The iPhone Lands — How Big A Splash Will It Make?

The Apple iPhone has finally been announced (Steve Jobs decided they may as well announce it six months early because they’d be outed by the FCC anyway). We knew the iPhone was going to be good — it had to be after all the hype — the question was whether it would be good enough to make a serious dent in the mobile handset industry.
Well, now that the vaporware has solidified into something real we can see how it looks as a phone, so here’s my impression, garnered from Apple’s releases, its online demo and the Engadget blog.
One of the issues with the Apple iPhone was always the business model — Apple makes money on hardware, carriers subsidize hardware to sell services, Apple doesn’t really promote the carrier services. That led to rumors of an MVNO, which would have been a REALLY bad idea, and Apple recognized that and has instead gone for a multi-year exclusive US partnership with Cingular. As a carrier Cingular is a good choice for a number of reasons, primarily that it’s a GSM carrier and Apple has made a quad-band GSM phone, with an obvious eye on the international market. Assuming FCC approval it will launch with Cingular in June, in Europe at the end of the year and in Asia in 2008…personally, I think Asia will be the real test as to whether Apple has “reinvented the phone”, as Jobs likes to say. The other benefit of going with Cingular is that it doesn’t have its own music store but has instead opted to partner with a bunch of other companies, so the fact that the iPhone gets its music from iTunes doesn’t affect Cingular’s content business model. I haven’t seen it explicitly stated but it does seem that all the music and video content will come from iTunes. The big issue is that the iPhone will go for $500$-600 dollars, which is a fair bit for a mobile handset — especially one that still comes with a two-year contract. The ESPN MVNO failed in part because it overestimated how much people were willing to pay for a special handset/service. Apple’s offering is slightly different because it focuses on handset features rather than mobile content, but there are still similarities.
iphonebrowse220“The other main question around the iPhone was the design. How do you fit a iPod navigation system and all the phone buttons onto a single device and still keep it pretty small and looking good? Apple’s strength is design so people were expecting them to get it right…and I didn’t hear any suggestions about a touch screen solution. The idea of one big touchscreen solves the basic problem of crowding different interfaces onto the one device, since the screen can just change to show whatever interface is desired. Apple has also used it to add some really cool features, such as resizing photographs by moving two fingers on the screen. I guess no-one thought of the touch screen solution because they mostly give a poor experience — I’ve never seen a touchscreen that worked nearly as well as I wanted it to. Apple claims to have solved all those problems, which I’d need to see to believe although I don’t think Jobs would risk the company’s reputation with a bad touchscreen.
In the keynote Jobs also made a big deal about browsing the internet, proudly proclaiming that the iPhone has Apple’s browser Safari rather than a stripped-down version. This isn’t as revolutionary as he made out — handsets have been able to run full browsers for years now, and in fact a lot of effort has gone into special mobile browsers to replace them. The iPhone browser does do a good job of navigating the web, showing full webpages with the ability to easily enlarge the part you want to see. It also automatically detects whether the phone is vertical or horizontal and adjusts accordingly. But viewing on the handset isn’t the only problem, it’s getting the information to the handset that is also an issue. The iPhone gets around this (partly) by including WiFi, which is a great move, especially in the US. However, in a lot of countries there is less WiFi, and the iPhone doesn’t have 3G connectivity. That means that other phones will give a better experience of browsing the net, but that shouldn’t be a huge problem: Most people buy phones to make calls, and most people buy iPods to listen to music. I don’t think the Web will be a big consideration for people buying an iPhone.
The deals made with Google and Yahoo didn’t seem to be anything more than the deals those two internet worthies have made with other carriers/handset makers, with the possible exception of Yahoo’s push e-mail service, and satellite images. This worked pretty well in the demo, but with e-mail getting automatically pushed to the handset I’d be checking my data plan.
I have to admit I’m impressed. The iPhone is pretty cool, and it should even teach some things to the mobile handset industry, mostly around style. For example, the method of displaying an SMS conversations as speech bubbles looks good, and while I’ve seen that sort of thing in some Asian phones I haven’t seen it anywhere else (just an example). Another one is the voice messaging application Apple developed with Cingular, which lets you listen to a particular voicemail without going through all the others. I’m also curious about the proximity sensor and how it works — how does it know the phone is near the ear rather than some other thing? And does it matter?
Apple is targeting a one percent marketshare of the global handset business by 2008 — or 10 million phones. That’s $5 billion in revenue. While some fanboys will scoff at such a low figure, that’s actually a very ambitious target. The iPhone is very impressive and has some great features, but it’s also got some negatives — it’s quite big for a mobile phone and relatively expensive. Apple’s done its best to make sure the features won’t be copied immediately (Jobs boasted about 200 patents), but like everything the real test is going to be in the marketplace. Apple doesn’t pose a threat to the handset manufacturers, but the iPhone should be successful enough to add significant profit to Apple’s bottom line.
And now we have to start reporting on iTunes content initiatives.