iPhone: Jobs's Revenge

A decade after Apple was pushed out of computing's mainstream, it's taking center stage in a host of other industries—with the iPhone

by Adrian J. Slywotzky

In October, 2001, Apple launched the iPod. It quickly became one of the most heralded new products of the decade, creating big strategic risks for competitors and a huge new business for Apple, enriching the computer maker's shareholders by some $90 billion.

In the ultra-competitive space where computers, entertainment, and consumer electronics meet, Apple (AAPL) Chief Executive Steve Jobs must have hoped and prayed for at least a brief window of solitary dominance before powerful competitors attacked its lucrative iPod stronghold. Yet as of today, 69 months later and counting, not one has come up with an effective strategic response to the iPod.

Except, of course, Apple. Now Apple has announced its next big strategic move: the iPhone. Will the competitive response to the iPhone be just as slow?

History Repeating Itself?

In retrospect, maybe the failure of Apple's competitors to counter the iPod is understandable. Like most observers, they looked at Jobs's sleek little device and saw several things, including a well-made MP3 player and an example of sophisticated, cool design. But what they didn't see was even more important: a major new way to distribute music (and other media), as well as a brilliantly designed business model that combined the iPod itself, copyright protection via Apple's FairPlay digital rights management technology, and the convenient, nearly universal, one-price-fits-all iTunes Music Store. It was a business design that would shake up the distribution of power among consumer-electronics firms, music companies, computer makers, and retailers.

No wonder rivals failed to respond correctly. They saw a handy little music player and responded with handy little music players of their own. None has made a dent in Apple's market dominance. Not only has Apple sold over 100 million iPods, dwarfing the competing players, but it recently passed Amazon.com (AMZN) to become the world's third-largest music retailer (trailing only Wal-Mart (WMT) and Best Buy (BBY).

Now history may be repeating itself. Industry players look at the iPhone and see a snazzy new phone with some impressive ancillary features: a touchscreen-based input device with a virtual keyboard and natural-feeling drag-or-spin scrolling; music and video-playing capabilities; wireless e-mail and Internet browsing; and access to online applications such as Google Maps (GOOG) and YouTube. Viewed this way, it's undoubtedly a cool high-end phone aimed at such early adopters as Apple loyalists and on-the-go businesspeople who won't be deterred by the iPhone's high price ($499 for a model with 4 GB of memory, $599 for 8 GB).

A Sub-Laptop Computer

So far, so what? Companies such as Nokia (NOK) already have high-end phones of their own with great features aplenty. But behind the cool phone lurks something quite different: Apple's wedge entry into a lucrative new array of markets; a springboard for evolution into a new generation of devices, services, and infotainment systems; and another redistribution of power among industries, this time including cell-phone makers, network operators, makers and distributors of movies and TV programming, and computer companies.

Consider this: iPhone is not just a phone. It's also the world's first really powerful sub-laptop computer, equipped with an optimized version of the user-friendly Mac OS X operating system. More important, it's an 80/20 computer.