The iPhone beyond the hype

The iPhone beyond the hype

Priyanka Joshi / Mumbai August 23, 2008, 1:38 IST

The Apple smartphone was launched yesterday, and Priyanka Joshi was at hand to check it out for you.

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Sanjay Gupta has been eyeing the iPhone ever since its global launch 14 months back, but the chief marketing officer of Bharti Airtel will have to wait some more before he can switch loyalties from the BlackBerry he currently uses. “I will get an iPhone only after my customers — both those who have pre-booked, or are walking into stores to order them — have been serviced,” he says, sounding just like the marketing man that he is.

Airtel and Vodafone launched the Apple iPhone 3G in India yesterday and are already eyeing gold with Apple — which had made a name for itself with its Macs and iPods — striding silently into an Indian market of 260 million subscribers, a percentage of whom are in iPhone frenzy mode. Apple couldn’t have asked for a better start.

Apple iPhone, now in India
For entrepreneurs like Rajiv Agarwal, CEO and director of MobileStore, a leading retailer of mobile devices who began by stocking a thousand iPhones, it’s business time. “We see 5 per cent of our store sales through smartphones,” he says, “and estimate to see iPhones take this number a notch ahead.” Barely able to conceal his excitement, Ravinder Takkar, director (strategy and corporate development), Vodafone, says, “Considering we have had thousands of online enquiries and bookings, it looks like a promising start.”

Both operators have trained an army of customer care executives across 62 cities, in select stores, to ensure that every customer who walks in, walks out with an iPhone. Bharti Airtel, informs Sanjay Kapoor, its president (mobile services), has readied 3,000 such customer care executives. “Apple personnel have spent weeks training our sales executives about iPhone features, and we are ready to crack sales,” chips in a confident Takkar.

If you’re having a hard time trying to remember when it was that mobile operators went all-out for a gadget launch, the answer is never. The Apple iPhone is the first-ever device to get such attention from domestic operators. “Worldwide, mobile service providers are fighting tooth and nail for the right to sell the new iPhone because of its ability to attract new customers,” says Girish Trivedi, deputy director (ICT practice) Frost & Sullivan.

To add to the pre-launch drama, Apple’s policy of not commenting about its strategy and country-specific plans has only heightened speculation around the iPhone in the media. According to sources, Apple will come to India with company-owned showrooms (currently, it only has Apple resellers) but for now is content with launching the device through carrier partners.

But baby, it ain’t cheap
The pricing of iPhones has raised questions among analysts about its saleability in a market where most mobile devices are in the Rs 10,000-17,000 bracket . Jaideep Ghosh, director, KPMG advisory services, says, “At $720, or Rs 31,000, for the 8GB model, the pricing is steep as against the first iPhone device (that included contract subscriber-subsidies in most international markets). Given this pricing, ‘twice as fast, half the price’, which is the iPhone tagline, doesn’t fit in the Indian market context.”

Then there are at least a few hundred people like Sumit, an electronics retailer in New Delhi, who has been using an iPhone since it was launched in the US. Having bought it for Rs 20,000 and “cracked the software code” to work on Vodafone networks in India, Sumit is probably one of those who couldn’t be bothered with the buzz around the new iPhone 3G. While Vodafone and Bharti may have lost customers like him due to the hostile pricing, it’s not all bad news.

KPMG’s Ghosh prophesies, “With more affordable pricing, iPhone could garner a share of the consumer smartphone market.” Kapoor of Airtel elaborates, “We are bundling the iPhone with access to the Airtel Live portal, a host of applications and 500 MB of data usage free with every purchase.” He does not rule out the possibility of targetted data plans for iPhone users, just as it has for BlackBerry services on monthly rentals of Rs 1,000 onwards.

Will it work?
“I see no reason for iPhone to fail in India,” says Trivedi. Anshul Gupta, principal analyst, Gartner, agrees. “We expect to see volumes even at this pricing. Those who own a Nokia N95 or BlackBerry devices priced at Rs 20,000 could be the first movers to iPhone,” he says. Fighting for a share in the estimated 15-17 million Indian smartphone market are vendors like High Tech Corporation, Nokia, Palm, and Research in Motion (RIM) — the makers of BlackBerry. Nobody is discounting Apple’s threat to RIM.

“Apple has everything to make inroads into RIM’s most important customers — large corporations — thanks to new phones and software that connects to Microsoft’s Exchange email/calendar servers,” foresees Naveen Mishra, analyst (communications research) IDC India. Although in India, where BlackBerry has 500,000 users, Apple has a long road ahead. The iPhone’s limited availability through service contracts with Vodafone and Airtel, coupled with premium pricing, also restricts its market penetration.

Efforts are being made to ship iPhones quickly to meet the demand. “I will not predict whether supply will meet demand,” acknowledges a tactful Gupta, adding that Airtel will ensure that iPhone supplies should satisfy users. He does not rule out chances of handset shortages.

An Apple tree has been planted…now what?
KPMG’s Ghosh says, “If we go by similar experiences internationally, the initial uptake of iPhone is likely to be encouraging, with sales over the next 12 months depending on customer feedback and product pricing.” He estimates that each of the two operators could sell around 100,000-200,000 phones in the first year.

Apple, which sold 717,000 iPhones in the third quarter ending June 2008 compared to 270,000 a year ago, has predicted a weak forecast for the fourth quarter. Yet, Steve Jobs, Apple’s CEO, seemed bullish in a public statement: “We think we have a real winner with our new iPhone 3G and we’re busy finishing several more wonderful new products to launch in the coming months.” The response to the iPhone 3G has overwhelmed Apple, causing shortages worldwide. It took just three days to sell 1 million iPhone 3Gs, as against 74 days to reach that mark with its previous iPhone.

Interestingly, to beat RIM, Microsoft’s Windows Mobile, Google’s Android, Symbian and other smartphone platforms, Apple has forfeited its share of revenues. Under Apple’s old agreement with partners, it gave them exclusive iPhone rights in their countries in exchange for a monthly kickback. AT&T, for instance, paid Apple an estimated $12-18 per month. Apple gave this part of its revenues in lieu of a carrier partner subsidy of $200. The pay-off was simple: the emergence of Apple as the dominant user interface on handhelds. In India, since carriers are not subsidising handsets, prices have gone up.

A quick round of calculation and you will realise that even if the iPhone 3G manages to meet Steve Job’s target of 10 million iPhones by the end of 2008, it will be less than 1 per cent of the mobile device market. To put things into perspective, Nokia remains the world’s biggest mobile handset maker with an estimated 40 per cent of the market, maintaining a healthy lead over competition. However, it’s slipping behind in the all-important Internet mobile device market, where Apple is now a big threat. Nokia reported that its “converged mobile devices” (the N-series and E-series) have 41 per cent of the market, where last year it had 51 per cent. The company claims it shipped “over 10 million Nokia N-series and almost 2 million Nokia E-series devices in the second quarter 2008”.

iPhone — the Indian developer’s phone
Analysts agree it’s fair for Apple to be enthused about the online App Store, launched on July 11, two days ahead of the iPhone 3G launch globally. App Store gives software developers an easy route to get their applications into the hands of end-users and showcase the capabilities of the iPhone and iPod Touch. In fact, Apple recognised $419 million in iPhone-related revenue during the quarter, compared to $5 million in the same quarter last year.

Karnataka-based Rohith Bhat, MD and CEO of Robosoft, boasts of a successful history of developing multimedia applications for Apple products. Bhat, who plans to buy five iPhones for his engineers in India to test applications, is releasing five games for the India App Store in September. “We will price the gaming applications between Rs 40 and Rs 200 (around $4.99),” he says.

Next on the cards is a bouquet of content themed on Bollywood and spirituality. Bhat is also mulling a location-based service for iPhone users for which he intends to get into an exclusive tie-up with an iPhone operator partner. “We are still discussing the revenue share,” he adds.

Today, the Apple website has over 1,700 iPhone applications and has registered over 25 million downloads. “App Store will make the iPhone more attractive for users, in the same way that iTunes helped make the iPod a success,” reasons Arvind Rao, CEO, OnMobile, a leading mobile value-added services player. His company is in the process of launching an entire range of iPhone applications soon, including video ringback tones, full track downloads, instant messaging-based services and games.

Airtel and Vodafone each have an ace up their sleeves, but it remains to be seen if the hype around the iPhone translates into sales and customer loyalty for them.

What’s there in the iPhone

The iPhone App Store, a drop-dead simple online catalogue of new programmes and updates. Around 1,700 applications are available to browse, download and install directly on the iPhone; they don’t have to be transferred from a computer. Most applications are listed free or are priced at as low as Rs 40.

The new iPhone has a true global positioning system. Ingenious sensors show your location on a map by analysing nearby cell-towers and WiFi hot spots.

The iPhone is the best handheld gaming machine. The games, listed on App Store, feature excellent 3-D graphics and tilt control. For instance, in one driving simulator you turn the iPhone itself like a steering wheel.

Web browsing on the iPhone 3G will blow you away. The pokey EDGE network might not be as great an experience but pull out the handset when in a WiFi range and you will realise Apple’s genius.

The camera application “Geotags” photos with the user’s GPS location (with prior permission, of course!)What’s not there in the iPhone

Key features that are commonplace on other devices such as multimedia messaging and copy-paste functionality in the SMS.

There’s no voice-dialing, memory-card slot, Bluetooth stereo audio or phone-to-phone photos.

Apple also missed out on enabling video camera support, another commonplace feature on even low-end mobile phones.

Apple’s infamous software keyboard rotates with websites when used with Safari (Apple’s Internet browser), but the company did not expand that functionality to any other aspect of the device.

Higher end phones are capable of tethering — acting as a modem for a computer through USB or Bluetooth — but Apple has overlooked this feature.

Can Apple sell 40 million iPhones by 2009?

Can Apple sell 40 million iPhones by 2009? 22 Aug, 2008, 1712 hrs IST, BusinessWeek

doweshowbellyad = 0; By Peter Burrows Forecasting iPhone sales is one of tech’s toughest guessing games. Since Apple’s iPhone 3G came storming out of the gate with 1 million units sold in the three days after it went on sale July 11, analysts have scrambled to come up with a reliable forecast for how many of the devices the consumer electronics maker will sell in the coming years. Many analysts expect Apple (AAPL) to sell around 11 million iPhone 3Gs in 2008 and another 25 million in 2009. But perhaps the most optimistic forecast is from Piper Jaffray (PJC) analyst Gene Munster, who expects the company to sell 13 million this year and 45 million next year. While final sales can’t be known until after the fact, clues are emerging as to Apple’s production plans. As of mid-August, they were ambitious, BusinessWeek has learned. Apple plans to build 40 million to 45 million iPhone 3Gs in the 12 months through August 2009, according to a person familiar with the company’s plans. The low end of that range is 52% more than the 26 million Munster expects the company to sell in that time. Apple boosted its production plans when initial sales proved stronger than the company expected, says the person, who requested anonymity. On launch day, the company expected to build 30 million iPhone 3Gs in 12 months. Apple declined to comment beyond reiterating that it expects to reach a stated goal of selling 10 million iPhone 3Gs in 2008. The company’s ability to reach that 40 million-plus goal will likely hinge on a successful introduction in several countries by the end of next year. Apple will also need to avoid component supply constraints and, maybe most important, address complaints over the performance of the updated version of its popular music-playing mobile phone. Speeding Things Up Apple’s intention to sell the iPhone 3G in an ever broader circle of countries gives analysts cause for optimism. Analyst Michael Cote of Cote Collaborative recently told Fortune magazine he estimates Apple sold 3 million iPhone 3Gs in the first month, when the product was only available in 22 countries. Even if the sales growth clip slows after the initial burst of sales to gadget lovers, overall iPhone unit sales growth could accelerate given Apple’s big international expansion plans. The company expects to begin selling in 20 more countries on Aug. 22. By next year, Apple may also be selling in the vast, swiftly growing Russian and Chinese markets. Also, Apple recently expanded distribution to include 986 Best Buy (BBY) stores. Until recently, the major problem facing Apple and its partners was how to get enough iPhone 3Gs to market. Daily production has been running at around 150,000, says the person familiar with Apple’s plans. If maintained five days a week for 52 weeks, that pace implies an annual production of 39 million devices. Suppliers of iPhone parts are used to handling far greater volumes; cell-phone makers such as Nokia (NOK) sell hundreds of millions of phones a year. Apple will also need to reduce the time it takes to activate a phone once it’s purchased at retail stores, says Needham & Co. analyst Charlie Wolf. “The physical process of activating the phone is the bottleneck,” Wolf says. The process can take as long as 30 minutes, though Wolf says he’s been told that Apple is working on improvements aimed at reducing the procedure to about 15 minutes. Addressing Usability Glitches Another challenge for Apple is a growing chorus of complaints over the phone’s performance. Reports of problems began to fill the blogosphere in the second week of August, as owners reported an inability to obtain the fast “3G” wireless access even in places where these advanced networks were in place. Users have also lamented dropped phone calls and frequent switching from 3G to slower 2G networks. While Apple has never publicly confirmed the problems, BusinessWeek first reported on Aug. 14 that the glitches relate to a communications chip in the device from Germany-based Infineon (BusinessWeek.com, 8/14/08), and that Apple plans to resolve issues with a software upgrade, rather than a product recall. An update came on Aug. 19, but many users and analysts quickly complained that the patch didn’t solve the problems. According to reports, some customers say the update created new problems, in some cases rendering their iPhone useless. To now, the glitches haven’t dragged down demand, Wolf says. “If the problems linger and the percentage of people being impacted grows, they’ll have a problem,” he adds. An Apple spokeswoman won’t confirm that there were any problems with the phone, or whether there would be follow-on updates. “We’re always working to improve our products for our customers,” Apple spokeswoman Jennifer Bowcock says. Apple hasn’t made immediate changes to its production timetable in light of the glitches either, says the person familiar with Apple’s production plans. Adapting to Change Even if Apple’s existing production plans prove overly ambitious, Apple is still likely to meet the average estimates for actual iPhone sales. Also, Apple is known for having a supply chain that’s efficient enough to adapt quickly to changes in demand. That would help the company avoid a major buildup of unsold products that would need to be sold at a discount or, worse, written off. Munster says he’s optimistic even in the face of the reported glitches. While he says he has not had access to Apple’s actual production plans, he based his bullish forecasts for iPhone 3G sales in part on the success of Motorola’s (MOT) hit Razr phone, which sold more than 100 million units even though it lacked some of the breakthrough features and brand popularity of the iPhone. Munster also expects Apple to release cheaper models at its annual Macworld show in January. Taken together, the moves could help Apple meet his aggressive targets even sooner than Munster expects it to. Burrows is a senior writer for BusinessWeek, based in Silicon Valley.