iPhone with iChat?

in Future Apple Hardware edited January 2014
Hello guys,

I am knew to this forum and I came here cause I wanted to throw around an idea that came to me recently and get some feedback on it.

I actually turned it into a small article, to give a complete picture, so here we go...


There has been some speculation recently from rumour sites and analysts alike about the possibility of an upcoming Apple iPhone. The goal of this article is to examine the strategic implications and potential of such a move.

Executive Summary

I will provide the vision of an iPhone that integrates cell phone and iPod functionality as well as tapping into the iChat VoIP network whenever a WLAN is present. There are a number of recent news items that support such a theory, but more importantly, the strategic implications of such a move are tremendous. Due to Apple's strong brand and ownership of the iPod/iTunes system it is in a unique position to successfully market such a product. Not only would it neutralize a long term threat to it's iPod/iTunes system, it would utilize this very system to create an even more powerful one.

Apple's Way

Let's start with a look at how Apple has been doing things in general, and how this would fit for an iPhone.

Apple will not enter the cell phone market without bringing something radically new, cool and interesting to it. Take the iPod as precedence for Apple's way of thinking: What's the point of an mp3 Player, if it follows the model of the walk man. What is the point of cell phones, if they follow the model established for land line phones?

The biggest technology shift happening in telecommunications in years is VoIP. But so far it is mostly limited to corporate telephone networks and Skype users, sitting in front of big grey boxes with headsets. So keep VoIP in mind for a second.

The second angle Apple brings to any market is service, or rather, total customer solution. Apple has always found unique ways to combine devices, software and services into a product that totally solves a customers problem. The software to think of here is iChat.

Bringing these components together creates a cellphone that connects to standard GSM networks if you provide it with the usual SIM card, but also to your wireless network at home. While you are at home, you are logged in to your free Apple iChat account being able to send/receive instant messages on your cell phone as well as initate free VoIP communications (audio, video maybe at a later point). Free means free, whether you are calling your neighbor or someone across the globe.


There are a number of indications that support the theory presented here.

First, Portal Player recently announced a new chip that would combine media player functionality with WLAN and Bluetooth access capabilities, using as little power as possibly. These news by themselves would not be so significant, however, PortalPlayer makes 90% of its revenue by supplying Apple Computer. It is highly unlikely that they would development anything which was not explicitly requested by Apple. Obviously, this chip could also indicate a wireless iPod. But it makes much more sense in an Apple cell phone. Wireless music syncing is tempting, but you have to connect the iPod to the computer anyway in order to recharge its batteries. Using the wireless functionality for VoIP makes much more sense.

Second, Apple management recently conceded that eventually, cell phone makers would come up with the right interface and system for managing music on your cell phone. This poses a long term threat to the iPod system that could be effectively countered by entering the cell phone market.

Third, in the alliance with Motorola Apple has shown it's willingness to experiment with the cell phone market. From the perspective of this theory this alliance could have been a first test to gain insight into the cell phone market mechanics.

Strategic Implications

It is a no-brainer that an iPhone would include iPod functionality. Most likely it would also include an iPod dock connecter, leveraging Apple's existing system of iPod/iTunes, the brand value, the marketing effect and access to the existing iPod accessories market (e.g. car connectors).

When the ROKR was launched it was also noted, that mobile network carriers resent the iPod/iTunes model because they can't expect additional revenue from music downloads in this system. If Apple was to add iChat functionality to an iPhone carriers would probably outright refuse to offer such a cellphone at all.

This raises a huge barrier for distributing VoIP cell phones in general. Although customers would probably love them, they are difficult to get past the carrier's channel control. This is true for any other company that would come up with such a plan and the reason why Skype-enabled cell phones will fail.

However, Apple does not operate under such a limitation. With its powerful brand image plus the free media coverage it would get for such a move it could successfully sell such a phone directly over its existing channels, bypassing the carriers entirely and extending its power by connecting directly with the customer.

Further, there is a new trend in Europe towards no-frills contracts with low-cost carriers. These new carriers keep their costs low by not subsidizing cell phones and expecting you to BYO - bring your own cell phone. An Apple iPhone would fit with this new strategic group of network carriers.

Finally, the iChat software would provide an excellent angle for applying a system lock-in strategy. Phones are subject to something described as the network effect. That is, a single phone is useless, but with every phone added the value for every other phone user rises. The same would be true for the ability to make free calls via iChat. Only that in this case, Apple would already start with a network of millions of iChat users, many more iChat-enabled Mac computers and the option to quickly release a Windows version of iChat. This would allow Apple to utilize the exiting network of iChat-enabled PCs and deliver its value to the customers of the iPhone. Further though, these customers would have a strong incentive to convince friends and family to buy such a phone as well, effectively facilitating a system lock-in.

To push this even further, it could be argued that long-term, there is no other option than VoIP - the question is, which network is going to take over the market first. There is an extreme first-mover advantage to be held in a market subject to the network effect. This makes it all more likely that Apple is actively working on such a move right now.


So what do you think? Do you think, in general, that strategic thinking might reveal some of Apple's next steps? I feel that most people, analysts, journalists don't really get how Apple's strategy is working and why they are doing certain things or actually even why they have been so very successful. I would like to shed some more light on this topic, but let this article be a first start and I am very much looking forward to read your thoughts.




  • Reply 1 of 10
    newnew Posts: 3,244member
    With http://www.mabber.com I can MSN and iChat with my 3G phone, I've been beta testing it for some days and it works great.

    Both sonyericsson and nokia are comming out with wifi-phones as we speak, so this is gonna take off within this year.

    I can certainly see Apple in this picture, but it's gonna be a crowded field...
  • Reply 2 of 10
    macroninmacronin Posts: 1,174member
    Apple's smartphone/PDA/mp3 player would have iChat, that is a given...

    But Apple will probably also enable video iChat capabilities!

  • Reply 3 of 10
    tednditedndi Posts: 1,921member
    It would also work if they became a virtual carrier as well. Then the .mac synch would be in real time. as would the download and desktop synch of itms content.
  • Reply 4 of 10
    garypgaryp Posts: 150member
    I hope you are right. I have been holding off on buying a cell phone because I hate the American model of being tied to a carrier & a plan. Also, you are right in suggesting that the same foot-dragging & resistance to VOIP which makes it hard to break into also creates an opportunity for Apple to introduce a killer solution that bypasses those dinosaurs entirely and grabs all the attention, like the iPod did. For a couple of years now, I have been hoping that Apple will release a VOIP world phone that just works. If they do, I will buy one immediately.
  • Reply 5 of 10
    I like the idea. I'm thinking about switching to Synck or w/e it is called, with bluetooth wireless, so i'm not pinned to my computer while on the phone. Also i would use ichat then almost more than i would call people...ha i love the idea. Apple has its oppurtunity, will they take it? or will they mess up? I hope they take it.
  • Reply 6 of 10
    Apple is definitely thinking about an iPhone, but I think you put too much emphasis on a connection between a wireless iPod and VoIP. Just because you wouldn't transfer songs from your computer to your iPod wirelessly doesn't mean a wireless connection could only be for connecting to the Internet.

    Here are some other novel ideas about possible wireless iPod support that I'm sure have come up before.

    First, it could be used as a remote control for Airport Expresses. You use your iPod to connect back to your iTunes computer, select a song from a wirelessly transmitted playlist, and then iTunes would send it to your Airport Express. This solves the current issue of having your computer in a separate room than the actual output speakers rather nicely. This could evolve to be a remote control for a media center as well.

    Second, the wireless support could also make the iPod a portable receiving station. For instance, you load up a Mac or boombox with a bunch of music and put it in a gym or cafe. Then patrons come by, wirelessly browse the available music on their iPod, and the music is streamed to them. There isn't any more risk in this than there is with Airport Expresses. You don't keep the music but you can listen to it when you are around the broadcasting station.

    Third, the wireless iPod would act as a streaming base station to other wireless iPods. People might be more inclined to purchase music if people around them listen to it. It also allows easier discovery of what's "in" with your peer group. Think of it as a local iMix.
  • Reply 7 of 10
    I wanted to comment on some of your replies:

    New: I know that there is software out there which can give you the cabability - sort of - and there are also WiFi cellphones already on the market. However, seamless integration is a feature you will find missing. Does Nokia have a VoIP application, yet alone a network? And: How are *they* going to get their phones past carriers channel control?

    Nightshift: I was not saying that the wireless chip could have no possible other use than in a cell phone, but I took it as a good clue. You are right though about other possibilites, and your suggestions sound intriguing, and perhaps it sounded in my article as if that chip was a very very important link.

    About apple as a virtual mobile network operator: I definitly don't think so. That stuff is infrastructure service. You compete on cost there, and cost only as it is standardized commodity. And that's not Apple's field at all. Plus it would *increase* customer switiching costs if they had to switch networks to get their hands on Apple's phone. Also, it is not an international possibility, would work in the US mainly. There is really no point in doing this, selling a cell phone by itself should be just fine.

    One question, how is it in the US: Can you *only* get a cell phone from a carrier? What if you already have one, and you want a contract to come without a cellphone or you upgrade your cellphone and stick with your contract - is that possible? Because if is, that is room enough to place an iPhone as I described it directly with the customer.

    As for looking beyond the rim of the plate: Yes, video cababilities would definitly be the second step after that, I think the same.

    Thanks for your comments so far.

    Would anyone like to take a shot at what I describe with bypassing the carriers control? Do you think it is feasable? Do you agree that other handset makers are incabable of that? Do you think iChat VoIP over private Wireless is good enough?

    And: Is there a job opportunity at Apple where I could implement that strategy? I sort of have three months of space this summer! ;-)
  • Reply 8 of 10
    tednditedndi Posts: 1,921member
    If apple sold an apple branded cellphone that was unlocked to the carrier. You could use that phone anywhere in the world. (assuming it was GSM).

    With the setup software and a usb connection you could configure the phone to any carrier worldwide via .mac.

    You just click on your carrier and a few other details and Apple can Auto-Configure your phone to work perfectly with the network and carrier.

    It is an easy simple way to work everywhere and ignore the orifice problem.

    A voice and data plan and you are there.

    The networks get there $$ apple gets the $$ and penetrates into a new mindshare area.

    Apple could then control the feature set and the capabilities of the hardware.
  • Reply 9 of 10

    Originally posted by ak1808

    One question, how is it in the US: Can you *only* get a cell phone from a carrier? What if you already have one, and you want a contract to come without a cellphone or you upgrade your cellphone and stick with your contract - is that possible? Because if is, that is room enough to place an iPhone as I described it directly with the customer.

    You can get only a cell phone from certain carriers. The cost of course is high without the contract subsidies which means most people don't even bother. The phones may/may not be locked in firmware as well to a specific carrier. You can usually flash the firmware to a different version which will unlock the phone itself.

    You can buy just a SIM card too for the GSM carriers (or at least Cingular and T-Mobile). For upgrades, you usually extend your contract, get a "free" phone upgrade, and they send you a carrier-locked phone, and you replace the SIM card.

    If people really want to use a specific phone and know what they're doing, they usually go to a 3rd party, buy the unlocked phone, and then buy a SIM card from the carrier. This may still be more expensive because whether or not you get a phone from a carrier, your monthly rates are the same. The only advantages of picking up a 3rd party phone generally are that you get to pick your phone and you aren't in a long term contract.

    Most people in the US associate phones with the service though. They don't want to bother with all this SIM card business (especially considering half the market isn't GSM) and locked phones. It's an all-in-one stop. That in itself is a big barrier for 3rd party phones breaking into the market (not to mention costs).

    Personally, I don't think it's feasible to bypass the carriers right now. It's a very different market than Europe and Japan where you buy the phone and service separately usually. Unless Apple becomes its own service network like Virgin Mobile or whoever leases time from the carriers, it's a hard market to get into without the carriers.
  • Reply 10 of 10
    ak1808ak1808 Posts: 108member
    Another thought... what if Apple would integrate VoIP with the iPod first - providing iChat access on the iPod, then releasing a phone after. That would give them a huge network-effect advantage as millions of people would already be part of Apple's VoIP network when they purchase an iPod.

    Given Apple's talent for ease-of-use, millions would actually discover VoIP with their iPod. Selling a phone after that become easier and easier.

    The cell phone threat is real, they have to work around this. How are they going to do it? Any suggestions?

    Another option would obviously be to build the iTunes Mobile store, strike deals with carriers and license Fair Play to mobile phone contructors. But would the profits from licensing and selling music be good enough? It certainly scales well...

    And isn't it something they could always do, in case the iPhone fails?
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