iPhone: Taking a break before climbing the next hill or starting to slip down a cliff ?

Just 6 months ago, Mary Meaker said that “Apple’s iPhone / iTouch / iTunes ecosystem may prove to be the fastest ramping+ most disruptive technology product / service launch the world has ever seen” And with good reason. In 3 years, the iPhone has captured ~28% market share amongst US smartphone users (vs. 9 % for Android). The Apple App Store has 200,000+ apps and its developer ecosystem was gaining momentum on every front.

And then, with the iPhone 4, Apple stumbled. First, its vaunted veil of secrecy was broken when an employee left a test device in a bar. Then came the signal problems with its new antennae design, followed by the revelation that its algorithms for calculating signal strength are faulty (and have been since the launch of the first iPhone). Suddenly Steve Jobs was human again.

One has to wonder whether these are minor fumbles (considering that Apple did sell 1.7 M handsets in the first 3 days) or signs that Apple is under pressure. I think that at a minimum, these are warning signs that the road ahead may have a few more bumps. Apple’s tight control over the every aspect of the ecosystem has been critical to its success. But it also means that Apple has the burden of getting everything right every time.

And Android is nipping at its heels. It has steadily taken market share from RIM, Nokia, Microsoft and Apple. Yes, Apple lost 1% market share between Jan and May 2010) – android gains apple wanes. Android is also gaining momentum with developers specially those who rail against Apple’s heavy handed tactics. With ~ 100,000 apps, Android’s app store and its developer ecosystem are on a tear, and could be competitive with Apple in 12 months, see android-market-share-grows-rapidly-ios-still-dominates/. And it helps that Google controls a few killer apps such as search and Youtube. Finally, a formidable set of Android devices has emerged from HTC, Motorola, Samsung, LG and others, see the-best-android-phones. I would not bet on any one of these against Apple, but collectively, these companies pack quite a punch.

Finally, though, Apple’s achiles heel is its weak position in large but price sensitive markets like India and China. India and China will have 2 B handsets within a few years, and Google has a very strong brand in both countries.

When you add all this up, does that mean that that iPhone 4’s stumbles are the beginning of the end ?

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
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