Cell Canada

Canadian Cellular Industry News, Insight, & Noise

Apple Opportunity #2 – The iPhone OS

Posted by Gary on August 15, 2008

As we discussed in “Apple Opportunity #1 – An OS Inflection Point”?, there have been some highly publicized numbers coming out of Apple lately:

* Apple is expected to sell over 4 million 3G iPhones by the end of the September quarter.  Roughly 4x the totals from a similar post-launch period for the first iPhone.

* The iPhone App Store saw over 60 million downloads in its first month of existence.

These numbers are all very impressive but the naysayer will hold true and naysay.  Yes, Apple sold 4 million iPhones, but the number in insignificant when taken against the 1.15 billion mobile phones sold in 2007

The naysayers certainly have a point however we believe that they miss seeing, or discount, the beginning of a positive feedback loop.  As discussed in the previous article, positive feedback loops birth de facto standards.  In the case of the iPhone: More iPhones sold leads to more developers engaging to develop applications, leads to more iPhone utility/functionality, leads to more iPhones sold.  In a fragmented market, such as the mobile phone market, positive feedback loops can lead to the reinforced ascension of a dominant de facto standard.

As we discussed in “iPhone – The Mobile Internet is Here“, Apple through its wins and losses in the computing space over the last 32 years, understands the importance of the entire ecosystem to the development of a positive feedback loop.  There have certainly been a great number of mobile applications available for Symbian, Windows Mobile, Palm, and RIM mobile OS’s for some time now.  Download portals have also existed on most smartphones from most carriers for some time now as well.  However, the mobile application industry has been a colossal underperformer even with this massive effort and investment.

Up until now.  Apple has taken the pieces that already existed and packaged the mobile software discovery and download effort into a simple and consistent experience for consumers.  In North America, only roughly 3% of cell phone users have every downloaded an application to their device.  In Europe this is closer to 13%.  I haven’t seen the numbers for the iPhone but I suspect that it is north of 60% based on my non-statistically valid sample.  This totally changes the game.  We will begin to see application based purchasing drive towards the iPhone over the next year or so.  Consumers or businesses will purchase the iPhone because it runs an application that they need or desire – whether it is SAP for enterprise or streaming radio for consumers.  There may not emerge one killer application but there will certainly emerge many purchase inducing applications.

The others mobile phone manufacturers and mobile OS developers will certainly learn from this model and follow.   However, will they be able to catch momentum before the positive feedback loop Apple has put in place becomes insurmountable?

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