Nokia has just announced its worst-ever results. The mobile phone business is having to adjust to the idea that perhaps markets don’t expand indefinitely. Gloomy forecasts abound.
But then Apple unveils second-quarter profits of $1.21bn (£822m) and $8.16bn in sales - way ahead of Wall Street expectations. And this despite the fact that sales of the company’s desktop and notebook computers were down by 3% - which could be a reflection of general economic conditions, or of the growing popularity of netbooks, a product-genre that Apple executives currently affect to despise. (So stay tuned for the Apple netbook.)
So what’s behind Apple’s rosy numbers? Answer: its new mobile phone business. Sales of the iPhone doubled to 3.79m units from the same quarter last year, a development that also helped its US network partner, AT&T, which saw its profits dip less than expected because of all those new iPhone subscribers.
I don’t know what the UK numbers are like, but I suspect the picture is broadly similar. On a recent Friday afternoon, a friend of mine went into a big mobile phone store in the City to buy a new phone for his wife. He perused the wall of handsets and eventually decided on an iPhone. When the transaction was being processed, he asked the shop assistant how sales of the iPhone were going. “To be honest,” replied the lad, “it’s the only phone that’s selling round here.”
My friend spent the weekend “setting up” the new phone for his beloved (technology is a man thing), Then at 9am on Monday morning went back to the store - to purchase an iPhone for himself.
At the moment, the iPhone appears to be unstoppable. In less than two years it has gone from zero to dominance of the smartphone market. Some people liken its ascent to that of the iPod, but that’s misleading because the market for portable MP3 players was chaotic and immature when Apple entered it. But the mobile phone business was mature and sophisticated when Steve Jobs decided to attack. It was dominated by manufacturers such as Nokia and Sony Ericsson, which were good at design and marketed slick products, yet the upstart from Cupertino has taken them apart.
The significance of the iPhone - as regular readers know - lies in its operating system. It’s really a powerful Unix computer that fits into the palm of your hand. That means it can run very sophisticated software - such as a browser that actually makes it feasible to read web pages and even books on a small screen. Add to this the fact that it is also permanently connected to the internet and you have what the rest of the industry is starting to recognise as a game changer.
Actually, the PC business is also beginning to wake up to the threat of the iPhone. How come? Well it turns out that iPhone users make less use of their laptops and desktop computers. The reason is obvious when you think about it: much of what we do on the net is pretty routine - checking email, accessing websites, Googling, accessing Facebook or Twitter. If you can do all that without booting up a computer, why bother?
The iPhone is also transforming the market for software. Just over a year ago, Apple released a “software development kit” which enables programmers to write applications to run on the phone. In March 2008 Steve Jobs launched the App Store, which enables programmers to sell iPhone applications they’ve written through the iTunes store. On the same day John Doerr, the world’s premier venture capitalist, announced that he was setting up a $100m fund to finance application development. The store opened for business in July last year.
As usual, Doerr’s judgement was sound. The past nine months have seen a blizzard of software development for the iPhone. There are currently about 31,000 apps available, about 78% of which cost money. Apple takes a 30% cut on every sale; the developer gets the rest. And it seems that iPhone users love these apps - sometime last week, the store racked up its billionth download.
Many iPhone apps are trivial little programs, some are staggeringly clever, some very useful, a few are simply beautiful. But the key thing is that they’re changing our concept of computer software. Once we thought of it as disks in shrink-wrapped boxes costing from £50 to £2,500 that you ran on a PC. The billion downloads from the App Store suggest those days are ending. Future generations will see software as something that is downloadable and cheap - and that runs on your phone.