0BThe Facts • The new iPhone with 3G and GPS launches on 11th July.

1BConventional Wisdom • Users of the mobile internet are still a niche market. Only 8% of

adults say that they have used the internet on their mobile in the last 12 months.

• The potential for growth also seems limited, - 67% of internet users say they will “definitely not use their mobile to access the internet over the next 12 months”. (Source: BMRB Internet Monitor.)

2BThe Real Issue • The iPhone has the potential to not only attract mobile web users,

but to transform the way they use online services.

• This means that it could dominate the mobile communications market in the way that Microsoft dominates the PC.

• The simplicity that iPhone Applications offer users will be the key to the future of the mobile marketplace.

3BOur Prediction • Now that ease of use and pricing issues are being addressed, we

forecast that mobile internet usage will triple by the end of next year.

4BThe New iPhone With weeks of intense speculation preceding the worldwide launch, iPhone 2.0 will feature 3G networking for high speed data access, assisted GPS for satellite location services and improved battery life.

With its price reduction to $199 in the US (from $399), Apple are now allowing networks to subside their handset cost. As a result in the UK, O2 will be giving away the new model for free on monthly tariffs of £45 or more- a significant drop from the launch price of a flat £269 on any contract.

As it becomes affordable to a much larger market, the iPhone should generate significantly more interest. According to O2, more than 130,000 people have pre-registered their interest in the week since it was announced— almost four times as many as registered in the 3 weeks between the original iPhone’s unveiling and launch in November last year.

Even so, the upgrades are seen by some as being relatively minor, merely bringing the iPhone in line with other 3G, GPS-enabled multimedia handsets such as the Nokia N95.

However, a more significant factor for the iPhone’s future market is the software upgrade for the original iPhone and iPod Touch, which will allow software to be downloaded and installed (either via iTunes, or directly though the 3G or WiFi internet connection.)

Developers will be able to choose between releasing their applications for free with Apple covering the distribution costs, or using the Store as a sales channel with Apple taking a 30% share of revenues.

Limited Growth of the Mobile Internet?

With more active mobile phones than people, the UK has a large and mature mobile phone market. However, with no standardisation among handsets and different manufacturers using different screen sizes, button layouts and menu systems, it’s highly fragmented.

Designing and building a website that works equally well on different mobile handsets (as well as on a PC screen) can present significant problems. Many websites will simply redirect all mobile browsers to either a WAP site or a stripped-down, low graphics version of the main site.

So the market is in a catch-22 situation; consumers are waiting for a mobile web experience that compares with the ease of use they are accustomed to on the desktop. Meanwhile site owners and developers are waiting for a larger active user base before investing in the mobile audience.

It’s generally thought that the breakthrough of the mobile internet into the mainstream is a case of “when” rather than “if”. However, it appears that the tipping point is still some way off. (Only 8% of adults have used their phone to browse the web and 67% of internet users saying they will “definitely not use their mobile to access the internet over the next 12 months”- BMRB Internet Monitor.)

5BHow iPhone 1.0 Changed Mobile Usage Compared to the market, iPhone users are much more active.

Figures released by M:Metrics earlier this year claimed that;

• 85% of US iPhone owners used their device to surf the web

• 50% accessed social networking sites

• 31% watched mobile TV or video

These figures are significantly higher than the smartphone sector, and far ahead of the wider mobile market.

Whether this is because the iPhone’s best-in-class web browser makes it easier for iPhone owners to surf the web, or because existing mobile web users are attracted to the device is hard to say, although the truth probably lies somewhere between the two.

A “halo effect” has occurred with other devices benefiting from the iPhone’s high profile. Consumers have been attracted by the idea of a mobile phone that can surf the internet, but the first release’s high price tag put many of them off. As a result, cheaper smartphones have seen an increase in sales as a result. The drop in price from £269 on its release to free on a £45+ monthly contract should significantly increase the iPhone’s share of the smartphone market.

So are we going to see even more mobile web users thanks to the new iPhone, resulting in more mobile websites and the growth of the Mobile Internet?

New iPhone Simplifies the Online Experience

Simplicity has always been a key factor in bringing new technologies to the mass market. While plenty of MP3 players have managed to match the iPod in terms of features, its ease of use has secured Apples market leading position. Similarly, the success of Google in Search owes much to the simplicity of its service.

With the iPhone's best-in-class web browser, Apple have already managed to create a mobile web experience that's virtually identical to desktop use. But with the iPhone 2.0's Applications, Apple have simplified the experience even further, giving access to online services with a single touch from the home screen.

For example, the Google Maps and YouTube iPhone applications give you direct access to their online services— optimised for the iPhone’s touch screen. In addition, the Maps service can also access information on the iPhone, so it will open up with a map automatically centred on the phone’s current location, and can also use addresses from the Contacts list to give directions.

ʺYouʹre witnessing the birth of a third major computer platform: Windows, Mac OSX and iPhone.ʺ ‐ David Pogue, New York Times.  

Although features like 3G and GPS will attract consumers to the iPhone, we believe that it’s the simplicity of the applications that will be the key to its success.

Mobile Internet 2.0

iPhone Applications could change the nature of the mobile internet for iPhone users. Instead of users starting their journey with a search engine or URL, they would be starting with an iPhone application- not even opening their web browser.

We've seen that mobile internet users have already been attracted to the iPhone and the price drop will only increase its appeal. But Apple are now shifting the focus away from websites that anyone can access and onto to their own exclusive iPhone Applications.

Currently, the main competition for the iPhone as a mobile software platform is looking likely to be Android— the open source mobile operating system from the Google-led Open Handset Alliance (which is not expected to debut until late 2008/early 2009.)

But while the Android platform will go some way towards providing a set of standards, it still leaves handset manufacturers free to choose between different screen sizes and methods of navigation (eg. using either touch screen or directional buttons), so the market will remain fragmented. Building applications specifically tailored for devices will be much more challenging than for the iPhone.

The Future of Mobile Advertising

Because of the standard that the new iPhone will set for mobile internet use, we see the numbers of users increasing significantly, tripling over the next 18 months.

If the iPhone dominates the mobile market as we expect it to, then mobile advertising could take a different shape to what we’re used to on the desktop. With the start point of the online journey moving away from the web browser, search engine and URLs or bookmarks and towards specialised applications, the role of search advertising could be changed.

It’s yet to be seen how online marketing will best fit in with this new mobile model. Perhaps new vertical search models will arise— searches specific to a particular location (such as price comparison in nearby retail outlets, or finding a local restaurant or bar.) Or perhaps the role of the phone will be as an integrated CRM system— in the same way that Orange users can get an SMS code to exchange for 2-for-1 cinema vouchers, iPhone applications could be used as CRM systems for other retailers, taking the place of loyalty cards or vouchers.

Display advertising would need to be considered differently too— the iPhone’s zoom functionality means that display advertising like banners and sidebars will tend to be zoomed off the pages, and the lack of Flash support on the iPhone means that rich media advertising can’t be displayed.

However the industry adapts to the new mobile space, it looks like the iPhone could be leading the way to a whole new mobile medium.