Apple upsets the iPhone cart
Apple upsets the iPhone cartApple overturned not one but two prevailing expectations on Monday, abandoning the iPhone revenue model by which
carriers paid it a slice of monthly income in favour of application sales, and announcing that the next version of
its Mac OS X operating system - "Snow Leopard" - will focus on performance, not features.
The iPhone 2.0 announcements include a dramatic drop in price, which in the UK will mean that in some cases the new
handset, available from July, will be free with a ￡45 monthly tariff. In the US the price was dropped from $399
(￡204) to $199, with a $45 a month tariff. The price seriously undercuts the leading player, RIM, with its
BlackBerry, which is priced at $350 in the US. Apple last cut the price of the 8GB iPhone in the US in September,
after it had been on sale for just 60 days, from $599 to $399, and discontinued the 4GB model. The latest cut means
the price has fallen to a third of its starting price in just a year.
Fooling the pundits
But it was iPhone's features - and, in some cases, lack of them - that surprised. As expected, Apple added 3G
capability, but it shunned improvements to the 2 megapixel camera, did not add voice or speed dialling, picture
messaging or SMS forwarding, and did not add Bluetooth profiles, any of which would increase the flexibility of the
phone for little power consumption. Instead it added GPS, which despite being comparatively power-hungry will allow
third-party developers to write location-based services that could be lucrative for Apple, developers and the
services themselves.
The announcement, made at the company's annual Worldwide Developers Conference in San Francisco, put iPhone
applications at the centre of Apple's plans for the coming year, before a receptive audience who can benefit from
selling their products to iPhone users: Apple will keep 30% of revenues from applications sold on its "App Store",
which will resemble the online iTunes Store.
By contrast, the next version of the Mac OS X operating system was pushed far into the background; Jobs barely
mentioned it, except to confirm the code name. The name - following on from the previous version, dubbed "Leopard",
which was released last October - implies the changes that Apple confirmed in a later press release, saying that
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instead of packing it with features it will focus on shrinking its footprint and adding performance.
Snow Leopard will be released some time in 2009 - which may see its launch occur in the same timescale as the next
version of Windows, where Microsoft has been going in the other direction, promising multi-touch features. Microsoft
paused in a comparable fashion with Service Pack 2 for Windows XP, released in autumn 2004, though in that case the
focus was on security, not performance, after it became clear that flaws in the software were being widely exploited
online.
Apple, however, seems to feel that consumers are, for now, sated with things to do on their computers, and that the
operating system should move aside. The next version will "hit the pause button on new features", said Bertrand
Serlet, Apple's head of software, in a statement. The new version will be optimised for the multi-cores now common
in the Intel processors Apple uses, incorporate support for Microsoft Exchange (making it more attractive to
businesses considering Macs) and be able, through 64-bit addressing, to use up to 12 terabytes of RAM (6,000 times
more than is standard on present Macs). It will also be able to access spare cycles on graphics processing units,
which are growing in power as quickly as CPUs.
One hint in the announcement suggests that Apple will, seven years after launching Mac OS X, rationalise its
inconsistent interface, where different window designs and interaction methods proliferated.
Different thoughts
But it was the iPhone announcements which garnered the most attention. "Initial European iPhone purchasers are
between one and seven months into 18-month contracts," commented Ian Fogg, personal technology analyst at Jupiter
Research.O2 moved quickly to reassure them, offering free upgrades from July 11 for those on ￡45 or ￡75 monthly
contracts, and ￡99 for ￡30 or ￡35 contracts - as long as they sign up to a fresh 18-month contract. The move may
also make it harder to "unlock" iPhones.
Fogg pointed to the camera quality, in particular, as retrograde: "Here even the new crop of business
smartphones have 3 megapixel cameras. The current batch of consumer-grade ones have 3-5 megapixels, branded optics,
and real xenon flashes."
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But Apple is clearly focussed on making revenues from its App Store, which will sell applications for the iPhone and
iPod Touch online, into a replacement revenue stream. Observers thought the price cut could leave rivals in trouble.
"Competitors in North America now may not be able to innovate fast enough to catch up with Apple's new iPhone," said
Aleksandra Bosnjak, lead analyst at StrategyEye Digital Media. "The price slash is a victory for Apple in North
America even if it was largely driven by stagnating sales of its more expensive range."
Reflecting that concern, the stock prices of RIM and Palm both fell in the day after the announcement, while
Apple's, which fell slightly during the announcement, recovered slightly.
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