iPhone 2.0: Swinging for the Global Fences

Since most of the startups that I have done are platform companies, and Apple has repeatedly defined what they are delivering as a mobile platform, a lot of my thinking around the almost two hour Apple WWDC Keynote is weighted towards the question of how compelling the iPhone is as a platform play.

Thus, I don’t look at the iPhone as simply a commodity device competing feature/price against the Nokias, Samsungs or even the Blackberrys of the world. 

Rather, I look at whether the value proposition is likely to translate to a thriving developer ecosystem; whether the applications that drop out of that ecosystem will engage consumers and enterprises; whether a real economy/marketplace is destined to form around this constituency; and finally, whether what Apple is doing in other segments of its business (i.e., Macs and Music) is creating a Halo Effect that translates to unfair advantages in the iPhone arena, and vice-versa.

I am a pragmatic simpleton so since Apple announced plans to roll out the iPhone SDK late last year, I have been tracking Apple’s stated strategic and tactical plan, how well they are executing on that plan and whether the proverbial “dogs are eating the dog food.”

(If interested in burrowing deeper, see links to a few posts below, which covers application scenarios, legal considerations, business strategy analysis, etc). 

First off, full props to Steve Jobs.  He is the consummate showman.   The entry point into the presentation began with Job talking about how it’s iPhone’s first birthday, how users love their iPhones to the tune of 90% customer satisfaction. 

He even touted the fact that some wacky high percentage of iPhone owners use 10 or more features, quipping that before iPhone, most people couldn’t figure out even two features on their phone.

At the same time, it was the appropriate mix of swagger and specificity grounded in a few simple recognitions and points of focus.

The underlying message codified and compellingly argued, IMHO, is that the iPhone represents the birth of a mobile platform that has changed phones forever.

Jobs was pretty transparent, in fact. He identified the market needs checklist that Apple has identified from talking to customers, developers and partners, and then proceeded to pick each item off.

Beginning with the end, the iPhone Universe (which includes the iPod touch devices as well) feels like an absolute home run, something I say in full recognition of what my business partner and friend, Snapp Networks, CTO, Alex Mostoufi, rightly noted about the challenge of executing so many moving parts simultaneously, as Apple is trying to do. 

I reach this conclusion, in part, because from watching the evolution of this thing, Apple has not changed their tune one iota, while at the same time embracing specifics and iterating as circumstances dictate.

Specifically, Jobs framed five challenges as the ‘next challenges’ for Apple to overcome for the iPhone to realize its potential:

1. 3G (+GPS) 
2. Enterprise support
3. Third party applications
4. More countries
5. More affordable

3G (+GPS) 
The announcement of 3G iPhone was the industry’s worst kept secret.  But the strong battery life, usually a negative with 3G, was a clear positive.  So, too was support for GPS, and it is clear that Apple is pushing GPS-enabled location-based services as a killer app. 

I am a huge believer in the goodness in local and location based services, and given Apple’s patent efforts related to this segment, I believe that they believe that it’s a strategic growth area for the platform, meaning it will be well supported within the iPhone SDK.

Enterprise support
An ongoing narrative promulgated by Apple has been that Apple is serious about penetrating the enterprise.  Previously, they announced support for enhanced security and access control functions, as well as the ability for the iPhone to function as a Microsoft Exchange client, which is key in corporate environments.

Truth be told, Apple has historically talked a better game about the enterprise than focused on it and executed accordingly.  Now, however, they appear in it to win it, in part because I believe that they sense a Trojan horse into enterprises, owing to Microsoft’s struggles with Vista.

Here, they did a good job of positioning the device as a safe choice, touting stability and maturity owing to the fact that it builds off of Mac OS X, and also how this gives developers leverage with the Mac platform (i.e., apps created for Mac OS are relatively easy to port to iPhone).  This is part of what I think is the Halo push (a point bolstered by the sneak peek demos of Snow Leopard, their next major OS release).

On the selling front, it seems that they recognize that they can’t succeed with a pure frontal assault on the enterprise so they seem to be identifying verticals and pursuing a beachhead strategy. 

Specifically they demonstrated applications and touted customer successes in Pharma, Medical, Entertainment, Higher Ed and the Military.  They even had a guy from Genentech referencing iPhone as an enterprise-class mobile computing platform, for what that's worth.

There will be a lot of chatter and skepticism about Apple’s ability to penetrate the enterprise, but my guidance is to focus on both the vertical segments and workgroups that are likely to be early adopters.  As these segments toggle and realize real productivity gains, more of the main of the enterprise market will start to shift in their favor.

Third party applications
This is all about the iPhone SDK, which they repeatedly touted as the ‘most feature-rich mobile platform,’ and leveraged the demos by third party developers to spotlight how easy, quick and with limited developer resources it is to create native applications.

The demos that they showed in the keynote impressively showcased the capabilities of the iPhone platform. A couple of the gaming apps simply rocked (check out ‘Cro-Mag Rally’ and ‘Kroll’ – see YouTube video). The different medical apps were akin to something out of Star Trek (check out ‘MIMvista,’ a multi-modality medical imaging application); and ‘Band,’ a music studio app for the iPhone, spoke to the earnestness and fun spirit of the platform.

Part of what makes this all work is Apple’s bear-like embrace of ‘the Cloud,’ the premise of always-on, service aware connectivity, and their efforts to ensure that everything works over the air wirelessly, such that cellular or Wi-Fi, it doesn’t matter.  Having bought many a song via the iTunes wireless store, I can tell you that this will overnight open the door to micro-transactions of all kinds.

In parallel, their thinking on AppStore continues to evolve and get better. It is a HUGE opportunity for Apple as well as developers in the sense that it enables developers to reach every iPhone/iPod touch user on the planet. 

In addition, Apple has now added support so that enterprises can use AppStore for their internal apps, sort of a roll-your-own marketplace, and they introduced an AdHoc model for developers to informally roll out applications to very small groups (i.e., <100 downloaders). 

Very slick, and with Apple keeping 30 cents on the dollar that these apps generate, it can realistically grow into a multi-billion dollar market in its own right.

In addition to the earlier mentioned support for the iPhone to operate as an Exchange client, Apple announced MobileMe, a push-based contacts, email, calendar, photos and files synchronization service that replaces .Mac, and dynamically (and over the air) syncs Macs, PCs, iPhones and iPod touch devices, all of which is also accessible via a really nice Web front end located at Me.com so users can access their online information anywhere, anytime and always be sync’d up.

MobileMe is positioned as ‘Exchange for the rest of us’ since you don’t need an Exchange server or an IT department for the service to work. Here is a link to detailed demo of the service.

Noteworthy here is the strategic tie-in between Microsoft and Apple. On the one hand, the ‘Exchange for the rest of us’ positioning seems like an assault on Microsoft but in reality, it formally recognizes Microsoft’s dominance and brand, and is complementary to direct Exchange support within iPhone.

Plus, it is an app that will work equally well with Microsoft Outlook on the PC and Apple Mail on the Mac.  It is suggestive of growing maturity within Apple and Microsoft, and an alignment of interests in an age where Google has looked increasingly like the de facto organizer of all online information. 

Given the richness of functionality and how the demos showed MobileMe as seamlessly integrated into different iPhone and Mac/PC services, if I’m Google, I see this as a clear assault on Gmail, Google Maps support, notwithstanding.  The dynamics between Google and Apple are a topic which I have blogged about extensively (see links below, if interested).

One final note is that Apple announced a unified push notification service that will be rolled into the iPhone SDK in the Fall.  This is Apple’s answer to the need for event-handling services that can remain persistent even when the event-aware application that it serves, such as an IM application, is not running. 

This is somewhat of a technical topic, but basically it reconciles the paradox between real-time/always-on and the need to maximize battery and performance by limiting the iPhone to one application running at a time. 

The service, which works over the air, is unified in that sense that all developers will have to have to use it for asynchronous, persistent event handling.  Incorporated into the SDK will be customization options for Badges, Alert sounds and Textual Alerts.

More countries
Jobs lead this topic off somewhat humorously noting that while they only have six countries officially launched so far, the unlocked iPhone data suggests very potent global demand (something like 15% of all iPhones have been 'unlocked,' a term that means they have been activated in a way that allows them to run in carrier networks and countries not sanctioned or supported by Apple).

From here, he talked about the need to get the iPhone launched in more countries and how they had set a goal of 12 countries by end of year, and a stretch goal of 25, prompting the audience with a “So how’d we do?”

Then a global map popped up onscreen with ‘It’s a Small World After All’ playing in the background, as 70 countries (but not mainland China) showed up on the map.  They are well on their way here.

More affordable
Jobs closed with $199 as the maximum price of the iPhone 3G (they will now allow carrier subsidies to take the price even lower), touting it as, “Twice as fast for half the price.”

Experience suggests that $199 is a magic number for mass consumer adoption so I think that they hit their mark here.

Netting it out
I think of the WWDC Keynote as Apple's moment when they announced to their constituency base that they are committed to swinging for the global fence.

I have little doubt that carriers will sign up en masse now that some of the business model restrictions are gone, customers will see $199 as a relatively easy impulse buy, and once a couple 'have to have' iPhone apps start flooding into the market, Apple is going to do some crazy, game-changing volume.

Related Links:

1. Jobs and iPhone: The (second) greatest unintentional head-fake in tech history?
2. iPhone SDK: Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
3. iPod touch: the first mainstream Wi-Fi mobile platform?
4. Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
5. The Chess Masters - Google versus Apple: why partners Apple and Google are without peers, and (seemingly) destined to become frien-emies.
6. Upward Mobility, Land Grabs and the iPhone Universe: on Apple's mobile patent strategy.

Comments

[Crawford]

Yep

[MBCF]

Nice synopsis of the Jobs Keynote. I agree, the iPhone is another home run when connected to the Apps Store, a good SDK, 70 countries, and a cheap product.

Two things I hope Steve does:
a) Get out from under ATT. He was smart to lock up the intro of the iPhone to one provider because tight control of how it was rolled out was essential. But soon it will hinder volume of sales. Or at least some enterprise buyers will be stuck as they are locked into another provider. The ATT lock in will expire at the the right time I guess but right now too much of the cash is going into ATT coffers. The "affordable" that Steve mentions should show up in the rates. Doesn't matter how cheap the phone is if you are dropping over a thousand on a year's use of the phone.

b) The Cloud and the push technology is great. It needs to go one step further. It will push mobileme and enterprise that adds the push but what about the five mail accounts of POP and IMAP everyone has already? Or the enterprise that doesn't want or is too slow to add the push? I can predict my Institute wil take five years to add it. Can Apple make a way for push to the Cloud work with 3rd party mail accounts? One could "forward" mail to the mobileme account but this strips ability to "reply". There has to be an easy fix to this.

[Mark Sigal]

@MBCF, thanks for the note. I don't know how long the exclusivity period runs with AT&T, but my guess is that its another 12-18 months (total guess). As a Verizon customer, I totally agree with you that exclusivity is costing Apple but by same token, no AT&T no ground-breaking iPhone so give them their props as early adopter that wants to protect that investment.

As to the MobileMe and cloud goodness, I think that if anything, Apple undersold their ambitions and the potential of that offering. I think of what you are talking about as a service router/transformer, and enough other folks are doing that type of stuff to tell me its not that hard to add.

Give em some time.

p.s., here is a post that I wrote that is relevant to leveraging the cloud to make ME smarter:

The Social Map is all about Me
http://gigaom.com/2008/04/20/the-social-map-is-all-about-me/

Best,

Mark

[MobileAdmin]

Apple fanboys are a curious lot, they harp all day and night about the RIM NOC but apple makes MobileMe and the App "cloud" that basically does the same type of delivery and it's a "great idea". That first outage will be amusing, wasn't .mac just down for a few hours?

Iphone is a great device, to me it's more prosumer and not Enterprise ready. Yes it does basic exchange support and has a whopping 3 policies but it's missing a heck of alot that an enterprise needs and requires when they manage 500, 1000, 5000+ mobile devices.

Apple will get a huge share in the personal space, small business and areas where security is not a major factor. At the same time RIM is putting out new devices, adding new features, making better server side enhancements so it's a good time for mobility. I think the growth is just really beginning, mobility 2-3 years ago was a different landscape and devices needed more power and faster connections to even DO this stuff. So you are seeing mobility emerge as a platform and the growth attached to it.

Good luck waiting for Verizon .. they have a totally different wireless frequency so Apple has to make a new chipset, get Verizon to test it (which takes forever) so maybe 2010 when LTE lights up .. your best bet is TMO.

[Mark Sigal]

@ MobileAdmin,

I have no doubt that you know your stuff better than I, and your perspective is clear and well-articulated so nuff said on that front.

I would say, though, that reducing the topic to 'apple fanboys' is a bit dismissive and simplistic, don't you think?

I get that there are huge legions of cult of mac types that default to anything Apple is perfection, but most don't fall into that bucket in my experience.

Why? We have been around long enough to see Microsoft eat Apple's lunch and the company be relegated to the verge of irrelevance to the point that we know nothing is given in this space and nothing is forever.

That said, one thing that I do marvel at after being in this business 15 years is when a company thinks big, has a vision and actually executes, as I believe that Apple has done, and few others are doing these days. (That's the entrepreneur in me talking.)

I think that your macro read is right in the sense that the enterprise isn't going to magically switch gears, and has no reason to. I certainly am not about to dump my Blackberry.

I do, however, believe that there are early adopter segments in the enterprise that will embrace it because:

A) They have a compelling job that is unfulfilled by Blackberry or Windows Mobile, and the iPhone as an application platform is pretty solid and very well thought through from an integration, UI and workflow perspective.

B) They have specific workgroups/business units that are already pre-disposed to all things Apple. This is akin to the prosumer buyer that you refer to but nonetheless, it is a very real back door into the enterprise.

Apple seems to have thought through a vertical beachhead strategy for the former, and by definition those segments will cope with IT-level shortcomings for business productivity gains.

As to the latter, they are already increasingly, Mac buyers and the security/wipe/Exchange stuff gives the fig leaf of "good enough" for IT not to be able to block as unsupported.

Either way, this is the beginning of a big wave, and believing that iPhone is going to carve out a real chunk of the enterprise isn't tantamount to believe that RIM is in any kind of trouble.

As to Verizon, que sera sera.

Cheers.

[MobileAdmin]

Marc,

You have great insight and understand the industry and I have been a mac user since the mid 80's through a IIe, IIfx up to my G5. There is a segement that only know the "ipod" apple and I feel have drunk a little too much kool-aid. What apple is good at (other then making good products) is hype and marketing. Apple didn't invent mobility, application development for mobile. RIM has done all the same things if not MORE and just didn't market them as effectively.

If anything Apple is accelerating the growth and opened alot of businesses eyes what can be done now. A couple years ago carriers were trying every angle to convince people they needed a data plan, other then business using various laptop data cards and the emergence of Blackberry/Good/Windows Mobile they never seemed to connect with consumers.

As I said you are seeing the beginning as you know have devices capable and speed needed to make these devices easier to user and appealing, think of the transition from dialup era to broadband.

Now the question is does Apple have what it takes to do their thing in enterprise and as it is now .. I don't think they do. They need to give up some control and lessen some of the itunes intergration (which I don't think they want to do as it's a cash cow) Everything about the iphone is consumer centric. Let's not lose focus it's an ipod first.

All that being said it will have huge gains as it has a cheaper price (though TCO with plan is still steep), more countries and no doubt some interesting applications.

[Mark Sigal]

@MBCF, thanks for the follow-up and detail on what shapes your perspective.

I know that I have done my job as 'honest broker' when the Cult of Mac crowd assumes that I have a bias against Apple, while at the same time those not so addicted wonder if I am a Apple groupie.

I am just a pragmatist and optimist rolled into one.

Cheers,

Mark