Thursday, July 06, 2006

The Apply iPhone (TBC) Will Be The Greatest Phone Ever! (repeat every slack news day)

I may not be the first commentator to suggest that Apple have done rather well with the iPod. Their core product traits - insistence that usability should play a part in the dev cycle and penchant for slick case design - have proven to be rather more effective at selling consumer-oriented digital music players than they ever were selling computers for rich gay people (and graphic designers etc – I’m not passing judgement on being rich or gay as a lifestyle choice, just pointing out a trend). Creative and the other early competitors were left standing, and Sony were very much caught with their pants down on what should have been their home turf.

Convergence is a big buzz word now and Apple would be remiss if they weren’t eyeing up the latest Walkman-badged handsets or the Nokia N91 and putting a future phone strategy into place: the iPod market will never match the mobile handset market for size, and it could easily be sucked dry. There are a lot of arguments about whether single do-everything gadgets are a good thing or not, and I don’t see either side winning an outright victory. I’d categorise electronic gadget consumers into three rough groups:

  1. People who love gadgets and will always buy as many as they can;

  2. People who prefer a small working subset (maybe a phone, music player, watch, camera) and pack according to what they are doing;

  3. People who just don’t care that much about electronics and 90% of the time have no need for more than a single basic device that does one thing well – and usually, that’ll be a phone for SMS & voice calls, which can also tell the time. (LINK?)

I’m looking at my Nokia 770 sitting largely unused on top of my 6”x4” photo printer and putting myself in the first group. I’d hazard a guess that most people are in group three, which suggests to me that the handset market will get more and more fragmented as niche devices are fine-tuned to the preferences of different market segments.

Back to Apple – how does this affect them? Many fanboys, which seems to include a lot of commentators and industry analysts, see convergence as inevitable, Apple as largely infallible when it comes to case and UI design, and therefore predict Apple will launch a phone and everyone will buy it. Apple’s traditional strengths and iPod success seem intuitively to support this, and maybe it will happen. But I think a fanboy’s intuition sometimes has a little bias that should be questioned.

We shall ignore the Rokr E1 and pretend it never happened, because it should never have happened.It was a low cost way to dabble in the market maybe, but spending money to damage your brand in a new market does not seem to make business sense to me whether it be a big or a small amount of money, and I cannot see how anyone ever thought this could work.Moto have terrible UIs, Apple are famed for good UIs. The E1 was ugly, Apple are famed for beautiful product. And the music capabilities were a bad joke.Enough said.

What sort of phones would Apple actually want to sell? Whilst they’ve tasted the mainstream with the iPod, it’s still a premium product carrying a hefty price tag from which Apple takes a healthy profit (though let’s be charitable and assume they splash out a little of it on an extra bowl of rice for their Chinese sweatshop workers at Christmas or something). The same strategy holds with the Mac, where you pay a massive premium for the Mac OS and the case despite the commoditised internals. So we can assume that if Apple does release a phone, they’ll be pushing for the premium end of the market with a music bias, and they’ll probably stick to this lucrative niche rather than trying to go head to head with, for example, the Nokia 1100. It might even be sensible to market the Apple phone as a member of the iPod family, though the distribution channels would be slightly more diverse.

Over the years Apple have generally excelled with the case design of both Macs and iPods giving the gay men, women, monarchs and graphic designers of the world some design classics which accessorise nicely and/or suit their home décor better than a beige box. Cumulatively they’ve also sold more iPods than Moto has sold RAZRs, though that is really just highlighting the relative sizes of the music player and mobile handset markets. Looks are crucial in the fashion-driven mobile sector - see RAZR again, and LG’s Chocolate as well where you pay a massive premium to collect your fingerprints on the shiny case. Can Apple keep rolling out updates to their phone’s case design fast enough for such a fickle audience? Probably, as they just need to keep knocking out slight revisions around a central theme as they have with the iPod. If things get desperate they can always do the usual and change the case colour, on the safe assumption that the faithful will buy another one anyway.

Phone UIs are generally appalling and any shakeup of the market that brings UI design to the fore has to be a good thing. Apple are usually competent at UI design, if they can be restrained from placing an inch of mock brushed-aluminium around everything, so they are starting from a better place than most but I think this are will be more problematic for them.

Very few consumers currently buy a handset based on usability – they buy one that looks nice, has long battery life, or a 3Mp camera, but they usually assume they’ll get used to however it works. The main exception would be brand loyalty – “I’ve always used a Nokia so I know how they work so I’ll always buy Nokias” – but this inertia usually just reduces the number of models they can select from using the same basic criteria of looks, battery, etc. You’ve got to pity the poor people who upgrade to S60 assuming they’ll get that simple S40 interface they know and love, but that’s another story. Apple could conceivably change this, in that the brand carries an implicit usability guarantee which won’t hurt uptake – if it is met.

Expectations will be very high for an Apple phone, probably Phantom Menace high. They are going to have to maintain the simplicity of the iPod for MP3 playing to persuade their existing customers to upgrade, whilst adding a vast array of extra features which must be created from scratch as they get to grips with a new OS and a lot of complex hardware. Taiwanese box shifters will be less help for Apple than they are for other new entrants to the phone market because they won’t want to take a standard platform (think HTC) and just stick their badge on it. The more they rely on 3rd party software components the less control they will have over the UI – they can probably get away with things like a 3rd party JVM if they just add a little UI tweaking (please God not Esmertec’s), but the core phone functions will all have to be written from the ground up. This is a mammoth task which will require huge investment in a non-core area of Apple’s business, and also large ongoing costs as they will now have to keep pace in an incredibly fast moving market.

All this development will have to keep on track against a moving target: the final feature spec of the phone will need to match in a lot of respects the other high-end phones in the market, but the phone can’t be launched until it’s perfect. Launching a phone that is underspecified could be bad, but launching a phone which isn’t simplicity itself to use and/or has serious bugs could be fatal.Apple would have a much harder time recovering from a Nokia 6600-style release than Nokia did, where heavy marketing was booked in advance and the phone had to ship on time even with serious bugs that took months to be fixed post-launch.I doubt we’ll see a Duke Nuke ‘Em Forever bottomless development pit, but there’s a risk that we could get something more akin to Sierra Wireless’ first and only phone, the Voq: despite requiring almost no software development it shipped late and buggy, with a keypad that would have been groundbreaking a year earlier but had already been overtaken by the Blackberry et al on launch. The handset division was canned and shareholders sued.

Apple must either release a phone or allow iPod sales to shrink as convergence starts to bite, something Wall Street is never keen on. It is dangerous to assume this phone will be the greatest ever - it will probably just sit in a small high-margin niche, alongside some heavy competition from bigger more experienced companies. A lot of diehard fans will buy it when it is launched regardless, but it has to meet their expectations else they won’t be coming back and they won’t be joined by anyone else. The iPod has defined a new market and pulled it into the mainstream, the phone however will launch into a faster bigger mature market with large, well established and aggressive competitors and it will be a much more complex product; more like the Mac than the iPod, but it is unlikely to achieve such a high market share as the Mac within the first few years.

"Apple has done extremely well when it has had no competition"


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