Will iPhone dominate like iPod does?
Will Apple dominate the mobile phone market the same way they dominate the MP3 player market?
This question should be sounding alarm bells within the halls of Nokia, Motorola, Samsung, LG, and others. Apple has clearly changed the basis of competition within the handset market – indeed within the entire mobile market. Mobile handset competition used to be about industrial design – it was only a few years ago that all the demonstration phones inside mobile phone stores were hollow plastic dummies. The Motorola RAZR was the pinnacle of this era of competition. But now people are buying handsets based on the applications and services they can run on their phones. The iPhone, with the App Store, is a market disruptor in this regard, and it is driving more change in the mobile ecosystem than anything else we’ve seen in at least the last decade.
The mobile application store itself is becoming an important basis of competition among the mobile industry. Does it lend itself to a winner-take-all dynamic? The most compelling existing argument in the affirmative seems to be the existence of the long-tail of iPhone specific applications. With an order of magnitude more applications than exist in the next most popular mobile application store, there is bound to be some app that is of interest to any given user that exists only in the iPhone App Store. But, is someone really going to choose their phone based on the availability of the seventeenth iFart application, which is so much better than the seventh one? Seems unlikely to me. If I were in charge of strategy at iPhone, I would be driving the use of applications that interact with other iPhones, and iPod Touches, to create a network effect among that community of users: I’d create, open up, and promote Apple-specific APIs that allowed for
1. compelling multi-player games over the network (we are starting to see some interesting iPhone MMORPGs);
2. documents and files of various sorts to be easily shared among other iPhone/Touch apps;
3. some form of payment system that could be used between users within an application, across applications, and even in real-world transactions; and,
4. the sharing of location, presence, status and other useful state information among mobile applications.
There may be internal efforts in these directions, but I haven’t seen external evidence of a coherent strategy in this regard.
Apple’s vertically integrated approach was their Achilles heel in the PC wars, but it worked phenomenally well in the MP3 player industry. Can Apple repeat the iPod success, and run the table in the mobile phone world? It is a possibility, but not a high probability in my mind, for two fundamental reasons. First, as noted above, Apple does not seem to be taking the strategic steps that would allow them to capitalize on their current head start. Second, the mobile operators need to differentiate themselves from one another, and one critical way that they do that is through different handsets. Since the majority of handsets sold worldwide each year move through operator controlled and subsidized channels, this is a huge factor. Perhaps Apple can create enough differentiation among their handsets to satisfy this competitive need of the mobile operators, but it seems unlikely, given their current path.
Bottom line. It seems unlikely to me that the iPhone will approach the market dominance the iPod enjoys.