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January 11, 2007

The Sound Of The Starting Gun

Boy, when Steve Jobs wants to dazzle, he doesn't screw around.

It's 48-ish hours after the iPhone bombshell, and, truthfully, I'm still a bit in shock. The product is awesome, groundbreaking, controversial - everything it needs to be, and then some. People are arguing about its features (or lack thereof); others are frothing at the mouth in anticipation so vigorously that they'll probably need to be hosed off before they're let back in the house.

(Candidly, I'm probably closer to the second category than the first.)

Since the keynote, a few thoughts have crystallized. In no particular order:

• The cell phone business is forever changed. One of my co-workers, Joe, showed me his Blackjack at work last night, and asked what I thought of it. "I thought the Blackjacks were pretty cool," I replied, "Until about 24 hours ago." He laughed, but truthfully - who can look at a Q or a Treo today with anything other than pity? They're black-and-white TVs in a color world. You just can't see them the same way anymore.
• The iPhone is some of the best FUD ever. Seriously. I'm predicting a big chill in smartphone sales between now and June while the world holds its breath and waits for the iPhone to come out. If it sucks (it won't), people can still buy their Treo or Q or whatever, but if it's cool (it will be), who would possibly want to drop coin on the old stuff?
• (The market seems to be agreeing with me on this - Research In Motion's stock got hammered on the iPhone announcement.)
• The touch-screen interface on the iPhone is, itself, a dazzler; I don't know if you saw this ass-kickingly-cool "Multi-Touch Interaction Research" video from a year ago, but it's one of those things that just causes your jaw to ... slowly ... relax as you realize the power and possibility that physically interacting with a screen offers. We've all worked with crummy touch-screens, of course, and as a result Bill has expressed some skepticism to me about the iPhone's implementation ("I need to see it in person before I comment"). For my part, knowing Jobs' high standards for UI, usability, fit and finish, I can assure you that the thing is ready for prime time.
• If you need further proof of this, watch Phil Schiller demo the thing to CBS News. It's fast, fluid, sexy as hell. (For a slight counterpoint, read what David Pogue has to say.)
• Steve talked at some length about how "smart phones aren't very smart" and how difficult it is to make phone calls with them. This is classic Apple, where the company sets out to ensure that the basics are done well before doing the 'cool' stuff. My own abysmal experience with the Windows Mobile-powered Cingular 8125:
  

  Let's start with the basics: the 8125 is a bad phone. Period, full stop, end of story. The phone functions seem to have been tacked on as an afterthought. Consider the basic task of dialing a number. You can try to dial by using the touchscreen (which is error-prone and clumsy), or you can use the stylus on the touchscreen (which now requires you to fetch the stylus and poke at the screen, consuming two hands and your full attention)...

  Smartphone experiences are lousy. Everything takes longer than it should, and the promises of the devices (data and e-mail anywhere! Your calendar in your pocket! Only carry one device!) are usually compromised with a series of "yeah, but..." statements when you actually try to do the thing in question. The iPhone seems to have been designed to fix a lot of this, and, even if it's not perfect (it's a v1 product), it's still a giant step forward.
• This is a huge growth play for Apple. HUGE. Let's assume that Apple is serious about selling 10M phones in 2008 (it's doubtful they would have announced specific targets if they weren't confident of hitting them). Since we know that the phones sell for $500 and $600 with 2-year contracts, it's likely that true retail on these puppies is closer to $700 or $800 - if not more. Let's call it $700, just to be conservative; it still puts $7Bn in new gross revenue into Apple's coffers. That's not a small chunk of change for a firm that did $19.3Bn in 2006.
• The Apple/Cingular contract is pretty interesting to me. Apple agreed to give Cingular exclusive carriage of its phones in exchange for design freedom. This, too, is huge. Historically, phone makers like Motorola and Nokia have designed cool features into their phones (WiFi, Bluetooth, PC syncing), only to have them stripped out or crippled by mid-level managers at Verizon, T-Mobile, et. al. because those features were perceived to be competing with some ridiculous service that the carrier wanted to sell to the consumer. A classic example of this is music: carriers would love to sell you a $0.99 song for your phone (for $1.99) that you download over their network - you pay for the song, you pay for the bandwidth, and the song is stuck in your phone, not your iPod. Phones that competed with this model by allowing "side-loading" (copying songs to your phone from your PC directly) were crippled until the Motorola ROKR.
  
  Apple's overwhelming desire for control would never allow this to happen with its own phones. And Cingular, apparently, agreed, giving Apple a huge amount of room to innovate and try new stuff on its platform. This, I imagine, will cause some (ahem) uncomfortable (ahem) conversations between Nokia, Moto, et. al. and the carriers about which new features they'll be putting in to their phones. (Bring on the innovation!).
• The iPhone is the best thing that has ever happened to Cingular's cellular data business. Can anyone envision buying one of these things without a data plan?
• In keeping with Apple generally, the iPhone doesn't give a damn about the corporate market. It's not an Exchange server play (it only interoperates with Exchange over IMAP), and it doesn't run any kind of productivity app like Pocket Excel or Pocket Word. Instead, the iPhone seems to be made for reasonably-well-heeled professionals who don't have (or don't want) a lot of corporate infrastructure behind them. It's for doctors, lawyers, realtors, geeks and small businesses. This is a market that's under-served, and will reward Apple's design sensibilities. Yes, some teenagers will want these things (and will buy them), but that's not the real target. Instead, the iPhone is the next RAZR - that gotta-have-it phone that everyone has to have.
• Future versions of the iPhone will undoubtedly follow the iPod technology curve. Like the first iPod, the iPhone is (necessarily) expensive; as component prices come down and volumes go up, new models will spin off with greater and greater capabilities. Remember, iPod 1.0 was a single model, had a 5GB drive, came in white, only supported the Mac and FireWire, and retailed for $499. Five years later, Apple has three core models of iPod, and you can get in to the product for as little as $80. If you've got a bit more coin, every $50 you have gets you a little more, all the way up to $349. They'll do the same thing with iPhone, guaranteed.
• The fact that the iPhone runs OS X is really, really cool (and surprising), and it's got some tantalizing strategic implications. Sadly, these implications are going to stay dormant for a while (the iPhone is not open to third-party developers just yet), but imagine how much better the value proposition of Mac development would be if developing for the Mac = developing for the phone market. Certainly, Widgets and other lightweight, Internet-connected stuff are a natural fit, but there's a whole set of applications that you might want to have on your desktop and pocket simultaneously. I expect this to get very, very interesting over the coming years.
• Steve has clearly learned a few things from the Mac/Windows lawsuit in the '80s (the court found that the "look and feel" wasn't patentable, but was copyrightable; Windows was found to not violate that copyright). Since then, Apple's innovations are heavily protected by reinforced, double-strong competitive barriers - the Dock Connector in the iPod, and Multi-Touch technology in the iPhone.
• Apple continues to find - and fix - the structural problems in the industry. As we know, digital music sucked because the manufacturers of the music players didn't make the music jukebox, and the jukebox people didn't make the operating system or drivers, and, of course, the online music stores didn't control anything other than the "BUY NOW" button because the music publishers kept 'em tied up in knots. Ultimately, the entire, creaking, brittle thing collapsed under its own weight next to the simplicity and reliability of iPod + iTunes + iTunes Music Store. The phone business is no different (lots of moving parts, lots of consumer pain, no market accountability), and there are zillions of other problem spaces like that that Apple is likely to be looking at as the consumer electronics and computing worlds continue to blend and blur together.
• Ultimately, with the iPhone, they just nailed it.

Apple is right to change its name: it's not a computer company, as much as it's a consumer electronics company with a computer business. They'll use the Mac as their anchor business, of course, but the Mac is more valuable for being the touchpoint - the hub - for all these dazzling consumer-electronics devices that the firm is planning to produce going forward.

I'm ordering the 8GB version.

Posted by Gavin Shearer at January 11, 2007 1:09 PM. Posted to Apple.

Comments

Posted by: Richard Barrett at January 12, 2007 9:49 AM

Posted by: Gavin Shearer at January 13, 2007 5:22 PM

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