iPhone: Smartphone War Just Got Hotter

The first important concept to realise is that Apple (AAPL) is involved in two wars with the iPhone brand. They are involved in a handset war with Nokia (NOK), Samsung (SSNLF.PK), Sony (SNE), Motorola (MOT) etc. And they are involved in a smartphone operating system war with Microsoft (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

Comments

[GetMeOnTop:]

Not sure if this the UK style of writing, but I find your text disjointed, your comments a bit brash, but more importantly baseless and often without merit.

"The war is hotting up", does not quite cut it in the US, maybe it is the Queens english?? The article seems more like it was a Google Translation?

Jun 09 10:27 AM

[mollytjm:]

the iPhone is pocket computer and it's pretty hard to knock the experience of web browsing and search on it. other products will come out but all they do is make Apple innovate even better, so that's a good thing.

Jun 09 11:08 AM

[William Mon...:]

There is also a third war which is the gaming war, so many new games are coming to the iPhone, some by major players, some by boutique developers and some from bedroom/ garage developers. Neither Nintendo DS, Sony PSP, Android, Symbian, Rim, Msft have as many developers working on handheld games than the amount working on iPhone/ iTouch.

As for the i7500, it hasn't even been released in most countries, and the countries that it has been its only been out for three weeks. As with any new 'expensive/ smart' phone I buy I wait for at least 6 months to check failure rates and customer feedback. I would never just go by tech spec. Further to that Android has a long way to go!

Jun 09 01:09 PM

[JPSmith:]

Lower prices for iphones etc. won't help them go "mass market" until the carriers drop pricing for qualifying service plans. For example, right now the cheapest AT&T plan for iphones is $70 a month. Sprint requires a similarly priced plan for its new Pre. That's too high a monthly nut for mass adoption especially in a recessionary environment.

Jun 09 02:34 PM

[William Mon...:]

I know that your comment makes absolute sense, however Apple have continually (since the iMac) charged double sometimes triple for comparable goods and consumer uptake has been double digit percentage UP every year including this year - the Great recession.

As for mass market, smart phones haven't gone mass market yet, it will take some time. Just like the home computer took time, just like mobile phone usage took time etc. etc.


On Jun 09 02:34 PM JPSmith wrote:

> Lower prices for iphones etc. won't help them go "mass market" until
> the carriers drop pricing for qualifying service plans. For example,
> right now the cheapest AT&T plan for iphones is $70 a month.
> Sprint requires a similarly priced plan for its new Pre. That's
> too high a monthly nut for mass adoption especially in a recessionary
> environment.

Jun 09 02:59 PM

[HereAndNow:]

The tech industry is REALLY exciting these days, with Apple & Google providing EXCEPTIONAL leadership & vision.

I can't wait to see what the computer industry looks like 2 years from now. We'll probably look back & think we were in the stone age of computing & communications.

Jun 09 05:41 PM

[Dirtnap:]

Were it not for our recessionary environment, I would agree that we could make enormous leaps in communications in the next few years. I work in the research field for RF communications, and there is alot going on.

However, the current economic environment will slow this progress substantially. Adopting the new hardware for 4G systems and mobile broadband will likely be too costly for many years.


On Jun 09 05:41 PM HereAndNow wrote:

> The tech industry is REALLY exciting these days, with Apple &
> Google providing EXCEPTIONAL leadership & vision.
>
> I can't wait to see what the computer industry looks like 2 years
> from now. We'll probably look back & think we were in the stone
> age of computing & communications.

Jun 09 06:15 PM

[chleoku:]

iphone also starting grab gaming shares from nitendo DS and PSP:

www.wealthalchemist.co.../

Gradually iphone will become a do-it-all swiss army knife. This is amazing as no one else have done such an agressive convergence handheld device before apple

Jun 09 09:17 PM