How Apple’s iPhone Could Flop

It’s been a couple of weeks since we last heard why Apple’s (AAPL) iPhone ain’t all it’s cracked up to be.

Well, yesterday, on the heels of Apple reaching a legal agreement with Cisco Systems (CSCO) to share the name “iPhone,” a fellow named “Joel” over on Dethroner posted his rants about why Steve Jobs’s phone is, as he sees it, the usual swindle from the cell phone operators, including Apple’s partner, AT&T (T). The iPhone will be business as usual for the cellular market, trapping customers into things they don’t really want.

Joel’s is not a stock tip, per se, but amidst the invective, it’s worth summarizing some disappointing facts of the iPhone that could limit its appeal among some parties. (Full disclosure: I’m saving my pennies to buy at least one $600 iPhone):

Cingular will share subscriber revenue with Apple: “How the heck does Apple sharing our revenue help amid the flood of noxious service?”

You’re getting locked into another cellular 2-year contract: “You’ll not only have to pay full price for the iPhone—and I’ll bet you anything that $600 is going to be a break-even price for Apple by the time it launches—you’ll have to sign up for a two-year contract just to get the privilege of giving them your business. Don’t do this.”

You won’t be able to install your own programs on the iPhone: “Jobs only wants the iPhone closed to protect his revenue streams, both by selling you new applications and maintaining the video and music DRM. But whatever Apple’s rationale, who cares? If you’re going to buy a smartphone, you should be able to install whatever you want on it—that’s what makes it 'smart.'”

And so, in sum: “I’m not blind. What Apple has done right with the iPhone platform is exciting. It won’t surprise me if the iPhone eventually ends up being a success, just like the iPod. But for the next year or two, before the iPhone hits the mass market, early-adopting gadget nerds actually have a chance to influence the company. Don’t just give your money away.”

Personally, I think the phone will be a hit, but we don’t have enough info to know how much of a hit it will be.

Thanks to Wired’s Gadget Lab tech blog for pointing this out.

Apple shares were up a fraction of a percent Thursday at $89.13. They are up 32% in the last 6 months.

AAPL 1-yr chart

Comments

[Richard Alv...:]

I think 10 million people are willing to live with those problems. I know I am!

2007 Feb 23 08:58 AM

[Jon T:]

I guess that as I am here reading this it's no surprise I will be getting one too.

What surprises me is the number of non-geek people I know who have been to Apple.com and watched the whole of the Keynote and are saying they will be in line ofr one as well.

I accept that it would be great if it were free of cellular restrictions and carried VOIP over wifi capability for example. But this is the real world sadly, so let Apple bring us one revolution at a time and I'll be happy.

2007 Feb 23 09:40 AM

[Malkiel:]

I perused some Mac magazines at the local Borders and some of them raised the interesting point that the iphone to its users could be serving more as a mobile pc than a phone. When configured with the right features, and without artificial barriers between voice and internet charges, this device may actually do for its fan base exactly what they want and the contract may not seem so onerous (in fact it may look like the bargain of the century if it effectively gives them roving broadband internet as part of the price). We'll see what is really offered when the time comes...

2007 Feb 23 10:44 AM

[jbelkin:]

All those things that guy rants about is POTENTIALLY true of anything that requires a long term commitment from getting a mortage to leasing a car or to Hollywood actors, like getting married.

The iphone is not a kidney dialysis machine (at least not yet :-) It is a buying choice like everything else from day old bread to a Bentley. You can choose to buy according to your needs but it's another choice - not sure why other than people who work at Apple' competitors, it "inspires/unleashes" such rage.

Cingular service - so, this guy really believes if Apple got no revenue from new iphone customers, Cingular/AT&T was/is going to plow that money towards customer service or would they simply get bigger shrimp at the executive retreat?

A two year cell phone contract - not exactly everyone's first choice but who here not in prison thinks 2 years doesn't fly by in a twink of an eye - how much free time does this guy have that 2 years seems intermable? Okay, if you feel that way, DON'T BUY AN IPHONE or ANY CONTRACT PHONE - you can buy pre paid. It's not like it's a trick contract where it's month to month but if you're late with a payment, it gets converted to two years. It says right there on the front of the webiste - TWO YEAR blah, blah, blah - it's plain right there. If you disagree, don't buy it.

Can't Install Apps - Smartphones have a 3% marketshare now and really, what apps are most people installing? My evidence is only limited to about 30 people but as far as I tell from my friends and colleagues, not only have they only installed at most a few apps at most but in virtually all the cases - it's simply BETTER versions of what's included so until we see Apple' apps, we don't know what else there is. It is like Apple's MAIL, it's not a perfect app but it's pretty nice. No real need for me to buy another MAIL app. Of course, Outlook support is important but you really think if MS offered an Outlook for the iphone, Apple wouldn't let them sell you one? I presume the web surfer is a mini Safari - do I really need to load another browser? As for the other necessary utilities like notes, calendar, address book, etc, I can't imagine Apple not providing a state of the art version - what else? Being able to read PDF's and Office formats? Beyond that, what else are you looking to load? Sure, it sounds like it's a feature we want but look at the ipod, without you being to load other apps, we have games, we have ebooks, we have transit maps, we have drink mixes and we the Constitution ... it's like choosing between a 6-speed and an 8-speed transmission for a 4-door sedan, why exactly do you need an 8-speed transmission? But AGAIN, NOT hidden from you - NOT a surprise. They announced right up front - if it's not for you, it's not for you.

And in closing, he's saying - only he is smart enough to read the giant typeface on the FRONT PAGE of the website and he's telling us that a 2 YEAR CONTRACT means a 2 year contract and no third party apps means no third party apps and he's saying that AT&T would've taken the millions they are giving to Apple to plow right back into customer service so by buying an iphone, that money will only go to Apple who is probably going to waste it on R&D or having Jonathan Ive devise a shrimp the size of the Cisco iphone.

So, remember, don't read what's plainly written when you can read his words.

2007 Feb 24 04:56 PM