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Why Apple's iPhone is not the next iPod

May 15, 2007 13:40 IST

It would take a pretty technologically insular personality to be oblivious of the fact that Apple's long awaited iPhone is being released next month. Ever since the release of the iPod six years ago, Apple's best advertising has come free of charge. It's not surprising then that nowadays just about everyone seems to be talking about the company's latest creation.

Apple has a history of being cutting-edge: it invented the PC as we know it today, and back in 1983 it was the first organization to introduce a personal computer that used the graphical user interface. The company went on to introduce the Mac in 1984, the Power Book 100 in 1991, and of course the iPod in 2001. Its latest device continues this tradition of innovation.

Slideshow:
Deconstructing the iPhone

With the impending release of the iPhone, Apple is digging its heels into the forefront of a movement not simply to change the face of the cell phone market, but rather to continue radicalizing the digital consumer electronics industry as we know it.

While smart phones that allow consumers to listen to music, surf the Net and make phone calls already exist, Apple's new venture aims to take the concept of user friendliness to levels that no other phone has achieved, by coupling a revolutionary multi-touch user interface with the convenience of consolidation. But is the iPhone going to be able to achieve the same success levels as the iPod?

What's so great about the iPod anyway?

Last month, the company reported sales of 10.5 million iPods and a 77.9 per cent market share for the March quarter. It seems the iPod and its accompanying iTunes have carved out an impregnably exclusive status within the digital music industry.

Just how has Apple's portable music player inducted so many millions of die hard aficionados? "Apple was the first company to do it right," says Chris Breen, senior director of MacWorld magazine. In a limited market of portable music players that were hard to use and offered poor storage capacities, Apple's focus on optimizing user experience by making the iPod convenient and user friendly, proved pivotal to its success.

Catering to multiple preferences, iPods come in a range of sizes, colors and storage capacities, but there is one thing that's uniform-- they all sport a similar user interface that makes them easy to use.

And then there's the other thing. Apart from its purely technical advantages, the iPod exudes the 'Cool Factor.' The frenzied hype surrounding the device stems partly from word of mouth (everyone's doing it,) partly from the fact that the players are just plain snazzy to look at, and partly from an incredibly innovative advertising campaign consisting of dark silhouettes, brilliant white headphones, psychedelic backgrounds, and insidiously catchy music -- the type that forces you to sing in the shower for hours after.

"The iPod is hip. It looks cool. People want cool things. And the iPod remains one of today's coolest gadgets. If you ask your parents for a music player for your birthday, it had better be an iPod or you're going to feel like a tool," states a matter of fact Breen.

Can the iPhone even come close?

The buzz preceding the upcoming iPhone rings similar to the hype that the iPod has whipped up around its slender frame since 2001, and in keeping with tradition, the hype is largely focused on the phone's radical user interface. The iPhone boasts a patented 'multi-touch' keyboard technology that allows users to interact directly with the device using their fingers instead of conventional buttons.

The wide display area serves as both keyboard and control panel, and is one large luminous screen that changes according to the functions desired. If you're checking your voicemail for instance, your message appears as a visual icon. Poke the message you want to listen to and you've got it.

"We are all born with the ultimate pointing device -- our fingers -- and the iPhone uses them to create the most revolutionary user interface since the mouse," stated Apple's Steve Jobs at the annual Macworld Expo in San Francisco.

The CEO hailed the phone as a "magical device" that would "revolutionize the industry," explaining that it combines three different products -- a mobile phone, a widescreen iPod, and an Internet communications mechanism -- into one portable device.

Speculation is now running rampant as to whether the iPhone will be to the mobile phone market what the iPod is to the digital music market. Apple has indicated an intention to take 1 percent of the world market for cell phones, or 10 million phones per year, by the end of 2008. The company may actually do better than that.

The latest USA-based ChangeWave consumer cell phone survey, which polled 2,640 users, indicates that if the phone lives up to expectations, Apple is likely to exceed its 2008 goals. In fact, the survey indicates that the iPhone could alter the face of the cell phone industry dramatically.

At the moment, according to ChangeWave, the market belongs primarily to Motorola (33 percent), LG (15 percent), and Nokia (14 percent). The survey indicates that with the release of Apple's new phone, Motorola's share among consumers will register a dramatic decline -- perhaps falling as low as 17 percent.

"As more and more consumers switch to the iPhone, we are going to see a huge migration from cell phone manufacturers like Motorola to the hipper, cooler iPhone," states Tobin Smith, founder of ChangeWave Research and editor of ChangeWave Investing.

"And, because of Apple's deal with AT&T's Cingular as their exclusive service provider for the iPhone, we are also going to see a big migration away from Verizon and other cellular providers." About 79 percent of likely buyers from the survey said they would abandon their existing wireless carrier, switching to Cingular to use the new iPhone.

This may seem like a huge percentage, but the number of likely buyers is limited: the survey indicates that just 9 percent of respondents said they are likely to buy the phone for themselves, and just 7 percent are likely to buy it as a gift for someone else.

Apple experts, such as MacWorld's Chris Breen, and editorial director Jason Snell, argue that the company is unlikely to dominate the cell phone market the way it does the music player market. First and foremost, the iPod entered a far less competitive and well populated market than the one the iPhone will have to crack.

Additionally, Apple has limited itself by committing to Cingular, which has a customer base of about 60 million. It is notable that 55 per cent of those polled in the ChangeWave survey expressed satisfaction with their existing cell phones -- indicating no intention of switching networks.

Snell points out that that doesn't necessarily mean Apple made a mistake however. It would have been impractical for the company to try to launch the iPhone independent of an established service provider. Had it done so, Jobs and his team would be faced with creating different versions of the phone to fit the capabilities and structures of different networks.

Plus, even if Apple could overcome its technical complications and enter into agreements with cell phone providers other than Cingular, other networks might not even be interested in partnering with it. Jack Shofield of the Guardian Technology blog explains that adopting the iPhone will not prove lucrative for all providers.

For Cingular, which does not offer its own music business and which currently has exclusive dibs on the iPhone, the deal makes sense. However for network providers that aim to sell music and movie downloads directly to their consumers, adopting the iPhone could mean forsaking a hefty chunk of potential profit as well as reinforcing Apple's dominance over the digital music market.

Additionally, the potential success of the iPhone could be dampened by its price. If looked at as three devices in one, the price isn't unreasonable -- buying a 4GB iPod Nano and a BlackBerry 8700c (which acts as a phone and Internet device) separately for instance would set you back about $500.

But when looked at as simply a phone, which is the way many people perceive the device, it's just plain expensive. People may not be willing to pay $499 to $599 for a cell phone that does not function any better as a phone per se, in that it makes calls as well as the next phone.

Some consumers will just not be interested in all the additional capabilities that the iPhone offers. "What the iPhone potentially does promise is to make the features that most people don't use on their phones -- web browsing, more advanced kinds of messaging, email, music playback, etc -- far easier to use," states Breen.

"The question is how many people desire these kinds of features; are there enough to propel the iPhone to the top of the heap? I kind of doubt it. If less expensive iPhones appear, younger users are likely to gravitate to them in a big way. I'm not so sure about the parent who just needs to keep in touch with their kid, or the grandparent who flings a cell phone into the glove compartment for safety sake, or the many, many people who just want to make a call."

According to Steve Koenig, senior manager for Industry Analysis at the Consumer Electronics Association, research indicates that in spite of the 'new convergence' among consumer electronics, strong counter trends to consolidation do exist. Many users continue to prefer stand alone devices that perform their designated function as simply and effectively as possible, others may simply shy away from the idea of having one master device that could get lost or broken.

It isn't all bad news though

While Apple is unlikely to dominate the cell phone market, its new device is expected to make a large mark on the smart phone market. And in the long term, once the company begins to diversify, producing iPhones of different prices, sizes and capacities, similar to what it now offers with the iPod, it could begin to make an impact on the cell phone market in general.

ChangeWave's survey corroborates this, revealing that while 28 per cent of those polled stated that the new phone was too expensive, 10 percent stated that they would consider buying a 4 GB version of the phone if the price fell, and 20 percent stated they would consider buying the 8GB version upon a price cut.

Jason Snell points out that the potential appeal of the iPhone will also be bolstered by the huge fan following behind iPod. The iPod's appeal will have a trickle down effect on the iPhone because iPhone users will get not just any music player, but an iPod.

And there's a guaranteed silver lining -- even if consumers do not buy Apple's new phone, they are likely to benefit, as the phone is bound to drive innovation within the consumer electronics industry in general, and the cell phone industry in particular.

"In the past, cell phones produced have been a combination of the preferences of cell phone providers and carriers, which means that features have been compromised and the phones, while good enough are never amazing. The iPhone necessarily will inspire better cell phones from other companies such as TMobile and Verizon, thus benefiting all users," explains Snell.

What's the bottomline here?

The iPod set an impossibly high bar, one that the iPhone will not match or even come close to. But the new device could still be very successful, particularly in the long term. By combining a phone, a music player and an Internet device all in one, while coupling them with the most user friendly interface it could conceive of, Apple aims to embody one of the most fundamental ideals that underlies modern day consumerism: convenience.

This proposition is bolstered by the company's recent release of Apple TV, which wirelessly syncs the iTunes content off one's computer with one's TV -- once again aiming to maximize convenience.

For an increasing number of consumers, less has never been more than it is today: the smaller the better, the sleeker the better, the simpler the better, and the more consolidated the better. The iPhone is likely to emerge as a forerunner in this movement towards simplifying the digital media industry.

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Saabira Chaudhuri, FastCompany.com