October 22, 2007
BrainTrust Query: Whose Phone is it Anyway?
By Bill Bittner, President, BWH Consulting
A recent Wall Street Journal article compared Apple’s latest iPhone software update, which included changes to prevent access to other service providers besides AT&T and prevent owners from directly accessing data files, to General Motors releasing a car and then saying you can only use one brand of gasoline.
Apple claims they only did this to enforce the exclusive contract they signed with AT&T. They say allowing users to modify the software would have a deleterious effect on the user experience. They feel compelled to remove all the “hacks” from their phones so that the larger community is protected.
Then, last week, Apple announced a turn-around in its policy of blocking third-party developers from creating software to run on the iPhone. In a statement to the press, Steve Jobs said Apple is “trying to do two diametrically opposed things at once — provide an advanced and open platform to developers while at the same time protect iPhone users from viruses, malware, privacy attacks, etc.”
To some extent, manufacturers have always put constraints on how their products were used. Warranties were voided for a variety of reasons and retailers had the ability to refuse returned items that had been physically abused. But now it is very different. So many of our products are computer based with software programs that drive their operation. To continue the original analogy, car manufacturers have been dealing with hacks to their fuel injection mixture control modules for years. Savvy consumers would figure out how to change the programs in these modules to either increase acceleration or top end speed, blowing all the environmental protection agency constraints in the process.
Now many more products are coming out with imbedded computers. As consumers become more technically savvy and the products they buy are more software driven, is it right for product manufacturers to prevent their use in other ways? Where does the line get crossed between “creative use” and “product tampering”?
Discussion Questions: Should there be limits on what the manufacturer can do to prevent “creative use” of their product? Is the business model that keeps consumers “captive” with proprietary software and services becoming obsolete?
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Open architecture is the future. From Linux to Ruby On Rails, advancement in product application and overall code improvement depends on independent developers burning the midnight oil and a bunch of mental protein to create new stuff. The appropriate analogy is connecting a bunch of small computers together to be more powerful than a Cray.
Technology providers are torn between selling hardware and selling results. Proprietary platforms helped launch the digital age, but CDs, DVDs, cellphones, PDAs, TVs, game consoles, DVRs, and computers of all types can be accessed and monkeyed with easily. It’s time for a new business model, in which technology vendors emphasize ease-of-use, an enjoyable experience, and, yes, results. And if they’re able to sell a superior piece of hardware along the way (I LOVE my Sony Bravia), then good for them. But, my Sony can receive input from any program source–including my PC–and output to a wide variety of media. I’m surprised that I can’t hook my printer and scanner up to the Sony to record snapshots of paused programming. Wait, maybe I can.
P.S. For those who think Apple should have made the iPhone available to all cellular providers, please remember that they had difficulty supplying and servicing just the AT&T customers. It was a good decision by Apple, enabled them to (almost) meet demand, and extended the buzz.
The real answer to all of this was summed up by a previous comment “I am a Verizon Wireless User.”
Apple’s initial price blunder = Bad Apple.
Apple’s exclusivity with AT&T = Bad Apple.
Limit your market and limit your user’s flexibility and you wind up with a limited market of unhappy users. Sounds like sour grapes doesn’t it?
Many like myself would love to experience some of the Apple innovation. Yet, just like with the Mac, many like myself don’t like to be limited. When forced to do so, we find a better way or simply a way that is acceptable–even less innovative. Although, maybe Apple really never has wanted a product for the masses?
This is protectionism taken to a 19th century level. Apple hasn’t learned from the open source software and copy left bonanza of the 1990s. Apple wrongfully believes that they can anticipate and control the consumer’s expectations and do this better than the free market itself. They have already stumbled and had to lower prices dramatically, while taking a hit for their excessively high introductory price. Now, by controlling which carriers can be accessed with their phone, they expect the iPhone to become monolithic with only 1 carrier. Not so, as hackers around the world have shown, they would prefer to have a multi-carrier phone and have full access to the carrier that they want. It is only a question of time before someone figures out the hack and posts it to the internet (again). The demand is too great, and no one is filling it (yet). The market forces are greater than Apple or AT&T.
AT&T pays Apple part of the iPhone-related revenue. Maybe Apple should’ve asked folks to pay that same fee when they use other cellular carriers. But then AT&T would complain that they signed an exclusive contract and they’d ask for a price concession, having lost the exclusivity. I’d be surprised if Apple and AT&T didn’t anticipate the controversy and the hacking attempts. It’s unlikely this controversy will go on much longer, since the number of similar, competitive products is growing.
In the first place, the iPhone will only work with two US carriers if all restrictions are removed from the software. One of those, AT&T, offers a network broad enough to support the iPhone and all of its functions (notice that you haven’t heard any real complaint about the iPhone and the service provided). The other carrier, T-Mobile, does not have the capability of supporting the iPhone’s features. Verizon, Sprint and Nextel all use completely different systems for delivering service. No amount of hacking will make the iPhone compatible with any of these providers. So, all this fuss is a “tempest in a teapot”!
It amazes me to see the industry totally miss the transition being forced by the iPhone. To date, Apple systems and products are not supported by business and industry in the USA. However, the iPhone has a cachet so strong that many CEOs and some CIOs will look at this product and its capabilities and decide that it may be a better platform.
I personally use a HP6515, which is a highly capable PDA/Computer with GPS and WiFi capabilities. It works well but would require a new users to spend 4 to 6 weeks learning how to use it effectively. The learning curve for the iPhone is about 15 minutes. Imagine a CEO or CIO playing with this product and thinking about training cost, product downtime, etc. While the iPhone currently doesn’t have built in GPS, I do believe it will handle GPS functions via a bluetooth add on, which can be done for well under $100.
The iPhone will be Apple’s entree into corporate America.
If two companies are developing state-of-the-art technologies that provide superior service, restricting use of products to that technology makes sense. On the other hand, it is becoming increasingly difficult to have any kind of closed system in today’s marketplace. People did find a way to open the system at their own risk and many lost the use of their phones because the technology was developed and being updated for the closed system. Now Apple is opening the system. That is great for consumer access. The quality of service may not be optimum because of the technology but that problem is likely to be solved over time.
I would agree with Mark above that “Apple and AT&T are free to put whatever restrictions they want on their phones.” However, it is a bad strategy on the part of Apple, and this lesson should have been learned with previous product launches.
Everybody always seems to wonder why the Apple Macintosh never caught on to the extent the IBM PC did. I think the reason is that Apple never licensed out the technology to others to develop further. IBM did, and their platform rocketed ahead. Apple sales never caught up.
Then came the iPod and iPhone. You would think that the lesson would finally be learned. Instead, Apple is playing the same game it played before with the Mac.
To me, the IPhone looks cool, and a good buy. But, I am a Verizon Wireless user, and I feel alienated away from this product. I will not be buying one until the policies change, and I suspect there are a lot more people making the same decision.
I think we need more detail around the term ‘fair use’. Forcing consumers to suffer the service of a network provider that they may not be fond of or who doesn’t have the best service in their neighborhood is certainly not equitable of Apple, especially since Apple is not the one paying the phone bill. In fact this is promoting a collusive environment to some extent and is contrary to consumer interests – if I am really fond of the iPhone and want to own it badly, I have to sign up for AT&T as my service provider, this exclusivity insulates AT&T from the checks and balances free competition would create and I don’t see how that is in the best interests of the consumer in general. This is different from the analogy of car enthusiasts modifying the fuel injection to get more power. No one’s taking the iPhone and converting it to a satellite receiver (yet)!
To respond to an earlier comment, I don’t see any antitrust problems here that I think Apple will be concerned about. There is a very broad market for cell phones so consumers are free to buy whichever one they want (lots of competition, Apple certainly does not have market power in the cell phone market and AT&T does not have market power in the service provider market). Tying the iPhone to a particular carrier (bundling in antitrust-speak) is more of a market/customer question in this case than it is a legal question (which, of course, does not mean an enterprising plaintiff and his or her attorney won’t try to sue Apple). As to whether Apple should create this tie, I suspect that Apple does need to enforce the exclusive arrangement it set up with the carrier. Overall, these types of exclusive arrangements seem to create more problems than they solve, so in general customers react unfavorably to them. I suspect this arrangement will not last very long as well.
Marketers have always sought ways to maintain exclusivity over their products. Ideally, this is done through a proprietary technology or patent. More often, however, it is done through engineering or product design.
Gillette Trac II razors require Gillette Trac II cartridge replacements. I recently had a small clip come off of my Lexus (which is past its warranty) and I had to pay $19.99 to Lexus for something that resembled a plastic paper clip. My Sprint phone can’t be used with AT&T service.
Apple certainly has a legal right to restrict service. The bigger question is why would they want to? It seems like they would get much broader market penetration by selling the device and allowing any service. If they are trying to follow the cell phone model and make money on the service, the phones should be less expensive. I think they are unsure of their marketing strategy and trying to hedge their bet.
There is an interesting follow up opinion piece in today’s Wall Street Journal on this issue. The point of the article is that the dominant cellular carriers (such as AT&T and Verizon) are stifling development of the cell phone as a virtual handheld computer even though the technology is in place. Service contracts, incompatible systems (CDMA vs. GSM) and other obstacles provide a much different business model than broadband and other ISPs. The implications for retail and e-commerce are huge if some of these shackles are removed.
Apple and AT&T are free to put whatever restrictions they want on their phones. The marketplace will ultimately determine if it’s the right thing to do. It’s no different than HP telling their customers to only use HP ink cartridges and how failing to do so could void the customer’s warranty.
Apple was foolish to wait this long (and to erect barriers along the way) before opening up their device to interested customers. A great lesson should have been learned from Lego, who faced similar issues around a robotic kit it launched a few years ago. Lego never anticipated that there would be such interest from users to “get under the hood” and tinker with it. Fortunately, Lego quickly embraced this form of deep engagement, and today its “Mindstorm” product is a huge profit maker for them.
Apple stumbled badly on the path to similar enlightenment, but fortunately their customer base is a very loyal and forgiving one.
I hope an antitrust attorney will weigh in on this, but I believe this is absolutely illegal, to tie in and force you to buy something else. Obviously you can make it difficult or illogical to buy a competitive offering, but the Apple moves have been so blatant that I don’t see how the actions can stand legal muster.
I’m late to the discussion, but I agree with Professor Fader. Apple has the right to determine whether they should conform to standards or uphold restrictions on the use of the iPhone – whether this tactic is viewed positively or negatively by the consumer. This bundling restriction – it is more detrimental to Apple than the consumer.
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Open architecture is the future. From Linux to Ruby On Rails, advancement in product application and overall code improvement depends on independent developers burning the midnight oil and a bunch of mental protein to create new stuff. The appropriate analogy is connecting a bunch of small computers together to be more powerful than a Cray.
Technology providers are torn between selling hardware and selling results. Proprietary platforms helped launch the digital age, but CDs, DVDs, cellphones, PDAs, TVs, game consoles, DVRs, and computers of all types can be accessed and monkeyed with easily. It’s time for a new business model, in which technology vendors emphasize ease-of-use, an enjoyable experience, and, yes, results. And if they’re able to sell a superior piece of hardware along the way (I LOVE my Sony Bravia), then good for them. But, my Sony can receive input from any program source–including my PC–and output to a wide variety of media. I’m surprised that I can’t hook my printer and scanner up to the Sony to record snapshots of paused programming. Wait, maybe I can.
P.S. For those who think Apple should have made the iPhone available to all cellular providers, please remember that they had difficulty supplying and servicing just the AT&T customers. It was a good decision by Apple, enabled them to (almost) meet demand, and extended the buzz.
The real answer to all of this was summed up by a previous comment “I am a Verizon Wireless User.”
Apple’s initial price blunder = Bad Apple.
Apple’s exclusivity with AT&T = Bad Apple.
Limit your market and limit your user’s flexibility and you wind up with a limited market of unhappy users. Sounds like sour grapes doesn’t it?
Many like myself would love to experience some of the Apple innovation. Yet, just like with the Mac, many like myself don’t like to be limited. When forced to do so, we find a better way or simply a way that is acceptable–even less innovative. Although, maybe Apple really never has wanted a product for the masses?
This is protectionism taken to a 19th century level. Apple hasn’t learned from the open source software and copy left bonanza of the 1990s. Apple wrongfully believes that they can anticipate and control the consumer’s expectations and do this better than the free market itself. They have already stumbled and had to lower prices dramatically, while taking a hit for their excessively high introductory price. Now, by controlling which carriers can be accessed with their phone, they expect the iPhone to become monolithic with only 1 carrier. Not so, as hackers around the world have shown, they would prefer to have a multi-carrier phone and have full access to the carrier that they want. It is only a question of time before someone figures out the hack and posts it to the internet (again). The demand is too great, and no one is filling it (yet). The market forces are greater than Apple or AT&T.
AT&T pays Apple part of the iPhone-related revenue. Maybe Apple should’ve asked folks to pay that same fee when they use other cellular carriers. But then AT&T would complain that they signed an exclusive contract and they’d ask for a price concession, having lost the exclusivity. I’d be surprised if Apple and AT&T didn’t anticipate the controversy and the hacking attempts. It’s unlikely this controversy will go on much longer, since the number of similar, competitive products is growing.
In the first place, the iPhone will only work with two US carriers if all restrictions are removed from the software. One of those, AT&T, offers a network broad enough to support the iPhone and all of its functions (notice that you haven’t heard any real complaint about the iPhone and the service provided). The other carrier, T-Mobile, does not have the capability of supporting the iPhone’s features. Verizon, Sprint and Nextel all use completely different systems for delivering service. No amount of hacking will make the iPhone compatible with any of these providers. So, all this fuss is a “tempest in a teapot”!
It amazes me to see the industry totally miss the transition being forced by the iPhone. To date, Apple systems and products are not supported by business and industry in the USA. However, the iPhone has a cachet so strong that many CEOs and some CIOs will look at this product and its capabilities and decide that it may be a better platform.
I personally use a HP6515, which is a highly capable PDA/Computer with GPS and WiFi capabilities. It works well but would require a new users to spend 4 to 6 weeks learning how to use it effectively. The learning curve for the iPhone is about 15 minutes. Imagine a CEO or CIO playing with this product and thinking about training cost, product downtime, etc. While the iPhone currently doesn’t have built in GPS, I do believe it will handle GPS functions via a bluetooth add on, which can be done for well under $100.
The iPhone will be Apple’s entree into corporate America.
If two companies are developing state-of-the-art technologies that provide superior service, restricting use of products to that technology makes sense. On the other hand, it is becoming increasingly difficult to have any kind of closed system in today’s marketplace. People did find a way to open the system at their own risk and many lost the use of their phones because the technology was developed and being updated for the closed system. Now Apple is opening the system. That is great for consumer access. The quality of service may not be optimum because of the technology but that problem is likely to be solved over time.
I would agree with Mark above that “Apple and AT&T are free to put whatever restrictions they want on their phones.” However, it is a bad strategy on the part of Apple, and this lesson should have been learned with previous product launches.
Everybody always seems to wonder why the Apple Macintosh never caught on to the extent the IBM PC did. I think the reason is that Apple never licensed out the technology to others to develop further. IBM did, and their platform rocketed ahead. Apple sales never caught up.
Then came the iPod and iPhone. You would think that the lesson would finally be learned. Instead, Apple is playing the same game it played before with the Mac.
To me, the IPhone looks cool, and a good buy. But, I am a Verizon Wireless user, and I feel alienated away from this product. I will not be buying one until the policies change, and I suspect there are a lot more people making the same decision.
I think we need more detail around the term ‘fair use’. Forcing consumers to suffer the service of a network provider that they may not be fond of or who doesn’t have the best service in their neighborhood is certainly not equitable of Apple, especially since Apple is not the one paying the phone bill. In fact this is promoting a collusive environment to some extent and is contrary to consumer interests – if I am really fond of the iPhone and want to own it badly, I have to sign up for AT&T as my service provider, this exclusivity insulates AT&T from the checks and balances free competition would create and I don’t see how that is in the best interests of the consumer in general. This is different from the analogy of car enthusiasts modifying the fuel injection to get more power. No one’s taking the iPhone and converting it to a satellite receiver (yet)!
To respond to an earlier comment, I don’t see any antitrust problems here that I think Apple will be concerned about. There is a very broad market for cell phones so consumers are free to buy whichever one they want (lots of competition, Apple certainly does not have market power in the cell phone market and AT&T does not have market power in the service provider market). Tying the iPhone to a particular carrier (bundling in antitrust-speak) is more of a market/customer question in this case than it is a legal question (which, of course, does not mean an enterprising plaintiff and his or her attorney won’t try to sue Apple). As to whether Apple should create this tie, I suspect that Apple does need to enforce the exclusive arrangement it set up with the carrier. Overall, these types of exclusive arrangements seem to create more problems than they solve, so in general customers react unfavorably to them. I suspect this arrangement will not last very long as well.
Marketers have always sought ways to maintain exclusivity over their products. Ideally, this is done through a proprietary technology or patent. More often, however, it is done through engineering or product design.
Gillette Trac II razors require Gillette Trac II cartridge replacements. I recently had a small clip come off of my Lexus (which is past its warranty) and I had to pay $19.99 to Lexus for something that resembled a plastic paper clip. My Sprint phone can’t be used with AT&T service.
Apple certainly has a legal right to restrict service. The bigger question is why would they want to? It seems like they would get much broader market penetration by selling the device and allowing any service. If they are trying to follow the cell phone model and make money on the service, the phones should be less expensive. I think they are unsure of their marketing strategy and trying to hedge their bet.
There is an interesting follow up opinion piece in today’s Wall Street Journal on this issue. The point of the article is that the dominant cellular carriers (such as AT&T and Verizon) are stifling development of the cell phone as a virtual handheld computer even though the technology is in place. Service contracts, incompatible systems (CDMA vs. GSM) and other obstacles provide a much different business model than broadband and other ISPs. The implications for retail and e-commerce are huge if some of these shackles are removed.
Apple and AT&T are free to put whatever restrictions they want on their phones. The marketplace will ultimately determine if it’s the right thing to do. It’s no different than HP telling their customers to only use HP ink cartridges and how failing to do so could void the customer’s warranty.
Apple was foolish to wait this long (and to erect barriers along the way) before opening up their device to interested customers. A great lesson should have been learned from Lego, who faced similar issues around a robotic kit it launched a few years ago. Lego never anticipated that there would be such interest from users to “get under the hood” and tinker with it. Fortunately, Lego quickly embraced this form of deep engagement, and today its “Mindstorm” product is a huge profit maker for them.
Apple stumbled badly on the path to similar enlightenment, but fortunately their customer base is a very loyal and forgiving one.
I hope an antitrust attorney will weigh in on this, but I believe this is absolutely illegal, to tie in and force you to buy something else. Obviously you can make it difficult or illogical to buy a competitive offering, but the Apple moves have been so blatant that I don’t see how the actions can stand legal muster.
I’m late to the discussion, but I agree with Professor Fader. Apple has the right to determine whether they should conform to standards or uphold restrictions on the use of the iPhone – whether this tactic is viewed positively or negatively by the consumer. This bundling restriction – it is more detrimental to Apple than the consumer.