ONLY ONE MODEL
This is the even more bizarre bit. All of the other Top 10 global handset manufacturers offer a wide range of handsets. Even RIM, another pure smartphone maker, offers about ten different Blackberry models. Nokia and Samsung release more than a new phone every single week, somewhere in the world. Conventional marketing has said for 100 years, that to gain market share, you have to diversify your product range, to meet customer needs. Globalization theory has further insisted that we have regional needs and need to develop 'global-local' product offerings, where we adjust to local environments and desires. Americans tend to like flip-phones while Europeans like candybar Swiss-army-knife phones, while Africans want dual SIM cards and FM radios, etc.
We humans are not homogeneous in our desires and wants, for example in phones, some will want a small phone to fit in the pocket of the blue jeans, while another will want a large screen to see internet pages. Someone will want a QWERTY keyboard to do messages well, while another will want a good camera to take pictures. All phones have to be a compromise in some way, if nothing else, if you try to cram everything into the phone, the phone will be huge like the Nokia Communicators, which have traditionally been ridiculed by many as being 'the size of a brick' where they have tried to fit every conceivable technology into one phone. Then again, Communicators sold in millions, and they continue to do so.
Henry Ford brought the production line to car-making and he offered his early cars in one color because that color was the cheapest paint he could buy [he apparently never actually said 'you can have it in any color as long as it's black']. Ford used his production line technology to become the world's biggest car-maker and at one point more than half of all cars driven on the planet had a Ford logo on the hood. But then rival car maker General Motors decided to offer consumers choice, and soon grew to be bigger than Ford, where GM soon offered separate brands of cars, optimized for given customer segments, Lincoln, Cadillac for the wealthy, Chevrolet as basic cheap transportation, Pontiac as sporty car, the Oldsmobile as reliable family car, etc. GM used product differentiation as the means to grow past Ford and became the world's biggest car maker for nearly a century.
What Apple has done, is the mobile phone equivalent of 'any color as long as it's black'
. This, according to all marketing theorists, should be a textbook recipe for market share disaster. Rivals offer better cameras [Nokia], bigger screens [Samsung], better text inputs [Blackberry] etc. And the big rivals tend to offer several specialized models to address such needs, such as Nokia does with the N8 and its camera, the E-Series with its QWERTY keyboards, etc. But Apple refuses to give consumers a QWERTY keyboard; its camera is modest, only now for the iPhone 4, the camera finally offered a flash, etc. Similarly Apple has had many long-running feuds with the industry standards from early iPhones not supporting video recording or MMS picture messaging, to the recent fights with Adobe about Flash support, etc. 'Any color as long as its black'. Sounds almost like 'my way or the highway' or 'the way Steve Jobs wants it, nor nothing.' And the rivals - they have been more than happy to oblige customers, giving every conceivable ability and option and color and feature such as now offering waterproof phone models [for use in the bathtub and shower] or 3D screens or Pico projectors, etc.
Motorola said this year that 30% of consumers will not consider a phone that doesn't have a QWERTY keyboard. Think about the iPhone and the world market. Apple is succeeding with only one model, where evidence suggests major segments of the global customer base refuse that specific model because of its form factor. It's like in cars, if you have a dog, you may appreciate a hatchback model of the car. If that is what you want, so you can easily get your pet into the car - then you will never ever in a million years consider buying an Aston Martin or Ferrari or any other car, no matter how cool or sexy or desirable - if that does not offer a model with a hatchback. We've heard of several studies of youth preferences from the UK to Indonesia to Canada, that they prefer the Blackberry because they are addicted to messaging. Apple could easily design an iPhone with a slider QWERTY keyboard - and if Apple bothered to do this, it would probably be the world's best keyboard too, so everybody would love it - but they have not 'bothered' to do that. Is Motorola right in saying a third of the planet is not going to consider a phone without a separate 'real keys' keyboard? Whether it's a quarter or half doesn't matter. The fact is there, that there is a big segment of consumers who, no matter how much they may like the iPhone, they will not buy any pure touch-screen phone that doesn't have an actual QWERTY keyboard.
The facts are clear. And Apple is foregoing this market segment. Deliberately not giving them any option.
Why is this relevant? Two reasons. First, Apple is succeeding in growing into the Top 5 handset makers, refusing to make a QWERTY-phone, while a rival - longer-established - smartphone maker, RIM has made a line of smartphones that [almost] all have had QWERTY keyboards. And Apple has grown past RIM. Whose choice was better? I am myself a QWERTY guy, I love my Nokia E90 Communicator for its QWERTY keyboard and I am a recent convert to the Blackberry Bold also because of the QWERTY. I have had at least one of my phones in my pocket with QWERTY for more than a decade now and if we count back to non-phone PDAs, I go back almost two decades of carrying a QWERTY device in my pocket everywhere, from my days of lugging my HP LX series PDA absolutely everywhere every day.
I would love to believe that everybody was like me, and 'naturally' everybody will so much love their QWERTY's that once you go QWERTY you never go back. But we are humans and we have differing needs. Yes, there is the heavily texting-messaging addicted segment of the population [me included]. But for a much larger segment, some texting is enough - and for them, the touch screen text input on an iPhone is 'good enough.' Not perfect, but good enough. And most importantly - the iPhone touch screen keyboard is faster to use, than the classic T9 on most basic phones. So for most iPhone users, they will experience an improvement in their typing speeds using the iPhone. No matter that some will insist on a Blackberry. The iPhone is good enough.
Imagine if Apple did what they do with the Mac line of PCs or the iPods, that they would offer us a range of products. Imagine if Apple offered us the 'basic' iPhone 4. Then they offered us a 'super iPhone' let's say with a 12 megapixel camera with Xenon flash, some other cool gimmicks and premium components but would sell it for say 800 dollars [$299 on AT&T with 2 year contract]. This would have some 'obvious' visual clues to why it's the super version, i.e. it could be the only white iPhone when others are black, etc. You can be sure; there would be lines of fanatical Apple loyalists standing in line for days, to get hold of this premium super-iPhone, almost no matter what its price. This would be introduced for Christmas season, so it would go on sale say December 1. It would revive all Apple interest for Christmas [and Chinese New Year] and keep Apple as the must-have device, helping also sell cheaper iPhone models for Christmas.
Then imagine iPhone would offer a 'fatter' version of the standard iPhone 4, for slightly higher price [50 dollars more perhaps], as the QWERTY slider edition. Otherwise the same as the basic iPhone 4. The QWERTY variant would be offered about three months after the 'new iPhone' so the QWERTY iPhone 4 would have been released around late August/early September, 'in time for school'. The youth would love this version.
Then for the after-Christmas [And after Chinese New Year] season, in late February or early March, Apple would give us the Nano version, a slightly stripped-down, but crucially NEW iPhone, which would mostly be a re-dressed and clearly physically slimmer/smaller version of the previous iPhone. So they'd re-design the iPhone 3GS, and do it with a visibly smaller screen, say 3.2 inch size. Price this as the 300 dollar iPhone [on AT&T would sell for 99 dollars with contract]. This would be the 'entry level model' that we would give our loved ones, so they stop using our iPhones...
I am not the first analyst to suggest Apple should expand its product line, and that Apple should release more than one new phone model per year. But understand two things - first, that all of Apple's Top 10 global biggest phone makers already do this strategy - they do not have this [expanding their product line beyond one phone model] as an option. Yet Apple jumped into the Top 5 - without using this option!
So strong are Apple's brand and loyalty and appeal. They can break into the Top 5 with only one model, where their other Top 5 rivals carry from 10 to 100 phone models in their line-up. Wow. And obviously - at any time that Apple wants, it can always expand its product line - to suddenly grab a major slice of that adjacent product space. Consider the QWERTY variant. Imagine how many of the world's youth wanted an iPhone, but are addicted to SMS, sending over 100 SMS per day. They need the ability to send SMS blindly, without looking at the phone screen. You can't do that on an iPhone. But now, imagine if Apple gave them a QWERTY iPhone? It would immediately be the ultimate must-have phone for all the youth. The cool kids would get them, and all others would have to have them. Are you cool? Oh, you still tap along with that old Blackberry? About time to switch to the iPhone...
If Apple can take the majority of the 600 dollar 'superphone' smartphone space, with an iPhone model that never had the best camera, didn't have the biggest screen, didn't have the QWERTY keyboard, wasn't compatible with all industry standards, etc - could Apple take half of the QWERTY space? Imagine if this QWERTY-iPhone was launched by Apple? It would devastate Blackberry's market chances in the consumer space and cause nightmares at Nokia's HQ around their consumer QWERTY strategies. If RIM sold 12.1 million Blackberries the past quarter and let's say two thirds went to consumers. Most of those would go to the youth segment. So Blackberry has about 8 million of those. What of Nokia's line of QWERTY consumer phones? Probably similar scale, let's call that at another 8 million. And all other makers of QWERTY phones from Samsung and HTC to the 'Chinaberry' and various Indian and other new makers who offer Blackberry clones. The youth market in one quarter has to be at least 25 million and probably 30 million QWERTY phones. If Apple took just half of that, Apple would double its quarterly sales... This without a 'bargain price' Nano iPhone to cannibalize profits.
I think in the long run Apple has to diversify its product offering. But so far, it has managed to grow very strongly with only one new iPhone model released per year. That is amazing. And as a warning to all other Top 10 rivals, Apple - and only Apple - has this strategic option they can implement at any time. If Apple feels their market share growth has stalled, they can instantly boost it by releasing a couple of new product models in the next year. Yes, managing a series of products is more costly than just one model, but Apple already manages that very well with the Mac and the iPod. Some time we will see the product line expanded. NOT OPEN MARKET
But that is where the iPhone is so totally against all 'conventional wisdom' in mobile phones and especially in smartphones. This market is not 'open'. It is not like other consumer electronics for example, where consumers can go to retail stores and compare items side-by-side and decide on their merits. Because of the archaic practice of handset subsidies [when phones cost 2,000 dollars apiece, and voice minutes cost a dollar, and the first networks were trying to find customers, it made sense to subsidize the phones, to bundle the phone price with the 2 year contract - but today, when a plasma screen TV costs 2,000 dollars and we can afford those - and an average [non-smartphone] mobile phone costs 100 dollars and the voice minutes cost less than 10 cents per minute, in many markets 1 or 2 cents per minute - then we do not need the obsolete concept of bundling the 2 year contract with the price of the phone.
Whenever there are bundled phones as the main form of mobile phone offerings and contracts, like say in the USA and Japan, it means that the carrier/mobile operator, not the consumer - decides what models are going to be subsidized and if your phone does not get a good subsidy from the carrier[s], then your market chances are effectively zero in that country - witness Google Nexus One and Microsoft Kin for recent examples. In very round terms, about a third of the world's mobile phone contracts are contract-customer phones, most of those are with subsidies. And two thirds of the world's phones are sold without contract, on 'pre-paid' accounts, where the consumer pays full street price for the phone, and buys the telecoms services separately. As there is no bundling of expensive handsets, in these markets usually the telecoms services are far cheaper than those in countries of bundled contracts. There is a gradual shift in the world away from contract-bundles as recently happened in South Korea and Israel for example.
In televisions, you can be a major TV manufacturer, set up distribution with one of the electronics distributors in a given country, and then offer your TV sets for sale in that country. And depending on the actual merits of your TV, its real price, and the marketing efforts you do, you the manufacturer can expect a 'fair' market performance with your product and its price. In the mobile phone market, that is not at all the case, again witness the Google Nexus One. Many analysts and comparison sites rated the Nexus One very favorably against the iPhone 3GS at the time. But the US carriers decided not to support the Nexus One and picked similar touch-screen phones by HTC instead. Nexus One died in the US market. Not because it was a bad phone or badly priced, it was because of the limited competition in the carrier-subsidized phone market of the USA. If carriers would not subsidize the Nexus One [with a retail price of about 550 dollars] down to about 199 dollars to be competitive with the iPhone 3GS, Google had no chance. They tried to sell it online but to pitiful performance.
Again, let's bring this back to the iPhone. The conventional wisdom says you cannot succeed in the global market without very strong carrier relationships. Look at all the rumors of Apple with a CDMA version and Verizon. Whenever some tech analyst site publishes a new rumor suggesting the Verizon iPhone is coming, the Apple shares take a bounce upwards. The iPhone is not available on all networks. The world's biggest mobile operator is China Mobile [alone twice as big as the total US domestic mobile phone market] but China Mobile was forced by the Chinese regulators to deploy their 3G network on the Chinese domestic 3G standard, called TD-SCDMA [which is incompatible with the WCDMA version of 3G as used in the iPhone today]. Apple does not offer China Mobile a TD-SCDMA version of the iPhone. But Nokia, Samsung, HTC, etc major smartphone makers do offer TD-SCDMA versions of their smartphones. So Apple is fighting in a somewhat 'handicapped' condition, like a boxer who has one hand tied behind his back. Apple has to fight for global market share, yet it does not offer an CDMA-2000 EV-DO version of the iPhone [as used by Verizon and Sprint in the USA, KDDI in Japan, China Telecom in China, etc] and no TD-SDCMA version [used by China Mobile]. By these technology choices, Apple is completely shut out of about 20%-30% of the world's market potential for 3G smartphones.
And as mobile phones are often corporate/enterprise 'employee phones' i.e. business tools, we also often get phones and their contracts as part of our employment. In large and medium corporations [companies that buy more than 100 phones per year] the phones are tightly managed and the IT department will govern what phones are accepted as employee phones - as these provide various risks to the IT department, as vulnerable entry points to the protected IT systems of the corporation. These phones tend to be Blackberries or Nokia E-Series or previously were also Microsoft Windows Mobile or Palm business-oriented phones. About one phone in five is a company phone, sold today. Note that while in small businesses, the boss can do what he or she wants, I am not talking of small businesses. In large corporations, perhaps the marketing department can get an exception for the VP of marketing to have an iPhone, but the standard sales reps and field engineers etc, the phones they get, are from a set of pre-approved models, very strongly Blackberry-dominated. An Ostermann survey in 2009 found that 75% of US businesses had Blackberries, and obviously of the remaining 25% the majority would not be iPhones, they'd be Microsoft Windows Mobile or Palm based phones...
I do not mean to dismiss the iPhone. Apple has tried very hard to break into the corporate space, and have occasionally some breakthroughs, like one of the world's 50 biggest banks announced earlier this year that it will allow iPhones to be used by its employees [while not abandoning Blackberries], and the EU slapped Nokia rather hard this summer when it decided that for the EU Parliament, they were getting iPhones not Nokia smartphones. But these are rare exceptions. With the exception of the advertising and media industries, the iPhone is not a corporate/enterprise phone [yet]. So if we look at the global phone market, where Nokia and RIM compete for 100% of the market [both consumer and enterprise market segments], Apple is fighting effectively only in one of the two. That makes its achievement all the more impressive. Apple achieved its Top 5 without meaningful presence in the enterprise segment. You could say Apple had been locked out of 20% of the world market. Ever more a phenomenal achievement. HOW GOOD IS 4%?
Apple is the boxer fighting with one arm tied behind his back? Apple is a global player, but it does not offer all global standards of 3G. Apple does offer a smartphone suitable for consumer and corporate use, but it has had almost negligent market penetration in corporate phones [so far]. Apple refuses to offer a QWERTY variant. And still in several markets, the iPhone is not offered on all networks due to the early launch carrier relationship contracts.
How well is Apple really doing? I have a model for the global mobile telecoms market and out of that, if I remove the 3G standards that are not supported by Apple today; and I remove the enterprise/corporate segment of what is left; and I remove the consumer/youth QWERTY segment of what is left; and for what is left, I still remove those networks on compatible standards but who for contractual reasons cannot sell the iPhone [like T-Mobile, a GSM/WCDMA operator in the USA, or NTT DoCoMo an WCDMA operator in Japan] - I get an 'iPhone feasible' market of only about half of the total mobile phone market globally.
This is BEFORE we count the price into the equation! So, what does this mean? It means, that in those markets - where the iPhone is a viable option - it is on the right standard, has the carrier relationship, is acceptable to the customers to even consider etc - this market is only half of the world's phone market. And Apple has already 4% of the world, meaning 8% of this 'half market'.
What does it mean? It means, that Apple's 'true' market performance, in those markets that are relatively fair to compare - is 8%. That's about where LG is today. If Apple wants to address those 'gaps' in the coming years, releasing a CDMA version for Verizon and Sprint, offering a QWERTY etc - without touching its price, the current iPhone 4 and some close variants, if offered on a global level - could attain 8% market share.
Beyond these, is the option of the Nano iPhone, which if executed carefully, could double Apple's unit market share, while not seriously hitting its profitability, as I have explained.
Note, Apple is the most profitable handset maker by a wide margin. If at any point Apple feel that the iPhone is 'underperforming' to their own internal targets, Apple always has the option to cut their profit margins - i.e. drop their prices [or boost their marketing expenses]. This is an option that only a few of the major rivals have, and nobody has as much of a margin in its profits, to power possible 'price wars' as Apple has. Is this not the best positioned phone maker today? They have the most desirable phone, the phone with the highest price, the highest profits, and have entered the Top 5 without the costs of managing wide ranges of products. Apple can offer its developer-partners a nearly homogenous product line with the least amount of fragmentation in technical specifications. And now they have all the options.
This is very frightening in a very real sense to the rivals. Understand what I am saying. Apple is beating the competition like a rented mule, while seriously under-performing today, compared to its true potential. Imagine the strategists at the HQs of Nokia, Samsung, RIM, HTC etc, who look at their internal customer satisfaction surveys and comparisons to the iPhone etc, and then they see that another quarter went by, and Apple still has not split its product line. They give a quiet sigh of relief, and hope and pray that it will be yet another quarter, before Apple finally gets fully onboard with this battle.
And again, before I am crucified by Apple loyalists, I admit - totally utterly admit - that Steve Jobs' judgment and knowledge of his customer base, its loyalty, and the unprecedented appeal of the iPhone has been far better, than my understanding of this, what I profess to be my area of expertise, the mobile industry. Steve Jobs has personally managed the iPhone and made decisions, some truly magnificent, others perhaps not perfect, but the combination of which, has given him the best phone in the world by customer loyalty and satisfaction. The best phone in price and profitability. Climbing from nowhere to Top 5, in one of the most competitive global industries ever, in its most competitive segment. Apple has performed brilliantly. What more could you ask for in a CEO.
Now, I do think that at some point there will be more than one iPhone model, and when that happens, Apple will grow market share again. So I am only critical of Apple for under-performing! For all his excellence - and Steve Jobs and Apple have been excellent - I am convinced that Apple has under-performed in the smartphones/mobile phones space. They can do twice as well without lowering their price or cutting in any significant way into their profits. And then, after that, if they introduce the Nano version as I have argued, they could double their market share AGAIN. Then we're talking 16% of the world's phones [in a 2-3 year time frame from now] and Apple would start to challenge the world number 2 mobile phone manufacturer, Samsung. THE ERA OF THE iPHONE
I told you well before the original iPhone even launched, that it will forever change our industry. I called it the phone by which we'd measure time, before iPhone and after iPhone. Yet, if you asked me three years ago whether Apple with pure smartphones on a 600 dollar price strategy could ever be a top 5 manufacturer, I would have said, 'never'. In my mind it was categorically, economically not viable. It was even foolish to think that.
How wrong I've been. Apple has proven they can break into the Top 5, while offering only one phone model, and with a price that is about twice as expensive as the average prices of its nearest rival in price [Blackberry] and costing six times what is the global average for phones. This they have done in the most heated age of competition in smartphones, when over 30 global Fortune 500 rival brands have entered the smartphone space. They are now the world's second largest smartphone maker, and if you accept the definition that a smartphone is a computer, Apple is once again the world's largest computer manufacturer by computer units sold. They are also the most profitable tech company. And where all their bigger rivals in mobile phones manufacture both 50 dollar dumbphones and cheaper smartphones than Apple, Apple with only the iPhone, has in three short years, leapfrogged some 50 rivals and stolen a place in the Top 5 of handset makers. Wow. That is amazing. Congratulations. THE ROAD AHEAD
Now, Cupertino - expand your product range to include a super-iPhone and a QWERTY variant of the iPhone 4. Then add CDMA and TD-SCDMA versions. Terminate your exclusive contracts like with AT&T in the USA and Softbank in Japan. And keep pushing for the enterprise space. You'll double your market share and hit 8% in about a year. And after that, offer the Nano model at half price [as I explained, carefully ensuring you will not cannibalize full-price iPhone sales] and you can target the 15% market bracket for a 2 year to 3 year window. Then you'd be safely in the Top 3, and truly fulfill your mission to be a mobile company. You never need to be the cheapest phone for everyone. You can always be the most inspirational phone with the associated price premium that will fulfill your investor hunger for greater profits. But yes, congratulations and here is to wishing you on to even greater things. In spite of all that I write here griping about 'missing this' and 'I want that' you've changed our industry for the better and I applaud that. Keep doing what you do best, disrupting industries and making consumer electronics more user-friendly. Our industry is more exhilarating with Apple a major part of it.
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