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January 10, 2007

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]


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