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What's Good for Apple Is Better for Everyone Else

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Old 06-09-2008
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What's Good for Apple Is Better for Everyone Else
As Apple prepares to launch the iPhone 2 on Monday, competitors like Palm and RIM are not worried. On the contrary, they are licking their chops, preparing for a surge in sales, even though Apple expects to sell millions of new iPhones worldwide.
"The way I look at it is there are 1.2 billion cellphones out there, and we're just scratching the surface," said Mike Laziridis, CEO of Research In Motion, which makes the BlackBerry, the iPhone's closest rival.
Steve Jobs is expected to announce the second version of the iPhone on Monday morning during a keynote speech kicking off Apple's annual Worldwide Developer's Conference.
The iPhone 2 has already been dubbed the "BlackBerry killer." It promises to be faster, slicker and cheaper, boasting features like fast 3-G networking, Exchange support and even carrier subsidies. If the rumors prove true, it will be the iPhone many buyers have been holding out for.
It's a standard line for companies to say they "welcome competition," but it's usually a throwaway meant to deflect attention from strategic vulnerabilities.
In the case of the iPhone, however, competitors earnestly have reason to welcome Apple to the market. Sales show that what's been good for Apple has been verrrry good for smartphone makers. Retail sales of the BlackBerry, for example, are up 38 percent in the year since the iPhone's introduction.
It didn't initially look that way. When the iPhone 2 rumors first surfaced, nervous investors sold off shares of RIM under the assumption that the company would get creamed by Apple. Instead, RIM's market share of smartphones in the United States has actually swelled from 35 percent in the fourth quarter of 2007 to 45 percent in the first quarter of 2008.
"The fact of the matter is this," said Pablo Perez-Fernandez, an analyst with Global Crown Capital. "There were a lot of BlackBerrys in those stores where iPhones were selling, and there were people who may not have thought about a smartphone before, wanted the iPhone, thought it was too expensive, and bought a BlackBerry instead."
And for smartphone makers like Palm, Nokia and RIM, Apple helped whet the market's appetite while they went in for the kill, helped by discounted prices and a choice in carriers.
Palm says the sell-through rate on smartphones over the last two quarters has climbed 21 percent to 833,000 units in the third (and most recent) quarter, from 686,000 in the previous quarter (although the sell-through rate was 689,000 in the first quarter).
"The Centro has played a critical role in moving our transformational efforts along at a fast pace," said Ed Colligan, CEO and president of Palm, in a March conference call. He added that more than 70 percent of Centro buyers are traditional cellphone users who are purchasing a smartphone for the first time.
"What the iPhone did was make it cool to use smartphones," said Ramon Llamas, an analyst with research firm IDC. "Before, you had the BlackBerry, which mostly just resonated with enterprise users or business people. Now, there's a whole new market of smartphone consumers . Before the phone came out, I actually asked guys from companies like Nokia and RIM how they were going to respond, and the answer was unanimous -- it was, 'Welcome to the party, hop in the pool, the water's fine'"
It's an odd phenomenon because it's not as though Apple invented the smartphone or any of its features – touch screen devices have been around for years and lots of mobile phones already had music capabilities on phones. What Apple did was package it -- and market it -- in a way that made it attractive to mainstream consumers.
"The fact that it looks cool and sexy has helped Apple, and has called attention to a portion of the market that had been under the radar for a lot of people," Llamas said.
In many ways, the iPhone's effect on the market can be compared to what the iPod did for MP3 players.
Before Apple rolled out the iPod, the portable audio market wasn't doing much. In 1999, there were really only a handful of MP3-player makers and unit sales were marginal. Just a couple years after Apple rolled out the iPod in 2001, an industry was born.
Total sales of MP3 players in the United States jumped from a paltry couple million (depending on whose data you use) up to tens of millions over the last few years, as less-expensive models have become readily available.
"The combination of Apple's iPod device and its iTunes Store for music downloads has energized the music industry," gushed a JupiterResearch report in 2003.
Now we'll have to see whether the iPhone will have the same effect on the smartphone market.
Senior Editor Dylan Tweney contributed to this report.

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