Analysis: Filtering out iPhone speculation

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The iPhone has been hailed as a ground-breaking wonder. And dismissed as a mediocre product. It’s clearly innovative —and also quite flawed. People will clamor for one—unless they decide not to. And competitors are already coming up with iPhone killers.

Not bad for a product that hasn’t even shipped yet.

It’s been a month since Steve Jobs first introduced the iPhone during Macworld Expo. All that we know about the mobile device comes from Jobs’ two-hour keynote, a post-keynote briefing with Apple executives, and whatever iPhone information is posted on Apple’s Web site. And yet, that hasn’t stopped a flood of commentary on why the iPhone will succeed or flounder, what its flaws may or may not be, and what Apple needs to change about a device that isn’t even in the hands of one user yet.

It’s easy to understand the outpouring of coverage—since its January unveiling, the iPhone has piqued the interest of people like no product since the iPod. Yet, with the iPhone still four months away from its expected June 2007 ship date, there’s very little pundits can add about the phone’s features and performance. So what you wind up with is a lot of speculation—and all too often, that speculation turns into accepted fact.

To add some measure of a reality check to all this iPhone pondering, we’re taking a closer look at some of the more frequently asserted opinions to see which ones provide more noise than signal.

Closed system? Users of traditional smartphones often add third-party apps to the devices that augment the phone’s features—everything from utilities to document management tools. But some analysts seem to be interpreting Apple’s reticence to talk about third-party opportunities as a sign that developers will be shut out of the iPhone system.

“With a Palm or Symbian device you can add applications whenever you want and that’s important to some people,” said Avi Greengart, principal analyst for mobile devices at Current Analysis. “The iPhone doesn’t have the ability to add third-party applications.”

However, it’s not clear that’s necessarily the case. Jobs did tell the New York Times that Apple would “define everything that is on the phone.” But that’s not the same thing as preventing third-party developers from creating any sort of iPhone add-on.

“Apple has never said they would not open it up to the development community,” noted Tim Bajarin, president of high-tech consulting firm Creative Strategies.

Instead, what Apple might do is keep a tight lid on the iPhone through its initial launch, giving developers more opportunities as the phone gains greater footing. “If you think about it from a strategic standpoint with them being in control of the applications in the early stages they can control how the applications are written, but once the process is solid, they can open it up to developers,” Bajarin said.

Too expensive? Priced at $499 for a 4GB model and $599 for the 8GB configuration, the iPhone will not come cheaply. And that has some analysts throwing up their hands. “How can they expect people to spend that much money and it doesn’t even have 3G?” NPD research director for wireless devices Neil Strother told Computerworld.

Greengart agrees that the iPhone’s price could keep a lot of people from giving the device a try. With other smartphones available for $199 to $299, consumers may be unwilling to spend $499 for a phone that also requires a two-year commitment with service provider AT&T.

Then again, Bajarin counters, Apple has enjoyed some success with selling devices that were originally deemed too expensive to appeal to a wide audience. When the iPod debuted in 2001, Apple sold the 5GB device for $399—many early reviews called that price tag too high. With more than 88 million iPods sold in the ensuing five-plus years, Apple would beg to differ.

“I believe Apple will be very successful because of the pent up demand,” Bajarin said. “They will have a strong audience of prosumers as soon as [the iPhone is] released. If history is our guide, I expect apple to take a similar path with pricing as they did with the iPod.”

In the case of the iPod, after rolling out the initial device, Apple began dropping prices and adding features. These days, you can buy an 80GB color-screen iPod that not only plays music but also videos and photo slideshows for $349—$50 less than the original iPod.

It’s not inconceivable that the iPhone will follow a similar path—attract early adopters who will pay the $499 price tag right out of the gate while expanding to a wider audience as time goes by.

The iPhone’s price is “definitely high, but it’s going to cut both ways,” said Roger Kay, president of the market-research firm Endpoint Technologies. “Price-sensitive buyers are going to be screened out and high-prestige buyers won’t care. There is this strange part of human behavior that goes for the higher priced items that Jobs is gambling on.”

Legal woes? The iPhone faces a lawsuit before it even hits retail shelves. Cisco Systems, which sells an iPhone of its own, filed suit seeking an injunction to keep Apple from using that name a day after Jobs’ keynote.

But the legal wrangling over the name of the new smartphone shouldn’t have much impact on the end product, analysts say. “I don’t expect this to materially affect the iPhone plans,”Greengart said. “If Apple wins, they use the name, and if they lose, they change the name and we will still know it’s the iPhone.”

Earlier this month, Apple and Cisco announced they had pushed back a deadline so that they could keep working toward a settlement in the naming dispute. It’s widely expected that a deal will be finalized long before the iPhone’s June ship date.

Too much competition? Apple rules the roost when it comes to portable music players while enjoying resurgent growth in the computer market, but it’s a relative newcomer to the highly competitive mobile phone arena. And taking business away from established players figures to be a tall order.

Take Research In Motion’s popular BlackBerry, which has a strong following in the enterprise market. Analysts like Van Baker, research vice president at Gartner, figure the iPhone could have a tough time supplanting the BlackBerry, which is bought in bulk by companies for its e-mail and communications capabilities.

“Enterprises are not going to pay for the iPhone,” said Baker. “It’s just not something that's going to appeal for them.”

Another potential hurdle for the iPhone is to distinguish itself from the crowd. While Steve Jobs hailed the phone as “revolutionary product” during his Expo keynote, many of its capabilities are offered in some form or another by already-established products. “SMS threading has been available for years, but certainly not as pretty as what Apple is doing,” said Current Analysis’ Greengart.

And that could be how the iPhone gets a toe-hold in the market, analysts say—by bringing Apple’s typical ease of use and simplicity to existing capabilities.

Take the iPhone’s interface. Apple has done away with all but a few buttons—apart from ring/silent and sleep/wake switches on the side, there’s only a Home button on the front of the phone to touch. Instead, users will control the iPhone using Apple’s Multi-Touch technology, where a finger on a touchscreen controls everything from typing out instant messages to zooming in on Web pages.

“I think it’s going to shake up the industry primarily because Apple is redefining the user interface on the cell phone,” Gartner’s Baker said. “It’s a very real challenge to what's out there now.”

And that may be enough to allow Apple to reach its modest sales goal for the iPhone’s first year—sell 10 million units, or 1 percent of the number of mobile phones sold around the world last year, in 2008. “While Apple is no threat to Motorola in the broader sense, they will make an impact in the industry because the iPhone will be the gold standard as to what a smartphone should be,” Creative Strategies’ Bajarin said. “It will send a lot of companies back to drawing board.”

To that end, Greengart expects Palm and Sony Ericsson to feel particular pressure from the iPhone. “Apple is coming into the market with a device that blows any Treo away,” he said. “I can’t tell you which one is more usable, but I can tell you which is more beautiful and that’s the iPhone.”

This story, "Analysis: Filtering out iPhone speculation" was originally published by PCWorld.

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