iPhone: Apple's entry into the global mobile phone business
The iPhone was introduced in the United States on 29 June 2007. Apple sold 270,000 iPhones on the first two days of their US launch. As a consequence it set up new budget figures for the next two years. For the 2007 calendar year Apple was expected to sell 2 million iPhones (up from a sales estimate of 1 million before the launch) and for 2008, 7 million (up from 5 million before the launch). CEO Steve Jobs' threeyear goal is to achieve a minimum of 1 per cent market share of the world market of 1,000 million mobile phones per annum. In July 2007 everything looked very promising with regards to future iPhone sales. But then problems occurred.
The problems had already begun when Steve Jobs announced plans to spread some iPhone holiday cheer in August 2007 by cutting the price from $599 to $399 for the top-of-the-line 8- gigabyte device. He also discontinued a 4-gigabyte version that was originally $499. Of course, a drop in phone prices after launch is pretty common in the telecom business, but this is Apple, which built its reputation at least in part on high pricing and an absence of discounting. This move was not only risky, but also suggested to some that Apple was worried about sales. The problems continued when iPhone was launched in Europe before Christmas 2007. The first sales signals from the United Kingdom and Germany were not strong enough in order to fulfil the expectations and budget figures.
However, at the beginning of 2008 there were also some positive signals from the number 2 market (according to sales figures) in the world, China. The only two cellular operators, both of them state-owned (China Mobile and China Unicom), were both very interested in distributing and selling the iPhone. The Chinese market is so big that if Apple gets 1 per cent of the Chinese mobile phone market it could see revenues of $600 million a year. So, all in all, the future for iPhone is somewhat unpredictable, but still Apple's management has to create a sales forecast for iPhone as an input for the three-year budget. So how should the CMO (Chief Marketing Officer) of iPhone, Bill Peach, approach the problem?
Key data about Apple
College dropouts Steve Jobs and Steve Wozniak founded Apple in 1976 in California's Santa Clara Valley. After Jobs' first sales call brought an order for 50 units, the duo built the Apple I in his garage and sold it without a monitor, keyboard or casing. Demand convinced Jobs there was a distinct market for small computers, and the company's name (a reference to Jobs' stint on an Oregon farm) and the computer's user-friendly look and feel set it apart from others. By 1977 Wozniak added a keyboard, colour monitor and eight peripheral device slots (which gave the machine considerable versatility and inspired numerous third-party add-on devices and software). Sales jumped from $7.8 million in 1978 to $117 million in 1980, the year Apple went public. In 1983 Wozniak left the firm and Jobs hired PepsiCo's John Sculley as President. Apple rebounded from failed product introductions that year by unveiling the Macintosh in 1984. After tumultuous struggles with Sculley, Jobs left in 1985 and founded NeXT Software, a designer of applications for developing software.
In 1997 Apple bought NeXT, and Jobs returned to Apple. In 1998 Apple jumped back into the race with its colourful cocktail of iMacs, and its first server software, the Mac OS X. That year the company also revamped its profitable Claris unit (by cutting 300 employees, shifting most operations to Apple, and renaming it FileMaker) and stopped making its Newton handheld device and printer products. Apple opened 2001 with another round of product upgrades, including faster processors, components such as CD and DVD burners, and an ultraslim version of its Powerbook, called Titanium. The company also made a move to reclaim some of its slipping share in the education market, purchasing software maker PowerSchool. Soon Apple confirmed a long-rumoured plan to open a small chain of retail stores in the United States.
The company then acquired DVD authoring software maker Spruce Technologies. In line with its strategy to market Macs as ‘digital hubs' for devices such as cameras and other peripherals, Apple closed the year with the introduction of a digital music player called the iPod. Since debuting the iPod in 2001, Apple has provided regular feature updates, including touchscreen displays and wireless capabilities. In 2003 Apple announced the launch of an online music service called the iTunes Music Store that lets computer users purchase and download songs for 99 cents each. Apple has since expanded the offerings to include music videos, audiobooks, television shows and other content. In 2006 the company launched an online movie service and previewed a device called iTV for watching downloaded content on televisions. Apple announced availability of its television device, redubbed Apple TV, early the following year.
In 2002 Apple introduced a new look for its iMac line featuring a half-dome base and a flat-panel display supported by a pivoting arm. The redesign was the first departure from the original (and, at the time, radical) all-in-one design since iMac's debut in 1998. Looking to reclaim market share in the education sector, Apple then introduced the eMac - a computer similar to the iMac to be sold only to students and educators (Apple later introduced a retail version). It continued its new product push that year with the announcement that it would begin offering a rack-mount server called Xserve. In 2004, Apple debuted a streamlined iMac design powered by its G5 processor. Apple announced it would begin incorporating Intel chips into its PC lines in 2005 and the transition was completed the following year. Late in 2005 Apple, Motorola, and Cingular Wireless (now AT&T Mobility) announced the debut of a mobile phone with iTunes functionality. Apple also unveiled the iPod nano, an updated (and even smaller) version of its miniature iPod model, as well as an iPod capable of playing video.
To reflect the growing breadth of its product portfolio the iPhone was unveiled in 2007. This mobile phone combines features of a high-end handset with those of an iPod. AT&T was named the exclusive carrier for the phone in the US market. Also in 2007 the company changed its name from Apple Computer to simply Apple.
Apple entering the mobile phone business
Already back in April 2003 at the ‘D: All Things Digital' executive conference Steve Jobs expressed his belief that tablet PCs and traditional PDAs were not good choices as high-demand markets for Apple to enter, despite many requests made to him that Apple create another PDA. He did believe that cell phones were going to become important devices for portable information access. Shortly after Steve Jobs' 9 January 2007 announcement that Apple would be selling a product called iPhone in June 2007, Cisco issued a statement that it had been negotiating trademark licensing with Apple and expected Apple to agree to the final documents that had been submitted the night before. On 10 January 2007 Cisco announced it had filed a lawsuit against Apple over the infringement of the trademark iPhone, seeking an injunction in a federal court to prohibit Apple from using the name. On 20 February 2007 Cisco and Apple reached an agreement.
Both companies were allowed to use the ‘iPhone' name in exchange for ‘exploring interoperability' between their security, consumer and business communications products. The iPhone device is slightly larger than an average mobile phone, but comes with a 90 mm touchscreen that covers the majority of the front plate of the device. At 11.6 mm, it is not the thinnest phone out there, but it is thin enough to be able to escape the definition of being bulky. Standard equipment includes 4 GB or 8 GB of flash memory storage, Bluetooth and Wi-Fi connectivity, a web browser and push e-mail (with Yahoo e-mail). Pricing for the phone was originally set at $500 for the 4 GB version and $600 for the 8 GB model.
Launch in Europe - late 2007 Right after the US launch, Apple officially started making concrete steps toward the iPhone's muchanticipated European market debut. It was important for Apple to launch iPhone in time for the all-important holiday season. It was also important (at least for the UK version) that iPhone would have capabilities to work on 3G wireless networks. O2, the leading wireless carrier in the United Kingdom, became the exclusive UK carrier for the iPhone when it made its UK debut on 9 November 2007. In the United Kingdom the iPhone was available in an 8 GB model for about $539 (£269). For the German market, Apple announced that T-Mobile would be the exclusive German carrier of Apple's iPhone when it mades its debut there, which was also scheduled for 9 November. In Germany, the iPhone was priced at around $557 (a399). At the start of 2008 iPhone's sales figures accounted for a mere 2 per cent of the total number of all cell phones sold by T-mobile. France Telecom started marketing the iPhone in France through its wireless arm Orange.
Competitor reaction - Nokia
Nokia managers would never admit to being influenced by the Apple iPhone, which mobile phone industry insiders regard as clever but technologically unimpressive. ‘We don't determine strategy based on the competition,' insists Anssi Vanjoki, Nokia executive Vice-president and General Manager for multimedia. ‘The consumer is our compass.' (Ewing, 2007) Yet Nokia announced a new initiative on 4 December 2007 that seems aimed squarely at Apple. At the start of 2008, higher-end Nokia phones came with a built-in music service offering unlimited downloads of songs for a year. Nokia signed up Universal Music to provide its catalogue, including top contemporary musicians such as Amy Winehouse and Kanye West.
And the handset giant is already negotiating with other major music companies. Nokia is also revamping the software in its highend handsets, adding a so-called ‘scrollable' panels interface. Menus for music, photos, contacts, games and other content appear on floating surfaces that rotate into view and are supposed to make it easier for users to keep track of all the media they have collected on their phones. The interface somewhat resembles that of the iPhone. But Nokia disappointed anyone waiting for it to introduce a handset to compete directly with the iPhone. Nokia managers say their strategy is to offer a wide range of handsets, targeting special groups of users such as tech freaks or young people. ‘It's not one size fits all,' said Mr. Kai, Nokia Executive Vicepresident and General Manager for mobile phones, in an obvious dig at the iPhone (Ewing, 2007).
Iphone enters the the Chinese market
Roughly 500 million of the world's mobile phones (or about half of the global total) were produced in China in 2007. Some 80 per cent, or 400 million of those devices, were exported. There are currently 38 companies in China making mobile handsets (Einhorn and Tschang, 2007). With more than 180 million Chinese surfing the Internet regularly, it is easy for people to follow the latest trends in the United States. Moreover, many upscale Chinese regularly upgrade their phones to the latest high-end model. And there's now nothing more high-end than iPhone: it is considered by many Chinese to be the best phone out there. The challenge for Apple is how to capitalize on that popularity. Seduced by the lure of 1.3 billion potential customers, other western tech companies have been focusing on China for years. China, after all, is already the world's largest cellular market, with 528 million mobile users. It is the number 2 PC market, behind only the United States. The United States is also the only country with more Internet users than China. Companies like Dell, Hewlett-Packard, Nokia and Motorola have made selling in China one of their top priorities.
In beginning of 2008 Apple were having talks with the country's number 1 cellular operator, China Mobile, regarding the iPhone. In China, though, Apple does not have many choices. The government allows only two cellular operators, both of them state-owned: l China Mobile is the bigger of the two and with a 70 per cent market share and 369 million subscribers has a thumping lead over longtime laggard China Unicom. China Mobile increased its subscriber base by 23 per cent in 2007 compared to 2006. l China Unicom has finally received the long delayed licences for its 3G service. China Mobile does face some challenges, though. Its average revenue per user is declining, falling 1.5 per cent this year, as the company finds budgetminded subscribers in poor rural and inland areas. An alliance with Apple would help the company draw more money from affluent customers in the big cities. All in all, Apple may need China more than China Mobile or China Unicom needs it. Rather than relying on the big Chinese distributors to sell the iPhone, Apple may also plan to open its own stores in China in 2008.
Questions
As a global marketing specialist you have been hired by CMO, Bill Peach, as a consultant to help with the set up of the global marketing organization and the global marketing budget for iPhone.
1. What were Apple's motives in entering the mobile phone market?
2. Which global organizational structure would you recommend for iPhone?
3. How should Apple build up it global marketing budget for iPhone (by region, country, etc)?
4. Which distribution channel should Apple use in China: China Mobile / China Unicom or should it rely on its own stores? Why?