Case Study – iPhone’s Effect on the Wireless Industry

IPhone’s launching and rapid diffusion of a radical innovation

IPhone is a product of Apple Incorporation that was introduced to the June 2007. Although there had been several smartphone before it,the iPhone has had a great impact on the telecommunication service industry. Since its announcement in January 2007, the iPhone received an overwhelming response. By March of the same year, the term ‘iPhone’ generated over 60million suggestions on Google (West& Mace, 2007). When the phone launched in June, stores were flooded with customers trying to purchase the iPhone, with sales exceeding 500,000 units in the weekend of its launch. Since then, there have been millions of iPhone sales across the globe making the iPhone arguably the most successful smartphone.

How the iPhone changed the relationship between the carriers and the handset manufacturers

Apple’s affiliation with Cingular had a tremendous influence on its alteration on how phone manufacturers relate to wireless carriers. During the first year of the affiliation, the two companies shared the subscriber’s monthly revenues (Vogelstein, 2008). Although this arrangement only lasted for a short period of time, it marked the beginning of a new era for both handset manufacturers and wireless carriers.The post-iPhone period is characterized by a number of key trends. These trends are discussed below.

The iPhone shifted power balance between handset manufacturers and carriers in favor of manufacturers. Preceding the iPhone’s introduction, carriers had controlled the wireless world. They dictated how manufacturers designed phones, the features that could be installed on those phones, and their pricing. This was especially evident in the United States carrier-centric market. Apple was the fist manufacturing company to break this model when it produced the iPhone, a phone that did not have a carrier branding(Sliwinska, Ranasinghe&Kardava,2012).This demonstrated that if a high quality handset attracts customers even if it is pricey. This meant that manufacturers could take risks at producing quality handsets with features that serve the end user’s needs and approach the carrier with it instead of producing handsets that the carriers approve of but one that might not meet the customers’ expectations and needs.

The Apple’s model requires the carrier to only provide the wireless connection while the manufacturer provides everything else. The model puts the handset manufacturer in the forefront of the relationship between the user and the service provider, a position that was previously held by the carrier (Vogelstein, 2008). Carriers that previously could offer application downloads freely are now left to submit them through the handset manufacturer stores.

Another way that Apple upset the relationship between carriers and handset manufacturers was by increasing the amount of money that carriers were prepared to pay to manufacturers in order sell their smartphones (Vogelstein, 2008). Apple got a subsidy of $400 for each iPhone from carriers. This is above the amount that carriers used to pay for feature phones pre-iPhone. During a debate on whether carriers would cut the subsidies with time, Apple CEO Tim Cook said that he did not expect them to since the iPhone provides carriers with a number of benefits including encouraging users to upgrade from feature to smart phones(Eaton, 2009).

How target market selection, pricing, promotion, content provision, and technology standards affected the success of the iPhone launch

  • Technology standards– Apple is renown for its competence in product innovation (West &Mace, 2007). The incorporation used this to design a highly functional and user-friendly device. Although analyzing iPhone’s technology in details is beyond this paper’s scope,there are some technology related factors that significantly contributed to the phone’s success. The first factor is the simple arrangement of its buttons that appeals to users who have been overwhelmed with phone features including icons and menus among others (West & Mace, 2007). User preference shows that customers avoid devices they deem as complicated. IPhone’s innovative and intuitive interface makes users suppose that the phone is user friendly thus countering the user preference challenge. Another factor is the high comparative quality of mobile surfingexperience as compared to other smartphones. IPhone uses Safari browser that enables it to reduce web pages without having to create specialized mobile versions of the pages(Eaton, 2009). This is an important feature especially for users who want to duplicatethe experience of using fixed lineInternet on a phone.
  • Content Provision – Apple did not permit other firm’s software to be installed on iPhone during before the introduction of the App Store in 2008. Currently, Apple allows other software to be used on the iPhone but only if they are distributed through the incorporation’s App store. Although Apple gave up iPhone’s software development control,it maintained firm control over the distribution of the phone’s software. This strategy allows Apple to play the gatekeeper role for its customers ensuring that all applications downloaded are safe and do not pose a threat to either the device or the user. Key players including Facebook, Twitter, and eBay among others distribute their applications through the App Store. This increases applications available to iPhone users but still maintains high level of security, which increases customer interest and boost user’s confidence and loyalty.
  • Target Market Selection – Apple targeted the right user group for the iPhone. The standard iPhone user is expected to be young professional male between the age of 25 and 34 years old, and with an income that is above $100,000 (Sliwinska, Ranasinghe&Kardava,2012). Additionally, 75% of the iPhone users were individuals who had previously used Apple products (Sliwinska, Ranasinghe&Kardava,2012). This target group is closely similar to the standard iPod and iTunes customer profile, a market that Apple had previous experience and success in. The incorporation exploited the experience gained from selling products to the iPod and iTunes target market to successfully market the iPhone.
  • Promotion–Apple is famous for its marketing abilities based on the success of its products. Marketing has even been cited as one of the incorporation’s core competencies (West &Mace, 2007). IPhone was promoted as a service more than it was marketed as a product (Eaton, 2009). Majority of the iPhone advertisements stress on the phone’s capabilitiesand the applications it supports rather thanconcentrating on the device’s technology itself. Apple employed a branding strategy, similar to the one used to make iPod synonymous with MP3 players, to create a loyal user base. This consumer loyalty led to user attachment to the iPhone, which not only boosted demand for the already existing phones but created a build up demand for future ones too.
  • Pricing– IPhone’s pricing followed the standard Appleapproachto pricing, skimming and versioning. The phone’s prices were initially sethigh to enable the incorporation to gain great profits from early product adopters and then the prices were dropped to increase general public reach. By partnering with AT&T, Apple was able to version iPhone’s pricingto as low as $99, down from its $599 launch price. Thisallowed the general public users to have easier access to the iPhone, which increased sales.

Since joining the market in 2007, the iPhone has changed the telecommunications industry and enjoyed exceptional success. With Apple’s history of effective innovation and marketing strategies, these trends are expected to continue into the foreseeable future.

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