"You can’t expect to win unless you know why you lose."

- Benjamin Lipson

There are people with good sense, industry experience, and a feel for the wireless market who see the iPhone as just another smartphone. One with limitations and some serious weaknesses in terms of big business. I don’t think they’re looking deep enough, or with an Apple perspective, or with a view to the future.

The Apple iPhone is going to make some serious inroads into our lives and change the way we use hand held computers, indeed, even our desktops. To fail to understand that is to fail in the wireless market. Some companies that sell mobile phones are going to fall into hard times as a result over the next five years. That’s because they don’t know why they’re winning now, nor do they have the corporate insight to see how they’re going lose in the future as the smartphone evolves.

The Underlying Elements That Matter

It’s the OS, Stupid. In time, it will be found that the development of the user interface on smartphones will be the driving factor in consumer expectations and market success. How fast Apple can innovate compared to the other manufacturers like Motorola, Nokia and Sony Ericsson will drive the adoption of a new breed of hand held, wireless devices.

In Apple’s case, the use of Mac OS X is the extraordinarily shrewd move that will allow that rapid, competitive innovation to happen. When we think about the expertise Apple’s competitors have, only Microsoft has experience with a User Interface. But Microsoft doesn’t design the wireless hardware that Windows Mobile runs on. That decision is left to Motorola, Nokia, and Sony Ericsson. Right out of the gate, Apple has given themselves a key advantage that has been working on the Macintosh side for a long time. Namely, as Steve Jobs likes to quote Alan Kay, "People who are really serious about software should make their own hardware."

For far too long, largely based on the hardware capabilities and hand-held state-of-the-art, we’ve been limited to toy OSes like Symbian. Now that the CPUs and memory systems support it, we’re going to see much more capable OSes in the palm of our hands: Linux, Windows and Mac OS X.

Which of those OSes is both Unix and has the force of the world’s greatest company in terms of innovation, user interface, and customer enthusiasm?

Apple, over the years, has shown a unique, focused ability to put its corporate will and intelligence behind a single device. The whole company’s resources can be devoted to the iPhone, not only in terms of the hardware and integrated OS, but also in terms of marketing, retail sales, and integration with its own technologies, like iTunes.

That should scare the hell out of Apple’s competitors.

Evolution. Those who are critical of the iPhone in its current incarnation are in the same state of mind that Rio was when Apple came out with the original iPod in October 2001. That is, a vast underestimation of Apple’s ability to not only innovate and improve on the device, but to appeal to partners who want to get in on the action.

The pace of Apple’s ability to change the iPhone as the market and technology evolves will be a major challenge to both the business models of the competitors and their technical abilities. If one doubts that, one need only review the articles written as a result of taking an iPhone apart. Rather than exhibiting the careless mistakes of a newbie to the market, there was instead serious engineering fascination and marvel. Apple is a hardware company that’s been building fabulous, compact, beautiful iPods, PowerBooks and MacBooks for years.

Why should we be surprised that the iPhone is also rugged, elegant, and well engineered? Similarly, why should we be surprised when major new iPhone features take the competition by surprise?

Infrastructure. When Apple first started talking about the desktop computer as our digital hub, they weren’t kidding. And the mobile phone companies weren’t listening. Instead of seeing the mobile phone as an extension of the desktop computer, they saw it as a stand alone device, precisely because they weren’t in the computer business. (It’s that well known business issue of knowing what business you’re really in.) If anything, Apple has the required expertise in this market as opposed to the fanciful notion that they are new and inexperienced in the monstrous wireless market.

The activation of the iPhone is an example of the kind of infrastructure that Apple has developed. We plug our iPods into a dock, sync our music and contacts, and update the software. The iPhone is just an iPod that makes phone calls, so it didn’t require a stroke of genius to see that the iPhone activation could be easy and painless with iTunes plus an Apple ID.

Putting key pieces into place until the whole becomes more than the sum of the parts has been an Apple theme for quite some time. We saw Sound Jam evolve into iTunes for ripping, then the iPod, then the iTunes Store. The rest of the industry has nothing to compare to this. Think about it. Every time you charge your iPhone, iTunes has the opportunity to check the software and install fixes and new features.

This elegant, evolving infrastructure should also scare the hell out of Apple’s competitors.

As if that weren’t enough, Apple figured out how to make the buying experience cheerful and productive with a nation-wide chain of Apple stores that, oh by the way, also sell some pretty nifty computers, accessories, and the Apple TV. Analysts are seeing this Apple triad, Mac, music, and iPhone, as a powerful revenue generator, and that’s why the stock projections are so positive.

The Enterprise View

Right now, the iPhone is not a mature enterprise instrument. If Apple had tried to shoehorn the iPhone into the business sector, it would have added complications and defocused the product from its very large and intended audience. Remember, of those billion cell phones sold each year, only a fraction are used by Fortune 100 companies tied into MS Exchange.

So it made perfect sense for Apple to do what it does on the Macintosh side, namely, build a mobile phone for the rest of us, that demonstrates simplicity, technical restraint, and joy.

Because the iPhone doesn’t have that Enterprise maturity, IT managers are probably right to deflect their users away from it and remain focused on the BlackBerry. The BlackBerry is designed, bottom to top, to appeal to large corporations who maintain Exchange servers and fret about protecting company sensitive information splattered about in e-mail inboxes.

What they are overlooking, however, is that changes in the world culture and changes in the technology will eventually overcome that fastidious devotion to The Way Things Are. The iPhone creates a new platform. It’s Mac OS X basis will propel it into new user experiences that will eventually surface as part of the collective mind of the mobile phone community. That’s when the BlackBerry sub-culture will revolt and create problems for RIM.

Preparing for the Future

Apple will do some expected things and some unexpected things that will change the iPhone from first generation newbie to something that Captain Kirk could only dream about. We know that, in time, developers will come up with fabulous add-ons. Once the reputation of the iPhone for reliability and security is insured, some developers may be allowed into the internals. We know that Apple will also be adding features and functionality via updates.

What we can’t see right now are those magical building blocks on the whiteboard in Phil Schiller’s office. We can only guess at novel content distribution agreements. Hidden features of the iPhone that may be unlocked. Future licensing that will allow the iPhone to better integrate into business systems for those who just must have it. Possible movement to AT&T’s 3G network. MacBooks and traditional iPods with multi-touch displays. Video and audio phone calls. Retail purchases, via credit card, simply by waving an iPhone and utilizing a very secure radio link.

None of these ideas for the future will evolve in a satisfactory way unless the mobile phone develops as a secure, trusted, integral part of our lives and also lives within an understandable, human-focused digital hub and vendor provided infrastructure. The hand held mobile phone is no longer just a telephone with some added features. It’s an emerging platform for a new digital culture. The "electronic wallet" that the carriers imagine for the future will have a tough time gaining traction, compared to Apple, amidst the current dysfunctional relationship they have with their manufacturer pseudo-partners.

In short, Apple can change and innovate faster with Mac OS X, exploit their in-place infrastructure, and therefore evolve and mature faster than other smartphones in order to create a next generation device.

That’s why the Apple iPhone is not just another smartphone. Most of all, that should have Apple’s competitors really worried.