Whooooaaaaaa, iPhone.-- by Nate Winter

Big announcement. Lots of hype. Typical Steve Jobs style. Apple’s stock rose 8.3% the day after the announcement of a product that’s not available for 6 months. Will iPhone live up to the hype?

Influencing my view on iPhone is my recent reading of Al and Laura Ries’ The Origin of Brands, a book whose thesis is that convergence products like the iPhone are not financially successful. The Rieses argue, with much historical evidence, that convergence products, those which seek to combine multiple technologies into one device, vehicle, machine, etc. , are almost universally guaranteed to fail unless they offer an unusual convenience factor. It’s not that they are bad products, but they are not universally adopted by consumers because their value isn't perceived.

Look at examples like the flying car, the car-boat, web-TV, Apple's Newton PDA, the "home of the future" with one system controlling every appliance, utility, and entertainment feature. We have the technology for these things, but they haven’t happened and probably won't.

Swiss army knives are relatively useful if you need a knife, a screw driver, a bottle opener, and a file to all fit in your pocket, but few people would choose swiss army knife tools over a separate screw driver, or a separate bottle opener, or a separate metal file. "Jack of all trades, master of none" the saying goes. Do people want a 'Jack of all Trades' for their portable device or a set of specialized master devices? More importantly, which will they buy?

Examples like the camera phone and the pencil with attached eraser have been successful because there is a significant convenience factor involved. In these cases the conveniences are sending photos from the device that captures them and the eraser is 5 inches away (or less) at all times, respectively.

The question for an unabashed convergence product like iPhone is, “Is it convenient enough to defy the convergence curse and survive?”

As of June 2007, popular culture is already a bit uneasy about everything the iPhone claims it will do. Watch this clip from the Conan O'Brien show on the many unusual uses for the iPhone.

Reasons for iPhone’s success:

iPod: the 800 pound gorilla. Between the iPod and iTunes (and not to mention all the collateral Mac sales), Apple hardware and software are no longer strangers to the general populace. People love iPod. My suspicion is that the iPhone began as an iPod that allowed users to download music wirelessly, independent of their desktop iTunes applications (a feature I referred to in my December 26, 2006 post, “Zune vs. iPod: Much Ado About Nothing?”). A portable music player that can add new music from anywhere, any time wirelessly is a phenomenal idea. However, engineers realized that in order to make the device wi-fi-enabled to download music, it would need a cellular signal. So then, the logic became, “Why not make it a phone, too?”

Flashy technology. The thing has no damn buttons. No buttons! It’s all a digital touch display—an amazing innovation and a turning point in the user interface of consumer technology. In addition, it seems like the first product truly intended for mobile internet use. If anything can make mobile email and internet use a must-have and then a universal expectation it’s iPhone.

The Apple effect. Not that Apple hasn’t had its flops (ahem, the Newton), but don’t count it out. Never say never… It may take time for iPhone to build up a full head of steam. iPod’s sales were meager for the first couple years, but look at it now.

Predicted problems with iPhone:

Apple is not a phone manufacturer, and not known for telecommunications hardware or software. People will be skeptical of an Apple phone technologically. Furthermore, most people who would be targets for an iPhone already have both an iPod/MP3 player and a cell phone. The percentage of people who would disregard both their working cell phones and MP3 players to get an iPhone are small. And what are the odds of needing a new MP3 player and a new cell phone at the same time? There are always the “early adopters” who indiscriminately buy the latest tech gadgets to show them off. But these people represent a very small portion of the overall market, a portion far too small to play any significant role in the success of new technology.

Exclusivity with Cingular. I’m confident that this decision had more to do with Apple preventing hardware and compatibility issues among multiple carriers than it did with truly intending an exclusive deal with Cingular. Although, there’s little doubt that Cingular paid handsomely for the exclusivity rights anyway. While Cingular is the largest cellular service provider in North America, its market share is less than 50%. By partnering only with Cingular, Apple alienates half the cell phone market. Unless, of course, Cingular and Apple consider the iPhone to be a “switch worthy” device. That is, a device with so much appeal that it causes existing cellular customers currently contracted with other service providers to switch to Cingular. There probably will be some switchers (the “early adopters”), but Apple and Cingular are delusional if they believe any significant number of consumers will break existing contracts with other providers for the privilege of spending $500 on an iPhone.

At least Apple had the foresight to partner with an existing service provider and didn’t try to start it’s own cellular network. You may be thinking, “An Apple cell phone service?!” I know it sounds ridiculous, but these things happen. Microsoft’s failed attempts with WebTV (another convergence dead end) resulted in millions of dollars squandered trying to develop its own satellite television and broadband internet service.

As discussed above, the iPhone probably started out as an iPod. But the problem is that now the product is no longer an iPod, where the name communicates a media playing capability, it’s an iPhone, where the name connotes only that it’s a cell phone and Apple assures us there’s an iPod in there somewhere too.

Price. It’s $500. Let me say that again, IT’S 500 DOLLARS! And that’s if you want the smaller, 4 GB version. The 8 GB version costs $600. That’s a hefty sum, a sum that doesn’t even include monthly service costs. In order to obtain service for making phone calls, sending and receiving text messages, sending and receiving emails, and navigating the internet wirelessly draws a hefty cost under Cingular’s current price model-- well over $100 per month. Plus, if a user breaks his/her existing contract with another service provider to switch to Cingular for the iPhone, that’s another $150 or so.

Flashy technology. It looks cool, but will it work? People will wait to see. Will people treat their iPhone the same way they treat an iPod? Will they jog with it? What if it gets dropped? Is it durable? First generation iPod nanos suffered from durability issues with their soft plastic cases and easily-scratched screens. Having all your eggs in one basket is certainly convenient, but is it worth the loss if disaster strikes? If loss or malfunction befalls an iPhone, are consumers prepared to lose their cell phone, iPod, mobile internet access, personal organizer and the $500 or $600 it cost them?

When people spend this kind of money, they want to know that they are getting the best. But a major concern is that when you combine different technologies like this, people refuse to believe (usually correctly) that all the technologies involved are top of the line. Arguably, Apple already makes the best portable music player, or at least the most popular. However, it's hard to believe that Apple would also make the best cell phone (especially given Apple’s complete lack of experience in telecommunications), the best portable internet device, and the best personal organizer separately, let alone all in one package. And when competitor's inevitably respond with better cell phones, better MP3 players, better mobile internet devices, and better personal organizers, the consumer is left with outdated technology.

--Nate Winter