The Apple iPhone will only ever be a bit player. What’s next?


Link: Report: iPhones piling up at AT&T stores | One More Thing – CNET

Is demand for the iPhone in America already starting to wane?

AT&T, the exclusive American carrier of the iPhone, activated just 900,000 iPhones during the fourth quarter, the company revealed during its earnings conference call Thursday. It wrapped up the year with “just at or slightly under 2 million iPhone customers,” according to company executives.

It’s absolutely fascinating watching this industry from the sidelines. On one hand, we’ve got CNET reporting that it looks like iPhone sales are on the slide with ‘significant amounts of inventory in channel’.

On the other hand, you’ve got the man-on-the-street. I’ll point to the personal trainer, Kevin, as an example. I’ve hired him to help me get in better shape over the past few weeks whilst I’ve been in San Francisco. He loves the iPhone — he’s a real fan, but he just.can’t.justify the expense. I think he’s right. I asked him to take me through his justification points and as I jogged along listening and firing questions, I recognised the unfortunate yet sad reality of Apple’s current position.

Why sad? Well, Kevin is a Mac guy. He’s an Apple consumer — precisely the mainstream target audience that Mr Jobs was no doubt imagining when he chalked up his public ’10 million iPhones’ target at MacWorld last year. Kevin’s got a PC, but he prefers using his Powerbook. He’s considering upgrading to Leopard. He’s pretty savvy with the internet — and he’s not that content with his current handset. Kevin is grade-A Apple fodder. He’s already converted.

But for the price and service delivery.

He’s not impressed that the device isn’t 3G. He’s done his research. He’s not an impulsive geek-arse like me. Kevin sat back, looked at the iPhone offering — liked the device — but found the ‘deal’ wanting. 2G (or 2.5g depending on your viewpoint) device, 3G AT&T network = not smart. He’s concerned about buying an iPhone *now* on a stupidly long contract only to find that Apple releases a 3G version soon after.

And when he sits back and evaluates the pricing plan… it just doesn’t quite work. He’s totally content to pay premium. But not THAT premium. Not geek premium. If he could buy one for $400, and ONLY $400, he would — but not with the endless and highly priced contract service plan that isn’t very competitive to what he’s got at the moment and what he’s comfortable with.

I think that’s it, then, with the iPhone.

The SDK will come along and it’ll be good news. We’ll see a plethora of wicked applications launched, I’m sure, provided Apple don’t screw it up.

However I think that’s it. A new strategy is required.

The geeks have all bought one and many have got theirs unlocked. The Nike wearing Soho crowd have splurged the cash. The wannabes and the I-must-have-that crowd have weighed in, swapped networks and got their devices. But that’s it. There’s a ton of people all sitting staring at the iPhone and — SADLY — (this is the bit that’s winding me up), turning their backs and walking away. I could name you 20 people, right now, that I know personally, who WOULD have an iPhone if they were marketed at a more reasonable price — 100 pounds maximum — and were unlocked to work on any network. But those 20 people won’t. They’re staying exactly where they are, back in the old world. Or, actually, back in the real world.

Nokia, Samsung, LG, Sony and HTC (and, er, the Google offering) are safe. The iPhone, on the current trajectory, will only ever be a number 4 or number 5 device.

It’s back to business as usual. Everyone can breathe a sigh of relief. 2007 was a challenging year for the manufacturers and operators faced with the uncertain Apple issue. With China Mobile flatly saying ‘no thanks’ to the iPhone (and no wonder, given what Apple were reportedly demanding), the future is clear. The manufacturers got a kick up the arse and I’m delighted to see the revolution underway. All of a sudden, devices are sexy again and there’s real innovation going on. Just look at Motorola, forced to innovate, it’s bringing out some really good handsets. Whether you’re a fan or not (and historically, I’ve been unimpressed with the continual rebranding of the RAZR, KRZR and so on), they are innovating and pushing things forward. Excellent.

I think we saw a measurable shift in the United Kingdom due to the iPhone. The worst fears of mass migrations that I reported back in the last quarter haven’t fully come to pass. Two different operators I spoke to reckoned they stood to lose ‘hundreds of thousands’ of customers. I’m sure there’s been a dent. Bearable though. Totally bearable, especially when the vast majority of your subscriber base has no doubt weighed, measured and found the iPhone offering wanting.

The impact of the iPhone has been seismic. But continuing along the current strategy will simply reduce the influence to a mild echo in a few years.

You’re in serious, serious trouble when your biggest fans — the (perhaps stupid?) legion of millions who buy Apple computers and associated products — decide NOT to buy the iPhone. Part of the whole iPhone buzz was based upon laptop logic. That is, if you’ve got an Apple laptop, you’ll definitely get an iPhone, no question. Then your friends who’re all currently PC based will notice the iPhone and naturally want one themselves — and simply go and buy an iPhone.

Well it’s not that simple. You can simply-buy-an-Apple-laptop. There’s no continual contract, there’s no lock-in, there’s no monthly fee structure. You just plonk $699 for the MacBook and you’re a certified Apple convert. No-can-do with an iPhone.

Or, if you’d like an even simpler example of how screwed Apple’s current iPhone strategy is, think iPod, for a moment. Think about the MILLIONS of people who’ve bought iPods. The iPhone is a natural upgrade path, particularly if you’re even half interested in your mobile handset. Now, some people obviously enjoy the iPod or the iPod Touch on it’s own and that’s fine, that’s one particular segement. Logic (along with anecdotal and, I think, pretty reliable personal experience) dictates that a whopping amount of customers would upgrade to a similarly priced iPhone. But haven’t.

How depressing.

Been into an Apple store of late? Go in, next time you’re passing — and watch. Watch for the tens or hundreds of people (at the weekends in busy shopping centres) crowding around the iPhone stall. They’re all peering. They’re all enjoying. They’re all oohing and ahhing and pressing buttons.

They’re not buying.

But they would.

They would buy. It’s traditional Apple pricing — at say 400 dollars or 269 UK pounds — a status price point. It’s a point that affords status to anyone who buys it — but is (as is proven by the millions of iPod sales) well within the gift and credit-card-impulse-purchase-budget of the masses.

The masses are having none of it. Once you’ve sold to the ultra geeks and the fashionistas, who else is left? By all means, 500,000 sales in every international territory wouldn’t be bad. It’s no small amount of recurring revenue. You need to get it into every territory though and the operators aren’t, by any means, playing ball. You can see just how bad it is when o2’s having to reassure it’s shareholders with stupid press releases to dumb Financial Times journalists.

The report highlighted that ’60 per cent of the company’s iPhone customers in the UK were sending or receiving more than 25 megabytes of data a month’ and continued:

By comparison, less than 2 per cent of O2’s other UK customers on monthly payment contracts use more than 25MB a month.

First of all, the iPhone comes with unlimited data so you’d expect most users to give it a go since it’s not costing them a whopping 3 or 4 quid per meg of data. Which, coincidentally, is what the great unwashed — the normal ‘other UK customers’ have to pay for their data. So duh.

This kind of stupid reporting, together with the constant rumours I keep hearing and reading about iPhones gathering dust in warehouses and o2 stores across the land in the UK, doesn’t bode well.

Is that saturation point for the iPhone then? They’ll continue to convert a small percentage of “Ok, ok then, I’ll pay,” consumers — but the vast majority, my trainer Kevin included, are going to sit on the sidelines and carry on playing with their Nokias, Samsungs, LGs, Sonys, Motorolas and their own network of choice.

The market dynamics are in flux. There’s a big change in the air. We’ve all seen Mary Poppins, right? You know how she comes and goes at key points during the story, ‘when the wind changes’, well… the wind’s changed already and it’s time for a change. That is, if the iPhone is intended to be ubiquitous.

If the intention is to do-a-MacBook (bite off a small chunk of a huge, huge industry) then no problem. Steady as she goes. Perhaps that’s been the plan all along? Just to participate, just to have a seat at the table?

I myself was hoping for a revolution. I was hoping to see the iPhone garner 20, 30 or 40% market share of the handset marketplace. That would make development of applications so much easier, particularly with an SDK as powerful and as easily accessible as the reported one due out shortly — which, in turn, would significantly boost the worldwide mobile industry and really, really require the incumbent players to take off their gloves and get stuck in.

I’ve made that change in my mind now. I think it’s time we all did (if you haven’t already and kudos to you if you saw it coming a mile away) — the iPhone will, on current strategy, only ever be a bit player. It’ll always be a gorgeous, brilliantly conceived device. Phenomenal.

But, thanks for coming, Apple. Thanks very much for that.


By Ewan

Ewan is Founder and Editor of Mobile Industry Review. He writes about a wide variety of industry issues and is usually active on Twitter most days. You can read more about him or reach him with these details.

28 replies on “The Apple iPhone will only ever be a bit player. What’s next?”

Yep, I’d pay no more than £100 for an iPhone on Contract. Any more is just excessive greed by Apple. Nokia manage to make huge profits on handsets that are released at network-subsidised prices so there’s no reason why Apple can’t.

I like the iPhone (I’ll like it more when the SDK bears fruit) but I won’t touch it at the current price, expecially with a 3G version round the corner.

Of course, what’ll probably happen is that before the 3G one arrives we’ll see a price cut in the 8GB model and a new16GB version at the current price point. I still won’t buy – my 30GB iPod and Nokia E61i (with bluetooth GPS) combined beat it on functionality in every way except UI.

In a world of fanboys, this is a well balanced/neutral piece which I hope a lot of people will read and consider thoughfully.

Given that “classic” iPods have had a relatively static price point, I am hoping that Apple adopt a similar strategy to create a family of iPhones which appeal to a variety of price points.

Know what’s funny? That’s all Steve Jobs ever wanted the iPhone to be. he even said it last year when he announced the thing, the target was a measly 1% of the marketplace. That’s all.

This is why Apple Fanboys crack me up when they say stuff like, “The iPhone is going to be the number one handset in the world” or “Nokia’d better watch out, Apple’s going to take them over.” I’ll be the first to admit that the iPhone is cool, and it did a real number on the industry, in dozens of ways, and it’s certainly sold well. But let’s keep things in perspective, shall we?

Well-balanced? From my perspective, it appears to be more of a basher article and less of a middle-of-the-road piece. Seems that once Apple has what’s perceived (by most who have yet to have found a clue) to be a misstep (though I’m sure other companies would happily take an Apple “misstep” over many a normal strategy), the “I told you so!” folks come filing out of the woodwork, waving their arms and vying for attention. Until you get an iPhone in your hands and have used it for a period of time, you’ll never get what it’s all about. One has to wonder if this Ewan character has ever had one for any length of time … doubtful, in my estimation.

Nice article, and although persuasive, not convincing. I’m not sure about Europe, but my iphone has improved my phone functionality immeasurably. (How did I function without it? I constantly use the maps, SMS, datebook, contacts, browser, email, etc to my great benefit.) Given the intimate relationship (sadly!) we all have with our phones, what’s wrong with a revolutionary device that provides such features and raises the bar for the entire industry? We all have only to gain when we see what Nokia and other giants produce (at not such a different price point, btw, for premium devices). And service with ATT (the US carrier) is much better than my former provider. As for contracts, the reason many aren’t switching to iphone is that they’ve already been hooked into contracts by other carriers, which eventually will expire. I suspect Apple will survive.

as usual you people are always looking in the short term, for goodness sales the thing has only been available for 6 months and even less in Europe! Let’s also NOT forget that it is only available in 3 countries in Europe and has only been available for 3 months. Just because you and your 20 friends are cheap does not present a realistic view of the larger populous. Last but not least do you think that Apple has decided hmmm let’s not try and make any new models of the iPhone the current version is good for the next 10 years? Come on, use your head before you write such nonsense.

Apple does, what Apple does best. First hey gain market share and create lots of buzz trough stylish yet overpriced products. Then they close platform, alienate developers, consumers. Start to loose market share and end up with single digit share. Look at computer industry; over 80% in the late 80s, early 90s. Now its around 5%. Exactly the same will happen with iPod, and Im not even talking about iPhone. Apple is an innovating company but also paranoid, which is always their downfall.

My wife has an iphone. She’s not a geek or a fashionista. She’s a business person who travels, emails and uses the web. She likes music and likes to show off family photos. She is not an Apple computer owner. She LOVES the iphone and had a GREAT experience at the AT&T store. She formerly used a blackberry. Seems to me the iphone is a great device and will only get better.

@RJThomas: Plenty of us who contribute to this blog have had plenty of hands-on time with the iPhone, Ewan more (much more) than most. The point of the article is not how great or otherwise it is (and that will vary depending on where you are and what handsets you know…) just that on both sides of the pond consumers are finding it hard to justify the additional cost over the alternatives.

@dave: Cheap? OK I’ll bite 🙂 I can have a N95 8GB for free on a near-identical tariff to an iPhone for the same length contract. That makes the iPhone look ~ US$538 more expensive here in the UK. I have one and I love it. I’m just not surprised when people call it expensive.

@Stefan: I can’t see the Apple financial people letting the ipHone go unlocked. The revenue sharing arrangement with the carriers is as valuable to them as the initial handset sale itself. Over time the networks may erode this, but I don’t think we’ll see a jump to ‘zero’ anytime soon…

At least the iPhone has opend the eyes of the masses to the flexibility and variety of applications that we geeks have been enjoying for years. That means, IMHO, that Nokia et al are going to have to step up to the plate and do something about the UI of their devices over the next year. If not, then they really *will* lose market share to Apple.


I have to agree that the iPhone is a bit player, but also agree with dave above – you’re thinking is very short-term in this instance.

If I said to you in June 2007 that:

* a brand new phone manufacturer was going to launch its first phone
* that phone would generate more buzz than any other device on the market
* the interface would make all other manufacturers re-think the usability of their devices (even if they had something similar in developement that wasn’t yet public)
* AND that manufacturer would screw a tariff kick back from carriers

You may well have said, “Don’t make me laugh!”

The iPhone as an idea and in execution has already been an industry-changer. The current iPhone device does not have cost or feature parity, but I think that will rapidly change over the next couple of years.

So my rejoinder to your is, “Watch this space”.


@RJThomas (assuming you weren’t being toungue in cheek): ‘This Ewan character’ had one of the first unlocked iPhones in the UK (I know ‘cos I blagged it from him for a demo) and probably has more apps on it than God. Even a cursory glance at the SMSTN archives will tell you this.

Ricky’s right: the sales have done what Jobs said he wanted.


The iPhone may be your idea of telephony nirvana (it’s certainly mine for now), but for the masses trying to feed/clothe children, pay a mortgage and put petrol in the car, £269 + £35 for 18 months is just waaaaay too much, at any bundle size. Hence the title of the post. it will take a major rethink of price/tariff for it to ever sell more. I don’t care how many new apps come along with the SDK, it_doesn’t_matter: financial reality is just that, and kids/house/car are more important than fruity phones in most people’s hierarchy of needs.

They showed wat is possible, and as we speak legions of handset vendor engineers are fine-tuning their iPhone killers for imminent release. Call it an industry arse-kicking, a wake-up call, whatever: It’s all good.


Thanks for your thoughtful analysis Ewan, An interesting read, and most thought provoking for a Friday afternoon…

2 things…

1st. This is the first phone Apple have ever produced, in many ways it’s very must just a ‘toe in the water’, as you pointed out, Apple never claimed to be diving in head first! As a trial product the iPhone has proved, almost conclusively, that Apple can make solid phones that people enjoy using.

2nd. The iPod Pathway. The iPhone is increasing looking to be following the same sales path as the iPod. With the iPod, Apple systematically removed the barriers of ownership, one by one they came down, to the point where the majority of potential buyers became owners. Apple are doing exactly the same thing with the iPhone. How much longer before the price and network barriers tumble? No more than 2 years surely? If the iPhone isn’t £169 by this time next year I’ll be stunned.

As an aside, it’s important to remember that Apple clearly believe that the iPod Touch and iPhone combined make an entirely new platform. As with any platform, it has to be strong, secure and spacious before you can ever consider building upwards.

As a U.K resident i do not see the point of the iPhone without 3G.
It’s not about being cheap, tight or not being able to afford things. Really.

What the consumer’s in general is thinking i belive, and this is Ewan’s point , is i don’t want is to be short- changed.

Imagine if you are only 6 months into an 18 month contract with Orange at £25 per month. Do you say well i must have an iphone so you cancel your contract and lose £300.
Then pay for the iPhone
and then pay the monthly contract of £35 with O2?

Me? I would rather give that money to chariity and make do with the N95 for another year.

Don’t get me wrong, the product looks good and it has created excitement in the mobile industry that is welcome. It is the greed of charging such as high fee through one operator that is the problem.

Let’s remember 50% of the U.K mobile phone users do not have a contract phone. immediately those people are excluded form th eiPhone. How many of them have an iPod? I know at least 20!

I am sure those people are not all poor people, the thing is, consumers like choice.
The iPhone dictates.

So me, my 20 friends and Ewan’s 20 freinds will wait. Because… we can!

humm, you and your friends are cheap…? don’t know about that one… I’m not used to seeing direct insults on this board based and a differing point of view. I cant for the life of me understand how people who have no direct input into a product can have such over the top views and insult anyone who doesn’t comply totally with their view point. It is after all a phone, a consumer item much like a washing machine or a dyson.

Anyway, I don’t think its cheap to look at a deal, compare it to the market and decide on the merits.
The way I see it is….

Plus Points.
1. Fantastic interface (probably the best so far)
2. Web access is amazing
3. Great looking.
4. Its an IPod too.
5. £269 (uk) or whatever the US price is for it is worth it. Some may disagree but I’m alright about the price

Minus Points
2G means prosche engine, tractor tyres
Camera is at best very poor
Package price is just not as good value as I’m getting with my current N95. Why should I pay more to run the thing?

But the big thing is (and I may be wrong but the person on the customer support line told me) that you cannot take your sim card out and put it another phone. I have an E61 and an N95 and I swap the sim between the two phones depending where I’m going. I don’t have 2 contracts because I dont need two contracts. I want to use one number but swap my sim in a number of phones. I was told by O2 select customer support that my apple sim would not work in any other phone…. That killed it dead for me.

Yes, we agree. However, one must not lose sight of what the iPhone DID do for the mobile market.

1) It showed the handset manufacturers that if you make something simple, with a great UI, folks will understand how to use your phone and will utilize your features.

2) It showed the carriers that consumers will enjoy their data packages if unlimited really means unlimited. In addition, it proved that if appropriately priced, (and I am not saying this one is), then consumers will browse.

3) It showed a fairly uninformed U.S. consumer what IS possible on a mobile phone, thus spurring innovation and excitement, finally!

We never saw this GPRS/2.5g phone as the end all to phones. We DO see it as the beginning of a movement to open up the mobile device to the normobs.

I’d buy an iphone tomorrow and pay the full retail price if I could choose my network, it’s the network agreement that prevents me. I want to choose which network I use, but don’t want to keep unlocking the handset whenever the firmware upgrade is released.

Hey Ewan, the figures quoted ignore a few important factors. Although AT&T have only gained 2m subscribers in 2007 there are a significant number of people unlocking the iPhone.

According to Steve Jobs’ keynote speech the sales figure for 2007 was 4m iPhones worldwide, with about 3.4m being sold in the USA. Taking into account the previous quarter’s figures (approx 1.2m sales in USA) this suggests the sales figure for the US market in Q4 was 2.2m and not 900,000 – there are clearly a large number of people unlocking their iphones and choosing alternative service providers. Taking this a bit further, each European territoriy seems to be selling around 100,000 units (locked and unlocked) on a monthly basis. Even if Apple doesnt enter new territories and sales remain constant, Apple should easily sell around 10m in 2008 alone – however there are clear signs that they intend to expand and I imagine the actual sales figure will be much higher than this.

Still, I agree with the sentiment. The business plan is pants. Their locking/bricking strategy has cast a shadow and this will alienate people. On the other hand, if they sell iPhones at £100 they will lose their entire iPod sales overnight and the iPhone brand will lose prestige. It is a difficult balancing act but Apple are not stupid and they have made waves and will continue to do so when the time is right. At some point in the future the iPhone will replace the iPod line but this will take time and I guess this is why they signed a 5 year contract with ATT. I believe this is when they will sell it unlocked.

In just two years iPod sales went from about 4 million per quarter to almost 22 million in the same quarter. And to think that it took the iPod 3 years just to get to that 4 million!

If Apple sell 10 million iPhone by the end of 2008, I reckon they have a good chance of selling another 50 million in 2009. Still only a small fraction of Nokia’s sales, but a significant number nonetheless, especially for a smartphone.

In other words, it’s early days for the iPhone.

@Steve: “That means, IMHO, that Nokia et al are going to have to step up to the plate and do something about the UI of their devices over the next year. If not, then they really *will* lose market share to Apple.”

This is precisely what I’m talking about. First, let’s clarify that the important thing here is GLOBAL marketshare. Given the Q4 results that Nokia shared recently, they LOST marketshare in the U.S., but managed to increase profits AND marketshare globally.

The notion that Apple is going to come in with one, even 2-3 handsets and make a lasting effect on Nokia, much less the other manufacturers, is laughable. Let’s take a look at Motorola. They’ve had the best selling handset in the past decade, the V3 RAZR. They’ve released it in nearly a dozen different colors, on every carrier and MVNO nearly, and for free in most cases. And yet, even with this ONE handset, not to mention the dozens of other models that they offer, Motorola has not been able to even come close to Nokia’s massive lead on the rest of the global market. In fact, I believe at one point Motorola was overtaken by Samsung for a Quarter in global marketshare.

Thus, if Motorola, the company with the most popular mobile handset in the past decade, which STILL (for some odd reason) sells gangbuster, and which ALSO offers multiple versions of their handsets, on every carrier on the planet, couldn’t match Nokia’s quantity, how on EARTH do you believe, truthfully, that Apple is going to come in with ONE handset, locked to a SINGLE carrier (in most cases), and do any amount of damage? Even if Apple launches an iPhone 3G and iPhone Nano later this year, they STILL won’t be able to do what you’re asserting.

If you’re merely asserting that they’ll swipe a single marketshare point from Nokia, well, sure, I could give you that. However, the notion that Nokia should be the *most* worried about Apple in the global mobile phone industry is laughable.

I’m with you Ewan. My wife isn’t getting tricked again, and though we’re about to switch cell phone providers, we’re waiting until the next generation iPhone comes out. And if something else comes along that’s unlocked, we’ll gladly skip the ATT service to sign on with someone else.

It’s interesting –

When it comes to the pricing issue – you do have to stop for a moment and think about why o2 launched the iPhone at that RRP.

In the UK the economy in general has recently seen a downturn in overall sales of products but an upturn in overall value of said market(s). Consumers are fleeing the every day, mass-produced, mass-market products and are saving their cash and investing in the latest luxury ‘designer’ items.

Therefore there’s a school of thought that o2 knew exactly what they were doing when they launched at £269.99 + contract. They were pricing the every day ‘common man’ consumer *out*.

Instantly making the iPhone tap into that hidden snob inside us all, (well, not us, but normobs).

I was at dinner recently and the two gentlemen at the next table were talking; discussing work etc… and halfway through one exchange the gentleman diagonally opposite to me produced and iPhone from his pocket, waved it sufficiently around to make sure that everyone saw and then placed it on the table in front of him.

Conversation stopper right there. Follwoed by gasps of

“You’ve got one?! Where from? OMG it’s gorgeous! Does it do email?”

Etc etc…

The iPhone has been subconsciously marketed as a luxury device. By having one you are instantly making a statement.

It’s *cool*, outside of this industry we all move in. Yes we think it lacks key features… that’s because it does.
And yes we think it is over-priced.. well that’s the point.

o2 don’t want every Tom, Dick and Harry to have one.
o2 want every Tom, Dick and Harry to WANT one.

And trust me, they do.

I think its a bit unreasonable to expect Apple to be taking 30-40% of the market with this one device so soon. Actually, its kind of absurd when you think about it. This is an entrenched market. Very difficult for a newcomer to enter and carve out a space for itself. Apple decided to go for low single digits market share, but ensured that it was the most profitable % of the market. Just 1% of the market is very likely to become a $10bn dollar business for them, and thus perhaps 5% of the market in respect to value. No mean feat.

As they did with the iPod, Apple will continue to reduce the barriers to entry over time. The tarrifs will get better, the price will come down somewhat (though there will still be a premium – you wont find the iPhone for free), 3G and an excellent camera etc… we can expect all of this within a year. And then suddenly you would be hard pressed to find a reason for buying a competitor. I can’t see Nokia, SE or Moto coming anywhere near to pulling of an interface as nice as the iPhone. Then there is the syncing with itunes/iCal/iPhoto etc factor. Just an all round better experience. Apples job is now to fill in the gaps.

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