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I still maintain that the iPhone is an iPod that happens to have a phone built in

The First Million Will Be Easy

Monday, June 25, 2007

Perhaps I should have formatted this as a memo to Steve Jobs, but I decided to turn it into a blog entry. We are about to see how much of a success the iPhone is going to be. As the title indicates, I think selling the first million iPhones is a foregone conclusion. However, I think the next 9 million (Jobs says they will sell a total 10 million iPhones within the next year) will be a lot tougher than he expects.


From all reports and the ads, it looks like a cool device with a great graphical user interface, an iPod and a phone, and the world is drooling as it waits for the day it becomes available. There is no doubt that Jobs is a genius when it comes to developing products, everything he has touched has been a success, that is everything but NeXT, which he sold to Apple, and Apple TV, which is slow out of the starting gate. But I am not convinced that the iPhone will end up being the home run he and the world expects it to be. There are already several music phones on the market that are selling well and download music over-the-air including the Sony Ericsson Walkman phone and the Chocolate by LG.


I am certainly not the only one who has commented about not being able to download music over-the- air and that the system is basically closed when it comes to applications, a number of industry analysts have voiced the same concerns. Although, I now understand that if and when applications are developed using Apple's Safari, they might be made available for download, which might help the iPhone moving forward.


There is, of course, the iPod community, just waiting for the next iPod in the form of the iPhone, but I have to wonder how long it will take for the rave reviews to turn sour as customers find out that the ads on TV that make it seem quick and easy to surf the Net are not based on reality. The reality is a slow data connection via EDGE, which runs between 80-110 Kbps when receiving information and is slower sending information. Since I expect most iPhone buyers to be in the 18-25 year-old range, I don't expect many of them will have the tolerance for slow Internet connections, nor do I believe they will be happy with the experience provided by the browser.


Because everything is done via a touch screen, I am not sure it will pass my one-handed test-the ability to make and receive calls, send text and perform other functions when you only have one hand free. I will have to wait and see if it can be used in this manner.


There are a lot of firsts for the iPhone. It is the first wireless device to be introduced by a non-wireless operator. Its price is not discounted, it is the most expensive phone introduced (with the exception of some designer-brand phones) and the network operators (AT&T in the U.S. and Rogers in Canada) have had little if any say in the way it will be sold, where it will be sold (AT&T admits it does not have the right to sell the iPhone except in its own company stores) and now I am hearing rumors that the SIM card is permanently locked into the phone, as opposed to most GSM phones that are locked but still permit you to remove the SIM card and use it in another device. My assumption is that if this is true, it is to keep total control of the iPhone and prevent it from being used on any other network.


The real bet by Apple is that people want an iPod that, by the way, is also a phone. Another first for Apple, which I touched on above, is that this is the first phone I am aware of to be sold in the United States that is being supplied and distributed by a consumer company and not really by the network operator. I have said in several articles I have written that I believe this will become a trend in the future, that consumer companies will enable their products wirelessly but retain control over the device and its distribution.


AT&T will certainly benefit from the iPhone, I am sure that in the first three months of sales it will see a surge in new subscribers, people leaving other networks and moving to AT&T, but I believe it will be a short-lived surge and will not have a long-term impact on the other network operators. Verizon Wireless and Sprint Nextel already have a number of phones that are capable of over-the-air music downloads and video reception. Then there will be competitors to the iPhone that we have not seen yet, all of which, I believe, will provide more over-the-air functionality and capabilities.


I still maintain that the iPhone is an iPod that happens to have a phone built in, with little crossover between the two. Yes, it has a great user interface, but I believe that a device like this should have better integration on the wireless end of things. The hype preceding the iPhone has been intense; Jobs has always been a master showman. The day is nearing when the stampede headed for Apple and AT&T stores will start. The must-have device for the summer will be the iPhone, but come fall, I wonder if the demand for the product will continue or if reality will have set in.


It is not this iPhone that I believe will change the way we view wireless devices, but the iPhones and other devices that will follow this one. Steve and Steve changed the world with the introduction of the Apple II, then again with the introduction of the Macintosh, both Steves left, Apple failed with its first attempts at notebook computers and then with the Newton. But Steve Jobs is back, the iPod has been a great success and the expectations are that the iPhone will be a smash hit.


Jobs is once again changing the world but not with this device―with the way this device is being positioned and the fact that a consumer company, not a wireless company, is in charge. We won't be able to judge the success of this iPhone on the first million units sold, but we will be able to judge it on the next 9 million. I, for one, believe this product will not live to see the 10th million sold.

COMMENTS: This is an archived post. Commenting is no longer available.

Chris Coles - 06/26/2007 07:34:27

Andy, I am not sure if you ever travelled down to Infinite Loop in Cupertino but if you have not been there I recommend the trip if for no other reason than to get a "feel" for the place Apple calls home. I believe that Apple has succeeded because they have created the right human environment for successful innovation. The iPod and the iPhone are not the creation of one man, Steve Jobs, they are instead the creation of a very well organised and resourced team.

Secondly, we were shown a pre-production model. I believe that was deliberately done to get the final concept right for their perceived marketplace, which is as you described, the present owners of the iPod.

I believe that Apple is about to do what a couple of years ago would have been thought impossible. They are going to implement the third upgrade to the iPod. Remember, the first iPod was a clumpy affair with an old fashioned hard disc. Look around you and you will not see many OLD iPods. Every young "Chick" has one of the new ones that are much smaller because they changed the hard drive for flash memory.

Now, they are going to create a completely new marketplace that sits right on top of the success of the iPod.

The iPhone is a very logical development of the iPod. I believe they will very easily sell the first 10 million, but they will have to allow the iPhone onto many more networks world wide to take their success from the first 10 million to the first 50 million. That is their challenge.

I wish them every luck.

I believe the iPhone will, in time, be seen as perhaps the lynch-pin of a total change to the business model for telecoms. All those "chicks" will never buy a new phone from anyone but Apple. And that single statement will change everything.

Chris Coles - 06/26/2007 07:42:09

As I moved on with the mornings news this turned up on The Times, London:

Investors pick up Vodafone over hopes of Apple deal

Vodafone helped the FTSE 100 index to break a five-day losing streak on hopes that it will secure exclusive rights to the iPhone. Apple is set to make its keenly awaited anticipated entry into the mobile phone market next week, having signed a five-year exclusive deal with AT&T in the United States. Analysts believe that an announcement on European partners may come in July, with Vodafone said to have edged in front of Deutsche Telekom for a deal.

Credit Suisse reckoned that the victor would sell more than six million handsets inside three years. For Vodafone, that could be worth 8p per share. “Apple is keen to protect the value of the iPod by ensuring iPhones are not sold with a subsidy,” it told clients. “Vodafone would appear the front-runner, able to offer a presence in most European markets.”

Need I say more?

Andrew Seybold - 06/26/2007 10:48:56

Chis--I have spent many hours at Infinite Loop, and well before that facility was built, at Apple. I understand their culture but it is still Steve who leads the charge-you and I don't disagree on the strength of the Apple brand, we do, however, differ on the issue of THIS iPHONE, not the next generation, but this one--and its limited over the air functionality. In a time when the world's wireless customers are demanding open access to portals, to applications and services not provided by a network operator, or in addtion to those provided by a network operator, the closed iPHONE goes against this trend, and while I believe that it is a world class iPOD I don't beleive that it is a world class phone.