Last week, the mobile industry lost a great hero and villain with the passing of a single person, Steve Jobs. Companies like Apple and Pixar have toppled industry leaders in their respective markets by delivering disruptive user experiences that raised the expectations of consumers and changed the game for companies. The mobile market was Steve’s last great conquest with the introduction of the iPhone in January 2007. At that moment of introduction, the market began to shift with innovation from the mobile networks carriers deciding what was best for users to a consumer-driven market.
Back in 2006 when carriers controlled relationships with mobile customers, competition for voice services was driving down ARPU and data services saw low adoption outside of enterprise use. Users could access the web on their phone, but without the smooth surfing of the PC web experience. Phones were either Smart (suited for and purchased by busy executives or executives who wanted to appear busy) or Feature-Rich (great for listening to MP3s, taking photos, and playing Snake). Consumers were trapped in a protective bubble and carriers struggled to entertain and entice the captive subscribers. Mobile customers were being held hostage on the mobile experience bus that the carriers were driving. The handset manufacturers were unwilling accomplices forced to sell to a captive market only what the carriers allow. The bus was running out of gas and the drivers had nothing to extract additional gas money from their captive passengers.
Apple stopped the bus with the iPhone and Steve Jobs took the driver seat. And drive he did. Hostage no more, the passengers celebrated on their party bus with more passengers getting on at every stop. AT&T was the first carrier to yield the driving to Steve and the unthinkable happened. People began using more services and, although not all through AT&T, ARPU went through the roof. Apple’s App Store enabled everyday consumers to customize their mobile experience. The passengers on the now rebranded “iPhone on AT&T” bus unleashed their pent-up demand for an experience beyond voice with a hunger for apps and content. Millions of dollars funneled into the pockets of Apple and app developers with minimal trickle down into AT&T’s balance sheet. Sure, AT&T’s ARPU went up for the increasing iPhone customers and the required data plan, but they were unfortunately ill-equipped to serve the growing demands of iPhone fan buses traveling on their network.
This graph depicts positive (green) and negative (red) comments posted by users before Apple developed a relationship with Verizon. Overall the phone experience was negative with dissatisfaction revolving around Skype/Video Chat/Phone and Web Surfing; a clear reflection of a stressed bandwidth.
The following generations of iPhone and later the mobile-connected iPad put enough strain on AT&T’s network to turn the party bus into a Speed film sequel called Slow. The damage to the AT&T brand was significant and their exclusive contract with Apple would not last forever. The impact on the adoption of iPhone may seem negligible, but during the rapid rise of the iPhone in the hearts and minds of the mobile market the iPhone was not the highest-rated user experience on the market. This allowed Android OS-based phones, typically on networks outside of AT&T, to grab market share from Apple and the dwindling Research in Motion.
Consumers voted for applications that quickly pushed the network bandwidth capabilities.
As it turns out, even though carriers have taken a backseat on Apple’s party bus, they are still critically important to the experience. Imagine taking a long road trip where you know the destination, you have plenty of snacks and great music, but that one friend forgot to bring a map. When AT&T’s exclusivity finally ran out and Verizon started their own bus line on the Apple party caravan, (1) many existing iPhone users switched carriers and (2) potential smartphone customers that were on the fence finally embraced the Apple experience.
Once the iPhone was available on Verizon, the user experience shifted. The overall experience was more positive with bandwidth-intensive activities like web surfing and video chat becoming more positive.
As we at Argus Insights tracked these shifts in user experience across multiple markets, we noticed a large shift when Verizon started to carry the iPhone. The result was not surprising in terms of the trend, but we didn’t expect the magnitude. Based on data collected from actual users of both AT&T and Verizon iPhones, we saw an 80% increase in the reported user experience based on the AT&T-only baseline. No changes in hardware, no major operating system updates, no new versions of Angry Birds released, just the availability of a different carrier.
In the end the carriers got what they wanted—higher earnings growth through the rapid adoption of data services. ARPU went up, stockholders and investors rejoiced, but this came at a price; their intimacy with the consumers. Steve Jobs definitely drove the bus for this disruptive shift bringing new validation of “beware of geeks bearing gifts.” What happens next? Carriers no longer have a maverick pushing them beyond the comfort zone and into the future. Though it was a bitter pill to swallow, the carriers owe Steve Jobs and Apple a huge debt. By unlocking the floodgates of consumer demand for data services, he bought them another decade of growth. The question is, what will the carriers do with the time they have to create the next engine of growth? Who will they look to?
About John Feland:
John Feland is the award winning founder and CEO of Argus Insights. With background in both industrial and component-level design, carrier influences, and OEM collaboration, Feland brings his expert knowledge and perspective on product design to to Argus Insights,
In 2009-2010, Feland was the Executive Director for Stanford University’s ME310 Design Innovation course. In 2008, Feland served as Chief Technologist for SK Telecom America’s R&D Group. Prior to SKTA, Feland led Synaptics’ marketing division to help handset manufacturers integrate next-generation capabilities. Feland was the principle architect for the Onyx Concept Phone, the world’s first capacitive multi-touch mobile experience. Feland holds an S.B. in Mechanical Engineering from MIT, an M.S. in Mechanical Engineering from Stanford University, and a PhD in Mechanical Engineering from Stanford University.
[email protected]; @argusinsights
