Macopinion

(I actually wrote this in August and somehow forgot to post it! But it still seems relevant, so I thought I'd go ahead and share it.)

If you listen to the spin from executives of traditional smartphone makers, they like claim that the iPhone will be good for their business. How in the world do they come up with that, you wonder?

Their convoluted thinking goes like this: the iPhone has gotten people excited about handheld computing and mobile Internet. But the iPhone's so limited that when these people do their research, they'll discover that Blackberries and other smartphones are way better than the iPhone, and so the traditional smartphone business will grow.

Hogwash.

Pure poppycock.

Utter nonsense.

Here's the reality. There's an extremely limited market for traditional smartphones. I'd divide the market into two categories: critical function people and gadget lovers. Gadget lovers will buy anything high tech, but there aren't very many of them and they aren't especially loyal, going after whatever technology is hot right now. Critical function people are those whose business and daily lives revolve around their smartphone. These people have to have smartphone functionality and are usually picky about the specific features. A smartphone doesn't have to be easy to use or attractive, or even work very well: it just needs to do the critical functions these people depend upon constantly.

Obviously there aren't that many people who depend on smartphone functions so much that they'll put up with awkward interfaces. Remember, the entire smartphone industry is a tiny fraction of the overall cell phone industry. There are less than 10 million Blackberry users and Blackberries have been around for years.

But until the iPhone, the smartphone category was growing. More and more people are interested in the concept of the mobile Internet; however, once they experience the reality: awkward devices with tiny screens, complex interfaces, feature bloat, crashes, and difficult computer syncing, they aren't so excited any more.

Then along comes the iPhone promising revolutionary ease of use. Most manufacturers see "ease of use" as a minor convenience or a superfluous thing like color or design. But I argue that the iPhone is actually more powerful than any other phone out there simply because it's more useable. What good are power features if you can't find them or get them to work?

And it's not just me making this up: I've gotten feedback from smartphone users who have switched to the iPhone, and though they miss a few features they used to have on their old phones, they universally say that they are doing more things with their iPhone than they used to do with their old phone.

Hmmmm. Doesn't that sound like a Macintosh? Remember those surveys in the 1990s that showed that Mac users ran more applications than Windows users? That's because Macs were easier to use, the applications were more uniform, installing software was simpler, and the whole experience less intimidating. That's just what's happening with the iPhone.

Maybe the iPhone, especially in its current 1.0 incarnation, doesn't have all the bells and whistles of some existing smartphones. But what it does have it does extremely well. I'd summarize by saying it handles 90% of the needs of 90% of the people.

That leaves a few customers for other smartphone makers, but not many. The "critical function" crowd will stick with them, as will a few gadget freaks, but for the vast majority of people, traditional smartphones are just too complicated and cumbersome. Who needs the hassle?

Apple has the opportunity to grow a new market: smartphone users who didn't know they needed a smartphone. There are millions of them out there. But if RIM and the other guys think that those millions will be interested in traditional smartphones as an alternative to the "limited" iPhone, they'd better start revising their resumes, because iPhone's going to clobber them. This new market has already rejected traditional smartphones: those products have been around for years and these people never considered them. But they are considering the Apple iPhone.

Now I'm not saying Apple's going to take over the entire cell phone market. I'm also not saying that that Apple's going to steal customers from RIM or others smartphone makers. What I am saying is that Apple is going to limit their growth. If existing smartphone customers are happy with their current product, they aren't going to move to Apple and that's fine. Apple isn't targeting them anyway.

But Apple is going to bring the mobile Internet to millions and those interested are interested specifically because Apple makes the complex simple. Those people aren't the type who will check out the iPhone and then decide to go with a Blackberry instead. For those people it'll be either iPhone or nothing (nothing meaning either no cell phone at all or just a regular basic phone).

It's obviously way too early to see the impact of iPhone on Blackberry and other smartphone makers. We'll have to wait a quarter or two and see their financial results. But while I don't think iPhone will have a major impact on their current customers or that their sales will be dramatically effected, I do predict that their growth rate will be down considerably.

The time is ripe for the mobile Internet. The Internet is already an essential part of most of our lives: bringing it with us and having Internet Everywhere is the Next Big Thing. I suspect a lot of recent smartphone buyers have gone that route not because they really wanted an ugly Blackberry but because it was the only thing available. Now that the iPhone is out to offer a real alternative, the masses who love the idea of the mobile Internet finally have an elegant solution.

My advice? Sell your RIM and buy AAPL.

macopinion@designwrite.com