Hamish McRae: Apple's iPhone won't change the world. But the innovation it unleashes just might

If you want to deliver electronic services in China or India, a mobile phone is better than a computer
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The Independent Online

Consumer products of themselves do not change the world economy. Nevertheless when a new product neatly slots into a known gap it can make a material difference in the way people use their time and hence have a material impact on the economy.

It is possible, though not at all certain, that Apple Inc's new iPhone may turn out to be such a product. Of course it is not nearly as important as the mobile phone itself, which has achieved faster global penetration than any new product in the history of the world and has transformed economic activities particularly in China, India and Africa. It is even possible that it will turn out to be a commercial failure. But it is equally possible that it will be a catalyst for change in mobile telephony, stimulating a host of new applications that really will transform the world economy.

The argument runs like this. The US pioneered computer ownership and the internet but it has lagged badly on mobile telephony. So new developments in the States, such as YouTube, have tended to be designed for the PC rather than the mobile phone, even if the mobile phone camera does have an increasingly important role in video recording. The most important product spanning the two technologies, the BlackBerry, came from Canada rather than US.

Within most of the developed world, this has not been of great significance. Internet penetration in Western Europe and Japan is high enough - typically three-quarters of the rate of the US. However in the developing world mobile phone penetration has raced ahead of both computer ownership and access to the internet. You would expect that to have happened because, after all, a mobile phone is cheaper than a computer. The effect is that if you want to deliver services in China or India by an electronic means, a mobile phone is a much better mechanism than a computer.

Take banking services. Here we have become accustomed to Internet banking but mobile phone banking is pretty embryonic. But last month my colleague Jeremy Warner was in India and saw a new mobile phone banking system developed by Infosys, which was extremely simple and user friendly. If your customers have a mobile phone on them all the time but have to go into an internet café to go online, it is a no-brainer as to which device they would chose to use for banking.

You can see the scale of the transatlantic divide the first two graphs. The US and Canada top the G7 league in computer ownership but come right at the bottom in mobile phone penetration. You can also see how a quarter of the Chinese population has a mobile phone in contrast to the still-low numbers of computers; in India the levels of both are lower but the disparity is much the same.

India and East Asia, and to some extent Scandinavia, have been adept at developing new ways of using mobile telephony. We have had some interesting innovation here, particularly with the use of text services - though I'm none-too-sure that I want a text warning me that there is about to be a terrorist attack, the new service just announced by the Government. But as noted above there has not been much innovation coming from the US.

Now that may change. That seems to me to be the underlying significance of the iPhone. The US company with the best record for combining sleek design with intuitive functionality - the extraordinary ability to figure out what people want before they know they want it - may have created a product that will end the trans-Atlantic divide. Americans have been gradually going mobile; this will complete the process.

If this is right, and you do have to take everything that is said about the iPhone with a pinch of salt, this will stimulate a global quest for new mobile services. There will certainly be a barrage of new phones doing similar things and they too will provoke the development of new services.

What will these services be? We cannot know and in any case they will take months, years indeed, to be developed. Americans don't get the phone for another six months and we won't get it until the end of the year. We can however say a few things.

One is that the services could come from anywhere, since the iPhone will be a global product - apparently it will be a GSM quad-band - and that they won't come just from large companies but from small start-ups too.

A second is that some of these start-ups will be in sheds in Mumbai and Shanghai as well as offices in Palo Alto, though the interaction between finance and entrepreneurs in California remains one of the great strengths of the US hi-tech industry.

A third is that while as a general rule the software is more interesting than the hardware, this may be another example, like the iPod, where the hardware matters too. Don't underrate the power of fashion, which matters just as much as functionality.

Fourth, this will give a big boost to the broadband revolution, which itself is encouraging the development of new services, the promotion of e-commerce and so on. The final graph shows the way in which broadband has swept across the developed world. But large parts of the developing world have yet to get it because the fixed-line network is inadequate. Broadband mobile will be given a kick-start not just in the developed world, where it is not really necessary, but in the developing world. So a side- effect of the iPhone will be to further level the global playing field.

This leads to a final point. This is how a stylish chunk of American innovation sharpens our perception of a world where competitive advantage is a much more fluid concept than it has even been before. The US can still out- innovate the rest of the world. We often forget that. Where these phones, and their competitors, end up being made is less important than the ability of the US (or indeed other developed countries) to conceive, design and market them. Design matters. Culture matters. And for the moment at least, the US - and in a rather different way, Europe - still seems able to create the products and services that retain our economic leadership and to some extent at least, justify our standard of living.

Perhaps the most interesting thing to watch for in the coming 18 months will be not so much the commercial success or otherwise of the iPhone, though that will be fascinating. It will be the social consequences of the product. What services will be winners? Will there be at last real convergence between the computer and the mobile phone? What new business opportunities will emerge in, say, sub-Saharan Africa as a result?