Try googling “iPhone Nano”, you’ll get 43.9 million hits. It seems a lot. A closer look at Google’s results shows them to be reasonably legit, no spamming. (Bing is less expansive with only 103,000 results, 400 times less than Google…)

The putative iPhone Nano appears to be in great demand. But is popularity a predictor? Are all these “hits” a sign of a product to come? Or is it merely what a critic calls the iPhone oNano, a fantasy?

The iPod story provides an inviting template: Over the years, what we now call the “Classic” begat a large family of Mini, Nano and Shuffle versions. And the iPod Touch, which I’d rather call an iPhone Minus for today’s purpose, meaning it’s not part of the iPod class. (Another wag calls it the iPhone Honest: the one that clearly labels itself as unable to make phone calls. How unfair.)
So, let History repeat itself. Let’s start a family of iPhones, beginning with the cuter iPhone Nano. Right?

Perhaps not.

Looking at the iPod again, one thing never changed: all versions played the same music. Other attributes were added and sometimes taken away: size, screen, physical and logical controls, video… But the core purpose never varied: playing iTunes digital music files. (As the iPod Wikipedia article makes somewhat clear, you can use an iPod without iTunes, but that’s not a statistically significant reality, it’s not relevant to the iPod ecosystem’s business model.) The iPod’s DNA evolved a few accessory strands here and there, but the core genes have been left unchanged. And, going back to the iPhone and the iPod Touch, we see iPod genes living inside a larger DNA sequence

Speaking of the iPhone, what is its main purpose?

Is it making calls, browsing the Web, doing email, synchronizing calendars and address books? It does seem that way: the iPhone provides such services with varying degrees of felicity. (In my sample of one, during the Summer of 2007, when I saw the amount of Web browsing time spent on my infant iPhone, I realized my treasured Blackberry was a goner.)

But these de rigueur, taken for granted functions are necessary but not sufficient to make an iPhone. What does make an iPhone an iPhone is its huge and still growing collection of applications served by the iTunes App Store.

The iPhone is an App Phone.

The App genre (the apps themselves, their distribution system, the development tools) is now fully embraced by the smartphone industry and by its customers. I realize we’ll keep saying “smartphones”, but “app phone’’ gets us closer to the genre’s core reality, to what drives enthusiastic user adoption — and close to triple-digit year-to-year revenue growth.

The apps are to the iPhone what digital music files are to the iPod.

Moving to the Nano suffix. What can we remove from today’s iPhone “Classic”?
Memory, processor speed, storage? Not really. Those permutations are available already. Either in current iPhone configurations, or in the previous generation pricing games: a 3GS iPhone for $49,

while the iPhone 4 trades for $199, both with a 2-year contract. And these variations do little or nothing to change the apps that run on them.

(Out of curiosity, I went and looked for an unlocked iPhone. On Amazon, the previous generation iPhone 3GS is offered at prices between $400 and $600. I’m not sure what to make of such factoid. Grey market? Paying for the ability to then freely switch SIMs and move from one carrier or one country to another?)

Removing existing permutations leaves us with one thing to cut: the display. A smaller screen is indeed the iPhone Nano’s most frequently mentioned feature.

We won’t dwell too much on the UI issues: Dear Leader did this for us when, in October 2010, he cheekily dismissed the idea of a 7” tablet:

“It (seven-inch screen) is useless unless you include sandpaper so users can sand their fingers down to a quarter of their size.”

He forgot to mention the 3.5” iPhone screen… Imagine what he’d say about an even smaller screen.
Actually, based on Steve Jobs’ record of dissing features or products only to implement them at a later date, we can be sure he’d tell us how Great & Magical℠ this Nano-UI would be…

Then we have the margin question: savings wouldn’t go much further than the screen itself. The rest, processor (SoC), memory, sensors, radios could be cut a little, but not in any significant way, say by 30%.
Apple execs have repeatedly stated their intent to stay price competitive. The Nano’s purpose would be expanding or protecting the iPhone franchise, unit volume, market share and profits. In theory, the iPhone Nano would accomplish this with a lower price point, say 50%, and a smaller size. But, again, the $49 3GS iPhone is there already and doesn’t seem to “move the needle”.

Apps are the real challenge.

We’ve seen iPhone apps on an iPad screen, either at their original or 2X size: technically, they’re compatible. Aesthetically, they don’t work. To be successful on the iPad, iPhone apps had to be adapted, reworked to really use the larger screen and to meet changed user expectations. The iPad, contrary to Eric Schmidt’s premature evaluation, isn’t merely a bigger iPhone: the larger screen isn’t just more, it’s different.
Similarly, a materially smaller iPhone screen would need a new, and third, variant of iOS applications. Not impossible, not too hard for trained iOS developers, but fragmentation nonetheless. Is it worth it?
From a developer’s standpoint it’s a reasonably simple question of return on investment: How many Nano iPhones? How much Nano apps revenue? And for what apps? Games, Commerce, Social? A large enough increase in volume could drive developer commitment.

Another suggested variant would be a “streamlined” Nano, as in streaming content. Hardware costs would be cut by removing most of the iPhone storage used for music, pictures and videos. Such content would then be streamed from a “digital locker” provided by Apple from its already legendary North Carolina Cloud.
This brings us back to the Internet Appliance concept: everything in the Cloud, the local device is as simple (and dumb) as possible. We know what happened: customers want it both ways. We want the Cloud and its comforts. We want local processing and its advantages. In the iPhone’s case, as dominant app category is games. How to run the best games from the Cloud? (OnLive is working on an answer.) For games on PCs or smartphones, local GPUs (Graphic Processors) are the answer. Close to half of all iPhone 10 billions+ apps downloaded are games. A stripped-down streaming Nano doesn’t look realistic.

With this in mind, would Apple do an iPhone Nano?

On the one hand, we have Apple execs insisting they won’t roll over and let competitors eat into their franchise, they want to deal from a position of strength and not let a price umbrella develop above their competitors. This assumes, correctly I think, Apple’s smartphones can stay un-commoditized, meaning Apple will avoid the race to the bottom. This could be accomplished by a combination of product design, software, services and distribution. Put another way, this is Apple’s traditional strategy of owning all layers of the stack. It is working for the Mac and its steadily growing market share, it could be made to work for a family of iPhone variants. (Still, there aren’t too many OS X applications variants…)
On the opposite side, assuming Apple wants to fight hard, the company could simply decide to cut prices on current and future iPhones without resorting to a hardware and app variant.
We remember the clamor, year after year, for an Apple netbook — and the company’s steadfast refusal to do a cheap Mac.

I’m tempted to believe Apple will go for simplicity. If it decides to complicate its life and invest in another iOS variant, Apple TV might provide a different enough opportunity, one with more content sales potential than a tinier iPhone.

JLG@mondaynote.com

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