iPhone: Apple Making All the Wrong Moves 39 comments
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The #1 response from readers I received (other than I was a moron) was that this "was a short term arrangement that all carriers do, within six months the iPhone will be available to all carriers." Hold the phone (pun intended) - it would appear that the iPhone will only be available to the 47 million AT&T subscribers for the next five years!
USA Today reports the supposed half-decade deal also precludes Apple from developing a CDMA handset in that time. It would also appear that the arrogance and dismissive attitude Apple took with carriers during negotiations may come back to bite them. Word is that the #2 carrier in the US, Verizon, will introduce its own version and is claiming it will be an iPhone-killer. According to Denny Strigl, Verizon CEO, "We do have a very good response in the mill. You'll see that from us in the late summer."
Rather than have a market all to itself for some time by playing nice with all carriers, the attitude Apple took has caused a rush to introduce like versions to coincide with its launch. Now not only will the iPhone not be available to the other 140 million plus US cell phone users, but those folks will be able to get their own version from other carriers this summer. Anyone want to bet it will be available for far less than the $500 -$600 the iPhone will be?
Now, any Verizon offering will not have the iPod application that the iPhone will have, but if my many critics are to be believed, that was not going to be a major selling point anyway, so the elimination of it will really be an insignificant factor to those purchasing these phones from Verizon. What will matter? Price. If consumers are able to avoid cancellation fees, can get a similar phone at a cheaper price and already have an iPod, there is zero incentive to rush out and get the iPhone.
This also means that the 10 million units Apple plans to have sold by the end of 2008 will be done to 47 million AT&T subscribers, meaning one in five will have one? Doubt it.
How long does anyone think it will be before Research in Motion Limited's (RIMM) Blackberry has a version out there that will be available through all carriers?
When entering a new business, it is not really a good idea to strut in and tell folks who have been doing it for many years how much better you are than them and why you are going to dictate what they can or cannot do. All reports out there indicate this is what Jobs did and in the process, seems to have caused other carriers to compete with him rather than work with him. Bottom line is that he needs their networks for his product; he seems to have forgotten this or chose not to recognize it.
I said before that the iPhone, as things are currently configured, will be nothing more than a niche product and that it will be Apple's first stumble after a string of hits in recent years. If the USA today article is correct, the AT&T deal all but assures it.
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This article has 39 comments:
If you watch the MacWorld keynote it's very clear that when Steve Jobs mentions selling 10 million iPhone he does so in the context of the the global market. He also says the iPhone will be available in Europe (later this year) and Asia (2008). Even if not a single person in the US switches to AT&T to get an iPhone (as you seem to be assuming), the one-in-five figure looks like nonsense to me.
The 10 million unit goal is an international figure. The AT&T deal covers the US market but obviously there will be other deals coming outside of the US and there most certainly will be demand outside of the US. To say that this 10 million has to come from the 45 million AT&T subscribers is not exactly correct.
This "iPhone-killer" from Verizon has been confirmed to be the LG Prada, a product which many have already declared to be inferior to the iPhone. This information comes from many sources including another article on this website. The phone is far less feature-rich than the iPhone and if history repeats itself Verizon will figure out a way to destroy the interface.
Research in Motion. They are making great products but the software that they run has been consistently in adequate when compared to Windows Mobile. The software interface of the iPhone seems to be the most superior on the market except for the fact that there is no support for third party applications. Well Steve Jobs admitted today that this application support is something that we can expect in the future, so don't worry.
How is RIM consistently performing so well? Well the competitive advantage the company has lies in their push email service which is the basis of most people's blackberry use. RIM has seen little competition in this aspect and that is why they have been so successful with business professionals. What we see now is a strive from smart phone makers like RIM is to create smartphones targeted at consumers, ie the pearl and now the curve. This is exactly what the iPhone intends to accomplish, a smartphone designed for consumers. And what better way to compete with RIM than to offer a push email service for free! When Apple announced the iPhone it was stated that anyone who uses a Yahoo! email account will recieve free push email to their iPhone. I don't know why this fact hasn't been mentioned more, it means that Apple will be providing a competition to what many see as the only competitive advantage that the blackberry has in the smartphone market.
As for ATT exclusivity-- it's annoying, but it's probably LESS annoying than being a Verizon customer. I am currently on Verizon and I absolutely DESPISE them. They CRIPPLE their phones; they TAKE OUT features. This is NOT a customer-centered company. I give them 1 star out of 5, for having a decent network. Who's to say ATT (or AAPL) won't BUY Verizon when they start to implode? ATT recently bought Bellsouth and SBC, as you may recall.
revolutionary phones, that tie in an true ims world are hard to come by. RIMM is close, but not there yet.
"When entering a new business, it is not really a good idea to strut in and tell folks who have been doing it for many years how much better you are than them and why you are going to dictate what they can or cannot do."
A correction to this... the reporters reporting the event stated he did this. Apple is not arrogant, they just know what they have (whether it be music distribution, Computers or electronics), and what they have are highly desireable... so they are able to leverage that desire with in their negotiations. This can not be confused for arrogance. They are not the same.
It looks like Verizon (according to "theStreet") is going with the LG Prada-- a 2nd rate phone from a third rate Korean company.
It's a bet. When Steve Jobs made his joke about patent protection, it wasn't a joke.
By embracing your "Apple finally stumbled -- woo hoo!" position, you are also assuming that the dominant cellular carrier in the US has also stumbled. The way that AT&T and the iPhone are linked together, you pretty much can't have one without the other.
And AT&T has made a lot of changes in their network operation that go far beyond merely signing up with a new phone supplier. This isn't a small thing -- AT&T has made a significant gamble on the iPhone's likely impact to their business. If you really believe that the iPhone is going to make a quiet "plop" rather than a resounding splash, then you should be assuming that AT&T's cellular business will suffer as well. AT&T, on the other hand, apparently believes that the iPhone will give them a sufficient competitive advantage so as to lure customers away from their competitors, and increase both their market share and profitability (via higher-priced phone plans).
Apple's earnings are growing quite nicely even without the iPhone, and they will still be able to bring out a non-phone version of the iPhone as the next video iPod, and charge the same $350 that they currently charge for the model with a display that is half the size of the iPhone's. Then there's the potential to push video games on the device as well, whether in iPod or iPhone form.
If you're really serious about this (and not trying to be the Don Imus or Rush Limbaugh of financial bloggers), let's see some projections about numbers of iPhones sold in the first 6 months and the first year. Those would be some pretty hard numbers for you to hang your hat on. From your litany of previous bashings of the iPhone, my perception is that you believe that it will sell less than 2 million units in the first quarter (with customers being put off by the pricing), and less than 3-4 million units in the first six months. Does that represent your position fairly?
Personally I think the Iphone will be below expectations. The ATT tie up for one, and as for the rest of the world, make note of what type of phones are being sold in the up and coming world, cheap ones. Everywhere else they are just giving them away.
Of course AAPL is good at marketing, so who knows.
No, its a stock up 1300% in 6 years. That's not a religion. That's the best performing large cap in the market.
Show me an Apple customer and I'll show you someone who gets work done and doesn't have time to read an 800 page instruction manual.
You might want to invest in Waste Management because they're going to have billions of Nokias and Motorolas to dispose of.
You state (This also means that the 10 million units Apple plans to have sold by the end of 2008 will be done to 47 million AT&T subscribers, meaning one in five will have one? Doubt it.) but you dont bother to mention the Iphone is targeted to go on sale in Europe this fall and in China early next year. I guess it does not need to sell 10 million units to 47 million AT+T customers after all.
Some fools might actually link your miss information to their readers as truth. Ha HA
"It looks like Verizon (according to "theStreet") is going with the LG Prada-- a 2nd rate phone from a third rate Korean company."
- Joke? The "2nd rate phone" is essentially everything the iphone is; a no button phone with a big pricetag and a nice/desirable name. The "third rate company" makes Apple LCDs (Apple LCDs are now third rate products?) and is way more experienced in the cell phone game than Apple.
"You REALLY believe Verizon could deliver a phone with anywhere NEAR the capabilities on the iPhone in this current decade?
- The real question is do you REALLY believe people will pay big bucks to buy a phone that is technologically average? I agree with jyung here, in many other countries you can get a phone that has can play mp3s, watch videos, listen to the radio, have a big screen, open locks, operate as a debit card etc - all for $50. The US has never been the leader in phone technology and the iphone isn't going to change that. Just do some research on what is available out there (internationally). Be objective here, the iphone isn't the smallest/thinnest, doesn't have the best battery, doesn't have the best camera, isn't the first to be button free, doesn't have all of the wireless features available on other phones, has subpar expansion capabilities, etc - what makes it so groundbreaking? Oh right.. if you spin it 90 degrees the picture on the screen will rotate - the $500 feature I was looking for!
I personally think that iphone will be below expectations but still do well. Though I don't agree with everything in the article I think 5-year lock-in mentioned means that the US will play a much smaller role than expected. I don't really understand why the successful marketing of one product automatically means that it is impervious in future plans, completely discounting decades of subpar performance.
The key to most Apple products is the gestalt, the total experience. I don't CARE about the 2 megapixel camera; if you want to take serious pictures; get a serious camera. I care about getting things done with minimum fuss. I can do just about anything I can do on a Mac on an XP PC, but in the latter case, it will take longer and will involve more fuss and "gotchas". It's like trying to type up a paper on a typewriter when you've become accustomed to word processors.
The iPhone has a Unix OS that is capable of running a desktop computer inside of it. That OS X inside is capable of running very complex programs on the iPhone. Real games, Excel, Powerpoint and Word clones, the possibilities are endless. The Prada has a below average cell phone OS. The two phones are not the same.
@ Thomas Barta,
One Apple product that debuted overseas, in Japan, and died there, was the gaming console named Pippin. It didn't even have XBox's Japanese sales numbers.
@ Todd,
There are well over 100 million iPods sold so far. Almost every one of those iPod buyers would by an iPhone if they could. Most of them will, eventually. This is not a Microsoft phone we are talking about. The first generation iPhone will be very good. There is no need to wait until the third or fourth generation to get a very competitive product from Steve Jobs' Apple.
Another point, the iPhone may be thought of as a smart phone but it will appeal to all cell phone users because it is easy to use and it is also a video iPod.
You got me.
And about the 100m ipods sold during last five years: 100m mobile phones are sold every month! This makes an environment which is completely different than the dap market ipod competes in. The companies are very competent and fiercely competiteve, releasing new phones on monthly basis. Heck, lately it seems like the big ones are releasing new models on weekly basis.
Yes, iphone will succeed initially, but by end of the year, it is ancient model no one wants.
Have you gotten it yet? Apple got something no carrier has ever given a phone maker. FREEDOM. I doubt Verizon is ready yet to give that to anyone, so their "iPhone killer" is likely to suck as much as their existing phones. And yes, existing phones suck. In large part due to carriers like Verizon.
This means 10 000 000 phones from ALL THE COUNTRIES OF THE WORLD.
But be sure that will be 50 000 000 phones!!!
Some of the statements you made are so outlandish, it's hard to tell whether you were serious or just kidding around. For example, citing the terms of the AT&T contract, you said, "[I]t would appear that the iPhone will only be available to the 47 million AT&T subscribers for the next five years!"
Um, you're kidding right? First of all, are you stating that AT&T's subscriber base is going to remain at current levels for the next five years? That would be news indeed! Second, during his keynote address at this year's MacWorld event, Steve Jobs officially outlined a plan to roll out the iPhone in Europe in the 4th quarter of 2007, and in Asia in 2008. AT&T's exclusive covers the U.S. only. So how does that limit Apple to AT&T's U.S. customer base for the next five years? I would truly be interested in reading an explanation.
Next, you seem to think we should be awed by Verizon's self-proclaimed 'iPhone killer.' Man, that is rich. So apparently, simply saying it's so, makes it so (at least if you're Verizon CEO, Denny Strigl). Makes me wonder what you would have written had Steve Ballmer told you a year or so ago that the Zune was going to be an iPod killer.
To top it off, you went on to state, "[A]ny Verizon offering will not have the iPod application that the iPhone will have, but...the elimination of it will really be an insignificant factor to those purchasing these phones from Verizon." Huh? Do you have any sources or evidence of any kind to back up this statement (other than your 'many critics', who are suddenly magically right this one time), or do you just make stuff up as you go along? I mean, talk about opinion masquerading as fact--yikes!
So Todd, are you short AAPL? If so, please let us know how that works out for you. :-)
Jonathan
Anyways, Mr. Sullivan, I find it slightly ironic how you've written an article saying how you've noticed what your readers have been commenting but have yet again failed to address a rather common issue that your readers have pointed out: that the 10 million iPhone buyers won't all come from AT&T subscribers. You have used this as an argument as to why Apple won't hit the 10 million mark by end of 2008 in the 'emotion' article you have written a little over a week ago, got this issue pointed out by readers, and yet while you claim you've read the comments you've made the same claim here ("This also means that the 10 million units Apple plans to have sold by the end of 2008 will be done to 47 million AT&T subscribers, meaning one in five will have one? Doubt it.").
Care to expand on this claim? Or care to admit that you've made a mistake?
Yes I am long on AAPL and have been doing a lot of reading before and during my long position. While I am starting to feel that I might be deluded in thinking that AAPL is the perfect stock to long, I am therefore open to any bearish views, but I'd at the same time like to read articles that appear to be objective and fact based (or at least backed up with a reasoning when they're opinion based).
Perhaps you're a bit too emotionally attached to your previous claims and therefore are now unwilling to address to that one point? Irony is bitter, isn't it.
It may be that, initially, it's only available with contract, but I'm sure that can change if Apple wants it to. Compared to other phones, iPhone will subsidize the contract instead of the other way around, and AT&T will still get that subsidy even if the customer doesn't sign with them. That subsidy, together with the fact that using another service will require 2 purchases and DIY support, and will cost Apple on the revenue sharing means that Apple/AT&T continue to work together because it benefits both, not because t hey've tied t hemselves in knots with contractual prohibitions. They will get and keep customers out of the customers' free choice, not because of locked phones and long contracts.
That's how I think it's going to work. Apple & AT&T can change the cellphone market because no-one else can make an iPhone. They will be ready ahead of time for the threats of VOIP, and WImax, when protectionist, lock-in tactics will drive customers away.