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Apple’s iPhone Strategy - Machiavellian or DOA? – Readers Comment

Several readers have posted comments making the point that Apple’s exclusive US arrangement with Cingular/at&t is simply an expedient for launching the telecom revolution Steve Jobs promised in his keynote.  They may well be right about nimble Steve’s intent towards the telco behemoth he’s temporarily partnered with.  I think, however, Steve is in a three-legged race bound too tightly for too long to the wrong partner. 

Responding to my post listing what Apple might have done to revolutionize telecom, reader Israel Alvarez comments:

“…There's nothing to prevent Apple from taking any number of steps you describe *after* they've made a decent chunk of money off the iPhone in partnership with Cingular and established a track record of success….The vagaries of the cellphone market as it currently exsits require that they pick a partner, but I'm not convinced they chose the most capable partner - just the most gullible. Remember the Motorola partnership for the first iTunes phone? Remember Apple's lack of interest in the product?”

And remember, says I, that this phone failed.

Reader Mark comments:

“Also remember that Steve plays a different game. What you say is true, but where you go astray is assuming he'll leave the balance of power where it is once he gains sufficient market momentum. Apple needed a hand to make this work day one, but you're kidding yourself if you think it ends there. Disruption sometimes, even with SJ, happens better if the biggest threat isn't seen until it is too late….”

And reader Paul Newnes comments:

“Apple can disrupt the converged device industry with regards to usability right now; wifi allows it disrupt the voice component in the future. I think inbound calling and SMS are the largest hurdles to overcome...”

I agree that Apple is changing the game as far as usability is concerned although, as part of an overall very favorable review, David Pogue writes in the NYTimes: “Typing is difficult. The letter keys are just pictures on the glass screen, so of course there’s no tactile feedback.”  It may well be that Apple means to abandon Cingular as a partner once the iPhone is well-launched.  But, if that’s Apple’s strategy, there is a high likelihood of failure.

Exclusivity as a strategy is only slightly better than full vertical integration.  Exclusivity often means that the partners spend more time worrying about each other than they do about the needs of their customers.  Exclusivity (except when you’re partnered with a monopoly… hmm) means forgoing markets and leaving room for competitors – especially more open competitors.  Exclusivity means that the competitors of your partner HAVE to help someone other than you succeed.

The iPhone as announced already shows signs of compromises born of exclusivity.  For example, when not in a WiFi hotspot, it uses Cingular’s deadly slow EDGE network for Internet access.  Verizon’s EVDO is much better in the US.  Would you buy a computer which could only use dialup Internet access (EDGE is only a little better than dialup)? And that only from one provider?  In the near future it is cellular data technology rather than WiFi which will provide almost all connectivity both to people in remote, sparse regions and those who are in motion – in a car for example.  The incar WiFi systems which have recently been announced depend on technologies like EDGE and EVDO to connect to the Internet.

According to John Markoff, also writing in the NYTimes: “Some analysts and industry executives noted that the Apple designers had shunned Cingular’s higher-speed digital cellular network [nb. In some locations even Cingular can do better than EDGE]. Mr. Jobs said later models would have additional networking standards.” It’s a classic sign of product weakness to start talking about the features of the next generation before releasing the first one.

According to Michael Gartenberg from Jupiter Research and other sources, the iPhone is NOT open to 3d party applications.  New apps have to come through Apple’s gates into the walled garden.    This seems to negate any advantage there would have been in using some parts of Apple’s OS X as its operating system.  Presumably this limitation is why there need to be special apps from Google and Yahoo bundled with the phone.

It’s quite possible (but this is all speculation) that exclusive partner Cingular did not want an open interface OR access to faster data speeds.  Having both of these capabilities would have made it easy to use this device to make voice calls off of Cingular’s network and without paying Cingular tariffs.  Certainly the exclusive arrangement reduces Apple’s incentives to be open and especially to be disruptive in telecommunications.

Reader Galeal Zino tracks back to a post on his blog, NextBlitz: “…Maybe Apple design and marketing genius will reinvented the handset, but at the most they have built a terrific handset that is still trapped in the walled garden…Internet pervasiveness has brought us to an inflection point in just about every industry/product segment in which walled gardens keep more people out than they keep in.”

Telecom superexpert Aswath Rao gives the mixed news: “Sometime back there was a buzz about an open, Linux based phone (http://gizmodo.com/gadgets/smartphones/fics-linuxbased-smartphone-213016.php). That could be a hope. But a recent visit to the company's site (http://www.fic.com.tw/) did not turn up any reference to this device.

Whether Apple’s strategy is right or wrong, it’s certainly caught the interest of the blogosphere and the traditional media.  I can’t keep up with the flow of comments on my original post so am sure I missed quoting some good ones.

It may turn out that Apple revolutionizes telecom after all:  if Verizon et al are scared enough they may support a much more open competitor to Apple who really will change the game.  This is the danger to Apple in its short-term (and I think short-sighted) strategy of eschewing disruption to assure distribution.

More here:

Steve Jobs and the Orifice

Apple Fails to Reinvent Telecommunications Industry – Too Bad

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Call me crazy, but I think Apple have overdone the technology innovation, and undercooked the business model innovation. A truly Machiavellian strategy would have been to create a cheaper mass-market iPhone whose features like Visual Voice would only w... [Read More]

Comments

needfornews

needfornews.comSo if you're used to broadband, you won't be using the iPhone for tethering to a laptop, or traditional web surfing, but it will be fine for email and WAP sites via EDGE.

justine7

Hi! After they posted to my blog info about iphone http://loadingvault.com/search.php?q=iPhone I sent both 'Apple' a personal e-mail inviting them to post on my blog and expand upon their comments.

Eric Stern

Just wondering if anybody has tried CellSwapper (http://www.cellswapper.com)
to get out of their phone contracts without paying any early termination
fees?

Ted Weitz

Your posts on the iPhone appear to be a little surprised that Apple is reinforcing a proprietary closed model in telecommunications. This should come as no surprise. Apple is terrific at user interfaces and painting itself as a rebel. It is much less terrific at opening interfaces and enabling competition. Today (Sunday)'s New York Times has an excellent article discussing the "handcuffs" that come with the digital rights management software built into the iPhone and the iPod. http://www.nytimes.com/2007/01/14/business/yourmoney/14digi.html?_r=1&oref=slogin
Apple's model seems a lot like like the old razor blade pricing with a twist. Instead of giving away the razor and making money on the blades, Apple sells the razor for a lot and still locks you into their blades.

Geo

Apple HAS a launched a cell phone revolution. These comments (and Mr. Evslin's blog) overlook some critical points:

Collectively, today's cell phones are terrible and in need of a technological overhaul and facelift. For the most part, all the phones look alike and all have virtually the same interfaces -- and limitations (poor software, non-sensical icons, bad use of color, brain-dead navigation) to name just a few problems. And don't get me started on the poor data exchange capabilities between cell phones and the computer. My God. Many of the problems with today's cell phones basically are the very same problems with cell phones of 2001.

Motorola, Samsung, Nokia and Sony have been incapable of producing phones that consumers really want. Instead, we get phones that we accept because nothing terrific really is available. And Microsoft's mobile OS software contribution is no more innovative, just more of the same me-too dullness. Like the music industry, the cellular hardware manufacturers and consumers have been held hostage by cellular carriers that limit features to drive up data rates and earnings. Come On. $2.50 song downloads to a cell phone? Do the carriers really expect legions of people to use WMA audio files on a product that is incompatible with the leading music player software? Get on board, make deals, or get left behind.

Obviously, Apple has business interests as well, but to date, only Apple and Steve Jobs have shown the guts to step forward and attempt to deliver a different product that consumers might need and actually want, rather than a crippled product the carriers want us to have. Do not underestimate the power of people who are fed up with bad cell phones and bad cellular service. Many customers want someone to force change on this industry and Apple may have just jumped on this grass roots movement.

As usual, Apple's hardware also catches the eye, but it's really all about the software, and that new iPhone interface is just spectacular. When was the last time a cell phone manufacturer delivered really intuitive software, made it work properly and perfectly with the phone on both Macs and PC's, and then updated it when necessary to correct problems or make improvements after the sale? This will change with Apple in the game. The cell phone just became a mini computer, as well as an iPod and portable Internet communicator.

Also, some 25 million Mac users now will have some exciting cell phone options, where we had none (zero, nada) before. Addiitonal phone models (and cellular services) will join this movement by popular demand.

Finally, Mr. Evslin writes: ..."Remember how crappy Windows was at first? But it ran on machines from everyone and their brother..." At first? Micrsoft Windows (even Vista) is still a mess for customers. Apparently, his years at Microsoft blinded Mr. Evslin to the dark side of his company's product history. The fact that Windows ran on every cheap piece of hardware on the planet only helped make this poorly written bloatware responsible for unleashing a generation of viruses, malware and spyware on computer users everywhere. During this same period, the Apple's Mac GUI actually improved with each new generation, culminating with the brilliant OS X, and a version that now runs on a cell phone that ensures a paradigm shift for small mobile devices. Meanwhile, the pathetic Windows GUI only advanced by trying to emulate Apple's interface at every twist and turn, but always falling short.

It must be embarassing to work in the telecommunications industry today, and stand by as an outside computer company steps in to fix a broken business.

Hudson

iPhone sees itself as a replacement for mobile phones and PDA's. I was hoping for a laptop computer that I could put in my pocket. Big difference........Is Cingular subsidizing the cost of iPhone in exchange for exclusivity? ..............iPhone is the opposite of a borderless communication device. Someone needs to punch some holes through its walls. See blog article at http://homepage.mac.com/hhbv/blog/home.html

Bill

I suspect it includes only the slower EDGE in order to keep down the monthly fee.

True broadband speed over cellular usually requires add-on data plans with hefty monthly fees (e.g. $60 w/ a voice plan, $80 w/o for Verizon EVDO)

This way you pay one fee but are stuck with speeds about 2x-3x dialup (when away from Wi-Fi networks)

So if you're used to broadband, you won't be using the iPhone for tethering to a laptop, or traditional web surfing, but it will be fine for email and WAP sites via EDGE.

Faisal Premji

Tom-

Putting the reliance on a traditional telco aside, the main reason for selecting Cingular as a partner is summed up with three letters: GSM. The GSM standard is used by approx. 78% of worldwide mobile users, representing a market of over 1 Billion subscribers.

Apple is targeting a worldwide market with the iPhone -therefore, to launch in the US (where they must launch first for a myriad of reasons), it was either Cingular or T-Mobile, the only substantial GSM carriers in the USA. Cingular has twice the subscribers and a much larger nationwide footprint, so the choice was clear.

However, I tend to agree with other commentary that suggests Apple simply needs some momentum; WiFi simply won't cut it (at the moment) for a cellular user who is used to almost ubiquitous coverage. To leverage the device onto the worldwide market, Steve had to use the current infrastructure.

Don't count Jobs out of a 'game-changing' telecom revolution; with the iPhone, the game is on.

devittj

Tom,

I agree with those who say that Apple has launched a revolution. Too much to post in the comments though:
http://www.brash.com/brash_dot_com/2007/01/and_so_the_ipho.html

Jason

Boots

I wonder if the apple phone will be as easy to "Unlock" as all the other phones out there are. The guy at my local phone store will unlock anything you might currently have for about $30 unless you buy from him to begin with, in which case it comes unlocked for the standard price. My current Cingular phone can do much more unlocked than the standard locked phone.

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