Wireless

After you've helped develop and launch a game-changing mobile device on the market, what do you do for an encore?

Bob Borchers, the former head of Apple's worldwide marketing for the iPhone and an original member of the team that developed the iPhone, hopes he can help nurture entrepreneurs and inspire others to innovate.

Bob Borchers, a former marketing exec at Apple, joins Opus Capital as a VC.

(Credit: Opus Capital)

On the very day that he helped launch the latest version iPhone 3G S, Borchers left Apple to embark on a new career as a venture capitalist at Opus Capital, a small Silicon Valley firm. A week later he's already starting to settle into his new role as an investor, focusing mostly on companies developing mobile applications and services as well as those in adjacent markets, such as hardware and software.

This latest move is simply a new chapter in an eclectic career that has led Borchers from designing prosthetic limbs for amputees, to helping Nike sell shoes, to building a luxury brand of mobile devices for Nokia, to creating one of the most talked about and game-changing mobile phones on the market today.

CNET News talked to Borchers by phone Friday after he went public about his career switch, and picked his brain about his new gig, his former employers, and the future of the mobile industry. Below is an edited excerpt of our conversation.

Q: You just helped launch the iPhone 3G S last week. And it's already been a tremendous success. Why leave now? It seems like things were going really well for you at Apple?
Borchers: You're right. The trajectory is strong for the iPhone. But that also means there are many opportunities evolving around the iPhone. I felt like this was a unique time to go and explore these areas in a different way. I also got to know the Opus guys. It's a small office, only four partners. I am the fifth partner. They all have strong operating backgrounds. They've all been CEOs and have built their own companies. And collectively we've probably made many of the mistakes that entrepreneurs are likely to make. Hopefully, we can help some of them avoid those mistakes and build strong companies.

Some people would say this is a crazy time to be getting into the venture business. I mean we are in the middle of a global economic recession. Money is hard to raise and lots of funds are shutting down. So what do you see in this market that others are missing?
Borchers: I think the expectations have changed in the market in terms of how quickly you can go big with a company. But for me, I see it as an opportunity. The mobile market is continuing to evolve. I couldn't have imagined years ago that we'd have this near broadband connection to the Internet on our phones. And now we are taking it for granted.

I think now is the time that people are looking for quality. On the VC side, there has been a shakeout, but the high-quality venture firms like Opus are still making investments. They've made six investments in the past six or seven months. There are definitely some folks getting out, entrepreneurs and VCs who may have not been meant to be here.

What do you bring to the table as a VC that might be different from other people?
Borchers: Clearly my background will help in building companies in the mobile space. I know a lot of the players in the mobile industry, and I've been on the inside at Apple. So I've got some insights in the mobile space about where there might be some unmet needs.

A great example is push e-mail notification. Apple is making a big deal about this. And it will be great for developers, but what's gone unnoticed is that you need servers and infrastructure to be able to make this work. There are also more than 50,000 apps on the App Store, and most developers confuse distribution with marketing. They get on the App Store and say, "Great, when do the checks start rolling in?" But you have to ask them if they've thought about advertising. It's really an interesting place to be right now and the whole market is evolving.

Let's switch gears a little and talk about your former employer. One of the things that has always impressed me about Apple is how well the company designs products with consumers' needs in mind. I find that a lot of other consumer companies, like Nokia for example, don't seem to get this. Would you agree?
Borchers: Apple does a fantastic job building ecosystems around their products. In the case of Nike iPod, they noticed that everyone runs with their iPod. You see people jogging with those little white ear buds. So it's a natural connection.

What makes Apple unique is that they don't develop technology for technology's sake. But they look at it as an enabler of what technology makes possible. Nokia's N97 probably has 18,000 features. And the spec page is likely longer than your arm. But when it comes to customers caring about, discovering and using those features, it doesn't happen.

With Apple if there's a feature or technology available and people don't use it, then it doesn't go into the product. The focus is always on what are the things that people care about. They like to listen to music in their cars, so we worked with car manufactures to integrate iPods into cars. Now 80 percent of cars sold offer iPod integration as an option. People run with their iPods, so let's figure out a way to make that easier. It's a much different worldview. Many other companies just run after whatever the newest technology is, especially in the mobile market. They think, "Everyone is talking about HSPA, so we have to have that in the device." But Apple stops and says, "What are consumers going to do with it?"

It seems like such a simple concept. Why isn't every company doing this?
Borchers: Simple can be hard in the sense that you have to say no to lots of things. From a cultural standpoint inside a big company, sometimes it's difficult to focus and narrow things down to a few products that you will develop extremely well. If you look at Apple, the product portfolio only consists of about 20 or 30 products. That's small compared to other companies that have hundreds or thousands of products. But if you look at revenue, Apple is much bigger than some of these other companies.

So it's important not to overwhelm the consumer with too many options?
Borchers: Yes, iTunes is a good example. At first it was all about music and people got that. And over time Apple has been able to layer on different pieces. And now it's a digital playground with movie and TV show downloads, podcasts, video rentals, etc. If you started that on day one, the consumer would have said, "Holy smokes. This is too complicated." Apple takes a very methodical approach and features and elements are added step by step, so that consumers aren't trying to drink from the fire hose.

Other than Apple do you see other companies that you think "get it" when it comes to designing products for the consumer?
Borchers: I think the one company that has a big opportunity to do this is Palm. I worked with Jon Rubenstein (the new CEO of Palm) at Apple and I know he sees the value of these connections and designing for the consumer.

Do you think Palm can survive and rebuild its business on its own, or does it have to get acquired to really get the kind of scale to compete aggressively with Apple and other smartphone makers?
Borchers: If you look at its history and what Palm has been able to do, it's always been somewhat limited in terms of scale. So I don't think it's a challenge of scale or size, but of execution. Jon pointed that out on the conference call that it's time for them to put their heads down and focus on executing. Having someone buy them might help, but it might defocus them, too. The really interesting thing about where they are right now is that they are on Sprint's network and the fact that Sprint is a CDMA carrier limits taking the Pre globally. So the question is how do they get to a GSM version and scale it that way.

The iPhone was one of the most highly anticipated consumer electronic devices ever. And you were a part of the team that marketed it. So how did you do it? How did you create this extreme buzz months before the product even went on sale?
Borchers: If you look back at what happened from January at Macworld until the launch of the iPhone in June 2007, there was growing hysteria. Lots of folks said that was due to the "Apple hype machine," but if you look at what Apple was doing and saying during that period, you'll see it was nothing. And that took a lot of discipline to say, "We aren't going to manufacture news. We will hold out until we have something to explain and talk about." And then we released the first video the Friday before the launch and others followed until the day of launch.

Did you expect that the launch of the iPhone would be so crazy with people waiting in line for days and lines wrapped around the block?
Borchers: I knew at Macworld when we showed the phone that it was going to be big. But I don't think any of us anticipated the frenzy and passion around the iPhone developed over the months before the launch. But once we saw what happened, when it was time to launch the iPhone 3G and distribute it worldwide, we knew we could recreate the phenomenon. What caught everyone by surprise has been the success of the App Store. When we launched the App Store, we knew it would be positive. But nobody would have dared guess that there would have been 1 billion downloads in nine months. That's another example of the ecosystem growing at its own pace and much faster than anyone anticipated. And it still doesn't seem to be slowing down.

I have to ask. Why did Apple decide to make AT&T the exclusive carrier for the iPhone? I think a lot of people would have rather seen it on Verizon Wireless.
Borchers: When the iPhone was initially announced Steve (Jobs) was pretty clear that he wanted the iPhone to be a global device. And when we looked at the market, 85 percent of devices run on GSM. The U.S. is different with Verizon Wireless and Sprint using CDMA. But if you want to go global then GSM is clearly the more attractive choice. And in the U.S. that leaves two carriers: AT&T or T-Mobile.

But did Apple really need to enter into an exclusive deal with AT&T? Couldn't the company have sold it unlocked or on multiple networks?
Borchers: At the time, we needed to partner with a carrier who was going to make an investment in the phone as well. Unlimited data plans and visual voicemail were needed. So we needed a company to co-invest and create these features and services. Now if you look a year or two down the road, in the vast majority of locations where the iPhone is offered, it's not an exclusive relationship. I think enough carriers have realized the benefit of rolling out these services. But out of the gate the partnership allowed Apple to offer some unique features when it came to market.

Will we ever see the exclusive deal end in the U.S. and a CDMA version of the phone on Verizon's network?
Borchers: I don't think I'm the right person to answer that question.

Fair enough, but I had to ask. Investors have been critical of how Apple has handled the disclosure of Steve Jobs' recent liver transplant. There's no question that he is important to Apple, but how critical is he to Apple's future success? Will things fall apart if he is suddenly gone?
Borchers: Steve is a fantastic guy and an incredible leader. To his credit, one of the things about Apple is that it has internalized his passion and vision. And people who have been with Apple for a long time and who are a part of this culture have been guiding the helm for last six months. And they've executed pretty well over the past six months. If Steve is back on campus now, that is great news. But it's one of these things where the company and Steve work well together and there is a lot of each of them in each other's DNA.

I know you haven't worked at Nokia for a while, but you have been competing against them for the past few years. What do you think is going on with them? They are losing market share in some segments and still don't seem focused on the U.S. market.
Borchers: Nokia has done fairly well in markets outside the U.S. But what's interesting is you look at the average selling prices of their phones, and it keeps going down. That says to me that where they are getting market share is in the lower tier in emerging markets.

All the heat is in the upper end of the market, where Nokia has been investing in the N-series and E-series, but those phones aren't made for the U.S. market. I don't think they've spent a lot of time working with operators.

The big question is what is Nokia's strategy for the U.S.? They are the largest global mobile phone manufacturer in the world. And Motorola is down in the dumps, but Nokia doesn't seem to be taking advantage. But Samsung and other folks are taking advantage. They are going to Verizon and AT&T and asking, "What do you want from us." And Nokia's approach, at least in the good old days, was, "Here's what I have to give you." So it ends up being very European focused.

I know what you mean. Nokia hasn't partnered with a carrier for the N97 and the price is around $600 to $700. Meanwhile you can get the iPhone 3G S, subsidized by AT&T, for $200 with a two-year contract.
Borchers: Yes, you're right the U.S. market hasn't evolved where people see through the subsidy. When I was at Nokia, that fact made it difficult to sell accessories. People would get a phone for free and then want to know why they were being charged $50 for a spare battery.

There's been all kinds of talk about 4G wireless lately. Verizon is touting its LTE network and Sprint and Clearwire are talking about WiMax. And AT&T is pumping its next generation HSPA network. Do you think that 4G will live up to the hype?
Borchers: The thing with 4G is, what does it mean to you and me--the normal consumers? I know what it means to the carrier. They can get more effective use of spectrum and lower bandwidth costs. But as a consumer, I don't care about that stuff. People didn't really get excited about the mobile Internet when it was just WAP, but when they got a real Web experience it drove demand for 3G through the roof. With 4G, I'm not sure what the compelling opportunity or experience is. Carriers talk about things like mobile video conferencing. Well, didn't they just try that in Japan, and it didn't really go anywhere? When I look at my personal behavior, I'm not sure I want to have a video conference on the street as I am walking. So I haven't figured that one out yet. I'm still waiting to figure out what the killer-app is.

AT&T is upgrading its network and using 850MHz spectrum to beef up its 3G wireless network, which should help alleviate dropped calls and slow network connections for iPhone 3G and iPhone 3G S users.

Apple said this week that it sold more than a million of the iPhone 3G S model worldwide this past weekend after the phone went on sale Friday. Exactly how many of those phones were activated on AT&T's network in the U.S. isn't yet known, but the addition of more data intensive iPhones is likely to put a strain on the carrier's network.

That said, AT&T spokesman Mark Siegel told the blog Gearlog on Tuesday that the company is ready for the onslaught of new iPhone users. One of the things it has been doing to prepare is upgrading its network so that it can offer 3G wireless service using its 850MHz spectrum licenses. For the most part, AT&T has been using spectrum in the 1900 MHz band to deliver its 3G services, which have become saturated, Gearlog explains. This means that as AT&T sells more 3G devices, such as the iPhone, it has been cramming more users into an ever more crowded spectrum band.

This could explain why some users have complained of dropped calls and slow Net connections using the iPhone 3G, an issue that CNET News pointed out nearly a year ago after the iPhone 3G was launched. The problem has been particularly acute in large cities, such as New York and San Francisco, where there is a concentrated base of iPhone users and where the 1900MHz spectrum is predominant.

Siegel says that upgrading equipment to allow AT&T to use its 850MHz spectrum for 3G services should help relieve some of the congestion issues. Because the 850MHz spectrum is at the low end of the frequency band, it is able to travel longer distances and penetrate walls more easily than signals on the 1900MHz band.

When asked about problems with dropped calls for iPhone 3G users a year ago, Siegel told CNET News that the company had been working to expand the portion of its 3G network that runs on the 850MHz band. Back then he downplayed the need for adding 850MHz spectrum for 3G services by saying that it "doesn't mean you can't get a good experience on 1900MHz."

Now Siegel thinks that adding 850MHz will make a big improvement, according to the Gearlog story.

"The 850, when it's turned on in individual markets, people notice a big difference," he is quoted as saying.

In addition to adding 850MHz 3G service, AT&T has also been making other improvements to its network, such as upgrading to the next iteration of HSDPA technology, which is expected to double download speeds on AT&T's network.

While it would certainly be wrong to call the issue widespread, some iPhone users have reported delays while trying to activate their new iPhone 3G S.

CNET's own David Martin tried to activate his iPhone today and had to call AT&T customer support. AT&T customer service reps couldn't explain what the problem was, but it surely has to do with the number of people trying to activate their phones all at once.

For some users, iTunes is reporting that it could take up to 48 hours to complete the activation process. From experience, I know that this is a standard message. The "up to" part is the key. It could be done in an hour, there is just no way to tell.

The problem is not new, nor unexpected. During an iPhone launch day, tens of thousands of people around the country all try to activate their iPhones, which generates an incredible volume of attempts on the AT&T servers.

AppleInsider and other blogs around the Web are reporting similar scattered issues.

However frustrating for the users it's happening to, this year's activation issues are nothing like the server meltdown AT&T suffered from the previous two iPhone launches.

NEW YORK--Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store Friday not to buy the latest-generation iPhone 3G S, but instead he wanted to downgrade to a less expensive Nokia phone.

Nokia 2600

(Credit: CBS Interactive)

Osei said his decision to go back to a basic-feature phone was all about cost. The iPhone and its service plan are simply too expensive, he said. Osei, who is in the middle of his two-year contract with AT&T, had his iPhone 3G stolen recently. But he said replacing it with a new one would cost too much. Instead, he picked up a Nokia 2600 for a mere $43.

But Osei's decision didn't hinge just on the upfront cost of the phone. He also said he was tired of paying the additional $30 a month data charge that is mandatory with the iPhone.

"The iPhone plan was just too expensive," he said. "They made me pay $30 extra a month for data, and I don't really need the Internet on my phone. So I went back to a regular phone. And now I'm on a plan that costs $39.99 a month."

Osei might not be the only consumer out there turned off by the high cost of the iPhone service fee. Unlike previous iPhone launch days, there was no line of people this morning waiting outside the AT&T Time Square store hoping to get the latest iPhone 3G S. In fact, it looked like more customers were leaving the store empty-handed or with other devices than those leaving with new iPhones.

Apple's newest iPhone went on sale Friday, and while there weren't the throngs of buyers lined up for blocks in all locations as was the case for the iPhone 3G a year ago, there was plenty of activity as the 7:00 a.m. sales start drew near in each time zone.

And the first buyers now have their hands on the iPhone 3G S.

CNET's Caroline McCarthy and Marguerite Reardon are reporting live from several retail locations in Manhattan and say that the crowds grew throughout the morning. When the store opened, Apple Store employees were letting about 10 people at a time in to buy the iPhone and complete the activation. In the San Francisco Bay Area, Erica Ogg, Josh Lowensohn, and James Martin are also keeping tabs on iPhone sales.

It was a bit of a different story across the Atlantic. iFixit's Kyle Wiens flew to London for the opening and was amazed at the number of people lined up there.

"I knew that Apple puts their retail stores in high-traffic locations, but Regent Street is ridiculous! So many people, it's almost scary," said Wiens.

Wien's iFixit has already disassembled the iPhone 3G S and has pictures posted on his Web site. Rapid Repair also has pictures posted of its teardown process after getting its new iPhone.

Meanwhile, the line at the Knoxville, Tenn., Apple Store seemed very orderly first thing this morning, according to TUAW.

Macworld reports a long line in Arlington, Va., as the crowd at the Apple Store there wound its way along the back of the mall. Overall, lines seem to be moving quite quickly throughout the U.S.

Unfortunately, the same cannot be said north of the border, in Toronto. iLounge reports that Rogers Wireless is having difficulty processing orders, so Apple can only help customers with new activations at this point.

Nobody really expected the iPhone 3G S lines to be as chaotic as those for the first iPhone or for the iPhone 3G, but the volume of business has seemed respectable in the early going. Apple and AT&T did a lot of planning, allowing customers to pre-order the iPhone online in the hopes of avoiding any launch day disasters.

Piper Jaffray's senior analyst Gene Munster expects Apple will see 500,000 iPhones this weekend alone. The iPhone 3G S goes on sale in eight countries today including Canada, France, Germany, Italy, Spain, Switzerland, the United Kingdom, and the United States.

CNET will keep you updated throughout the day on our live blog.

Updated 8:32 a.m. PDT: Added information from Arlington, Va. and Toronto.

The camera in Apple's upcoming iPhone 3G S sports not just video, but also some new features besides the usual not-so-useful bump in megapixels.

The phone, available next week in the United States and some other countries, comes with a 3-megapixel camera compared to the current iPhone 3G's 2 megapixels. It can shoot video at 30 frames per second at VGA (640x480) resolution, matching competing phones and addressing a shortcoming of the current phones.

Videos can be edited on the iPhone 3G S by trimming the sequence of still images taken from the video.

(Credit: Apple)

But the iPhone 3G S can do more than just shoot video, said Phil Schiller, Apple's senior vice president of worldwide marketing, at the company's Apple Worldwide Developer Conference here. People can share videos through e-mail, MMS, Apple's MobileMe service, and YouTube.

And taking advantage of the iPhone's relatively powerful hardware, people can "scrub" through a video--that is, click and drag to fast-forward and rewind--as they watch to jump to the spot they want. Likewise, they can trim videos to pare back to the desired portion. The scrubbing and trimming uses an interface that displays the video as a filmstrip sequence of still frames.

The iPhone 3G S also includes still camera upgrades for the photography crowd--and it should be noted that the iPhone rivals SLRs for activity on Yahoo's Flickr photo-sharing site, outpacing all mobile phones and all but one actual camera.

First is autofocus. Mobile phones' tiny image sensors often mean everything is in focus whether you want it to be or not, but the iPhone 3G S will let come with autofocus to try to ensure that the right part of the image is sharp. A feature called "tap to focus" lets people tap on the screen image to focus the camera on a particular part of the image--foreground or background, for example.

Yahoo's Flickr site puts the iPhone head and shoulders above other mobile phones for popularity on the photo-sharing site.

(Credit: Screenshot by Stephen Shankland/CNET)

Coming along with autofocus is an automacro mode, too, for close-up shots, Schiller said.

Apple also said the new phone has better low-light performance--a common bugaboo not merely for mobile phone cameras but for regular point-and-shoot models as well.

The iPhone 3G S will cost $199 for a 16GB model and $299 for a 32GB model, Apple said. Other features include better battery life and faster performance.