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Why the iPhone matters: 8 questions for Horace Dediu

John Cox | July 9, 2012
Horace Dediu writes data-driven analyses on a wide range of mobile industry topics.

In an interview with Chosun Daily, you said that Apple's iPhone innovation was that "Apple created a new market for browser-based devices and for app-based experiences. These were enabled by an ecosystem that benefited from integration." What do you mean by this?

An ecosystem is a set of companies which profit from a common platform. The platform also benefits from these companies by having innovations which expand the usefulness and enjoyment of the platform. (In the context of devices, the term ecosystem was first coined by Palm in the late 1990s in relation to its Palm PDAs.) Apple's innovation was to enable this ecosystem with an integrated device, system software, APIs and retail store with built-in audience and discoverability. By integrating pieces of technology Apple was able to create an ecosystem very rapidly. This ecosystem generated over $10 billion in revenues (apps and media) in less than 4 years.

In that same interview, you said that Nokia's mistake was that "they did not think the basis of competition would change. They thought they were too big to fail. They did not challenge the core business model of hardware-first and try to find an internal disruptive business." How would you apply these insights to Apple?

Apple changed the basis of competition from hardware as the primary value consumers paid for to a combination of hardware, software and services. Being competitive changed from having good hardware to having good hardware, good software and services -- made usable through integration.

Apple has expanded its business model to include services such as iTunes, Siri and iCloud. It can remain disruptive as long as it improves along a dimension which is not good enough. What has been less than "good enough" has been the experience and that was made better through integration. Over time this becomes good enough, and so the company needs to add services (which are [currently] not good enough). Services can include solving deeper customer needs like companionship, assistance, discovery and social bonding.

What has been the main impact of iPhone on mobile carriers, and how are they responding to that impact?

The iPhone has made consumers understand that a phone can be more than a device for talking and texting. Once that understanding happened the realization came that there are other services which are compelling on a device which operators do not offer. These are often referred to as "over the top" or OTT services.

Consumers now value OTT more highly than traditional services like voice and text. The evidence is both in the ascent of OTT brands like Facebook, Twitter, Google search and Siri, but also the erosion of pricing power for traditional services.

 

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