Thursday, 13 September 2012

Why the new iPhone doesn't matter

Did something happening on the West Coast yesterday?

Yup, last night was the time to break out the popcorn and flip to the liveblogs. It was the annual iPhone announcement/jamboree (oh I do with they would livestream the video so the rest of us could share in the fun!).

As usual better to travel than arrive. The hardware came out bang in line with the leaks (meh), and the two possible wildcards (NFC and TD-SCDMA support for China Mobile) didn't materialise. There wasn't even a spurious feature annoucement (Siri I'm looking at you), although on that note its ironic they finally confirmed that Ping will be killed off on September 30th.

In fact apart from a minor debate about whether the SOC is A9 or A15 (Anandtech seems to have some sort of inside track that its the first A15), it wasn't that big a deal.

Which is sort of the point.

What's become increasingly clear to me over the last few years is that the summer iOS announcement is becoming much more important than the fall iPhone reveal.

Software eats the world

The key thing to remember is that both Apple and Google are not selling you a phone. They are selling you a software ecosystem. As Marc Andreessen pointed out two years ago, software is eating the world.

Sure having a funky new casing and a slightly larger screen will help Apple sell devices, but a lot of that is just keeping up with the Jonses across the Pacific. The secret of Apple's 30% operating margins has always been that it isn't actually in the hardware business. It's in the software business, and the hardware is just the way it monitises the software. (Edit: After posting this someone pointed this Steve Jobs clip out to me, which sums it up better than I ever could)

It's actually remarkably similar to Google's model. Google's revenues come primarily from advertising, but its not an ad company. Its a software company (okay, cloud computing company if you want to be picky), but it just monitises that via its ad engine.

So the point I want to make is that the coming battle isn't about iPhone versus Galaxy or even iPad versus Nexus. Its about platform vs. platform (and yes, that is the whole point of this blog). That is why I increasingly think the iOS update (which Apple give several months ahead of the phone release to give developers time to catch up) is more significant.

The Apple announcement that really matters

Let's look at this year for example. There were two things that jumped out at me.

First was Passbook, Apple's move into ticketing. Like many big Apple innovations its started off very low profile (and is likely to remain low profile for the moment given the lack of NFC in the iPhone 5). But its the next blow into the world of mobile payments (remember the iTunes store is already plugged into your credit card details at the back end - wresting control of that from the mobile operators was one of Apple's great unsung victories). Believe me when you iPhone finally becomes your wallet that massively ramps the stickiness of the platform (remember in the UK we divorce more often than we change out bank account change our bank account less often than we get divorced - not a perfect analogy but you get the picture).

Second was Apple Maps. This was the latest move in Apple's great divorce from Google's cloud services. Or rather the next move in Apples move into cloud services. Having played with the new Maps program on Ben Evan's iOS 6 beta I have to say its impressive (although I continue to think the 3D stuff is a gimmick so long as its hostage to a mobile connection to stream the imagery). Maps are probably the most important app on a smartphone after the browser, and Google's maps are one of its real secret weapons. Its not surprising that ahead of the iPhone launch they've suddenly started lifting the kimono on maps to all and sundry about how cool their maps really are. Apple want to hit 'em where it hurts.

Passbook and Maps: The apps that really matter...
These were two critical blows in the eco-system wars, and to me matter more than another 0.5" of screen size.

Ecological challenges

Thinking about the war of eco-system puts a whole new perspective on things. And raises new challenges.

For Apple their reliance on hardware to monitise the eco-system creates a conflict. On the one hand the best thing for the eco-system is to roll out features as widely as possible (this should be a big advantage given they have a relatively low number of SKUs to support). On the other hand their hardware model needs to segment the latest and greatest product, which means they will want to restrict new features to their newest models.

Siri was a great example of this. There was absolutely no hardware reason why it couldn't run on the iPhone 4 or previous iPod Touch's. All it needs to do is upload a voice sample to Apple's servers and pull down the search results. However because there was little differentiating the 4S from the 4 (a faster CPU doesn't do much when the majority of apps don't take advantage of it), Siri was restricted to the 4S. This means that uptake of Siri is restricted by uptake of the 4S (its interesting that last night's iTouch update finally supports Siri).

Another related challenge is installed base inertia. Because they are now the de-facto standard it restricts their ability to radically change their product. Certainly with iOS gradual change has always been the order of the day. Partly that is Apple's modus operandi (occasionally big leaps like the iPhone and iPad, with gradual evolution in between), but increasingly it is mandated by the installed base. Apple fans praise this as a great merit of Apple, but that is missing the point. It is not that gradual change per se is good. Rather than at some points the evolution of a platform demands gradual change. At other times it needs rapid change (e.g. Android in the Cupcake - Froyo era). At the moment iOS doesn't need dramatic change, but that will not always be the case.

As for Google the big challenge is of course herding the cats of the Android eco-system. They are certainly more willing to make dramatic changes to the look and feel of their OS (generally for the better I might add, but critics might say it was because they didn't get it as right as Apple in the first place). The problem is getting the handset vendors to follow suit.

In short Apple are more able to move their installed base to a new OS version, but less able to implement new features across that base. Google are better at putting new features into the OS, but much slower at moving their installed base to the new version.

What's your poison?

PS And regular readers don't worry; I will return to finish my ongoing series about Bloomberg in my next post!

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