Will Enterprises Embrace the iPhone?

Implications: The iPhone has such a wide following among consumers, many of whom hold influential positions in enterprises, that some penetration into enterprises will happen quickly.  Once that early stage is past, however, future growth promises to be more difficult.  RIM is a formidable competitor!

Analysis: Many iPhone users have already been clamoring to get their phones accepted by enterprises.  The primary stumbling block so far has been the basic incompatibility the iPhone has shown with Microsoft Exchange and other services commonly deployed by enterprises.  With iPhone 2.0 Apple is addressing these incompatibilities, so the iPhone will be able to connect to key enterprise services.  Early adopters will probably start showing up within days of the release of iPhone 2.0.  Some enterprises, particularly smaller ones, will be open to integrating the iPhone and will be ready to go within hours or days of the release of iPhone 2.0.

Early adopters, however, are going to constitute a VERY small percentage of enterprises, although they will likely get media coverage out of proportion to their actual numbers.  A larger number of enterprises will be open to the iPhone, but will need to test it thoroughly before allowing it into their corporate systems.  This testing is likely to require anywhere from a month to six months.  Assuming the tests don’t reveal any heretofore hidden problems, the iPhone will gradually get certified within enterprises as an acceptable platform during the six months following the release of iPhone 2.0. 

Once the iPhone is considered acceptable by enterprises employees will be free to purchase their own and connect them to the corporate mail systems.  Many of the then-current iPhone owners will do just that, but it seems unlikely that enterprises in general will be willing to subsidize the iPhone, so the incremental revenue to Apple is probably not going to be large.  One of the big questions is whether AT&T will be willing to subsidize the cost of the iPhone as an enterprise platform, as they do with some of their handsets.  If AT&T subsidizes the cost of the iPhone, so that the actual cost to the enterprise is only $50-$100, then the iPhone can expect a very healthy increase in sales from this.  If no subsidy is generally available, the sales increase is likely to be minimal.

Even if the iPhone can become standard fare within enterprises, it has really only earned a chance to compete with RIM’s latest, as well as the new products from Nokia, Samsung and others.  RIM is famous for innovation and has already largely captured the hearts and minds (and pocketbooks!) of the movers and shakers in business.  By the time the iPhone is certified in business, RIM will have had another 6-12 months to develop and release new products.  Nokia, Samsung, and others will also be scrambling for a piece of this pie.  Microsoft may well have released Windows Mobile 7 by then.  The competitive landscape in 6-12 months is not likely to look much like it does now, although the major players will probably be the same.

Providing Exchange compatibility for the iPhone is clearly a step forward for Apple, and it can only add to the  revenue from the iPhone.  The iPhone will certainly become a solid competitor in the business world, but doesn’t seem likely to take it by storm.  There will be an initial surge of sales, followed by a strong ramp up over the first few months of availability, then it will likely level off and settle in for a long battle with RIM, Nokia and others.  Apple will prosper, but not conquer.