Conquering the cellphone market won't be a walk in the park for Apple - analyst opinion
As Apple is preparing to launch its first cellphone, it is increasingly becoming clear that established manufacturers aren’t willing to give up their market shares without a fight : We already have seen several announcements of iPhone-like devices and 3GSM, showed more promising models. Do we already have an iPhone killer ?
In response to last week’s article about the Mac vs. PC ads, a reader sent me this link on YouTube, which connects to a number of very well done TV spots that take the PC side. I particularly liked the one, which suggested that if you use a Mac you’d end up working for a PC guy or living on the street. Recently these videos have been taking a shot at the iPod, Apple’s front runner and model for success.
Apple’s loyal fan base as well as experts outside the cult believe that it’s basically guaranteed that the company will repeat the iPod’s success with the iPhone.
Hold on, not so fast. There are big differences between the two markets and the responses which puts this opinion at very high risk of being wrong.
iPhone vs. iPod
With the iPod, Apple initially ran against three companies in a developing market. There was S3, which owned the Rio line of MP3 players and focused largely on iPod Nano-like flash players, Creative Labs, which had luggable hard drive-based players and some flash products, and Sony, which had attractive products that were crippled by a horrid DRM implementation. Apple rolled to market with a Mac-only product and set the market on fire. They sold a lot of iPods, far more than many thought possible, but a huge number came back the following quarter, because many people didn’t realize these iPods wouldn’t work on their PCs.
This scenario gave Creative Labs, S3, and Sony about a year to get it right. They didn’t and Apple conquered the market the following year. S3 was being sued into obsolescence by the TV networks that were targeting the ReplayTV device. Both Creative Labs and Sony proved to be relatively clueless and the iPod entered the holiday buying season the next year virtually unopposed.
Recently, Microsoft tried to run against the iPod but the company’s traditional inability to create a simple first-generation product and generate demand has allowed Apple to continue its nearly unchallenged lead. Only one vendor has challenged Apple’s market share : Sandisk actually tried to build an Apple like solution with its Sansa line and now holds the (distant) #2 spot in the market.
Cellphones are a different game
The iPhone may have some of the iPod features, but it is competing in a different, already established market. The cellphone market is vastly different from the music player segment. Sony isn’t in it alone and has partnered with Ericsson. Its Walkman line is currently thought to be one of the best for those who want to listen to music on their phones. Nokia is a power house in Europe. Motorola, while languishing of late, showcased it could own the segment with the RAZR, which is still one of the most successful phones ever built. And we should not forget the massive Asian manufacturing entities such as Samsung and LG who regularly pop up and slap the other companies around.
But, in reality, the carriers - not the manufacturers - own control of the cellphone market in the US. Apple has tied up with Cingular and, based on reports, Cingular did a deal that no other carrier would have touched even with a ten foot pole. Cingular is quite capable of using the iPhone as a store draw and then selling a competing product that has terms more in line with what Cingular (and not Apple) wants. Since the iPhone was announced, there are three potential candidates to take on the iPhone.
First up, the LG Prada is a niche product only sold through Prada stores. It has a similar price as the iPhone and a similar look to it ; the Prada brand is arguably as strong or stronger than Apple’s in Europe and it is already on the market, beating the Apple out of the gate by months (so could even be a second generation phone by the time the iPhone launches). It will be sold in Europe first, followed by an introduction in Asia. The cost is similar to the iPhone, if you factor in the Cingular subsidy estimated at $200 and the fact that the phone comes unlocked. There are no plans for US sales yet.
Second, the Samsung Ultra Smart F700 has a built in physical keyboard (generally favored for those that do a lot of text entry over touch screens), expandable memory, a market leading auto-focus 5 megapixel camera, a replaceable battery and it uses the faster HSDPA wireless network,k which should work better for video. On spec, this phone is stronger than the iPhone in most categories, but it lacks Wi-Fi, we don’t know the price or the OS and it won’t initially be available in the US.
However, the strongest phone was not out of a major brand company at all and it truly stood out from the pack. I had seen it, and hinted about it two weeks ago but couldn’t give details until the product was announced at 3GSM.
Neonode N2, the iPhone killer ?
Now, before I get started, realize this phone is from a relatively tiny company and so Apple will clearly be able to out-market the company and supplies will be very limited, which is why the initial price of approximately $530 is so high. When you realize that this is the nlocked price, you’ll immediately see it has a $200 price advantage over the lowest priced iPhone.
Smaller than the iPhone, the product has an incredibly strong feature list. It has a custom UI built on Microsoft’s Windows CE platform which means it has many of the UI advantages of the iPhone and many of the connectivity advantages of a Microsoft Mobile product. It has an estimated 16 hours of video battery life, which is vastly more than any other device in its class. It has a unique touch screen that is resistant to scratching and will accept gestures like the iPhone does. The screen is unique and uses light beams to form a grid which triangulates where your finger is on the screen, really rather cool in a geeky sort of way.
Memory capacity is provided through a mini-SD slot which currently is limited to 8 GB but you can always have more than one memory card. The iPhone is limited to the memory that comes with it.
The music utility that is included with the phone auto records from Internet radio and automatically fills the phone with free music. Given that Apple now admits that most iPod users buy on average only 22 out of the thousands of songs they have on their iPod on iTunes, this feature could be incredibly powerful.
The Neonode doesn’t have Wi-Fi, it won’t initially be available in the US, and it has a similar (to the iPhone)a 2-megapixel camera. But it is much more innovative than any phone I can recall ever seeing - from the screen, to the battery life, to the memory capacity, to the size, to the unique approach to music.
We shouldn’t lose track of the fact this came from a small company, and sometimes it really is the small firms that don’t understand what they can’t do, and so just do it and create amazing products. I wish more companies would do that.
So, years after the iPod launched there is only one credible competitor - the Sandisk Sansa. But months before the iPhone launches, there are three and that alone makes this a vastly different battle for Apple.
Rob Enderle is principal analyst for the Enderle Group. He can be reached at email@example.com.