An Apple a Day

by Neale Martin published March 20, 2006 in Telephony Telephony

Is AT&T, the modern equivalent of Frankenstein's monster, to be feared or pitied? Will Verizon's FiOS and other major broadband initiatives from ILECs define the future of residential service, or just waste billions of shareholder dollars? What happens to the cellular industry if the future of broadband wireless is Wi-Fi and WiMAX and not 3G? Rarely has so much money been at risk for a future that is less predictable than today's communications marketplace. While analysts, pundits and writers predict winners and losers with great confidence, I am not so sanguine. The future looks pretty much up for grabs to me.

Adding to this complexity is the disturbing possibility that non-traditional players could disrupt the business models of the incumbents. In earlier commentaries, I stressed the need to become the habituated choice of customers. Let's look at how an Apple mobile virtual network operator (MVNO) might affect the communications marketplace.

Upon receiving her iPod Nano, my 18-year-old daughter's first response was, “I wish this was my cell phone!” The Apple iPod ‘phone’ has long been rumored — envisioned as a radically different device than the Motorola handsets that play iTunes music. But what would happen if Apple swung for the fences and created not only the coolest handset in the world but launched its own service as well?

An Apple MVNO featuring an iPod phone that could store a thousand or more songs and play videos and podcasts would immediately attract millions of customers. But would Apple simply be a niche player or could it become a substantial threat? This is where habitual behavior could play a critical role in determining future market success.

We've been putting MP3 players into phones since the Sprint/Samsung Uproar was launched in 2001, ironically the same year the iPod debuted. And although major wireless carriers have jumped into the downloaded music arena, they have not slowed Apple's domination in portable music. The reason is Apple's brilliant integration of iTunes software with the iPod to create an intuitively easy way to manage and access all digital music. Users quickly learn to extend this functionality to new applications, like podcasts and video. How quickly could a seasoned iPod user master a click wheel to access stored phone numbers?

The threat to incumbents goes beyond simply losing a few million customers to a company that would have to pay them for use of their spectrum anyway. Apple is at the center of how its customers interact with digital media. The company sold its 1 billionth song from its music store last month and has pioneered the geometrically growing use of podcasts. If Apple successfully adds mobile voice service, it will significantly undermine the wireless industry's strategy of expanding into entertainment services.

Apple's competitive advantage is based on having designed a device and service that are so intuitive that customers quickly learned to use them habitually. Habit is a cognitive strategy hardwired into humans as an evolutionary survival mechanism. Habit is the brain's way of handling routine matters to free the conscious mind for more important matters, like talking on our cell phones while driving.

Handset manufacturers keep cramming more applications into a device built around the antique phone keypad. Adding more functions to cell phones makes them complex and therefore harder to use habitually. And although customers have habituated on mobile phones, no service provider can claim that their customers are addicted to its service.

Apple may never launch a voice service, but the threat alone should give us pause to consider how hard we are making it for our customers to habituate our services.