Sony and Motorola could do no wrong. Apple had the Mac, Sony the PlayStation and Motorola the RAZR.


But in the late 1990’s, Apple was a mess and nearly sold for scrap. Today, Sony is a mess. And Motorola is spinning-off its ailing handset division. Why? Because they went after too many markets, because they focused on convergence not divergence and they put their name on everything.


My fear for Apple is that they take for granted and neglect their very valuable iPod market. All this time, money and development cost on the iPhone has shifted the company’s attention and focus away from the iPod. Remember the iPod market is way bigger than the iPhone market, look at the recent sales figures:


In the last six months, (October 2007—March 2008)

Apple sold:

iPod …………………  32,765,000

iPhone ………………  4,018,000


While the sales numbers for iPhone may still seem impressive, they still pale in comparison to the big cellphone makers. On an average day Nokia sells 1.28 million phones. Of course, each individual iPhone is more profitable that the average Nokia phone. But Apple has already drastically cut the price to increase its sales numbers and will likely have to do so again to keep pace.


The new iPhone took 5 days to sell 1 million phones. Not bad, but they aren’t likely to start selling a million a day anytime soon. The hype guaranteed big upfront numbers.


There are some other interesting facts from a recent iPhone launch survey:

      66% buy the higher capacity model.

(I would only sell the high capacity model. Keep the price higher and brand more exclusive.)


      51% will use an iPod in addition to the iPhone.

(Convergence is not the main driver for getting the iPhone.)


      38% were upgrading from the original iPhone.

(They were very avid and devoted consumer segment willing to spend and not a very broad mass market appeal.)


      85% bought the new iPhone because of the new features 3G & GPS.

(These features are key. I think Apple should have delayed the launch of the original iPhone until these features were standard.)     


Over time hardware tends to be commoditized. The big companies will copy the technology and make mobi-phones faster and cheaper. That is exactly what happened to Macintosh in the 1980’s and 1990’s. With its the expansion into cellphones Apple needs to be careful. It means they are now competing with Nokia and Dell. Each would is a formidable and focused competitor on its own. Taking on both will be tough. Just ask Sony.


Technology moves very fast. A hot device today can become very cold if a better brand comes around tomorrow. For now there is no consumer phone brand worth a mention and iPhone has been able to generate a lot of excitement especially around its latest GPS/3G device.


The ultimate future for iPhone is still up in the air. The die-hard Mac lovers will follow the brand anywhere like Phish fans driving in van cross country selling grilled cheese sandwiches. Steve Job knows cool. But he doesn’t always get it right. (Remember the Cube, Apple TV, NeXT) (And Phish is no longer together or touring)


There is a difference between being a successful narrow play at the high-end versus a successful mass market brand. I think iPhone could have a very nice future with a small segment of the population at the high end. Just like there are avid Audi fans, there are avid Apple fans. But that doesn’t that mean either brand will dominate the overall market.


What hurt Macintosh was that Apple kept trying to broaden its market, when they should have done just the opposite. Narrow the focus to graphic arts. That is basically what the brand has become anyway. They never succeeded in getting big business to use Apple products.


The future for the mobi-Internet and mobi-phone applications is undeniably bright. The opportunity to build new brands is as endless as your imagination. Take upstart Urbanspoon. Using an iPhone with GPS and G3, Urbanspoon recommends nearby restaurants as you walk down the street.


The mobi-phone market is much larger than just the iPhone market. This is a huge opportunity for the brave few who can see how divergence is creating an enormous opportunity to build a new brand for the dotMobi world.


It was not established companies that made it big on the Internet, it was new brands focused on the new medium like Amazon, eBay, Facebook, Google and YouTube. The same is likely to happen on the mobi-Internet.


Nobody is 100% right, 100% percent of the time. Even me. Marketing is not a science but an art. You have to be able to study the past then analyze the present in order to paint a picture of what the future may bring.


Early iPhone sales have been brisker than I predicted mainly because I underestimated the complete void in the consumer phone market. Consumers were desperately craving a new phone brand and when given the chance they leaped headfirst onto the iPhone bandwagon.


Today iPhone is a niche product. But will the iPhone be the next iPod? Will the iPhone dominate the cellphone market like iPod does the music market? Can Apple chase Dell in hardware, Microsoft in software, Nokia in cellphones and lead with iPod all without exhausting the company in the process? If the key to success is focus that is not what today’s Apple is about. Will a strategy of expansion work? Time will tell.


Some of my comments from previous posts:


March 28, 2007


“But shortly after the launch the initial hype will wear off and Steve will move on to the next project at Apple. Then the iPhone will end up in the convergence scrap heap along with the ROKR, N-Gage, WebTv and many others.


Initially convergence products, like line extensions get attention and generate early sales. But long term they usually fail and always undermine the brand.”


Steve Jobs did quickly move on to his next project, luckily it was the iPhone 3G. For now we have a modest success of the iPhone 3G because they face almost no decent competition. But what happens when the category becomes commoditized?


Will Apple be able to innovate and stay far enough ahead of the competition to survive? The way to succeed in business is to focus.  The more markets Apple goes after the more difficult staying profitable will become.


Sony is a classic example. They have a great brand, but they make everything, stand for nothing, appeal to everybody and they make less than 1% in profits because of it.


April 30, 2007


“Early iPhone sales are likely to be brisk. Apple’s amazing ability to generate PR will no doubt attract many Apple fans and early adopters to purchase an iPhone. Just like they bought a Newton back in the day.


But I stand by my prediction that the iPhone will not be a long-term success. What we will see instead is further divergence not convergence. Remember Apple’s brilliant iPod is a divergence device.”


We will see a future filled with divergence devices. BlackBerry for one. iPod for another. The new GPS/3G phone for another. The new iPhone is in fact divergence. The first iPhone was pure convergence.


While phones have had cameras and many have music players, they have not become the most important assets of the phone. And in many cases I think people buy them because there isn’t a phone without them on the market.


June 27, 2007


“Sure, a few people will buy iPhones for the sake of convenience. Sure, a few people will buy iPhones because they are so in love with Apple that they would buy a bridge if Steve Jobs tried to sell it to them.


But the in long run, the vast majority of people will prefer their “better” individual devices. Especially companies wised up and created more divergence products.


Don’t be fooled: Despite the hype, the deals and the massive advertising smart phones still only have around 10 percent of the market.


Opportunity comes from pulling things apart not putting them together. The devices of the future might plug together or network together, but they will all be individual “better” products.”


Men in particular as concerned with not carrying too many gadgets on their belts. Women, on the other hand, are cursed with the purse so we need carry all our stuff plus everybody else’s stuff.


The new iPhone delivers on not just being convenience but containing a new type of function. The GPS and mobile Internet that can give you real time, real location information at high-speeds. There is nothing else like it out there.


September 23, 2007


“The launch of the iPod Touch has been mostly overlooked and usurped by iPhone mania. After the over-the-top iPhone hype and its dramatic price cut, the media were just not interested in giving much ink to another Apple product.


Furthermore, without any exciting new functions that weren’t already included in the iPhone, the iPod Touch has little news value. It is basically just a smaller iPhone without the phone or email access. Big whoop.


This disregard of the iPod Touch is tragic. The iPhone took the wind out of the iPod Touch’s sails before it got the chance to set sail.”


In fact, this is even more true today. I think Apple would have been wiser to launch the iPod Touch last year and waited to launch the iPhone with added GPS/3G this year. That way they could have had a better one two punch with two separate and distinctive devices.


“The iPod is the goose that lays the golden eggs at Apple. Overlooking it and not giving it its proper attention is foolish. The iPod resurrected Apple from the ashes. The iPod is the leader in the growing MP3-player market. The iPod is the dominant brand in the U.S. with over 60% of the MP3-player market. Taking your golden goose for granted is unwise in the competitive and fast paced world we live in. Just ask Dell.


Apple has some serious work to do globally where its iPod is less than dominate and more than vulnerable. In Europe the iPod has only a 20% market share which includes a 40% share in Britain.


Distractions are not what Apple needs. A focus is what they need. The way to build a monster brand is to attain global dominance. Which is what Nokia did in cellphones, Red Bull did in energy drinks and Google did in search.


Clearly the time for Apple to launch massive iPod marketing programs in both the U.S. and the rest of the world is now, while the brand is riding high with ground-breaking technology and a heap of iPod killers lying in wait. But the distractions and confusion created by the iPhone are likely to slow the iPod’s momentum and keep it out of the fast lane where it rightly belongs.”


I still worry about Apple spreading itself too thin. iPod is a strong and profitable market but they still need to grow it globally and keep it up to date. No market moves as fast and as furious as the technology market. Cool today, gone tomorrow. Look at Palm and RAZR.