The iPhone Invades Europe
Will Europeans fall for the Apple phone's user-friendly flash, or stick with spec-heavy phones from Nokia and Sony Ericsson?
by Mark Scott, Businessweek, November 9, 2007
Apple's knack for generating fanatical customer loyalty was clearly on display in London Nov. 9, as a line of plucky fans braved inclement British weather outside the company's Regent Street store. They wanted to be the first to get their hands on the iPhone, which finally launched that day in Britain and Germany.
Bracing himself against the cold, student John MacGregor, 23, says he has been looking forward to the iPhone's British launch since the device was first unveiled in January, 2007. "There's nothing quite like it out there at the moment," he says.
Despite the hoopla surrounding the iPhone—more than 1.4 million units already have been sold in the U.S.—Apple's bid to grab a share of the European mobile-phone market is no sure bet. The European market is home to well-entrenched locals Nokia (NOK) and Sony Ericsson, which enjoy dominant market share and offer their own multimedia music phones. European consumers also could turn up their noses at a phone that, despite its groundbreaking user interface, offers lesser specifications and slower data speeds than some of its rivals.
Exclusive Deals Signed
"European users have higher expectations for mobile phones than their U.S. counterparts," says Aleksandra Bosnjak, media and technology analyst at StrategyEye Digital Media in London. "The iPhone is a great product, but in terms of full functionality [for the European market], it still has a long way to go."
That hasn't stopped Britain's O2 (TEF) and Germany's T-Mobile (DT) from signing exclusive deals with Apple (AAPL) to offer the iPhone to their domestic customers. In Britain, subscribers will have to pay between $74 and $115 per month for an 18-month contract, while in Germany, customers must fork over $72 to $130 per month for a two-year contract.
Such figures are in addition to the cost of the iPhone handset—which is itself a radical departure for the European market, where most phones are heavily subsidized by operators. British and German customers must pay $565 and $439, respectively, for the iPhone, compared with $399 for U.S. consumers.
Dead-Simple Operation
"The handset price could be an issue because people don't usually pay for their phones," says Jonathan Arber, analyst at telecom consultanncy Ovum in Britain. "Apple is banking on the cachet of its product to overcome the extra cost."
The question is whether buyers will opt for specs or coolness. Nokia's N95, for example, sports a 5-megapixel camera, vs. the iPhone's 2-megapixel offering. The Sony Ericsson W960 handset can download data over speedy third-generation (3G) networks, whereas the iPhone runs only on a souped-up second-generation technology called EDGE. But no other phone on the market today has the iPhone's touch-screen technology and dead-simple operation.
Another issue for Apple will be prying customers away from existing contracts and phones. According to mobile market researcher M:Metrics, a third of people who express interest in buying an iPhone already own a 3G phone, while 40% of potential buyers already have a phone with a 2-megapixel or above camera.
Bringing Apple to a Wider Audience
"High-end smartphones with lots of gadgets are already widely available within the European market," says Paul Goode, a senior analyst at M:Metrics. "Apple faced a lot less competition in the U.S. market than it will in Europe."
Still, the company is aiming right now for only a 1% share of the estimated 1.1 billion unit mobile-phone market. It shouldn't be too hard to find tech-savvy Europeans who will pay extra to be one of the first to own an iPhone. "Apple has positioned the handset as a premium product," says Paul Lee, director of research for the Technology, Media & Telecommunications practice at Deloitte Consulting. "The iPhone will have a halo effect for the company to demonstrate Apple's technology to a wider audience."
Eventually, a larger number of buyers could be drawn to Apple's user-friendly operating system, which focuses on simplifying basic services such as music, Internet, and phoning. Analysts say that consumers inundated with new technologies are finding them more and more difficult to master—hence the appeal of Apple's radically simple approach.
Will Curiosity Lead to Acceptance?
What's more, the iPhone's combination of integration and ease-of-use already is manifesting different usage patterns among owners. Whereas only about 10% of regular cell-phone users try to access the Internet from their phones, according to M:Metrics, among iPhone owners the number jumps to 90%. The high adoption rate affords Apple and its partners higher revenues—as customers pay a premium to surf the Web—while kick-starting the mobile content business.
Such advantages could give the iPhone enough boost to break into Europe. And if the line of diehard fans outside Apple's London store is any indication, there's plenty of curiosity about the handset. But the competitive and tech-savvy nature of the European market means the iPhone's expansion into Europe won't be a walk in the park.
Vivendi, Activision Form Games Juggernaut
The CEOs behind such hits as Guitar Hero and World of Warcraft talk about the potential of the $18.9 billion tieup: namely, a new No. 1 video game company
By: Christopher Palmeri, Businessweek, December 2, 2007
CEO Jean-Bernard Lévy says Vivendi will be the majority shareholder in Activision Blizzard "for the long term." Bertrand Guay/AFP/Getty Images
Jean-Bernard Lévy and Robert Kotick have had a busy holiday season. On Dec. 2, Lévy, the chief executive of Vivendi (VIV.PA), and Kotick, the CEO of Activision (ATVI), announced an $18.9 billion deal that will create the world's largest independent video game publisher and a fierce competitor to the longtime industry leader, $3 billion Electronic Arts (ERTS). The deal combines Activision, a $1.5 billion maker of the top-selling Guitar Hero, Call of Duty, and Tony Hawk franchises, with Vivendi Games, whose Blizzard Entertainment unit has a huge hit with World of Warcraft. The online fantasy game has 9.3 million members paying monthly subscription fees to play.
Under the terms of the proposed merger, the $29 billion Paris-based entertainment and telecom conglomerate will exchange its Vivendi Games and $1.7 billion in cash for a 52% stake in the new company, which will be called Activision Blizzard. Within four days of that transaction, the new company will make a tender offer for $4 billion worth of Activision shares at $27.50 per share, a 24% premium on the closing price Nov. 30. BusinessWeek.com's Christopher Palmeri spoke with Kotick, who'll continue to be Activision Blizzard's CEO, and Lévy on the day they announced the merger.
Can each of you describe your reason for this deal?
Lévy: We're very committed to games. We're going to continue to invest in what's the fastest-growing segment in the entertainment industry. This gives us the financial flexibility to grow the asset. Blizzard was a bit hit, but its value was sort of hidden. As a listed company on the Nasdaq, this gives us the opportunity to attract talent [with stock options] and create a currency for further acquisitions. We'll be the majority shareholder for the long term.
Kotick: It has been our aspiration to be the No. 1 video game company. Over the last year, we've looked at lots of options. We're laser-focused on margin expansion. [World of] Warcraft is by the far the most profitable individual franchise that exists in video games. This structure will give our shareholders the opportunity to decide if they want a share in future growth or take money at a premium to the market price. We don't have an online presence. We don't have a strategy for Asia. We didn't have intellectual property that we could capitalize on in Korea and China.
Activision is having one of its strongest years as most of the toy industry struggles. What is driving your growth?
Kotick: You have a full generation of video game consumers becoming parents. On top of that, there are three big changes in the games: the more interactive, physical interfaces with Wii (NTDOY), the increase in production values, and the biggest game-changer, so to speak, is this movement from a solitary media to a social media. World of Warcraft is the stickiest social network. You can play against other people, interact with another person. It's moved from hobbyists to a much broader audience. Families leave the dinner table to play. You have Guitar Hero nights at bars. Thirty percent of Guitar Hero customers are female. When I saw Ellen DeGeneres feature Guitar Hero on her show, I knew we had arrived.
Vivendi is in a lot of businesses that seem to be converging: music, television, video games, and cell phones. How do you see these efforts playing out? Will we all carry a little device that does all of these things?
Lévy: That's what it is all about. Everyone is trying to fight to have that device. Nokia (NOK), Apple (AAPL), Sony (SNE), the Koreans. Look at the way people take pictures: They all use their cell phones. We are there with the networks, the content. We are not going to get into the devices. We are delivering content to these super digital networks, and we want to own a larger piece. We want to take money from the more mature businesses and reinvest them in the faster-growing ones.
Kotick: Traditional forms of media, TV, feature films, are not the growth engines. In Blizzard, we saw a shared vision of interaction. They have tens of millions of casual online gamers, mobile platforms, and a combination of opportunities. When you look at Warcraft, they have a big hit when they release a new version. Then they have all these expansion packs. You pay a subscription in between. They had an option to pay a fee to choose a different server, to get closer to the people you are playing with. In one week, 1 million people signed up. They made $25 million.
Is the subscription-based model how content will be delivered in the future?
Lévy: It's one model that works very well. I wouldn't dare to say we want to be exclusively that. With Warcraft, it's more than a game—it's a social community. When I watch my son play, he speaks with friends over the Internet. He's laughing all the time. It's just a fun experience. People are willing to pay a significant amount of money for it.
Kotick: That's a very difficult thing to duplicate. I don't see a TV company being able to duplicate a network with 9 million paying customers. They have 750 game masters providing customer service. If we thought there was an easy way to duplicate that, we would have done it on our own.