Why the iPhone Was a Hit (Observations in Honor of Its 3rd Anniversary)

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by: Joel West

Three years ago this month, Apple (NASDAQ:AAPL) announced the iPhone. This was only a few weeks after I’d had lunch with Michael Mace, who I’d met in 2002 when I was trying (unsuccessfully) to get internal permission to study the Palm/Palm Source (PALM) spinoff.

The day before the iPhone announcement, I suggested to Mike that we send a paper on an unspecific topic to an industry-academic conference called LA Global Mobility Roundtable (LA GMR). The next week, I emailed Mike to say “I think it would be fun to write something about the iPhone for the LA conference.”

And so began two papers on the iPhone that we wrote and got accepted at LA GMR and at DRUID 2007 conferences, and that were also presented at UCI and Boston University.

Since all of these presentations were before the first iPhone shipped, the audiences correctly noted the speculative nature of the papers. Particularly in Europe, people were skeptical that the iPhone would be a success — or could ever challenge Nokia’s (NYSE:NOK) insurmountable lead in smartphones.

By waiting until February 2008 to submit our paper to Telecommunications Policy, we could talk about some early success measures, such as the 4 million iPhones sold in the first 6½ months on the market.

We did two more submissions, and updated the data with each iteration, until we got word on Monday that the paper was accepted. The final corrections to the page proofs went in Thursday. (The final uncorrected draft is on my website, and I’ll link to the official copy when Elsevier posts it.)

The orientation of the paper evolved significantly over this period, thanks to prodding by the reviewers and some additional clarity on our part. (A dry run at Michigan State last spring also helped).

Still, I think we captured overall some of the transformations of the US (and lesser degree, global) cellphone industry due to the iPhone:

  • AT&T (NYSE:T) went to Apple because it wanted more people to use its data network. It generated data revenues, it set a precedent by requiring a data plan with every phone. Thanks to the iPhone, AT&T now seems to have more than enough data users, and data is becoming increasingly common across the entire industry.
  • Competitors copied Apple’s hardware, but none had (or yet have) copied its systems competencies. (Google (NASDAQ:GOOG) has come the furthest and may still get there, while RIM (RIMM) is serving an entirely different market).
  • By linking to the existing WWW, Apple was able to solve the chicken&egg problem of attracting complements before demonstrating an installed base.
  • Before the success of the iPhone App Store, the iPhone succeeded because it provided the best approximation of the World Wide Web.

We could support the latter point with this great quote from Steve Jobs a month before the first iPhone shift:

[Cingular has] spent and are spending a fortune to build these 3G networks, and so far there ain't a lot to do with them. People haven't voted with their pocketbooks to sign up for video on their phones. These phones aren't capable of taking advantage of it. 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.

Like any journal or journalistic article, our paper is a simplification of reality, and some may quibble over some of the details — but I think we accurately capture for posterity why the iPhone was a hit. (Or, as a historian told me when I was getting started, “first, get the stories right.”)

I’m really proud of this article, which is probably why I spent more time (more than a day) on the proofs than any previous article — not counting the time Mike spent on it as well.

A decade from now, I think it will rank up there with my 2003 most-cited journal article in Research Policy on open source strategies, as well as my first journal article from the San Diego Telecom project, published a year ago in the Journal of Management Studies.