That sucking sound you hear is the wireless industry on the mat, gasping for air.
Enter the dragon, Steve Jobs, RCR Wireless News’ Person of the Year.
In the United States alone, in six months, Apple Inc. sold more than 1.4 million iPhones, which rapidly gained the No. 4 position among best-selling handsets in the U.S., according to Strategy Analytics. Overseas launches in the United Kingdom, Germany and France have reportedly found traction. A story in motion, indeed.
Outsiders don’t really know how deeply Jobs is involved in the technology at Apple, but we’re pretty clear that he knows what people want and how to cut a deal-thus our choice.
While the jury is out on Apple’s ultimate impact on the wireless industry, the deliberations went on all year long and show little sign of abating. Apple has elected to exploit the top-end, margin-rich handset tier, performed exceedingly well on its stated goals and positioned itself with follow-through, iPhone-platform products. Ultimately, this is a profitover-market-share play, a smart choice for a PC maker morphing in search of new markets.
There’s obviously no public service element to our choice, as in past selections, and clearly this isn’t a personality or a sartorial contest. This is recognition for Jobs’ role as a disruptive force in the blood sport that is mobile technology. This is a story about product innovation, marketing savvy and timing in the pursuit of profit and glory. Six months after its U.S. launch, iPhone sales seem to have justified all the chatter. Now the topic du jour includes the timing for a 3G model, the shape of an expanded product line and the international implications. (This just in: the Chinese aren’t keen on revenue-sharing.)
The iPhone delivered a little something for everyone. Consumers received a sleek, fun gadget that enabled them to use a wider range of wireless applications-and sent their social stock soaring. AT&T Mobility got waves of new subscribers and just a bit of egg on its face for minor activation glitches, a furor over the locked device and pretty much anything else that didn’t stick to Apple’s Teflon-like brand. Apple reaffirmed its brand power, upended the carrier-dominant model in the United States and profited handsomely. Rival network operators and device vendors received a swift kick in the pants, despite their patented, outward show of calm. And Steve Jobs received the coveted spotlight, his tax-savvy $1 per year annual salary and whatever restricted stock grants the Apple board deemed appropriate. What’s not to love?
So, what did Steve Jobs actually do in 2006-2007 to earn our plaudits?
Perhaps ironically, we can assure you that we do not know and, we suspect, few do. And clearly that is Jobs’ and Apple’s intent. Despite coy protestations from Apple that “it’s all about the product, not the person,” the man and the company have become synonymous.
(Full disclosure: Apple’s PR folks categorically refused our request for an interview with Jobs and, instead, offered access to someone purportedly knowledgeable about the iPhone project-with the proviso that we drop all references to Jobs and didn’t publish his picture on our cover. Er, right. We’re not bitter, Steve-o, just disappointed.)
To briefly recap, for the record:
Jobs harnessed Apple’s considerable ability to innovate, to tackle a new, burgeoning market, a logical step in the company’s journey from PC maker (Macintosh) to consumer electronics purveyor (iPod) to converged telecommunications device vendor (iPhone). Rumors were denied, then spun into expectations. Expectations were managed to focus attention on two high-profile events: the Jan. 9 MacWorld announcement that stole the thunder from the International Consumer Electronics Show, and the June 29 launch.
The iPhone’s user interface reset the bar for handset ease-of-use and highlighted the potential for consumers to actually have fun with their hyper-featured mobile devices. The iPhone’s industrial design, featuring a large touchscreen, underscored the elegance of simplicity. Whether that fun translated into higher data revenue for iPhone users is AT&T Mobility’s secret, but one that is being parsed by outsiders.
With huge ramifications for all, the iPhone also established that a profitable slice of Americans (and Brits, Germans and the French) would pay a premium for a device that delivered on its hype. Tellingly, this was accomplished using EDGE technology, not the forward-looking W-CDMA technology, and Apple resisted jamming every functionality into the device. (Where some saw grand wisdom, others said Apple saved money by omitting W-CDMA and was simply savvy on the limits of current battery technology and its ability to sustain the “wow” factor for frequent multimedia use.)
Disruptive force
Like any good disruptive force, Jobs leveraged Apple’s brand sheen and its competitive threat to forge an exclusive deal with AT&T Mobility and its overseas counterparts that delivered a portion of data revenue from iPhone-toting subscribers to Apple’s brimming coffers. AT&T Mobility gained publicity, retained existing subscribers and attracted rafts of new ones-the name of the game in mature markets. Few could have escaped the images of consumers waiting in line for hours, if not days, to get their sweaty mitts on the first iPhones.
Some missteps
This is decidedly no fairy tale. While the iPhone offered some striking innovations in its touchscreen-based UI and operating system, it also merely repackaged much existing technology, a point made by those who misunderstood (or envied) Jobs’ way with spin. (Friends and foes apparently refer to this as the “reality distortion field.”) Touchscreen innovators could only gnash their teeth over Apple’s talent for leap-frogging. Component suppliers who quietly boasted of their design win still face bidding wars for future business. Chinese manufacturing, which produced the iPhone, is known for its sordid conditions for workers and may yet receive more attention from American consumers.
Then there were outright mistakes-the Jobs/Apple juggernaut tripped up a couple of times. Apple initially offered 4 gigabyte and 8 gigabyte models of iPhone at $500 and $600, swiftly finding no market for the former. After two months, the company cut its 8 GB model price by one-third to $400, unleashing a howl of protest from its most loyal customers. Jobs made remarks about the nature of the consumer electronics business before delivering a $100 credit to offended early adopters to spend more at an Apple store.
A sizeable proportion of iPhones sold-perhaps one-fifth to one-quarter, or hundreds of thousands of units-were not activated on AT&T Mobility’s network, destined instead to be unlocked and resold for private gain. Hackers took the iPhone as a challenge in the perennial game of matching wits with Apple. Suddenly, the locked device issue, aided by Congressional deliberations on open-access networks and FCC rules for the upcoming 700 MHz spectrum auction, got widespread play. AT&T Mobility took some heat. Apple used a software update as a Trojan horse to brick offending devices.
But Jobs has exhibited a keen sense for learning his lessons, particularly since getting the boot at his own company in 1985. When Apple got knocked by environmentalists, Jobs later instituted recycling programs for his products. When the iPhone was criticized for its EDGE capabilities, he promised 3G to come. When “locked” was deemed “bad,” he promised an “open” model in the future. When unlocking threatened to become rampant, Apple barred cash purchases.
Intriguing chapters in the Steve Jobs-Apple-iPhone story are yet to be written. The industry awaits a 3G model with enterprise-grade e-mail. As more vendors push the limits of touchscreen technology, some observers speculate that Apple may wade into patent litigation to check the competition. That competition may well encompass more non-traditional players such as Google Inc. How will competitors stitch together the vexing mosaic of spectrum, coverage, handsets, location-based services and advertising? Can any brand besides Apple parachute into the vortex of convergence so effectively?
Jobs’ success stems, in part, from the fact that while the iPhone figured in many larger issues, it also hit the market at a time when “convergence,” finally, is becoming real. Timing, they say, is everything.
The term “convergence” has always possessed an aura of an orderly, calculated transition. Instead, as it turned out, convergence is a bloody scrum. The wireless industry is in play. Can Apple elbow its way to greater prominence, fur a-flyin’?
Check in with us as 2008 unfolds. We’ll be on it.
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ANALYSTS ON STEVE JOBS
“Steve Jobs created cover so that the market leader, Nokia, could pursue new business models that bypass the operator. If operators are giving Apple a license to dictate services, why not Nokia?” -Seamus McAteer, M:Metrics
“The iPhone served notice to handset vendor incumbents that if they don’t act, Apple will steal their highest-margin customers.”-Avi Greengart, Current Analysis
“Steve Jobs gets marketing at a level few come close to comprehending. That is both his strength and his curse; it often places appearance ahead of substance.” -Rob Enderle, Enderle Group
“The iPhone demonstrates how much bang out of a buck you can get when you balance one cutting-edge feature-a touchscreen display in this case-with several outdated features, such as EDGE, a 2-megapixel camera and a lack of GPS. Maintaining that high/low mix, particularly in Europe and Asia, will be a tough balancing act.”-Tero Kuittinen, Avian Securities LLC.
“Steve Jobs humbled all other handset OEMs with a combination of design, UI and hype machine (and) made handsets from Motorola look mundane, Nokia nondescript, Sony Ericsson subdued and RIM repetitive.”-Iain Gillott, iGR Inc.
