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Apple takes on Asia
By launching the iPhone months before the device reached Asia, Apple CEO Steve Jobs was forcing his would-be competitors to react to the media hype and show their hands.
The Apple iPhone is a stalking horse.The term originated from a hunting practice. Centuries ago, hunters noticed that many birds, particularly wild fowls, would flee when a human approached them, but tolerated the close presence of harmless animals, such as cattle or horses.
The hunters therefore approached their quarry by walking in a crouch alongside a horse, their upper torso hidden from sight, until they were within firing range. The horse was called, not surprisingly, the stalking horse.
Today the term is mostly used in politics. It describes a sham candidate who puts himself up in an election to draw out would-be opponents before the real candidate shows himself. In business, a product is called a stalking horse when it is used as a decoy to test the market ahead of the launch of the real product.
The iPhone is a decoy. This is not to say that it is a sham product. Steve Jobs has put much thought into introducing Apple’s first cellphone, a slim, beautifully designed slab of metal with no buttons.
Jobs aims to capture 1% of the global phone market in the first year, selling 10 million phones out of a total demand of 1 billion. At US$499 (for a 4GB model) or US$500 (8GB), the iPhone would add US$5 billion to the revenue of Apple, a respectable contribution for a company whose total turnover in 2006 was slightly less than US$20 billion.
Yet the revenue from the iPhone could be bigger, if only Jobs would sell it across Asia. Yet as things stand, select Asian countries only got the phone in 2008, six months to a year after it was available in the West. Apple has never paced its products in such a manner. Previous new models of the iPod, for instance, were made available in almost all major markets at the same time. Considering the iPhone is built almost entirely in Taiwan (see related story), it is unusual for it to take so long to reach its continent of origin.
Put it down to Jobs being his usual cautious self, not that he's wrong in doing so.
Jobs may be the high guru of technology, the father of Mac computers and the founder of Pixar, which gave the world animation characters such as Buzz Lightyear and The Incredibles. But when it comes to selling phones, he is a novice. And he is rightly afraid of his Asian competitors.
In computers, all Apple has to do is to fight against Microsoft. In digital music players, the iPod has no true rival. But in cellphones, the market is crowded with large and savvy competitors, almost all of them Asian except for Nokia (Finland) and Motorola (American).
From Samsung and LG to Dopod and Sony, Asian phone makers produce hundreds of new models a year for a continent full of buyers who change their phone seasonally. It is a huge market, and hugely competitive. In this market, hardly any model can last more than a year; new features are dated within months.
It is a deadly game for the veterans. And Jobs is wading in it like a newbie.
When he introduced the iPhone, Jobs also changed the name of his company from Apple Computer to Apple Inc, a clear indication that his company will no longer rely on computers as its mainstay. Yet the iPod, popular as it may be, caters only to a minority crowd and its demand is probably peaking. Jobs is banking on the iPhone to move Apple away from the IT business.
After spending decades as the underdog in a world dominated by Microsoft, never gaining more than a few per cent of the market, Jobs fully appreciates the benefit of size. Twice Apple almost went down because it was too small to fight back. Jobs has no intention for history to repeat itself in cellphones. To survive in this business, Apple needs to bulk up and grab 5%-10% of the market. In other words, it has to displace one of the current top five players.
This is in the future. At the moment, Jobs needs to establish the iPhone in Asia, where cellphone customers are much less forgiving than their counterparts in the West.
This is why Jobs started selling the iPhone in Asia only in 2008. By announcing the iPhone months or even a year before it reached Asia, Jobs was forcing his would-be competitors to react to the media hype and show their hands. This is the stalking horse strategy, and it's working. Barely nine days after Jobs’s announcement, LG unveiled a phone that it designed in conjunction with Prada, the famed Italian fashion house. Many of the features of the PRADA phone are similar to that of the iPhone, including the touchscreen, which replaces the keypad — a terrible thing for Apple, which sells its products on their unique features.
Thus Jobs has been sitting back and waiting for one Asian competitor after another to show off their products, and absorbing the best features for the next generation of the iPhone. It is this new version that he is likely to bring to Asia come 2009. It will be a version that, for all intent and purposes, is designed as much in Asia as in the Apple headquarters in Cupertino. For the first time, Asia will exert a strong influence on Apple products. It will not be the last time.
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Lee Han Shih is the founder, publisher and editor of asia! Magazine.