Executives from almost every consumer technology company converged on Las Vegas last week for the industry’s largest annual gathering. As is traditional, Microsoft’s Bill Gates opened the sprawling Consumer Electronics Show (CES), delivering his vision of the digital home, while the Asian television manufacturers competed to see who had made the most absurdly large flat-screen TV — Sharp won this year with a 108-inch monster.
The thousands attending the show had a chance to listen to an impressive cast of chief executives — including Michael Dell, Disney’s Bob Iger, Nokia’s Olli-Pekka Kallasvuo and Motorola’s Ed Zander — who shared their thoughts about the future of personal technology.
More than 2,700 companies were in Las Vegas to unveil their latest products for gadget fans. Among them was LG’s new DVD player, the first capable of playing both of the next-generation video formats, Sony’s Blu-ray and HD-DVD.
But this year’s CES had a big problem. All the talk was about a product that wasn’t even at the show, made by a company that was staging its own rival event. That company, of course, was Apple and the product was its eagerly anticipated iPhone — unveiled to huge acclaim by Steve Jobs at the Macworld show in San Francisco.
One reporter at CES ruefully observed: “CES is dead because iPhone is all that mattered today. There is a mood that everybody here went to the wrong party.”
The announcement of the iPhone — a combination of a mobile phone, an iPod music player and a device for accessing the internet — lifted Apple’s shares by a total of 12.5% on Tuesday and Wednesday, to a new all-time high of $97. That raised the company’s market value by $9.5 billion (£4.9 billion). Even a dispute with Cisco, the networking giant, over the rights to the iPhone name only modestly dented the enthusiasm among investors.
Apple’s inspirational founder and chief executive is never slow to hype his products as “the world’s best”, and the iPhone is no exception. Months before it reaches the market, Jobs put the iPhone on a par with Apple’s two biggest breakthroughs — the original Macintosh computer in 1984 and the iPod in 2001.
“We’ve been lucky at Apple to have had some really revolutionary products,” said Jobs. “We’re going to do it again with the iPhone in 2007.”
Macworld, full of thousands of fervent Mac fans who will applaud Jobs’s every utterance, is not the best place to make a cool-headed assessment of the iPhone. Nonetheless, the look and feel of the device — it is shaped like a chocolate bar and is only 11.6mm thick — is every bit as impressive and compelling as Apple’s fans have come to expect.
Just as the Mac introduced the world to the computer mouse, and the iPod is famous for its click wheel, the heart of the innovation in the iPhone is its user-interface — a sophisticated touch-screen that responds to the flick of a finger.
The cleverness of the screen has to be seen to be appreciated. Among many small but startling touches, internet pages can be resized for better readability just by “pinching” the screen. As a number of people noted, it is like something out of Tom Cruise’s science-fiction film Minority Report, which is set in 2054.
Charles Golvin, principal analyst with Forrester Research, said: “It’s a beautiful device, absolutely gorgeous. There’s a tremendous amount of innovation there. It’s a really good iPod. The support for video is beautiful. And it’s an absolutely wonderful phone.
“It’s not so much that any of the individual features are so beyond the pale in terms of comparison with others, but what they’ve done is make everything useable.”
Van Baker, an analyst at Gartner, said: “I was really impressed — it’s beautiful. But it’s pretty pricey too.” In America, Apple and its network-operator partner, Cingular, plan to charge $499 for a 4-gigabyte model, or $599 for a phone with twice the storage capacity.
Apple has yet to announce pricing for Europe, because it won’t launch the iPhone here until the end of the year. It is not clear to what degree the prices announced last week rely on an element of subsidy from Cingular.
Baker added: “It’s not an enterprise phone. An awful lot of what you are paying for in that phone is the iPod. Most companies are not going to be willing to pay a couple of hundred bucks for iPod functionality. Enterprises care about productivity; they don’t care about entertaining their employees.”
THERE are already hundreds of mobile phones on the market, and many with most of the functions of the iPhone. So why the fuss about one more? The answer is the extent to which consumers, and the technology industry, have come to believe in Apple’s ability to combine stunning industrial design with ease of use.
Stan Sigman, chief executive of Cingular, America’s largest mobile company with 58m subscribers, said his board entered into a “multi-year exclusive partnership” with Apple without even seeing a prototype of the iPhone.
He clearly has no regrets. On stage at Macworld, Sigman told Jobs and his devotees: “Every time I see it, it’s just wow — it’s just wow. It’s just really, really cool. You have exceeded my expectations.”
The minimalist styling of the iPhone — it has only one button on its front — is the signature of Jonathan Ive, the award-winning Brit who is Apple’s senior vice-president of design. Ive received the first public phone call from the iPhone during Jobs’s two-hour presentation at Macworld. With typical British understatement, Ive told his boss: “It’s not too shabby, is it?” There were digital music players before the iPod; they just weren’t very compelling. It’s the same with so-called smartphones, the high-end devices which, like the iPhone, bring together a diary, contacts book, internet browser, camera and music player.
Nokia, Microsoft, Palm and others have been working on this concept for the best part of a decade but, with the notable exception of Research in Motion’s Blackberry, there have been few hit products. Smartphone sales, while growing, remain a small part of the total mobile market. With most of these devices, the element of compromise is all too evident.
Or as Jobs put it last week: “The problem is, they’re not so smart — and not so easy to use.” They struggle, he said, because the same set of small, fiddly buttons are ill-suited to the many, many different tasks that smartphones ask them to perform.
()Apple’s attempt at a solution is a typical blend of hardware and software. Almost the entire front of the iPhone is a touch-screen which — thanks to clever software — displays only those buttons that are needed at any given time. Contacts and songs can be scrolled with just the touch of a finger.
Consequently, for example, the iPhone’s music player is not a pale imitation of an iPod but, said Jobs, “the best iPod we’ve ever made”. The 3.5-inch high-quality screen is good at displaying album covers — or photos, or downloaded television shows or movies, all of which can be easily transferred on to the device.
It is also great for Google Maps, available on the iPhone thanks to Apple’s partnership with the search-engine giant.
Eric Schmidt, Google’s chief executive, is an Apple director. Schmidt said the Google Maps service on the iPhone was only “the first of a whole new generation of data services ... this product is going to be hot.”
Apple has also linked up with Yahoo to provide the iPhone with a “push” version of its hugely popular e-mail service. This Blackberry-style feature explains why Research in Motion’s shares fell by 7% on Tuesday.
Having had a brief play with the iPhone, it does seem that the user interface is as easy to master as Jobs made it appear on stage (See apple.com/iphone/keynote).
Apple said the iPhone was the culmination of “years” of research and development. The underlying technological innovations are protected by more than 200 patent filings, in an attempt to maintain what Jobs claimed was a five-year lead on the rest of the market.
In an interview with The Sunday Times, Greg Joswiak, vice-president of hardware product marketing, said: “We wanted to reinvent the phone. To reinvent it means you don’t want necessarily to follow the path that people have followed before because it has not been a great path. We do things differently; we do things better.”
NOT everything about the iPhone is best in class. It works on GSM and Edge mobile networks, rather than the faster and more advanced 3G technology that is now used in Europe and much of the rest of the world. It also supports the more limited coverage offered by wi-fi hotspots.
“The absence of 3G, of mobile broadband, is a glaring omission,” said Forrester’s Golvin. “By promising a mobile internet experience and relying on Edge and wi-fi, (Apple) is falling short.”
Joswiak said Apple had to consider battery consumption and other limitations of 3G phone chips. With the most advanced 3G phones, “battery life is not so good”, he said. “They tend to consume power — one of the things you must consider.”
Even using GSM and Edge technology, the iPhone’s talk time is limited to five hours, although the battery will last for 16 hours if the device is used only as a music player. Storage capacity is also modest for a device that can store and play back television shows and films.
It is also unclear whether the iPhone can be used to read and create documents and spreadsheets in Microsoft Office. The phone uses a version of Mac OS X, the same operating system that powers Apple’s computers. But Microsoft may be reluctant to produce a cutdown version of Office for Mac, when the iPhone is competing with Windows Mobile phones.
Apple is aiming to sell 10m iPhones by the end of next year — a target which, given the strength of its brand and Cingular’s distribution muscle, most analysts reckon will not be too tough to meet.
It is not clear if Apple will seek a similar exclusive deal in Europe. According to a senior industry source, Jobs was extremely demanding in negotiations — seeking a payment running into tens of millions of dollars for the right to sell the iPhone.
Since the iPhone is first and foremost a high-end consumer product, with a strong flavour of its iPod heritage, O2 and Orange seem more obvious partners than Vodafone, which has a bigger involvement in the business market. However, Orange has a close relationship with Microsoft and is a big supporter of Windows Mobile phones.
Although Apple is on a roll, Jobs has had his flops in the past. At the moment, few expect the iPhone to be another one.
Share-options scandal casts a shadow over Steve Jobs
IT is almost impossible to overstate the importance of Steve Jobs to Apple. He is not just the brains behind the company, he is its soul. He is the high priest of the Mac religion, whose disciples gather in San Francisco every January to hear his latest sermon.
Any chief executive trying to turn around a troubled business should watch the recording of Jobs speaking at Macworld in 1997. In 35 minutes, he laid out a devastating analysis of Apple’s severe problems and pointed the way to the solution.
Amazingly, at the time Jobs wasn’t even a director of Apple, yet the moral authority of the company’s returning founder was absolute. Apple was then worth barely $3 billion; today its market value is nearly $85 billion.
All of which explains why the stock-options scandal facing Jobs is so serious. Apple’s investigation two weeks ago cleared Jobs and the present management of any misconduct in selecting favourable dates for the granting of options.
However, it also found that Jobs knew of, and even recommended, some of the dates that made the options much more valuable to the executives who received them. Apple has had to make a $105m provision to cover the cost of the mispriced options. In a tightly worded statement, Apple said Jobs “did not receive or financially benefit from these (option) grants or appreciate the accounting implications”.
But the big question is not about accounting technicalities; it is a straightforward matter of fairness. By selecting favourable dates, Apple allowed some of its employees to reap the benefit of share-price rises that had already occurred — effectively allowing them to bet on a race that had already been run.
Most troubling is a grant of 7.5m options made to Jobs in 2001. Apple’s investigation found that this grant was “improperly recorded” to have been made at a special October board meeting that never took place. Apple has not explained how this came about.
Jobs did not benefit from the options, but that is because he swapped them for 10m restricted shares, now worth $950m.
He is also the most high-profile target in the wide-ranging scandal that is being investigated by the US Securities and Exchange Commission and the Justice Department. They have yet to deliver their verdict on Apple.
