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June 26, 2008 4:00 AM PDT

The iPhone, one year later

by Tom Krazit
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It's hard to believe, but it's been a year since hopeful iPhone owners crowded Stockton Street in San Francisco, hoping to get their hands on Apple's first mobile phone. For more photos from year one of the iPhone, click on the image.

(Credit: James Martin/CNET News.com)

One year after Apple's iPhone made its debut in a frenzy of consumer lust, much of the hubbub may have died down but the story is just getting interesting.

In just a year, the iPhone has had a clear impact on the way smartphones and mobile software in general are now designed, and has raised consumer interest--especially in the U.S.--in the concept of truly mobile access to the Internet. But Apple has struggled to find the right price for the iPhone, manage its supply chain, and limit the ability of hackers to get total control over the iPhone.

As a result, Apple has realized that it will have to embrace the business model used by the rest of the mobile phone industry, and has made significant changes to the way iPhones will be sold in the second year of their existence. While the mobile industry might have forced Apple to bend to its will in certain ways, the iPhone's breakthrough user interface and Internet browsing prowess clearly caught the attention of the mobile industry, and we'll probably find out by this time next year whether any of them have learned their lessons.

iPhone at 1 year

Click on the image above to see a gallery of highs and lows from the iPhone's first year.

(Credit: Apple)

Let's take a quick look back at the first year of the iPhone. Apple sold 6 million iPhones from a year ago this weekend up until around the middle of May, when it ran out of the older generation model ahead of the debut of the iPhone 3G on July 11. The company said it "underestimated" demand for the older model when it made its purchasing decisions for 2008, meaning that Apple will not have sold a single iPhone during the last six weeks of its first year.

Starting with iPhone Day on June 29, 2007, iPhone sales have followed a bit of a bell curve pattern, peaking at 2.35 million shipments in the fourth calendar quarter of 2007 before retreating this year. That spike was driven by what was a smart move in retrospect but perhaps Apple's biggest public-relations blunder in its first year of the iPhone: the infamous price cut.

Just 10 weeks or so after thousands lined up to be the first to purchase an iPhone for $599, Apple cut the price to $399, angering some of its most loyal customers. The company moved to mollify the early adopters with a $100 store credit, which seemed to douse the flames.

Around the same time, Apple finally addressed the pleas of the developer community for a chance to get their hands on the iPhone. In mid-October, CEO Steve Jobs announced that Apple would release a software developer's kit in February that would allow third-party developers to create software for the iPhone. The SDK will be a little late, but Apple and other companies have shown what types of applications are possible using the unique touch-screen user interface on the iPhone, and the fruits of that labor are expected to arrive in early July.

While that process was going on, however, a vibrant developer community had already sprung into action, creating hundreds of unauthorized applications for those willing to "jailbreak" their iPhones. These developers found a relatively easy way to bypass Apple's lock on the handset, which also allowed a thriving "gray market" for unlocked iPhones to emerge all over the world. Executives at carriers who had signed exclusive revenue-sharing deals with Apple were likely not amused.

What's next for the iPhone?
So as we look forward into the second year of the iPhone's life on this planet, we can already see that some things will be very different. For one, it looks like Apple has finally settled on a price for the iPhone: $199 for the 8GB model and $299 for the 16GB model. It will get down to that price thanks to hefty subsidies from AT&T and other carrier partners around the world, which means the end of the revenue-sharing agreement that Apple signed with its initial carrier partners.

When the iPhone was first released, Apple was willing to forgo the usual subsidies attached to a high-end phone in exchange for the long-term revenue-sharing agreement, perhaps believing that its marketing expertise could sell iPhones as combination high-end iPods, phones, and mobile browsing devices at the higher prices. But once the initial hype wore off during 2008 and a general economic malaise set in, phone buyers--especially in Europe--seemed put off by even the $399 price. Some experiments with lower pricing by O2, the iPhone's U.K. carrier, quickly moved its remaining inventory of iPhones.

Apple has sold around 6 million iPhones so far, in its first year in the mobile phone market.

(Credit: CNET Networks)

The other main difference that will play out during the second year of the iPhone will be official third-party applications, combined with a faster networking pipe and GPS on the iPhone 3G. Business-oriented smartphone users will now also be enticed to take a look at the iPhone with the addition of support for Microsoft Exchange e-mail and security for those conservative IT types.

It's now mass-market time for the iPhone. If I may make a sweeping generalization, the early buyers of the iPhone seemed to reflect two types of people. One, the hardcore gadget-lovers who had been waiting for an Apple-designed phone for years to replace their Palm, Windows Mobile, or BlackBerry smartphone and didn't care that the iPhone ran on the slow EDGE network with stock applications. The other? Normal, everyday people who had never seen the need for a smartphone until they saw the iPhone merely say "Hello," in the first commercials run during the 2007 Oscars, and had no idea what they were missing running on the slow EDGE network with stock applications.

I've seen this phenomenon several times over the past year, with co-workers, family, and friends--people who I never thought would be interested in a smartphone--amazed at how the iPhone has changed their life. I'm sure that's also happened to BlackBerry owners, Windows Mobile users, and the Europeans who probably look across the pond at us with bemused looks from behind their Symbian smartphones, but in the last 12 months, it has been the iPhone users who have gone through that awakening process, and many of them have been first-time smartphone owners.

In the next 12 months, iPhone buyers are going to be all the people who couldn't justify spending $399 on a phone as well as those who would have never considered buying a phone that ran on a slow network, plus the hard-core upgraders, I suppose. Some analysts expect Apple to sell as many as 18 million iPhone 3Gs in the next six months, although that seems quite a stretch to me. But it doesn't seem impossible that Apple would ship at least 7.5 million iPhones over the remainder of the year, hitting its 10 million goal for 2008.

The iPhone 3G is set to arrive on July 11 with a faster networking chip and support for third-party applications, and could dramatically increase sales.

(Credit: Apple)

Apple will face a different environment in its second year. Research In Motion is dramatically expanding its efforts to attract regular people, not just businesspeople, to the BlackBerry. Windows Mobile and Palm are expected to have new versions of their operating systems out next year. And while I think Google's Android software is aimed more at midlevel "feature" phones than the iPhone, the buzz around that eventual launch should be intense.

But Apple still appears to hold the high ground in terms of software design and the appeal of its user interface. The first year of the iPhone was humbling for the company, in a certain way, as it realized just how much it had to learn about this strange new mobile world. But it was also affirming in that users, critics, and competitors have all acknowledged the changes in mobile computing created by the iPhone's software.

That's amazing progress in a year from a company that had never participated in this market before. Phones and computers are finally coming together, after years of promises of convergence. And Apple will definitely play a leading role in the definition of that market over the next several years, having earned the right during the first year of the iPhone.

Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom.
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Add a Comment (Log in or register) (27 Comments)
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by ppgreat June 26, 2008 5:55 AM PDT
Apple appears to develop things that they would personally like to use and work on, then bring them to market. All too often other companies will bring a product into the workplace based on what a committee wants.
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by nlakin June 26, 2008 6:45 AM PDT
I agree, but... innovation is a fickle thing. It was Henry Ford who said "If I had asked people what they wanted, they would have said a faster horse". Sometimes a company has to show the community what is possible, then tweak their focus on the benefits of what is new.
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by daldog June 26, 2008 6:57 AM PDT
I'm one of those who never saw much need for a smartphone, but am looking forward to getting an iPhone next month. The one thing that mystifies me is why there is no voice dial. That lack is what kept me from buying one last year. I use that feature all the time?it is the only thing I like about my Razr. And with CA going to a law that requires hands-free cellphone use in a car, it seemed like a no brainer?surely Apple would include it in the 3G iPhone! But NO.
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by FormerPCwonk June 26, 2008 8:19 AM PDT
Why spend money to make improvements to a product that aren't going to have a significant sales impact? You said yourself that you intend to buy one anyway, so what's the point? I own an iPhone, and I don't mind the absence of voice dialing or MMS, but at the same time, I'm smart enough to know that too many of the people that do care about these features didn't have the patience to hold out for improvements. Apple has wisely placed its development cash in other areas, such as enterprise features, which will have an impact. Of course, if all those people that wanted voice dialing, MMS, or copy and paste stopped buying. . .
by kevinskrause June 26, 2008 8:27 AM PDT
Here's an idea. Stop talking and pay attention to the road. Nothing irritates me more than seeing a prissy soccer mom come barreling down the highway in a suburban with a &$@%ing phone to her ear. Maybe i'm just not popular enough to require a phone next to my ear 24/7. Personally, I'd prefer to throw the phone in the back seat of my E36, pump up the tunes, and enjoy the feel of my engine and the adrenaline that comes from racing around that curve at the edge of loosing control. Oversteer is a beautiful thing people.
by Vegaman_Dan June 26, 2008 8:47 AM PDT
Voice dialing requires the system to have both a user input at the screen available as well as listening in for a voice command. This would be multitasking between inputs and while the phone can easily do this, it is something Apple has chosen to disable. I'm sure they have their reasons, but it's a feature that while easy to implement, would also open up that backdoor to multitasking to app developers that Apple is very much wanting to keep out of that area.
by Seaspray0 June 26, 2008 7:06 AM PDT
The ability to active sync to corporate email will finally put this phone in a class of corporate acceptable along with the blackberry and windows mobile. I have used active sync on phones for years, and it is very easy to set up. To me, that's a more important upgrade than G3.
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by Vegaman_Dan June 26, 2008 8:54 AM PDT
Since corporations will be the one footing the bill, the much higher price for Exchange services bythe cell phone service provider will be transparent to the end user. For those people who have an iPhone and want to connect to their corporate network and that company doesn't subsidize their bill- then they may be in for a shock. This isn't an iPhone-specific thing though- all Smartphones work this way for CSP's. They traditionally charge higher rates for Exchange support. WHat's silly about it is that Exchange data traffic is actually *less bandwidth* than even POP3. There aren't any license fees involved between CSP's and Microsoft for this method either. It's just the CSP's charging more money for a service that costs them less to operate. It's a pretty good deal for them. The consumer pays more and the CSP saves money resulting in much bigger profits. Not a bad deal at all.
by jypeterson June 26, 2008 7:11 AM PDT
One thing that people forget is that the iPhone is a work in progress. It may not have all of the wanted items like voice dial and MMS, but look to the future. Apple is a different company in that Steve Jobs is well known for making sure that quality in the user experience is met. I bet that Apple is working on voice recognition engines for the iPhone and have been for a while. Voice commands have been included with the Mac OS's for years and years. However, voice recognition is fickle and flaky at best. How many times do you have to repeat commands on your phone now -- for me it is frustrating when I ask for a contact and the phone brings back something completely different.

If the iPhone is going to include the feature, not only must it work -- but it must work well.

The iPhone is the power of the Mac OS X in a handheld box. It will be great to see where this leads the rest of the consumer electronics industry.
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by ittesi259 June 26, 2008 8:09 AM PDT
While I like the hardware of the iPhone and congrats on the 3G......I have to say its still the AT&T plans that completely turn me off. Regardless what plan you get SMS Text is never a standard option, yet its the most touted feature of an easy thing to do. The number of minutes and price just don't justify it for me.
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by Vegaman_Dan June 26, 2008 9:07 AM PDT
AT&T has, and will continue to be the iPhone's greatest challenge to consumer success. And from the changes in their plans of late, it may be possible Apple will be able to go with other carriers, but 3G is still extremely spotty in the US. Unless you are in a major metropolitan area, you're pretty much out of luck. That is improving, thankfully.
by deuce19 June 26, 2008 9:41 AM PDT
^ exactly
by pcfish June 29, 2008 12:13 PM PDT
why would any care about sms ... if u can chat right in gmail
by msjohndw20 June 26, 2008 1:55 PM PDT
Of 1.15 billion phones sold this year Apple have sold 6 million and the press would have you believe they are a runaway success. Their success is doing a fine job of capturing the buzz and a proportionately small but very vocal segment of the market. Absolute kodus to them for their presence and their ability look like a market winner, but lets keep things in perspective. Even when you narrow it down to the 300 million multimedia capable handsets sold, 6 million isn't really much more than a blip.
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by therocketboy June 26, 2008 3:41 PM PDT
@ msjohndw20 - One of his points is that this is the first ever phone for Apple (lets ignore Motorola's debacle) and they go on to take a decent bite outta those who have lived, breathed and built their empires making cell phones. That should tell you something, and that something is "be afraid... be very afraid".

The iPhone wouldn't garner such "buzz" without reason. Once you touch one and spend a week using one... you are hooked! And that's only version 1.0!!!!!!
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by digitalsilvers June 27, 2008 8:48 AM PDT
Yeah, but until Apple/AT&T addresses the issues that people want most (MMS, Larger text packaging, ect.) sales will stay at their current level. Apple really has a chance to make a whole lot of money. If they address these issues, and even look at going to other cellular companies, they may attract the business of someone like me...a person that wants to get full functionality out of a $300 phone.
by billeeyum June 28, 2008 2:43 AM PDT
The way they did this is not by having a particularly great product, but by marketing and packaging. It is a fashion accessory just as much as it is a phone. Just like the iPod revolutionized and popularized the mp3 player market, the iPhone did to the cell industry. and I'm sure that in another year there will be phones that do everything the iPhone does and more and do it better. The LG Voyager and Venus were decent phones that had touch screens, but now you have the LG Vu and Samsung Instinct. give it another year and most, if not all major cell phone companies will have an iPhone competitor, many of which will be better and cheaper, just like the mp3 market is today. iPods aren't the best or cheapest at what they do, and nowadays many more people have non iPod brand mp3 players than 3-5 years ago. the same will happen here
by Benf June 28, 2008 10:29 PM PDT
I bought one, owned and used it for about 3 months and gave it to my son (Who no longer uses it), the claim that it's a good phone is very subjective, all the features in the iphone have been avalable for years, apple combined some and they all work with varying degress of sucsess, Ill stick with my N95, in my opinion it's at least twice the phone the Apple will ever be.
by azzuro2006 June 27, 2008 9:04 AM PDT
I think people underestimate Apple. I think they will take a big chunk of the entire cell phone market. The iPhone was their first stab at the smart phone market - and lets face it, they did amazingly well and are probably within the top 3 smart phones in terms of market share. But here is the real ticket - the smart phone market is only 5% of the total cell phone market. Apple will no doubt release a more mainstream and lean iphone nano product that will take the world by storm. Judging by the design of most cell phones in the market today - they mostly look pretty ugly - so this is the big ticket for apple - and they'll do it! Good time to buy Apple stock I say.
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by mchinsky June 27, 2008 11:22 AM PDT
It will be the "App Store" that is going to differentiate this. The almost religious zeolot like behavior of Apple developers, combined with 3g and GPS will make for numerous must have applicaitons with UI's that are untouchable (think 3d rendered views of the golf course you are on along with all the usual real time distance calculations) That alone saves you $400 for a dedicated device
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by familyclan June 27, 2008 1:21 PM PDT
"Humbling" is not the word I would use for an experience that included gaining a huge amount of the smartphone marketshare. Surely they had much to learn, but they just slammed the market. For this, I doubt they are very embarrassed about any part of the experience.
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by madairpsycho June 27, 2008 1:26 PM PDT
I'd really like to get an iPhone since the UI and gadgetry are great! However, I can't do without MMS and voicedial, two features I use a lot. For the price you have to pay for an iPhone + plan I insist on having everything I want.

Hopefully iPhone 3.0 will have it. A better camera would be nice too!
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by tomegun June 27, 2008 6:25 PM PDT
Someone mentioned the iPhone capturing just a fraction of the cellphone market. Apple got a considerable amount of the smartphone market, they didn't even come out all over the world and many people didn't consider the iPhone a smartphone anyway. So, think about what the iPhone will do when it is really a smartphone.
Love them or hate them, Apple is doing its thing and people are comparing themselves to Apple all the time. How many iPhone killers have we had? Before the iPhone, did we have a blackberry killer or a treo killer? Enough said!
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by Zanny_Blowzsteve June 28, 2008 12:04 PM PDT
iPhone v.1 was all hype & little substance. After selling to the initial fanbois, sales choked just weeks after the hype laden introduction, then, 10 weeks after that introduction Apple was forced to cut the price to hide such a failure. For the fanboi's to point to iPhones "capturing a HUGE share of the market" shows just how much they don't know. In a YEAR, iPhone sold under 6 million handsets. RIMM's Blackberry stomped all over that, selling more than that in the last QUARTER! Blackberry has not only outsold them quarter after quarter, but it has increased it's sales every quarter that iPhone has been available. And that's just Blackberry. Windows Mobile & Symbian based has likewise outsold the iPhone. Much like aTV, Apple has done well hiding what a failure iPhone really has been when compared with the rest of the sector.
by C433Z June 28, 2008 8:43 PM PDT
no MMS? no voice dial? cmon.
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by limefan913 June 29, 2008 9:20 AM PDT
I refuse to buy one. Why? I'm never going to switch to AT&T. Ever. The exclusive carrier crap is severely limiting the number of people who will get an iPhone. AT&T doesn't even have a majority anymore now that Verizon bought Altel, and I know a lot of people who are unwilling to switch to a different carrier just for a phone.

I'd love an iPhone, but until there is a CDMA model available that I can put on either Sprint or Verizon, I'll pass. AT&T isn't my thing. When Verizon and Sprint have had full 3G coverage everywhere here for years but AT&T is spotty at best, it says something about a carrier. This isn't a rural area with only a few thousand consumers, it's suburban sprawl with just under half a million people.
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by anti3g July 7, 2008 7:10 PM PDT
The actual price of the new apple iphone 3G = $399!

The published price being advertised all over for the new apple iphone 3G is $199?what they are not telling you is that price is only for new ATT customers and those current ATT customers who happen to be eligible for an equipment upgrade (according to ATT, upgrade eligibility is ?generally? determined by the amount of time remaining on a current contract). For all those current ATT customers who do not happen to be at the end of their contract, the actual price for you is $399 plus an $18 upgrade fee along with a new 2-year contract. ATT is penalizing their long-time, account in good standing, customers a whopping $200. Why is the actual price of the new iphone not being advertised for what it is?$399? It?s the same price as the old iphone with an increase in the data plan.

Post your 3G iPhone activation experience or opinion at:
www.themissingasterisk.blogspot.com
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