OK, Mark Twain’s “mysterious stranger” was actually Satan’s nephew, and we’re certainly not deriding the devilish Steve Jobs or his wonderful company – but the theme of unwanted intrusion is apt.
That is, if you consider the perspective of incumbent handset vendors and all network operators not currently offering the iPhone. Intrusion, wake-up call, disruptive force, reality-distortion field – call it what you will, the iPhone show has been intriguing enough to drive a lot of industry conversations for more than a year.
For a few million well-heeled consumers and AT&T Mobility, the iPhone has delivered a welcome shift to ease-of-use and fun over the industry’s typical, oft-maddening user interfaces based on endless menus, ambiguous hard keys and tiny, crowded screens.
By most accounts Apple Inc. has delivered an engaging, fun UI that is thus far unmatched by rivals (though the latter are busy, more below). The iPhone sells legitimately in six global markets, though the latest two – Ireland and Austria, announced a month ago – were underwhelming. Further market rollouts clearly are expected.
Hype works
The device and its playful UI have racked up prodigious sales and propelled Apple into wireless. (See charts.) With the Hindenburg-like descent of Motorola Inc., Apple’s entry, rumblings of “4G” and the quickening pace of innovation, the mobile device space today is a far more dynamic market to cover and pundits clearly are grateful.
The chattering classes are chattering like naked Eskimos. It’s all part of the well-greased Apple hype cycle. The iPhone marketing scheme – perhaps already a case study in business schools – includes a hot product, carefully seeded details or speculation about new models, cryptic silence or silly refusals to comment from Apple, and pundits pondering.
The sobering fact is, however, iPhones are selling – though, ironically, those sales have spawned their own speculative, cottage industry: Has it helped or hurt AT&T Mobility? Why the sudden, recent retail shortages at Apple stores in the U.S.? Why the drastic price cut in Germany?
Usage of the iPhone’s browser, video, social networking and music functions are impressive. (See chart.) Unless a sharp economic downturn dampens consumer spending on high-end gadgets, Apple may well hit its goal of selling 10 million units worldwide by year’s end.
One analyst, Tavis McCourt at Morgan Keegan, has said that Apple’s trajectory suggests that its goal is to be a long-term, highly profitable, niche player in the wireless industry. McCourt is factoring into his Apple stock outlook the notion that its iPhone business is likely to become a $10 billion annual revenue producer over the next five years.
Whether AT&T Mobility is profiting solidly from its Apple deal isn’t publicly revealed, but another cottage industry works on that angle as each quarter’s results roll in.
To 3G, or not to 3G?
So, where do things stand today?
In its control-driven way, Apple has attempted to meet objections by soon delivering a 3G model, support for enterprise and “openness” – a malleable term akin to “change” in the current political climate. The jury remains out on how well these objections can be overcome.
The expected arrival of the long-teased 3G model, for instance, has produced misquotes, retractions and speculative spec sheets (hereafter the “spec-spec”) with the usual disavowals.
Case in point: Fortune’s online edition late last week rounded up the rumors (carefully sourced rumors are part of the spec-spec animal) calling for a possible 32 GB model at $600, a June 10 announcement (coincides with Jobs’ address to Apple’s Worldwide Developers Conference), a 2.5mm slimmer device, etc.
Another case in point: Pre-CTIA Wireless 2008, analyst Avi Greengart at Current Analysis mused aloud to a Reuters reporter that a June 3G launch made sense, because it lined up with AT&T Mobility’s public statements and Apple’s developer conference. Next day, headlines trumpeted “3G in June.” Greengart received a call from Apple. Reuters received a call from Greengart. Article duly amended. More speculation: what made Apple react?
The process was repeated last week, when the Wall Street Journal’s Walter Mossberg offered a similar aside in an unrelated interview. Mossberg subsequently talked his way out of the implications, leading to speculation on whether Mossberg inadvertently violated a non-disclosure agreement. (He had, after all, been one of very few to receive an iPhone before it launched.)
Pundits on pundits: it doesn’t get any better.
Shortages are real
Also last week, analysts reported shortages of the iPhone in U.S. retail outlets. Time to read the tea leaves, again. Could it be a supply-chain hiccup? Component shortages? An intentional drawdown of 2G stock to make way for 3G models? Toni Sacconaghi, analyst at Bernstein Research, argued persuasively that the culprit is component shortages, noting that the shortages were not widespread and that an intentional drawdown was premature – if you buy the June 3G release speculation – and could cost Apple missed sales on the magnitude of 20,000 to 40,000 devices per week.
Last year, if you recall, the great “shortage story” focused on the gap between the number of iPhones activated in countries where it is legitimately sold and the overall number reportedly sold. The conclusion, with help from testimony by rogue resellers: Apple is looking the other way, at the very least, as hundreds of thousands of devices are diverted to the gray market, unlocked, and dispersed to all corners of the Earth, seeding demand for future, legitimate markets.
Enterprise and “openness”
Two forces for expanding iPhone’s market have been initiated and will be closely watched. Apple’s effort to provide robust, secure push e-mail and support for Microsoft Corp.’s Exchange is due in a software update slated for June. (June!) Analysts cite the enterprise’s view of the device as largely an entertaining toy in reserving judgment on whether that market will embrace the iPhone, while not discounting the executive suite’s power to command the use of such toys.
And of course Apple has embraced “openness,” which in its case means providing a software development kit (SDK) to all comers (at $99 a pop), though distribution of resulting apps will be carefully controlled for Apple’s slice (about 30%) through its App Store. This indeed is a bit of a journey for Apple, which last year managed to brick an unknown number of hacked iPhones through software updates.
Competition heats up, consumers win
Apple’s forceful grab of the wireless device-and-services mindshare has competitors practicing the fine art of responding without appearing to respond. That dynamic steamrolls over the possibility that iPhone development actually trailed or imitated various product initiatives such as Palm Inc.’s touchscreen Treo line, LG Electronics Co.’s touchscreen Prada phone or HTC Corp.’s Touch device.
But sabers are being rattled, at a time when handset vendors are torn between signaling the market that they’re on top of the touchscreen craze and hesitancy to pre-announce too soon and tip off the competition.
The speediest vendor award goes to Samsung Electronics Co. Ltd., which got keynote placement for its Instinct device when Sprint Nextel Corp. CEO Dan Hesse brandished it at CTIA Wireless 2008 just two weeks ago.
Hesse emphasized that the Instinct (due in June) would deliver on 3G (CDMA2000 1x EV-DO Revision A), GPS and haptic feedback for its touchscreen – not incidentally, the leading complaints about the iPhone. Sprint Nextel will use the device to bolster its flagging fortunes by (reportedly!) selling it for less than the iPhone, requiring purchasers to go for a Simply Everything voice-and-data plan that begins at $70 per month and putting $100 million in marketing money behind it.
At the Mobile World Congress in February, Sony Ericsson Mobile Communications announced its Xperia line of touchscreen smartphones that many pundits expect to arrive at AT&T Mobility in the second half of this year. Neither party is saying more, though they could take a page from Apple with the slow release of tantalizing details.
Nokia Corp. appeared to do just that last week at the annual Evans Data Developer Relations Conference in Redwood City, Calif. Nokia executives at the CTIA show openly acknowledged that a major touchscreen product would arrive on U.S. shores by year’s end and said it would be integrated with Nokia’s software-and-services strategy. But at the Evans conference, Nokia VP Tom Libretto alluded to the device, code-named “Tube,” setting pundits abuzz.
And buzz, dear reader, is what mindshare is all about. That battle is set to heat up in the forthcoming fourth quarter.
As for market share?
The real wireless battle royale appears to be queued up for 2009, when all comers have touchscreen products on the market and a much-anticipated cage-match commences.
