In 2007, Apple introduced the iPhone, which instantly became one of the most talked-about consumer products ever. Thousands of customers lined up to be the first to buy the phones, which featured computing and Wi-Fi capabilities, along with a crisp, computer-like display on an innovative touch screen. Rivals, including Google, rushed phones with similar features onto the market.
Although the new phone was virtually indistinguishable on the outside from its predecessor, the iPhone 4, it was packed with better technical innards, including a more advanced camera. The phone also included a more powerful chip known as the A5, the same microprocessor that acts as the brains inside the iPad.
Though many Apple fans expressed disappointment about the lack of a design change, consumers reacted very differently. Apple said it sold more than four million iPhone 4S's during the device's first weekend on sale.
In January 2012, after a blockbuster fourth quarter, Tim Cook, Apple's chief executive, said the iPhone 4S accounted for the majority of iPhone sales. This statement took on added significance considering that at the time, the iPhone 3GS was free with a two-year contract, and the iPhone 4 cost $100. Even in a down economy and with a free iPhone in its portfolio, Apple still managed to sell the expensive, newer 4S to most of its customers.
Yet the free and reduced-price iPhones were still important to the company's business. Tero Kuittinen, a senior analyst at MGI Research, said the free iPhone 3GS gave Apple the opportunity to expand aggressively into markets where smartphones were not as popular yet, like China and Africa.
Jan Dawson, an analyst with Ovum, said not to underestimate the power of the free iPhone 3GS and the cheaper iPhone 4. "You'd better believe the other iPhones are selling, too," he said. "They're suddenly competitive with the lower-end smartphones that you used to get if you couldn't afford an iPhone."
The iPhone4s runs on two kinds of cellphone networks, GSM and CDMA, allowing its operation worldwide. Prices start at $199 for a model with 16 gigabytes of storage. The new phone is available on the AT&T, Verizon and Sprint networks.
In a Race With Android
Apple's strategy helped narrow the lead that had been gained by Android phones, powered by Google's operating system. Nielsen, the audience measurement firm, reported that 61.6 percent of United States smartphone consumers surveyed in October 2011 said they had gotten an Android phone within the previous three months, while only 25.1 percent got an iPhone.
By December 2011, though, Android's lead among people who had recently acquired a smartphone had narrowed to 46.9 percent, while 44.5 percent of consumers said they had bought an iPhone, Nielsen said. About 57 percent of iPhone owners in December said they got the new iPhone 4S, while the rest, 43 percent, got older iPhones.
Legal Dispute
Soon after the iPhone 4S was introduced, Samsung Electronics said that it would seek to block its sale in France and Italy, asserting that the phone violated its patents. In seeking a court order against its rival in the two large European markets, Samsung indicated a more aggressive stance in its expanding patent battle with Apple.
Samsung said that it planned to file for preliminary injunctions in other countries after further review. The two companies are locked in about 20 legal disputes over patents in nine countries, including Australia, Britain, Germany, Japan, the Netherlands and the United States.
The fight began when Apple sued Samsung in April 2011 in the United States, asserting that the Samsung Galaxy lineup of smartphones and tablet devices "slavishly" copied the design, user interface and packaging of the iPhone and iPad. Samsung responded with its own lawsuits accusing Apple of violating its intellectual property.
An Issue of Control
Apple likes to maintain tight control over what programs can appear on the iPhone — a task that became a little bit harder in July 2010, when the Library of Congress, which has the power to define exceptions to an important copyright law, said that it was legal to bypass a phone's controls on what software it will run to get "lawfully obtained" programs to work.
The issue has been a topic of debate between Apple, which says it has the right to control the software on its devices, and technically adept users who want to customize their phones as they see fit.
Apple has also said that altering the phones encouraged the pirating of applications, exposed iPhones to security risks and taxed the company's customer support staff. But iPhone hobbyists say they simply want to have free range to use certain features and programs on their phones that Apple has limited or failed to offer.
Can Apple win in an intensely competitive market against rivals that are openly licensing their software to scores of companies? It faces that challenge not only in phones, but also in the market for tablet computers, where the iPad is about to take on a similar set of rivals.
The stakes are huge, as the mobile computing market could prove to be larger than the PC market ever was.
That leaves little room for error at Apple. The company must continue to create hit products, as a single misstep could give Android and other rivals an opportunity to make inroads and steal market share.
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