Apple grabs mind share, growth questioned

Powered by brand equity and brilliant media manipulation, Apple Inc. has parachuted into the handset business.
Look out below!
The company’s first foray into mobile handsets has captured so much attention-the proverbial “mind share” in tech-speak-that incumbent handset vendors must respond to the challenge, according to two leading analysts.
Those responses are likely to take myriad directions, from fast-follower tactics to grander, hardware-and-content strategies, the analysts said. But those who suggest that the iPhone is nothing but good for the industry ignore its challenges at their peril.
“If you’re a GSM-only handset vendor-which Nokia and Sony Ericsson essentially are-you have aspirations for the United States market,” said John Jackson, analyst at Yankee Group. “But those aspirations hinge on acceptance from AT&T. So Apple’s win there is a severe blow to two of the world’s dominant GSM/UMTS vendors. Apple has marginalized that competition.”
Asked their positions on the iPhone’s market entry, spokespersons for both Nokia Corp. and Sony Ericsson Mobile Communications L.P. noted that the iPhone’s embrace of Internet browsing and mobile music, respectively, validated their own, pioneering efforts.
Both suggested that the iPhone’s publicity and price could sway U.S. consumers to pay more for feature-laden handsets, a boon to any vendor playing in the high-tier sector.
Asked if the two incumbent vendors were correct to suggest validation of their approach by the iPhone, analyst Avi Greengart offered a cheerful caveat. “It does validate their approach,” Greengart said. “They’re not wrong. But they better be sure that the iPhone validates and doesn’t obliterate.”
Both analysts said that the iPhone’s design, ease-of-use and music and Web-browsing functionalities would find an avid audience. The heady stew of disparate implications raised by the iPhone’s launch led Greengart and Jackson to take slightly different tacks in assessing its impact on incumbent handset vendors. Greengart focused more on the device itself and its impact on future designs by competitors, while Jackson spoke to the disruptive effect it could have on various parties’ business models.
“If anyone sells 1 million units at $500 in this industry-and Apple, from reports, has done half that volume upon launch-that’s a smash hit,” Greengart said. “There are definite pressures on incumbent vendors after such a spectacular launch, which established that Apple has an installed base and that news of the product has reached the general public.”
Greengart offered the well-worn mantra of “simplify” for both handset vendors and makers of user-interface software. “At the high end of the portfolio, consumers will compare the iPhone to other products and they’ll expect those products to be easy to use,” he said. “They are not easy to use, though some companies are moving to address this issue.”
Apple’s devotion to simplicity, of course, meant that it left out many functions that form other vendors’ core value proposition (think Research In Motion Ltd.’s secure BlackBerry devices and e-mail service for enterprise) or an advanced feature set (think Nokia’s video capture on its N95), Greengart said. Competitors may well tout products that deliver functions that Apple missed.
Yet Apple was able to blend forms and functions already on the market in an entertaining way and that has produced a certain charm factor, said Greengart.
“There are a lot of really cool phones on the market,” he said, “but not many of them are fun to use. Don’t get me wrong. This is a 1.0 product-there are some problems. But if you’re coming from a feature phone to an iPhone, you’re going to say ‘wow’! If you’re coming from a smartphone, there are a lot of things the iPhone simply doesn’t do.”
Still, in the U.S., Apple faces the entrenched, subsidy-driven handset market. “It’s the same old problem,” Greengart said. “How do you get someone to spend more than $49 for a super-phone in the U.S.?”
Jackson offered his own mantra: mind share first (mission accomplished), market share second (outcome in doubt). “Apple needed to establish a beachhead so it can begin building its product line,” the Yankee Group analyst said.
“The iPhone is an innovative catalyst composed of a new combination of hardware and software,” he said. “It takes the touchscreen functionality to a new level-that’s disruptive. Those elements will be copied. You’ll see everyone respond in kind, just as thin became table stakes after the Razr’s success.”
By bundling the device along with multimedia services, Apple has directly challenged the business models of AT&T Mobility’s rivals Verizon Wireless and Sprint Nextel Corp., Jackson said. In that sense, AT&T Mobility’s role in the partnership with Apple makes the arrangement a “marriage of convenience,” according to the analyst.
The challenge to incumbents is likely to break along technology lines, Jackson said. Apple’s success will drive the “collaboration imperative” between CDMA handset providers-which include Motorola Inc., Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd.-and their carrier partners at Verizon Wireless and Sprint Nextel. The iPhone challenge may also drive a short-term persistence in subsidies for high-tier “marquee” music phones at those two carriers as well, he said.
For GSM-based handset providers such as Nokia and Sony Ericsson, which aspire to better positions at AT&T Mobility, the Apple deal will simply hurt, Jackson noted. RCR