Blinded By The Light

“With a boulder on my shoulder, feelin' kinda older, I tripped the merry-go-round.”

-- "Blinded by the Light," Springsteen, Mann

Looking around the smartphone landscape just about every day, I can't avoid feeling that the results of Apple's plans to destabilize the smartphone industry are having an impact. Contrary to uninformed opinion, Apple isn't just another competitor with a fancy smartphone. Instead, Apple executives astutely analyzed what was wrong with the smartphone industry and attacked it on every level. That analysis is paying off.

What's happening now, in late 2009, is that Apple's competitors are doing every thing they know how to do to counter Apple's success -- without actually doing the hard work required.

I had dinner recently with an old friend, a fairly senior federal government IT manager. She told me that when she worked for Sprint, there was an emerging notion in the company that they should start developing software for their phones that would help customers. But senior management declined, and in her words, bowed out with the excuse: "We're not a software company." She left Sprint. She also told me that she has an iPhone for personal use, but the most senior IT managers in her government organization require the use of a BlackBerry. "The one they gave me is crap," she reported.

This just confirms by theories that old line senior executives have a bad tool set when it comes to increasing their competitiveness. Namely:

  • Jigger prices.
  • Lock customers in.
  • Exploit contract fine print.
  • Increase the ARPU (average revenue per user) via new services.
  • Partner with or acquire other companies to get bigger.
  • Build phones that are cheap, but look like the best ones.
  • Advertise on TV with pretty pictures, snazzy graphics, abbreviated finger gestures -- suggesting equivalency but not actually achieving it.
  • Focus on the carrier as the solution and the brand, not the phone itself.

Of course, none of these strategies does anything to overcome the competitive advantage Apple has built for itself with, as we know,

  • A world class SDK and Cocoa touch.
  • A beautiful classy, expensive piece if hardware.
  • Integrated software that's a joy to use.

All this makes for a phone that's easy to love. And that may be the key here. Apple's competitors seem to want to do everything on the first list above, because that's what they know how to do, rather than the second list, which is hard work. That requires senior managers to have enough technical talent to recognize talent for hire. Nothing on that list results in a product that people love. Instead, the customer ends up hating the carrier for its manipulative policies empty ads, and promises unfulfilled.

The Players

Palm. What Palm has reminded me is that even if a moderate sized company acquires an ex-Apple V.P., success isn't guaranteed. What Apple has shown is that not only must a company have a vision, but there has to be a boatload of loyal customers combined with some corporate strength (read: money) to back up delicate negotiations and leverage prior success. In a sense, the iPhone couldn't be shipped until Apple had benefited from the fruits of its labors with Mac OS X and Macs in 2001-2007.

As a result, it's not enough to have a vision. That ex-Apple V.P. often needs resources, money and talent that a moderate sized company is often unwilling or unable to deliver. Apple employees who've left the company to start their own or join another have found that out in spades.

Google. Google's Android smartphone OS isn't designed to make customers feel the love. It's designed as a vehicle to make money. This week, we learned that Verizon is going to form a partnershop with Google, and use the Android OS is a mobile device. This fits in with Verizon's corporate philosophy that the carrier is your god, not just a service infrastructure. Verizon's new ads, poking fun at Apple and AT&T, reinforce that thinking. (Even to using music similar to Apple's as a mockery.)

Even if this venture is financially successful, it's doubtful that the resulting product will be one that people will get excited about -- well, except for their Verizon coverage. But ask yourself how often you use your iPhone on Wi-Fi or stand alone for some useful task, and you're not even on the 3G network.

RIM. People do love their BlackBerries, but RIM, somehow hasn't been able to attract developers in large numbers. At the WWDC Keynote, Phil Schiller compared the 50,000+ iPhone apps (at the time) to RIM/BlackBerry's 1000.

In the U.S., RIM dominates the smartphone market, thanks to its catering to businesses. (Nokia is the leader, worldwide.) But, like a PC, many people grudgingly use the BlackBerry for work, but still have an iPhone for personal use. Apple knows how to exploit that corporate life dissatisfaction very well. The iPhone is used by many businesses, but for those who don't, they also know their employees lust for one.

Microsoft. Is Microsoft blinded by all the light? Windows Mobile 6.5 is out, and perhaps the best face put on it was by Michael Gartenberg. Even so, from what I've read, it'll take Windows Mobile 7 to make Microsoft a player, and it's going to be some time before it sees the light of day. Some data I've seen suggests Windows Mobile market share is on the decline.

Despite that, Microsoft has an incredible opportunity here. The company has the resources, the brand name, and the technical telent to build a superb smartphone OS. Unfortunately, their artificial divorce from hardware makes the situation more difficult. It's yet another brass ring Microsoft could grab, but probably can't or won't. [Actually, it's worse that we could have imagined.]

Industry Thoughts (Delusions)

Recently Gartner predicted that Android wil eclipse the iPhone by 2012 thanks to the resources Google will pour into the OS. According to Gartner, a lot of new phones will be released in 2010 with an updated version of the OS, codenamed "Donut." And Donut will supposedly kick ass. It may be that the prospects for financial success have also blinded Gartner because, in the old days, success metrics were defined by business practices, not smartphone technology and consumer enthusiasm.

Ultimately, that goes back to the first list above. And while Apple and AT&T have made a lot of money from the iPhone, the ultimate test is how much people love their phones and want to buy one. In turn, that's dictated by all the infrastructure Apple has built in with the second list above.

In the final analysis, I don't see any of the measures taken by Apple's competitors to show signs of a fundamental understanding of what it takes to endure in the mobile phone market. They'd like to brush 80,000 iPhone apps under the rug by calling most of them crap, ignore 2 billion downloads, and continue with business as usual.

The one problem Apple may face, however, is tying its fate to AT&T. Apple would clearly love to get a future phone on the Verizon network, but that isn't going to happen with the current Verizon management. And the recent announcement mentioned above, Verizon and Google, is either slamming the door shut or hardball negotiation tactics, That means AT&T, with a small percentage of its customer phones being iPhones that use a disproportionate amount of network resources, will have to step up its game.

In general, however, as the various players squabble with each other, continue to deprecate very cool hardware, shy away from world-class software & development tools, and fail to make a smartphone people can love (and stand in line for on an early Saturday morning), they'll just fritter away opportunities. Meanwhile, the latest data suggests that iPhone market share is skyrocketing.

The Apple Payoff

Then, Apple, as it tends to do, will figure out how to capitalize on its technical lead by coming out with successor products (perhaps that tablet) that strip away the thin veneer of arrogance and incompetence by all the other players. The competitors with the deepest technical capabilities in house and vertical integration with hardware will be the best poised to cash in on future technologies.

Steve Jobs isn't done with this disruption project by any means.