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  • Writer's pictureSlashData Team

How iPhone is impacting the mobile industry

As an analyst working inside the mobile industry I ‘ve witnessed to hubbub of cheering, admiration and idolatry for the iPhone in the last week since its release. However, I do not think that the real impact of the iPhone is in the sleekness of its curves, the intuitiveness of its interaction design or its cool-looking widgets. I believe the iPhone is creating a much deeper impact in the mobile industry, along the following three lines:

1. The phone as a premium consumer good.

Status quo: Operator efforts to attract and retain subscribers have resulted into considerable phone subsidies in most markets, primarily Europe and the US. A handset is typically subsidised by several hundred dollars in order to attract a customer purchase. As a consequence, mobile handsets have become commodity items in the eyes, where the price is the primary differentiator. Consumers therefore have come to not respect the value of the mobile phone, which they see as reflected on its price.

iPhone impact: the iPhone has not been subsidised – at $500-$600 this is a premium-priced phone (with a 55% margin according to iSuppli). Yet consumers have been flogging to buy it, realising implicitely that there is a brand premium that the iPhone can command. If more phone manufacturers follow iPhone’s example of denying any operator or channel subsidy, that would foster a more healthy market, where the value of phones is more reflective of its price, allowing operators can reduce tariffs in response to lowering subsidies.

2. ODMs gain back market share

Status quo: The top-5 OEMs (Nokia, Motorola, Sony Ericsson, Samsung, LG) have over 82% of the market (Q1 2007 figures from Informa T&M). This figure has been growing in the last years and is showing signs of stability. As a result, smaller OEMs and ODMs have seen their market share dwindle.

iPhone impact: Apple expects to sell about 10 million iPhones next year, or 1 percent of the 1-billion-a-year mobile phone market. This goal seems easily achievable since the iPhone is reported to have sold more than half a million handsets in its opening weekend. the iPhone is made by Quanta and Foxconn, two Asian ODMs. ODMs have produced highly customised phones like the O2 ICE and O2 Cocoon before, but not in volumes of this scale. iPhone will undoubtedly shake the ground of top-5 OEM dominance by increasing the credibility of Asian ODMs and their ability to execute not only me-too, but daring industrial designs. this comes at a time when brands and operators are increasingly looking at cheap routes to market for uniquely customised handsets.

3. UI technology coming to the forefront

Status quo: software vendors have been challenged to sell products on the basis of improving the user experience; whereas this is a common ‘sales pitch’, software sourcing deals are signed on the basis of added features, functionality or post-sales revenue. An improved UI is an intangible premium, and therefore undervalued.

iPhone impact: the iPhone introduces an intuitive user interface (to be more specific, an innovative interaction design, including use of orientation, light and proximity sensors) which are not to be found on any other phone available today. The appeal and sexiness of the iPhone user interface is actually leading to the appreciation of the value of the UI as a tangible premium (tangible as in ‘see how much premium the iPhone can command!’). The effect this has had is that already at least a couple of mobile operators / handset manufacturers have started projects aiming at producing iPhone killer phones. At the forefront of these projects are UI technology companies who can now pitch their wares as not just nice-to-have but as software solving short-term problems for the manufacturers/operators, that is allowing them to favourably compete in the post-iPhone age. Naturally, image/video hardware acceleration vendors are also seeing the market change in their favour.

– Andreas

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