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Summary:

When it comes to the phone business, there is no doubt that Apple vs Google makes a great headline. After all, who doesn’t like the battle of pachyderms. In fact it is about Apple and Google versus phones with the 12 key pads.

iPhone4s

It has been a while since I mailed out my last Om Says. I have been busy playing around with a lot of new gadgets, doing some thinking. Nevertheless, over last few days these stories caught my eye and sparked some thoughts that I wanted to share with you.

  1. Apple sold 4 million iPhone 4S devices during the first weekend.
  2. Google has 190 million Android phones.
  3. Nokia is developing Meltemi OS for low end phones.

When it comes to the phone business, there is no doubt that Apple vs Google makes a great headline. After all, who doesn’t like the battle of pachyderms. But in reality it is Apple and Google versus the others. And by others I mean, those old fashioned phones, ones with the 12 key pads.

For nearly a century the phones have been a single function device. You used them to make phone calls. In the beginning, an operator connected us. Then came automation. We got the rotary dial and then the keypad. The design changed, the backend switching technology changed. Even the economics of the service changed. New features were added — voice mail, for example. What didn’t change: functionality. Phones just made phone calls. A century later we had a certain idea of a phone imprinted in our head.

Fast forward to July 2007. Apple launched the iPhone and in one swoop questioned the very notion of phones, how we use them and what we use them for. Google’s Android Phone efforts only made us rethink the idea of a phone and what is it good for. And they were very different than the 12-keypad phones.

Apple’s iOS and Google’s Android are operating systems designed to run on devices that have the Internet and the ability to run its myriad services as part of their core genetic make-up. The classic voice-oriented phone as we know it is one of the many services. Like Yelp or Pandora. Yeah, the phone companies still charge us a hefty fee, but you pay for the comfort of convention, more than anything. Skype, Nimbuzz and others can help you make phone calls if you want and you don’t need the phone numbers. Google Voice will even send and receive text messages. But we like the comfort of having “phone numbers” because it is easy.

Today’s Internet-centric communication device (for the lack of a better word) is in competition with the old way. Thanks to new chip technologies, cheap sensors and fast growing networks, the idea of what is a phone has changed. This is leading to behavior changes and new interactions. They are behaviors of a new connected life. These new behaviors will change many different parts of society and business.

At the launch of the iPhone 4S, Apple chief executive office Tim Cook said that Apple accounted for only 5 percent of the total (not smartphone) market, pointing to his company’s ambition and opportunity. Apple and Google-based devices are going to be eating away at the traditional phone. It is not a surprise to hear Google boast that it has 190 million devices activated already, or Apple announce that it sold four million iPhone 4s devices on the first weekend the phone became available. Their success will continue — not at expense of each other but at the expense of Nokia, LG and anyone else still trying to stay true to the old format.

Nokia’s New OS

A few days ago, it was revealed that Nokia was working on a new OS called Meltemi that was targeting the low-end phones that are the bread and butter for Nokia. The idea behind the OS was that it would replace the aging S40 platform and it would be made for feature phones. I think even here, Nokia has missed the boat.

In the early days of iPhone, Nokia executives constantly dismissed it as a toy, even though I turned blue in the face talking about the change in consumer behavior and our expectations of the phone. That inward looking thinking cost them the leadership position (and profits) in the mobile business. One could almost forgive them for not noticing the iPhone – Nokia was after all happily selling a lot of low-end phones in the hundreds of millions of units. However, what is difficult to swallow is the fact that the Finnish giant didn’t prepare itself and predict the impact of touch-centric, Internet-enabled iPhones/Androids on the low-end of the market.

One of its biggest rival – Samsung did when it launched BadaOS and it is seeing the gains already.

The fact is that at the low end of the market, there is a certain expectation from buyers. And that expectation is of an iPhone-like device. “The very simple phone that does talking and texting and maybe you know, not much more, I do believe that over time that will become less and less and less of a market,” Dr. Paul Jacobs, CEO of Qualcomm told me earlier this year. Even at the lowest end of the market we will see “Internet-centric” phones become dominant players, he said. Android-based low-end sub-$100 phones are becoming commonplace in booming telecom markets such as India, China, Indonesia and Brazil. These are not from big brands but mostly from lesser manufacturers. For Nokia and those who believe in the company, this is not good news.

Anyway hope to be back with more later this week.

  1. Still surprising to me how many human beings neither recognize nor care about the differences between quantitative and qualitative changes. They just bumble along, surprised, even offended, by change that slaps them in the face.

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    1. If that surprises you, then you’ll be shocked to learn that the vast majority of the world could care less about smartphones – and get along just fine without them. I’m not one of them, but just saying.

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  2. Russell Whitworth Tuesday, October 18, 2011

    The quick-start guide of my HTC Desire S doesn’t mention using it as a phone. Are you sure it can do that? Do I need to download a phone app?

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    1. Hah. It is sign of the times in many ways. I do have to admit this is the first time I have heard this. Or it is just that I don’t read manuals/quick start guides/

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  3. Personally, I’d love to have a smart phone—which, in my book, means an iPhone; I’m not sure why I’d consider anything else—but the plans are so dang pricey! I don’t want to drop my landline, for all the benefits it offers; yet my GoPhone plan is really overkill for me: the minutes just keep rolling over and rolling over until I have $100, even $200 worth and the phone breaks and I lose them all. Why would I ever think of spending $20, $40, even $60/month when my current $9/month plan gives me more than I need?

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    1. What benefits does your landline offer?

      I think that the mentality you are using to justify a less expensive plan is the “old phone industry” mentality. I haven’t thought about how many minutes or rollover minutes I have in so long that it’s almost absurd.

      Skype and Google Talk are always running on my phone, so if I were to run out of minutes (which I won’t, because I don’t call many people), I could just tell them to call me on skype. Skype sounds better anyway.

      When was the last time you used your phone to find a restaurant close to you, read reviews that other real people wrote, then made a reservation without ever seeing or caring about a phone number? Or to find the nearest gas station? Or ATM? Or check the scores and highlights of the game that’s going on now? Or watch a movie on a long plane ride? Or plug it into your car’s AUX jack to stream Spotify/Pandora in the car?

      There are so many things that you can do with a smartphone that a GoPhone can’t, and you don’t realize what they are until you have one.

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      1. When was the last time you used your phone to find a restaurant close to you, read reviews that other real people wrote, then made a reservation without ever seeing or caring about a phone number? Or to find the nearest gas station? Or ATM? Or check the scores and highlights of the game that’s going on now? Or watch a movie on a long plane ride? Or plug it into your car’s AUX jack to stream Spotify/Pandora in the car?

        Never.

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  4. Apple is the old way of thinking – like payable apps, proprietary OS, treats made to developers about now allowing them to make programs for other OS – its why Google is Google and we love them. Apple will never be anywhere close to that way of thinking.

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    1. Clearly you like one way (Google) way over the other (Apple.) Both seem to be doing well and the later seems to be doing well despite all the reservations you might have. Proves the point – there is room for both as both have a long way to go.

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  5. Om, you make some good points, but I fear that the battle you describe (smart versus feature phones) has already been won – it’s just that the wounded are still laying on the battlefield and have not yet died. Some may even recover but they will have to fit in with the new rulers, just like the locals did after Roman conquest 2000 years ago. It will take a while for the market to adapt to the new regime, either as people with feature phones upgrade or pass away and new younger users take their place. Your last paragraph states the expectation at the low end of the market is of an iPhone-like device – spot on. It’s just a shame that some people cannot recognize mortal wounds when they see them…

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    1. I think that is one of the reason why I feel that companies like Nokia are in a pickle.

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      1. Om have you used Windows Phone much? I’ve seen the Nokia N9 (which runs Meego) and can’t help but think that that hardware on a Windows Phone would be a very good alternative to Android or iPhone.

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      2. Can’t Nokia still sell phones where the internet isn’t readily available or too expensive for most people? I’m talking markets like Africa and South Asia. Will markets where the internet is censored more often such as Saudi Arabia be slower to take up smartphones?

        Technology will decrease costs for smartphones, but I’m not convinced that the phone is the only factor in the rise of the smartphones. Obviously, costs for the end user, political tolerance and infrastructure costs will play a role; probably more than you think for people in areas without a strong middle class or respect for private property.

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        1. So the thing is that most of the carriers in even those parts of the world are betting on data as their revenue growth business. With voice having come under massive competitive threat, data is viewed as the next big opportunity even at the bottom of the pyramid. If you look at South Asia for example, all the carriers are rolling out the 3G networks. And they are all banking on Android-based devices. It is going to be fun to see how it all shakes out.

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  6. Hi Om,

    It would be great to understand your definition of low end, feature phone and smartphone.

    As I understand, most of the companies like IDC, Canalys have a common definition based on some secret criteria. So what is your definition.

    What is your understand of the market outside of US (may be also exclude western europe) I don’t see it holding much water!

    One year ago it unthinkable that operators in easter europe, Latin america, in middle east & africa, the whole APAC region including china & India would be offering dual sim phone – dual sim was assumed to be only a open market trend. You are correct Nokia misjudged the competition at low end – but the competitors were not iOS or Andriod in these markets, they were dual sim running of random pieces of SW.

    Nokia released about 1/2 a dozen dual sims this year and they are getting back their market share in BRIICAV. (Guess what the abbreviation stands for)

    Meltemi – if you read the WSJ article clearly I think it speculates that its most likely being developed to replace the aging (not dying) S40 range.. (Nokia dropped feature phones mainly due to lack of dual sim not sw or apps)

    You guys need to get your head out of your ass – you are of Indian origins dude! you should at least study your own home country a little bit to understand what the market forces there?

    Yes – high end in north america and western europe you are on the dot. 100% but when it comes rest of the world your views are worthless…

    I like GigaOM because it provides me with good analysis for markets which i dont understand mainly north america and wester europe, since i have been based in asia most of my life, but you really have no clues as to rest of the world!

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  7. I think the BlackBerry and Palm platforms set the stage way before the iPhone. Not to mention the many failed handheld PDAs.

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  8. Hi Om,

    Nice article. But I think I will have to agree to a extend with sranzha’s rant. This article holds water only in the US of A. Not outside.

    Bada selling 3 to 4 million a quarter is a failure when compared with S40’s 40 to 50 million a quarter, even after losing market share (primarily due to reasons mentioned by sranzha) in Q2.

    Can you explain that?

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    1. Andrew

      I think the key here is expectations in the market are remarkably different today. Those expectations are spreading worldwide. The point I am making is that we have different expectations of the phones today that we had a few years ago. Touch/Internet centric versus others.

      I choose not to answer the other rant mostly because I don’t think dual SIMs is the issue. An Android Phone can have Two Sim Cards. That point of the article — the other way: 12-keypad way of phone is toast. Let’s get used to it and this shift is going to cause a disruption.

      That disruption isn’t what Nokia prepared for. Their new OS is a S40 replacement, but it is about apps and data connectivity on what they call feature phones. Argument I am making – today’s smartphones are tomorrow’s feature phones and in quick order.

      PS: Bada is growing business for Samsung by the way. The company is selling a million phones a day – so I wouldn’t dismiss them. They are on their way to becoming the top handset maker in the world and racing past Nokia.

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      1. I agree with your statement “Argument I am making – today’s smartphones are tomorrow’s feature phones and in quick order.” It isn’t going to the feature phone level but do you have any information on activation statistics for the iPhone3GS from the last week? This appeared to be Apple’s approach to the “new feature phone” even though it carried an expensive data plan.

        All of the market stats are for the iPhone4S; wish there was broader market analysis of Apple’s new marketing plan.

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  9. Bruce Kasanoff Tuesday, October 18, 2011

    Great article, I read it after writing the below post, The End of Marketing is Near, and had to go back and include a quote from (and link to) your story.

    http://nowpossible.com/2011/10/18/end-of-marketing/

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  10. Being an owner of several Apple products, myself. I love checking this website and keeping up with what is going on in the Apple world, I also regularly visit this other website – http://kyoo.com/apple – and it shows all of the different social websites/blogs/what-have-you that are currently talking about anything Apple related. It keeps me up-to-date on Apple stuff so I just thought this might be helpful to you all as well.

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  11. A low-end phone is a browser, a data connection, and is free.

    Good luck!

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  12. Sounds to me this is like discussing the merits of a Typewriter in the eye (after 4 years) of a word processor running on a GUI.

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  13. Uh Pam changed the idea of what a phone can do with the introduction of the Treo. An Idea they got from a phone module for the Handspring Visor. Boy people have short memories

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  14. My eyes are hurting. What’s with all the red?

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  15. Despite the abundant love for both companies – and abundant hatred – there is only one place this business is going. Apple is old school. Paying for apps? No customization? Out the door. Even the hardware is behind the times. With a the options that going android offers, its only a matter of time until Apple has to find a different business to get into – or shrink back to computers. The iPhone was revolutionary, but the original is never the best. The only variable is how much time they have. It may be a while, it may be a few years.

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    1. “Even the hardware is behind the times.” Yeah, Siri is behind the times! “It’s only a matter of time until Apple has to find a different business to get into.” Get real!

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      1. Um, isn’t Siri software not hardware?

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  16. I don’t if there is such a battle between Smartphones and Feature Phones. Agreed, that likes of Nokia underestimated Apple – but the power of Smartphones was never underestimated.

    Feature phones are here to stay, probably not in the developed countries like US, but then Nokia serves globally. Feature phones may bring their margins down, but its still a huge market in developing countries.

    IMHO, there is a dire need for a new Operating System for Feature Phones. The current Feature Phones are all stuck in 2004.

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  17. Google and Apple are revolutionizing the way consumers use mobile devices, but I would challenge that these companies are not just pushing up against traditional phone makers. Wireless companies like AT&T and Verizon have been forced to re-evaluate business models that have been successful for years. So many industries have a touch point to these devices that companies like Google and Apple have changed the completely conversation, pushing slow moving organizations like the wireless providers to the brink. If wireless companies are not careful, Google and Apple could ultimately edge these organizations out of more than just profits. The question is, why doesn’t the wireless industry rise to the challenge and use this as an opportunity to truly innovate?

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  18. Thanks for the article Om. You’re saying I should switch from a feature phone (Nokia by the way) to a smartphone and the increase my phone bill 100% is justified because of “comfort of convention”… are you saying that I should pay it just because everyone else is already doing it?

    My opinion is there’s got to be a “killer-app” to justify moving to a smart phone. For you it might be reading restaurant reviews and making reservations. For many at my company it’s access to email. For frequent travellers it might be the GPS and locator services. And for others their life exists from one status post to the next. I haven’t found my killer-app yet, but I’m still looking. I’m actually interested to see if Nokia might have some great ideas or if they’re just playing catch-up.

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  19. Thanks for the article Om. You’re saying I should switch from a feature phone (Nokia by the way) to a smartphone and the increase my phone bill 100% is justified because of “comfort of convention”… are you saying that I should pay it just because everyone else is already doing it?

    My opinion is there’s got to be a “killer-app” to justify moving to a smart phone. For you it might be reading restaurant reviews and making reservations. For many at my company it’s access to email. For frequent travellers it might be the GPS and locator services. And for others their life exists from one status post to the next. I haven’t found my killer-app yet, but I’m still looking. Hopefully Nokia is doing more than playing catch-up and are going to bring something to the table that we’ve never seen before.

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  20. I recently lost my iPhone so switched back to my old Razr, and couldn’t be happier. Now that I waste less time with playing games (#1 use of smartphones), I have a lot more time to think and plan. I do miss having remote access to my email, but my workmates have learned that if there is something time urgent, they have to call me- thus acting as my virtual filter and agent! Finally, I find I much prefer talking to people and writing out my thoughts in a notebook, rather than tapping frantically on a tiny screen, like most of the people I see around me. Call me a Luddite.

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  21. It’s not Google vs. Apple. It is Apple & Google vs. the old way http://t.co/cyx6PY7N

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