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-1- 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.-2- "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-3- 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"


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