iPhone: Smartphone War Just Got Hotter

Jun. 9.09 | About: Apple Inc. (AAPL)

The first important concept to realise is that Apple (NASDAQ:AAPL) is involved in two wars with the iPhone brand. They are involved in a handset war with Nokia (NYSE:NOK), Samsung (OTC:SSNLF), Sony (NYSE:SNE), Motorola (MOT) etc. And they are involved in a smartphone operating system war with Microsoft (NASDAQ:MSFT), Symbian, Blackberry (RIMM), Android etc. It is the second of these that is by far the most important.

The second important concept to realise is that the mobile phone business model has changed. For years the airtime providers had all the power and demanded ever cheaper handsets for their customers. They were selling a simple commodity, airtime, so the main strategic advantage came from lowering costs. Now, with smartphones, the user is being offered a myriad of other services so the business model has moved to bait and hook (like system razors and game consoles). The profit for the the Apple iPhone comes mainly not from the initial sale but instead from the potentially endless income stream as owners pay for the services that they are using.

Apple have now sold more than 40 million iPhone and iPod Touch devices. This is the fastest and biggest ever uptake of a new gaming platform from a new platform holder in the history of the gaming industry. It is amazing that the App Store is still less than a year old and now it has over 50,000 applications!

The smartphone war is so fierce that all protagonists have to constantly update their offerings, or be left behind. So Apple have just announced changes to their iPhone brand offering. Firstly they have announced a new premium model the iPhone 3GS with a few added features and benefits. It runs twice as fast, which is important when you remember that these devices are computers. They have upgraded the camera quite a lot (they needed to) but it still falls far short of the camera on the Samsung i7500. And there are a number of smaller features such as a compass and voice control. There is no OLED display this time, which is a big pity.

Secondly, they have very cleverly continued with the old model, the iPhone 3G, but at a much lower price. They can do this because of their bait and hook business model and because they have already amortised its development and tooling costs. The 8GB model is now just $99 and so comes free with airtime contracts. This will allow the iPhone to go far more mass market, it will now be competing with non smartphones on price.

Overall the iPhone is still a very long way behind the Samsung i7500 running Android as a piece of equipment. However it has brand recognition, market momentum, those 50,000 applications and now price all working to its advantage. The war is hotting up.

Disclosure: No position