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March 04, 2007

Great Expectations

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On the day that Apple announced the iPhone, my eleven-year-old son decided that he wanted one. Since then he’s done chores above-and-beyond the call of duty in order to earn $500 to buy one. Fast forward to last week when this news appeared in the business press:

NEW YORK (MarketWatch) — Morgan Stanley analyst Kathryn Huberty reiterated her buy rating on Apple Inc. shares (AAPL :87.06, +2.45, +2.9% ), saying she believed the market is underestimating the likely success of the iPhone. She raised her 2007 iPhone sales forecast by 33% to 8 million units from 6 million, following a survey of 2,500 U.S. consumers. Huberty also believes Apple’s ability to leverage strong iPhone demand is being underestimated. “While we see positive leverage drivers across Apple’s product segment, the iPhone alone increases scale (better pricing from suppliers), strengthens retail store leverage (increased velocity on fixed-cost base) and takes advantage of lower NAND [memory] pricing in the market,” Huberty said in a research note.

(She is forecasting eight million units in six months. As a data point, Motorola shipped fifty million RAZRs in the first twenty-four months. You can currently buy a RAZR for $30 after rebate with a two-year contract.)

Of all people, I support unabashed exuberance for Apple products, and our family will evidently buy at least one iPhone, but I don’t understand this kind of coverage three months before the product ships. Clearly it’s a cool phone, and as with many Apple products, you have to ask, “Why didn’t any other company do something like this before?” Still, just off the top of my head, I have a few questions about the iPhone:

  1. What’s battery life with Bluetooth, Wi-Fi, and iTunes running on a big color screen? The battery life of my Motorola Q sucks, and I don’t have Bluetooth, Wi-Fi, or music running. Based on Apple’s record when it comes to battery life of laptops, this is at the very least an “open issue.”

  2. Will people tolerate Cingular’s Edge network? I switched from Cingular to Verizon to get EVDO. Edge is supposed to be three to fours times slower than EVDO. The knock on EVDO is that it has much less coverage, but I’ve seldom had coverage problems. Maybe only people like me who have used EVDO will ever realize that Edge is so much slower...

  3. Will a phone without a hardware keypad work in the real world? I mean a world where you’re driving while trying to dial numbers as well as access and delete voicemail (unless you’re a SpinVox user). Can a person dial an eleven-digit number without looking at the touchscreen at sixty mph?

  4. Is there voice navigation? This will help the keypad issue, but I haven’t seen anything that says that there will be. If you can do this on a Windows Mobile smartphone, I’d be astounded if you can’t on an iPhone. But I’ve been astounded before.

  5. What’s Trixie and Tiffany going to do when they send 1,500 text messages a month without a keypad? Which is to say, will forefingers be the new thumbs? Or, will teenagers sprout much longer thumbnails?

  6. Will people pay $500-600 for the convergence of phone, Internet device, and music player? And this doesn’t even count the $100 or so contract-termination fee since carriers treat current customers worse than new ones. Perhaps we should look at the iPhone as an Internet tablet or a PSP for old people—if you didn’t have to buy a service contract. (Will an iPhone run without a SIM card in it?) Maybe Apple could remove the phone from iPhone and make it a high-end iPod.

  7. How will the sealed battery work? With most phones, you can replace a battery if it goes bad. What happens when this happens with the iPhone? (With my Motorola Q, I was able to buy a larger battery so that battery life went from horrible to merely dismal.) iPods have sealed batteries too, but it’s one thing to be unable to listen to music; it’s quite another to be unable to make or take an important call.

  8. What’s the impact of a closed system where developers cannot create software for a phone? Imagine, for example, if you could only use iLife and iWork on your Macintosh. Is that what using the iPhone will be like? What about VPN? What about synching with an Exchange server? This is a consumer phone, but consumers do have corporate jobs.

There may be great answers for all of these questions. (Meanwhile, my son has amassed $400 of the $500 that he needs.) If not answers, there will be great reality distortion. If not great reality distortion, Apple will fix shortcomings in future iterations. However, it’s a tad bit early to declare this the greatest phone in the history of mankind—though many of us are hoping it is. We should at least wait until the phone reaches huberty.


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Comments

Thank You for another very interesting article. It’s really good written and I fully agree with You on main issue, btw. I must say that I really enjoyed reading all of Your posts.

Great comments there, guy. Especially about the battery. I didn't think about that! Truth be told, though, my 3 year old iPod is working just fine with the battery – no problems. Also, I don't think I've had many phones with serious battery issues. Having worked at a laptop-repair shop for a few years, I can definitely say that laptops are often a problem (on ALL brands, and Apple is probably one of the better ones) but cell phone batteries seem to have improved since the cell-phone-brick-size days.
I also don't think SMSing is a REAL problem, it's only that some people need to get used to a new system. I had an HP iPaq for a few years... along with the silly Microsoft software... and eventually got used to using the on screen keyboard (and the iPhone is far better with it's set up.) Granted, I won't SMS at 60mph!!

Well Done blog, I appreciate your knowledge about ipos and mobile. but now a days the usage of mobile becomes common all over the world.

Leoni Online Art Gallery

The cost and battery life issues are things that smartphone users have come to deal with already. It's the lack of keyboard that is the big drawback. If people don't think that texting isn't important to the "target customer" then they're crazy. I've texted on a device with no keyboard and it's no fun and multitouch isn't going to help. At a minimum, Apple needs to get off of the Cingular exclusive, have a 3G plan, and integrate GPS to go with that pretty screen. I need a real reason to trade a keyboard for extra screen and the iPhone isn't delivering it (yet).

I do see battery life being a big problem. People act like it's not going to be, because the new iPods are better. iPods are NOT left on nearly as much as a phone, so your comparison of apple's work with the ipod really doesn't apply here. How well do you think your iPod would work if you used it ALL the time. Even one without a hard drive and that was flashed based.

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I love the speculation that revolves around this iPhone. I guess it follows that this is Apple trying to combine everything you could possibly need (ie. "your life") into one ultra-slim, tiny, little gadget. Thing is, hasn't this been done already? - well, minus the touch-screen (e.g. dopod, blackberry).
Found this little clip while searching iPhone stuff - it's like a little clip which I thought mimicks "us" and this new "revolutionary" toy. It just made me think...so no one be offended please :) It is all very interesting after all.

What's going to happen with IPod if the functions of the ipod are included in the iphone ?

You can learn a lot from Quotes from Apple people and other Industry Leaders. They are sometimes brilliang and inovatives.

Guy - my God, you get a lot of comments! Lots of good insights here, and I've only just scanned through them. Apple sure knows how to draw attention, and it didn't cost them a cent.

Just wanted to say I really enjoyed your post, and am going to share two things that you and your readers may enjoy on this topic. I think there are a few new twists here, especially if you consider the broader stage that iPhone will be playing on.

First is one of my posts on the iPhone (http://blogs.pulver.com/jarnold/archives/2007/02/apple_got_to_ge.html), and the other is recent coverage in Mercator Capital's newsletter, which is free, btw (http://www.mercatorcapital.com/newsletters/February2007newsletter.html#1).

I also loved the photo you used in this post. I've mentioned to you before that we think alike, and couldn't help but think of similar imagery I used in my post about Cisco's Telepresence, which was launched with similar ground-breaking fanfare (http://blogs.pulver.com/jarnold/archives/2006/12/cisco_teleprese.html).


"Can a person dial an eleven-digit number without looking at the touchscreen at sixty mph?"

No but that's what the voice control in the Mercedes S500 is for!

;o)

Emma

*************

Emma,

So the total price will be $81,500 for both?

:-)

Guy

Just got the new Sony Erricsson P990 - top of the range phone killer. Orange ranted about how amaing this phone would be and how brilliant all the features are and took nearly a year to release it.

Can I just say for the record that its the crappest phone Ive ever owned! It simply does not work. Im on my third (and other friends also on seconds on different networks). Im going back to my old knackered p910 as its faster - more reliable and better battery life. Apples iPhone - if it works and syncs with my laptop I'll get one because SE cant seem to release a reliable phone with more than 2 useable functions.

Guy,

Great post.

One thing that seems to have been completely overlooked is the mechanics of actually carrying such a slippery metal object around.

I have two questions:

1. Does the proposed design cater for adding a strap on a loop like most digital cameras do?

2. How is the touch keyboard going to work with a protective case around it?

I fear that the Jobs/Ives need for cool lines is going create an expensive toy that gets dropped and smashed all the time. Of course, that may be a good thing for Apple but ouch!

David

Cool.

Michael Locker MD

Guy

Whilst reflecting on this piece, I thought back to a piece you wrote in MacWorld some years ago, where you discussed the emergence of PDAs: you remarked that for a PDA to succeed, it must be a cell phone also : as this was the killer app for a mobile device.

How right you were, and now, don't we find ourselves in heady days indeed!

A.

Well, I was quite surprised to finde such a post on your blog and all those comments on it!

The question here should be: Will Apple change the world by bringing out the iPhone?

My answer is: Certainly not. The iPhone ist Apples' answer to the fact that the world is (already) changing rapidly. Mp3-players without phonefunction will soon be out of the market as all important cellphone producers (nokia, motorola, samsung...) integrate the music- and videoplayerfunction to more and more of their devices.

And those producers are heavily encouraged by the Cingulars, Verizons and Vodafones all over the world as these companies need traffic on their expensive mobile networks...

So Apple is just taking a logic step in order not to fall back in the long run.

To discuss the features of the iPhone before the device is really on the market seems to me quite useless. So let's wait for your son to buy his iPhone in June (?). Let him share his experience here with us!

(for my person: I live in Germany and use a blackberry pearl as mobile phone - very satisfied and not waiting for the iPhone)

DO NOT, UNDER ANY CIRCUMSTANCES, TRY TO DIAL A PHONE NUMBER WHILE DRIVING A VEHICLE AT 60 MILES PER HOUR!!!

Apologies for the capitals there. People have a hard time accepting the fact that they are poor drivers. The simple fact of being able to purchase a vehicle somehow translates into the ability to actually drive it safely. Have you driven a car in Boston lately? On top of that they feel entitled to divert the attention required for driving to their phone. Death shall not stand in the way of our ability and our, naturally, god-given right to talk on the phone while driving. It is a bad idea and you should not do it.

Other than that, I share the concerns about the technical aspects of iPhone. As a device I have not seen anything that comes close to its level of awesome, but a fixed provider, questionable battery life and Apple's grip on development is going to be a great potential detriment to its success.

My greatest concern though is for the shelf life of the product. People buy new cell phones faster than they buy new shoes. Apple is going to have to continue to develop the device to keep the favor of a fickle customer base. Telephony is not their core business, I don't think it's that great an idea to be in it for Apple. The margins are murder, the competition is fierce and the public unforgiving. In order to do well Apple is going to have to outside the circle of the faithful and that may be an ugly wake up call.

I wish them good luck, as ever, but in this case I really doubt whether any long-term success is going to materialize. And they are encouraging people to look away from the road when they're calling, because you are SO going to be calling while you're driving, aren't you? And when the inevitable happens and you end up in the scenery, with a damaged care, bumps and bruises to yourself and third parties, or much worse [I certainly hope not], Apple will have to answer for the public's manifest lack of common sense. Somebody will sue. Somebody always does.

Who says you HAVE to switch to AT&T? All sim-card-based phones are unlockable with the right software (because it's illegal to lock phones to cellular providers in Europe), so I'm just going to stick with my boring old T-Mobile Account and purchase either an unlocked iPhone (or unlock one myself) and use it with my existing T-Mobile service. No need whatever to switch to AT&T Mobile, the mobile phone company so bad that it almost went out of business before selling its network to Cingular and then later swallowing the corporate parent of Cingular and having the decidedly stupid idea to change their name BACK to "AT&T Cellular," the most reviled brand name in the phone business...

As for the $500 "high" cost, what do you think expensive Windows-based "smart" phones cost? And yeah, you can get a RAZR for $50 now with a 2-year committment, but way back when that RAZR was new, it cost $350, so you won't hear ME complain about getting 10x the phone for 33% more.

As for typing and calling while driving, it's a dangerous habit as it is, and likely to become illegal in most states. I never type numbers, incidentally, I use pre-sets... only now I won't have to hammer them into my old RAZR with apple's conversion programs.

re: Battery Life & sealed batteries, well, I have to recharge my RAZR every. single. day. -- but I'm STILL using my original 1st Generation 5GB iPod (real Firewire port & all) and it's still on the original battery. True, I don't use it as often as I use my cell phone, but I don't see battery replacement as some insurmountable issue... I helped my kid sister replace her 1st-gen iPod battery last Christmas and it took no time at all. I, like most, will probably just set the iPhone on its iDock every night and iCharge the damn thing. Average lifespan for the average cellular phone is now 18 months anyway, so by the time that I donate my iPhone to my local crimewatch program in order to get a new iPhone 500G model in 2009, it won't be MY problem anyway.

Some _very_ educated quesses. Not working on Apple though.
1. If you use it, you got to charge it every day-
2. Yes, Edge is ok.
3. No, Touchscreen will suck in real use. Although this is a very good try.
4. No, does not work well enough yet.
5. SMS:ing works, but bit slowly. Bluetooth keyboards should be available. In year or two, apple will release model with hinged keyboard. Nokia communicator or sidkick style.
6. Mac fanboys will pay 500-600. Also prizes will drop and new, cheaper models will be there later.
7. Sealed battery wont be a problems. Unless it breaks of course.
8. Closed system will rock. All the s****y java c**p will stay out.

6) Early termination fees are as high as $250.

Unless of course your use Cellswapper - http://www.Cellswapper.com - get out of any cell phone contract, without having to pay any early termination fees.

Perhaps Cellswapper is now the unofficial way of getting an iPhone...

All those problems are exists only in Guy's head. And it sounds like screaming of ex-wife or something like this.
If not worse - that pc-producers & micros...youknowwho
trying to make black PR for small money.
Whom you will ask how really bad is the man?
That's right, his exgirlfriend.
Whom you will ask about company?
Ex-personal, people, who was fired.
This, what I was thinking, when I have read those histerical comments about iPhone.
Not good, Guy.

What the hell are you doing dialing your phone at 60 MPH anyway?

There are other unknowns too:
Some Questions About the Apple iPhone

The Sidekick 1 and 2 (Danger HipTop) had sealed batteries. I've had my SK2 for a few years, with a recharge every night (although every other would do), and have not had any issues. I think the plastics will give out before the battery does. The SK3 has a removable battery and the door is an issue in the design and handling of the device. If done right, so it lasts 3 to 4 years, a sealed battery is much better IMHO. One less seam in the case, one less chunk of plastic to fail. In theory, it also makes the device less expensive to make and less prone to failure due to impact or physical abuse.

That said, Apple doesn't have a great history of providing what most people would consider appropriate battery levels-- both in terms of run-time life (Powerbooks) or operational-life (iPods).

What Apple's forthcoming portable wireless phone truly needs to succeed, in view of its obvious disadvantages (high price, limitation to Cingular, small memory for music/video, lack of voice dialing, etc.) is a KILLER APP.

Such an app could well be DICTATION-OCR SOFTWARE (since a microphone is already present, and a stripped down OS X) . . . software that would let a user dictate an outgoing Email, or text that could go into a rudimentary word processor (like TEXTEDIT), and thence to a memory file or, by any one of several means, to a printer if desired.

Then that device, trademark issues permiting, could be renamed the POCKET MAC !

And then that software could well be incorporated into LEOPARD, which would give it the boost needed to stand out as more than a slight improvement over TIGER !

If you're dialling whilst driving you a retard.
1. You would have the number stored in your contacts.
2. I hope you crash

The analysts aren't declaring the iPhone the best thing since sliced bread. They are declaring it the thing that will boost AAPL revenues enough to pump the stock to $130 with a P/E of 40. There is a serious crack epidemic going on in analyst circles.

I find it amusing that Apple claims to have chosen Cingular because they are the best when in fact they are in the #1 slot because of an agressive M&A campaign. Having the largest customer base due to the conquest of competitors is a far cry from earning the slot through superior service and equipment. Further, if having the largest customer base is the metric by which technology purchases are to be weighed then why buy a Mac?

I look forward to the release of the iPhone so I can have seamless integration with the address book, iCal, and other iApps, but I will wait until I can choose amongst my preferred providers.

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