counternotions

Our conversation with Peter continues as he asks the nuclear question:

“…remember when Apple was about pleasing customers rather than Wall Street?”

Fair enough. So let’s look at some of the assumptions herein. The most ambitious one is that actual iPhone customers are not happy with the current version. ChangeWave Alliance survey for early adopters (geeks who’d likely be most demanding and critical) says otherwise:

“Better than three-in-four (77%) owners report they are Very Satisfied with their Apple iPhone and another 15% say they are Somewhat Satisfied, for a combined 92% Satisfaction Rating – the best we’ve seen for a cellular phone device.”

I’m more often than not skeptical of these kinds of numbers (and there have been a few surveys, including the 94% satisfaction rate cited by Apple) but, no matter how you slice it, it would be unreasonable to declare iPhone customers as not being pleased. Could they be happier? Sure, but that’s technology for you, as Jobs would put it.

What were the compromises Apple made here? The one that bothers Peter the most is the fact that you can’t use your iPhone with any GSM carrier. Would that have been nice? Sure, if the risks were low and the benefits high.

Pretend you’re Steve Jobs. (You know you want to. :-) If, as rumored, you could get $350 from AT&T (and also from other carriers in Europe and Asia) for every iPhone contract via exclusivity, would you feel you have a fiduciary duty to take the money? Money that can allow Apple to grow its mobile business, among others. Money that Wall Street would have severely punished Apple for leaving it on the table.

Was this just playing it “safe,” as Peter puts it? What would a non-suicidal alternative be? We know one thing: the two largest handset manufacturers Nokia and Motorola have for over a decade not done anything like what Apple did in just a few months. They haven’t for instance, challenged operators’ overwhelming dominance in price negotiations, design of device hardware and software, contract terms or service accessibility. They sell hundreds of millions of handsets annually but they haven’t had the wherewithal to realign the business model whereby everything is dictated by the carriers.

So if you wanted to change this business model of orifices, as Jobs described it, would you play it safe, as the Nokias and Motorolas of this industry have been doing for many years, or rewrite some of the key rules, from pricing to UIs, as Apple has done with the iPhone?

Yes, there was a time in the mid-’90s the dysfunctional, beleaguered Apple would do crazy stuff like introduce ‘innovate’ hardware and software without much deep thinking or market-winning strategies and then wonder why they were getting little traction. It nearly killed the company. With the second coming of Jobs, those days are over.

Apple has by far the best fiscal discipline among all computer and CE manufacturers. Jobs says he’s as proud of the products Apple didn’t ship as the ones it did.

Technology packaging is an art of balance, and thus compromise. We can’t fault Apple for compromising; perhaps the only question remaining is if the balance is right. And Peter wonders about that very question:

And no one will ask what could have been…

If the overwhelming majority of iPhone customers are pleased, who are we to judge otherwise?

You may also be interested in this counternotions article:
Nokia N81: Ominous lesson to iPhone from carriers, from which this discussion emanates.

In comments on “iPod touch nay-sayers: shackled by ‘gadget thinking’” one of my observant readers says:

What about iChat? “We can’t have iChat because AT&T would get upset because people wouldn’t be paying money to send SMS messages.” Customers want to make ringtones out of music that they already own. “Well, we can’t let you do that because it might offend the music industry.”

In other words, screw what the customer wants.

Peter, I feel your pain. Now let’s also look at what kind of pain Apple is facing by way of one of its key competitors, Nokia. About a month ago, Nokia announced (PDF) its new portal service called Ovi:

Ovi – one key opens every door.

Ovi (http://www.ovi.com) is the gateway to Nokia’s Internet services, including the Nokia Music Store, Nokia Maps, and N-Gage games. It will also be an open door to web communities, enabling people to access their content, communities and contacts from a single place, either directly from a compatible Nokia device or from a PC. The first version of Ovi.com is scheduled to go live in English during the fourth quarter of 2007 and additional features and languages expected to go live during the first half of 2008.

Further, CEO Olli-Pekka Kallasvuo underlined Nokia’s ambition:

Nokia is the number one mobile device company in the world. Looking into the future, we will deliver great devices, combined with compelling experiences and services, to make it easy for people to unlock the potential of the Internet.

So that’s Ovi, “the one key that opens every door.” Who exactly would want to bury that key in the deepest cave in the Pacific ocean? None other than Nokia’s actual customers, the phone operators.

In the UK, for example, T-Mobile, 3 UK, Orange and Vodafone won’t be promoting Nokia’s top music phone N81 for this Christmas shopping season. Without operator subsidies and promotion, N81 will have a very difficult time getting any traction in the crowded market.

At the launch of Ovi, Orange leaked a memo to The Independent announcing that it won’t offer the N81 to its 16 million customers in the UK. Surprised? Orange has its own music service.

This isn’t the first time a Nokia portal has been suffocated by operators. In 1998, Nokia launched Club Nokia to leverage music, wallpaper, ringtone and games services to prime its media-savvy handsets. Operators didn’t embrace the notion of their dominance being threatened then, they won’t like it now either. That’s the phone biz. Mind you, Nokia’s haul of over $50 billion makes it the largest handset manufacturer in the world; we’re not talking about an upstart here.

An upstart like Apple. The company that’s now essentially being boycotted by the biggest music label Universal and television/video network NBC Universal.

This is a long way of saying that the threat to Apple’s ability to establish progressive online and phone services is very much real. Taking a cavalier attitude or a boneheaded step could be catastrophic for Apple, its shareholders and its loyal customer base alike.

Before people declare Apple to be the new evil, I wish they’d think further about just what it must have taken to realign well established models in the phone business by getting the largest carrier in the U.S. to agree to a revenue-sharing arrangement. That is the foundation of shifting leverage from carriers to handset manufacturers, hopefully reducing the former eventually to bit-pipe operators. Unless a company has the financial underpinnings of breathing space to innovate and customer-driven demand, nothing much will change in this business, as the Nokia examples above indicate. Remember the N81!

With the iPhone, Apple has taken a giant step in the right direction. Apple’s building leverage. Can we have some patience?