Will business buy the new iPhone? - Jun. 20, 2008

Selling big business on the iPhone

Apple is taking a new, corporate-friendly tack with the iPhone. Will it work?

(Fortune)
– Steve Jobs has won over legions of new customers since he returned
to Apple, but one key group has stubbornly eluded him: big business.

The
reason isn’t a mystery. Apple’s mercurial CEO decided a decade ago that
corporate IT departments weren’t worth the trouble. Though they buy
tech gear by the truckload, when it comes to computers they often favor
stripped-down, predictable technology - the stuff Jobs finds boring.
Rather than chase that business, he has courted upscale consumers with
innovative devices like the iMac and iPod that are as fashionable as
they are functional. It’s hard to argue with the results: Apple stock
is up more than 2,000 percent in the last 10 years.

But now as
Jobs seeks to turbocharge sales of the 3G iPhone, he’ll have no choice
but to embrace the corporate stiffs. That’s because while Apple’s
computer and iPod sales are healthy, analysts believe the popular
smartphone has the most growth potential - and business buyers could be
the key to its success.

Can Apple (AAPL, Fortune 500)
do it? With its strong brand and balance sheet, experts say now might
be the perfect time to try. But the real question is whether Apple is
willing to put the money and time into the humdrum work of treating
businesses like first-class customers.

In
the iPhone’s realm, the most coveted customers are road warriors who
read e-mail, surf the web, and handle multimedia files on the go. To
date, most of them have embraced Research in Motion’s (RIMM) BlackBerry, and devices running software from Microsoft (MSFT, Fortune 500)
or Symbian. But investors, believing that the iPhone can steal those
customers away, have recently bid up Apple’s stock. Analysts believe
the company can sell between 20 million and 45 million units worldwide
next year.

Mark Tauschek, an analyst with Info-Tech Research
Group, notes that though business buyers make up only 30 percent of
phone users, they spend the most money. “To reach these lofty goals
they have to make the leap to enterprise sales,” he says. “That’s where
most of the pickup is.”

There are already signs Apple is warming
to businesses. The latest version of the iPhone, which is due to go on
sale July 11, doesn’t come in retail-friendly candy colors; instead,
it’s packed with features right off an IT manager’s wish list: tighter
security, support for Microsoft Exchange and Office, and software tools
that let businesses roll their own custom applications, to name a few.

The
new capabilities are enough to get Apple’s handpicked group of outside
corporate testers excited about the device; 35 percent of the Fortune
500, including Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500), Disney (DIS, Fortune 500) and Genentech (DNA),
signed up to try out the software and tell Apple how to make it better.
“Everything they told us they wanted we have built into iPhone 2.0
software out of the box,” Jobs said when he unveiled it this month.

But now that they’ve tested it, will they buy? We won’t know for several months. Wachovia (WB, Fortune 500) technology chief Jim Ditmore expects to include the iPhone among the devices employees can use for e-mail by October.

At Wells Fargo (WFC, Fortune 500),
Steve Ellis, executive VP of wholesale services, notes that workers
can’t wait to get their hands on iPhones - he says he fielded two dozen
employee e-mails the day Apple unveiled the business features. But
while Ellis says he found Apple wonderful to work with, he acknowledges
that winning over other IT managers could be a challenge for a company
used to wowing consumers. “Enterprise is kind of a new thing for them.”

Gartner
analyst Ken Dulaney puts it more bluntly. “Apple’s reputation’s not
good. Most of the companies I talk to say that when they bring the
Apple rep in, the first thing he says is, ‘Why should we work with
you?’ Not the kinds of practices that endear you to the enterprise.”

And
while Apple’s dramatic product unveilings may thrill consumers and the
press, they just annoy businesses, which prefer to plan for new
technology well in advance. Apple’s decision to build all iPhones
itself and offer U.S. service exclusively through AT&T has Gartner
recommending that clients avoid using specially developed iPhone
software and stick with e-mail, calendar and contacts. That way, if
relations with Apple or AT&T (T, Fortune 500) go sour, they can easily switch to something like BlackBerry or Microsoft.

That
may sort-of defeat the purpose of getting an iPhone - but businesses
can’t afford to put all their eggs in one basket. Says Dulaney: “The
iPhone does have a place in the enterprise. It just might not be as
broad as something like Windows Mobile.”

Given all the hype
around the iPhone’s advanced features, that seems an odd statement -
but it reflects the skeptical tone several experts struck about Apple’s
chances of storming corporate America. Companies in highly visual
industries like insurance and media might take a chance on the iPhone
early. But others will hang back to see whether they can get by with
phones from companies whose products and customer service they’re used
to working with already.

If Apple has a grand plan to beef up its
customer service and overcome those perceptions, it isn’t sharing. (An
Apple spokesman declined to comment beyond what the company has
publicly stated about its plans.) But the company has plenty of
options. A cash stash of nearly $20 billion gives Jobs the resources to
buy a top-notch service organization if he chooses. The company’s
AppleCare program for consumer service is highly rated, and he could
expand it for business.

In a pinch, Jobs could also rely on
wireless carrier partners to take the lead in sales and support. In the
U.S., AT&T seems eager to fill that role. The carrier is the top
seller of the BlackBerry and Windows Mobile smartphones, and has
promised to “aggressively” sell the iPhone “to more than 120,000
companies - including all of the Fortune 1000″ when it arrives on July
11, according to company spokesman Brad Mays.

But Jobs is
apparently not content to let AT&T handle everything. Though
AT&T says it will be the “point person” for business customers, its
tech support teams are responsible only for dealing with network
service issues for the iPhone. For all hardware and software problems -
such as dead batteries or cracked touchscreens - customers will have to
make an extra call to Apple. That’s different from the way AT&T
deals with RIM and other hardware makers; for them, it handles all
customer contact and brings in the device maker to make fixes behind
the scenes.

“We’re evaluating this [arrangement], and if it seems
to make sense for us to take on some of the responsibility on the
device side as well, we would be open to doing that,” says Jeff
Bradley, senior vice president of small business mobility marketing and
operations at AT&T.

Even
though Apple hasn’t charted a detailed corporate strategy, no one’s
counting the company out. Even its critics say the combination of
well-designed software and popular hardware could be hard to resist.

Al Delattre, global managing director of Accenture’s (ACN)
electronics and high technology business practice, predicts that the
iPhone could get a foothold in corporations as employees simply bring
them in, one by one, and pressure their IT departments to make sure
they work with corporate systems.

But it will take something
extra for Apple to make a real impact. “All the major handset
providers, if they want to play at the enterprise level, have got to
have absolutely bulletproof, ironclad, global, 24-7 support,” Delattre
says.

If Apple means business, that’s what needs to happen.