Why the iPhone will never be the biggest money generating platform

The iPhone will not generate significant mobile revenues

The iPhone will not generate significant mobile revenues

Tomi Ahonen has written a very long post about the history of mobile phone development  in Europe and the United States. Tomi is a well known authority in the Mobile space and is the author of the well known Communities dominate brand book.

His post contains a number of provocative and thoughtful observations. The post itself is as long as an e-book, but I urge you to read it all the way. It’s excellent.

In his post Tomi argues that even though the iPhone has brought a revolution in smart phones it will not dominate mobile revenues with its current offering. the bulk of mobile revenues are not in App stores or the real Internet. Apple’s iPhone represents less than 1% of the mobile market, and it’s revenue generation is infinitely small compared to current real mobile Internet revenues. A quote from Tomi’s post:

So we come down to the applications. Tomi, its a smartphone. By definition, a phone that can accept applications? Why aren’t you talking about the Apple iPhone Apps Store. Yeah, sure, its important for us nerds and geeks, the early adopters of new technology, who have been envisioning a pocketable PC that could be perfect for the gadget freak. Yes, the Apps store is wonderful. A billion downloads, yeah. Except that the mass market consumer, your mother, your father, your sister and your brother, are not like you and me at this blog. They will not madly download tons of apps to any smartphone. The theory of “Crossing the Chasm” has been explained by Geoffrey Moore a decade ago and is not disputed. Techie-geeky appeal of ultra high tech does not translate to the mass markets, in fact in most cases what geeks want and mass markets want are diametrically opposed.

No matter what stats you see for Apple iPhone Apps Store success, whatever the stats, the total market share of Apple is 1% of the phone market. It is exactly at the pointed end of that Crossing the Chasm theory that Moore talked about. This is NOT a mass market, and CANNOT BECOME one if the same model is repeated. Understand what I say. Even if you are able to make a success out of your app in the Apps Store today, it CANNOT translate to a mass market success, using that same model. its not my theory, Moore’s theory holds near unanimous agreement by all technology marketing gurus. Do not kid yourself.

The problem with the iPhone is that it has been developed with a pc in mind. It is a pc device that can also call. This is exactly why I wrote a post about a year ago explaining why the iPhone is probably one of the worst mobile phones I have ever used. It comes with downloadable applications that let the user customize his device. But that is exactly why it will not be adopted by the mass market.

Yes there is a big opportunity for apps to be sold to smartphones. Yes, it is a very significant market, when viewed from the angle of the software applications industry. But it will always be – always be – only a niche. Do not allow yourself to be delusional about this. We do not buy – and the mass market will not ever buy – smartphones so that they could install some apps to it. The vast majority of users will be contented with the apps that come pre-loaded, and then they go to web based services to get their additional benefits.

The real value (in terms of revenues) lies in the mobile web. This is not the real web displayed on a high end handheld like the iPhone. Instead it is the ‘walled-garden’ Internet that is build and maintained by the mobile carriers. Sounds totally unbelievable right? The facts and figures however are indisputable. Again, a quote from Tomi:

That is where the big opportunity is. Not apps that we install onto a smartphone, but the services that we deliver via the network. Mobile premium services, what could be called “mobile internet” and by this I mean a superior, better, money-making internet than the old legacy dumb internet we have on the PCs. So I explicitly do not mean “the real internet” onto the phones. That is as dumb as putting a real horse to power your car! We have a BETTER engine in the car. And now, yes, please understand, the “mobile internet” is the far better internet than that horrid old creaky stupid cheap “advertising-led” “get-me-more-eyeballs” internet which we all use today. The internet is for good reason called the 6th mass media channel and obviously mobile is the newer, 7th mass medium.

No, while that will be there, and yes, there will be millions and millions of users on “the real internet” on our smartphones, that is peanuts. PEANUTS. The far bigger opportunity in mobile is in the 7th mass media type of mobile internet, the better, smarter and richer money-making and magical mobile internet. That is where the opportunity is. To see how vibrant and lucrative it can be, one need not look further than this decade and Japan and South Korea, where the mobile internet really thrives already. Application developers have a hard time making money selling 1 dollar apps on the Apple iPhone Apps Store. You have to be very lucky to make the top 100 apps listing to have any chance of recovering your development costs. A very risky development path.

But in Japan, they offer the service on the mobile internet, take a subscription of one dollar per month (100 yen) and pay 10% to the carriers/operators and the service provider gets to keep 90%. Rather than one dollar from one customer once, the customer is charged 12 months, 12 times per year. 12 dollars, and the content owner gets to keep 10 dollars and 80 cents of it. Which is better? A dollar or ten? I rest my case, milad.

Worldwide the mobile data market is a much bigger opportunity than pc based Internet. There are more users, more devices, payment is integrated on every device (no need for credit cards). In another great and long post Tomi estimates these markets:

The total mobile premium content industry is worth 71 billion dollars and the mobile messaging industry adds another 130 billion, giving the total moblie phone based data services industry a size of 200 billion dollars for 2008. Now, consider the internet. Even as we add not only all content revenues, and all advertising revenues on the internet, but also the access revenues for broadband and dial-up narrowband internet access, the overall size of the internet business is about.. 200 billion dollars. In half the time, mobile has grown to same size.

Mobile is the bigger internet. Mobile is the stronger internet. Mobile is the money internet. Mobile is the faster-growing internet.

It sounds counter intuitive to us geeks, but the smart phone market is a niche market. No matter how sexy and cool we think it is. The SMS market alone is bigger than the current pc based Internet content market. Premium mobile data services add extra growth that can’t be matched by the web. On the web we are stuck with inefficient, crappy old-fashioned web 1.0 based business models. In the mobile data market every bit transferred represents real revenue. Twitter could have done it, but they didn’t pursue the biggest revenue generator.

Facebook missed that one too.In 2007 I wrote a post entitled “Mark Zuckerberg, when in doubt, follow the money”. I said then:

But there are 2 aspects to a mobile phone that are of huge importance when thinking about next generation web services:

  1. The mobile phone platform has billing capabilities
  2. The mobile phone user pays to interact with others

Think of the US on-line advertisement spent 2006 ($16 Bln) as a small hill,

800px-clouds_over_hills.jpg250px-everest_kalapatthar_crop.jpg

think of the worldwide spent on SMS as the Mount Everest (btoh images taken from Wikipedia). It is estimated that the SMS market alone will be $ 67Bln in 2012 (or 3.7 trillion messages a year!) .That is excluding Mobile Internet services. In Japan alone more than $ 1 Bln revenues are generated from mobile data services. So stop thinking ads and start thinking payed services.

The mobile business model is the most User-Centric I can think of. It provides user value and the user pays directly for that value. There is nothing more powerful than that.

About vanelsas

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5 Responses to Why the iPhone will never be the biggest money generating platform

  1. Chris Heath says:

    When you figure that one SMS message costs 10 or 20 cents (global avg is 11 cents via wikipedia) one MB of SMS is a rip-off – why would anyone in their right mind use SMS?

    http://www.google.com/search?hl=en&rlz=1C1GGLS_enUS291US316&q=sms+text+costs+per+mb&aq=f&oq=&aqi=

    So to boil down what you and Tomi are saying: Most of the world is clueless and will gladly over pay for cell phone services, and by over pay I mean WAY over pay. That is where the mass market is and the carriers will never come around to charging fair prices.

    I use and iPhone because that way I can only pay 99 cents once – if at all – to get what I want. Who are these japanese and korean people that are willing to pay $12 a year for something I can get for free most of the time?

    Maybe these services you’re talking about are different from what I’m talking about, and if they are I’m curious as to what exactly they are.

    ~chris

  2. @Chris, basic SMS services already are a 130Bln market. Mobile messaging is widely spread and used in almost every part of the world, except the US. Tomi explains in his post why the US isn’t into SMS while the rest of the world is.

  3. Max says:

    so far, i’d say you are wrong…
    iphone has generated quite a LOT of revenue… and sold 1 Million+ in one day. hope that works, good job Tomi the mobile authority!

    • @Max,

      the performance of the iPhone is incredible. Yet it is still very small compared to total mass market revenues (estimated at $200Bln), and the nr of handsets sold worldwide. It is (still) a niche.

  4. Bas Berkenbosch says:

    Once it was said that the world was flat. Once IBM or Digital said there was no need for more than 6 computers. Once Bill Gates said there was no future for the internet. Once… etc.
    Apple has always been on the mission to prove differently. So far they have allways been able to change the game. There are more companies that did this; Virgin, Volkswagen, Honda. So only the future can tell.

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