The Digital Transformation Playbook: Rethink Your Business for the Digital Age

iPhone Versus Nokia
Why did Apple’s iPhone so thoroughly supplant Nokia’s mobile phones?

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By looking at the differences in their value propositions, we can see 
why customers quickly came to see the iPhone as not slightly better but 
vastly better—no comparison at all, really. (See table 7.1.)
Certainly, one difference was in the physical design—the iPhone’s 
shape, weight, and large glowing screen and the tactile experience of its 
touchscreen provided a totally different customer experience. Simplicity 
was another critical difference. Mobile phones in 2007 were notoriously 
difficult to navigate, even for common features like managing voice mail 
messages. The iPhone’s operating system offered a much easier user inter-
face. Another important difference was integration—rather than carrying 
around a phone (for calls), a PDA (for address book and calendar), an MP3 
player (for music), and a GPS device (for maps), the user had all these 
integrated seamlessly into one device. Lastly, there were the apps—starting 
with a Web browser and a few others and then exploding into thousands 
of programs in the iPhone’s second year when Apple opened it up to out-
side developers to create programs. The apps turned the iPhone into a true 
computing device.
Why couldn’t Nokia compete? It was very clear within a couple of years 
that the iPhone was a huge hit with enviable profit margins. But Nokia, 
despite being the global leader in mobile phones (and valued at over $100 
billion), was unable to imitate Apple’s success with a copycat smartphone 
of its own. The reasons can be seen in the difference between the value 
networks of the two companies.
Much attention is often paid to Apple’s highly developed design capa-
bilities, which were doubtless critical to the creation of the iPhone’s com-
pelling physical design and touchscreen interaction. But there were several 
other differences in Apple’s value network that allowed it to create, deliver, 
and monetize the iPhone. One was the partnership Apple had struck with 
its retail partner, AT&T. This included a large price subsidy, with AT&T 
Table 7.1 
Business Model Disruption: iPhone (Disrupter) Versus Nokia (Incumbent)
Value proposition differential
Value network differential
Physical design
Simplicity of use
Integration (music, phone, PDA, browser, 
e-mail, maps)
Apps
Design capability 
Retailer subsidy
Unlimited data
OS design experience
iTunes integration
App developers

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covering most of the consumer purchase price of the iPhone and rolling it 
into consumers’ (higher) monthly payments for data over two years. With-
out this, the iPhone would have been so expensive as to remain a niche 
luxury product. AT&T also offered unlimited data usage for a fixed price 
in the early years of the iPhone; this led consumers to fully explore the 
apps and features of the new device, thereby cementing radically new habits 
and expectations for mobile devices. Other key elements of the iPhone’s 
value network lay in Apple itself: its skill in designing simple computing 
operating systems (from years of designing desktop computing products) 
and its ownership of the iTunes music platform. Thanks to the iPod, Apple 
already had the dominant digital music platform for U.S. consumers, and 
who really wanted to buy their music all over again in a new market from 
Nokia or anyone else? Lastly, once the App Store was opened up, explosive 
growth in users and sales attracted an ecosystem of tens of thousands of 
developers who learned to program apps for the iPhone. Nokia could never 
program the same number of apps for any phone of its own and was badly 
behind in the race to attract outside developers. Taken together, these dif-
ferences in the companies’ value networks made it impossible for Nokia to 
imitate the iPhone’s strategy.