Personally, I believe that on so many layers, this topic is really a non-topic. It provides entertainment value, no doubt, in the form of daily tech soap opera (bloggers jumping on every new data point released and typically extrapolating it beyond meaningfulness to arrive at flame-bait headlines). But from an industry analysis point of view, or a company analysis point of view (scrutinizing Apple / Google), the market share comparisons are really just one data point – it’s meaningful, but certainly not to the degree that the blogosphere claims it to be. Apple’s future is not in jeopardy if iPhone loses pole position to Android.

Over at Wired, Fred Vogelstein takes a crack at this topic. His main point is that if you sum up all the iOS devices (iPhone, iPod Touch, iPad), they are still outselling Android, by as much as 42%. While this may be encouraging to the Apple camp, there is no reason we can expect this to hold, especially when other Android powered devices (e.g. Android tablets) eventually hit the market.

I don’t have any doubt that Android devices will outsell iOS devices. If it hasn’t happened already, it will happen soon. There is no reason to believe an OS from a premium manufacturer (Apple) with an extremely limited range of SKUs can outsell, on a pure volume basis, an OS that is free to use and which is backed by some of the biggest consumer electronics companies in the world. On a dollar value basis, it might be a different story, but still not that likely. On a dollars of profit generated basis though, highly possible (Apple generates more profit than rest of mobile industry combined, with only 3% unit volume share).

That said, the main reason people are obsessed with these market share numbers seem to be the underlying assumption that iPhone and its eco-system will lose its draw to developers, and by extension to consumers, if it is relegated to a minority market share. I think there are at least a couple of counter-arguments to make here.

First of all, being the minority market share platform does not translate into a lack of quality apps, to the extent that it will hamper mass-premium consumers’ (Apple’s core segment) interest in the platform. For example, if you flip the argument over the number of apps in the Android vs. iPhone app stores on its head, you may well say that even though Android has a smaller number of apps, the eco-system is already sizable enough, so that for any functionality there will be “an app for that”. Another example would be none other than Macs – what’s the market share that Mac OS holds in all personal computers? Single digits? Do mainstream Mac users complain about the lack of quality apps (note the emphasis on mainstream – specific categories like hardcore gaming is lacking on the Mac, but even that is seeing improvement)? Holding these two examples, I would argue that with the developer community Apple has already amassed, it would be hard to foresee a drastic dying out of quality apps, even if Android floods the market.

Secondly, if you take a step back and look at the broader trend in computing, it is definitely headed in the direction of platform-agnostic. Some tech purists would even decry the whole notion of apps – everything should be realized on the browser, over the web. If you look at the desktop space, there is indeed the trend of “fat” clients (local apps) losing out to “thin” clients. Indeed, Google is perhaps one of the biggest proponents of this – its whole challenge to Microsoft is based on the browser. If we believe that the same trend will apply to mobile devices, then the apps craze we are experiencing really is just a transition phase – at some point, most of the apps you want would be delivered to you on the browser, as opposed to an app you download (again, Google’s Gmail mobile version on the browser is arguably better than Apple’s Mail app). And let’s give credit where credit is due – when Apple launched the iPhone in 2007, Steve Jobs’ initial vision was to have web apps (browser-based apps) instead of local apps. The app SDK and the app store only came out a year later, due to popular demand. (So you could say that Jobs had already envisioned an end-game where the browser was the point of delivery for apps, not the app store – his vision was perhaps just ahead of its time.)

If you sum these two arguments together, the bigger point is that iPhone will not lose its richness of apps in the face of Android capturing majority market share – it’s big enough already of a market so that there will be quality apps developed, and apps will be platform-agnostic anyway down the road. As long as Apple continue to bring innovation to its devices, it should not be overly worried about losing market share leadership – its whole strategy is founded on premium products, which implies that it won’t be market leader from a revenue / volume perspective. That’s why I wrote the headline of this post.

PS: Also, for people who continually say this will be a rerun of Apple vs. Windows in the 80s, please pause for a moment and reflect on the Mac’s continual resurgence over the last decade. This is again very indicative of the broader trend. In other words, one could almost claim that the “network effects” so famously championed by Wintel is close to becoming irrelevant, because the Internet has leveled the playing field for the small market share OSes.

PS2: And even if we are to talk of the platform wars of the 80s, we should get the facts straight. The following is my reply on a Quora question (similar topic really) awhile back:

First of all, it’s not really windows vs. mac, but PC vs. Mac. I would say by the time windows 3.0 came out, the platform war between PCs and Macs (at least the first war, not including Mac’s resurgence in recent years) was already over.

If you look at this article on Ars Technica, http://arstechnica.com/old/conte…
as early as 1986 PCs already had over 50% market share of computers, and it over-took the mac platform’s shares a few years before that. So in that sense, there never was a windows:mac war, at least not until very recently.

I think one key distinction between the platform wars of the 80s and android:iPhone is that in the 80s it was primarily driven by b2b, not b2c. IBM was late to the personal computers space, but they were the driving force behind making personal computers legitimate for business – they could go to a sales pitch with a business client with a perhaps inferior product but still sell it, and they could generate serious developer interest in developing for the PC. The killer apps of the 80s were spreadsheets and word-processors, sold to businesses. Apple could have better versions of such products on macs, but they couldn’t sell to businesses as quickly as IBM and clones like Compaq could, which is dictated by company structure and channel strategy – they are positioned as a consumer products company, and the only verticals where they made serious progress were education and publishing (where their products were clearly far far superior). That’s where the network effect kicked in and made Macs a niche.

Flash forward 25 years, and smartphone adoption is primarily driven by consumers, not businesses (blackberries being the exception). This is in Apple’s core area of expertise. It will still be challenging to fend off a group of competitors’ collective efforts (Samsung, HTC etc.), but as long as Apple retain a significant portion of the market, it will be in good shape. Apple doesn’t need to be market leader to be hugely profitable and have a sizable eco-system of 3rd party apps etc. – just look at macs today, as a general consumer you have majority of the apps you need to be happy with it (games being one major exception, which is also therefore a good business opportunity).

So back to your original question, I’d say Android:iPhone will play out very differently compared to Windows:Mac. Android might still end up with a more market share, but iPhone will have enough share and a big enough eco-system so that Apple won’t have to go through the kind of existential challenge it had back in the mid 90s.

There is no doubt that Android has been a success, especially in terms of offering consumers more choices. US consumers now have a perhaps overwhelming number of smartphones to choose from, across the major carriers. This is certainly a great development.

What I want to focus on in this post, however, is looking at Android from the eco-system players’ perspective – Google, the handset manufacturers, the carriers, and the app developers. My position is that while Android is full of promise as a platform, some fundamental dynamics of the eco-system will make it very challenging to navigate, especially in terms of financial gains – at the end of the day, these players are in it to profit.

I would like to start by going through each player’s objectives from participating in the Android eco-system. Starting with Google, its objectives are:

• Gain a permanent foothold in mobile, ensuring Google’s future when the web becomes increasingly mobile-driven
• strategically, prevent dependence on Apple in mobile, limit its bargaining power
• Increase traffic to Google properties, most notably search, which will in turn grow Google’s ad revenue
• Offer users a consistent Google user experience across mobile devices
• “Lock” users into Gmail, Google Maps, Youtube etc. (think Microsoft shipping IE with Windows)
• Develop a mobile go-to-market channel for future Google products

In essence, it’s all about Android being the hook which will retain the user in using Google products.

What about the handset manufacturers’ objectives?

• Develop handsets that rival the iPhone’s value proposition, capture market share in the booming smartphone segment
• Differentiate from competitors
• Reduce OS R&D costs

And the carriers:

• Retain some degree of control in the device, unlike Apple’s terms with AT&T
• Prevent becoming “dumb pipes, up-sell users on carrier VAS (value-added services) such as mobile video, ring-tones, gaming etc.
• Reduce Apple’s bargaining power
• Differentiate from other carriers

There is one thing all players agree on – counter the iPhone; but beyond that, there are some immediate points of tension. As smartphones seem to converge on the single big touch-screen form factor, hardware manufacturers will find it increasingly difficult to differentiate in shape and design. In that sense, HTC / Motorola / Samsung would very much want to tweak the UI or customize the OS, but that would quickly run into conflict with Google’s wish to offer users a consistent experience; and practically speaking, UI may really be too much a core part of the OS for the manufacturers to customize. Hence, manufacturers face the dreaded prospect of following the footsteps of PC manufacturers – low differentiation leads to low profits.

At the same time, carriers and Google’s interests aren’t that well-aligned, either. Google recently shuttered its Nexus One online store, which was hailed to disrupt the status quo of handset distribution by offering a contract free model instead of the typical carrier-subsidized model. Obviously this did not please its carrier partners. On the flip side, carriers perennial fear of becoming “dumb pipes” drove them to loading up Android phones with hard-to-remove bloatware, which consumers generally dislike and probably is making Google cringe – and just serves as more ammo for Apple’s value proposition of a refined experience.

My point here is that the logical implication of these interlocking conflicts is compromise. Google aggressively wants Android to become the de facto mobile OS – so much so that not only is the OS free to manufacturers, Google is also reportedly sharing search revenue with carriers / manufacturers. (Pretty amazing that you can think of this as almost the opposite of Apple’s original iPhone terms, where Apple got a share of AT&T’s revenue.) Manufacturers will get away with deals such as putting a Baidu search box on the phone, which would obviously go against Google’s interests. Carriers will get to keep their finger in the OS.

Sometimes these compromises result in degraded user experience, such as bloatware. Most often, they call into question the financial returns on Android. It would be a very difficult task to model how much incremental revenue Google will generate by owning Android, as opposed to not owning an OS and just receiving mobile search traffic from all devices. Manufacturers will get to ride the smartphone boom for a while, but then will again be hard-pressed for innovation – again, the PC manufacturers come into mind. The biggest winner from all this seems to be the carriers – especially Verizon – they finally have options other than Apple, and they can keep their old business model.

I think when people talk about Amazon Kindle’s competitive position in the market, they usually compare it to two distinct set of competitors:

1. “Direct” competitors, such as Barnes & Noble’s Nook, the upcoming Borders Kobo, Sony’s eReaders etc. The device play is a single-purpose device, hence directly competing with Kindle hardware.
2. “In-direct” competitors, such as Apple’s iPad, and other future tablet devices. These competitors are in some sense “in-direct”, in that reading is just one of many key features, and Amazon can utilize them by providing Kindle apps, which to a large extent nullifies their threat and turns them into distribution channels.

If I may, Amazon’s competitive advantages against these competitors are usually seen as follows, in no particular order:

• Brand power and experience in online retail.
• First mover in driving e-books adoption, and hence enjoys higher market awareness as well as being further along on the learning curve compared to competitors.
• Specifically against the iPad and iBooks, a much better book selection.
• Again perhaps specifically against iBooks, cross-platform availability – PCs, Macs, other mobile devices. Or as some people say, Amazon gets it that it’s not about selling devices, but selling books.

I think people often discard brick and mortar players straight away (“what do they know about digital?”, “they are late to the game”), and then only focus on comparing Amazon and Apple. Probably most people in tech would see iPad as the Kindle’s biggest threat, and in that comparison, Amazon’s “it’s about selling books, not selling devices” mentality clearly gives people confidence in picking them as winners.

Frankly, my biggest concern with Apple in the e-book wars is how much organizational will they have in competing. How serious are they about it? After all, it is just one of many functions. If they are dead serious about it, they can do the following:

• They will probably catch up in the size of the catalog;
• they can definitely make a better user experience, by merit of tight hardware / software integration and far superior application experience;
• They can also try to catch up in making iBooks available cross-platform, which is actually quite straightforward technology-wise since they use the ePub book format, so if the publishers allow it your books purchased in iBooks should be able to be viewed on any ePub reader on any platform – obviously this is the ideal world and there will be plenty of challenges;
• And they can probably make “shady” moves like what they are doing with iAds – block Amazon as it is not an “independent” retailer, in the same way they are attempting to block AdMob because it’s not an “independent” ad network. I’m not suggesting I agree with this last tactic, but if they do something like that it becomes an aggressive device versus device play, which at the current sales rate, the iPad would have a far bigger installed base.

So it seems there’s plenty of strategies and tactics for Apple. Again, my biggest doubt is whether they have the bandwidth and the interest to compete with Amazon.

What about the brick and mortar guys? Well, interestingly there’s plenty of options here too, upon doing some research (frankly, I’ve ignored the Nook completely since its launch). I’ll focus specifically on Barnes & Noble, since in terms of market awareness they seem to be the most serious competitor to Amazon from the physical retail side. What are its competitive advantages, if any?

• Perhaps surprisingly, more innovative features, such as the ability to lend a book to your friends (though severely limited, most likely due to publishers), and free in-store reading, to name a few. Obviously these aren’t killer features – yet – but they suggest that at least the Nook team is trying new ideas and not just playing catch up.
• Physical retail presence. On the one hand, Kindle’s adoption has been severely limited by its lack of physical retail presence (which Amazon is finally addressing by moving into Target); on the other hand, B&N can seriously leverage its retail stores to sell Nooks – directly to the device’s target consumers. This is something that Amazon cannot easily match, and if done right, is a huge marketing vehicle – the obvious case study is how Apple uses retail.
• Supporting the open ePub format. A huge fuss was made over this at the Nook’s initial launch – and while it might not matter that much yet (and plenty of proprietary formats have market dominance – e.g. Microsoft Office, or Adobe Flash), it is at least ammunition for marketing, and in the long run, the format wars may actually mean something (more on this later).
• E-book retail experience through the Fictionwise acquisition. Fictionwise has probably been in the e-books business longer than Amazon, and prior to their acquisition was one of the largest independent e-book retailers. The Fictionwise team at least inspires some confidence in B&N’s capabilities in software and all things technology, and may bring them even deeper insight in the market landscape than competitors. And of course, Fictionwise understands how to support multiple platforms and have done so for a long time (much longer than Amazon in this regard? Since the Kindle for Mac app only came out recently) – it seems B&N needs to market this point a lot more.
• Brand recognition. Sure, Amazon is one of the top brand in mind when it comes to online retail, but for book lovers B&N probably means a lot too – especially for mass-market to late stage adopters.

So I would say that from these points, B&N is at least a legitimate contender. Sure, they are playing catch up, and they are currently stumbling on execution somewhat (just from what I’ve casually read), but I wouldn’t discard them that easily. Two minor data points for consideration: the first is the somewhat suspect report from DigiTimes that Nook shipped more units than Kindle in March (via Crunchgear); and the second is the fact that they have released four firmware updates in roughly half a year – of course it means patching up lots of bugs, but you can also read it as the team being snappy and energetic about refining the user experience and adding features. Amazon on the other hand has been somewhat slow (at least in my personal feeling) in rolling out cross platform applications (Kindle for Mac seemed to take forever) and updating the device with new software features – of course, this is just based on my anecdotal experience.

Fundamentally, my problem with claiming “Amazon will eventually win” is that e-books are really just going through early adoption (and perhaps reaching the first stage of mass adoption), and there are still plenty of big problems that nobody has figured out yet. For example:

• Technology wise, how do you address the use case of lending books? How can I lend you the book I bought on iBooks to your Nook? And it’s not just personal to personal lending, but even more importantly, how do libraries shift to e-books – how do they manage their database and support myriad devices? Would the format wars have a huge implication here? I’ve read somewhere someone comparing Amazon’s azw format to Betamax and ePub to VHS – I don’t think it necessarily holds, but it does highlight potential issues.
• Business wise, what are the differentiating factors for e-book retailing, besides price and availability (catalog size and cross-platform support)? If we compare this to the evolution of physical retail, obviously we are at a very early stage: right now players are mainly competing on price and availability, which is perhaps similar to the early days of retail, where the player that had better distribution won – simply because its consumers could access its products. Surely there is vast unexplored space in how to create differentiated shopping experiences.
• What is the function of current physical retail space, when more and more books are consumed digitally? Will players like B&N simply close its shops, or is there room for transforming the stores of physical bookshelves into socialized book shopping hubs (tied to the previous point)? Are there any other functions they could play?
• Also, from an industry value chain perspective, are there alternative models with potential to disrupt? For example, currently players pursue a hardware + software strategy; would we see the rise of independent device makers that can support any e-book retailer (not just multi-purpose devices through apps)? Would we see specialist application developers that support multiple retailers and offer a superior user experience?
• Moving further up the value chain, how do e-books dis-intermediate publishers? Amazon and Apple already support self publishing; it’s not too far-fetched to see them as replacing traditional publishers completely in future. If that happens, we would see a lot more exclusives – e.g. one author’s books are only available on Kindle, another one only on iBooks. And combining this with the previous point, can we envision specialist device makers as the new “retailers” and the Amazon et al as the new “publishers”? Conversely, the existing traditional publishers can obviously step into this role themselves and retain their position in the value chain – if Amazon, Apple and B&N all become cross-platform, it ironically opens up the door for exclusive deals, since the consumers can still get the books they want on their devices, just from different retailers for different books. This is just one of many potential ways retailers can differentiate.

Looking at these open questions, I think it’s safe to say that this market still has a long, long way to go. I do not challenge that Amazon is the leader in this space currently, but I dare say the market is still up for grabs, and different competitors bring different competitive advantages to the table. Amazon is certainly well positioned – hence the conservative title of this post – but to say it’s game over and Amazon will definitely be victorious, well, is premature. And really, critics do it all the time – remember how many doubters of the iPad there were in January? And another one of my favorites – techies talking down Hulu when it was first announced back in 2007. Do people even remember the other online video startup that the whole tech world was going crazy over back then?

When the iPad was first announced, I quickly made the decision that I wanted one, and I justified my decision by telling myself that it would be an laptop replacement for school. I’m pretty big on paperless, and prefer reading cases on my laptop instead of printing them out; so the dream product for me (for this purpose) would be a tablet with a stylus to take notes. The iPad doesn’t support a stylus, but from the original announcement, and the fact that there’s plenty of iPhone apps that support PDF viewing, I thought I could justify splurging $500 on the iPad. (And yes, I decided fairly early on I only wanted the $499 version. I don’t need 3G access and from my previous usage statistics I don’t need big storage.)

However, when the iPad reviews came out last Friday and the product shipped last Saturday, I realized that this 1st gen device does not pass as a laptop replacement, even for the relatively lightweight usage of school (email, PDF, and some basic Office apps). Then again, I’m thinking of using the device in the sense of a traditional computing paradigm, whereas from the onset Apple was looking at the device as an iPhone-esque paradigm, a closed system and a tightly controlled user experience.

The tradeoffs are numerous and huge in implications. Jobs and Apple criticized netbooks for being a device of compromise which doesn’t really excel at doing anything; they claimed that the iPad is “magical” and “revolutionary” in that it sets out to accomplish what netbooks were originally intended to do – convenient access to basic computing tasks (email, web, video) – without sacrificing the user experience. What was sacrificed was an open file system; multi-tasking; flash; multiple channels to access and purchase software. To state the obvious, the iPad copies iPhone’s user environment, rather than that of the MacBook.

This makes the iPad, as it is, primarily an entertainment device. There is nothing wrong per se with this positioning; Jobs’ hyperbole that the product is “revolutionary” still has some merit, in the sense that the device is beautifully intuitive to people with little prior experience with computers. The iPad to computing is akin to the Flip to video recording, or compact cameras to photography. It’s an entry level device (albeit a luxurious one) designed for the mass consumer.

Interestingly, this design philosophy has sparked a philosophical debate among heavyweight bloggers: Doctorow from Boing Boing fears that the iPad era means an era of stifled grassroots innovation and creativity (users are “infantilized” – kids can only play with it, but are restricted from exploring it and programming it – unless you hack it first), while Gruber argues that there will still be creative kids. I’m more inclined towards supporting Gruber’s position. The proportion of users who are interested in programming may decline, but that’s more due to computing becoming accessible to all rather than there being fewer aspiring programmers. I would even argue that the App Store, closed and arbitrary as it is, has leveled the playing ground a lot more for new programmers (ease of distribution and access to users), and therefore there should be more aspiring programmers than ever before.

That being said, the geek in me craves for a more open product than the iPad. I want the flexibility of having access to the file system, of having more than just the App Store to go to find software, and I need multitasking. I need to be able to type up a word document while also doing some web search. Apple has a pretty good history of improving its products – just look at the 1st gen iPhone and see how much it has improved (no 3G, no App Store – in hind-sight can you imagine people actually bought it?) – and give it ten months and I might be seriously tempted to get a 2nd gen iPad.

It’s early days yet, but articles on Forbesand CNN last week have already began dissecting why Apple Inc.’s (NASDAQ: AAPL) iPhone had a rather spectacular failure of a launch in China. The widely quoted number from China Unicom (Hong Kong) Ltd. ((ADR) NYSE: CHU) is 5,000 units sold in 4 days, which is indeed an incredibly low number compared to first week of sales in US.

But is 5,000 units really that bad?

Before we start analyzing all the issues, some local perspective is needed here. The iPhone is an expensive machine. Even if it sold for half its price (the cheapest model is the 8GB 3G, at RMB 4,999 – USD 732), it would still be at the upper range  of the market. As some commentators have noted, that’s a third of the annual disposable income of urban residents in China. So by definition the iPhone is targeting at a very small addressable market.

According to an article (link in Chinese) on Phoenix TV’s news portal (interesting side-note – it’s called ifeng), an executive at Dopod (HTC) said that smartphones above RMB 3,000 (USD 432) in China usually have a lifecycle of 18 months and sell around 160,000 units. Another source said that the Samsung i908E, which launched at the end of last year to much fanfare as the first “deep partnership” (heavily customized) phone with China Mobile, has so far sold 120,000 units, or around 10,000 a month. The i908E is a direct competitor to the iPhone, with quite similar UI. Compared to those figures, the 5,000 in 4 days is not that bad.

And also according to ifeng, online and offline pre-orders of the iPhone totaled 140,000 units. When and how many of those pre-orders turn into real sales remains to be seen, but those are relatively respectful numbers.

What are the barriers to adoption?

Still, it’s obvious the launch fell well short of Apple’s expectations. And looking at it closer, a lot of things did go wrong and made the iPhone value proposition considerably less appealing. Here are five of those issues.

1. The App Store, or lack thereof: The China specific app-store is much less interesting. There certainly aren’t 100,000 apps. In fact, this is not just an issue with the China market – the App Stores in most countries have less to offer compared to the US version, due to whatever legal reasons. Sophisticated users will simply register for the US store, but you need credit card with a US billing address (at times there have been promotions when you could register without a credit card, which is how I got my account back in China). As a side-note, I think it will be very interesting to see App Store sales breakdown by geographic markets – I’m pretty confident it’s very, very skewed towards the US market. And of course Chinese consumers just aren’t used to paying for software – popular iPhone fan forums all offer pirated apps to install on jailbroken devices.
2. Lack of Wi-Fi module: Free wi-fi access is pretty prevalent in Beijing and Shanghai (all Starbucks and most coffee shops offer it for free), so having the wi-fi module disabled is a big blow, especially considering the 3G network isn’t that developed.
3. Switching barriers: Currently in China you can’t take your number with you when you switch carriers, which is a prohibitive barrier for serious business users currently with China Mobile Limited ((ADR) NYSE: CHL), the world’s largest mobile carrier. And China Unicom didn’t help themselves either, by restricting their own existing subscribers from using their current SIM cards on the iPhone – in a technical decision which has dire strategic consequences, even Unicom users must switch to a “186″ number (a number that starts with 186) if they want to use the Unicom 3G network, the rationale being this allows Unicom to easily distinguish 2G and 3G users. Surely there are other ways of doing this?
4. Pricing: Both the 24 month contract plans and the unit prices are steep for the market, especially considering gray market models have been available for a long time, and early adopters have all bought their phones. And Chinese users are really not used to the concept of 24 month contracts, and all the paperwork needed to get them (credit history infrastructure is very poor). Another interesting side-note here: cnbeta reports that (link in Chinese) China Unicom iPhones have already surfaced on the gray market, as hundreds of Unicom employees have signed 24 month contracts and then resold their phones – they can reimburse their monthly contracts, so they are literally getting a free phone to sell.
5. Poor marketing execution: For all its marketing savvy, Apple couldn’t really help China Unicom. Example: China Unicom’s 3G portal doesn’t even list the iPhone as a model in the list of phones available. Instead iPhone is tucked away in a separate part of the site (links in Chinese), which is confusing to say the least.

Is Apple clueless about China?

The current story does have all the signs of a classic business school case, and at the heart of it is really the fact that Apple, like many other multinational companies, has underestimated the difficulty and complexity of success in the Chinese market.

In closing, I would like to share another side-note. ifeng reports that(link in Chinese) on the launch event held at the luxurious high end mall “The Place” in Beijing (which has one of the world’s largest LED screens), Greg Joswiak, Apple’s Vice President of iPod and iPhone Product Marketing, spent half an hour touting the phone’s various features.

By the end of his speech, the devout fans who have been standing and waiting in the rain had become so restless that they started to boo and ask him to step down. Not understanding what the consumers were saying, Greg thought they were cheering for the features of the phone, which in turn made the audience laugh at him.

Yu Yingtao, the GM of China Unicom’s distributor subsidiary, had to go into the crowd to console the audience and do some crisis management. Some middle aged ladies near the front of the line (pause and think about the consumer segment for a moment) expressed, “we have been waiting here for 4 hours, why is he still selling us the features that we all know? We are the end-users!”

That I guess, shows how clueless Apple is about China.

The well-connected Chinese business magazine Caijing has acquired some info on China Unicom Limited’s ((ADR) NYSE: CHU) upcoming launch of the iPhone from Apple Inc. (NASDAQ: AAPL).  According to Caijing (link in Chinese), China Unicom will launch the iPhone after the upcoming October 1st week-long holiday, and will offer 4 models: 3G 8GB, 3G 16GB, 3GS 16GB and 3GS 32GB (all with WIFI disabled, per Chinese regulations). This differs from what China Unicom previously showed in its 2009 Interim Results Presentation, as the 3G 16GB was not mentioned.

In terms of pricing, while the article didn’t offer the full details, it was revealed that there will be as many as 8 contract packages (perhaps 2 choices per model?). The most basic package will be the 3G 8GB at RMB2,075 (US$304) for the phone and a monthly contract of RMB126 (US$18) for 24 months. That’s a total of RMB5,099 (US$747) over two years.

According to Caijing’s sources, the lowest monthly contract of RMB126 has been strenuously debated internally and is the absolute lowest price that China Unicom can offer. This is still 3 times the ARPU of China Unicom’s GSM subscribers. Additionally, there was no mention of data plans, so we don’t know what that RMB126 actually contains. It’s definitely a high end offering for the urban elite – the question is will the iPhone be strong enough to lure these customers away from China Mobile Ltd. ((ADR) NYSE: CHL). And perhaps the biggest hurdle is that currently users cannot retain their numbers if they switch networks – this is a deal-killer for business users. China Unicom should be lobbying heavily to get that changed.

Hardware side:

• New iPod Touches. Pretty expensive at $399 for the 64GB ones. Besides the memory bump, the CPU has also been upgraded to the one used in the iPhone 3GS, which should make this a serious gaming / networking device (Apple made comparisons with the PSP and NDS). The letdown, at least from the tech press perspective, is that the new iTouch doesn’t have a camera. Rumors are flying this is because of a engineering issue, not because of a conscious design choice.
• New Nanos, with a video camera and FM radio (besides other new features), making this a general purpose portable entertainment device. This is probably the biggest hardware release of the day.
• New Shuffles. More colors, cheaper.
• New iPod Classics. Improved storage, same price. This is really more of an afterthought.

Software side:

• iPhone / Touch OS 3.1. I’ve done my upgrading already. Wondering if it breaks tethering on AT&T, as rumored.
• iTunes 9, with some new features. Perhaps the most important one for iPhone users is the ability to manage / organize apps on iTunes instead of on the phone (so less dragging apps across screens)

For the details on any of those bullets, just head over to any major tech blog or Apple’s own webpage.

Some thoughts:

The iPod lineup is certainly diversifying and evolving from just music to all entertainment. Apple has been marketing the gaming abilities of the Touch; now the Nano seems to be aiming at Flip’s niche. But really, at this point, the gamers / amateur video directors who will switch to the Apple camp from PSP / NDS and Flip respectively are the casual players. The iPhone and iTouch are great for games, but for a different breed of games – the gaming experience is drastically different (just think of the Wii vs. the Xbox 360 / PS3). It almost feels like that Apple has too many opportunities to explore right now, and needs to make some conscious choices about what to pursue and what not to pursue.

Take gaming as an example. Positioning itself as a serious player in the space is very different compared to a hardware maker which also supports some games. If Apple is actively and seriously considering this space, it needs to be courting developers, and possibly peripheral makers (or consider some hardware functionality add-ons itself, like an external game-pad) – as opposed to just acting as the gate-keeper for apps.

And for the new Nano, if it does turn out to be a major competitor to the Flip, and Apple does care about taking a stake in that niche market, then Apple will have to make customizations and modifications of future models that put much more focus on the video-making aspects of the device.

I guess what I’ve been trying to say, and perhaps repeating myself here, is that I’m a firm believer that any device should have a focused purpose (despite the convergence trend). It’s fine for the PS3 / Xbox 360 to be able to support Netflix, web-browsing etc., but at the end of the day, the device’s main purpose is to play games. In the case of Apple, the iPod line-up is now converging with several other markets (portable gaming / video-making). Apple can either continue its current path of including these extra functionality as additional value propositions, or really start diversifying and entering these separate categories. This is a big strategic choice, and it’s perfectly fine to remain focused on music as the core proposition. Personally I think it would be a challenge to be competing in so many different markets where Apple has little experience. Regardless, it would be very interesting to observe how this develops.

So what went wrong for a product that, if you recall, had pretty impressive hype just a few months back? Below are my two cents.

• Poor marketing execution. This is obviously the easiest target of all, since everyone has been talking about these ads that makes no sense (see Fake Steve Jobs’ ranting analysis here). Like Fake Steve says, these ads show that Palm and Sprint seem to be confused about who their target consumer is (female smartphone users? That’s a tiny market), and the execution itself is creepily effective at driving negative PR.
• Lost PR momentum. Somewhat related to the previous point. The Pre was announced at the CES 2009 in January, and was definitely the hit product of the show. (I remember at the time being very hyped about the phone, and wanting to buy one immediately. The phone and its UI just looked very sexy.) However, as time passed, people’s interest gradually waned – the smartphone industry is extremely competitive with lots of players vying for consumer eyeballs, and Palm is not Apple, with a loyal base of media support (e.g. TUAW). With the benefit of hindsight, perhaps it would have been better if Palm kept Pre under wraps until very close to the launch date (of course there will be info leaks, but that would just help fuel the PR). And certainly it didn’t help that Apple announcing the iPhone 3GS two days after Pre launched in the US.
• iPhone’s first mover advantage. Namely, installed user-base and scaled up App Store. This is actually a huge advantage for Apple, and appears to indicate a winner-takes-all end-game – the more users, the more developers, and therefore more quality apps, which in turn attracts more users. The primary and only reason that I again bought an iPhone upon arriving in the States (and bearing with AT&T) is the App Store. This is the equivalent of the Windows eco-system on PCs. Competing OSes just lack the richness of the applications available, and for a computing device, it is all about the apps.
• But most fundamentally, unclear target consumer and value proposition. The Pre’s most innovative feature is the webOS, which supports concurrent applications – a key feature that the iPhone has not yet opened to 3rd party developers. However, the only people who would seriously care about this feature are smartphone power users – i.e. the millions of iPhone users – who can appreciate its benefits. But to convince iPhone users to switch, the Pre is lacking one major dimension: the App Store. There is no point in being able to run multiple apps if there are no apps. So in effect, the Pre’s most talked-about feature was a no-feature.

So what are the things that Palm could do to alleviate the situation?

• Build up the developer eco-system. It’s cliched, but it has to be done. Palm needs to have quality apps on its phones. This is an uphill battle, but one which must be fought nonetheless. One thing that Palm can do to attract developers is to have an open platform for developers to publish their work (as opposed to Apple’s draconian control on apps).
• Re-think its marketing strategy. And not just in terms of marketing communication – the entire marketing strategy, i.e. which geographic markets and which consumer segments. We should remember that the US is not the only mobile market in the world (Nokia, which has almost no share in the US market, is still the global leader in every mobile category, including smartphones). It’s probably an wild idea, but if Palm can focus on certain markets where the iPhone has not had such an impact, it could build up some user-base scale. (Again, while Nokia is heavily entrenched in most global markets, their smartphone eco-system – or the lack thereof – leaves plenty of space for newcomers to attack. In such markets as China, it’s more about the hardware and the UI, rather than the apps, and the Pre would probably fare better?)

It’s certainly not going to be a smooth revival at Palm. But they do have a quality product, they just need to realize who to sell it to.