iPhone OS 3: The moat strategy vs. features-fetishism
Thu, Mar 19, 09
The chattering class has a fetishistic indulgence with smartphones bordering on techno-porn:
Rumors were in full swing on the eve of Apple’s introduction of the iPhone OS 3.0 and virtually all of the speculation was about whether Apple would include one feature or another that some other phone already had.
Two days ago in iPhone OS 3.0: Refinement or a leap? we outlined the last two stages of the iPhone evolution from a device to a platform:
We anticipated that — despite all the rumors — iPhone OS 3.0 would not be a radical leap but a maturity play. And it was. Apple kept it simple:
While this garnered a collective yawn from the features-fetishists, barring a product introduction disaster, the iPhone OS 3.0 will do to iPhone-killers what it did do to iPod-killers half a decade ago. Apple consolidated its gains, marked its territory of 30M users+25K apps+800M downloads and built a very deep and wide moat around it. A moat so formidable that there’s not a single smartphone player capable of overcoming it.
Déjà vu all over again
At the start of his turnaround of Apple about a decade ago, Steve Jobs gave a keynote in which he went through, one-by-one, all the fears and concerns the industry, Wall Street and the media had about the viability of the beleaguered company. He then discussed what Apple was going to do to dispel them. Starting with the chaotic product line consolidation into a “product quadrant,” Digital Hub strategy and the iMac, Apple went about striking through all the real and perceived objections in the following few years. Instead of fear and denial, there was acceptance and execution.
Similarly, last year at the introduction of the iPhone 3G, Jobs went through the very same process by displaying all the objections to the original iPhone as a business tool and detailing how Apple accepted such reservations and eliminated them one-by-one in the upgrade.
Developers, developers, developers
During yesterday’s address to its developers, Apple was following the same game plan of acceptance and execution with two simple objectives: (1) eliminate as many perceived and real reservations iPhone customers may have in choosing the iPhone, and (2) provide a wide range of incentives to what’s already the most impressive mobile developer ecosystem to prevent any defections to rival platforms.
The iPhone is not the cheapest, the most widely distributed or the most open device in the market. Why should developers prefer it then? Apple offered a few thematic reasons:
These and a thousand other new APIs are wrapped inside what’s inarguably the most sophisticated mobile SDK in the industry. Every one of these new APIs is designed to both help developers create new type of applications and open up avenues of new revenue at the 70/30 split. Take just one example where developers got device-control API access to the 30-pin port (which earlier created a multi-billion dollar ecosystem for the iPod):
Show me the money
The “Accessories” APIs alone represents concrete opportunities for thousands of new applications most of which we likely haven’t seen yet on any existing platform, translating into hundreds of millions of app downloads over the next few years, and thus growing the App Store into a multi-billion dollar revenue source 70% of which will go directly to developers.
While analysts and competitors were busy making feature-level comparisons (of mostly hardware), Apple consolidated its platform lead and laid the foundations of a new growth engine the likes of which the mobile industry has neither yet seen nor fully comprehends.
No developers, no users
Since developers go where the users are, Apple also methodically eliminated the vast majority of iPhone’s “missing” features: copy and paste, landscape text entry, global search, notifications, MMS, voice memos, new calendar format, Notes sync, stereo Bluetooth support, extended parental controls, browser auto-fill and anti-phishing… pretty much anything else that may have given potential customers a pause previously. Of course, we haven’t been shown all the new APIs and we still don’t know what the upcoming iPhone hardware is capable of.
One might wonder at this point if there’s ever a way to fully satisfy the features-fetishists. Video recording/conferencing, voice control, background processing and a host of other capabilities may have to wait for the next iPhone version, when users can perhaps better enjoy the fruits of faster processors, 4G speed and Apple’s PA-Semi acquisition. Apple’s not in the business of feature-complete perfection or geek satisfaction. It’s merely seeking meaningful profit maximization as a business and inspiring transformation of industries it touches as a culture.
By the end of 2009, we expect the virtuous cycle to kick in and the moat strategy to reveal just how difficult it will be to compete against Apple’s touch platform, thereby ushering in consolidation in the rest of the smartphone industry.