The iPhone is not a phone

Concluding thought on the iPhone (for a while):

Usually I take a few days to think about a mobile announcement before I write it up. That gives me time to read other comments and get my own thoughts settled. But there was so much attention on the iPhone that I posted ideas as I went along. I hope you didn't mind the stream of consciousness approach.

So now it's a week later, and I've come full circle to where I was when I first heard the announcement: I think it's not a phone. It's an entertainment-focused mobile computer.

If you judge the iPhone first as a phone, it's very hard to justify. I think this has driven some of the skepticism that we've seen in online commentary about the iPhone in recent days. The lack of a keypad makes it harder than a regular phone to dial, and SMS will be awkward to use. That's a substantial barrier in the US, and an even greater drawback for a phone in Europe and Asia. (Hey, mobile phones have failed in Europe just for having the keys poorly arranged.) The battery life also looks like it may be disturbingly short.

The price of the iPhone is uncomfortably high for a phone, and Apple's forecast of 10 million units shipped by the end of 2008 is very hard to justify when you look at the total number of mobile phones sold at that price point. Richard Windsor of Nomura, a telecom analyst I respect deeply, predicts that Apple will sell only two million iPhones this year, and at most five million more in 2008. If that happened, Apple could be stuck with more than half a billion dollars in unsold hardware. Windsor writes: "Apple has arrived in the smartphone market but how long it stays remains to be seen."

But if you look at the iPhone first as a mobile computer for entertainment, with phone features added in where convenient, things look very different. The lack of a keypad then becomes a reasonable compromise to get a large screen (great for video and browsing) in a tiny device. The price is still high, but Apple has continuously offered iPod products in the $400-$500 range. The iPhone is close to the price of a high-end iPod, and has a host of additional features. iPod sales have been running at about eight million units a quarter, so ten million iPhones in 18 months is not a ridiculous number. If Apple can get a reasonable percentage of loyal iPod owners to step up to the iPhone, it won't have to attract all that many new users to make its 10 million number.

Remember, Apple owns its own retail channel. So it has a very good idea of what its customers like and dislike.

Far from revolutionizing the phone, what Apple's doing is launching the most ambitious mobile entertainment device in many years. Here's hoping they succeed -- if they do, some other companies might feel encouraged to try bold mobile computing experiments of their own.


UnwiredBen said...

If Apple was just selling the device for $500 with no phone features, like a very nice version of the Nokia N770, I'd agree with you. However, why sign up for an extra $60+ a month for phone service and data networking just to get the best iPod?

Michael Mace said...

Thanks, Ben.

I'm not defending all the choices Apple made, just trying to understand the logic behind them. In this case, I think the logic would be that you need a cellular connection to make the browser useful. I think there just aren't enough WiFi hotspots to make the product attractive.

An interesting questions is how iPhone users will feel about the speed of browsing on a 2.5G network. We'll see...

A lot also depends on the actual price Cingular (AT&T) will charge for the iPhone's monthly plan.

Anonymous said...

They should create the same product as an iPod with only Wifi and Bluetooth, just like the N770 / N800. Use either Wifi or your 3G phone for the data connection. Then they might have something useful.

Ellen said...

I agree - thinking about the iPhone as a phone doesn't make as much sense as thinking of it in the "mobile entertainment/communications device" category, along with the Sony Mylo. Music, video, internet, phone calls, photos, information only as something to read (news, maps) rather than be managed or saved. And in that world, third-party apps of any kind just aren't that compelling.

Anonymous said...


Interesting notion. Fits into the mindset that voice is just another application... an important one but still one of many.

Instead of the alliance with Cingular, it would have been interesting if Apple had become a Data MVNO and included high speed wireless data under its own brand and positioned the iPhone as a consumer entertainment device. Once you have VoIP on wireless data networks, and I believe the day is not far away, voice will be a commodity. At that point, the alliance with Cingular will limit Apple's strategic options.

Anonymous said...

1. Could it be this was Steve Jobs' way around having to hear it being called a Newton II? :-)

2. I would not be surrprised to see various phone/devices spun from this initial one very shortly after the release of the iPhone v1.

3. I think you nailed it Mike in your initial thoughts -- this doesn't go after the RIM Blackberry, nor devices like a Hiptop that aims at SMS texters -- it's an entertainment device/phone.

4. I do think Apple realizes that long-term the iPod will probably be replaced with phones/devices and rather that wait this fate, they are creating their own replacement. They did the same thing with the nano -- the iPod mini was (I think) the best selling iPod they had -- it was discontinued in favor of the nano.

Marsha Keeffer said...

The price is high. But functionality meets design in the iPhone, making a luxe statement. Looked at that way, two segments (Design Geeks and Fashionistas) will definitely purchase - with price being no object. The perceived value is weighted toward the look and feel of the device itself, as well as its software and accessory devices. I'll be watching to see how quickly Vogue stylists use the iPhone in their photo stories.

Anonymous said...

Interesting perspective. However, I still think Palm needs to do something as this could be a threat to the 680.
Here is what I think Palm should do:

Chris Dunphy said...

"They should create the same product as an iPod with only Wifi and Bluetooth, just like the N770 / N800. Use either Wifi or your 3G phone for the data connection. Then they might have something useful."

If they did that, and it was an open platform for developers - you would have the rebirth of the PDA.

I'd sure want one.

- chris //

David Beers said...

"They should create the same product as an iPod with only Wifi and Bluetooth, just like the N770 / N800. Use either Wifi or your 3G phone for the data connection. Then they might have something useful."

I'd speculate that they might release a model that isn't a phone once the iPhone has some legs. I'm inclined to think that the WiFi couch-surfing device class has failed to get real volume in no small part because it looks physically like an organizer. So it's associated with helping you make better use of your time not helping you find ways to kill it. Once Apple imprints on the public a new image for this form factor ("Mobile Me" instead of worker bee) they could very well shed the cellular radio and take aim at the coffee table and coffee house.

I find my Nokia N800 totally addictive. I love my Treo 680, but I spend far more time listening, surfing, RSSing and emailing on that little tablet than I ever did on a smartphone. Still, these small touchscreen tablet devices won't sell to the masses until someone like Apple gives them a new image.

In one announcement, with no iPhone for six months, Apple may have already done it. From today's WSJ: "touch screen is the new black."

Anonymous said...

"iPod sales have been running at about eight million units a quarter, so ten million iPhones in 18 months is not a ridiculous number."

Even less ridiculous is you consider the recently announced holiday quarter sales of 21.1 million iPods, which brings the total sold in the last months to 46.4 million. At that annual rate less than 15% of iPod buyers would need to choose the iPhone to get to 10 million sold by the end of 2008. Of course iPod sales are growing and the period June 07 to Dec 2008 includes two holiday quarters, both of which would knock that percentage figure even lower - 10% probably isn't unreasonable.

Anonymous said...

should be "in the last 12 months"