So, the annual iPhone launch duly took place this week. Perhaps we’re getting old, but rather like Christmas, every year the build-up and buzz seem more and more out of proportion with the event itself. The traditions have to be observed ‘ speculating about the amazing presents Apple might deliver; pretending not to be disappointed when they turn out to be the same old sweater in a bright new color; immediately starting to wonder what next year might bring …. All the same, no single device is analyzed in the same detail as an iPhone, even when its feature set does not merit so much time and effort, because of its huge contribution to the revenues of a company which is still a star, if a slightly faded one. There are oceans of words on the precise specifications, comparisons with other handsets, possible impact on Apple’s fortunes and those of its rivals. We have made our own selection of what is actually interesting this year.
Not the iPhone 5S itself, which failed to move any goalposts, at a time when Apple really needs to shock and delight the world again. Instead, it betrayed an almost Microsoft-style clinging to a user experience which has almost had its day.
For us, there were several other Apple decisions which will have broader impact. One, its A7 processor, which adds a new dimension to the ARM/Intel fight and could see the latter squeezed in Apple’s whole range. Two, the body blow struck to NFC by the failure to support that technology ‘ and to pursue a different route to contactless data exchange. Three, the reversal of the old choosiness about LTE bands, in favor of covering as many combinations as possible. And four, the introduction of the second iPhone model, the 5C, clearly designed to deliver China back to Apple, but hopelessly mispriced to become a mass market handset.
The new processor powering the iPhone 5S, the Apple A7, makes nice headlines as the first 64-bit smartphone, but is complete overkill for a handset. Without the 128Gbytes memory option many had hoped for, and without a larger screen, users will not feel the real benefits of the architecture. Nonetheless, it may pave the way for the inhouse processor to find its way into the currently Intel-based Mac family, shifting the balance of power among chipmakers, and providing a welcome boost for ARM’s efforts to penetrate the old PC base with its new ARMv8 64-bit platform. The A7 also immediately made Intel’s claims for its own new tablet processor, Bay Trail ‘ being made in the same week at its IDF event (see separate item) ‘ outdated. Intel was pitching its processor against rivals like Qualcomm Snapdragon 800 and Nvidia Tegra 3, but Apple has moved the ARM world into 64-bit now, in mainstream devices not specialist server platforms, and the others will not be slow to follow.
Rather like quad-core (and now octocore), debates will rage over whether there is any point, beyond marketing differentiation in an increasingly samey product landcape, to packing 64- bit superchips into a handset. Apple CMO Phil Schiller made the case for 64-bit, claiming twice the CPU and graphics speeds and the ability to exceed 4Gbytes of memory capacity. But as we know from the PC world, 64-bit chips do not necessarily improve performance for the majority of tasks, and the programs can be bulky. “The PC world went through the transition from 32-bit to 64-bit, and it took years,” Schiller said. “Today you’re going to see that Apple is going to move the mobile computing system forward from 32-bit to 64-bit in one day.” In fact, the mobile market will, also, take years to adjust, and to create the functions that genuinely need the new capabilities.
However, there is no harm in taking a position early and, while no iPhone really needs the full power of the A7, that will not be true of some iPads, especially higher spec models optimized for gaming. Apple is showing some of the forward thinking it should apply to other areas of its design, taking a lead in preparing for a time when mobile devices really do need large memory capacity. It is also seizing even greater control over its silicon destiny, a process it has been going through for several years now, and this could see it moving its own ARM-based architecture upmarket into the Macs.
The A7 is already rumored to have a higher performance sibling, A7X, in the wings for new iPads and that could perhaps push into the low end of PC class power ‘ indeed, Schiller boasted that even the current version is a ‘desktop-class architecture’.
The second point of interest is Apple’s iBeacon technology, and particularly its implications for last year’s hype monster, NFC. With two very similarly named products, Apple and PayPal, one of the most influential players in the payments chain, could kill NFC’s hopes. Not only has Apple once again chosen not to support the contactless NFC standard in the iPhone, but it has demonstrated the potential of Bluetooth to be an alternative approach to payments, with a readily installed base.
PayPal has been cautious about NFC, and now the online giant, which also wants to dominate physical payments, has unveiled PayPal Beacon, a triangular device which plugs into any power source and acts as an in-store GPS system, using Bluetooth LE (Low Energy). It then enables payments without the user having to swipe a handset or smartcard, as they would with NFC.
A Beacon-enabled merchant is able to ‘check in’ any customer who enters the store provided they have downloaded the app and given permission to be tracked in this way. The merchant will then deliver various special promotions geared to the buyer’s preferences, as well as other applications such as automatic refilling of prescriptions. Finally, they will be able to pay via the app, without any physical process. ‘It turns out, swiping a handset wasn’t much better than tapping digits into a terminal,’ commented a PayPal executive.
This shows PayPal’s stated preference for using technology that consumers already have ‘ Bluetooth is in almost every handset ‘ rather than NFC, which has to be supported by a large number of device makers and stores to gain critical mass. And Beacon aims to be a full platform, and is offering APIs to developers, tempting them with the 132m consumers who already use PayPal and regard it as a trusted brand.
Apple has taken a related approach with one of the new features of iOS 7, similarly named iBeacon. This is also powered by BLE and can be used for all kinds of close proximity data exchanges, creating a huge network of millions of devices that are connected to one another in a peer-to-peer fashion. Like PayPal, it harnesses the ability of Bluetooth to create a beacon around a small area so an app can be alerted when a user enters that area (the beacon is a wireless sensor that transmits data to a phone over BLE).
Combined with Apple’s Passbook, the potential to turn it into a payments technology would seem irresistible. Already, the iPhone maker is talking about similar apps to PayPal’s ‘ transmitting coupons to a customer entering a store, providing directions within a museum and so on. But the real power comes when BLE is also used to support payments and that could see Apple opening up yet another front in its fight with Google. The search giant has been a major NFC backer but only added Android platform support for BLE with release 4.3 ‘ rather grudgingly, in response to developer demand. That means the BLE ecosystem is less developed in Android than iOS, while Google has its own beacon-like product, Android Beam, but based on NFC.
While Apple remains selective about short range wireless technologies, it has become catholic in its attitude to LTE frequencies, listing no fewer than 17 which it supports in the two new iPhones (in various combinations). The change of approach on LTE bands is interesting because Apple has, notoriously, been very selective about which of the many 4G bands it supports. European carriers were appalled last year when the iPhone 5 appeared with support for 1.8GHz, the GSM spectrum being refarmed for LTE by cellcos like EE of the UK, but not 2.6GHz or 800MHz, the new frequencies being awarded across Europe specifically for 4G. Apple claimed its pickiness was because it wanted to ensure full quality and testing before supporting a particular spectrum area ‘ and even when an operator had the appropriate band, it had to be certified by Apple before it could activate the 4G capabilities of the handset. That controversial policy to ensure iPhone quality of experience (perhaps with a shuddering look back to the fiasco of early iPhone 3G launches with AT&T) still persists it seems (O2 UK is reported to have failed, so far, to gain Apple approval to run the 4G iPhone, and is not listed as a UK provider of the new devices, while EE and Vodafone are). But Apple’s desperation to expand its reach and reverse its market share slide is seen in the number of LTE bands it is now prepared to incorporate. One US variant of the 5S sports no fewer than 13 frequencies, which the vendor says is the largest number in any smartphone, and the two neglected European bands have now been added too, in the 5S and 5C. There is also TD-LTE support available in variants of both iPhones, mainly with an eye to China, though this supports three TDD frequencies ‘ Bands 38 (2.6GHz), 39 (1.9GHz) and 40 (2.3GHz).
Finally, the appearance of the junior model, the iPhone 5C, is significant, not in handset design terms, but because it is a bid to extend Apple’s addressable market. It did that once before, when it expanded its distribution channels dramatically for the iPhone 4S. That model, now free with contracts as its predecessors retire, could actually be the emerging market phone Apple needs. But instead, it has chosen to create a differentiated, lower cost handset for the first time, heavily targeted at Chinese recovery, and for the first time, will have dual models in one iPhone generation, (as it has already done in the past with the iPod and iPad).
Apple backers will hope the timing will be just right ‘ to make an impact on the high growth, but budget conscious, user bases in emerging markets, just as their numbers are set to explode, but before their mobile choices have become too set in stone. Many emerging economies do see users being open to a range of operating systems as they make their first smartphone choices, with Android being in pole position, of course, because of its large base of low cost OEMs with cost structures specifically geared to the affordable mass market. However, the Nokia Asha ‘smart featurephone’, some local options like China’s Baidu OS, and some emerging platforms geared to lower-spec handsets, like Firefox Mobile, all have a strong hand to play.
So will the iPhone 5C, with its shiny, colourful plastic case and streamlined design, combined with the familiar iOS interface. It has similar internal specs to the iPhone 5, but with a case made of hard-coated polycarbonate, and created from a single part ‘ there are no seams or joins and the inside is made of aluminium that also functions as an antenna. The handset has the current iPhone’s A6 processor and 8-megapixel rear camera, plus a new Facetime HD front camera, and a slightly bigger battery. And its wide LTE band support should enable a truly global roll-out, Samsung-style ‘ essential to shifting market share in the high volume sector, and something at which Apple has, logistically, become far more accomplished over the years.
For all these features, it may not have hit the right price point to turn itself into a mass market player. The new handset is $99 for the 16Gbytes model or $199 for 32Gbytes, with contract. But the prices are $549 or $649 without subsidy, which makes a mockery of the idea that this will be a mass market smartphone for emerging economies, most of which have a very high proportion of prepaid users, who are increasingly being tempted by smartphones with full feature sets for $200 or even less.
The thinking of having a separate iPhone for lower budget customers ‘ a handset with its own identity and youthful appeal, rather than just a low-rent version of the main device ‘ is good and may help Apple restore some of its attraction to younger subscribers. CEO Tim Cook said at the launch: ‘In the past we’ve lowered the price of the current iPhone, making it accessible to more people. This year we’re not going to do that’ The business has become so large, this year we’re going to replace the iPhone 5.’ But the pricing will have to change further, at least for the prepaid sector, if Apple is to steal significant share from Samsung, the Chinese vendors and even Nokia in the emerging economies.
Of course, even if it makes no headway in completely prepaid countries like India, if it succeeds in China, it will have justified its launch. Chinese operators are increasingly resentful of high subsidy bills, but they have been adopting the tactic to drive uptake of their 3G networks. So they will be offering a $99 iPhone, which could have a real impact in the increasingly affluent and youth-oriented society, especially if China Mobile finally signs up.
Apple has won over one high profile stand-out for the iPhone, with the belated conversion of NTT Docomo of Japan, but China Mobile is the world’s biggest prize in terms of the sheer numbers it can deliver with its 700m-strong user base (or at least the 3G/4G section of that). Hopes were high this week, when the Chinese Telecom Equipment Certification Center granted the final licence needed for the iPhone to run on China Mobile’s peculiar TD-SCDMA and TD-LTE networks. According to the agency’s web site, it has awarded Apple a ‘network access licence’ for a handset running on Mobile’s 3G and 4G networks.
Similar licences were also granted for handsets running China Unicom’s and China Telecom’s technologies. Those two cellcos already offer the iPhone 5 on their 3G (W-CDMA and CDMA2000 respectively) systems, but have not yet started deploying 4G. China Mobile has extensive commercial trial networks running TD-LTE but is awaiting official approval to turn them into fully commercial services.
Successive rounds of talks between the carrier and Apple have foundered in the past over issues such as branding, control of the user experience and subsidies or sales targets. However, the approval suggests it may open up to the iPhone, potentially within weeks. Apple says its new iPhones, the 5S and 5C, will go on sale in China on September 20, the same day as in the US and some other markets. However, it did not specify which operators would launch the handsets.
The deal is critical as traditional strongholds saturate and more fickle user bases get seduced away by Samsung. Apple’s sales in Greater China fell 14% year-on-year in its third quarter, ended June 29, and its market share in China fell to 5%, in seventh place. Samsung led the field in that quarter, with 18% share, followed by local vendors such as Lenovo. Apple has promised to increase its efforts in the country and double the number of stores it operates there, from 11 to 22, within two years.
Success in China would be enough, on its own, to transform Apple’s fortunes, at least for 2014, and address the panic of its shareholders. And a midpriced 5C, geared to the aspirational element of the Chinese base, not the mass market (many of which is still on 2G anyway) is not a bad tactic. It will not, however, deliver longer term global growth, which will require a play in the low end smartphone space. Apple has put off its keenest dilemma ‘ whether to keep its brand somewhat ‘exclusive’, or chase massive share ‘ for another year, but it will return to haunt it. By next year, it will need a radical new approach both to high end smartphone design and to the emerging economies, and it will be another year behind a credible role in the evolving world of browser/cloud oriented new platforms.
The iPhone 5S:
The pattern of iPhone launches is becoming repetitious ‘ every year there is less excitement outside the hardened fan base, as the Apple handset increasingly becomes ‘one among many’; every year there are scores of predicted features, from the desirable to the bizarre, which fail to materialize (a 6-inch model, a 3D screen, for instance); every year there is just one stand-out feature which grabs attention. Two years ago that was Siri, this year it is fingerprint recognition in the user interface.
Otherwise, the iPhone 5S continues Apple’s shift from design innovator to follower. For the third year running, enthusiasts have confidently predicted a radical, game-changing new design, and for the third year, that has not materialized. In 2011 it might have been too soon and too risky ‘ fiddling with such a proven and loved platform. But in 2013, most agree that the iPhone is getting tired and Apple needs to amaze the market again ‘ or accept it is just another major handset maker, and concentrate on reducing its prices and putting its more cutting edge ideas into segments it still drives, such as tablets.
That is not to say there are not significant enhancements in the 5S, but many come from iOS7, which was already launched earlier this year and will be available for existing iPhones this month without buying the new device. The most visible new feature of the 5S shows that Apple is still innovating in the user interface and focusing on making the mobile experience more natural ‘ its fingerprint reader, like Siri, may take time to become an integral part of mobile behavior, but its functions and importance will grow over the coming years, also like that of Siri, which was updated for this release. Dubbed Touch ID, the fingerprint reader allows users to access their devices via a reader embedded in the home button, and also make in-app purchases (which gives the real clue to how this technology will be expanded within mobile behavior in future releases).
The 5S comes in three colors and three memory levels ‘ 16Gbytes costs $199 with two-year contract, 32Gbytes is $299 and a 64Gbytes model is $399. With the iPhone 4 and the iPhone 5 retired, the iPhone 4S (8Gbytes version) will now become free on contract (of course, many operators, especially outside the US, will also offer new iPhones with 100% subsidy, though this may become less common as they grow less tolerant of the high costs of iPhone subsidies, and as other flagship devices take up their budgets).
Pre-orders for the 5S start on Friday and sales begin a week later in the US, Australia, Canada, China, the UK, and other countries. iOS 7 will be released for free on September 18 for iPhone 4, and later for iPad 2, iPad mini and fifth generation iPod touch.
The most impressive physical spec of the latest iPhone include a smaller, faster processor, the 64-bit A7, and makes Apple’s new flagship the world’s first 64-bit cellphone with over one billion transistors. The vendor says this gives it a fivefold increase in applications speed.
Apple has enhanced the battery and managed to retain the same, or marginally better, battery life despite the more powerful CPU, which is an achievement, but not one that will be noticed by customers craving longer talktime overall. It has also put effort into the camera, still 8-megapixels but with an Apple-designed lens, named iSight and including five elements and a new sensor.
There are real changes here, even though most come from the iOS 7 user interface overhaul ‘ less radical than many think Apple needs, given the rising interest in next generation UIs like Chrome, but still, a major step forward from previous iOS versions. Apple continues to innovate in the overall experience and to invest heavily in the key hardware elements, which come increasingly under its own control and its inhouse R&D program.
But it all seems very incremental and not the new departure everyone had hoped for. This time the effort centered on the processor rather than the display ‘ where, considering Apple’s power in this segment, it could have done something more exciting. The new iPhone has the same dimensions and no significant innovation in screen technology, even though that is the component which has the single highest impact on user reaction to a mobile device ‘ more than a superfast processor which can only be harnessed by a few specialist mobile tasks, especially without the hoped-for 128Gbytes memory option.
RetinaDisplay once set the rules, but now Apple has certainly ceded that role in mobile screens to Samsung, along with so many other areas of innovation. With no new iPad ‘ the product category where Apple still holds the baton ‘ and a low cost iPhone that is not really ‘low cost’, it is doubtful that the iPhone 5S is going to drive the sharp uptick in sales and market share that Apple needs to deliver a successful holiday season and reverse this year’s decline in confidence and share price.