With patent and trademark, Apple phone appears inevitable

With patent and trademark, Apple phone appears inevitable

Summary: I must apologize.  The other day when, after practically the entire music business knuckled under to Steve Jobs, I rattled off the kingdoms that Apple's proprietary digital rights management (DRM) technology (known as FairPlay) gives or will be giving Jobs the keys to (starting with music and movies), I failed to mention telecommunications.

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TOPICS: Mobility
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I must apologize.  The other day when, after practically the entire music business knuckled under to Steve Jobs, I rattled off the kingdoms that Apple's proprietary digital rights management (DRM) technology (known as FairPlay) gives or will be giving Jobs the keys to (starting with music and movies), I failed to mention telecommunications.  Sorry about that. It's on the list.  Here's how it works.

We all have cell phones.  Our kids have cell phones.  In some places in the world, that's all we have (in other words, no landline).  It's Apple's DRM technology that gives Jobs the control he has over the music industry. A huge and growing number of people with cell phones all have portable music players (some of which play video like the video iPod).  With storage going the way it's going (cheaper, smaller) and batteries getting better and better, it makes no sense -- zero sense -- for any of us to be carrying two devices when we could be carrying one.  Another reason it makes no sense is that, with today's wireless networks offering the bandwidth they offer, we shouldn't need an intermediary like a PC or a Mac  to (a) handle the transaction when purchasing music and videos from merchants like the iTunes Music Store (iTMS), and (b) load/organize that newly purchased content into your portable device.  Why shouldn't you be able to eliminate the middleman and do all of that right from some sort of converged voice/playback handset.

Well, one reason you might not be able to do all that so effortlessly is because the user interfaces on today's phones, let alone some of the converged devices, stink. They're just not adaptable to taking all the friction out the way, say, the iPod, iTunes, and the iTMS have done it for a la carte sales, organization (playlists), and portability of digital music.  Motorola, with it's relatively unpopular iTunes phones is pretty good proof. It's a tailor-made problem for a company that specializes in clean, simple UIs that have a reputation for being frictionless.  A company like Apple.  Throw in a few other applications that make sense over wireless networks -- email for example -- and make that frictionless and then you'd really have a winner.

Via an email interview, Cliff Raskind, director of Strategy Analytics' Wireless practice told me:

From an enterprise perspective, I continue to believe that the iPOD navigation wheel would be a powerful way to scroll up and down a voluminous inbox on a mobile device in the same way it makes going up and down music libraries a snap.

For some time now, many have speculated whether such a device -- a converged phone/digital content playback handset with an iPod-simple user interface -- was in the works at Apple.  But now, between the Mobile Me trademark that was filed earlier this year and the revelation that Apple is looking to patent "an invention that allows cell phone or wireless handheld users to interact with an online music store--such as iTunes--and mark a song or video file that can be downloaded to a computer at a later time," I think it's pretty safe to stop speculating about such a device and wait for the next step: usually the one where one of the enthusiast sites like ThinkSecret or Endadget to do what they do so well -- clandestinely get pictures of it.  Another clue that such a device is on the way is word that Apple has practically sent out an RFQ for getting it manufactured to the typical cast of characters on the Pacific Rim that are capable of building it.

According to Neil Mawston, Raskind's senior analyst for wireless device strategies:

[Our] position is that the Apple iphone is inevitable, likely in 2007, likely in developed markets (e.g. North American market), but they will not rush it.

Ideally, it will serve Apple best to wait for a peak in portable sales (i.e. maturity), before they launch a mobile device in order to revitalize a slowing product growth cycle. 

Apple has more than half a dozen strategic options for mobile that it can take in 2007 to 2010. These include do nothing, become an Mobile Virtual Network Operator (MVNO), launch an Apple-branded phone made by an original design manufacturer (ODM) like HTC, purchase or merge with an existing handset vendor (e.g. Kyocera), sell software-only to one or more mobile vendors (e.g. Motorola Rokr), and so on. All these scenarios involve moderate to high risk for Apple, as they are beyond its core fixed and portable competences (e.g. laptops), and they are entering a mature market dominated by a handful of brands (e.g. Nokia). 

My best guess is that Apple will either launch an own-branded phone (made by Tawainese ODMs) with a tier-1 carrier in the US (e.g. Cingular), or it will launch as an MVNO (e.g. Disney), or it will do both.

Both seems more like it considering the freakish control Jobs just asserted over the music industry and how that might lend itself to his role at Disney right now.

So, what does this mean? Today, the network operators sell music as song segments (ring tones) for as much as five times as much as it costs to buy the entire song at iTMS.  They can kiss that business goodbye. Much the same way the music industry knuckled under to Jobs, the carriers that sell cell phones (Sprint, T-Mobile, Cingular, and Verizon Wireless) will have no choice but to answer to the demand for a device that makes perfect sense, is the easiest thing to use in the world since...well, since the iPod, and that can play more than 80 percent of the music being purchased on-line.  It's Apple's DRM technology that gives Jobs the control he has over the music industry.  Without that DRM (which is incompatible with every other device on the market), end users could easily take all the music they've purchase elsewhere.  To another portable playback device.  Or to another converged cellular/voice/playback handset.  With it, users that want to converge won't have much choice and neither will the carriers.

The news isn't all bad for the carriers.  Accessing the iTunes Music Store from a portable handset will probably require Internet connectivity which in turn will involve some sort of premium charge.  But there too, just like with the music labels, Jobs will be handily in charge of pricing.   The conversation is relatively simple.  "You charge $10 a month instead of the $80 that you normally charge for Internet access, and I'll let you sell my phone."  Maybe it won't go exactly like that.  But that is the sort of leverage that Apple's monopoly control (and that's me saying it's a monopoly... not some trustbuster) of digital content sales (afforded to it by its proprietary DRM), that Jobs will have over the wireless carriers.  A key to yet another kingdom.

Topic: Mobility

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12 comments
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  • You miss one major point here

    It is about control, but in this case, that control will not go to Steve Jobs, unless he's willing to build an entire cellular phone network.

    Every single cellular network company is intent on setting up their own music store and selling songs for 3 or 4 times what iTunes charges. Why in the world would they accept an Apple cel phone that effectively cuts them out of what they see (incorrectly, in my opinion) as a very lucrative future business? Given the power loss Apple has inflicted upon the RIAA companies, don't you think the cel phone companies will be wary of putting themselves in the same position?

    I'm also very wary about some of the things you mention about such a device--is it possible to build one that is 1) small enough to be portable, 2) has a user interface that doesn't suck eggs and 3) doesn't require you to recharge your battery every 15 minutes? These are major challenges to overcome, so I don't expect Apple (or anyone) to figure them out any time soon.
    tic swayback
  • they are getting into appliances too!!!!

    I was at the local Best Buy and noticed that Apple, I mean Frigidaire had released a new set of front load washer's and dryer's. Nothing exciting about it, except that they called them the "iWash" and "iDry" series. How long before Apple comes after them for using the "i" name. Of course Apple could have licensed their OSX to be used in the appliances that are intelligent enough to know when you clothes are clean and dry. What will Apple think of next...
    jtb74129
    • wow, wasn't aware...

      are they able to play iTMS-purchased music while you wash and fold?

      db
      dberlind
  • how's your apple stock

    Dude,
    Clearly a bit biased don't you think. When/Where did you ever get the idea that Apple's (and only apple's apparently) UI was "frictionless" - where did I get these rug burns!
    nickc@...
    • I know where you got those rug burns .

      You got them when you were secretly fucking another woman on the rug and your wife was sleeping in the other room .
      I'm Ye, the MS SHILL .
  • $70 in Savings

    What we are seeing is costs coming down. A sliding scale for
    iTunes would require more administration and inevitably raise
    the avarage cost of music purchased. Is there really any question
    about this? The RIAA was prepared to have Apple administer an
    increasingly complex price structure as if a 40 cent song was
    going to be in the offing. Well it wasn't. A credit card transaction
    of 99 cents is likely as low as it will go. It was Apple's
    prerogative to say no to variable pricing because they would
    have to administer it at their cost.

    Meanwhile if Apple moves in to the phone business they might
    very well lower prices there. Let's wait and see. Is it fair to say
    that monopolies are not usually characterized by cost
    reductions.

    Is it possible that a relatively trustworthy player is creating a
    more competitive environment? Is this not success on merit?
    How is it that Apple prevents other players from creating
    product silos with their own DRM? Why isn't Microsoft capable of
    competing with the traditional advantage of broad licensing? The
    answers are sociological.

    Apple has always been vertical and they have always put the
    fear of monopoly into folks. Look what we chose as the
    alternative. Are we better off having made the Microsoft
    mistake? The illusion of open architecture has made us
    understand that the hardware doesn't matter. The new killer app
    is integration. The choice should be a choice between integrated
    silos of technology, not between shells.

    I'm trying to understand how consumers lose with this choice of
    a new deal, drm and technology, rather than different shapes of
    extruded plastic, all with a Microsoft brain. How is it that $70 in
    savings is a bad thing?
    Harry Bardal
  • Peel away the APPLE sticker......

    ....and you'll probably find the word NOKIA stamped in the plastic...
    Feldwebel Wolfenstool
    • We should be so lucky...

      ..I'll take a Nokia over those crappy Motorola iTunes phones any day of the week.
      tic swayback
    • Think we've already talked about this however..

      So what? Even "IF" what you say is true does it mean anything?
      Apple's contribution is design and vistion. Who cares who slaps em
      together?

      Pagan jim
      Laff
  • It's not the DRM!

    it's the software, interface, attention to detail, quality of service, accesibility, iPod, affordability, ......
    Reverend MacFellow
  • DRM is not Apples fault you a$$

    Here we go again, blaming Apple for proprierty issues. Without DRM Apple would have no content for iTunes. It was part of the deal with the RIAA. Besides if you really want to, Apple provides all the tools to convert your DRM protected songs to standard aiff files and than back to MP3. Just burn an audio CD and re-import them as MP3.
    If it were not for Steve, you would be paying a premium for current music vs the golden oldies. He got them to agree to the 99 cent a song price structure again.

    So what are you complaining about?
    ralphrides
  • IPhone can't get here soon enough

    I've been looking at cell phones all week and I'm not happy with
    what I've seen.

    It seems Verizon and Cingular DISABLE many of the blue tooth
    features (advertised) to force subscribers to sign up for more
    expensive, 'optional' features. That is a problem with any phone
    and carrier right now currently offering MP3 capabilities.
    Tmobile only disables the email in an attempt to force customers
    to subscribe to their 'enhanced email'. They are the least
    restrictive.

    A good example are the Ericsson phones - they have produced
    working 'walkman' MP3 phones for several years now, but cell
    phone carriers don't pick them up. That isn't Apples' fault.

    Apple's success with ITunes comes from having the guts to offer
    closest to what the customer wants (remember when that was
    important?) - in this case, 'soft DRM' which is easy to work
    around, (just as the Rokr 100 song limit is, and unlike rootkit
    DRM from legally purchased CD's). Rokr and Silvr were Apples'
    trial with existing services.

    I am sick of feeling manipulated. An IPhone couldn't happen too
    soon enough for me. Why?

    A) It will probably work as stated,
    B) Any 'restrictions' will probably be 'soft' and NOT feel 'forced',
    C} It'll be simple to operate and cover my most immediate needs,
    D) It won't stop working 1 day after the warranty expires.

    I don't see those objectives among current cell phone carriers or
    Congress.

    So your right, Apple will probably have to develop their own
    carrier to keep their standards.

    What's new?
    du2vye