Roger McNamee - Judgment Day on Pre vs. iPhone 19 comments
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By MG Siegler
“You know the beautiful thing: June 29, 2009, is the two-year anniversary of the first shipment of the iPhone,” Elevation Partners (which owns a huge portion of Palm) co-founder Roger McNamee told Bloomberg in March. “Not one of those people will still be using an iPhone a month later.”
Yes, that would be today.
So how did McNamee’s claim turn out? Well, let’s put it this way: If there was a foot-in-the-mouth award given every year, no one else would need to apply this year. Hell, it might take the prize for the whole decade. It’s a quote of Ballmer-level proportions.
Before I dive into any kind of analysis, I can say right off the bat that McNamee’s statement is false. Why? Because I bought the original iPhone on June 29, 2007. I am still using an iPhone today.
Something else to think about: Estimates are that Apple sold somewhere between 250,000 to 500,000 iPhones in its first weekend on sale in 2007. The last estimates given for Pre sales was that it sold around 300,000 by the end of June. It’s entirely possible that there haven’t even been as many Pres sold so far as there were iPhones sold during its first weekend. That doesn’t just make McNamee’s claim look bad — it makes it impossible.
I do not have a Palm Pre, but I have used one quite a few times now. It’s a great phone. The hardware isn’t exactly my cup of tea (I don’t like the keyboard), but there is no denying that the webOS software is very solid. Of course, it’s subjective, but I would say the Pre is the second-best smartphone on the market today.
But that’s not what McNamee said. He said, “Not one of those people will still be using an iPhone a month later.” The claim was laughable at the time, but it’s even more laughable now. He was, of course, implying that once people who bought the original iPhone saw the Pre, all of them would switch since their initial 2-year contracts would be up.
The reality has been much different. Not only is it likely that many of the people who originally bought the iPhone are still using one, but many of them have upgraded once or twice to newer models. And of course, there are millions more iPhone customers that have been added since then. Including millions since the launch of the iPhone 3GS, which was launched after the Pre.
Speaking of the Pre’s launch, it took place after McNamee’s claim, and it sold pretty well out of the gate. But Apple announced the iPhone 3GS a few days later, and as expected, it dampened much of the Pre hype. Sales of the Pre remained decent, but not stellar, and have been slowly trailing off ever since.
Contrast that with the iPhone 3GS that sold over a million units in just three days after its launch, and has remained red hot. It’s so hot that Apple has had a hard time keeping it in stock. The Pre, on the other hand, is widely available, according to recent inventory checks.
And while it’s not entirely fair to compare the two platforms by their app stores, the huge difference cannot be overlooked either. The iPhone launched its App Store a year ago, which was a year after the launch of the first iPhone. So there was already an installed user-base, which is one of the reasons why iPhone app downloads completely destroy Pre app downloads.
But at the same time, the iPhone App Store launched with 500 apps, the Pre’s App Catalog has an anemic 32 apps, nearly two months after its launch. The number is so laughably low that when two new apps were launched yesterday, it made headlines — for the fact that two new apps finally launched.
This is of course because Palm only just opened its SDK to the public, the lack of which really hurt its potential. With it out now, the Pre’s app ecosystem should grow much more quickly, but it will likely still be a few months before we really start to notice that.
But McNamee knew all of that when he made that statement, and yet, he still said it.
Now, it’s one thing to tout your own product, but calling out a rival with a comment so asinine, was a poor choice, to say the least. And to Palm’s credit, they knew it too, which is why they sent the SEC a filing with 10 clarifications and corrections about what McNamee said in one interview. Here’s the correction that relates to this:
8. The statement in the second paragraph of the article that “not one” person who bought an Apple, Inc. iPhone on the first shipment date “will still be using an iPhone a month” after the two-year anniversary of that day is an exaggerated prediction of consumer behavior pattern and is withdrawn.
Oh, okay, why don’t we all just make outrageous claims then send the SEC a note to withdraw them? But that’s why we’re here, to hold people’s feet to the fire when they say idiotic things, even if they petition the SEC to withdraw them.
The fact of the matter is that the iPhone remains the hottest smartphone and may be the hottest platform overall on the planet, right now. Apple has sold around 25 million iPhones. Palm has sold something probably south of a half million Pres — it’s a number that Sprint wouldn’t even say during its earnings call. And whatever the number was, it was not enough to stop the service from bleeding customers last quarter.
The Pre, while a nice phone, has a number of things working against it, including Sprint’s smaller network (though I find it to be much better quality-wise than AT&T’s awful network), and the lack of a robust app ecosystem right now. But both of those should change shortly. I already spoke to the app problem, but Verizon has also announced that the Pre will be on its network sometime in early 2010. That will be big, I imagine.
But will it be iPhone-killing big? No, of course not. There is plenty of room for many smartphones on the market, you’d have to imagine that even McNamee knows that. I think his iPhone-envy just got the best of him with such a statement. And that was interesting because it added more fuel to the fire of the Apple/Palm rivalry, which was already an interesting one.
Palm has no shortage of ex-Apple employees now working for it, including newly appointed CEO Jon Rubenstein, who used to head Apple’s iPod and Mac divisions. And now they’re caught up with this cat-and-mouse game with Apple to make iTunes syncing work for the Pre.
The Pre is also the first mobile device since the iPhone to use multi-touch, something which brought out some interesting statements from Apple about protecting their intellectual property. There have been no lawsuits on that front, but we can probably safely assume that Apple looked into it, and probably isn’t too happy that it apparently cannot push for legal action.
Then there was the ad that Sprint made for the Pre, with an eaten apple (which also spoke to the first wave of expiring iPhone contracts). And then there was Apple trash-talking the Pre’s small app store size during its WWDC keynote. “And somebody else. I can’t quite read it. It’s small,” is what Apple’s Phil Schiller said. (The chart he’s referring to is above.)
But Apple can talk for now, it has earned that privilege by running laps around its rivals with its smartphone and App Store. Palm, has not. And they look bad today thanks to McNamee.
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"So how did McNamee’s claim turn out? Well, let’s put it this way: If there was a foot-in-the-mouth award given every year, no one else would need to apply this year. "
Not really. His statement created such a buzz that you are still writing about it 4 months later. That is a hell of a lot of free publicity. I bet it helped to sell at least 20% of those Pres.
Pretty good one-liner if you ask me.
On Jul 30 03:00 AM jmmx wrote:
> You write:
> "So how did McNamee’s claim turn out? Well, let’s put it this way:
> If there was a foot-in-the-mouth award given every year, no one else
> would need to apply this year. "
>
> Not really. His statement created such a buzz that you are still
> writing about it 4 months later. That is a hell of a lot of free
> publicity. I bet it helped to sell at least 20% of those Pres.<br/>
>
> Pretty good one-liner if you ask me.
Unfortunately for Palm - it doesn't look like this will be their saviour.
McNamee's claim was great - that's what you do when it's your business. Certainly not grounded in reality - what else would you expect?
It's good to have challengers in the space - and making Apple feel uncomfortable. They have done the best job of this so far.
Good challenge - but I don't see it lasting. The Pre just doesn't have the 'stickiness" that the iPhone has. A tiny fraction of the market - and an even tinier percentage of developers.
That would be more than half of the postpaid CDMA phones Sprint shipped in the last three weeks of June. (Sprint sold about 753 thousand postpaid CDMA phones per month last quarter)
We think Sprint sold more like 175K sold through at the end of June and another 50K for the first half of July.
Notice that Sprint did not announce that the Pre set any shipment records. Figure they did about 150K Samsung Instincts in the first week when it launched last year!
BTW: Sprint's churn was likely higher in June than in April or May.
There is a good chance WebOS can save Palm and keep it independent. Will there be disappointed investors once these number become obvious? Almost certainly.
gerard@townhallresearc...
the sprint bankroll will need a lot more help to justify those expenditures. tough time to borrow money.
It doesn't make any difference if Mr. McNamee’s statement was arrogant, right or wrong. The only important question for holders of Apple stock is, can Apple keep the momentum going on the iPhone? If so great, if not they better start looking for the next big splash toy, and current holders of Apple stock need to look to get out for a while! Apple's stock is trading at well over 28x earnings, very lofty in this economy, and after all the hype about the phones sales, if iPhone sales start to wane, the stock is going to go south very fast. There is a current short squeeze pushing Apple stock up, when that squeeze comes to an end, it may well be time to take some profits. Current position in Apple: none
Long term investing in technology isn't easy because of the accelerated rate of change and invention today. So it's important to make sure the company you choose has staying power...but it's just as important to know that it's the best at fast, quality innovation. That's Apple.
Long APPL
Even RIMM does not seem to have a strong player in this category. Most of their smartphones are really just email readers. Still, the competition is good as it keeps Apple on their toes. In this highly competitive market there are only two ways to compete:
1- on price - and we all know how Apple hates to do that,
2- by innovation- Apple owns this realm.
There will be overlap, but they are different products targeting different markets. The Kindle experience of downloading books via cellular data networks makes it very easy to spend lots of money, to Amazon;s delight. It is similar to iTunes in that regard, but in a different market.
The confusion in all of this is the belief of many that one device will replace all current technologies, and the everyone will use it. That is, of course, rubbish. The people championing that opinion have not really USED all of the devices, and cannot speak for all consumers of all ages. Seriously, try actually reading a book on a iTouch. Now ask yourself if the target market (older consumers with disposable income) will do that. No, they will use an e-Ink -based device.
I think this thinking is emblematic of why Apple has been able to make such rapid inroads into an industry within which few people gave them much of success.
The cell phone industry thinks in terms of "next big splash toy." Apple thinks in terms of a platform that extends the OS X environment into a new generation of pocketable, ubiquitously connected computers.
People make the mistake of imagining that Apple managed to leverage the iPod, some UI glitz and a powerful marketing machine to make the iPhone a success. According to that model, another manufacturer ought to be able to come along with the new shiny and push Apple aside.
But in fact Apple has shrunk a Mac into phone size, with nothing but upside going forward as hardware gets faster and memory gets bigger. This isn't the flavor of the month, fashion oriented cell phone market anymore, it's the desktop who-provides-the-best-... model.
You don't compete with that by "making a splash" when the other guy controls the deep end.
Also, if you've never read from a Kindle, that's understandable as there are so few of them that have been sold. I only know one person who has one. He's got an iPhone and 2 iPods as well.
Those are good points. So many people are dismissive of anything Apple. People put so much time into learning tech (sometimes called "human capital") which forces them to chose a side or feel a degree of in-group affiliation.
A lot of people still think Windows is a decent operating system. Usually they have to learn for themselves for any real change to take place.
It is amusing that people deride a product as a "toy" and yet champion another product that is completely derivative.
Right or wrong actually does make a difference. You are ignoring deferred revenue in you "28x" multiple, for instance. That makes your argument, well, it probly doesn't make any difference, does it?
The Pre is a nice handset and a worthwhile alternative to the iPhone. Hopefully it will keep Palm in business. Palm can always upgrade the Pre if there are current hardware issues. I think Palm might have a problem with getting a lot of developers because they'll likely head for the iPhone first and Android second so pickins might be slim. Since none of us know what OS the tablet is going to be using. If the tablet runs Mobile OSX, there may be a lot of developers heading to that also.
I really wouldn't advise people to start selling their Apple stock just yet. There still seems to be plenty of growth for Apple and the stock price until at least the early part of 2010. You know, those 60% gross margins on iPhones are enough to continue driving the share price for quite a while especially if the estimated nearly 7 million iPhones are sold during Q4. Goodness, that's a hell of a lot of profit. Anything extra Apple sells will just be extra whipped cream on the Apple pie(chart). Thank you, Apple.
He doesn't really care how many Pre's were sold and whether people are switching from iPhone to Pre. Well, maybe he cares a little. But that's not the point.
He really cares a lot the PALM share price and how much he can pump that up with the impression that we're going to have a good old fashioned rocket stock once investors figure out how big the Pre is going to be. He bought 8.2 million shares in March, at $6 per share, and his bluster of comments were intended to wring even more return out of the stock than the 150% he's up already.
This is all a game of perception. Who really cares how many phones Palm sells or when they will become profitable again?
I was actually fascinated to note that PALM traded about $500 per share back at the end of the Dot Com bubble. It's no stranger to this kind of behavior. Old Roger Ponytail and Bono, gettin' rich together.
Next big thing - iTablet, I think there's a lot of potential there; just looking for a good entry point down the road into AAPL. I'm thinking they have a lot of potential w\mobile trx prcoessing (and they won't be the only ones).
btw Locked in 100% gain on PALM, basically riding free on the 1/2 portion of shares I didn't sell. Will buy back in at the right time. My next phone will be WebOS on VZ.