It has been over a year since the launch of the much ballyhooed iPhone. Much has been said. Many have been bought. Let’s take a look back and a look ahead.
First there is a difference between a brand having loyal enthusiastic following and becoming a blockbuster mass market success. Second there is a difference between making a better product and winning in marketplace.
Being better isn’t enough
In fact, the reality is the better product often doesn’t win. Just look at Macintosh. There is little dispute that Mac is better than Windows. Yet Microsoft has a worldwide market share of 94 percent and Apple has 4 percent. Apple is cool but Microsoft makes a LOT more money.
Most taste test show Pepsi tastes better than Coca-Cola. But Coke has a brand sales index of 100, while Pepsi is at 65.
I am not here to argue whether or not the iPhone is cool and fun. I am here is analyze the strategy of the iPhone and Apple’s expansion into the cellphone market.
My fear is that by expanding into phones Apple runs the risk of spreading itself too thin. My fear is that by expanding the number of functions for the iPhone (phone, email, music player, internet, camera, video, etc) Apple runs the risk of its phone falling into the convergence trap of becoming a jack of all trades but a master of none.
If you love your iPhone, that is great. I know a lot of people that do. But is it for everyone? Will it be profitable (they keep dropping the price)? Will it survive intense and focused competition coming from all sides? Or will Apple undermine its own coolness once again and eventually lag behind in technology by taking on too much? We will see.
The first iPhone was all about convergence, putting lots of existing functions together in one device. In contrast, the iPhone’s second generation is a story more about divergence.
Remember that convergence was basically the main benefit touted for the original iPhone. Phone. Music. Camera. Web. Video. And it is Apple’s focus on convergence that I have the biggest problem with.
Convergence is what killed the Newton, the PlayStation 3, the TV/PC, the media center PC, the flying car and more. Convergence means compromise and most consumers aren’t willing to do that. Some consumers will accept some compromises for convenience sake but most will not.
Shampoo plus conditioner might be easier, faster and cheaper but most people use separate shampoos and conditioners because they believe they are better and worth the time.
The first iPhone was a cool gadget that combined a lot of functions in a beautiful device. With Steve Job’s unbelievable showmanship it received massive PR and word of mouth. But the future for a Swiss-Army-knife cellphone is limited, as is the market for the real Swiss-Army knife.
Steve Jobs obviously felt the same because we have an almost totally-different device in the second generation iPhone. The second generation is not just better and faster; it is different. It incorporates two incredibly important elements missing from the original iPhone: GPS and 3G. This allows faster Internet access and precise location information. Combining the web with GPS opens up a whole new world of applications that can be of incredible value and which make this phone a totally new kind of device. Recently we have seen applications for the new iPhone explode.
A mobi-phone is one that takes advantage of being a phone, GPS and web device. It does not simply replace an existing device making the new iPhone about divergence. Just like the BlackBerry is about divergence in being the first wireless email device.
(Of course, only the latest iPhone has GPS. This is why the first iPhone was so problematic.)
Of course, Apple is still promoting surfing the “real” Internet on an iPhone when the real advantage is using the dotMobi Internet or sites designed for small screens. I would forget the real Internet and promote the mobi-Internet.
Divergence of the Internet
Divergence happening even on the Internet itself. The .com Internet is getting grander as consumers buy faster computers with larger monitors using ever higher access speeds. Even with 3G, the small screen on an iPhone makes Internet surfing a far from ideal experience.
There is a whole new species of the Internet emerging. Like AM/FM/Satellite. We have the Internet and the dotMobi net. A new class of sites and brands that are being built just to be used on mobile devices. These sites would also incorporate GPS information making it a killer combination.
The iPhone is one of the first devices in a new class of cellphones we call mobi-phones.
While the iPhone has gotten enormous PR about being a must have gadget for the with-it crowd, it has not established a clear position and message in the mind.
That wasn’t the case for the iPod. The iPod the best and most important new brand of the 21st century. iPod established it’s brand with the message “1,000 songs in your pocket” and “.99 cents a song.” It was a simple device with a singular function and a solid message. And it has brought Apple back from the brink.
The cellphone market
In a market with weak competition, even a flawed strategy can succeed. The success we have seen with the iPhone speaks more to the mess in cellphone market than the pure brilliance of Apple’s strategy.
All the cellphone brands are a mess. Everybody makes everything. Everybody has the same features. Everybody looks the same. No brand stands for anything. And most don’t even focus on phones. Motorola, LG, Samsung, Erickson all make a wide range of electronics.
BlackBerry is one exception. And as a result, BlackBerry has built a very strong and powerful brand by dominating the business market and wireless email. Nobody loves their phone like the CrackBerry addicts do.
Nokia is the other exception. As a company from Finland, Nokia once made everything from rubber boots & tires to television sets to cellphones. But by getting out of every other business and focusing on exclusively on cellphones, Nokia has become the worldwide market leader. Of course Nokia has chased the convergence dream too with products like the Communicator, a brick-sized all-in-one phone that went nowhere and the N-Gage a cellphone/game player combo. These distractions have meant that Nokia hasn’t launched a killer high-end consumer phone model in years.
The last really successful cellphone brand was Motorola’s RAZR. It became a bestseller in 2005 by being small and sleek. But Motorola has since killed that brand with ridiculous line-extensions like ROKR, KRZR, RIZR, RAZR2, SLVR. etc.
To predict the future, one only has to look at the past. There was a time that everybody thought Apple, Sony and Motorola could do no wrong. Apple had the Mac, Sony the PlayStation and Motorola the RAZR.
But in the late 1990’s, Apple was a mess and nearly sold for scrap. Today, Sony is a mess. And Motorola is spinning-off its ailing handset division. Why? Because they went after too many markets, because they focused on convergence not divergence and they put their name on everything.
My fear for Apple is that they take for granted and neglect their very valuable iPod market. All this time, money and development cost on the iPhone has shifted the company’s attention and focus away from the iPod. Remember the iPod market is way bigger than the iPhone market, look at the recent sales figures:
In the last six months, (October 2007—March 2008)
Apple sold:
iPod ………………… 32,765,000
iPhone ……………… 4,018,000
While the sales numbers for iPhone may still seem impressive, they still pale in comparison to the big cellphone makers. On an average day Nokia sells 1.28 million phones. Of course, each individual iPhone is more profitable that the average Nokia phone. But Apple has already drastically cut the price to increase its sales numbers and will likely have to do so again to keep pace.
The new iPhone took 5 days to sell 1 million phones. Not bad, but they aren’t likely to start selling a million a day anytime soon. The hype guaranteed big upfront numbers.
There are some other interesting facts from a recent iPhone launch survey:
66% buy the higher capacity model.
(I would only sell the high capacity model. Keep the price higher and brand more exclusive.)
51% will use an iPod in addition to the iPhone.
(Convergence is not the main driver for getting the iPhone.)
38% were upgrading from the original iPhone.
(They were very avid and devoted consumer segment willing to spend and not a very broad mass market appeal.)
85% bought the new iPhone because of the new features 3G & GPS.
(These features are key. I think Apple should have delayed the launch of the original iPhone until these features were standard.)
Over time hardware tends to be commoditized. The big companies will copy the technology and make mobi-phones faster and cheaper. That is exactly what happened to Macintosh in the 1980’s and 1990’s. With its the expansion into cellphones Apple needs to be careful. It means they are now competing with Nokia and Dell. Each would is a formidable and focused competitor on its own. Taking on both will be tough. Just ask Sony.
Technology moves very fast. A hot device today can become very cold if a better brand comes around tomorrow. For now there is no consumer phone brand worth a mention and iPhone has been able to generate a lot of excitement especially around its latest GPS/3G device.
The ultimate future for iPhone is still up in the air. The die-hard Mac lovers will follow the brand anywhere like Phish fans driving in van cross country selling grilled cheese sandwiches. Steve Job knows cool. But he doesn’t always get it right. (Remember the Cube, Apple TV, NeXT) (And Phish is no longer together or touring)
There is a difference between being a successful narrow play at the high-end versus a successful mass market brand. I think iPhone could have a very nice future with a small segment of the population at the high end. Just like there are avid Audi fans, there are avid Apple fans. But that doesn’t that mean either brand will dominate the overall market.
What hurt Macintosh was that Apple kept trying to broaden its market, when they should have done just the opposite. Narrow the focus to graphic arts. That is basically what the brand has become anyway. They never succeeded in getting big business to use Apple products.
The future for the mobi-Internet and mobi-phone applications is undeniably bright. The opportunity to build new brands is as endless as your imagination. Take upstart Urbanspoon. Using an iPhone with GPS and G3, Urbanspoon recommends nearby restaurants as you walk down the street.
The mobi-phone market is much larger than just the iPhone market. This is a huge opportunity for the brave few who can see how divergence is creating an enormous opportunity to build a new brand for the dotMobi world.
It was not established companies that made it big on the Internet, it was new brands focused on the new medium like Amazon, eBay, Facebook, Google and YouTube. The same is likely to happen on the mobi-Internet.
Nobody is 100% right, 100% percent of the time. Even me. Marketing is not a science but an art. You have to be able to study the past then analyze the present in order to paint a picture of what the future may bring.
Early iPhone sales have been brisker than I predicted mainly because I underestimated the complete void in the consumer phone market. Consumers were desperately craving a new phone brand and when given the chance they leaped headfirst onto the iPhone bandwagon.
Today iPhone is a niche product. But will the iPhone be the next iPod? Will the iPhone dominate the cellphone market like iPod does the music market? Can Apple chase Dell in hardware, Microsoft in software, Nokia in cellphones and lead with iPod all without exhausting the company in the process? If the key to success is focus that is not what today’s Apple is about. Will a strategy of expansion work? Time will tell.
Some of my comments from previous posts:
March 28, 2007
“But shortly after the launch the initial hype will wear off and Steve will move on to the next project at Apple. Then the iPhone will end up in the convergence scrap heap along with the ROKR, N-Gage, WebTv and many others.
Initially convergence products, like line extensions get attention and generate early sales. But long term they usually fail and always undermine the brand.”
Steve Jobs did quickly move on to his next project, luckily it was the iPhone 3G. For now we have a modest success of the iPhone 3G because they face almost no decent competition. But what happens when the category becomes commoditized?
Will Apple be able to innovate and stay far enough ahead of the competition to survive? The way to succeed in business is to focus. The more markets Apple goes after the more difficult staying profitable will become.
Sony is a classic example. They have a great brand, but they make everything, stand for nothing, appeal to everybody and they make less than 1% in profits because of it.
April 30, 2007
“Early iPhone sales are likely to be brisk. Apple's amazing ability to generate PR will no doubt attract many Apple fans and early adopters to purchase an iPhone. Just like they bought a Newton back in the day.
But I stand by my prediction that the iPhone will not be a long-term success. What we will see instead is further divergence not convergence. Remember Apple's brilliant iPod is a divergence device.”
We will see a future filled with divergence devices. BlackBerry for one. iPod for another. The new GPS/3G phone for another. The new iPhone is in fact divergence. The first iPhone was pure convergence.
While phones have had cameras and many have music players, they have not become the most important assets of the phone. And in many cases I think people buy them because there isn’t a phone without them on the market.
June 27, 2007
“Sure, a few people will buy iPhones for the sake of convenience. Sure, a few people will buy iPhones because they are so in love with Apple that they would buy a bridge if Steve Jobs tried to sell it to them.
But the in long run, the vast majority of people will prefer their "better" individual devices. Especially companies wised up and created more divergence products.
Don't be fooled: Despite the hype, the deals and the massive advertising smart phones still only have around 10 percent of the market.
Opportunity comes from pulling things apart not putting them together. The devices of the future might plug together or network together, but they will all be individual “better” products.”
Men in particular as concerned with not carrying too many gadgets on their belts. Women, on the other hand, are cursed with the purse so we need carry all our stuff plus everybody else’s stuff.
The new iPhone delivers on not just being convenience but containing a new type of function. The GPS and mobile Internet that can give you real time, real location information at high-speeds. There is nothing else like it out there.
September 23, 2007
“The launch of the iPod Touch has been mostly overlooked and usurped by iPhone mania. After the over-the-top iPhone hype and its dramatic price cut, the media were just not interested in giving much ink to another Apple product.
Furthermore, without any exciting new functions that weren’t already included in the iPhone, the iPod Touch has little news value. It is basically just a smaller iPhone without the phone or email access. Big whoop.
This disregard of the iPod Touch is tragic. The iPhone took the wind out of the iPod Touch’s sails before it got the chance to set sail.”
In fact, this is even more true today. I think Apple would have been wiser to launch the iPod Touch last year and waited to launch the iPhone with added GPS/3G this year. That way they could have had a better one two punch with two separate and distinctive devices.
“The iPod is the goose that lays the golden eggs at Apple. Overlooking it and not giving it its proper attention is foolish. The iPod resurrected Apple from the ashes. The iPod is the leader in the growing MP3-player market. The iPod is the dominant brand in the U.S. with over 60% of the MP3-player market. Taking your golden goose for granted is unwise in the competitive and fast paced world we live in. Just ask Dell.
Apple has some serious work to do globally where its iPod is less than dominate and more than vulnerable. In Europe the iPod has only a 20% market share which includes a 40% share in Britain.
Distractions are not what Apple needs. A focus is what they need. The way to build a monster brand is to attain global dominance. Which is what Nokia did in cellphones, Red Bull did in energy drinks and Google did in search.
Clearly the time for Apple to launch massive iPod marketing programs in both the U.S. and the rest of the world is now, while the brand is riding high with ground-breaking technology and a heap of iPod killers lying in wait. But the distractions and confusion created by the iPhone are likely to slow the iPod’s momentum and keep it out of the fast lane where it rightly belongs.”
I still worry about Apple spreading itself too thin. iPod is a strong and profitable market but they still need to grow it globally and keep it up to date. No market moves as fast and as furious as the technology market. Cool today, gone tomorrow. Look at Palm and RAZR.
blog on earnings in the Internet sites and move any other information
Posted by: ensupiems | August 2008 at 08:09 AM
>>> Can you say convergence any better!
No. The iPhone is a platform, so it's going to support and have a lot of functionality. And like all multi-function platforms, it will not be the best in all cases. For example, laptops are not great for games. Desktop PC are not great to take on business trips. Laptops do not make great phones. The iPhone is not great for word processing. And so on.
Each platform has its unique advantages and disadvantages. The iPhone is on it's way to being the ultimate portable PC platform, and while it's on it's way to getting there it's a damn fine phone, too.
If the iPhone is a convergence device, then so is the PC. If Laura says the PC is a convergence device, then I'll concede the iPhone is one, too.
Posted by: Scott Miller | August 2008 at 10:22 PM
Great Comments!
Scott you said...
Why do people keep making the mistake of thinking the iPhone is a convergence device?! I've said from day one, including in my comments on this blog, that the iPhone is an Integration Device.
...a Pocket PC, a fully integrated phone, GPS, music player, game machine, sports tracker, email and web connector, and so much more.
Can you say convergence any better!
The iphone will be a mobile device, plain and simple. For music most people will still use their ipod. For games most will use a Nintendo DS or similar. The mobile device will be used for the mobile web and email. I would even bet that people will have a seperate cell phone until the battery life on mobile devices increase. Some may want to talk on their cell phone and surf the mobile web with ease, by having two devices it makes this easier.
Laura is right Apple sales are not that great and over time they will make the device more for the mobile web and add features that increase the useability of the mobile web. Eventually they will change the name of the device and the product will have moderate success. Once all mobile devices start using the Android platform most will go with a mobile device from their current carrier.
To Apple fans-Steve Jobs does make mistakes sometimes.
Posted by: EJ | August 2008 at 02:21 PM
Thinking back to old Apple WWDC events, and keynote speeches from Don Norman, it's clear that convergence has always been the vision of Apple. Even the Newton was a bold attempt to move in that direction. Norman did also stress that convergence didn't mean there would be one single device to do all things but rather that fractured paradigms of single use devices would eventually meld into devices that did more than one function well. Early attempts from some vendors at a device that was a phone/MP3 Player/PDA resulted in a device that wasn't good at any of those things. The early Treo and the early Blackberry provide excellent examples of devices that excelled in functional mediocrity. Newer devices like the iPhone aren't actually good phones either if the standard of a phone is the old AT&T orange monstrosity that hung in your mother's kitchen or some of the early mobiles from Nokia which provided a simple and clean interface. The iPhone is so good unto itself that it has broken the model for how well a single use device must be to be functional. Not only are people willing to conform to the way the iPhone says you should do a certain thing, the evidence can be seen all around that people are nearly obsessed with doing what the iPhone tells them to do.
Posted by: Dave Saunders | August 2008 at 10:29 AM
>>> The iPhone on the one hand shouldn't have succeeded because it was a convergence device with Internet, phone, and music all-in-one... <<<
Why do people keep making the mistake of thinking the iPhone is a convergence device?! I've said from day one, including in my comments on this blog, that the iPhone is an Integration Device -- really a Pocket PC. And it includes the sexiness of a divergent, innovative interface.
The upgraded 3G iPhone is not fundamentally different than the original, it just adds new features. The Apps store, in particular, really brings home the fact that this is a Pocket PC, a fully integrated phone, GPS, music player, game machine, sports tracker, email and web connector, and so much more.
A convergence device typically adds features together that do not belong together, but should remain specialized. A PC is not such a convergence device, and neither is the Pocket PC that Apple is calling an iPhone.
Another brilliant move by Apple is that they really only have one model (coming in two memory sizes). This gives them the incredible power of focus that Nokia and everyone else misses out on.
Painting the iPhone (first or second generation) as a convergence device really shows a stunning lack of understanding about the device.
Posted by: Scott Miller | August 2008 at 01:40 PM
Good job, Laura. I like the way you create a blizzard of buzzwords and bullsh*t to support your 2 digit anti-Apple propaganda.
Posted by: zato3 | August 2008 at 12:59 AM
Hi Laura,
no need to state how the new Iphone is just a better and faster version of the old one, because everyone has said that already.
What I disagree with is your explanation for Iphone sales: "Early iPhone sales have been brisker than I predicted mainly because I underestimated the complete void in the consumer phone market."
The reason for brisker sales is that:
1) there's tons of Apple fans that would buy anything out of Cupertino
2) there's tons of Apple fans-wannabes who are irrationaly attracted by the brand, and overestimate the difference between an Apple product and its competitors
3) the I-phone introduced a new user interface that proved to be a killer application, that saved what would have otherwise been a somewhat flawed phone (slow internet connection, no videos...)
Oh, by the way... apparently one of the key drivers for the growing success of X-Box is that it is used as a convergence device, even more that Microsoft itself had expected. Or isn't it?
Posted by: Stefano Augello | August 2008 at 07:29 AM
Wow! This is one of the worst cases of back pedaling I have ever seen.
Last year you predict that iPhone will have a tough time succeeding due to it being a prime example of a pesky "convergence" device. This year it actually adds another "blade" (a la Swiss Army Knife) with it's GPS chip. In my book that only makes it 'more' convergent. The nerve of Apple! Didn't they know that "Garmin is a "better" mapping device. iPod is a "better" music device." ? Your words. Not mine.
So what's happened in the last year? Apple sells over 6 million 1st gen iPhones in just a handful of countries, and then sells 1 million 3Gs in a few days. Most people would have to agree that, grabbing a quarter of the US smart phone market, outselling all Palm Treo models combined, posting sales figures that compare favorably with competitors with larger ranges (Rim, Nokia) .... and much larger ranges (WinMo) .... and then then topping it off with one of the fastest selling products in CE history....... well most people would say that makes for a pretty good start.
So maybe this iPhone thing is going to be successful. Hey maybe it already is successful. How can that be? It's a convergence device.
Well no apparently it's not. In order to fit into your philosophy, Laura, the iPhone has magically turned into a "divergence" product. Yep the 'Jack of all trades - master of none' has added another trade. And now with the App store, it will add even more.
Laura, you say: "The second generation is not just better and faster; it is different."
Guess what? Actually it's not that different. It IS just faster and better. Pretty much every review says so.
The 3G iPhone is going to sell much better than its predecessor. Not because of your simplistic theories but because the world outside the US needed the 3G speeds (just to compete) and it's cheaper. Please don't try and claim that any success the iPhone may achieve is due to this convergence mumbo-jumbo .
That's it. Perhaps others might want to comment on......
Why you couldn't have just told us last year that GPS was the missing link?
Why nobody told us about the killing of the Playstation 3.?
Why the BlackBerry (which apparently is about divergence) is not a mass market product?
Why the mp3 player market (which is reaching a plateaux ) is deemed more important than the cellphone market which is massive and growing?
Or the smart phone market which is growing even faster.
Or explaining the relevance of comparing the sales figures of $30.00 phones to $400.00 smart phones
Or discusing the meaning of "subsidised".
Why postponing the iPhone launch (and losing out on 6 million sales) would have been a better plan for Apple?
Why 38% of 3G buyers were upgrading is considered a negative?
And the 62% that were new to the iPhone (a more important figure) is not mentioned
Piot
Posted by: Piot | July 2008 at 08:55 AM
The iPhone a mobile computer / platform (that can make phone calls).
It is not a new class of device 'a mobi-phone' and it's certainly not the first of it's kind (see e.g. Nokia n95, Blackberry Pearl) both of which were doing GPS and Internet browsing well before the iPhone. And if we are talking mobile computing platforms, well those have been around for ages.
The comparison of iPhone to iPod is not really relevant.... They serve different purposes and are entirely different classes of device (excluding the Touch as the thing that differentiates that is something that resembles an OS and it has connectivity albeit wi-fi)
The iPhone is a good device, and so what if it's a little niche and aimed at Type A's? There are and will be other devices to suit other market segments. Google's Android is the biggest threat as it can run theoretically on any phone.... where the money will be made is advertising. Where Apple will succeed is by shifting the market, which it has done, it's produced a device that is head and shoulders (as a whole) above the competition, sure the n95 has a better camera, but it's clunky compared to the iPhone. Secondly, by doing what Apple does practically better than anyone else, is integrating it's product set to deliver and ownership experience that is seamless. It did it between Mac > iTunes > iPod, this time it's Mac > iTunes (Apss, music movies etc) > iPhone. The ownership experience of integrated devices, services & content is where Apple will succeed, retain customers, and grow market share (as it's doing).
Posted by: nathan williams | July 2008 at 08:41 AM
Laura, today computing is more about communicating than it is about hard core number crunching. The phone may be the most recognized communications tool/device ever delivered to consumers. The iPhone is the one device that allows you communicate via voice, text, email, images, and even web pages. As I'm reminded by my kids, email is what "old" people who work do, but it's communication all the same (this is why BlackBerry will only be the "email" tool for business). The camera is also about communication--a picture is worth a thousand words. Video, or moving pictures, is about communicating. And voice recordings--also communicating. Should Apple have used a different name to create a new category for a mobile communicator? Perhaps. But convergence of all means of communication in a mobile package is what the iPhone is all about. To me, it's less about a mobile "computer" and all about communications.
Posted by: Brad Baldwin | July 2008 at 07:27 PM
Hi Laura. I don't think you nailed this one. I disagreed with your convergence stand point on the 1st gen. It is a portable computer not a bunch of different things in one device. The underlying difference is that IT IS a full feature computer. More importantly the difference between the 1st and 2nd generation doesn't change its standpoint from convergent to divergent... it is the same phone with a GPS.
More importantly is the issue you brought up about the number of units sold. If we dive into WHY some many cellphones are sold it is largely because the current standard for a phone is a mindset of disposable. Sign a new agreement... get a new phone. Blackberry (and now Apple) have started something far more significant here. The lifespan of these higher build quality devices will outlive a 1 year contract. Stevie J is currently snapping up existing Nokia, Motorola and other customers (and their providers). Starting with the 2nd gen iPhone and the announcement of the massive international expansion, it is clear that he is also trying to capture the new mobile customers.
I have had at least 10+ cellphones in my lifetime. It isn't likely that I will keep that current pace of swapping phones in and out. Long live the iPhone... long live the BB. Reliable mobile phone technology is now here to stay.
Posted by: Tom Frazier | July 2008 at 09:30 PM
Great article. I do agree with you, but there are good arguements whether this is divergence or convergence.
Posted by: Gordon Whitehead | July 2008 at 08:57 PM
Khalid, Amazon launched its MP3 store last September, so it's been in business for close to a year. It hasn't exactly damaged the iTunes store so far.
Posted by: David McElroy | July 2008 at 03:20 PM
Laura ... you know I respect ya ... however, sounds to me like you are reversing course and changing your stance to fit the story that is being played out. That story being Apple is finding success with a convergent device.
Posted by: john moore (from Brand Autopsy) | July 2008 at 10:48 AM
The iPhone is not and never was a convergence device. It's a portable computer that is doing the exact same thing that the original personal computer did. It enables divergence in software.
Instead of separate devices like a typewriter and calculator we have separate *applications*, word processors and calculator apps. The big advantage of working in software is that innovation happens much faster. Developing and deploying a new version of Microsoft Word was much easier than building a new typewriter.
The phone part of the iPhone is an application. The music player is a new software version of an iPod. The Safari browser is an app. And now there is a method for other developers to create applications for this computer. Everything points to the iPhone as a new class of ultra portable computer.
So why bill it as a phone? Because most consumers don't think in terms of computer classifications. They're more likely to think about what they do and don't want to carry - and almost all are willing to carry a phone.
Convergence marketing does not a convergence product make. The iPhone is a new class of product that enables new classes of sofware applications. And whether you have the 2G or the 3G, you can take full advantage of the platform.
As an aside, comparing iPhone sales to general Nokia sales is uttertly pointless. A more apt comparison would be to the smartphone market.
This was a confusing article. You ask how they make money with the lower price and ignore the carrier subsidies which show that it's still very profitable. You dismiss the 2G version and exalt the 3G as some new mobi-phone (???) while ignoring that the 2G can do the same tasks just with less location precision.
It all smacks of an attempt to find failure in a product that you have, in my opinion, incorrectly labeled as convergent when by all reasonable standards it is a success
Posted by: Khalid | July 2008 at 11:21 AM
If you think Apple have headaches now, wait 'till Amazon unleash their own MP3 download store.
Posted by: Gordon | July 2008 at 09:04 AM
I was hoping you'd revisit the iPhone. I still get the impression that you've decided the marketplace is governed by rules of convergence that you've articulated. The problem is that your application completely fails here.
Innovation trumps predictable rules (just like a purple cow). Apple has less revenue than Microsoft, but also much, much fewer employees. This in turn boosts their stock value as well as their profit margins, which are arguably much more valuable than sheer revenue. The 2G and 3G phones are very similar because the software update applies to both. Most of the applications that depend on GPS will also work with the original's 'find me' technology.
The problem with setting rules and then deciding whether Apple has a success based on which side they fall is that ignores the question that few companies ask. Do my customers love using my product?
I appreciate many of your insights, however, the number of phones that continue to be sold, the rise in Apple's stock since you first expressed concern for their well-being, and the incredibly high user satisfaction of iPhone owners don't support your evaluation. Paint me skeptical of this new prediction. I'm really happy I ignored advice to avoid or delay purchasing an iPhone; it is an outstanding product and the first phone/BlackBerry/whatnot I've owned that is worth every penny.
Posted by: Justin | July 2008 at 08:38 AM
Apple has been a company that focuses on innovation during the last few years. And I would say, apple was also focusing on developing its own software systems ever since, in order to develop complete ownership on its products. I would rather say, that even though it builds up the brand, collaborating with companies who are in their best for developing software ( that has become popular) would have been better to stay in business. Even in the case of streaming videos, if they had been collaborating with Paramount, Sony, Columbia and others, it would have been better!.
Apple iPhone is comparatively cheap, wrt Nokia high end phones in India, but the software ( req apple's license) which is costly and servicing the phone is also difficult!
Technology is good!..People use phone for their own customised needs! Even though phones must converge, we can keep customised needs in mind!
But " My opinions are certainly my own opinions" :)
Hope you are doing fine!
Posted by: Dileep | July 2008 at 01:41 AM
so I just made a piczo site and it looks so awesome but it seemed that something was missing. Than I realized I should add some music so my friend recommended a really cool site.www.hypster.com. It's so quick and easy,anyone could do it! In a matter of minuets I had made a account and uploaded the music onto my music player,not only that but You can also edit your music player to match your site colours! and if you don't want to upload your own music,you can search on other users playlists and take any songs you want! It works for piczo,myspace,facebook,bebo etc. check it out! www.hypster.com
Posted by: john | July 2008 at 12:47 AM
Ben you are so right and I am such a loser. I didn't attend very many Fish or Greatful Dead shows. :)
Posted by: Laura Ries | July 2008 at 11:08 PM
the band is Phish not Fish
Posted by: Ben | July 2008 at 10:52 PM
Hi Laura.
There is one aspect of the argument that you may have missed.
iPhone is neither a convergence product nor a divergence product. It is a platform product. They have created a hardware product with a great user interface (touch screen, audio, etc), gobs of computing power (using a powerful processor and MacOSX), communication power (3G and GPS), and storage.
Their first product on that platform happens to be the iPhone (convergence). The second product was the iPod touch (divergence). The third product was the iPhone 3G (convergence). But they have also opened up the programming environment and platform software interfaces for 3rd party developers to add applications. That makes it a platform.
Why are platforms powerful? Let's look at the PC as an example. The PC has a "standard" operating environment (e.g. Windows, Linux, or Mac OS), and a standard set of applications for authoring (e.g MS-Office) and communication (Firefox, Instant Messenger, Outlook, ...). But what makes them really valuable to a wide array of individual users is that there is a wide variety of applications you can install on this platform that turn it into a divergence device for a particular kind of user. For example, many places use the PC with only a web browser pointing to a very limited set of web sites. A lot of other people use the PC just for email, web, and photo-organizing. Many use the PC just for web, email, and video-gaming. In every case, the divergence device (for that user) was created by the user by installing particular applications onto the platform.
The iPhone is poised to do the same. For example, I could see sales people using it for phone, web, and a mobile CRM tool (e.g. Salesforce.com). I could see teenagers using it for phone, instant messaging, photography, and integrating it all with an iPhone Facebook widget. The list goes on and on.
The big branding problem here is that "iPhone" conjures up images and expectations of a phone. That may hinder their ability to promote the real brand which is the "iMobile" platform. (I know, I know...it's a lame name...).
Time will tell...
Posted by: Jay Godse | July 2008 at 08:53 PM
I've been waiting for you to revisit the iPhone for some time. I'm no iPhone or Apple-lover, but I felt that you were far too sure of its demise. And you were very defensive of criticism here.
I appreciate that you admitted being incorrect on some things, as it makes your central premise more believable.
At the end of the day, your theory on product divergence makes sense "on average." I believe marketers and investors would be wise to follow your guidance most of the time. But I think it's OK for you to admit that it doesn't work 100% of the time.
Heck, by admitting that your previous theory has exceptions, you might find fodder for a sequel or entirely new concept. For example, you may find that at some point, convergence DOES happen when technology is cheap enough. For example, we expect every phone to have a camera by now because it is so cheap to include.
Posted by: Bob G | July 2008 at 08:39 PM
Hi Laura.
I think that you and Al are 100% correct with your divergence theory.
And you are correct in that the ORIGINAL iPhone concept was as a convergence product. "Hey, how can we improve the iPod?" "I know! Let's make it a phone as well"
And the original iPhone was just that. A convergence product. If you look at the hard statistics, it didn't really set the world on fire, did it?
However, iPhone 3G has actually created a new category.
The pocket computer.
They might not be the first. But, as Al says, "They only have to become first in the mind." After all, the iPod wasn't the first MP3 player, was it?
What's the big difference between the original iPhone and iPhone 3G?
The Apps store.
What has Steve Jobs been working on feverishly for the past several months?
Getting developers to make applications for this NEW COMPUTING PLATFORM!
Desktop computer, laptop computer, pocket computer.
The pocket computer has to be "all screen". If you had a physical keyboard on a computer that fit in your pocket, the screen would have to be so tiny you might need a magnifying glass to see anything on it! Hence the touchscreen on iPhone 3G.
Steve Jobs has installed a version of Mac's famous Operating System, OSX, on the iPhone. It gives a FULLY featured web browser - just like on your desktop and laptop computers. Fully featured email. Sure, it makes phone calls. But I can also call somebody from my desktop Mac using iChat (video conferencing).
It's a pocket computer. And it's the applications made for and sold at the Apps Store that will determine the success of the iPhone 3G as a pocket computer in this new category (divergence).
And I think this new pocket computer category might just tie in beautifully with what Al was talking about with the emerging dotmobi category.
But make no mistake, Steve Jobs has changed the course of the good ship iPhone from convergence (iPod meets mobile phone) to divergence (new "pocket computer" category).
Not everybody has realized that yet.
Posted by: David Knaggs | July 2008 at 07:00 PM
To me, the original launch of the iPhone directly pitted your idea of convergence against Seth Godin's idea of the Purple Cow. The iPhone on the one hand shouldn't have succeeded because it was a convergence device with Internet, phone, and music all-in-one, and on the other hand, it should have succeeded because it was an entirely new and innovative way to interact with my phone (You mean I can use my finger to surf the web!).
In round 1, even though people didn't buy the iPhone for its convergence capability of playing music, I think sales were strong because of the unique cellular experience the iPhone offered. Apple created a new category of phone - the touchscreen smartphone - and they were the first into the consumer's mind with it. The Verizon Voyager has since tried to copycat, but you know how that goes. The uniqueness of touchscreen experience really resonated with consumers and it really reminded me of the launch of the Wii, which was a whole new experience for playing video games. That new experience was what drove sales.
Believe it or not, I actually think the iPhone is positioned well for the next generation of the mobile Internet. Surveys on eMarketer show that iPhone users actually use the mobile Internet more than other smartphone users. Additionally, BlackBerry has been positioned as mobile email, leaving the space wide open for a mobile Internet device. With the addition of 3G and GPS and a drop in price, I think the iPhone is going the right way toward dominating the mobile Internet market.
Also, I think the comparison of Apple's iPhone to all of Nokia isn't exactly fair, but comparing it to the sales of one Nokia smartphone might be the apples-to-apples comparison.
Posted by: Stu | July 2008 at 06:07 PM