October 5, 2007

Lessons from the US: How to Launch the iPhone
(and What to Avoid)

AT&T did some things right in launching the iPhone earlier this summer, but it made some mistakes, too. European mobile operators are now in a good position to benefit from some of these early lessons. Our U.S. team of wireless service and device analysts offer up some advice on how to bring the most over-hyped device of our time to market, as well as pit-falls to avoid.

Current Analysis Perspective

Avi Greengart
Principal Analyst, Mobile Devices

• Housing the iPhone: AT&T’s iPhone launch continues to provoke a high level of consumer curiosity, even from those who do not consider themselves in the market to buy one. The user interface is just completely different from anything else out there (including LG's PRADA Phone and HTC's Touch, which come the closest), and US consumers flocked to AT&T’s retail points just for the chance to touch and feel. iPhone retailers will need live demo units and some space in between each one to allow people to crowd around, because they will. In the U.S., the iPhone stands alone; so, other than selling iPhones, there is not much to do with the crowds. However, in Europe, the iPhone could be used as a draw to promote a range of other high-end handsets: Nseries, 8800s, Cyber-shots, PRADAs, etc. The key will be to display those close to the iPhones with the same format: live unit, enough space between the units to give people a chance to play with them, etc.

• Housing Alternatives: In the US, Apple has provided AT&T with kiosks that contain live iPhones and enough room for a person or two to crowd around them, which presents a dramatically better shopping experience than the rows of dummy phones that are often used in the rest of the store. So, the advice here is to highlight clearly the price disparities of alternatives, ensure that they are located near the iPhone, and provide an equally good POS (point of sale) display.

• Teething Problems: Over the initial launch weekend, 2% of customers had trouble activating their iPhones when AT&T's servers overloaded. Things were exacerbated for customers porting existing numbers over to the iPhone, as that involved additional interaction with the customer's prior carrier. These problems only affected a few thousand people, but they were widely reported in the press, which gave the iPhone launch a bit of a black eye. The obvious advice to EU operators is to beef up their servers and expect an initial surge of activations on November 9.

Bill Ho
Senior Analyst, Wireless Services - U.S.

• Managing a Launch Sensation: AT&T’s iPhone launch had crowds waiting in line for hours and, in some cases, days to be the first to own this device. The 6:00 pm launch on a Friday evening was brilliantly conceived, as this forced people to queue up or camp out in front of Apple stores, or the more numerous AT&T corporate retail stores. The media covering the spectacle and interviewing participants fuelled the buzz.

• Whose Phone Is It Anyway?: The Apple-AT&T relationship is still cloudy. Officially, AT&T is the customer support company of record, but consumers have also gone back to Apple stores for tech and hardware issues, which begs the question, who really owns the customer? European operators should learn from this US confusion and do a better job of giving the end user clear directions regarding device support issues.

Kitty Weldon
Principal Analyst, Enterprise Mobility - U.S.

• An Enterprise Device? Not Yet: AT&T has not targeted the iPhone at its enterprise customers, with good reason. At the launch back in January, Steve Jobs did compare the iPhone with smartphones from RIM, Nokia, and Motorola, but ever since then, the focus has been almost exclusively on consumers. The Apple OS is too tightly locked down to do much in terms of third-party apps and middleware, so until Apple enables enterprise application development for the iPhone, only those applications that include Web-based front ends will be accessible on an iPhone.

Therefore, from an enterprise mobility perspective, there are too many omissions, including the lack of business process applications and secure, enterprise-grade push e-mail, as well as robust device management and security (as evidenced from all the bad PR regarding iPhone hacking). While it is certainly possible to provision e-mail on the iPhone, security and management capabilities found on solutions such as RIM/BlackBerry or Nokia/Intellisync are not available for the iPhone at the moment. European operators should follow AT&T’s lead here and aim the device at the mass market, not the enterprise.

Brad Akyuz
Senior Analyst, Mobile Devices

• Exploit the Hype: The iconic iPhone has proven to be a magnificent subscriber growth/retention tool for a network operator, as Apple and AT&T collaboratively sold a million units in a little over two months at a price point that is significantly high for the subsidy-driven US market. Regardless of the financial terms of the agreement signed with Apple, having the iPhone in its line-up gave AT&T a tremendous boost in terms of device portfolio competitiveness, which made every other carrier wonder how they could compete with AT&T’s iPhone.

Rivals of O2 in the UK and T-Mobile in Germany should begin asking themselves the same question. O2 and T-Mobile, on the other hand, should realize that the iPhone is in the 1.0 stage, and they are picking up this 1.0 device with a six-month delay (from its debut at AT&T), while Apple is working on the 2.0 version. The 18 to 24-month contracts will be attractive in the initial months of the European debut (assuming the 2.0 version will debut down the road, when the early adopters are in the middle of their contract). Therefore, both operators should exploit the hype to the greatest level and squeeze all the juice out of the iPhone during the first several of months, before consumers begin wondering why they should commit to a 24-month contract with the superior 2.0 version coming down the pipeline.

Deepa Karthikeyan
Analyst, Wireless Services - U.S.

• Think Apps: Keeping its young and technophile customers in mind, Apple launched popular social networking sites such as YouTube and Facebook on its deck, and this was well received. European carriers launching the iPhone in the following weeks are advised to underline these mobile application capabilities. Their mobile operator competitors are almost certainly going to try to compete with the iPhone in terms of mobile media content capability, and many – notably Vodafone – have attracted some high-profile partners to their own mobile portal propositions.

European operators should sell the iPhone as a high-value package, rather than just as a piece of exceptional hardware. However, like its US counterpart, the European version of the phone is non-3G, which restricts the performance of bandwidth-intensive applications. In the US, consumers are quite used to finding and leveraging hotspots for mobile Internet access, but European providers may need to educate their users better to this end.

Emma Mohr-McClune
Principal Analyst, Wireless Services - Europe

• Justify the Price Tag: AT&T made quite a song and dance about the iPhone’s Visual Voicemail capability, and European operators are advised to follow suit. The iPhone is indeed a thing of beauty, but what is it good for? There will be some sceptical voices claiming that the iPhone is just a souped-up 2.5G smartphone with a cool user interface, but with no truly unique functionality in comparison with other (cheaper) high-end 3G, Web-ready devices in the same class.

iPhone providers must anticipate pricing competition, and this will sharpen the onus to prove that the iPhone is more than just a pretty piece of hardware. The iPhone has been treated to an incredible amount of media hype, and that’s all good, but one of the negative side effects of this hype is that the Apple brand profile for exceptionally high-quality hardware has been lost amid the din. The 16 to 25-year-old sector may be too young to be aware of Apple’s reputation for device quality. In order to justify the high iPhone price tag, service providers will need to underline the ‘extras,’ such as Visual Voicemail.

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