Clash of the Titans: What is Really Different about the Apple iPhone
Robert Syputa, Senior Analyst, Maravedis, Inc.
The Apple iPhone has entered the market with more fanfare than any product introduction in recent memory. This speculation has fueled by Apple’s success with the iPod, a music device that re-wrote the formula for success when it entered an already competitive market for portable MP3 players. The unique ‘it factor’ that Apple brings to the party is an intuitive but painstakingly designed approach to man-machine interface development that started with the first Macintosh PC and continues to breath fresh life into the company.
IPhone enters the market for cellphones and PDA devices at a point of maturity that many might have thought that only incremental improvements were possible. Underlying this introduction are deep rooted changes in the way wireless will evolve and how service providers will operate. What raises eyebrows most is not a new take on PDA cellphones but a new take on the business methods it represents… a disruptive change from business as usual for cellular network giants and fulcrum entry point for new operators.
A Look at the iPhone
My first impression of the iPhone was that this represents a similar KISS approach to product development ‘Keep It Simple Stupid’ as Apple has become renowned:
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The "multi-touch" interface simplifies the typical buried-menu approach.
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Hi-contrast, fast refresh 320x480 screen gives the impression of a larger screen
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Software keyboard reduces size requirements, complexity but still has similar problems of other tiny keypads. We judge this as the iPhone’s worst feature.
The Dilemma of All IP:
Apple’s Steve Job’s has declared that that iPhone will be opened to 3rd party Web 2.0 application developers1. So far Apple has not released APIs to open iPhone to the Linux/AJAX development community raising immediate cries of foul from the development community2. One third party AJAX development extension has been reported.
This issue is the pivot point between the walled garden world of cellphones to the PC-like open environment of AIP (all IP) which begs the question: “How open does AT&T want their service to become?” AT&T may not wish to open up the iPhone OS X platform (code named Leopard) to 3rd party services including VoIP services which conflict with their bundled service offering. But once an API is widely available, what will stop 3rd party software from running? This is an important dilemma for operators who jump ahead: if 3rd party applications, such as a YouTube clone ‘on steroids’ take advantage of the bulkier bandwidth WiMAX personal broadband network catch fire with the public apetite, this will break open the walled garden business model of cellular providers.
How much and quickly incumbent networks operators will be willing to give up the assurance of revenues derived from captive control of cellphone services versus how much they can capitalize on the popularity of new services is galvanized by conclusion that a shift to open IP environment is inevitable. If incumbent operators strongly resist the shift, independent operators will have a more open field to exploit the pent-up interest of consumers as demonstrated by the iPhone.
What is the Impact of iPhone?
The immediate impact of Apple’s iPhone is more figurative than real: Estimates for market share have ranged from 1% to 2.8% of the worldwide and 7% U.S. market by 20093. These are quite remarkable forecasts considering the aggressive competition in the cellphone industry. What makes this believable is the success Apple has enjoyed in capturing market share for music players, setting a higher plateau of expectations for ease of use and functionality. Despite our comments on keyboard flaws and reported bugs (which Apple already claims to have fixed), we think Apple has succeeded in creating a new type of device that users are likely to find compelling. The real issue of wireless devices is not so much having a built-in camera, cellphone, and a host of applications but being able to use them easily. Nothing discloses this flaw in current wireless devices better than a show of hands of cellphone executives at industry trade shows when they are asked about their own use of menu-embedded functions: We have and others who have posed similar questions at recent events find that only a few hands are raised when asked about features such as use of video phones to capture live events or do teleconferencing. Among executives, using 3G phones for music is only a bit more popular. That is skewing the audience towards an audience most interested in business applications, but you might think that communications industry would be among the first to adopt leading trends. When asked why, respondents indicate that the functions are not easily accessed, a glaring admission.
The real impact of iPhone is that this represents a beach head in stimulating the market for acceptance of a wide range of services that will be available increasingly at the user’s preference. WiMAX represents use of a new technology platform but that is only a means to an end: the more substantial differentiation between WiMAX and WiFi compared to the walled garden of captive cellphone services is that it unleashes an open development platform in which software giants and new startup developers may capture the hearts, minds, and wallets of consumers.
The fact that this rolls out initially on AT&T’s limited bandwidth and QoS EDGE network is not happenstance: AT&T sold of their own crown jewel mobile unit and spectrum as recourse to earlier management decisions. As a consequence of the acquisition with
Degrees of Freedom
The difference between controlled development in computing environment markets and open ones is the degree of freedom that the user has to make choices. This stems as a consequence to how open the platform is to development within the framework of the standards and commercial mechanisms.
A key difference between WiMAX or WiFi and cellular wireless is the degree of freedom of the platform for application development. The business structure of the cellular industry is one in which applications from among which the user is chastised to make use are primarily determined by operators. This will be confronted by an open environment in which the operator must competitively package software, services and content from a growing number of suppliers using a skillfully intuitive interface. Otherwise, their ownership of the bandwidth highway will be overtaken by more streamlined fast traffic lanes of more adept NGMN entrepreneurs and their bandwidth service will quickly be pushed to commodity status.
The clamor for the iPhone shows some eccentricity of the market to be swayed by clever marketing but also real pent-up demand by people used to having the Internet served up their way. As broadband wireless become mobile personal broadband, expectations are likely to be a convergence of both Internet and mobile expectations.
What is most compelling about iPhone is that this is simply an opening volley which signals ability for outside players to bring compelling products to market that take advantage of PC and Internet developments. Despite noticeable faults including being deployed on a legacy network and a keyboard made for Lilliputians, iPhone marks a divergence in the way the wireless industry will unfold.
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