Taking Back the Market

FaceTime Will Reduce the Cost of Staying in Touch

Tim Nash - 2010.07.22

FaceTime on the iPhone 4The first TV ads for FaceTime on the iPhone 4 capture the emotional how and why of sharing that moment now. No need to wait. No need to upload a video or photo and wait for a response. No need to puzzle out the reaction from a voice in a phone call. You can get the full feedback right now.

Apple sees FaceTime as free, because it uses WiFi (not your mobile minutes), so any cost objection is stillborn. Indeed, if the choice is between a free phone call with video and using minutes for a voice-only call, how many people will choose free with better sound quality? In the US, this also bypasses any local AT&T cellphone network issues, and AT&T has a more extensive WiFi network than Verizon.

Unfortunately, this limits how convenient FaceTime is to use, as most people need to be at home or work or in a coffee shop for a WiFi connection. In one way, this makes FaceTime into another free Internet call service with video, like Skype, but without the PC customer base.

Carriers vs. FaceTime?

Outside of the US, carriers are likely to want people to be able to use FaceTime over regular 3G networks to get users to subscribe to more expensive data plans. In the UK a typical iPhone package at £30 (US$45) per month includes 1 GB data over 3G with unlimited WiFi. Thus carriers don't yet benefit from FaceTime, and the more people who use it, the less will need expensive minute packages. Since the carrier's idea is to get people to pay more, they are unlikely to be this public spirited if FaceTime starts to be a success.

However, if people get used to successfully making free FaceTime calls over WiFi, they will find a way to continue. An easy connection to the local 3G/4G network will make it more convenient to use FaceTime and give the carriers revenue. In the meantime, FaceTime looks good in the ads, and if it persuades people to upgrade from feature phones and pay-as-you-go, it's a gain for the carriers.

Nobody Uses It (Yet)

Nokia launched cellphones with cameras for video calls years ago, but when nobody uses it, that isn't a feature, it's an expense.

Much of the issue is a network effect. If neither family nor friends nor colleagues nor clients use it, what is the incentive for you to use it? Enough members of at least one of your social circles have to use it, which means it has to be widely available, convenient, easy to use, and low cost. Until then, FaceTime calls will stay a novelty, something to try out with a friend or two when you get iPhone 4s.

How can Apple break with the past of video call failure? Getting people to regularly video call is more about building a social network than anything Apple has done to date.

A Different Kind of Change

Convincing people that the time of the tablet is now, so go out and get an iPad, is very different. Many people aren't happy with computers. They are too complicated for what they want to use them for, so something lighter than a netbook and easier to use is appealing.

Touch takes computers to a different place. Touch is the way we manipulate much of our world, so it is easy to make that change, but choosing an iPad doesn't require anyone else to change their behaviour.

It's like the first days of TV. Many people didn't see the need for it, looking at people on a small screen when radio had all those great programs - and you could do other stuff while you were listening. In the same way, FaceTime and voice-only calls will coexist; there will be plenty of times when you have to do something else, like driving, when you take a call.

The Embarrassment Factor

There is also the embarrassment factor. Until people get used to FaceTime, many will want to try it out with families, close friends, and significant others, people with whom you are not embarrassed if you don't look your best. People who you really want to see when you are talking to them, almost wherever they are. How fast it expands from there will probably expose a generation divide. If you are used to exposing everything on Facebook, the embarrassment factor will matter a lot less.

So Apple's ads largely focus on sharing the moment with partners, students away at school, and grandparents. They seem to say, "We would like you to be here, but this is the next best thing" and, in that way, the ads are an update of the old campaigns for long distance phoning with the advantage for kids of an end to "haven't you grown?"

New Markets

Showing people signing may be the start of Apple disrupting the hearing aid industry. FaceTime will also help lip readers and, with good earbuds, a sensitive microphone, and speech-to-text, iPhones and iPod touches could become a much more socially acceptable way of serving the hard of hearing market.

With 80% of Fortune 100 businesses and 50% of Fortune 500 businesses deploying or testing the iPhone, one-to-one video conferencing looks like the next big market. People want to see reactions to what they say.

It will start off within the company as a way of reducing misunderstandings, and when users realize FaceTime makes business calls more useful and lessens the need for visits, it will expand to contact with customers and suppliers.

In customer service, nothing beats dealing with a real person, especially one you can see, so in time this could end outsourced customer support. It should also end those telephone relationships where you build a picture of the person, a composite of the people you know with those kind of traits, and they rarely look anything like it when you meet.

Antennagate

How well will the iPhone 4 sell while sorting out a redesign for the antenna problem that works for people who love their iPhone naked?

For those who want their iPhone in a case to protect it and keep the resale value high, a free case is great. For those holding the iPhone in their right hand, there isn't a grip issue either.

The proximity sensor issue too is yet to be solved.

Overseas Markets

The big sales question is, what happens in the countries where iPhone is yet to launch?

That South Korea has dropped from the late July list should concern shareholders. The 3GS as been a hit there, with over 800,000 sales in eight months for KT, the number two carrier. The main carrier has been negotiating with Apple also. Samsung, one of the local manufacturers, is trying to launch its Galaxy S Android smartphone range, and this gives the local telecomm authorities an excuse for revisiting the iPhone 4 approval.

If the launch delay is minimal and other countries don't look to hold up iPhone 4 approval, Apple will continue to sell iPhone 4s as fast as they come off the production line for at least the September quarter.

Expanding the FaceTime Market

Apple needs to grow the FaceTime community much faster than the rate of sales of iPhone 4s. Even if Apple sells a million iPhone 4s a week for the rest of the year, that will still be less than 30 million potential FaceTime users out of the billions who use phones.

iOS Devices

FaceTime on WiFi could offer a very attractive upgrade to the iPod touch. Splitting the range, like the iPhone, between an entry level model and more expensive ones makes marketing sense, and now Apple can do that with more than memory. All iPod touches could have the low resolution FaceTime camera, and the top of the range models could have the 5 MP iPhone camera as well. This could be attractive to those locked into carriers that don't offer iPhones (including Verizon, the number one carrier in the US), students on campuses with WiFi everywhere, and people working in WiFi enabled buildings such as hospitals.

This could keep iPod sales at the same level they have been for the last couple of years while the market for the traditional iPods (classic, nano, shuffle) fades. If this upgrade happens in September, it should add another 12 to 15 million FaceTime users in 2010 and at least twice that over 12 months.

Next year the iPad can be upgraded. It is too new to add a camera now. Production is still ramping up to meet demand, and it hasn't even been launched in most countries. There are too many demands on Apple's engineering resources for a sensible redesign and launch until after the holiday quarter, and since iPad is the first really successful tablet, Apple probably needs a year of sales to better understand the market and even to know how many cameras to source.

Macs and PCs

The fastest way to expand the FaceTime community will be to add it to MacBooks and iMacs as a replacement for iChat AV. There are 30 to 35 million capable Macs - Intel-based models with built-in iSight webams - out there, and anyone already using iChat AV becomes part of the FaceTime community. And as with all typed of networks, the more people you can connect to, the more useful it is.

Offered as a download, initially for OS X only, FaceTime could later have XP and/or Windows 7 versions to take care of the two-thirds of iPhone users who use Windows. However, if others, like Skype, take up the FaceTime standard, it may be simpler and as effective to leave the Windows market to them.

FaceTime Events

With FaceTime on Macs and iPod touches as well, Apple Retail Stores could build a major promotion around bringing families together. This would get people using FaceTime by letting them book calls between stores and possibly between stores and iPhones. As well as showing Apple leading the way, this would drive visitor numbers and make for a special Thanksgiving and holiday season.

As the FaceTime icon is on the iPhone 4's screen, it's always there as a reminder, even if you only use it sometimes.

If the simple idea of using email addresses as caller ID takes off, we will be another step away from the phone system (and a string of difficult-to-remember numbers) and another step towards unifying all our electronic communications.

While FaceTime could well be the start of the end for minute plans, the carriers can still have a good business. They just need to get customers used to buying data plans. LEM

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Tim Nash is a Director of WattWenn which has a new approach to scheduling the production of TV and movies to make the most of budgets. The views in this article are his own and are prejudiced from spending more years working for computer companies than he cares to remember.

Tim lives with his wife, her website on the area ariege.com, two daughters, a cat, and a dog in the French Pyrenees. He lapsed for a while after the Apple II, but became a Mac fan when his wife introduced him to the Macintosh IIsi. If you find his articles helpful, please consider making a donation to his tip jar.

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