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By Wu Hao

On Sep 10, 2009, Apple released its latest iPhone OS 3.1 with numerous improvements and functions. The American giant also announced a staggering 1.8 billion application downloads from its App Store, thanks largely to the iPhone and the equally popular iPod, which have consolidated the store' s position as the most popular digital sales platform. Having sold around 30 million sets over the past two years, the iconic iPhone remains the gold standard for mobile phones. The dual successes of this pioneering handset and the App Store can be largely explained by the revolutionary experience that Apple' s iPhone has given the world.

Experience catalyzing the mobile Internet

Professor Robert Jacob, a specialist in man-machine interactions from Tufts University, Massachusetts, believes that today' s handsets like iPhone are "more like the real world." He adds, "Just think of the brain cells, you don' t have to devote to remembering the syntax of the user interface. You can devote those brain cells to the job you' re trying to do." 

The iPhone incorporates a number of sophisticated sensors that enhance user experience and prolong battery life. These include acceleration and gravity, proximity, and optical sensors. Moreover, the iPhone Safari has innovatively reengineered the basic WAP browser into a PC-quality browser, further extending the role of the App Store as a portal to Internet applications. 

Following in the footsteps of the iPhone, Google' s G1 also creates an application environment designed to resemble real life. With an inbuilt GPS system and electronic compass, the G1 is aware of human proximity. 

These new terminals and their man-machine interaction capabilities have revolutionized the concept of mobile phones, elevating them as a new focal and growth point that symbiotically powers and is powered by the mobile Internet. 


Unique awareness 

In a drive to mirror the real world, the iPhone has distinguished itself from other mobile terminals in several areas. 

Firstly, its operations are founded on simple, intuitive physical principles. Its user interface emulates both gravity by adapting the display mode to the handset' s position, and also inertia by continuing to scroll a webpage after the manual action has stopped. 

Secondly, the iPhone has uniquely physically awareness thanks to multi-touch technology that perceives finger movements and responds accurately without a stylus. 

Finally, the G1 displays environmental awareness through its ability to automatically detect and connect to surrounding Wi-Fi access points, observe a user' s location and, if configured, inform the user' s contacts. 


More than just fun 

Inspired by the iPhone' s capabilities, Sega released a highly-acclaimed phone version of its popular game, Super Monkey Ball. Departing from the manual controls used on other platforms, the iPhone version guides the ball by tilting the phone. Gameloft' s 3D offering for the iPhone, Real Soccer 2009, has also raised the bar for phone games through high-grade artificial intelligence (AI) that delivers an experience equivalent to the Sony PSP and Nintendo DS. 

Underpinned by its best-in-class hardware design and by the fact that game developers now regard the iPhone as a handheld console in its own right, the iPhone meaningfully rivals the offerings of Sony and Nintendo. Moreover, the App Store allows various application developers to sell their games or applications online, which has caused iPhone game sales to explode, and add to its competitive capabilities. 

Nevertheless, games account for just a fraction of the 75,000 applications available from the App Store, many of which are remarkably diverse and innovative. For example, as the first musical instrument created for the iPhone, the powerful Ocarina application is available at 0.99 USD and can transform the iPhone into the ancient wind instrument from which the application takes its name. 


You get what you search for 

While many seek to mimic the iPhone and still trail in terms of hardware innovation, Google' s G1 is a worthy competitor, shipping 1 million units within 6 months of its market release. Google had also cut a brilliant figure through its Open Handset Alliance (OHA). The company' s signature applications–Google search, Gmail and YouTube–are incorporated seamlessly into the phone' s Android platform. Powered by a built-in GPS and electronic compass, Google Maps has been evolved impressively into an e-format for the G1, complete with panoramic, real-time images. The Street View function displays actual images to maximize the "you get what you search for" experience, while Cab4me calls a taxi without needing to manually relay a location. 

The G1 is also beginning to revolutionize shopping through the cooperation of multiple applications. Snapping the bar code of, say, a dead battery with the G1' s auto-focus camera will activate Google Maps to instruct the user that the nearest Wal-Mart sells this model at 8.99 USD, while Best Buy, which is nearer, offers it at 9.99 USD. 

One day, your child comes to ask you a tricky math problem, and you may be left embarrassing and helpless. At the last resort, you can use Handwriting Calculator that comes with Nokia 5800XM to write down the formula, and then you get the answer right away. 


Competition breeds innovation 

To compete with the iPhone and G1, other companies have been actively walking the innovative path. 

Since transforming its business models, Nokia has striven to innovate in a diverse range of areas. Nokia Beta Labs, the company' s core creative unit, developed the Handwriting Calculator for the Nokia 5800XM, which allows users to write even complex formulas and have them instantly solved. Nokia is no newcomer to innovation: Since its inception, the N series has been noted for its strong hardware; large, high-res touch screens; Wi-Fi compatibility; and open Linux-based OS, but without any SIM card. 

The flagship of the N series, the N97, comes equipped with the mobile SNS service, So-Lo (Social Location), which is derived from the N810' s applications. With assisted GPS and electronic compass technologies, So-Lo can send a user' s location and status information to contacts; it can also share photos and videos, and facilitate IM. 

In Japan, a country renowned for its mature 3G technologies, Location Value launched Otetsudai Networks to match employers with jobseekers. Featuring GPS and an electronic map, an unemployed driver, for example, can be quickly paired with an understaffed express delivery company if both log on to Location Value' s online job market. Backed by DOCOMO, the service has attracted 54,000 registered job seekers and over 3,000 business subscribers in less than two years. 

In South Korea, SK Telecom has cooperated with several SPs to provide auxiliary medical diagnostic services, such as remote electrocardiography (ECG). These can be collected with basic equipment and a phone, and some hospitals are utilizing special data cards to store accurate ECG data for pre- or post-operation use by doctors. Currently, three of five Seoul' s largest hospitals provide this service.

Top players: each holds an ace

Apple: an innovative giant 

ince rejoining Apple, Steve Jobs has struggled to hurdle myriad barriers. Though the company' s flagship Apple Mac outperforms other PCs, its market share has remained relatively anemic. Nevertheless, the advent of the iPod has added several zeros to Apple' s sales sheets, which the Apple CEO acknowledged in an interview with Fortune in 2008: "The iPod captured 70% market share. I cannot tell you how important that was after so many years of laboring and seeing a 4% to 5% market share on the Mac. To see something like that happen with the iPod was a great shot in the arm for everybody." In terms of the value added by iTunes and iPod, Jobs recognizes its significance as "to buy music electronically." Equipped with cutting-edge hardware and boosted by the holistic digital musical services afforded by iTunes, the iPod has become a household name that is now synonymous with MP3 players. 

With a similar end-to-end business model, Apple' s other signature product iPhone features uniquely innovative hardware encapsulated in a device that has unquestionably revolutionized the way people interact with their phones. Tim Cook, Apple' s COO, explained the simple rationale behind the complex technology as the wish to increase customer satisfaction through a more direct, intuitive, and user-friendly touch screen. Armed with a 358-page patent application, Jobs thus championed a plethora of touch screen, user graphical interface (UGI) and functional features that have combined to make the iPhone arguably the most famous phone in the world. 

Jobs created the easy-to-navigate online App Store to retail the superior applications of the iPhone and iPod. Geared also to iPhone and iPod Touch developers, Apple has provided a complete set of SDK, development tools, and technical support features that allow developers to market their applications through the store and receive 70% of any sales revenues. 

For example, programmer Ethan Nicholas spent six weeks developing iShoot, which he sold for 2.99 USD in the App Store. The game was the most downloaded application for several weeks, peaking at 17,000 downloads in one day. With around 700,000 USD in the bank, Nicholas soon resigned from Sun Microsystems and expressed his gratitude for splitting the revenue with Apple. 

Another of Jobs'  brainchildren is the cross-platform online synchronization service, MobileMe, which was launched in conjunction with the 3G iPhone. Based on cloud computing, iPhone subscribers can synchronize their address lists, multimedia functions and emails between Macs and PCs. Bolstered by the App Store and MobileMe, Apple sparked a spending spree, shifting 1 million 3G iPhone units in just three days. 

Integrating the Mac OS into the iPhone has also helped this legacy operating system shed its lackluster image. Thanks to iPhone' s independent OS, App Store, MobileMe and others, Apple has gained a solid footing with a mature mobile network ecosystem that appeals to subscribers, is demand-driven, and has sufficient brand equity to ultimately dominate the entire value chain. 


Nokia: what can Ovi do? 

Apple' s runaway success with the iPhone has certainly given Nokia a dose of nerves. Nevertheless, Olli-Pekka Kallasvuo, Nokia' s CEO, recognizes the jolt of competition and disrupted complacency that innovation inspires: "I give Apple a lot of credit and thank Apple. They have done a service to the community. We have a credible competitor." 

Kallasvuo was appointed the Nokia CEO on June 1, 2006; two weeks later, he announced a major business reshuffling, voicing the intention to transform Nokia into an Internet-oriented company and distance itself from telecom equipment manufacturing. After aggressively acquiring leading technologies and content providers, Nokia was rewarded with soaring sales thanks to a new platform of diversified services. Aimed at maintaining market dominance and reflecting Kallasvuo' s desire to build a one-stop, comprehensive mobile Internet empire, Nokia launched Ovi.com. On October 2, 2008, Nokia unveiled its 5800 Xpress Music handset, preinstalled with Symbian S60v5 OS. Though featuring a large screen, a gravity sensor, a 1-year music offer, and partial Ovi content, industry analysts were unimpressed with its ability to compete with the iPhone. 

Several services released earlier on Ovi.com required separate account registration and log-in, and the newly-released OS faced several problems. Recognizing itself as a newcomer in the field and its own weaknesses, Nokia began retailing the 5800 Xpress Music at a much cheaper price than the iPhone. With a mature sales channel and a robust brand image, Nokia still generated a sales record of 1 million units in just 53 days. Even so, the industry noticed that, while still a very big fish, Nokia was swimming in a deeper pond than it was accustomed to. 

To compete with the iPhone, Nokia quickly bought into Symbian and opened Symbian OS codes to encourage a third-party developer to improve its OS. At December 2008' s Nokia World, the company rolled out its genuine iPhone challenger–the N97.

Equipped with high-grade hardware, the N97 distinguishes itself through integrated services including Ovi Share, N-Gage, Maps, Facebook-based Widgets, and the mobile social networking site So-Lo. In addition, Nokia released with N97 the Ovi Mail, offering free email service for its customers. Given that Nokia dominates the world' s mobile phone market, the N97 seems poised to consolidate this success. But, can Nokia deliver a coup de grâce to the iPhone with just So-Lo and Widgets? 

Unlikely, as Nokia itself acknowledges. The company thus built the Ovi Store into the N97 to sharpen its competitive edge, prior to which it merged separate service accounts on the Ovi platform, integrating Mail and Store to deliver a wide functional spectrum.
Kallasvuo reflected that: "Consumers are not happy with a hardware purchase anymore. They want more. They want an experience. They want a solution." 

Ovi.com is more than a club to hit Apple with. Maps, N-Gage, Music, So-Lo, and Ovi Store are examples of new services that have set Nokia apart from its rivals; they are superior applications that provide a complete experience. Additionally, Nokia' s dominance in the mobile phone market has ensured a solid subscriber base for new services. To some extent, this guarantees the company' s income, expedites the inception of its business activities, and ameliorates the risks of departing from an established business model. 

However, the road ahead for Nokia is less freeway and more bumpy track. The increasing popularity of low-end mobile phones has allowed contenders such as MediaTek to challenge the heavyweights with low-end integrated products. Nokia has responded with price cuts that have eroded its profit margins. However, this is not an ideal backdrop with which to facilitate a change in business direction on the back of a string of acquisitions that need strong financial capital. Moreover, as a newcomer in the Internet and digital music sectors, trialing services on its Ovi.com platform is a risky business. 

Will Nokia regain confidence through Ovi? Only Nokia really knows the answer. 


Google: the free service challenge 

Much like Google' s sophisticated system, Ovi currently delivers a range of services including virtual community, music and video, online maps, the personal information management (PIM), document synchronization, online gaming, SNS, and online ads. Google, however, is the Internet trendsetter. The undisputed number one search engine now spearheads the Internet advertising industry with AdSense, and has extended its business model further with a confident foray into the handset world. 

Google unveiled its independent Java-powered mobile phone clients that incorporated a search function and Gmail in 2006. Its 2007 mobile services included Google Maps, and the company sponsored the OHA in November 2007. The OHA comprises over thirty operators, mobile phone vendors and chipset companies, as well as the Windows-based smart phone manufacturers HTC and T-Mobile. 

On October 28, 2008, T-Mobile partnered with Google and HTC to launch the G1. Unlike the Apple and Nokia phones, the G1 is not exclusively branded as a Google product; the logo embodies all three of the phone' s creators, and is marketed as the "T-Mobile G1 with Google". The G1 is a typical HTC-style smart phone. With a simple design, the phone encourages first-time subscribers to apply for a Gmail account to receive the Android OS and other supporting applications and services for free. Google' s free services are based on personal subscriber information that can be easily tracked, such as subscriber identification, software usage habits, and phone and Internet records. 

Google' s drive to bind its subscribers with Gmail accounts can be traced back to its bid for the 700MHz band. AT&T and Verizon aggressively contested for the B and C bands by making much higher offers than the starting prices. According to the open network policy, mobile networks constructed on these bands are opened to all services and mobile phones. Without a band license, Google gained an open network that has been proven attractive to customers, but that must initially bind Gmail and the G1, even though doing so appears meaningless to subscribers. However, it allows Google to provide exclusive services for those accessing the Android system regardless of phone or network type. 

A unique Gmail account replaces SIM cards as the primary means of identifying subscribers. Combined with a powerful R&D capability and solid Internet expertise, Google has extended the reach of its leading services to mobile terminals, which has in turn increased subscriber dependence on the Android OS. In this way, the Internet pacesetter sits poised to deliver more user-focused and profitable mobile Internet advertising services. 

As an extension to this policy, Google launched video communication applications for Gmail subscribers in November 2008, allowing Gmail and mobile phone subscribers in America to interact. In December 2008, each Gmail account was allocated a mobile phone number that carries the area code 406, through which messages can be sent from Gmail accounts to mobile phones. In August 2009, Google Voice was launched for VoIP services. Google has thus integrated the services usually offered by operators into its own platform, and the company' s strategy to offer free services is firmly taking shape. 

Moreover, handset manufacturers can greatly reduce R&D costs through the free Android platform, which they are beginning to favor largely due to the currently prevailing financial pressures. If Google' s competitors fail to respond effectively, Android will sooner or later dominate the mobile phone market. Traditional voice and video services are evolving software and IP capabilities, which are forcing traditional operators to embrace the Internet. Through its free Android system, Google will be able to serve an increasing number of subscribers and finally dominate the terminal market. Without transformed or new services, traditional operators may devolve into bandwidth providers. 


China Mobile: bet on OMS 

Operators are wary of Android' s ambitions. How can OHA operators respond to the challenge? As a member of the Google OHA, China Mobile recently began designing its own Open Mobile System (OMS) based on the Android system. In a media interview, Wang Jianzhou, China Mobile' s CEO, revealed the company' s intentions to create its own Mobile Market application.
 
China Mobile has advocated an Internet policy for years, starting with its Fetion service that provides Internet-based services. Its historical activities include the purchase of the 139.com domain name to facilitate the 139 Mail and Community applications; it has bought into shares of Phoenix TV, and has established a music alliance. In doing so, China Mobile has established a growing reservoir of information resources and related services, though its future is not without challenges. 

While China Mobile has established a large presence, it still lacks a powerful portal through which to lead the market. Chinese consumers have shown little interest in logging onto its website for entertainment applications and services. To combat market apathy, China Mobile launched Mspaces.net in 2008, a portal that integrates the 139 Mail and Community applications into a unified platform. 

The OMS is not designed to compete for the decreasing profits of handset manufacturing. Instead, China Mobile seeks to integrate the content and services of Mspaces.net and Mobile Market and streamline its application distribution channels. The ultimate purpose of the OMS is to open the door for China Mobile to occupy greater terminal and content resources in the Internet sector.

Three key success factors

The mobile Internet has initially inherited the established industry pattern of mobile communications: manufacturers such as Nokia design and produce terminals; operators like AT&T provide the Internet user base and networks; and ISPs, notably Yahoo and Google, supply content and services. The Internet ecosystem comprises four key parts: users, terminals, networks, and the content/service mix. These combine to stimulate the success of mobile Internet. 

The iPhone, however, is reshaping this pattern. Though lacking a fixed user base, the iPhone integrates services into a terminal. Underpinned by AT&T' s network and subscriber base, the overarching success of this innovative handset is hardly surprising. 

Despite a slightly later start than its rivals, Google has readied itself for the battle of competition. Fortified by a user base comparable to that of a major operator, the Internet giant must still improve its core competitiveness in terms of terminals and networks. It has no intention of producing terminals itself, instead relying on the Android OS to raise its profile in the terminal market and on partnerships with operators to promote its network. 

Nokia' s strong brand equity and marketing capabilities have allowed it to dominate the mobile phone market. Nokia' s joint venture Nokia Siemens has broadened the company' s cooperation with operators to the extent that Nokia now only needs to provide a mature service platform. Thus, in 2006, Nokia began to accumulate Internet expertise through Ovi.com, which continues to be integral to enhancing it service capabilities. 

Operators have taken the pole position in the mobile Internet industry due to their massive subscriber numbers and extensive network coverage. Users are the ultimate target for all industry players, who utilize networks to marry services and terminals. Unfortunately, operators have become passive entities in that they mostly profit from leasing their networks, though the rewards for doing so are shrinking. To regain their lead in the mobile Internet field, operators have been forced to expand their influence among users. 


The terminal battle: OS is vital 

The legacy competitive arena surrounding terminals occurred in a fixed pattern; manufacturers integrated functions into a single mobile terminal, and thus users could avoid buying separate MP3 players, camcorders, and digital cameras. In fact, many of these manufacturers possess a remarkably high level of expertise that even surpasses users' needs for hardware functions. 

Interestingly, people still continue to buy separate MP3 players and cameras. In part, this can be explained by growing number of functions that are often accompanied by a bewildering array of operation menus, and can prove off-putting. Unfortunately, many manufacturers remain unaware that this has created such as problem. Long-term Nokia users know that the interface of Nokia' s Symbian OS system has remained largely unchanged from the basic 7650 series released 7 years ago to today' s advanced N series. As a result, users invariably complain of cumbersome MP3 playback operations and poor camera quality. 

Though previously inexperienced in manufacturing mobile phones, Apple has upstaged veterans such as Nokia. Selling one million terminals in just three days, the iPhone' s success proves that users prefer quality of experience over a sophisticated terminal. Apple has accumulated over two decades of experience in hardware and software design since unveiling its first generation Macintosh System 1.0, thus positioning the company as the terminal manufacturer with the sharpest insight into software and user behaviors. Apple has created a phone that can be used naturally and intuitively, with functions supported by a strong OS.

The combination of software and specially-designed hardware has significantly boosted the phone' s power, which differs from a Symbian phone mostly in its overall ability to provide functions as needed. 

Function integration is no longer the overriding priority of most mobile terminals, and a superior user experience is increasingly the key feature that attracts consumers. Thus, competition in the terminal arena has shifted to experience. An operating system that closely integrates with hardware is vital for IT industry players to build a competitive edge based on quality of experience. 


Application stores: the new competition 

Powered by home broadband, PCs have achieved ubiquitous Internet access, which has significantly raised the efficiency of acquiring information and using applications. Mobile terminal technology is heading towards the Internet capabilities that were previously the exclusive domain of PCs, encouraging enterprises with strong terminal and Internet expertise to proactively explore their own paths to success. 

To integrate more functions, Symbian and Windows Mobile provide third-party developers with the SDK. These two leading platforms now accommodate tens of thousands of applications and games each. Due to their loose organizational structure, however, developers have not been able to concentrate simply on R&D, and are burdened with selling their own products. End users have also suffered from having to find the correct applications and then install them. 

ISPs such as Google and Tencent seem unable to extend Internet capabilities to terminals, and instead simply launch clients that match each brand' s leading phone models. As a result of growing mobile phone market segmentation, there are enormous numbers of phone models available, causing the R&D costs of ISPs to skyrocket. In addition, a single update for each function or service update may require the R&D process to be repeated hundreds of times. 

Apple' s unique insight has revolutionized the sales channel through the App Store. Registered developers can concentrate their efforts on R&D without expending the time, energy and costs of constructing or searching for an effective distribution method. Users are also able to easily find and use software, which of course encourages sales. The convenient payment model facilitates cash flow between users and developers and, despite the high 30% commission taken by Apple, the platform is strongly supported by all those with an active interest. 

Stimulated by the soaring sales generated by App Store, other leaders are looking to access the market in a similar manner. Notable examples are Google' s Android Market, Nokia' s Ovi Store and Microsoft' s Market Place. In less than six months, nine leading companies have opened application stores for their mobile phones, shifting the competition arena for content and services to application stores. 


The terminal/service combo 

It is interesting to speculate who will emerge dominant in the market. Google led the fixed Internet era due to its massive information bank and the related access channels. The competition for mobile Internet will inevitably hinge on key user information. 

The companies that provide terminals and operating systems now occupy a leading position in that they can locate users through GPS, track behavior through operations and Internet access records, identify preferences by applications, and even understand social profiles through SNS and IM. In a way, mobile phones have transformed users into open books–enterprises can obtain first-hand information regarding user experience and understand usage patterns. Thus, they can further segment the market and more precisely deliver content and advertising services. 

Users' consumption habits are the deciding factor in competition. Clearly, content and application platforms are closely related to payment details, which in turn reveal interests, acceptable price levels, monthly expenditure on content and application services, and billing addresses. If companies offer this information to developers, a personalized marketing model tailored for each user' s consumption habits becomes possible. 

Apart from hardware features, a mobile phone differs from a PC in terms of personalized services. To offer a superior experience and popular content via a mobile phone, developers must integrate personal information into product design. This will integrate personalized software and services into phones in a way that adapts them to users. 

Key personal information can create opportunities for operators with access to user data and consumption behavior. However, many operators are failing to explore this area, whereas Japanese operators are largely successful due to their customized terminals and diversified content and service platforms. 

The Japanese operator, NTT DOCOMO, continues to customize mobile phone network access policies in order to influence mobile phone manufacturers. The operator' s influence extends to setting standards for phone design and operating systems, and pairing phone models with network access. NTT DOCOMO uses third-party developers to provide content and services, which it then unifies and offers to users; it has also partnered with mainstream content providers. Example includes its cooperation with MTV Japan to produce MVs, and with Sony Pictures, which resulted in the hit short movie, Afterworld. 

Other Japanese operators have copied NTT DOCOMO' s business model with great success. NTT DOCOMO is ahead of most other global operators to the extent that even the success in the iPhone has been sluggish in Japan as users are accustomed to NTT DOCOMO' s high, proven terminal standards. NTT DOCOMO is an industry leader because it has grown years of data into mature differentiated services. 

The reshaping of the competitive landscape in the mobile Internet industry has altered the industry chain. Led by Apple and Google, IT vendors influence operating systems and services; Nokia leads terminal manufacturers in constructing handsets and service platforms; and operators, with their massive user data resources and networks, are seeking to extend their influence into the mobile Internet industry. However, operators must increase their efforts in developing terminals and services to decisively attract users. 

In this sense, integrated terminals and services will determine the success of mobile Internet.




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