The iPhone Phenomenon.

Same day 10 years ago a blockbuster phenomenon called iPhone happened and the phones are never the same. When Steve Jobs introduced iPhone at Macworld, he sucked the attention of the whole world and made everyone second guess whether they can believe what was being showed. That’s how iPhone made the phones on sale till then look – Dumb!

Great things shouldn’t be talked about as less because we are habituated to them. Let’s all time travel 10 years ago and look at the phone market. The phones were ugly, fat, featureless and the software was laggy, poorly made and not given enough thought. When you see a beautifully designed phone, you might not explain why you love it so much but you intuitively know that the people designed this product should be smart. iPhone is just that.

Microsoft had been this big giant that showed the world what licensing the software is and how that simple plan shifts the power centres from hardware manufacturers to software makers. It in the process it also showcased to the world what Network effects are and how you can reap benefits out of it. Windows was so huge that it made Microsoft to become myopic and complacent.

Computer is one form factor that can easily copied by a large number of commodity hardware manufacturers who can then undercut the original innovators on price using cheaper components and leveraging economies of scale. With iPod, Apple leveraged tight integration to deliver a product with some unique features that were harder to copy, mainly including connectivity with iTunes. Apple had the effective integration of software, hardware, distribution and services that made hard for commodity hardware manufacturers to replicate. This was the eureka moment for Apple that gave it enough confidence to jump into the phone business.

So in a way this busted the Windows myth of “Licensing is the way to go.”

Despite being slow and limited by modern standards, the iPhone launched in 2007 had far more processing power and RAM than existing smartphones. Apple also covered the hardware limitations through the use of some clever tricks one of them being capturing the image data even before an user clicking the shutter button resulting in the appearance of photo capture faster than the hardware was actually capable of doing.

With iPhone Apple is in a unique advantage no other smartphone maker is in terms of economies of scale they have achieved, the premium loyal user base they garner and the ability in the quality of products they can make.

Microsoft thought of licensing Windows for a while to mobiles but gave up on that very quickly realising tight integration as the key. Then they bought Nokia for the hardware and tried the integration route but Android is doing really well and the market didn’t give an opening for a 3rd player. 2 players are good enough said the market and the app developers. Microsoft realised this and they are now cheerleaders for iOS Appstore to distribute their apps and services.

Now lets look at Google and Android. For Android optimists, everything looks great because 9 out of 10 mobiles sold and being sold are Androids and the market share is great. If we put that statistic aside, there are real troubles Google is facing through Android. Unlike Windows which went the licensing way, Google wasn’t really earning from giving away its Android software. Caught in Microsoft’s integration conundrum, Google next copied Microsoft’s Zune strategy of competing against its own licenses by launching its own Nexus-branded phones. When that didn’t work, it copied Microsoft again by buying up a major license. Even Google’s acquisition of Motorola turned out to be the as bad as failed Microsoft’s acquisition of Nokia.

Apple made the work of designing new hardware look easy. It wasn’t!

As Google and Microsoft spent billions of dollars to replicate Apple in creating one tightly integrated phone that worked well, Apple quietly invested great amounts of money in chip building and in technologies like touch id and some proprietary technologies.

To sum up, Microsoft is almost out of Phone business. Samsung is the only maker that sells more phones than Apple does but the average selling price is around $200 many hundreds less than Apple’s $650. As Google is trying the proprietary way through Pixel at the premium end, it makes far less money than Apple as it doesn’t have economies of scale like Apple which sells iPhones 100 times more than Pixel currently.

After 10 years of defending iPhones from competitive threats, Apple is in the enviable position of ever increasing margins, great proprietary technologies and sharply limited direct competition. Google despite waging an all out war on iPhone is struggling to find reasons to maintain Android as a platform as Android continues to suffer from serious security issues and software update lethargy.

With 10th year Anniversary iPhone 8 gaining lot of expectations from the industry, we can only guess how big it is going to be!

Happy birthday iPhone!