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Impact of the Apple iPhone on the Mobile Phone Industry March 4 2007 Abstract 1 1 Introduction 1 2 Key features of the iPhone 3 Hardware features 3 User interface 4 Built in software 5 What s missing 5 3 Who will want an iPhone 6 4 iPhone impact on the industry 8 Impact on the mobile operators 8 Impact on the major handset manufacturers 10 Impact on SonyEricsson 11 Impact on Microsoft 11 Impact on RIM and Palm 13 Impact on the entertainment industry 13 Impact on the phone design process 14 5 Unresolved issues 16 What will the operators rejected by Apple do 16 What s next from Apple 17 Is the smartphone a computer or an appliance 17 What role will browsing play 18 References 18 Notes 22 Abstract Although the press coverage of the iPhone s impact has focused on its immediate effects on sales of competing products the most important effect of the iPhone is its fundamental challenge to mobile phone industry power structures and product strategies The iPhone calls into question how the mobile industry segments users and designs products and as such its impact on industry practices may be far greater than its effect on phone sales 1 Introduction On January 9 2007 Apple CEO Steve Jobs took the stage at the Macworld Expo in San Francisco to pre announce a new mobile phone the Apple iPhone He was characteristically enthusiastic about its prospects 1 We re going to make some history together he said Today Apple is going to reinvent the phone Jobs 2007 Even though it had not yet been released the iPhone quickly became one of the most discussed new technology products outstripping the coverage of other very prominent mobile phone products that have been shipping for years A search for the term iPhone on Google returns about 53 million hits For comparison Razr Motorola s iconic slim phone returns 23 million hits and Treo Palm s smartphone returns about 30 million i The mainstream media also gave the announcement extensive coverage Newsweek and Time Magazine both ran detailed commentaries and the announcement was covered prominently by major daily newspapers including the New York Times Washington Post and Los Angeles Times Most of the early coverage was positive Apple s relentless focus on simplicity efficiency utility and fun makes the iPhone seem a different species than its competitor something more personal more approachable and ultimately more desirable than anything else out there wrote Newsweek Levy 2007 Apple s stock rose 8 3 on the day of the announcement while the stock of e mail phone maker Research in Motion dropped 7 8 Los Angeles Times 2007 But a negative reaction quickly set in online especially among some technology analysts noting features available in other smartphones but not included in the iPhone I actually expect a backlash of sorts as people figure out how much this thing doesn t do said Avi Greengart of the research firm Current Analysis He cited the iPhone s lack 2 of enterprise features such as secure enterprise e mail and Microsoft Office compatibility Haslam 2007 As the market awaits release of the iPhone many observers are polarized between those who predict that it will be a broad success the reinvention of the phone that Jobs promised and those who believe that Apple will have deep trouble even meeting its initial sales goals We believe that both camps are wrong In the short run iPhone sales are likely to impact only other entertainment devices In the long run it may have a more substantial impact by providing an example of how to deliver an integrated device including hardware software and services as well as an example of a smartphone designed as an appliance rather than a general purpose computer Note that we focus our analysis on Apple s impact in the US its initial market By the time Apple launches in Europe its next market availability predicted for fall 2007 it will have new products and its competitors will have revised their strategies In addition the European launch will depend heavily on its choice of operator partner s and the success of the US strategy 2 Key features of the iPhone Before discussing the impact of the iPhone it s important to understand what is and is not distinctive about it Hardware features The iPhone is a candybar style device ie without flip cover or slider The front of the device is dominated by a touch sensitive 320x480 screen and it does not 3 have a physical keypad It weighs 135 grams heavy for a simple feature phone which tend to range from 80g to 120g but light for a smart phone which range from 110g to more than 200g Hardware features include a quad band GSM Edge cellular radio without 3G WiFi 802 11 b and g Bluetooth 2 0 and a two megapixel camera The iPhone s hardware features and configuration are comparable to those of other smartphones already on the market For example the HTC 3600 has a form factor and weight similar to the iPhone The HTC device lacks 802 11g and has a lowerresolution screen but has a UMTS 3G radio a memory card slot and two built in cameras User interface Apple made a distinctive departure from the industry norm in this area Unlike other touchscreen smartphones the device has no stylus and is designed to be entirely finger driven The interface can sense multiple simultaneous finger presses enabling the user to manipulate the interface via gestures something that Apple says it is patenting For example pinching the fingers together is used to reduce the magnification on a web page This sort of multi touch interface has been discussed in the past but Apple is one of the first companies to implement it in a commercial product It won t be possible to judge the success of Apple s approach until the iPhone ships As is typical of many Apple products the iPhone s interface also includes some minor features uncommon in most competing products and designed to spotlight the company s attention to detail One is a proximity sensor that turns off the touchscreen when the device is close to the user s face so incidental contact with the user s ear won t 4 activate functions of the phone Another is the use of position sensors to rotate the screen s image appropriately when the device is turned sideways Built in software The iPhone incorporates a version of Apple s MacOS X with its Safari web browser Depending on how the browser is implemented this is potentially a differentiator for Apple as most mobile browsers can display only a subset of the web content available on PCs However the iPhone is not planned to

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