Excerpted from Business Week, “How Apple’s iPhone Reshaped the Industry”, December 11, 2008
Today, apps are where the action is, and consumers are reaping the benefits
A few years ago, if someone asked what sort of cell phone you had, your response would probably be to name a network, like Sprint or Cingular. Wireless carriers so completely controlled the business, especially in the U.S., that many manufacturers weren’t even allowed to put their brand names on handsets. Now this relationship is changing in ways that will reduce the power of carriers and, with luck, increase consumers’ choices.
The relationship started to shift when people began using phones for more than voice calls and text messages. As browsers and e-mail systems became important, it mattered more whether you had a Palm Treo or a BlackBerry than whether your phone ran on the Verizon Wireless or AT&T network. Then along came Apple’s iPhone to rewrite the rules completely.
The conventional wisdom holds that AT&T scored a coup when it signed on as the exclusive U.S. iPhone carrier. The company reported that it activated 2.4 million of the new 3G iPhones in the third quarter, that 40% of those customers came to AT&T from rival operators, and that their average monthly bill was 1.6 times that of other subscribers.
But the impact on AT&T’s bottom line is another story. Mostly because of the fat subsidy it pays Apple for each iPhone, AT&T’s third-quarter earnings of $3.2 billion were $900 million less than they would otherwise have been.
More importantly, the carrier has probably lost forever its ownership of the customer, through a process economists call “disintermediation.”
Before the iPhone, relatively few owners of any phones—smart or dumb—downloaded applications. The carriers had a nice business selling ringtones and the odd game. But with iTunes and the App Store, Apple became the exclusive supplier of applications as well as music and videos. The content suppliers got about two-thirds of the revenue, Apple kept about a third, and the carriers were frozen out.
A key test of the new relationship between handset makers and smartphone software publishers, carriers, and customers will arrive when turn-by-turn driving instructions come to the iPhone. Apple seems to have created the phone with navigation in mind. Rumors are flying that Apple plans a navigation offering that leaves carriers in the cold.
This shift in power is a bad thing for wireless carriers, whose nightmares of being turned into commodity sellers of bandwidth are coming true. But it may be a win for everyone else.
Full article:
http://www.businessweek.com/print/magazine/content/08_51/b4113078121012.htm
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January 5, 2009 at 2:04 pm |
This is slightly off-topic, but tangentially related:
If the government owned a stake in Apple, what program or agency would have developed the iPhone?