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    HomeInsightsMassive PR coup - but what does the industry make of the...

    Massive PR coup – but what does the industry make of the iPhone?

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    Apple’s launch of the iPhone gained it blanket coverage around the world. But can one phone have as big an impact on the industry itself?

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    The operator welcome
    Matthew Kirk, Director of Devices for Orange UK, said that the launch is further evidence that convergence is driving the market.
    “Today’s launch of Apple’s iPhone is another example of how the world of entertainment technology is converging. It reinforces our belief here at Orange that we shall see many more similar moves in the future. We have already seen our own Music Player service grow rapidly in the last year to average 100,000 single downloads per month, with over 500,000 tracks to choose from currently. Apple’s entry into the market will no doubt stimulate even further interest in mobile music services.
     “Europe is undergoing a digital revolution and Orange, Apple and other key companies are at the forefront of that. As the technology and entertainment industries merge over the next few years, consumers will be able to do things they previously only ever dreamt of and will be able to access all the services they need from a single provider.”
    Yet others are not so sure all operators will welcome the product, and its long tail of Apple branded services, so wholeheartedly.
    Jerome Buvat, Global Head of Research for Capgemini Telecom, Media & Entertainment, felt that some operators at least would feel threatened by the rival i-Tunes download service.
    “Unlike MP3 player distribution, where devices are directly sold to the end-user, phones are first sold to the mobile carrier. To be successful, Apple will need to convince operators that its phone will enable them to capture market share. Some mobile carriers might not want to have the Apple phone in their product range as iTunes will be competing head-on with the operators’ branded mobile music services such as Verizon V-Cast, or Vodafone Live Music. However, operators might find an opportunity in striking agreements with Apple to share mobile music revenues as they would benefit from the strong appeal of the Apple brand.”

    The mobile music market
    Buvat highlighted the defensive play Apple is making.
    “As the devices become more practical and desirable the number of consumers showing interest in listening to music on their mobiles is increasing rapidly. In the UK in 2006, 15% of mobile subscribers used their phone to listen to MP3 files, jumping to 40% amongst 15-25 year-olds. If you look at Japan, where mobile downloads are more established, mobile music accounts for 90% of total digital music distribution revenues.
    “As many consumers are not willing to carry a separate player when their phones are music capable, there is a risk that the market for single-use MP3 players will be under threat in the medium term.
    “By entering the mobile phone market, Apple hopes to thwart increasing competitive pressure from ‘converged’ handsets such as the Nokia N-Series and the Sony Ericsson Walkman phones. Improvements in storage capacity are allowing handset vendors to compete with MP3 players for capacity. MP3 handsets, like the Sony Ericsson W950i, can store up to 4,000 songs – as much as standard iPod minis. It’s also interesting to see the handset manufacturers investing in mobile music distribution services – for example, in August 2006, Nokia acquired Loudeye, a digital music distribution platform.
    “Moreover the music-enabled handset market is more attractive in terms of volume than the MP3 player market. We expect worldwide shipments of music-enabled phones to reach over 600m units by 2010, versus around 250m for standalone digital music players.
    “Through this move, Apple will address the fast growing mobile music distribution market. We expect global mobile music revenues to reach around $4-5bn by 2010 vs. $700m today. In the US and Europe, mobile music already accounts for 30% to 50% of digital music sales.”

    Will it be any good?
    Forrester’s Charles Golvin, writing a research note with Ellen Daley and Elyssa Baer, felt that the device looked likely to provide a good music and phone experience, but he was more hesitant about the ability of the device and the EDGE networks it will rely on to deliver full html pages in the Safari browser on this smaller screen.
    Niek van Veen, also of Forrester, felt that the all touch screen interface might actually confuse some users.

    Will anyone buy it?
    Buvat said that Apple’s brand power and design skills are on its side.
    “Design is one of the key factors for consumers choosing a mobile phone, as shown with the success of hit handsets such as the Motorola Razor, the LG Chocolate and the Samsung D500.”
    But he cautioned that the stranglehold of the dominant players, plus the competitive nature of the industry, will make things tough.
    “Apple is entering a highly competitive industry and it will likely struggle to capture a significant market share in the next few years.
    “Five players dominate the global handset market: Nokia, Motorola, Samsung, LG and Sony-Ericsson account for 75% of the global shipments.
    “45 vendors fight for the remaining 25% share of the market. Some, like Siemens/BenQ, Philips and Panasonic, have exited the market because of downward price pressure and decreasing margins – between 2005 and 2006, handset average wholesale prices decreased by10% to $130.”
    Niek van Veen also felt that price could be an issue, especially in markets used to heavy subsidies.
    “I am sure that there are people that are willing to get this device regardless of the price. But $499 with a two-year contract is a high price in this highly competitive market where consumers are getting their phone for less than €100 or for free. Apple’s sales target of 10 million devices in 2008 is ambitious. It depends on how much operators are willing to subsidize to phone, if the iPhone will be attractive to a wider audience,” van Niek said.

    Another proprietary OS?
    It might also be worth asking a few questions about whether operators want the tax of configuring and provisioning services to support another handset OS, especially one dedicated to just one provider, and a niche provider at that?
    Forrester’s Golvin said that consumers should not expect to receive the same variety of OSX applications  that “flourished” on their Macs. He added that Apple will be keeping a tight control of any software that goes on the phone, to ensure a decent user experience, and to keep its operator partners happy. But he also acknowledged that this could look like another walled garden. To avoid it “standing out” in this way, he said that Apple strategists would need to ensure there was a steady stream of software upgrades that keep the iPhone internet experience “as close to the full Web experience as possible”.
    And, of course, as nobody has pointed out amidst all the talk and opinion – it’s just a phone, right?