WWDC Preview: Apple Wages War on Three Fronts

WWDC Preview: Apple Wages War on Three Fronts
Fistfights are breaking out all over the Apple arena. The iPhone can no longer ignore the hard-charging Droid. AT&T might lose a chunk of its customer base if a Verizon iPhone comes to light. Early signs show the iPad rattling the fast-cooling netbook market.

How are these brouhahas shaping up? And more importantly, who's winning? As the world ramps up speculation on the next iPhone and whether Verizon could be getting a big win, here's the tale of the tape so far:

iPhone vs. Droid

Droid fans had something to cheer about when consumer research firm NPD reported that Google Android smartphones outsold Apple iPhones in the first quarter this year. Google grabbed 28 percent market share to Apple's 21 percent. (The leader continues to be RIM BlackBerry, although its market share continues to decline.)

Much of this success is due to the Droid, and not so much the Nexus One, which has fallen out of favor leading Google to stop selling it directly.

But NPD's numbers may be a bit misleading. Verizon has launched an aggressive Droid marketing campaign that includes a two-for-one offer. It's not clear to me whether or not the two-for-one offer was in place during NPD's research and, if so, whether or not the "free" second unit counted as a sale.

Next-gen iPhone prototype leaks have no doubt benefited the Droid. Potential iPhone buyers are shunning the current iPhone and waiting for the new model, Apple says. In a recently released court document, Apple officials told police investigators that the leaked prototype phone involved in the Gizmodo saga was "immensely damaging" and represented a "huge" loss.

Nevertheless, the new iPhone and iPhone OS 4.0--both expected to be released this summer--strike at the heart of the Droid's competitive advantages. iPhone OS 4.0 will support multi-tasking third-party apps, just like the Droid. One of the leaked iPhone prototypes showed an Apple A4 chip, probably 1 GHz, similar to the Droid's.

Verizon vs. AT&T

There's one thing the Droid has that the iPhone doesn't: The Droid runs on Verizon's CDMA wireless network. Rumors have been swirling for months that Apple will open up the iPhone to other carriers. A Verizon iPhone is on our wish list for the next iPhone. (Latest rumor has Sprint getting an iPhone.)

Wishful thinking aside, AT&T will be a big loser if a Verizon iPhone comes to light. AT&T had scored a bounty of customers from its iPhone exclusivity deal some three years ago. After the iPhone spiked data usage, AT&T has had to invest billions of dollars to shore up its infrastructure, especially in heavy-use areas like New York City and the San Francisco Bay Area.

If Apple opens up the iPhone to Verizon, AT&T stands to lose 40 percent of its iPhone subscribers, or about six million subscribers, according to Davenport & Company analyst Drake Johnstone, as reported in an AllThingsD story. Davenport & Company predicts Verizon will start selling an iPhone as early as mid-next year.

Not only will Verizon most likely gain these subscribers, but also, 17 percent of existing Verizon subscribers will probably upgrade to the iPhone, according to Morgan Stanley analyst Katy Huberty. "There is substantial pent up iPhone demand within the Verizon installed base as 16.8 percent of Verizon subscribers said they are 'very likely' to purchase an iPhone if offered on the Verizon Network," she writes in a research note, adding that Verizon can expect to sell seven million to eight million iPhones annually.

If a Verizon iPhone does come to market, AT&T has ways of stemming the tide in the form of high early-termination fees and family plans. With the former, AT&T plans to raise early-termination fees from $175 to $325 for smartphones, reported the Wall Street Journal. Verizon also has similar fees.

Also, about 80 percent of AT&T's customers are on family-talk and business-discount plans that make switching to a new carrier problematic, reports John Paczkowski of AllThingsD.

iPad vs. Netbook

One of the big surprises when the iPad debuted was its amazingly low starting price. A 16 GB Wi-Fi-only model cost $500, whereas many analysts had estimated around $1,000. The reason? There's little question Apple made sure to get to a price point that competes with cheap netbooks.

So how has the iPad fared against the netbook? The once-red-hot netbook market suddenly cooled around the time of the iPad's release. Many factors likely contributed to this, but the timing gave the impression that the iPad was a key driver of change.

Recent surveys show early signs of the iPad's impact on the netbook market. This week, Retrevo, a consumer electronics shopping site, released findings from a survey of more than 1,000 consumers. A key finding: The iPad has swayed three out of 10 consumers in the netbook market to wait and purchase an iPad.

Retrevo asked consumers in the market for a netbook whether or not they held off buying a netbook after the iPad was announced in January, as well as what they ended up purchasing. The results were fairly evenly split: 30 percent went ahead and bought a netbook without waiting, 40 percent held off and eventually bought a netbook, and 30 percent held off and eventually bought an iPad.

Results of a Morgan Stanley/Alphawise survey favored the iPad: 44 percent of U.S. consumers planning to purchase an iPad are buying it instead of a netbook or notebook.

Tom Kaneshige is a senior writer for CIO.com in Silicon Valley. Send him an email at tkaneshige@cio.com. Or follow him on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.

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