Do They Get It?

Over the last few weeks a number of interesting things have happened in the mobile phone market and I’ve been watching with interest.

Nokia have launched a handset that comes with “unlimited free music.”
Telstra (Australia’s largest mobile provider) have launched a mobile game portal.
Apple announced iPhone OS 3.0.

Let’s have a look at Nokia’s offer. Nokia are a smart company, if I didn’t have an iPhone I’d be carrying a Nokia, no question. They know that phones are quickly morphing into a device we carry everywhere and not just for phone calls. So they need to do something to counter the iPhone, a music device - therefore free music.

The big hole here is that Nokia can’t offer the entire iPod/iPhone/iTunes experience. I do use my iPhone to listen to music sometimes - mainly at work where I need the mobile nearby and the music cuts off when a phone call comes in. At the same time my music lives on three iPods -- a nano I use when I want a lightweight device, an old iPod that lives in the glovebox of my car connected to the stereo and another that contains the entire music library that gets connected to my home theatre or a little Logitech box I use when travelling. My music also lives on my home computer so that I can listen at my desk or have it streamed to the kitchen stereo.

So Nokia can offer me free music, but I don’t want it unless I can move it around. What’s the point if it’s a single source? What happens when my phone breaks? What happens when I change handsets? Can I change phone companies and keep the music? Can I download it over my much cheaper home network or do I have to pay data charges on my phone?

All these questions and shortcomings make the Nokia offer a little more than a gimmick.

Now let’s have a look at Telstra’s game portal.

First, let me say that I love playing games. I even bought a few games for my iPod, I’ve bought a few games for phones.

The biggest problem anyone has selling games into the phone space is making sure the game will play on the handset. With multiple operating systems in many versions it is way too easy to sell someone a game that just doesn’t work. The most used solution to this problem is to program for the lowest common denominator. The same goes for screen real estate - sure some mobile phones have a fair sized screen but most don’t so games are incredibly low-res.

The other problem is the payment method. Paying for a mobile game on your phone is fraught with peril - it usually means “subscribing” to some scheme that gets you a game, a bunch of ringtones and some wallpapers for a weekly charge that you then have to cancel. It’s a hassle.

The only part of this problem space solved by Telstra is the payment. The rest remains. So why are they bothering? It may well be that they have to do it. Due to the ridiculous way they structure data charges I suspect Telstra are losing to their competitors in iPhone and other smartphone sales and smartphones and data for them seem to be the fastest growing profit centres in the mobile world at the moment - Telstra need to give it a hit.

So why is Apple winning with the iPhone, why is it overturning the basics in this space?

Well, I think the major win is that, despite the name, Apple is not selling a phone. Well, not a mobile phone. It’s too big, doesn’t have a keypad, the camera sucks and I can’t (yet) send and receive pictures of even use Bluetooth to share them with my friends. My daughter thinks these are all required on a mobile phone. It just turns out to be an excellent little compute platform with a phone shoved in it so phone companies give it price support and consumers to carry it everywhere. Once you’ve got a compute platform the most obvious thing to put on it (at least for Apple) is iPod emulation since they win big in that space and they know the back end of iTunes is all organized so people can easily handle the music. They are selling the first successful handheld compute device. They first tried it with the Newtown, Palm got it mostly right but blew the lead and tried to be cheap.

Apple have a history of doing this. The first great product they ever sold was the Apple ][, and when you hear Woz talk about the win it was twofold - you got everything you needed in a package that was as cheap and simple (in both manufacture and use) as possible. The iMac and the iPod won for the same reasons. The iPhone does the same - you get a nice large colour screen in a decent package with a good interface at a reasonable price.

The other reason Apple wins is synergy. Now, I dislike using the term ‘synergy’ - to me it often reeks of marketing speak, but in this case it applies perfectly.

With the iPod, iTunes and iTunes Store Apple put together a system that made it easy to handle the purchase, storage and handling of digital music. They also slowly iterated the various models of iPod so that they had the right model for every purpose at a reasonable price. They also kept the feature set simple and the interface clean. They ended up owning both the digital music player market but are now the biggest retailer of music in the US.

So then it comes time to release a phone. Apple’s first step in entering the phone market was to sell something that wasn’t a phone. If you don’t think that the iPod touch wasn’t built by Apple as a stepping stone to the final phone you are crazy. It gave them a hardware platform to get the operating system out into the wild well before they could build a phone and get it released by a carrier. It also started them building the entire platform, including the application store.

Then you get to the App Store. Apple had already solved the micropayments problem of charging people sums as small as 99 cents and still getting some margin with music so the App store is an almost trivial task. It is incredibly easy to underestimate the power of the App Store in the market. In the ten years I’ve owned mobile phones I’ve bought six games - two never ran on the phone I bought them for. In the six months I’ve owned an iPhone I’ve bought over two dozen games and applications - one I paid over $20 for. The App Store is already on its way to creating the first iPhone application millionaires. O’Reilly, the computer book publishers are reporting a surge in sales of books about Objective C on the back of iPhone development.

Sure, the iPhone and its operating system have shortcomings. Some of those Apple has admitted are due to the lack of processing power and battery issues - start playing intensive games on your iPhone and watch the battery charge disappear. You can be sure that there are a fairly large bunch of software engineers at Apple spending their days optimising large chunks of OS X to make both those problems go away. You can also be sure that hardware engineers are looking at new versions of the processor and new battery tech to optimise on their end. Witness how for several versions of OS X after 10.0 the OS actually got faster and leaner, even 10.5 has improvements in speed over 10.4 in some areas. Apple are past masters at playing the iterative development game. Look closely at the pre-release notes from Apple on iPhone OS 3.0 and you can see them doing exactly the same thing here. I suspect that we will see new iPhone hardware just when contracts are running out on the current version, towards the end of this year or early next year -- A.T. & T. would love to lock those customers back in to new phone contracts.

Apple have also entered the market right at the tipping point (or they are perhaps creating the tipping point.) More and more of the online world is optimising itself for the smaller screens and lower bandwidth of the mobile web browser (but not small enough for the tiny screen of a traditional mobile.) More and more companies are creating applications for the iPhone - if, for example, your bank doesn’t at least offer an ATM finder then it’s time to switch banks. The first pizza delivery company to create an iPhone ordering app will probably be in for a large win - at the moment none even offers a mobile optimised web site here in Australia (are you listening Eagle Boys?)

Just continue to watch. iPhone OS 3.0 delivers a little more that the customer is asking for and with it Apple will have another win. Count on it.