The Apple Phone Revolution?

Thomas Husson | January 10, 2007, 03:48 AM

Updated: Let's stop talking and have a look at a demo first. Looks amazing and simple to use!

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It is amazing how strong Apple is at creating buzz.

As analysts, we regularly get asked for independent comments. At the end of August 2005, The Guardian asked me to comment on the potential launch of an i-pod phone. At that time, it had already been awaited for more than a year but raised a huge amount of speculation simply because Apple has the marketing and creative know-how to create easy to use and cool devices consumers are ready to pay a premium for.

Then came the relative flop of the Motorola ROKR with i-tunes software embedded. More than 18 months after that, speculation raised again and I would not change a word to what I said to the BBC a month ago: “it will take time for Apple to be disruptive on the market” and this has to be a “compelling phone”.

It is extremely difficult to comment a product you have not had the opportunity to test but from what was announced and according to my colleagues Julie Ask and to Michael Gartenberg who both attended the Jobs’ keynote, here is my first take:

1) The key diffentiator comes from the user-experience and the intuitive navigation interface and design. This is probably what Steve jobs referred to when he mentioned it would “revolutionise” phones. It has a touch-screen which uses a new Apple technology called multi-touch: no numeric keys or calling buttons (use your fingers stupid!). I totally agree with David Card 's summary here. This is were the disruption can come from. Looks like an amazing user-experience for a convergent device / multimedia computer / handtop, whatever you call it.

2) A second differentiator comes from the branding and exclusive deals. First, it is as simple as : command this is Apple and this i-tunes software and it will only be available through Cingular! But the iPhone also integrates key functionalities from top Internet brands: Yahoo search (its new OneSearch product) and Yahoo Go and push-mail services are built in, Google also provides integrated search and mapping.

3) Otherwise it seems to have all the features embedded in high-end smartphones: a 2 megapixel camera, built-in 4 to 8Go storage, bluetooth 2.0 and quad-band GSM. It is EDGE only and has no 3G support. That's not necessarily a big deal since to really prmote OTA instant purchases you need HSDPA not 3G R99 and the phone is WiFi-enabled (I wonder which impact this will have on the battery life, eventhough using GSM, the battery is supposed to last 5 hours and 16 hours if you listen to music non stop, which will not happen because you will receive calls in the meantime). Anyway, according to Rafat Ali, you can’t even sync iPhone with a computer wirelessly.

4) Consequently it has the price of top-end devices: between 499 and 599$ depending on the storage capacity. This is thus far from being a mass-market product. You’ll tell me, Apple only wants 1% of the handset market. Well I am sorry but 1% means something in a volume industry, that’s 10M devices!! Nokia alone sold 70M music devices in 2006, the same number of Ipods since launch in 2001! In fact if you pay attention the target is apparently for end 2008 only, a more realistic approach since the phone will not be available in the US before June and in Asia before 2008. As a basis of comparison, Nokia sold more than 10M Nseries devices between launch in April 05 and September 2006.

5) Will Apple disrupt the market in 2007/8? No it won’t because it has one way or another to embrace the mobile ecosystem.

The key question is to which extent mobile operators will SUBSIDIZE it particularly here in Europe where a 3G version is not awaited before Q4 2007. Despite owning its own retail channel, Apple has not the power yet to bypass carriers and at the end of the day will have to comply with operator needs on customized UI and flexible business models. Worth mentionning that contrary to Microsoft and handset manufacturers, Apple has almost no experience of working B2B with mobile operators and embracing the subsidy model. Julie is right to point out that they are many unanswered questions about mobile services and how they will fit in with the hardware/software. Michael points out that with Mac OS, it is not extensible by third parties. In addition, to really compete with the likes of Nokia, Motorola, Sony Ericsson and Samsung, Apple also needs to introduce a full range of devices with various formats, design and price points.

At the end of the day, it is not too late for Apple to launch a phone (see Michael post here), but the question is: will they have the same kind of market share than they have in computers (cool devices with the best UI but limited to a niche audience of aficionados) or will they raise the standard and set new rules for phones as they managed to do with Mp3 players? My answer is that now Apple is entering the phone market, this strategic shift will impact (positively or negatively) the brand and the sales of other product lines, exactly as it happened between Mac and Ipods.