US West Coast ‘Drunk’ on iPhone, yes still drunk, but Android is not ‘the answer’

Published 8th December

As this is such a great follow-on from the article I wrote on  Mobile strategy – iPhone should factor but certainly not dominate. I wanted to share. Post from the great Tomi T Ahonen posted on Communities Dominate brands.

US West Coast ‘Drunk’ on iPhone, yes still drunk, but Android is not ‘the answer’

I am not attending the Heroes of the Mobile Screen – a very good event clearly, that attracted a massive amount of Tweets, on comments by very smart people presenting.

One thought hit me, and I’m sorry, I don’t know for a fact who said it but I believe it was Andrew J Scott, the CEO of Rummble out of London. But it was tweeted that someone (probably Andrew) said: “People on the West Coast of the US are iPhone drunk; its time to wake up to Android.”

ORIGINAL WAS TRANSFORMATIONAL PHONE

Very clever line, congrats. And the first half is totally true. While the iPhone has indeed been a transformational phone, the single most important handset in the 30 year history of mobile phones, not so much because it is iconic (which it is) nor because now so many other phones are now copying it (a major achievement definitely) nor that it has redefined what we as consumers should expect from a well-designed user interface to our phone (which it has achieved) not even how easy it is to use (by far the most easy-to-use smartphone, so simple your parents can learn it without any manuals). All that is great. But, the far bigger impact of the iPhone was to the industries beyond telecoms, bringing in new giant industry players to mobile, including the IT industry to phones (Dell is now the latest to annouce a line of smartphones and just today, 3M announced its intention to enter the mobile telecoms industry) and the advertising industry and the various media industries from print to TV to hollywood. No other phone has transformed the total mobile business environment nearly as much, as the iPhone has. And yes yes, also it has a popular Apps store as well..

Now, about that ‘being drunk’ on the iPhone. Yes, it is the West Coast of the USA which is still very much drunk, delirious about the iPhone. The rest of the world outside of the USA saw the (original 2G) iPhone in 2007, was bemused, at times mildly interested, and didn’t really think it that revolutionary. It wasn’t that spectacular of a ‘phone’ after all. Then over the past two and a half years, we’ve seen gradual improvements to the iPhone, that the 3GS model is now a very competitive high-end luxury/premium smartphone. But if the US West Coast went gaga over the original iPhone 2G back in 2007 – and yes, the UI was revolutionary and its usability and gorgeous large screen (although done in several Asian phones by then) was amazing. But that was two and a half years ago.

What have you done for me lately iPhone? Why the continued hype? Why are they still drunk, today in December 2009? The 3G iPhone was very much a bug-fix – bringing the original 2007 spec iPhone 2G near to the specs of many rival smartphones – and made the upgrade in 2008 current against rival smartphones from 2006! Apple added 3G network speeds and GPS to the iPhone in 2008 and made it capable of accepting third party applications – all features that were ‘normal’ for rival smartphones in the high end of the price range. Even then it was not up to ‘modern specs’ of its rivals, as it did not upgrade its camera – 2 megapixels was underperforming in this price range in 2008 – or give a flash (still missing), or autofocus or provide MMS compatibility or record video. Those – also totally common features of rival high-end smartphones years before the original iPhone was launched – were only added to the model in the summer of 2009.

Now, lets ignore apps stores for now. If you think the original 2G iPhone was a ‘revolutionary’ or ‘innovative’ or ‘transformational’ smartphone – due to its form factor, big screen, ease-of-use, user interface and operating system – those were all introduced in 2007. Why the continued ‘drunkedness’ about the iPhone since then? All upgrades to the iPhone since 2007 have been bringing the iPhone up to equivalent status on what most rivals have offered for years.

It cannot be ’cause to celebrate the iPhone’ now, if it ‘reaches parity’ on some of the abilities the original 2G iPhone did not have. I am not saying the original iPhone was not worth celebrating. But since 2008, when the first revised iPhone, the 3G was introduced – if the iPhone adds 3G which Samsung and LG smartphones have had since 2002, or GPS which was first offered in Japanese smartphones in 2001, and ‘third party apps’ which all other smartphones had a decade earlier – why are these newer abilities of the iPhone causing any reason to be drunk now?

And even today, Apple does not offer a flash, its 3 megapixel camera is pretty puny for 2009 when high end rivals offer 8 megapixel to 12 megapixel performance. The iPhone still ‘doesn’t have removable memory cards etc. After those features and abilities it offered in 2007, in the two upgrades of 2008 and 2009, there is nothing ‘innovative’ or ‘competitively appealing’ that the iPhone has added. All of its ‘improvements’ were abilities its major rivals had had for years. (and I will deal with Apps Stores here below, hold on…) 

iPHONE THE CADILLAC OF PHONES

Now a dose of reality. For all that ridiculous reporting extrapolating outrageous conclusions from Admob data etc (nothing wrong with Admob data but we have to see what they report. They report, that iPhone owners get spammed more by ads, than owners of any other phones on the planet. Americans obsessed with the ‘free but advertising-spammed model’ – I wonder why..) Yes, iPhones receive more ads. But receiving more ads does not mean there are somehow magically more iPhones  in the world. It is ludicrous.

The reality is that there are 35 million iPhones that have ever been made. Out of 4.6 billion mobile phone subscribers on the planet, it means that 0.7 percent – under one percent – of all mobile phone subscribers on the planet have an iPhone. It is not in any way, anything more than a super-premium luxury product, similar to say the Cadilllac brand of cars (which have globally under 1 percent total market share). Look at Samsung for example. Just this year, in the first eleven months of the year, Samsung sold 50 million touch-screen phones, 42% more in just eleven months, than all iPhones ever manufactured and sold in two and a half years. Yes, the Samsung is not quite as sexy and hot and it does not have Apple’s PR glitz and glamour, but is this exactly fair? Most US based pundits ‘drunk on the iPhone’ will just compare the iPhone to the Blackberry and the Palm Pre, and ignore far more widely selling touch screen phones like Samsung, or far more widely selling smartphones like those by Nokia (whose smartphones alone outsell the iPhone by more than 2 to 1).

AMERICA IS DIFFERENT

If you think that ‘the rest of the world really doesn’t matter’ and one should only really care about what happens in the USA, then fine, how about the USA? The US has 280 million cellphone subscribers (yes, American cellphone owners consist only of 6% of all the mobile phone subscribers on the planet). How many US phone owners havs an iPhone? This June, AT&T reported that they had reached 10 million iPhone subscribers. And they are the only network that has the iPhone. Ten million out of 280 million. How many is that? 3.5% that is what it is. In fact, quite similar to my Cadillac analogy – that Cadillac also has by far its best market in the USA, and while Americans love their Escallades, the rest of the world is not going gaga over the gigantic gas-guzzling vehicles and many many other cars of other ‘form factors’ but of similar price, outsell the Cadillac line worldwide. Just like say Samsung and Nokia and SonEricsson and LG and Blackberry and Motorola all outsell Apple globally.

The media pundits and IT press all have iPhones and tend to think that because they personally have iPhones, therefore ‘everybody’ has the iPhone. That is simply not true. For 96.5% of Americans with a cellphone – they do not have an iPhone. The numbers do not lie. Do not fool yourself looking at some Admob data or think everybody is like you, or because you see some iPhones near you, in offices of the IT/tech/media/telecoms industry – that everybody has an iPhone. They do not. Even in America – over HALF of all smartphones are… Blackberries. Of the total installed base of smartphones in the USA, Apple’s iPhones rank in far less than a quarter of smartphones, roughly in line with numbers of those of Windows Mobile based smartphones. Don’t be misled by one quarter’s good sales numbers like this summer quarter for Apple. You only need to look at the spring quarter to find dismal Apple sales of iPhones. And again, most smartphones in the USA are far cheaper than the iPhone. And three out of every four Americans does not own a smartphone of any kind. Lets be real. If you really loved the iPhone in 2007, isn’t it about time we stop being drunk about it, and get real, that since 2007, there hasn’t been that much to celebrate about. Nothing where the iPhone has pushed the (global) leadership in cellphones, and only very modest contributions to the US market and its smartphone offering.

APPS STORES 

Now the Apps Store is gaining enormous press and praise all over. First, remember, all ‘normal’ smartphones except the original iPhone 2G, were able to accept 3rd party applications. So this was a deficiency in the original iPhone.

And for all the tens of thousands of apps on the Apps Store today, Apple is accused by many developers for being draconian in its control of who gets on the Apps Store and how and why or why not. Before you celebrate Apple too much, I have to point out that they did not invent the Apps Store – the world’s first mobile phone applications store was launched in Japan by NTT DoCoMo in 2001, as the i-Appli and the Japanese mobile content, apps and services eco-system is far more robust and healthy and wealthy than the ‘hits-based’ system that Apple now has created. Plus, the Japanese are far less greedy than Apple in taking a cut of the application developer’s money (in Japan the app developer gets to keep 90 cents out of ever dollar, vs 70 cents on the Apps Store).

But yes, that is a finer point of knowing this industry on a global basis. If we ‘ignore the world’ and focus just on the USA, as so often US based pundits, authors and bloggers do, then yes, for the USA, the Apps Store is a big innovation and while many smartphone makers and platforms had offered 3rd party apps for years before Apple’s ‘Apps Store’ – the older platforms like Symbian and Nokia (now as an Apps Store under the Ovi brand) or RIM/Blackberry or Windows Mobile etc – these were not branded as ‘applications stores’ similar to what Apple obviously had with the iTunes Store. So offering apps to a smartphone is nothing new whatsover. Packaging the store was a clever move by Apple for the Western markets including the USA.

But the Apps Store was an innovation of June of 2008 !  It was innovative a year and a half ago. If you had not observed that some apps stores did exist globally before the Apple iPhone Apps Store, that is understandable, as they were very nerdy geeky aspects of Japan etc. But if you think the Apps Store deserves to be celebrated with Apple, then it is an idea from a year and a half ago. Nothing whatsoever innovative since then. Why would there still be this ‘drunkedness’ about the iPhone today in December 2009? Apple, what have you done for me lately?

I want to make one more comment about explicitly the Apps Store. Now we have a totally ridiculous ‘race’ of a platform of tiny user numbers, consuming enormous amounts of data and apps, of a miniscule impact to the industry. Understand what I say. Tiny user numbers, miniscule impact. It does not matter whether there are 10,000 apps or 100,000 apps, or as some have predicted, by the end of the year, Apple to have 300,000 apps in its Apps Store. That does not remove the fact, that there are only 35 million iPhone users globally (with some growth to the end of the year, and yes, also some iPod Touch users). Focusing on the enormous growth of applications in the Apps Store does not make the iPhone user base any bigger at all. It is STILL zero point seven percent of all mobile phones on the planet. Zero point seven percent. If you take one percent of wealthiest people on the planet, you can sell almost anything to them. Kindle book readers and George Foreman grills and Seqway personal transport things. And iPhone apps.

Think how silly this logic is. Cadillac has under 1% of all cars on the planet, and is priced in the luxury end, so it cannot capture a mass audience. Then we hear that hey, the Cadillac can be made with two dozen separate leather trims (it still is a luxury car with under 1% of market). Now, hey, we expanded the interior options, and you can have 100 different leathers (but it still has under 1%). Or, hey, the Cadillac offers 100,000 separate types of leather interiors. That seems comical – as nobody would go through all 100,000 to try to find what they really like – think of that with Apps Stores – but still, Cadillac has no more cars sold. This is only of interest to makers of leather interiors.

And there we have our parallel. The Apps Store hysteria is irrelevant to the giant mobile telecoms industry. It is even pretty meaningless to Apple in terms of any revenue contribution to Apple’s bottom line. Apple has said repeatedly that its iTunes store is not there to make big profits to Apple, it is to help sell more iPod music players. Similarly, the iPhone Apps Store will not be a meaningful revenue or profit engine for Apple directly, but its purpose is to help sell more iPhones. So if there are 10,000 or 100,000 or one million apps, that does not change the fact, that as of the third quarter of this year, there were only a global installed base of 35 million iPhones. The Apps Store measurements are of interest to “application developers” desperate from vanishing sales in the PC industry, now panning for some possible gold on the latest intelligent operating system platform onto which they can develop apps. But then the developers themselves then become deluded by stats such as the Admob numbers and how cleverly Apple ignores the big market, and focuses only on its smartphone maker share.

343 MILLION DOLLARS IS LESS THAN PEANUTS

The number that matters, is that all apps sold in all ‘apps stores’ this year, 2009, will be worth 343 million dollars, as measured by the Yankee Group just a week ago. If you think that is ”impressive’ and numbers in the ‘millions’ impress you – then you clearly are not part of the mobile telecoms industry. The mere value of ‘mobile apps’ BEYOND apps stores was worth 7 BILLION dollars last year, as measured by Juniper Research. So this market, 20x bigger than all apps stores combined, is where those other mobile applications were sold globally, to smartphones such as RIM Blackberries (often business/enterprise apps, not sold through apps stores) or Symbian apps such as the installed base of over 250 million Nokia branded smartphones – or the various other mobile applications pre-installed to several billion non-smartphone type of more basic phones.

And before you have had time to ‘catch your breath’ on that 7 Billion dollar total worldwide mobile applications market – wait, the mobile ‘services’ industry is worth… 72 BILLION dollars last year (according to Netsize Guide). And that was before we even counted mobile messaging – about 130 billion dollars said Portio Research (and yes, 26 billion dollars worth of MMS picture messaging services globally, this is why Apple had to add MMS to its iPhone, inspite of Apple’s own protestations)

Only those totally clueless to the big picture of mobile, could be so obsessed by a 343 million dollar tiny corner of the mobile data, apps and services opportunity. All smartphone apps, sold this year on all apps stores, including Apple Apps Store and Windows Mobile and Palm and RIM and Ovi etc etc etc, account for …zero point two percent, 0.2% – 0.002 out of the global mobile data industry annual revenues. The total apps store market opportunity, can grow by DOUBLING in value, for each of the next ten years – utterly impossible economically and statistically speaking – and not be as big as the mobile data industry is TODAY.

It is possible, that some day, the mobile application data opportunity from ‘Apps Stores’ does become a billion dollar industry – give it a couple of years of solid growth and we may get there – and then we can start to consider its relevance. (For context, the 11 year old ‘basic’ ringing tone business is worth 5 billion dollars – three times as big as total Apple iTunes sales worldwide – and these basic ringing tones are only but one of a dozen new music formats we have on mobile phones, totalling over 12 billion dollars in annual revenues.)

Anything worth less than a billion dollars is honestly not worth drooling about in this mobile telecoms industry that towers at 1 Trillion dollars far bigger than the global IT or internet or TV or advertising, or indeed the fixed landline telecoms industries). But today, if you want to deliver your news or advertising or entertainment to the 4.6 Billion people on the planet who have a mobile phone subscription, then you need to start with the three globally available technologies – SMS, MMS and WAP. Only about 17% of the planet has any kind of smartphone – and over half of all smartphones in use have a Symbian operating system, and even the installed base of Blackberries outnumber iPhones globally by 2 to 1.  But 3 Billion people are active users of SMS and 1.4 Billion people are active users of MMS multimedia messaging. In most cases of interactive services, newsletters, advertising and coupons – rather than create an iPhone app, you could deliver the same interactive multimedia apps – and reach 1.4 Billion active users on the planet – and 2.6 Billion total phones that are MMS enabled. Here is your chance, not apps stores. MMS annual revenues alone are 75x bigger globally than all apps store applications this year.

TIME TO SOBER UP

So yes, I totally agree with the first part of the clever quotation, that the US market has been drunk on the iPhone, obsessing about it, and it is time to get past thatn drunkedness. Its time to ‘sober up.” The iPhone is now, two total revisions later, a reasonably complete, high-end luxury phone costing 600 dollars (obviously the AT&T contract hides this fact, in reality the iPhone is not a 200 dollar phone – even Apple’s CFO Oppenheimer openly admits that the average cost of an iPhone is about 600 dollars as he did in the quarterly results investor call this summer). That puts the iPhone far beyond the reach of most normal consumers. The average price of a smartphone worldwide is half the cost of the iPhone, at 300 dollars. The average cost of a mobile phone of any kind is under 100 dollars. The iPhone is priced like a Cadillac and will thus find a similar ‘niche’ market only. It cannot – cannot – cannot – ever cannot – become a ‘mass market’ phone with 10% or more of market share (of all phones) unless Apple totally revises its pricing strategy (and I am not talking of contract gimmicks like with AT&T and ‘lowering’ the contract price to 200 dollars or 100 dollars. I am meaning radical real price cuts like it did with the iPod turning that premium niche luxury product into a mass market product).

I am not against the iPhone. There is NOTHING wrong with a luxury strategy, and arguably, Apple is better suited to provide a premium line of luxury products with premium prices, like the Mac personal computers and the iPhone, rather than try to do main stream mass market like say Dell in computers or LG in phones. There is nothing wrong with being a luxury brand and a 1 percent global market share can be a very lucrative opportunity – BMW is often the most profitable car maker and it has that roughly 1% market share, a bit more than Cadillac, globally. And profits are inherently a better target for a business corporation, than revenues. And Apple is very profitable with its iPhone.

But it is time for the West Coast IT/tech industry to stop being drunk about the iPhone. Recognize it was innovative back in 2007, a truly transformational phone. Since then all of Apple’s changes to the iPhone have been ‘catching up’ type of repairs to deficiencies, when compared existing rival smartphones. Apple has given no globally relevant innovation since the first model. And the only major contribution that can be argued, that it was not ‘catching up to the neighbors’ was the packaging of 3rd party application sales into an ‘Apps Store’ (copying the idea from Japan) and that too was far more marketing and smoke-and-mirrors in ‘the store’ as all major smartphone makers did offer third party apps to their platforms; and apps stores themselves already existed years before Apple introduced its own.

FROM CADILLAC TO MASERATI

Now, the second part of that quotation – “People on the West Coast of the US are iPhone drunk; its time to wake up to Android.”  takes the right premise, and then jumps to the totally wrong conclusion. If the iPhone is the Cadillac, then the Android is not Ford or Toyota, the Android is Maserati. If Apple is the Cadillac as a niche luxury product, then Android as Maserati, is a far far more niche, more rare luxury product.

The Android based smartphones are, and will absolutely definitely be for at least the next year 2010, a smaller niche smartphone segment, than even the iPhone. So if anyone is ‘drunk’ on the iPhone today, then the wrong thing to do is to go and now get even more drunk or ‘hammered’ on Android. It is possible, that Android may grow at rates even as good as the Apple managed in its first two years. It is most unlikely that Android can achieve this, for a wide range of reasons, most of all, because Apple’s brand and launch marketing was so powerful, and so many of the Android brands are unknown or relatively weak brands in the mobile phone global market, like HTC and Motorola. But even if Android somehow manages to grow as enormously as Apple did in the greatest new technology launch in history, then Android in December of next year will still be smaller than Apple, far smaller than RIM/Blackberry, and obviously smaller than Nokia in smartphones and not have one percent of the global handset market.

No, the time is not to ‘wake up to Android’. No, the time is to perhaps pay a bit of attention to Android. It is going to fight for that ‘fourth’ place finish, against Windows Mobile and Palm and Linux Mobile and other of the ‘also-ran’ smartphone makers, whose total market share of all phones is far less than half of one percent. I do not mean Android cannot become big, but just like I said when the Apple iPhone launched, that the 10 million initial annual sales target was very ambitious (but I went on record, that I believed Apple could do it), I am saying, lets not be deluded that the mobile phone business is like some consumer electronics industries or the PC industry.

Having the ‘best phone’ is nearly irrelevant to global market success as I have explained, and certainly, having a ‘better’ operating system will not bring Android success or failure. It will not be up to the OS, it will be up to – as always in mobile telecoms – to the distribution channel. Read my blog article if you didn’t know this. Yes, its time to sober up, and not be drunk about the iPhone, but lets not go binge-drinking now and get newly drunk about the Android. Lets deal with reality today.

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