Why Apple iPhone Succeeds and Others Fail
Today Nokia announced that its profit for the fourth-quarter has declined by a whopping 69% and sales declined by 19%. Every $1 drop in revenue translates to 3.6x drop in profit. That's very very steep decline. It's a double whammy for Nokia. It lost market share at the lucrative high end and sales did not fly during the holiday season in the growth markets such as China. Nokia has also invested alot of money into the Come with Music initative. The price differential for a phone that has Come with Music and one that doesn't can be as much as $100 or more. I think in the hard times like today, it's going to be a uphill battle to squeeze that incremental revenue from consumer. Again, not surprisingly, about 1,000 job cuts were annouced. Just a week ago Motorola announced 4,000 layoffs and it would only roll out 12 phone models in a year. For smartphones, it will only produce for Android platform and the first Android handset is slated for Q2 2009 in the US.
The big software giant microsoft is not spared either. Its earning fell in second quarter on the back of weaker sales, resulting in earnings of 47 cents a share against analysts' estimate of 49 cents a share. 1,400 people were let go immediately and upto 5,000 in total are expected to be laid off.
Well not all is bad news. Apple had reported stellar quarterly revenue and earnings in Apple History. Its ipod sales set new record. This is a very good set of results considering that Apple had to amortise the revenue and costs over the economic lives for iPhone and Apple TV. To quote Steven Jobs, "Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple history—surpassing $10 billion in quarterly revenue for the first time ever."
Eversince Apple opened up its iPhone Appstore, Google Android, Blackberry and now Palm have jumped onto the bandwagon. I'm less optimitic about the takeoff for Blackberry Application Centre since most Blackberry users are enterprise users and generally companies have strict policies on what applications can be downloaded onto company handsets. Besides, Blackberry users will not be the right target segment for games and entertainment which are the ones that have the most downloads on Apple Appstore. Google Android is seen as the alternative to iPhone. The difference is that there is only one iPhone maker and that's Apple. Whereas we can expect more Android handsets by various handset makers in the future.
I think Nokia is making a strategic mistake to pump millions of dollars into its music store. No doubt that it's more and more common for people to play music on their cellphones but will people want to pay over $100 for a subscription per year to download unlimited number of songs (with DRM) at this economy? Wired.com recently wrote an article on the 5 ways the cellphones will change how you listen to music (http://blog.wired.com/business/2009/01/six-ways-cellph.html) and I think Nokia should reconsider their business model.
In the past, Microsoft and Blackberry dominated the smartphone segment. Nokia had some success with its E series too but all of these players were only focused on the exchange email synchronisation. What Apple succeeds and Nokia or Motorola fail is to revolutionalise the way people use the phone. The ability for each iPhone user to do "customisation" on his phone by installing apps that he finds useful is a very sticky proposition. Besides, the affordability of the apps only serves to reinforce the value proposition. This is also why Apple delivered an outstanding set of results where others fail. Let's see whether Palm manage to revive its fortune with Palm Pre.
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