The iPhone Doesn't Ring With Business

SAN FRANCISCO - Consumers may salivate for the new 3G iPhone from Apple (AAPL) but the phone remains a tough sell in the corporate world.

Despite Apple's attempts to tout the 3G iPhone's business friendly credentials at its Worldwide Developer Conference, the phone lags behind its rivals such as BlackBerry maker Research In Motion (RIMM) and Microsoft's (MSFT) Windows Mobile platform in features that are critical to businesses, some industry experts say.

They say RIM's BlackBerry and Windows Mobile offer better security and device management capabilities, making it a better fit for businesses that need to contend with compliance related issues.

"The iPhone still has a way to go," says Julie Palen, chief executive officer of InterNoded, which helps companies manage their mobile devices. "It totally has the cool factor but the iPhone is really blind to the IT organization so it is difficult to manage and offers little control from the security aspect."

Apple CEO Steve Jobs is trying hard to ratchet up the iPhone's appeal to enterprises. During his keynote at the conference Monday, Jobs spent a fair chunk of time talking up the iPhone's suitability for business users. About 35% of the companies on the Fortune 500 list have tested the beta release of upcoming iPhone 2.0 software, he said.

The iPhone 2.0 software update will offer complete support not just for Apple's iWork office software package but also Microsoft Office, he said. The update will also add support for Microsoft Exchange, a market leader among businesses for email and Cisco (CSCO) Secure VPN connection security.

But it may not be enough for enterprises and it does not rival what Apple's competitors are offering.

Security on the iPhone remains a key concern for IT managers. Businesses need to make sure that their users do not leave unencrypted information on their devices, which could cause problems if there were a data breach or the loss or theft of a device.

The iPhone can't encrypt data when it is in transit unlike RIM's BlackBerry, which encrypts information transmitted between the devices and the server. Microsoft's Windows Mobile also offers similar encryption capabilities.

Despite the popular design of Mac desktops and notebooks and the 'cool' factor surrounding the devices, Apple hasn't made a significant dent among business users, who have preferred to use Microsoft's Windows operating system based PCs.

"Apple has only been able to capture islands within the enterprise such as senior executives or creative functions in enterprises," says Barry Jaruzelski, vice president and lead marketing officer at Booz Allen Hamilton.

With the iPhone, Apple has a shot at becoming more than just a niche player and getting business users to sign on will be its biggest challenge. "If you need to have a large and expanded customer base, you need to expand into corporations," says Jaruzelski. "That's where the money eventually is for high-end smartphones and it's the logical place to go."

Displacing RIM from its perch as the market leader though won't be easy. "The installed base and functional loyalty of Blackberry users is pretty significant," says Jaruzelski. "Changing the behavior pattern and the IT investments in current mobile devices is not trivial. Enterprises will have to consider the total cost of ownership while making a decision to switch."

RIM's secret sauce is its BlackBerry Enterprise Server, which connects with Microsoft Exchange, IBM's Domino and other email systems and links wireless devices to business applications and wireless networks.

The server offers strong encryption to ensure the best security, centralized control and management and features that allow IT managers to wipe all personal data off the phone in case the device is lost or needs to be decommissioned.

"Until you can do all these things with an iPhone, I just don't see mass deployment among businesses," says Palen.

Shares of Apple were up $4.08, or 2.2%, to $185.69. The stock is down 4.5% since the beginning of the year but has run up nearly 42% in the last three months.

Apple's much-touted independent applications, soon to be available through its App store, are also likely to send a shudder down the spine of IT managers.

"There is no way to push or remove these applications through a centralized management system," says Palen. "IT managers have to know what apps are running on the device and have the ability to control the device or change its security credentials."

For businesses that may have hundreds of employees carrying around a mobile phone, the ability to manage those devices easily from a single centralized console is an extremely critical need, the lack of which could become a deal-killer for the iphone among enterprises.

IT managers need to able to extract data about the mobile phone that their employees are using, query the device and ensure it is secure and compliant with the enterprise' policies, says Palen.

It's not just a matter of security but also compliance especially for companies in the financial services sector that need to ensure all their devices, computer and handhelds, yield to regulators' demands.

Apple still needs to offer developers access through an SDK (software developers kit) that gives IT departments the ability to push out applications and better manage the device.

"When security issues of major corporations are addressed and level of controllability is there, the iPhone will explode in the enterprise," says Palen. "But it isn't there now."

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