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January 09, 2007

Apple Fails to Reinvent Telecommunications Industry – Too Bad

According to the AP Story carried in the NY Times Online, Steve Jobs claims that iPhone will “reinvent” the telecommunications sector.  Wish it were so but it ain’t!

The design of the phone – no hard buttons, all touch on screen, sounds like everything we expect from Steve and from Apple: it’s all about the GUI and that part’ll be fun.  But the business relationship is as old school as it can get: exclusive US distributorship through Cingular (which will soon be exclusively owned by at&t).

Come to think of it, iPod and iTunes aren’t very open models either.

The telecommunications sector (or at least the mobile part of it) WOULD have been reinvented if Apple said that the WiFi connection on the phone could be used to make voice calls without going through the Cingular network.  But they didn’t.

The telecommunications sector (or at least the mobile part of it) WOULD have been reinvented if Apple had announced a phone which is network agnostic and  let the carriers rush to announce their support for it.  But they didn’t.

Actually, of course, all mobile phone are born network agnostic.  Then the manufacturers of the phones make deals to lock them on to one network or the other so that they can be cobranded and distributed by the network operators. 

As you know, the network operators subsidize the cost of the phones to us endusers in order to get us to sign long term contracts with them.  So it is very dangerous for a Motorola or a Nokia to offend the networks by marketing around them and, in the short term, would make it harder for these manufacturers to launch a new device.

In order to keep its iPod momentum, Apple needed to make sure that, if phones become the music and video storage device of the future, these phones are Apple phones.  Apple had to introduce a phone.  Apple has to succeed with the phone.  Apple has no stake in the existing phone business.  Apparently Apple, unlike Robert Frost, decided not to take the road less traveled.  Apple will market is phone through network affiliation like all the other manufacturers.  Exclusive distribution, in fact.

Apple did NOT reinvent to telecommunications sector even though there is a good chance that it could have done so.  Too bad.

Short term this is a good tactic for Apple because it protects the iPod franchise for a while.  Long term I think it’s terrible strategy.  It invites an endrun from someone who IS willing to reinvent the industry or simply allies themselves with a Cingular competitor.

Let’s do a thought experiment:  There are lots of users of Verizon Wireless in the US.  Many of them are not going to be willing to switch to Cingular because Verizon really does have better coverage in many places.  But they can’t get a Verizon iPhone according to this announcement.  If they want music and video integrated on their phone, they WON’T be able to get it on Apple device.  So now there’s a huge opportunity for a competitor in the entertainment space that Apple currently owns.

Remember how wonderful the Mac GUI was?  But it only ran on machines from Apple.  Remember how crappy Windows was at first?  But it ran on machines from everyone and their brother.  And now there’s Linux – even less restricted – running on anything that moves.  Tell me again why it makes sense to have a phone that runs only on a service from at&t (in the US).

Update: More thought on iPhone including lots of good comments from readers  in:

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

Steve Jobs and the Orifice

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