As an Alpha company, does Apple have to worry about T-Mobile’s new G1 competitor?

Nope. Here’s why…

There has been a lot of speculation about the new T-Mobile G1 “handheld computer” (or otherwise known as a “smart phone”) and whether it represents a real threat to Apple’s 3G iPhone. Despite some “test drives” that say it is a good technical runner-up, the answer clearly is, “No.” And that is based upon understanding the Alpha Factor and how it reflects the real buying and decision behavior of real people.

I have not had the honor of being able to test it personally yet, but there are a couple of reasons that make it easy to predict that it can’t be more than an irritation to Apple:

Firstly, there are the obvious functional issues. According to the Alpha Factor model, in order to be competitive, a product must meet at least the minimum functional expectations for the category. The G1 fails on that measurement.

Apple has already set a fairly high expectation for functionality with easy synchronization with PCs or Macs through iTunes. It also set the standard for both web and video viewing with the screen that changes from portrait to landscape by simply turning the device. Those are just two of the functional advantages the iPhone has over the G3. Although the G1, designed by Google, has added some apparently interesting new features and software, it does not address the core performance expectations set by Apple. It also has a much smaller network through T-Mobile, which by itself will limit the phone’s success.

But don’t stop there. The most important reasons the G1 is a waste of innovation investment are below.

Secondly, it is a “follower,” which is the worst thing to be, as proven over and over again in the research used to develop the Alpha Factor model. Followers are what you want to make everyone else in the category. Followers make the Alpha stronger, because it is obvious that followers see something of greater value in the Alpha’s offerings than the follower had in theirs. Hence, the follower changed to copy the better offering of the Alpha. That’s a big “duh,” yet it is the very trap that most marketers fall into.

Thirdly, it reinforces that it is not as good by making itself cheaper. If you haven’t figured it out yet by reading about the Alpha model, cheaper equals “not as good.” Consumers are not stupid. Any research you do will reinforce the consistent findings that people believe that cheaper is not as good, even though they wish to believe that somehow someone might make a mistake and price a better product cheaper. Confidence is lower in a cheaper product. Cheaper only works if there is no evidence that something else will work better for them and/or make them experience more ego-satisfaction. Then price becomes the critical decision factor.

Nothing that copies the iPhone has a chance of becoming the Alpha in the category. And being an Alpha, which Apple has made itself, generates all kinds of hugely profitable benefits. For instance, the Alpha can charge more, no matter what its cost structure is. The Alpha gains more competitive influence, meaning it has more influence over decisions made by customers, competitors, retailers, distributors, and referral agents. The Alpha is less vulnerable to competitive pressure. It is also more able to weather tough problems, like product recalls, bad economies, or other ugly things that happen.

So, what could the G1 have done to make itself an Alpha rather than just an “also ran?” It could have started by going in a completely different direction than the iPhone did. It could have started with really understanding what iPhone, Blackberry, Trio, and other “smart phone” users wish they were getting, but aren’t (which goes far beyond just putting a keyboard on the G1 and offering a few different, not necessarily great, programs). It could have taken the core functional needs not being met by any of those products and made that the new standard for everyone else to meet. Then they should have looked for ways to address unmet ego-satisfaction needs among the segment they discovered was most vulnerable. Instead, they made themselves a very slightly cheaper alternative. Sad move, guys.

For instance, just as the iPhone moved from basic functionality to focus upon better personal entertainment performance and then added design and tactile features to enhance the ego-satisfaction, the new G1 could have explored making itself the ultimate business application, overcoming the functional shortcomings of the iPhone and then found ways to address the many unmet ego-satisfaction needs of business persons. Functionally, it could have made itself the ultimate “office in your pocket” application. Emotionally, it could have found ways to make people feel smarter, more “powerful,” and better in touch with the world, which would have put them on the track to become the business segment Alpha.

That may not have given it the ability to outsell the iPhone in numbers of phones or given it more overall appeal than the iPhone, but that would have given it a niche to own rather than just being a copycat (and a weak one at that).

What about the network? Isn’t that really the big weakness? No. It certainly makes this product a minimal threat in terms of sales volume, but even if it had been picked up by AT&T as another option to the iPhone, it still would not be a viable competitor. The $20 savings on recommended product price and the meager savings on service would only have made it an option for persons who really did not know what the iPhone offered. More than 3 million iPhones were sold to persons who were willing to pay significantly more than a Blackberry would have cost them.

As the Alpha Factor Project proved over and over again, price is not the issue. It never is, except when there is no real better choice (or the more expensive option is unjustifiably higher priced based upon the functional needs defined by the customer). I am really saddened seeing companies believe that they can make sustainable inroads against an Alpha company (or in many cases, even the non-Alpha company that has a better product) by sliding 10% to 20% below them in price. In every research study I have ever done, I have seen that people are more than willing to pay 20% to 40% more on most products when they can see better functional performance targeted to their needs. They are also typically willing to spend 40% to 200% more if it also addresses ego-satisfaction better than competitors do.

What a waste of hard to come by R&D money. had the G1’s innovation investment been targeted rightly, it would have a chance of generating a serious ROI. As it is, I would not recommend selling your Apple stock just yet. Apple’s rising star is based upon its having established itself as an Alpha. And with competitors like the G1 that has no understanding of the basics of how customers make buying decisions, Apple has little to worry about.

(NOTE: If you would like to really understand how The Alpha model works and can be applied to almost any business to create greater profitability, price leverage, market dominance, and competitive control, get your own copy of The Alpha Factor. You can order yours on Amazon or BN.com.)

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