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Taking Back the Market

Will Apple's iPhone/App Store Tornado Blow Away the Competition?

Tim Nash - 2008.10.08

Popularity: LEMLEM

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60 million downloads in 30 days. 100 million in 60 days. When the total passes 150 million, App Store traffic will be greater than the annual total for all other handsets combined (source: M:Metrics quoted in ifundvc.com).

As the numbers build, competitors are using marketing that failed against the iPod, launching their latest and best as "iPhone killers".

Journalists are happy to help. There is always space for another "killer" article. Editors are happy to publish them. It shows their editorial balance, attracts ad dollars from a diminishing pot, and on the web they can take full advantage of the Dvorak-Enderle effect:

nasty Apple noise = more page views

Meanwhile Apple has moved on, knowing that every mention of the iPhone reinforces its position as market leader.

Apple has taken full advantage of its iPod supremacy. They have built on familiarity with iTunes and the iTunes Store. Synching with iTunes and buying downloads was already natural for many of the owners of 160 million+ iPods. This was one of the reasons for launching the iPhone as a widescreen iPod, new mobile phone, and Internet communications device.

Most developers want to make money. They need cheap and effective tools to build the apps and a cost effective way to reach a large enough market. Xcode for the iPhone is free. Listing the app costs $99, and paid for apps (developer receives 70%) generated $1,000,000 per day over the first 30 days. With over 6 million original iPhones and probably about the same number of 3G iPhones sold over the last quarter, the market is expanding quickly. For developers, the gold rush has only just started.

With over 65 million account holders, the Tunes Store already has a far stronger consumer connection than any of the other platforms. This will allow the market for paid apps to grow easily. It also has a strong advantage with micropayments. The iTunes Store generates over $2 billion in sales per year on top of Apple's online and retail sales, so the credit card companies give it the best possible rates. Other platforms will have to try to build their volumes while paying higher fees.

iPhone owners, the customers for all the downloads, want an easy way to backup so that loss of their iPhone just requires buying another one and a resynch. They have a free one with iTunes and a $99 per year option with MobileMe.

Apple has raised the bar for any smartphone that wants to compete in this sector. It needs simple and convenient backup through free software, an easy way of adding cheap software, and, for many, to be a good Internet communication device. While the App Store is not yet optimal, it has only been open for 2 months - and it is already better than any other phone software store out there.

Nokia has recognised the danger and launched the Ovi store. However, Nokia's strength is its relations with network providers, not consumers. Ovi is not yet even a serious competitor for music, and Nokia lacks a passionate Symbian developer community despite having 10,000 apps available.

Microsoft will need all of Steve Ballmer's personal magnetism to hold back the tide until a competitive Windows Mobile 7 is available. Windows Mobile missed its self-set target of 20 million for the year, ending 30 June with 2 million. The migration of the Zune marketplace to Xbox Live will help to make that more competitive and the basis for a games/music store, but neither Xbox nor Zune are market leaders, which limits growth. As the Windows Mobile web browser is based on 7-year-old code, there is a major problem there too.

Android has yet to successfully launch. A single handset on the smallest US network offering 3G coverage in under 30 cities won't decide its future. There are probably enough gadget freaks to buy out the initial production. Even with 500,000 sales - the maximum yet talked about by HTC the manufacturer for this quarter - the potential marketplace will be a few percent of the iPhone's. Reaching the mainstream consumer market is much more difficult, and the iPhone probably already blocks the most profitable way.

Palm CentroPalm is losing money, lacks a parent with deep pockets, and has a relatively small, mainly US user base that isn't growing. However, according to NPD, the Centro was the 4th best selling US consumer smartphone last quarter. At one time developer numbers were growing as fast as the iPhone's. Those days are long gone. Palm develops handsets with Palm OS and Windows Mobile. It looks to be too small to support and develop with two operating systems, let alone put together successful equivalents of iTunes and the iTunes Store.

RIM smartphones were 2 and 3 in the US consumer market last quarter, where their range outsold the iPhone. Their main market though, is people whose main focus is email. As Apple has reduced its focus on push email, the companies are really selling into different market sectors and effectively not rivals for now.

So here we are heading into the second Christmas sales season after the iPhone launch, and no other phone has access to such a good music store, to such a good App store, and works as well with the Internet. If the economy doesn't collapse completely so nobody can afford to buy or use them, the iPhone looks unstoppable on its way to be a major computing platform - and probably the major consumer mobile computing platform for the next 10+ years. LEM

For those who have not yet read Inside the Tornado by Geoffrey A. Moore (ISBN 1-900961-58-X), Steve Jobs is quoted on the cover from his time at Next. Apple is using the "Bowling Pin" strategy to take over the Smartphone market, one of the few times it has been successfully applied to a major consumer market. Crossing the Chasm (ISBN 1-84112-063-4), also by Geoffrey A. Moore, covers how to successfully bring electronics and software to a mainstream market - and thus the difficulties that Android will face.

Tim Nash lives with his wife, her website on the area ariege.com, two daughters, a cat, and a dog in the French Pyrenees. He has worked for computer companies for more years than he cares to remember, lapsed for a while after the Apple II, but became a Mac fan when his wife introduced him to the IIsi.

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