The impact of the iPhone on the smartphone application market

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
With the launch of the 3G iPhone, there has been an incredible amount of media attention on Apple, the device, the App Store, the costs, 3G networks, etc., but not much focus on what impact it will have on the broader smartphone application market. At a macro-level, the new iPhone is going to bring three benefits to the marketplace.
The first benefit is consumer awareness. Today, most consumers define a smartphone by its hardware features or its e-mail capabilities rather than by its ability to add third-party applications, which is the primary benefit of a smartphone over a feature phone. This lack of consumer awareness of the full functionality of the smartphone has been the biggest barrier to distributing content to these devices. Just as the first iPhone built tremendous awareness about taking pictures, listening to music and watching videos on a “cellphone” when those capabilities had existed for many years, the 3G iPhone is doing the same in building mainstream consumer awareness that anyone can add third-party apps to their device. Ten million downloads in the first weekend on the App Store points to this.
The second benefit is competition. Other industry leaders are not going to sit by and let the iPhone steal market share. Whether you are Research In Motion, Nokia, Verizon, Best Buy, or another player in the ecosystem, iPhone raises the bar for all. The increased focus will generate more applications, more distribution and more downloads for all devices. But most importantly, customers will benefit from having more choice and increasingly being able to leverage these computers in their hands called smartphones.
And finally, the third benefit is the expansion of alternative distribution models for smartphone content. Historically, the primary means to distribute content to wireless customers has been via the carrier “deck,” with the operator being 100% in control of the content, distribution, and marketing. While there have been some “off-deck” channels of distribution, mainstream buying outside the carrier store is still not a primary means of purchase in the U.S. And while some may argue the iPhone App Store is just another “walled garden,” it is demonstrating that new models can thrive and co-exist with a “win/win” outside of the carriers’ control as the operators benefit from more data usage, more stickiness, breakage on data plans, etc. We expect to see many more players in the ecosystem distributing content via their storefronts as smartphones enable the ability to install third-party apps – all good news for customers, distributors, developers and operators as choice and usage expand.
The bottom line is that the smartphone market is exploding. Growing from just over 20 million devices in 2006 to well over 100 million today to over 500 million in 2010, the smartphone marketplace is one of the fastest growing in all of wireless. The iPhone is a great catalyst to accelerate consumer awareness of the ability to add third-party applications to their devices. And it is important to note that even with the most optimistic iPhone projections, Apple will be a very small piece of the overall smartphone pie. Thus, there is opportunity for many players to have success in this dynamic market as the lines between traditional cell phones and computers continue to blur.
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