Does the iPhone Have a Future?

I recently pointed out to someone (who will remain nameless to protect the guilty) that for all the media hoopla, Apple's nowhere near achieving, say, Nokia's success in the mobile phone market. He scratched his head for a while and advised me,

Nokia sells crap.

I wasn't entirely certain how to respond (or "retort" as Samuel L. Jackson might say) to this incisive and in-depth analysis. Fact is, Nokia's got 40% of the worldwide market and has for a good while, whatever they're selling, and Apple's not even a blip on the radar in terms of sales impact: for every iPhone sold, Nokia sells a hundred phones. He went on to advise me, with slightly better sense,

And the iPhone woke them up to the fact they sell crap.

The iPhone certainly raised a certain sort of user experience in Nokia's priorities, as it did for all handset vendors—they've been talking about work on haptics, and they demonstrated a prototype touch-based Series 60 implementation at MWC. So, they're certainly not standing still.

This is one of the reasons that the iPhone is going to have problems, long term. Apple's always been based on the notion that they could (and many times did) come out with a product that could command the kinds of margins they needed: 30 to 60%. Companies like Nokia, and—even more so—companies like Samsung and LG are quite comfortable living on much thinner margins, margins Apple can't possibly survive on.

Apple was once the largest manufacturer of personal computers in the world, between one out of every four and one out of every five computers sold had an Apple logo on it. What happened? Windows 3.1 came out, and there was now something that was 80% as good for 60% of the price. And the Mac's share dwindled down to the single digits it's historically enjoyed since. (And don't tell me about their recently improved share, because it supports my point: you can run Windows on your Mac now.)

Apple's set themselves up to make exactly the same mistakes with the iPod and the iPhone: they can't make 'em cheap enough to compete well with something that's going to be almost as good, in its own way, and quite possibly better in some, given the shortcomings of the iPhone's hardware and software.

Now that DRM's gone down the drain, Amazon and others are starting to eat the iTunes Music Store's lunch. If you're not locked by Apple's DRM into your iTunes desktop/iTunes Music Store/iPod tripod any longer, Apple's business model is starting to look a little shakier overall. It's going to be an interesting couple of years, but Apple has as many challenges as anyone else, and they're the kind of challenges that they haven't handled especially well in the past.

It's called "hubris". And they've got a real bad case again.