http://www.nytimes.com/2011/01/15/business/15nocera.html?_r=1&ref=homepage&src=me&pagewanted=all
January 14, 2011
Verizon Deal May Expose iPhone Flaws
By JOE NOCERA
With this week’s announcement that Verizon Wireless is going to begin selling the iPhone — something its customers have been panting for ever since AT&T got that first, exclusive iPhone contract four years ago — it’s time for me to face the music. Nobody really cares that the iPhone is flawed. After this column, I’m going to stop caring too. I swear it.
Its design is undeniably elegant; both the iPhone and its sister device, the iPad, stand at the pinnacle of modern industrial design. The iPhone offers some 300,000 apps that delight its users. Photographs look gorgeous on an iPhone. “It is the first and best implementation of a highly mobile computer,” said Roger L. Kay, the president of Endpoint Technologies Associates, a market intelligence firm.
Yet for all that it offers, the iPhone has always been plagued by serious drawbacks. The “phone” part of the iPhone has never worked very well, dropping calls with annoying regularity. Even when the phone works, the sound quality is often substandard. You would think in an age when fewer people are using landlines this would matter. Apparently not.
Meanwhile, the iPhone’s lack of a raised keyboard makes it next to impossible to do serious e-mailing. And users have to worry constantly about battery life; if they’re not judicious, the iPhone’s battery can be drained by noon.
At the Verizon Wireless-iPhone extravaganza on Tuesday — in which the two companies announced that the iPhone 4 would run on Verizon Wireless’s 3G network — Apple’s chief operating officer, Timothy D. Cook, was asked why Apple wasn’t going with the carrier’s faster, newer 4G LTE network. Mr. Cook replied that doing so required “design compromises” that Apple was unwilling to make.
They never make design compromises at Apple. They make consumer compromises. Yet consumers have always been willing to overlook those compromises so they can claim they own some of the coolest products on the planet.
“People so love their devices from Apple that they are willing to put up with the stupidities,” said Larry Keeley, president of the innovation and design firm Doblin. “For many users,” he added, “especially the ones Apple loves the most, the fact that the battery gets balky is how you convince yourself to get a new one.”
My oldest son, Amato, who is on my Verizon Wireless plan, told me recently that even though he was perfectly happy with his Android phone, if given the chance to switch to an iPhone, he would probably do it. “I can’t even say why,” he said. “I don’t even know if there is any real rationale behind that desire.”
Is Steve Jobs a business genius or what?
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On the other hand, the fact that my son owns an Android phone — and finds it to be a fine smartphone, thank you very much — suggests that the Apple chief executive’s fetish for form over function has its downside. Not everybody, it turns out, is indifferent to whether their smartphones can actually make phone calls. For proof, all you have to do is look at the recent performance of Verizon Wireless, which has been, by far, the country’s most profitable wireless carrier, despite not having the iPhone in its arsenal.
Verizon Wireless could have snagged the original iPhone contract four years ago, but it passed. It did so not because of the iPhone’s flaws, which were then unknown, but because Apple was insisting on terms that it could not accept. These included a guaranteed subsidy for the phone (cellphone carriers use subsidies as important marketing tools), no say in the software design and loss of control of the customer to Apple.
A Verizon Wireless spokesman told me back then that with the iPhone deal, AT&T had handed over “the ability to insure customer service” to Apple, which, he added, “is something we would never have agreed to.” AT&T, which was struggling, felt it had no choice but to agree to Apple’s onerous terms.
The Apple-AT&T marriage has been a public relations disaster — for AT&T. Its network was quickly overwhelmed, in part because it was subpar, and in part because iPhone owners — with a mobile computer at their fingertips — used astonishing amounts of data: 15 times more than the average smartphone user, and “50 percent more than AT&T itself had projected,” according to Fred Vogelstein, who wrote about the problems for Wired magazine.
Mr. Vogelstein went on to note in his article that the troubles that ensued — the dropped phone calls, the frequent network crashes and so on — were not entirely AT&T’s fault. His Apple sources, he wrote, confirmed to him that “the software running the iPhone’s main radio, known as baseband, was full of bugs and contributed to the much-decried dropped calls.” But since Apple walks on water, and AT&T doesn’t, it was easy for Apple to place all the blame on its wireless carrier. Which it gleefully did.
And what was Verizon Wireless doing? Taking full advantage of AT&T’s problems to trumpet the reliability of its own network. Network reliability, in fact, became its core selling point: it may not have had the world’s sexiest phone, but at least the phones it sold worked. As it turns out, there are millions of people who care about having phones that work — they’re just not the cool people. Like CBS, which gets ratings with programming for Middle America, Verizon Wireless kept adding subscribers by catering to the unhip.
What also helped Verizon Wireless, though, was the introduction of Android phones beginning in the fall of 2008. Android is not a single phone, but rather an operating system developed by Google that allowed cellphone manufacturers to approximate the look and feel of an iPhone. Cellphone makers like Samsung and Motorola flocked to it. And so did Verizon Wireless, which abandoned its marketing support for loser phones like the Palm Pre, and put all its muscle behind the Android phones.
“Verizon Wireless has done an incredibly good job with the Android phones,” said Craig Moffett, an analyst at Sanford C. Bernstein & Company. “But the best you can say is that they are almost iPhones.” True enough, but while they may not be as sleek as the iPhone, or have as many nifty apps, they make phone calls more reliably. Oh, and if you are having problems with the battery, you can take it out and replace it. Imagine!
Here’s the shocker, though. According to Gartner, in the second quarter of 2009, Android sales constituted 1.8 percent of all smartphones sold, compared with Apple’s 13 percent. By the second quarter of 2010 — just a year later — Android was actually outselling Apple, 17.2 percent to 14.2 percent. This must have been a shock to the system at Apple — it was being outdone by an uncool competitor.
As much as anything, the success of Android is what finally pushed Apple into the arms of Verizon Wireless, which got much better terms than AT&T. When I asked a spokeswoman for Verizon Wireless who was going to control the customer, she told me that iPhone users who were having problems would take their phone to the nearest Verizon Wireless store, not the Apple genius bar. Verizon Wireless does not appear to have promised the guaranteed subsidy, the way AT&T did. In truth, Apple needed Verizon Wireless more than Verizon Wireless needed Apple. The deal the two companies cut reflects that fact.
The deal is being described as the long-awaited marriage of coolness and reliability. And maybe it will work out that way. At the press conference on Tuesday, Mr. Cook called it a “tremendous opportunity” — as it surely is given Verizon Wireless’s 93 million subscribers. Charles Wolf, who follows Apple for Needham & Company, estimates that Apple could sell as many as 32 million iPhones in the next two years through the Verizon Wireless channel.
But there are also plenty of potential pitfalls. Verizon Wireless insists that its network is up to the task of handling all that data its iPhone customers will be clamoring for. But clever developers keep coming up with new ways to use even more data than anyone ever dreamed of.
Mr. Moffett described to me, for instance, an app he saw at the recent Consumer Electronics Show in Las Vegas, which allowed parents to turn their iPhone into a baby monitor at night. That might not sound like much, but it would require the iPhone to stream video while the baby was sleeping. It would be a huge data hog. “Eventually, that kind of thing clogs up the network and starts to compromise the user experience,” he said.
Another possibility is that the Verizon Wireless network will hold up fine but that the iPhone will keep dropping calls because of its own inherent compromises. This time, though, it will be much harder to blame all the problems on its wireless carrier, the way it could with the hapless AT&T. At the very least, the iPhone will have to compete with all the Android phones, which offer a sturdier, if less dazzling, experience. And Verizon Wireless is unlikely to abandon its marketing support for Android the way it did with Palm. Those phones have become too important to its bottom line.
Mainly, though, the Verizon Wireless subscriber is simply used to a different kind of experience. If they all migrate immediately to the iPhone, then truly I will raise the white flag. If they hang back, then it will signal that there are still some people who prefer something that works over something that dazzles.
As for the AT&T subscribers, I hear that many of them are planning to stay where they are, hoping that enough other subscribers move to Verizon Wireless to relieve some of the pressure on the network and reduce their own misery.
A person can always dream.
