Why the iPhone Won

It’s official: Apple is the new ruler of the technology world. Today the company beat out Microsoft for the title of world’s most valuable — based on the value of all its stock — technology company.

The announcement isn’t surprising, given the public’s seemingly insatiable appetite for everything Apple, including news, in recent months (Sony Vaio VGN-FZ battery).

When Gizmodo acquired a prototype of the iPhone 4GS after Apple employee Gray Powell (now infamously) left it at a bar, people paid attention. The product leakarticle has, as of this writing, garnered almost 11 million views, and it got the attention of everyone from the police to the blogging community to Jon Stewart, who coined the term “appholes” to describe the company’s reaction to the episode (Sony VGP-BPS8 battery).

It’s difficult to imagine that the misplacement of an average cell phone — prototype or not — would warrant a media frenzy. But then the iPhone is hardly an average cell phone.

When Steve Jobs announced that Apple would enter the mobile phone business at the MacWorld Conference and Expo in January 2007, hedeclared that “every once in a while a revolutionary product comes along that changes everything (Sony VGP-BPL9 battery).”

The iPhone is, clearly, one such product. When the phones went on sale that June, hundreds of people camped out to purchase them. Apple hit the 4-million-sold mark within six and a half months and reached 13.7 million by the end of 2008. By April 2010, the company had sold 50 million (Sony VGP-BPL11 battery).

On May 7, The technology market intelligence firm IDC reported that while Nokia maintained first place in global smart-phone sales with 39.3 percent of the world market in the first quarter of 2010, Apple gained on No. 2 Research in Motion (best known for the Blackberry). Research in Motion claimed 19.4 percent of the market share (down from 20.9 percent last year), and Apple took 16.1 percent, a huge gain compared to its 10.9 percent share last year (Sony VGP-BPS9battery).

Even though the iPhone isn’t leading, it’s hard to argue against its success — it is, after all, a single product with serious name recognition, compared to Nokia’s numerous, faceless phones.

What is it about the iPhone that so revolutionized the smart-phone market? Not the App Store, which didn’t open until July 2008, fully a year after the first generation iPhone came out. At the time, the store boasted about 500 apps; today, it has 204,304, according to 148apps.biz, a website that tracks the number daily (SONY VAIO VGN-FZ4000 Battery).

Researchers Joel West and Michael Mace believe the iPhone was successful because it was the first phone to offer the “real Internet” experience. (And of course Apple’s cultlike following also likely played a role in the product’s success.)

West, a professor in the department of organization and management (ASUS A3000 Battery) at San Jose State University, has Apple roots — he was a columnist for MacTutor(now MacTech and MacWeek, and founded the MacStats website. He now works as a software company strategy consultant, but is the former president and co-founder of Macintosh company Palomar Software, Inc. Mace has worked for both Apple and Palm, and is now a principal forRubicon Consulting, a strategy and marketing consultancy for tech companies (ASUS Eee PC 1000HE Battery).

Their recent paper in Telecommunications Policy, “Browsing as the killer app: Explaining the rapid success of Apple’s iPhone,” argues that the Apple approach to the mobile Internet is what has made its phone so popular. While other companies were busy trying to create a new, cell phone-appropriate Internet, Apple decided to re-create the cell phone instead (Dell Inspiron 6000 battery).

“By emphasizing the Web browsing user experience,” assert the researchers, “the iPhone leveraged the same value network of an estimated 1 trillion non-commercial, ad-supported and fee-supported Web pages that were already familiar to existing users of the wired Internet.” As West explains, Apple avoided the chicken-and-egg problem of attracting complements by making its phone a complement to the World Wide Web (Dell Inspiron 6400 battery).

The iPhone was different from other cell phones in several key ways: Instead of a keypad, it used a touch screen; it didn’t have a user-changeable memory card or battery; it offered the biggest screen of any phone model, and it included a version of Apple’s Web browser, Safari(HP PAVILION DV2000 Battery).

Apple’s business model was also unique. The company negotiated a multi-year exclusive agreement with Cingular (now AT&T) in the U.S. and required all iPhone users to purchase a two-year service contract with mobile-data service. This mobile data service (currently priced at$30/month) is required for every phone, which guarantees revenue for AT&T. (Keep in mind that iPhone users have to pay an additional monthly charge for air time and text messages (HP PAVILION DV3000 Battery) — even with a minimal plan (450 anytime minutes and 200 text messages), a monthly iPhone bill is $75 pre-tax.)

The required data plan has had a profound effect on consumers: It promotes casual browsing. Whereas other mobile Internet users with limited data plans have to pay attention to their online time, iPhone users have the pre-paid Internet at their fingertips, whenever they want it. When they want to look up a restaurant, find a statistic or check their Facebook messages, they don’t need to find a computer — they just pull out their iPhones (HP PAVILION DV8000 Battery).

Apple made sure that even people who couldn’t afford the monthly expense of their phone could get hooked on their platform. The iPod Touch, a sort of “iPhone lite,” is an mp3 player that is visually indistinguishable from the phone, although it can’t make calls and can only connect to the Internet through a wireless network. Although it was initially more expensive than the iPhone, it has become almost as popular (likely due to some extent to Apple’s promotional giveaway of the product with laptop purchases (HP PAVILION DV6000 Battery)).

West wrote last year on his blog that if the iPhone is heavily used for the same thing as the so-called “wired” Internet (in other words, the computer Internet), it will start to become a substitute. And while the smart-phone market is evolving to reflect this new reality, the iPhone has shown that the catalyst for the widespread adoption of mobile data services wasn’t, as some experts predicted, mobile banking, commerce or mapping services (don’t worry, there are apps for that), but something far more simple (IBM ThinkPad T40 Battery).

“In the end,” write West and Mace, “The iPhone proved that for the U.S. (and perhaps Europe), the killer app for the mobile Internet was the same as for the wired Internet: a Web browser (IBM THINKPAD R50 Battery).”