Apple iPhone Could Kill Off Five Markets
Thanks to the App Store and the iPhone's versatility, Apple's smartphone combines many devices into one compact product. In the face of such a juggernaut, is it possible for stand-alone GPS devices, MP3 players, handheld games, low-end digital cameras, and e-readers to survive?
No one is saying that these five product categories will inevitably succumb to iPhone apps costing pennies on the dollar for the same functionality that the stand-alone device provides. Some markets will have it worse than others, of course, but analysts agree that the iPhone will at least disrupt all of these markets.
For newer markets such as navigational devices and e-readers, the iPhone threatens to gobble up first-time customers who would have bought the stand-alone device. "Portable navigation devices are definitely under attack from smartphones with GPS," says Gartner analyst Van Baker. "The devices will have to get cheaper to remain viable, and that is not an attractive segment going forward."
For mature, saturated markets such as the ones for digital cameras and MP3 players, the iPhone (and other smartphones) will likely steal sales on the low-end because an iPhone with the camera, iPod app, navigation app, game apps, and an e-reader app would cost less than these five devices bought separately.
However, the iPhone might drive some low-end buyers up market toward better digital cameras and music players. Passionate consumers will continue to seek stand-alone devices simply because they provide features that an iPhone app can't match—everything from rendering better digital images and videos to providing a more exciting gaming experience.
Stand-alone devices also give users some comfort knowing that the device won't run out of juice unexpectedly. An iPhone app, on the other hand, might not be available when you need it given the much-maligned iPhone battery. As an iPhone's capabilities grow, its battery life will shorten.
The GPS radio on navigational apps, for instance, dramatically saps the battery. Most navigation iPhone apps keep the iPhone screen lit, says Forrester analyst Charles Golvin, "and this also sucks battery life." Golfshot: Golf GPS, an iPhone app rangefinder that threatens to displace handheld rangefinders, drains the battery to the point that many golfers use an external battery pack just to get through the round.
"A final thought here that may mitigate the cannibalization is battery life," Gartner's Baker says. "Anyone that has used an iPhone for all of these applications knows that they run the risk of having a phone with a dead battery by early afternoon, and that may drive people back toward discrete devices."
A closer look at the five stand-alone devices that the iPhone is besieging offers some insight into their odds of survival.
If you can't beat 'em, join 'em. Earlier this month, TomTom released its turn-by-turn navigation iPhone app for $100 (not including the dashboard mount and adapter kit), which will likely cannibalize sales of TomTom's popular stand-alone navigation device.
Indeed, navigation devices are feeling the most heat from the iPhone. Forrester's Golvin predicts smartphone-based navigation will dominate the market by 2013. That's why TomTom got into the iPhone game, he says. "All of these GPS-enabled mobile phones are potentially degrading their market," Golvin says. "It's a smart play on their part. Their core abilities are more based in software than hardware, so it makes sense to leverage that skill on other platforms."
TomTom told the Wall Street Journal that it continues to see robust demand for its stand-alone device and that the iPhone represents a growth opportunity and not a threat in the short-term.
The release of iPhone 3.0, which supports turn-by-turn navigation, opened the floodgates for navigation iPhone apps such as TomTom, Navigon and Sygic. These apps allow for embedded maps and deliver directions even if the iPhone has no network coverage.
Does this spell doom for stand-alone navigation devices? Probably not for outdoor GPS devices and other cases where location is an absolute necessity. The iPhone apps aren't perfect, either. "If you get a phone call, then your navigation is going to stop," Golvin says. "Stand-alone devices won't do that."
The iPhone 3GS comes with a built-in 3-megapixel digital camera with video capabilities. Other smartphones have even better 5-megapixel digital cameras. Cameras in smartphones have proven to be very successful: owners love them. And there's been displacement of sales for low-end stand-alone cameras. "It's definitely happening already today," Golvin says.
Keep in mind a 5-megapixel stand-alone "shooter" camera will take better pictures than a 5-megapixel camera on a smartphone, says Golvin. Despite being on the low-end, the shooter likely has a better lens, better light sensors and other features such as zoom (the iPhone camera can't zoom in and out without a third-party app) than those built into the cameras of smartphones.
"Camera phones are not the most consumer-friendly devices," Gartner's Baker says. "So you will continue to get much better pictures with point-and-shoot cameras. That said, some consumers will not want to carry a separate camera so they will just use what they have in the phone. Cannibalization is real but less significant than it is with portable navigation devices."
The digital camera market is largely saturated, which means the iPhone won't be wooing many first-time buyers as in the case of navigation devices. Whereas navigation device vendors will lose new sales to iPhone apps, digital camera vendors may see smartphones with built-in cameras actually motivating people to save their money and buy a high-end digital camera where they can take lasting images, Golvin says.
On a related note, vendors of cheap digital camcorders have little to worry about when it comes to iPhone competition. Video capture on the iPhone has a ways to go in performance and features before it can steal sales from even the very low-end of the camcorder market.
The iPhone has been called a gaming platform, but don't tell that to true gamers. Sure, the App Store owes much of its success to cool games, many of which are "casual," Golvin says. But Golvin is quick to point out that people who really love games are going to continue to buy the Sony PSP and Nintendo DSi. "It's just a better gaming experience," he says.
Action games cry out for physical buttons that a gamer can pound away to fire a weapon, for instance, or an analog stick to maneuver a character around buildings and through doors. A touchscreen is much harder to control. While some cool iPhone game apps have hit the year-old App Store, such as Civilization Revolution, Assassins Creed and Tiger Woods PGA Tour, games for the PSP and DSi (whose predecessor was the DS) have been evolving for years.
Although an iPhone game app costs a few bucks (if it's not free), the related costs of the iPhone might be too much for core handheld gamers. "The consumer that's buying a smartphone is likely to see less appeal in handheld gaming devices," Baker says. "Many handheld gamers are young and not likely to bear the cost of voice and data plans associated with smartphones, regardless if they're paying for it or their parents are. As such the impact will be less."
Apple sold 10.2 million iPods last quarter—a 7 percent unit decline from the same quarter last year. The dip surprised many industry watchers because of the iPod's historically torrid growth. Golvin figures he knows what happened: "People who would have bought an iPod probably bought an iPhone instead."
Ironically, Apple's iPhone might be cannibalizing sales of its own stand-alone device with an iPhone iPod app that comes with the phone. And it's a good case study to see iPhone's impact on a product category leader all within Apple's earnings report. Cannibalization is very real.
Just how much cannibalization will take place is, of course, anyone's guess. But analysts agree that stand-alone MP3 players aren't going to disappear.
Music aficionados, they say, will still want a stand-alone device that holds all their songs, albums and playlists without the added worry about whether or not they synced the iPhone. When music lovers want to listen to a song or playlist during a commute or walk, they'll be disappointed if there isn't enough juice left in the iPhone battery.
And then there's the consumer that just doesn't want to converge all his discrete devices into one rather expensive iPhone. In these cases, the cannibalization impact, says Baker, "is minimized due to the audience that just wants a cheap MP3 player and a cheap phone."
The market for e-readers is still in its early stages. The Amazon Kindle, of course, has received most of the attention. Sony has an e-reader, too, and Barnes and Noble is also targeting the market. Nearly everyone expects Apple's rumored tablet with the 10-inch touchscreen to be a competitor in the e-reader space.
Yet earlier this year Amazon came out with a Kindle iPhone app. Does this mean the iPhone will disrupt this nascent market before it even really begins? Golvin doesn't think so, at least not to the extent that the TomTom iPhone app and other smartphone navigation apps will cannibalize sales of stand-alone navigation devices.
Golvin is a big reader of books (the dead tree kind), owns a Kindle and has the Kindle iPhone app. Yet he hasn't read a book on the Kindle iPhone app, rather "only a few pages." The reason is that the reading experience with the dead-tree books and Kindle e-books is far superior to that of the iPhone app and its tiny screen.
"If you're really passionate about something, you'll get the stand-alone device" he says. "Doing these things on the iPhone is a compromise."