Apple's iPhone 3.0 expands the 'yawning' competitive gap

While the vast majority of smartphone makers are betting that beefed-up handset hardware alone will attract new feature phone users, Apple demonstrated Tuesday that software stands to be the biggest differentiating factor as the market matures, and is further distancing itself from rivals as a result.

"Yesterday Apple previewed iPhone 3.0, the latest iteration of its mobile computing OS," Oppenheimer analyst Yair Reiner wrote in a report Wednesday. "We believe the update, slated for general release this summer, expands the yawning competitive expanse between Apple's mobile platform and the knock-offs of would-be rivals."

Commonly requested features like Copy & Paste and MMS aside, the analyst added that the iPhone 3.0 software expands and fortifies the Apple handset's most singular competitive differentiator: the ecosystem for third party developers.

"Competitors are scrambling to make hardware that looks like the iPhone," he wrote. "But to our mind, Apple is playing a different game - creating a mobile media platform that in its stickiness and magnetism resembles nothing so much as the Windows operating system that upended it a generation ago."

In his own report on the matter, titled with the catchphrase "it's the software, stupid," Needham & Co.'s Charlie Wolf shared many of the same sentiments as his fellow analyst while drawing attention to the particular challenge facing smartphone makers in maintaining double-digit growth rates during rough economic times.

"The smartphone industry is betting that it can meet this challenge and continue to lure feature phone users through more powerful hardware," he wrote. "While we believe this will work, it will not translate into a sustainable competitive advantage for any individual smartphone manufacturer."

More specifically, Wolf believes the 'misguided' obsession with differentiation through hardware features will leave many smartphone makers treading water because "hardware is essentially a commodity." That is, no manufacturer can achieve a sustainable advantage through hardware because the components in most smartphones are simultaneously available to all competitors.

(See how Apple is also actually working to differentiate the iPhone through proprietary hardware not available to rivals.)

"In our opinion, a more effective differentiator is software — both operating system software and the software applications that run on the device," he wrote. "Apple appears to be the only company that understands this. And thatâ€™s why todayâ€™s event was significant."

"We could go on," Wolf continued. "But we wonâ€™t [...]. Moreover, the significance of todayâ€™s event was not about the particular features Apple added in the iPhone 3.0 release. Rather, it signaled that Apple is distancing itself even further from rivals in the operating system software space."

Reiner reiterated his Outperform rating and $120 price target on shares of the Cupertino-based company while Wolf reinforced his Strong Buy rating and $200 price target.

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105 Comments

umijin

said about 15 years ago

Since Apple hasn't released the OS, and the timetable is not definite - why speculate on how far competitors will be behind? It's sort of pointless, because by the time v3 comes out, we have no idea what other phone makers will have. And by pre-announcing all those features, competitors can target those that may actually be useful and do better.

No point fanning flames when no kindling has been ignited yet.

gtl215

said about 15 years ago

Quote:

Originally Posted by umijin

You're missing the point. Apple is simplying reiterating their commitment to the software side of mobile devices, while competitors are "treading water" in hardware. Software evolves too, but Apple is far, far ahead of the curve.

gee4orce

said about 15 years ago

What's great about Apple's touch platform is that they are very keen to push out new features to existing users. I don't ever recall ever getting so much as a firmware update for any phone I've bought previously, and yet here's Apple with the second MAJOR software update for it's phone already, freely available to all users. In fact, once an update comes out, upgrading is childs play using iTunes.

$200 target price ? yeah baby.

bjojade

said about 15 years ago

Apple DOES have it right. None of their hardware is that far ahead of anyone else. Computers, phones, ipods, anything. There are plenty of competitive products that actually can BEAT Apple's specs and prices. But that alone isn't why you want a product. It's the software that make the darn thing work.

I'd rather have a lower resolution camera phone that I can easily take pictures with and share them than some high res phone that I have to struggle with to convince it to let me at my photos.

The computers that Apple sells are wonderful pieces of hardware, but there are plenty of competitors that offer similar machines or even better machines than Apple. However, Apple stands out because they have better SOFTWARE for their machines. And not just more software, BETTER software. Other vendors randomly throw junk on the machines to make them seem like more. Reality is that software has to WORK for people to want to buy it.

psychodoughboy

said about 15 years ago

Really, now that Apple has covered just about every single feature that they lacked and other smartphones didnt (MMS, c&p, et cetera), there's not much left to improve upon.

Off the top of my head, the remaining common asked for features fall into a few categories. Nearly all of them, I believe, will require a hardware update - so this 3.0 update is pretty much realizing the full potential of the iPhone 3G (my single gripe with it is that notifications still steal focus, but that's very easily fixable and in fact is very likely to make its way into the final 3.0 firmware as an option, based on my best guesses).

Camera improvements:
-video
-slightly higher camera resolution (2.3 or 3.0 megapixels, to cover the 1920x1200 resolution that Apple emphasises more and more in its displays).
-a second camera facing frontward for video chat

I recall AI (might have been macrumors, but I'm pretty sure it was this site) reporting back in mid-2008 about Apple hiring camera engineers. My guess is that the "iPhone 2,1" model reported browsing the web will include at least the first two of these features, and quite possibly the third if Apple wants to debut their own iChat AV app (though that space is already well-covered by third-party applications).

The other usually requested improvements tend to come from some of what the Palm Pre is doing. I am not particularly interested in the Pre because of its teeny 8GB storage and lack of robustness when it comes to app development, but I have to admit that it's got some excellent interface choices that Apple would do well to borrow from. Multitasking would be great but would clearly require a hardware update due to the battery/processing issues that Apple detailed in their presentation yesterday. It'd also need differentiation between apps that can cohabitate (listening to pandora while chatting with Beejive, for instance) and those that can't (games) which would necessitate that Apple renegotiate some of its terms with app authors as they would differentiate between multitaskable and nonmultitaskable apps. The Pre's notifications system is something that I'd like to see Apple borrow more from, and I have hopes that it'll make its way into the final 3.0 firmware or, barring that, 3.1, as it would place no further demands on the hardware.

It's fairly likely that the next revision of the iPhone will have additional RAM and processing power (and hopefully the battery life to go along with it), so it remains to be seen whether multitasking will become possible on the new models. Background notifications take care of most of the solutions relating to this already for the iPhone and iPhone 3G.