À propos the 'app phone'

David Pogue has a review today of Motorola's Droid which includes some discussion à propos how to categorize and name devices of this type.

Motorola Droid

He promotes the noun 'app phone' for them, attributing it to @mentalworkout.

[Cool app, BTW, for those who have fear of flying. I took the Virgin Atlantic flight to London earlier this week; if you're lucky enough to fly in Upper Class, it's such an extraordinarily soothing experience that you probably don't need the app.]

I really like 'app phone' , and suggest that we all adopt it for this class of devices:

• Apple's iPhone


• all current Android 'phones


• most modern BlackBerrys - post Curve


• Palm's Pre


• Nokia's N97 and N97 Mini running the latest version of Symbian

This post re-surfaced for me, however, one of the key topics that we have found ourselves debating frequently over the last many months; what is a 'smart phone', and what should we call it?

This is a common challenge in high-tech; how do you think about new phenomena? How do you build robust mental models? We believe that having the specialist expertise to do this, and the relevant experience of having done this, is one of the key things that differentiates Endeavour Partners.

First, what are the key criteria:

• downloadable applications - in which case do BREW and Java devices qualify?


• user interface, such as (responsive) touch screen or QWERTY+touch pad/trackball interface to allow easy navigation for the web and similar applications


• running multiple applications - which disqualifies the iPhone?


• great at browsing - typically with a full WebKit browser


• third party applications have to be available, affordable and accessible


• what about size - is there some constraint here, because otherwise a laptop could qualify?

And what about the additional capabilities that are now part of the competitive benchmark:

• fast graphics - for video, browsing and gaming


• accelerometers


• GPS - for location services


• WiFi

There are several specific devices or types of devices that illustrate this challenge, and the grey areas involved:

• older BlackBerrys with thumbwheels but without trackballs - great at e-mail web but suck at browsing


• the Nokia E71, a great (particularly when it launched) device handicapped by its click-pad for navigation (which on one occasion proved enormously frustrating as the cursor moved in clicks that circumnavigated a small target without ever being able to actually click on it, on a site that should have been designed with mobile devices in mind - Handango)

Nokia E71

• many of Nokia's myriad Symbian S60 devices that have 12-key keypads, lacking either a touch screen or a viable navigation method for browsing


• and what of the forthcoming Nokia N900 - is this a smartphone, or not?


• and given how unresponsive the touch screen on the N97 and N97 mini can be, and some of the usability challenges that remain with Symbian, do the N97 and N97 Mini qualify?


• almost all Windows Mobile devices, that lack a touch pad, requiring a stylus or arrow keys for what is enormously painful navigation (Sony Ericsson's Experia X1 is one of the few devices that overcomes this challenge)

On purely pragmatic grounds, and notwithstanding flame wars from some purists and Verizon's new advertising campaign, clearly any definition that excludes the iPhone on the technically focused grounds that it does not run multiple applications at once, except for some built-in apps such as Mail and Phone, does not make much sense. Although this may be an important consideration, it clearly does not deter users, and the ease of switching amongst applications mitigates this significantly.

The related question was what to call these things? We tried the term 'smart device', to emphasize the that the capabilities went way beyond making a call. Unfortunately that promotes confusion as it embraces some very devices that do not have 'phone capability at all.

So, let's endorse the term 'app phone' for these high end devices, and use the term 'smart phone' for the broader group of which these are a subset.

'Over-the-top' and the underdog

News today suggests that Palm wants to embrace Google Voice, even though Google may not be as keen to embrace Palm.

We’ve heard from a source close to Palm that the company plans to roll out deep integration with Google Voice on the Pre phones for users who want it. That could convert a lot of iPhone users to the Palm Pre fast.

This illustrates extraordinarily well the role that asymmetric competition plays in triggering 'creative destruction', and the transformations that high-tech undergoes periodically. One such transition underway at the moment is the move in several different arenas to 'over-the-top' services, in which insurgents (Google) and underdogs (Palm) leverage rich connectivity and smart devices to disenfranchise and disintermediate conventional telcos' smart switches and dumb devices.

Google voice

It's these underdogs, who have little or nothing to lose and much to gain from it, who creatively destroy established business models. Any share gain for Palm would be a big deal; without something that gives it much more impetus it's not going to achieve escape velocity, and will likely crash and burn. If Google can provide this, then well and good; the opportunity cost to Palm of any revenues foregone is small.

It's not yet clear how Sprint will respond; again as arguably the weakest of the fab four it may well perceive the potential market share gain as outweighing the ARPU downside.

And as far as Google goes, all of this is good news. It may not officially endorse Palm and the Web OS in this context, given its linkage to the Android OS ecosystem, and need to be seen to be continuing as a strong supporter, but it nevertheless benefits from this.

But should the strong players, such as Apple or the major MNOs be seriously concerned about this? It's suggested that Apple should worry:

this could convert a lot of iPhone users to the Palm Pre fast

Frankly, I'm skeptical; good as Google Voice is, it's already available on other platforms, and extending this to the Palm Pre is not going to make it a winner in the marketplace; at least at the moment despite the excellence of Web OS from a usability perspective, Palm has not yet demonstrated that it has the market momentum needed to build a strong and sustainable business ecosystem.

Ars Technica has some insightful observations on this score:

Palm's major mistake was that it delayed the launch of the webOS SDK until April, allowing its new phone go the entire summer without a real ecosystem. Sure, Apple was able to launch the iPhone without any real developer support, and the company took its sweet time in releasing the iPhone SDK. But Apple wasn't going up against competitors with software distribution platforms that were high volume or high profile. When the iPhone SDK was ready, it came with an app store that's every bit as revolutionary as its music distribution platform was.

When the Pre launched, it was competing with the iPhone ecosystem from day one, but you wouldn't guess it from the way Palm has handled things. The initial app store catalog was small and lackluster, but it could've been ramped up quickly with a range of apps showing what the Pre hardware can do. But here we are in August, and no one's Pre has gained any new capabilities. There's nothing new for the press to write about, nothing for any Pre owners to show off to their iPhone-using friends, and generally no reason to get excited all over again about Palm

It's all about timing. If Palm had come out several months earlier, and got its act together on the SDK, the whole landscape would be very different.

Relative vs absolute values, apples-to-apples comparisons, and “Palm-to-Apple” comparisons

As executives, analysts, and advisors we spend a lot of time arguing about metrics and data, and where we need to be to survive and thrive in the market place.  An old joke reminds us that relative performance is all that really matters:

Two hikers are cornered by a bear and climb a tree.  One of the hikers reaches into his backpack, pulls out a pair of running sneakers and starts lacing up.  The other says, “What are you doing?”

“I figure we will have to jump down from here eventually.” says the first.

“But you will never be able to outrun the bear,” says the second.

“True.  But I figure all I really have to do is out run you.”

We are bombarded with random statistics on companies and products and financial performance, but it is important to realize that context matters:

• who are the key competitors?


• what is the real playing field on which we are competing?

Getting the right basis for comparison is critical to both understanding current performance, and to deciding what to do to improve future performance.

There is currently a great deal of interest in Apple’s iPhone and the Palm Pre and comparisons abound regarding sales and usage figures.  Most of these comparisons are confusing and not terribly helpful.

For instance, the Palm Pre sold around 370,000 units in its first month of sales while the new iPhone 3GS sold roughly 1 million units in its first weekend.  iPhone users have downloaded over 1 billion applications while Palm Pre users have only downloaded about 1 million.  Clearly the iPhone 3GS is outperforming the Palm Pre on an absolute basis, but does this make the Palm Pre a failure?  What are the right measures to make an 'apples-to-apples' comparison?

Some additional information and framing can help us decide:

• the Palm Pre is supported by Sprint (49M subscribers) in the US while the iPhone is supported by AT&T (62M subscribers) – and Sprint has been losing subscribers while AT&T has been growing them


• the iPhone is available in 88 countries while the Palm Pre is available in only one (although it will soon launch in several others)


• the iPhone 3GS is a third generation product while the Palm Pre is a first generation product

While looking at raw recent sales statistics the iPhone 3GS has nearly a 30x advantage over the Palm Pre, but comparing the Pre against the first generation iPhone and viewing these statistics on a cumulative basis since launch, the Pre looks much better:

Palm Pre on track for strong growth

Even more compelling, however, is a comparison of one quarter of projected Palm Pre sales vs. Sprint’s prior quarter subscriber net losses.  The Palm Pre represents a radical change in outlook for Sprint, perhaps singlehandedly moving them back into subscriber growth:

The Palm Pre has the chance to singlehandedly move Sprint back into positive growth

Roughly 34% of Palm Pre buyers have been new customers to Sprint, similar to the iPhone's 30-40% new to AT&T numbers reported at this stage.  But much more importantly, the other 66% of Pre buyers stayed with Sprint while upgrading devices rather than switching away from Sprint to other networks for an iPhone (AT&T), Blackberry Storm or Tour (Verizon), or Android G1 (T-Mobile).

It's early days, but at least so far the Pre is doing better for Sprint than the iPhone was for AT&T at the same time. Longer term, Palm faces significant strategic challenges in building its ecosystem and attracting application developers.

Blackberry App World: No news is *not* good news

Last week, I posted a quick analysis of Apple's App Store, which is on pace for over 3.2 billion application downloads by year end.  We tried to do a similar analysis for other platforms such as BlackBerry and hit a snag:  There is little or no information available for BlackBerry App World.  See below:

Blackberry App World has not released download stats

As we dug deeper, we found good reasons for this dearth of data.

First, BlackBerries sold through major network operators do not come with App World pre-installed; hence one of the key questions is how many BlackBerry users have downloaded, installed and set up App World.

Another challenge is that users can get BlackBerry apps from a variety of alternative sources, including:

• developer websites -- for example, the excellent Google and Facebook apps for Blackberries are often acquired directly from the web and sent via email link


• Handango website -- may be the leading single source for Blackberry apps


• Handango InHand -- a pretty good 3rd party app store, downloaded to many BlackBerryies after Apple's App Store became popular and before RIM's own BlackBerry App World launched


• network operators' websites -- verizon.handango.com, for instance


• network operators' app stores -- mostly focused on ringtones and games; VZAppZone and AT&T Media Mall are examples

All this choice is confusing for both end users and for application developers.

Moreover our survey of retail store personnel at major US network operators found that they were either or both ignorant or unsupportive of App World when asked about how to get apps for BlackBerries:

• Sprint personnel did not know of any way to get applications onto a BlackBerry and began pitching the Palm Pre as a better device for apps (despite the fact that at present it only has 30 apps, and it'll be late summer before the SDK has widespread availability)


• T-Mobile personnel knew there was a BlackBerry source for apps, but did not know the name or how to get it


• Verizon's sales people pushed VZAppZone as an alternative for BlackBerry applications


• only AT&T front line personnel immediately knew about Blackberry App World and described how to find and install it (is this in someway a spillover effect from their learning with the iPhone and its App Store - experience that sales people at other network operators just do not have?)

Given little or no support from network operators, App World must first be discovered and downloaded by users; like any innovation, without information there's no adoption. In addition, users must have a PayPal account or sign up for one to purchase apps on App World.

Here is a step-by-step comparison of first time use for Blackberry App World vs. Apple's App Store:

Typical App World vs. App Store first time experience

Guess which application storefront has "Billions and Billions served" and which one has so far been less than forthcoming with performance metrics?

More Palmistry?

We've already noted that despite the excellence of WebOS, Palm needs strong support to become a credible platform player, competing with the likes of Apple, RIM, Android, Nokia/Symbian/Ovi and even (because it might do something radical) Microsoft with WinMo.

The point is now not lost on even the analyst community (Kaufman Sets Hold Rating; Many Possible Suitors), who've identified several options:

"...potential suitors include Nokia, Samsung, LG, Motorola, Hewlett-Packard, Cisco, Microsoft and Dell."

Let's leave aside the question of why buy now, when in December Palm was trading at less than one-tenth of its current value with a market cap below $200 million, the value of Palm is in WebOS and its US presence, not the Pre, so let's take a look:

Nokia - already bought and paid for Trolltech, and has Maemo - not likely, unless its struggles in the US make Palm worthwhile for that alone

Samsung or LG - {neutral | non-aligned | independent} device players - very hardware-focused - do they want to transform their business model become a platform player with WebOS, competing against Android and Microsoft rather than collaborating with them, or trying to co-exist?

Motorola - too many of its own issues, also already stronger in US than elsewhere

HP or Dell - clearly want to build positions in smartphones from their personal computer position, could they re-focus WebOS development in the right direction?

Microsoft - not unless or until it admits (to itself, most of all) that WinMo's not going to get it there...

Cisco - the wildcard, perhaps as the basis for entry into smartphones as they become a key element of the the interwebs