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Shaking the Apple Tree – my observations on the strategic impact of the iPhone 5

September 6, 2012 • Opinion

Warning! Eight hour queues outside American iStores are forecast in late September, with a good chance of scattered product disappointment. Or the world will be blown away. Either way, the iPhone 5 is in my opinion make-or-break for Apple in the tightly-contested consumer smartphone market.

Dean Falcke, Marketing & Online Manager, Secure Lab. (Image: Secure Lab)

A lesson from history

Looking back ten years, the predominant and then-untouchable market leader Nokia was flying high in shipping millions of their popular 3310 handsets and various others in the 5xxx and 6xxx ranges. While Nokia have never lost their number one ranking in handsets sold since 1998, their perception as a leader has dropped. This erosion began in 2005 when Motorola’s Razr handset blew Nokia’s candybar design out the water and popularised the ultrathin flip-phone design.

Fast-forward to around 2007 and a new entrant with a full keyboard and push email arrived on the scene. The Blackberry became the go-to device for smartphone users and business people and emerged as the leader in the segment. However, around the same time, Apple released its first iPhone – a device that would shape touchscreen smartphones forever.

History has shown that, at some point in time, the incumbent leader is at risk from being pushed off their podium by a competitor who leapfrogs their innovation, captures the imagination of the fickle consumer market, and offers an experience that is superior in some way.

A Galaxy of competition

So now we come down to a five-way fight (yes there are many others but let’s focus on the top five). The two big heavyweights are Apple and Samsung, with Nokia, HTC and RIM scrapping for what’s left over.

Apple has shown its dominance with essentially two models – the 3GS and 4.The screen size has not changed in five years and the form factor remains identical. With 89 million units sold in 2011, it does show the formula is working, despite what critics have said.

Apple’s biggest challenge lies in the hands of Samsung, who has brought the fight directly to Apple with the launch of the Galaxy S2 (24 million sold) and the follow-up Galaxy S3 (10 million sold). Granted, Apple has just won a landmark lawsuit against Samsung for patent infringement to the tune of a billion dollars, but this isn’t going to make Samsung go away.

Apple’s iPhone has a major disadvantage to its competitors – it doesn’t have much in the line of a diversified product line. While keeping components similar and having bigger production runs on a single product line drives down manufacturing costs, it locks Apple in to try and please all its users with one design. For example, there has been pressure to increase the screen size, but where Apple has only one device, Samsung’s range varies from 3 inches in Galaxy Y to 5 inches in the Galaxy Note.

Another vulnerability with one device is a predictable launch schedule. This allows competitors to plan and attack the device from all sides, and if you have multiple ranges, you can keep the excitement of your brand going throughout the year.

Apple could argue that its strategy is not to own the smartphone market but merely offer a mobile phone extension of its Apple ecosystem that utilises iTunes and the App store. The revenues and lock-in factor of the App Store cannot be understated and offers Apple their biggest competitive advantage and almost a guarantee of sales of their next generation of products. Popularity of the iPad, iPod and Macbook act as their method of keeping people interested in the Apple family.

Rolling down the hill

So now back to the iPhone 5. There are still some disgruntled Apple fans that felt disappointed about the 4S and are expecting something big for the iPhone 5, and gauging from online blogs, Apple is expected to deliver.

I don’t believe that they won’t sell devices – they could take the 4S and paint it pink and it would still find buyers – but the strategy that they employ with the iPhone 5 will set the stage for their future. If the product turns out to be lacklustre and seen as not keeping up with Samsung’s Galaxy range, it can start the beginning of the end, where the dominance of Apple as a smartphone manufacturer will begin to erode (and with that, their $600bn market share cap). If they manage to pull off a superior device, they will continue to consolidate their rule in the smartphone market.

I also believe that unless they diversify their product ranges slightly, they will eventually lose the market share they have. Taking a look at their iPod strategy, they introduced two different form factors (Nano and Shuffle) which allowed them to cement their market share. Allowing just two different variants of the iPhone 5 in terms of screen size and shape, could be enough to give people the choice and keep sales strong.

There are rumours that the iPhone 5 could break with years of history and replace the connector with a mini Apple connector. Let me state that this would do some serious damage to the iPhone 5’s adoption unless they have some ace up their sleeve to make it seamlessly work with the millions of docking stations and devices out there.

I’ll put my head on a block and make my prediction: The iPhone 5 will be thinner, a bigger screen and look like a top-notch device. Its overall impression will not be mind-blowing, but more evolutionary from the iPhone 4. And therein lies the ultimate vulnerability that says the iPhone has reached the peak of its product lifecycle and will start to roll down the hill, just like the Blackberry did before it.

Dean Falcke, marketing and online manager for Secure Lab

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