Success of the iPhone (April 2009)

Browsing as the killer app: The success of the iPhone

Joel West

San José State University

Michael Mace

Rubicon Consulting

Quello Center for Telecommunication Management & Law

Michigan State University

April 24, 2009

Learning from the iPhone

Observation

The iPhone has been a great success

Questions

Why?

What does it tell us about the future of mobile phones?

Outline

Assumptions pre-iPhone

In devices

In use cases

In value network

Apple’s iPhone strategy

Impacts

Evolution of Mobile Phones

State-of-the-Art Terminal Radio & Television News, Feb. 1953, p. 32

Terminal Evolution N-series Smartphone AMPS subs. Set Car phone Model 500 Desk phone Terminal Phone calls Info manager SMS/E-mail Web browser MP3 player Makes calls Receive calls Makes calls Receive calls Functions Handset, LCD, 200 MHz ARM9, 0.06-4.0 gb RAM Handset, dial, 2 MHz Intel 8080 Handset, rotary dial, wire Bill of materials 2007 1978 1949-1969 Date Nokia AT&T West. Electric Firm

Now a consumer product

1 billion phones sold in 2006

vs. 240 million PCs

US: 145m cellphones, 61m PCs

Major vendors seek brand loyalty

Nokia alone ad spending $375m/yr

Lots of technology push

Mixed results on market driving

The Pre-iPhone “Mobile Internet”

Original conception

“ Mobile Internet” vision ca. 2000:

Limited bandwidth

New mobile-specific content

New value network

Barriers to mobile Internet

From 1996-2000, telecom industry began to plan mobile Internet

What they didn’t have:

Device capabilities

Network capabilities

Justified planned 3G buildout

Mobile-specific content

Smartphones: then & now QWERTY : thumb, slideout or virtual Numeric (T-9) Keyboard 8 Gb 2 Mb RAM 480x320 color 160x160 B&W Screen HSDPA, EVDO: 1 mbps CDPD, i-mode: 5-10 kbps [GPRS: 50 kbps] Bandwidth 2008 1998

Reach vs. Richness (2001) Source: Jeffrey L. Funk, The Mobile Internet, 2001 Rich Media Wide Reach US, EU: full Internet, very expensive Japan: limited Internet, mass market

Early experiments

Low-bandwidth mobile web:

i-mode (NTT DoCoMo)

Slow speed data

cHMTL

Portal, business model

WAP

Special dialect of HTML

Both require custom content

Mobile value chain (2002) Source: Hermant Sabat, Telecommunications Policy, Oct. 2002.

Mobile web (1996-2005)

Japan, Korea: low-bandwidth custom web portals

Export to US, Europe fails

Europe: WAP never catches on

US: walled gardens

V Cast video clips, 176x132 15fps

Apple’s iPhone Concept

iPhone value proposition

Relatively large screen

Ease of use

“ Half the people at CTIA can’t send a text message”

PC-like web browsing

Unique content & ecosystem

iPod Ecosystem (2007) Fox, MGM, Universal, Disney … Music Video Hardware Performers Composers Sony BMG EMI Universal Warner “ Indies” Component Makers iTunes Store iPod Producers Complements Accessory Makers

iPhone Ecosystem (2008) iPhone 3G applications Video Music Software Hardware iPod content Component Makers iTunes Store iPod Complements Accessory Makers

Success of the iPhone

iPhone 1.0 and 2.0 70 App store, web apps UMTS, Wi-Fi iPhone 3G (7/2008) 4 Web only EDGE, Wi-Fi iPhone (6/2007) Countries Apps Network

Sales 2007: 3.7 million 2008: 13.7 million 2009: 3.8 million

June 2007 to March 2009:

21 million iPhones

Ca. 16 million iPod Touch

Smartphone market share Platform 2006 2007 2008 Symbian 67% 63.5% 52.4% Windows 14% 12.2% 11.8% Blackberry 7% 9.6% 16.6% iPhone - 2.7% 8.2% Source: Canalys (2007), Gartner (2009)

Plethora of “iPhone killers”

Google/HTC: G1

BlackBerry Storm

Palm Pre

Nokia N95, N97, 5800

LG, Samsung, …

Most have 320x240 touchscreen

Mobile web via WebKit

WebKit is de facto mobile browser std

Safari (Mac): 2003

Symbian S60 (Nokia): 2005

Safari (iPhone): 2007

Android OS (Google): 2007

Chrome (Google): 2008

Open source means available to all

The iPhone App Store

iPhone App Store 30,000 15,000 10,000 3,000 550 Available apps 0.1b Sept 2008 1.0b April 23 0.5b Jan 2009 0.3b Dec 2008 0 July 2008 App downloads

Top 40 apps As reported by Apple April 2009 (may be US only) 2 Web 2.0 2 Utilities 8 Internet services 6 2 Entertainment 14 8 Games Top 20 paid apps Top 20 free apps

Mobile web is wired web

Among the top 20 free apps

Facebook, MySpace

Google Earth

The Weather Channel

Movies, restaurant websites

Each downloaded by 3-6 million users

out of 37 million iPhone & iPod Touch

Rival app stores

Apple: July 2008

Google: Aug. 2008/Feb. 2009

Microsoft: Aug. 2008

Nokia: Aug. 2008

Samsung: Aug. 2008

RIM: April 2009

Discussion

The “Real Internet”

“ You’ve used the internet on your phone, it’s terrible! You get the baby internet, or the mobile internet — people want the real internet on their phone.

“ We are going to deliver that. We’re going to take advantage of some of these investments in bandwidth.”

– Steve Jobs, May 2007

Early success (1)

“ Of all the iPhone’s features, none had reviewers gushing more than its Internet browser . It was the first cellphone browser that promised something resembling the experience of surfing the Internet on a PC . …

“ On Christmas [2007], traffic to Google from iPhones surged, surpassing incoming traffic from any other type of mobile device …”

— New York Times, 1/14/08

Early success (2)

Google “had seen 50 times more searches on Apple‘s iPhone than any other mobile handset, adding weight to the group’s confidence at being able to generate significant revenues from the mobile internet.