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The Back Page - Analysts Miss the Boat, Question Innovation in iPhone 3G

Wednesday, June 11th, 2008 at 6:00 PM - by

Yesterday, I wrote a column saying that a key component to Apple's price drop and change in business model for the iPhone 3G centers around the App Store, where Apple will earn 30% of the revenue generated from selling third party apps for the iPhone and iPod touch. I still haven't seen anyone else cottoning on this, which doesn't surprise me, but I was a little surprised by a couple of things coming from the world of analysis and punditry.

Most notably is a piece from Dow Jones saying there's no innovation in the iPhone 3G. "Where's the innovation?" Dow Jones quoted Global Equities Securities analyst Trip Chowdhry as saying. The piece quoted other unnamed analysts who were focusing on the wrong thing, IMNHO, saying, "The big news here is the price cut."

Honestly, that's just daft. Just plain daft. The price cut is merely a small component to everything the iPhone 3G represents.

Let's add in something from Gartner analyst Ken Dulaney, who noted: "Putting something like global positioning systems inside the iPhone is no big deal. The difference is going to be what Apple does with it. Think of Nokia, Motorola, Samsung, they pretty much are putting in lots of features just to increase the features list."

Right. No big deal. It's no big deal adding in a working GPS system into a smartphone that offers everything the iPhone does for US$199. It's no big deal.

With all due respect to Mr. Dulaney, that reminds me of the sort of drivel I might expect from Rob Enderle, and the interesting thing is that Mr. Dulaney's second idea suggests he should know better. He talks about handset manufacturers who add features just to add features while completely ignoring the fact that Apple has specifically and decidedly not done that.

So far, Apple has shown that it can offer us features in the iPhone that just work, and just work like they should. From my perspective, that makes the iPhone the anti-cell phone, the precise opposite of what Nokia, Motorola, and Samsung have been doing for years. From what I saw at the WWDC keynote, this will be true of the GPS in the iPhone 3G, too (note that none of us have seen it in use in the wild).

The iPhone 2.0 software addresses what few issues remained in the original iPhone, and the App Store is going to make the iPhone platform into something that's even more important, a viable mobile computing platform. And that brings me back to the first couple of daft comments: The innovation in iPhone 3G is Apple allowing third party developers to unlock its potential, something I also mentioned in yesterday's column.

That's the big news. That's the important bit. That's what it's all about.

Make no mistake about it: iPhone 3G/iPhone 2.0 is going to be a monster hit. It's going to continue to redefine the smartphone market, and for those who use it, it will change the way they think about and use their so called "cell phones." That is the essence of innovation, is it not?

On the reasonable side of the analyst world, Dow Jones did find a chap that seems to get it. Rory Altman, a partner at telecom consultancy Altman Vilandrie & Co., told the news service that, "[Apple doesn't] need to take a dramatic step forward because their form factor, software and ecosystem are so far ahead of everything else."

He's got it mostly right, Apple's doesn't need to take a dramatic step forward, etc., but again I'll stress that the App Store is a dramatic step forward. It's going to be a seriously big deal.

began using Apple computers in 1983 in a high school BASIC programming class. He started using Macs in 1990 when the Kinko's guy taught him how to use Aldus PageMaker, finally buying a Power Computing Power 100 in 1995. Today, Bryan is the Editor of The Mac Observer, and has contributed to the print versions of MacAddict and MacFormat (UK).

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A guest said: (hide)

Wed Jun 11, 2008 7:50 pm

Here is an email I sent to the author this morning:

Dear Mr. Charney,

I read your article on the iPhone today and you make some good points. However, I think the analysts who quote who say the man change is price have very poor judgment.

I am surprised you didn't mention the software development kit. Although one can argue how innovative Apple's changes are, by providing an easy-to-use development took Apple has, in some sense, handed off some of the innovation to the legions of developers anxious to sell programs for the iPhone. If you watched the video of the WWDC you would see some incredible innovation.

Also innovative is the me.com. Finally, it is true that other smart phones have 3G, but their interface is so clumsy that web use by them is miniscule. 3G matters for the iPhone, it doesn't matter much for others.

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BurmaYank said:

member since 22 Oct 2003 with 27 posts, unranked, send him a message or view his profile

Wed Jun 11, 2008 8:09 pm

"The iPhone 2.0 software addresses what few issues remained in the original iPhone, and the App Store is going to make the iPhone platform into something that's even more important, a viable mobile computing platform..."

Really? Is the App Store really going provide the iPhone platform with a cut/copy & paste clipboard?

If not, then the App Store really is NOT going to be making the iPhone platform into a real mobile computing platform, IMHO.

Without cut/copy & paste, the iPhone G3 is STILL not yet even a real SmartPhone (i.e. - a PDA cellphone), because that's what all PDAs must have.

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ipaqrat said:

member since 14 Jan 2005 with 44 posts, unranked, send him a message or view his profile

Wed Jun 11, 2008 8:50 pm

Well, the analysts and writers in Dow Jones are mostly right. Please keep perspective on this iPhone thing. (In case you're wondering, I bought mine on day 2 last year. It is great fun and has really saved my bacon several times.) So...

The iPhone WAS innovative. To the extent that it has only itself as a valid competitor. It IS an improvement to be sure, but iPhone 2.0 only SEEMS exciting because some grievous deficiencies are finally addressed.

1. Third Party application software "Unlocking its potential" is not innovative. I've had that since my Apple Newton in 1994. And Apple should have done that for the iPhone from the git go. But they made a deal with AT&T to ensure that vast amounts of profitable airtime had to be used. Hey it's capitalism. They're pricks, but it's the only game in town.

2. 3G isn't innovative. Lots smartphones have that.

3. GPS isn't innovative, nor is the way app writers might use it. It's only positioning data - been done.

MMM wouldn't be innovative; sure like to have it though. Accelerometer has been done (by the iPhone 1.0); likewise the form-factor. Video teleconferencing would be innovative - no one else doing that yet that I know of.

The iPhone was a great leap, of course; no one disputes that. But the latest improvements are only catch-up. Oh yeah... HOW 'BOUT COPY/PASTE, DAMMIT!

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MacToddB said:

member since 11 Jun 2008 with 5 posts, unranked, send him a message or view his profile

Wed Jun 11, 2008 9:40 pm

So what you really mean is the new iPhone OS and App Store is/are innovative. I agree. And that's why I'm keeping my original iPhone and upgrading the o.s. on July 11th, and saving the $15/month ($10 for 3G and $5 for 200 SMS...still no MMS?) plus $199 I'd pay for GPS and potentially faster speeds (WiFi is prevalent and I have a couple of GPS units). This will buy a lot of apps.

The phone would be more innovative (and would earn my business) if it had some of the following (which many phones had years ago):

A2DP Stereo Bluetooth

Video Camera

Front-mounted Camera, with iChat/IM

Copy/Paste

Bluetooth Syncing

Lotus Notes Integration

Mini/MicroSD card expansion

MMS

Mind you, I'm happy w/ my year-old iPhone, and even though it replaced my Nokia e62 which had native AIM, MMS, Bluetooth stereo, Bluetooth Syncing, Lotus Notes, and MiniSD expandability... But this model simply isn't compelling enough. Maybe next year.

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Photodan said:

member since 11 Jun 2001 with 3112 posts, TMO Staff, send him a message or view his profile

Thu Jun 12, 2008 12:01 am

The app store will not make the iPhone 3G innovative. It will make the whole iPhone platform innovative. (my first gen iPhone will benefit from most of the improvements to the software and the app store) The pundits are correct in saying that nothing added to the hardware of the new iPhone is innovative and for that matter, nothing that MacToddB mentioned would have been either.

The ground-breaking aspect of all this is how Apple is marrying the simplicity of a normal phone with the endless possibilities of a smart-phone. Luckily both iPhones will reap the benefits of this.

-Dan

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A guest said: (hide)

Thu Jun 12, 2008 6:59 am

The original iPhone was innovative. The iPhone 3G is not. All the iPhone 3G has for new hardware is a 3G chipset, GPS and a new case.

People keep arguing that the app store and SDK is innovative. Perhaps. But keep in mind that the app store and SDK are not just for the iPhone 3G...they're also for the ipod touch and original iPhone. Given the fact also that they weren't even announced together, it would be hard to argue that the iPhone 3G and iPhone 2.0 software are same thing.

As mentioned before, real innovation for the iPhone 3G itself would be never before seen features like videoconferencing.

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MacToddB said:

member since 11 Jun 2008 with 5 posts, unranked, send him a message or view his profile

Thu Jun 12, 2008 9:18 am

Just to add to my earlier point, that the AppStore and 2.0 O.S. make it "more innovative" (but not truly innovative), the AT&T Data Plan is actually a step back. To go from $20/month for unlimited data w/ 200 text messages, to $30 plus $5 for 200 texts is a step back. I don't care if it's typical of AT&T or other data rates...it's a step back.

They want iPhone owners to pay $35/month vs $20, and $199 up-front, to lock us in for another 2 years, during which time better iPhones will be introduced, all with the hopes 3G will be prevalent (and WiFi won't) plus GPS which most folks have and keep in the car (I have two). I even have a Bluetooth GPS/speakerphone unit (Parrot 3400) mounted in my car so maybe I can use the GPS software with my 1.0 iPhone?

Background: I was nicknamed "MacTodd" back in 1984, when I bought an original Mac (128K) and worked in the Carnegie Mellon University computer store, selling Macs, for four years. I even worked for Apple as their exclusive On-Campus Representative. I've upgraded my Macs off-and-on since, but I'm not going to automatically get each generation. Patience. Apple's iPhone experience teaches us that 32GB will be here soon, and maybe a price drop. I'm also hoping for A2DP Bluetooth Stereo (which will only happen when Apple sells an A2DP headset, and not a minute sooner), and a front-mounted camera with videochat... This iPhone isn't 2.0...it's more like 1.5.

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gslusher said:

member since 13 Nov 2002 with 2088 posts, unranked, send him a message or view his profile

Thu Jun 12, 2008 1:46 pm

MacToddB wrote:

Mini/MicroSD card expansion

Why? The iPhones, out of the box, have many times the memory most "smartphones" do. The top model of the BlackBerry Curve comes with--hold your breath!--a whopping 96MB Flash memory. It can be expanded with a MicroSD card. Even with carrier rebates/subsidies, it costs about $150. Add an 8GB MicroSD card for about $40 and you're right at the 8GB iPhone 3G's price, without the iPhone's extra capabilities, larger screen, multitouch interface, etc.

The largest MicroSD cards now are 8GB. In order to get to 16GB, you'd have to carry around another MicroSD card and switch it out when you need it. To do that, you'd have to duplicate some apps, data, etc., on both cards, which could be a synching nightmare. ("Umm, just which card did I put that song on?")

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MacToddB said:

member since 11 Jun 2008 with 5 posts, unranked, send him a message or view his profile

Thu Jun 12, 2008 2:04 pm

gslusher wrote:
MacToddB wrote:

Mini/MicroSD card expansion

Why? The iPhones, out of the box, have many times the memory most "smartphones" do, even with a Mini/MicroSD card. The top model of the BlackBerry Curve comes with--hold your breath!--a whopping 96MB Flash memory. It can be expanded with a MicroSD card. Even with carrier rebates/subsidies, it costs about $150. Add an 8GB MicroSD card for about $40 and you're right at the 8GB iPhone 3G's price, without the iPhone's extra capabilities, larger screen, multitouch interface, etc.

The largest MicroSD cards now are 8GB. In order to get to 16GB, you'd have to carry around another MicroSD card and switch it out when you need it. To do that, you'd have to duplicate some apps, data, etc., on both cards, which could be a synching nightmare. ("Umm, just which card did I put that song on?")

Lot's of reasons, if you want to focus only on that one point.

- It's only a syncing nightmare because of iTunes. My old Nokia let me drag and drop music and movies to a miniSD card.

- Why not ship w/ 8GB and let me buy an 8GB card. Oh, because that's $30 (not $40) to SanDisk instead of $100 to Apple.

- During the 2 year commitment, expect 32GB or 64GB to be common. Just look at the past year or two.

- Since I can't put all my music and videos (ripped from my purchased DVDs to my Mac Mini) on a 16GB iPhone all at once, I'd be happy to have the option to use a couple of memory cards. Say one for grown up movies and one for the kids. Instead, Apple wants me to buy more iPods.

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Tik Tok said:

member since 05 Oct 2005 with 21 posts, unranked, send him a message or view his profile

Wed Jun 18, 2008 9:58 pm

I'm going to disagree with both the pundits and Mr. Chattin. The price cut, which incidentally wouldn't count as innovation per se, is not really a price cut, given ATT's increase in its pricing to use the iPhone. In a very short period, that increase to use data will gobble up Apple's "price reduction". On the other hand, while the opening of the iPhone to outside developers is a tremendous boon to the product, since it gives an opportunity for all the creativity in the software development industry to put something up for the iPhone, I wouldn't call that innovation, strictly. After all, Palm did that from the outset, and one has always been able to find innumerable programs to do whatever the user can think of. To be sure, the iPhone's basic software will likely allow some of those programs to use the web to enhance what they do for us, and do it better than Palm ever dreamed of, that's to be expected a decade later.

Having said all that, I also believe that expectation for Apple's delivery of innovation has outstripped the company's ability to accomplish what everybody wants all at the same time. Hopefully, some of the software developers will now supply some of the innovation for each of our needs, including cut-and-paste, Burma Yank, and Apple will continue to make each succeeding generation of the iPhone a significant step forward, as it has done with this version.

Now, if only someone can get ATT to innovate on pricing.

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