Wednesday, May 23, 2007

Analyzing Apple's iPhone Pre-launch Moves

A lot of people--including me--are waiting eagerly for Apple's launch of iphone in June. Ever since Steve Jobs mesmerised the audience at the January 2007 Macworld in San Francisco during his keynote address, there has been non-stop buzz about what this could mean for Apple, AT&T and the global mobile phone industry.
It is true that many expected that Apple will rise its success with ipod by introducing a device that symbolizes the impending convergence of devices, features and functionality. What surprised many observers was that Jobs--usually secretive about new product introductions--actually pre-announced it nearly six months before the actual launch. True, Apple had to get FTC approval and leaking invariably occurs during that bureaucratic process. It could well be that Apple wanted to send out a strong signal that it is still the leader when it comes to defining new design standards for products. We can analyze what Apple has done so far to develop some lessons for winning strategies in business networks.

It's the next-generation ipod (music, pictures and videos)
It's the next generation mobile web browser and email client
It's the next generation phone (with visual voicemail and easy conference-calling).
It's a software design innovation competing against hardware design innovations (size, weight, shape and look-n-feel).
It's also an interesting case study on competing in business networks. Apple cannot succeed based on its own core competencies. It needs a vibrant ecosystem. So, what can we learn from Apple's moves so far. Here are some issues worth thinking about.

1. The architecture of business networks. Apple has mostly been a 'closed architecture' (take a look at ipod). It looks like iphone is also mostly closed architecture: there will be no third-party manufacture of hardware or widespread availability of the software on non-Apple devices. Apple's DRM helped it attract content owners; now Apple has embarked on DRM-free music with differing response from the music labels (EMI loves the idea; Warner Music does not). I think Apple's brilliance was making ipod and itunes compatible with Windows and Mac OS. Had Apple restricted ipod to only Mac OS users, it would have remained a niche offering. Building on top of the success of ipod (and itunes), iphone will work on Windows and Mac operating systems.
In other words, Apple has selectively chosen where it will link to others and where it will be closed. It is showing that the game is not about simple open vs. closed architecture but selectively deciding when, where and how to architect the business ecosystem for competitive advantage. I believe that its success will depend on how this architecture is adapted over time.
2. Managing key relationships. Apple's iphone will launch only on the new AT&T (formerly, Cingular) in the USA. The rebranding of AT&T is coinciding with the iphone launch. More than a million consumers have already expressed interest in AT&T-iphone service. Both companies see their partnership as being critical. AT&T needs iphone to succeed to differentiate itself from T-Mobile (both being GSM carriers in the USA). Apple needs the AT&T network to be reliable and flawless because iphone user experience will ultimately depend on the quality of the network. Poor network coverage or dropped calls could seriously hamper iphone's sales. My understanding is that the exclusive USA deal with AT&T is for 5 years! Should Apple have gone with a single network provider for such a long period given the high stakes?
The architecture of a business network depends on a portfolio of relationships: not all relationships in an ecosystem are equally important and some relationships can make-or-break the strategy. iPhone's success will initially depend on how this relationship holds up and matures over time. Over time, Apple's selection of network operators and other partners in the ecosystem will dictate its success.
3. Analyzing likely competitive moves in the network. The buzz is that while iphone has raised the bar, competitors will not be sitting idle. What will Motorola announce? Will this strengthen its relationship with VerizonWireless? What about SonyEricsson that has recently launched impressive lines of Walkman phones and has turned in impressive financial performance? What about Nokia? LG? Samsung? Blackberry? Similarly, network operators such as VerizonWireless and T-Mobile are also likely to look for new devices to neutralize the initial advantage that AT&T may hold.

And what about Microsoft? It is still the leader when it comes to personal computers (desktops and laptops) with Windows Vista doing better than analyst expectations; it is gaining share in mobile phone software, although lagging behind Symbian. Its Zune--on the other hand--is somewhat disappointing. How might Microsoft (with its ability to orchestrate a network of third-party developers) respond to Apple iphone?
Winning in business networks calls for thinking through how other players might respond--not just through individual product launches but through interfirm linkages that could change the architecture of the business network and customer
value propositions.

4. Looking for early indicators of success (and weaknesses). Apple's five-year financial performance has been stellar--thanks largely due to the revival of Mac OS and ipod. The market is captivated by the early buzz.Much of the increase in 2007 is based on iphone expectations.
Apple Inc. (AAPL)

What key indicators of iPhone business to look for in Steve Jobs' conference calls with Wall Street analysts in the coming quarters? Where are their vulnerabilities?
Positions of network advantage could foretell business success. Tracking a set of key indicators could provide early indications of the likely success of iPhone.

I have a feeling that history will mark iPhone as a turning point--just as Apple Macintosh defined graphical user interface and Apple iPod defined how we access and consume music. More than the two prior innovations, iPhone is about architecting a business network and orchestrating a portfolio of business relationships in a dynamic ecosystem. If Apple succeeds, it will be a worthy case study for other business leaders in the midst of shifting to compete in a network era.
In the meanwhile... Hello iPhone..
note: for those wondering if Apple may have any advantages from its patent portfolio supporting iPhone, here is a quick summary that is worth reviewing.


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