Apple walk on air – Part 2

For this second part on Apple, we look at an update on the impact of the iPhone.

There were quite a few vociferous anti-iPhone people around last year. They doubted whether the product itself was any good. In particular, Laura Ries moaned about the idea of putting several products in one ("convergence"). And she thought it was a distraction away from the core business of selling PCs and increasingly iPods. Here’s her post from last September:

"The iPhone is a distraction not an opportunity for Apple. A novelty
product built on the technology whims of Jobs and another in a long
line of convergence chasers."

In contrast, you, dear readers, predicted iPhone would be a hit. In the iPhone poll, most of you said Apple would sell between 4 and 10 million phones in the year to Sep 2008.

So… what’s the story so far?

iPhone sales are pretty good
At MacExpo Steve Jobs announced that Apple had sold 4 million iPhones so far. This gives them an outside chance of hitting their lofty target of 10 million by Sep 08. In just a few months, and with no record in phones, they have become the number 2 smartphone on the USA. Their share of almost 20% is the same size as Sony, Palm and Nokia added together.

iPhone has changed habits
Laura Ries was way off the mark according to Mark Ritson. The marketing prof. reported that iPhone had managed to do what millions of marketing spend from the UK mobile phone networks had failed to do: it has got people using the internet on their phone. 60% of iPhoners use more than 25MB of data a month, compared with less than 2% of O2’s other contract users. That is a mind-blowing habit change, driven by the intuitive, easy-to-use interface.

Things are going to get better
The first upgrade to the iPhone software has already been launched, with the ability to easily change your homepage (no menu, you just stick your finger on the icons and move em around) and better mapping. And the phone itself now has double the memory. These won’t be the last improvements, with Apple set to repeat what they did with iPod I think: wave after wave of innovation.

Some distraction?
And what about the fear of distraction to the core? This is an issue that is very real in many cases, when a dwarf extension distracts from Snow White, the core product. Well, so far this doesn’t seem to be the case. Check these figures out for the quarter to Dec 2007 versus year ago:
– revenue of US$9.6 billion, up 35%
– profit of US$1.58 billion, up 58%
– Gross margin was 34.7 percent, up from 31.2 percent- 2,319,000 Macintosh computers sold, +44%
– 22,121,000 iPods, with +17 percent % revenue growth

The iPhone is one of those rare extensions which does create a positive effect on the rest of the brand. This is especially true because of the investment Apple have put into their Apple Stores. They are no longer reliant on other retailers, they control their own destiny. The iPhone is a magnet that attracts people into stores, who then try out a Mac. Also, a high proportion of iPhone users are new to the brand, discovering the great design and user interface.

And as I posted earlier in the week, Apple is also using technology from the iPhone on the Mac.

So. So far, so good. Apple is still walking on air for now.