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.
“‘ We thought it was a mistake and made our engineers check the logs again…’
— Financial Times, 2/14/08

Users got the real Internet
Today they Google everything
Can use iPhone instead of PC
Data plan helps enable this
Result: ubiquitous Internet device
Begins shift to mobile Internet

There is no mobile Internet
“Mobile Internet” value chain in US
Utilizes existing Internet
Content: news, weather, etc.
Services: search
Adapted & customized
Form factor
Ease of use (custom app)
Location aware, e.g. maps

Future developments
US: iPhone is benchmark
EU: Nokia vs. iPhone
Japan, ROK: extend 2G success?
Developing countries: ?

Thank you… Joel West http://www.JoelWest.org/blogs Michael Mace http: // mobileopportunity.blogspot.com

Success of the iPhone (April 2009)

by Joel West on May 17, 2009

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