Perspective Magazine January 2010 Perspective Magazine January 2010

Since being launched on June 29, 2007, Apple Inc.’s iPhone has continued to drive radical innovation and upheaval within the global wireless telecommunications industry.

Now in it’s third-iteration (with a new, improved model launched each summer just around the anniversary of “Original”), more than 7 million iPhones were sold in 3Q09, which according to advisory Gartner Group accounted for a 17.1% global share of all smartphones sold – all the more remarkable given that Apple had never manufactured a phone of any kind as recently as three summers ago. Prior to the iPhone’s emergence, the marketplace for handheld mobile phones had become saturated with indistinct candy bar and flip phone form factors with ever lower pricing points, often sold as “free” when bundled with a 2-year contract commitment by many of the postpaid service providers. In effect, the industry was on the verge of becoming, if it hadn’t already, a commoditized marketplace with lax innovation and little brand loyalty.

While other manufacturers such as Blackberry and Nokia were increasingly bringing to market more advanced cell phones, with integrated email and the ability to play certain kinds of multimedia, the product

that Apple introduced has seemed to reinvent the entire segment. Reported to have been designed over 30 months’ time and at a cost of US$150 million, the iPhone’s ingenious form, with only two buttons and a refined, flat glossy surface, was viewed as “transformational,” and its functions, including the phone’s multi-touch screen and virtual keyboard, coupled with its integrated iPod media player (which itself was tightly woven with Apple’s immensely popular iTunes download store) and its Internet connectivity which permitted mobile web browsing, instantly captured the fascination of technophiles, enthusiasts, and consumers who loved its ease-of-use and dynamic aesthetic. Indeed, Time magazine named it Invention of the Year in 2007, and based on Apple company estimates, some 33.75 million iPhones have been sold to-date – with approximately 6.4 million active in the U.S. alone, all the more impressive given the state of the economy and a demonstrated willingness by consumers to forgo other frills in an apparent effort to save more. According to the NPD Group, June 2009, the iPhone attracts users of all ages, and 40% have a household income over US$100,000. With each new version of the iPhone, media reports document long lines of consumers waiting before dawn to get first the latest version of the product.

A New ParadigmIn March 2008, Apple innovated the product significantly by publishing a software developer kit, made available freely to third-party developers, which enabled programmers to develop feature-rich native applications for the iPhone. These third-party “web applications,” developed using AJAX web programming techniques – which permits the “client” (in this case, the iPhone) to retrieve data from a web “server” in the background, without interfering with the experience and behavior of the existing page the user is interacting with – meant that the iPhone could be updated with useful as well as frivolous new tools that would vastly improve the utility value of the product, in effect enabling it to mimic much of the capability of a desktop computer connected to the Internet – all in the small form factor of the iPhone, which can fit in a user’s pocket and be fully accessible wherever there is data coverage. While the development code standard was available at no cost, loading an application onto the iPhone was only possible after paying an Apple Developer Connection membership fee ($99-$299), testing and debugging the application as necessary, and receiving approval from Apple that the resulting “app” met its quality standards and could be deployed. For more information on Apple Developer Connection, visit developer.apple.com/iphone/program.

The capability to write applications for a powerful – and already popular – mobile device attracted thousands of programming developers, and from this community were quickly spawn tens of thousands of apps, serving all sorts of wants and needs ... Do you want to see a radar map of weather in your area? There’s a free app for that. Want to play interactive golf as or against Tiger Woods, or, using your iPhone, easily order a couple of tickets at the movie theater nearest you? Or, learn a new language – Chinese, Spanish, even English? There are apps for all these things – most extremely polished, all leveraging the same look and feel of the underlying iPhone interface. All available at little cost or even “free” (developers set any price they wish; Apple keeps 30% of any revenue derived from the sale of apps through its “App Store”; www.apple.com/appstore). The availability of such new tools and apps dramatically increased the value of the iPhone, which already was a powerful all-in-one phone, e-mail client, and web browser ... now, in effect, it could be customized in seemingly endless ways.

This has led to a self-perpetuating cycle ... as more iPhones are sold, developer activity increases, as it increasingly becomes obvious that content providers and brands alike want to be visible and available where

their customers are focusing a great deal of their time and attention. Bay Elliott, executive vice president of The Farwell Group, Inc., who counsels private equity investors on the shared ownership industry, says, “It is clear that [for any business] you have to give people the freedom, flexibility and functionality they have come to expect and demand. Smartphones appear to have already become the preferred access and commercial device – today and probably into the future.” As innovation continues, it’s likely that pricing for these products and their service contracts will drop considerably from present levels, making iPhones and other smartphones all the more accessible.

With the introduction of the App Store and rapid growth in available apps – surpassing 100,000 in September 2009, double the number from five months earlier – already high interest in the iPhone (and to a lesser degree, smartphones overall) hit new levels, in large part explaining its remarkable growth in market share, despite the iPhone’s high price and the economic environment. Meanwhile, other manufacturers were forced to cut prices on their newest, non-app supported phones, decimating their margins and profitability, throwing once-vaunted companies like Motorola and Ericsson into disarray. These firms and the leaders such as Research in Motion (maker of the Blackberry) and Nokia, went back to the drawing board, to design new products and their own “App Stores,” which so far have failed to capture the same kind of attention or sales as the iPhone.

Most notably, Google – which has long viewed the mobile web browsing market as a critical plank for its future ad revenue growth – began to develop and has just brought to market its second-generation “Android” mobile platform, intended to directly compete with iPhone, and at a lower price point. Unlike Apple, Google is not a manufacturer, and it is giving away Android to phone manufacturers to build scale quickly. While it remains to be seen when and if any competitor can stunt the growth trajectory of iPhone, the emergence of revitalized competition likely means an even more rapid migration of consumers to such robust smartphones, and through them, demand for and use of ever-more robust apps. Indeed, many futurists and trend spotters have been arguing for some time that the future of the Web is on mobile devices, given their portability, lower cost, and higher utility value.

As Elliott suggested, the implications of all this have not been lost on businesses, large and small.

Does Your Shared-Ownership Company Need an ‘App Strategy’? Some startling statistics suggest you just mightBy William J. Brown

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Perspective Magazine January 2010 Perspective Magazine January 2010

To put things in further perspective, Apple reports that more than 2 billion app downloads have occurred to date – of which, 1 billion occurred in the first 10 months of 2009. While the iPhone App Store has launched hundreds of entrepreneurial firms focused on app development, companies across the spectrum in many industries have also begun doing so, initially targeting brand reinforcement through novelty games and entertainment, with many now clearly moving towards apps that bring their core assets – information, content, and commerce – into apps that marry these with transactional capabilities, generate demand and reinforce the relationship with the customer.

Travel AppsWithin the travel and hospitality industries, app activity has really begun to accelerate, with two high-profile launches occurring recently – priceline.com’s The Priceline Negotiator (complete with William Shatner!) and an ambitious app from Hilton Worldwide, called Hilton. The Priceline Negotiator lets travelers use iPhone or iPod touch to quickly find and book last-minute hotel rooms using priceline.com’s Name Your Own Price hotel service and save versus published rates, extending Priceline’s web-based business in an elegant way designed perfectly for the strengths of the iPhone.

Meanwhile, the Hilton app really suggests the potential for branded hospitality companies to create truly extraordinary, value-added user experiences that drive consumer loyalty and deliver to the needs of the traveler. It could come in handy for stranded travelers thanks to a feature that lets you find hotels near you by integrating with the iPhone’s geolocation capability (which detects the exact location of the phone, and then uses the coordinates to “plot” your proximity to the nearest Hilton property), and gives you turn-by-turn directions from your current location. The hotels and resorts at hand also include all of those in the Hilton network – including available rental inventory from its Hilton Grand Vacations Club timeshare subsidiary, permitting reservation booking which even includes choosing bed and pillow type (where offered), with the added convenience of pre-arranging a room service order via the iPhone, tool. There is little doubt that companies across the global travel industry spectrum will soon be introducing their own apps, with novel features and commerce capabilities tied to their underlying, pre-existing e-commerce and ERP systems. It’s noteworthy that very shortly after its release, The Priceline Negotiator app was the 3rd most downloaded app on the App Store, with more than one-million downloads (both it and the Hilton app are free).

For the millions of travelers seeking to experience a Walt Disney World vacation, as of year-end 2009, there are at last count no fewer than 18 applications

already available from independent publishers, apps that provide real-time information on wait-times for rides at each of the four parks, restaurant menus, and “secrets” observed by other park visitors. The Disney Swan and Dolphin hotels, operated by Tishman Hotel Corporation, now offers apps that showcase the properties amenities through videos and a robust photo gallery available right on the iPhone.

What’s the utility value for shared-ownership firms in contemplating whether – and when – an app strategy is appropriate? How could it deliver value and return on investment? The cost to develop apps varies by sophistication of the experience that is desired to be delivered; some popular apps were developed at no more than the cost of time and materials ... more complex apps could require weeks of development, testing, debugging, validation, and budgets of US$50,000 or more, but the upside potential of reaching millions of potential users, or thousands of existing prospects and owners, should be considered in the fuller context of your goals.

Some ideas for possible applications for the shared-ownership industry: • Enable club owners to access some or all of the

transactional services that are facilitated either online, or offline

• Create apps that “explore” the areas around resorts that are in active sales; this not only serves to drive interest in the development, but also to combat post-sales rescission

• Browse available and unsold and/or unrented inventory; permit reservations if back-office processes can be integrated.

• Develop apps that drive merchandising of the property and ownership, with the promise of a sweepstakes or contest, with entry dependent on finding “clues” throughout the full app, ensuring that the user is exposed to what you need them to see (if done right, this creates the opportunity for “viralocity” because there is something of value, and if designed correctly, it could drive referrals and would likely be forwarded to friends and contacts by users, as well as discussed in the media, akin to free publicity and word-of-mouth awareness)

• Rich, immersive resort directories, with links back to the primary website

• Better, more efficient and coordinated back-office operations within your company and at your resorts, through apps designed around enterprise applications that can be then accessed by iPhone or Android-fitted employees

While there are likely many other niche applications suitable for an app, another reason to pursue such a strategy now is the likelihood of significant publicity,

given the environment where apps are still “new” and there is value from being a “first mover.” While Hilton’s app is innovative, one can argue it is only incrementally so ... yet, there are hundreds of mentions about it, guaranteeing significant immediate intrinsic benefits for the brand.

The competitive and economic landscape continues to be extremely challenging, as we all can attest to. Through low-cost innovation, companies throughout the shared-ownership vertical can continue to differentiate themselves. An app strategy would require perhaps some forward-thinking, and some new skills, but it’s likely if you have a website today, you already employ or could contract at low cost, via any number of options, the resources necessary to try to take advantage of an incredible new communication and transaction platform.

Advantage, as is often the case, comes to those willing to take calculated risks.

The Hilton app reveals the potential for branded hospitality companies to create truly extraordinary, value-added user experiences that drive consumer loyalty (actual iPhone screen captures).