Apple and the iPhone
The day after we published our ‘Digital Music
Futures 2007-2011’ report, Steve Jobs of Apple
Inc. announced the impending release of the new iPhone.
What impact will iPhone have on the mobile music market?
It would be hard for anyone to deny that once again
Apple have produced a stunningly desirable looking device.
The iPhone that Steve Jobs unveiled on Tuesday 9th January,
during his keynote presentation at the MacWorld Expo
in San Francisco, looks cool, sexy, fun, easy to use
and extremely powerful. Apple has surely set a new benchmark
for the user interface. What does this mean for the
mobile industry and who will see iPhone as a threat,
and who will see it as a reason to celebrate?
Good news all round
The answer is that most players in the mobile industry
should find this announcement a good reason to celebrate,
as this is generally good news for most players and
good news for the industry as a whole. We have argued
for years that the user interface on most mobile handsets
needs to be easier to use to encourage greater use of
non-voice services, and while Jobs stated that Apple
have filed many patents with this product, which they
intend to defend, a standard has clearly been defined
and other manufacturers must now step up and meet the
challenge.
The iPhone certainly does not represent a major threat
to the dominant position of the leading handset vendors.
Apple has set a target of achieving 1% market share
in 2008, that’s sales of 10 million iPhones in
a market of 1 billion handset sales. Considering the
high-profile announcement and the months of rumour and
speculation that preceded it, a target of 1% after 18
months in the market seems quite low, but that simply
emphasises that the iPhone is not targeted as a mass
market device.
One of the defining factors that separates Apple products
from the rest of the market is the innovative design
and the uber-cool image that consumers attached to many
of Apple’s products. If this chic, leading-edge
image was lost then a lot of the appeal of Apple, and
the premium price fans pay, would be lost, so it is
actually not in Apple’s interests to become a
mass market manufacturer with double digit market share.
Just take a look at what happened to the Motorola RAZR.
When it was first released it was expensive, chic, desirable
and very up-market, yet within 2 years the device is
so widely distributed that it is now considered “old
news” and it has lost all its cutting edge fashion
appeal. That simply is not a space Apple wants to occupy.
Finding a place in the market
In the broader mobile handset industry, Nokia will
ship well over 300 million handsets in 2007 and 2008,
Motorola should ship well over 200 million, Samsung
over 100 million and SonyEricsson should also be aiming
to reach close to 100 million. Compared to these, Apple’s
target of 10 million should not be cause for any great
concern. Where Apple will be causing major worries is
in the high end smartphone and PDA market. Manufacturers
such as Palm, RIM, Dell, HP and i-mate have every reason
to be concerned, and devices such as the Motorola Q,
the Samsung Blackjack and the Blackberry range from
RIM now face serious competition from the iPhone.
Apple has a number of challenges ahead, not least
the lawsuit launched on January 10th by Cisco for infringement
of its copyright name, iPhone. Beyond that legal dispute,
Apple needs to ensure it has sorted out hardware issues
that have plagued iPod. While most consumers can suffer
having no portable music player for a few days or even
a week or two, while there iPod is being repaired, such
breakdowns are totally unacceptable with a $500 Dollar
smartphone. The kinds of consumers who pay top-Dollar
for a fully featured smartphone don’t like to
be parted from their device for an hour, let alone a
week. Hopefully such hardware issues will not be a problem.
Apple computers have always met high standards of quality
and reliability, and as a niche product hopefully the
iPhone will also be built to industry leading standards.
Top spec = top price
Many analysts and industry observers have suggested
that the price tag Apple has set for iPhone is too high.
We don’t agree with this, we think the prices
set, USD $499 (for 4GB) and USD $599 (for 8GB version)
are perfectly acceptably to the kind of consumers likely
to be interested in such a top-spec handset such as
the iPhone. As Jobs pointed out, the $499 price is approximately
equivalent to the cost of purchasing an iPod and one
of the current market leading smartphones, and we believe
consumers will understand this value proposition. More
importantly, Apple is only looking for 1% market share,
and those 1% of consumers are likely to be in the very
top tier of buyers – the kind of people who want
a top spec handset and a top spec iPod are the kind
of people who are not put off by a high price tag, they
have the cash and they want the latest cool device,
and we believe Apple will easily find 10 million such
consumers in 2008.
Also, during that keynote address Jobs alluded several
times to ‘the future’, to ‘more products’,
to ‘changing the mobile phone industry’
and so on. Clearly Apple have plans to roll out a whole
range of devices over the next few years, and just like
the iPod this range is likely to include both high-end
and mid-range devices, to broaden appeal to a greater
selection of consumers. Two years from now we could
expect to see a super-high-end 3G iPhone, perhaps boasting
a 5 mega-pixel camera and a massive 60GB of storage
and in-built VoIP capabilities.
Equally, at the other end of the spectrum the range
may include an entry-level product with a slightly limited
range of features priced lower, perhaps at only a couple
of hundred Dollars. While even this lowest priced model
will remain a premium product over many competitors,
this is congruent with Apple’s brand strength
and market positioning.
Market impact
As the months now pass after Jobs’ presentation
on Jan 9th, the end-user is unlikely to notice any significant
changes in the mobile handset market before 2009. Few
of these devices will actually make it into consumer’s
hands in 2007, at least few outside the domestic US
market, and even when Apple achieves its target 1% market
share – which we think it will easily achieve
– still 99 out of every 100 consumers will not
see any changes to the handsets they are using. However,
the real significance of the iPhone will show through
in the handsets made and shipped by other manufacturers,
mostly those who DO ship hundreds of millions of handsets
each year.
iPhone sets new standards and new consumer expectations
of what a mobile lifestyle device can and should do,
and while Apple defends its patents, other manufacturers
will find new ways to deliver better devices with better
user interfaces to the mass market. We await the 2008
handset ranges from Nokia, Motorola, Samsung and SonyEricsson
with great anticipation. The challenge is there to be
met, and if these huge players in the handset industry
meet it, that can only be good news for everyone, especially
consumers.
January 11th 2007.
Disclaimer:
Portio Research Limited.
Published 2007 by Portio Research Limited. © Copyright
2007.
www.portioresearch.com
info@portioresearch.com
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