TELECOM Digest OnLine - Sorted: IPhone: The Mediocre Phone That Will Change the World

IPhone: The Mediocre Phone That Will Change the World

David Haskin, IDG News (
Fri, 19 Jan 2007 16:44:08 -0600

David Haskin, Computerworld - IDG News Service

IDG Editor's Note: This article was originally published at

More than a week after Steve Jobs' blockbuster iPhone announcement,
longtime industry observers and analysts are still furiously debating
iPhone's impact. And the first issue the analysts are wrestling with
is: Just what the heck is an iPhone, anyway?

Before commenting on its potential success, four analysts I spoke with
first struggled to define exactly what an iPhone is.

"If you take the telephone out of the equation, the effect of iPhone
will be profound," noted David Chamberlain, principal analyst for
wireless issues at market research firm In-Stat. That is to say,
Chamberlain said, the iPhone isn't much of a phone but it is an
awesome something else.

In an industry accustomed to slotting products into narrow categories
and measuring success within those categories, the unclassifiable (so
far) nature of the iPhone has created a Jobsian, Alice in Wonderland-
like atmosphere where t's are being crossed and i's are being dotted.

Herewith, with the help of some highly regarded industry analysts,
we'll try to throw a lasso around this galloping pony and understand
just what the iPhone is and what its prospects are.

What is the iPhone, anyway?

Trying to figure out what the iPhone is can be a matter of addition by
subtraction. One thing the analysts agree about is that it won't be
much of a cell phone, let alone a smart phone.

"It does seem under-horsepowered as a phone," said Neil Strother,
research director for wireless devices at NPD. "It doesn't have (3G),
which I don't get. How can they expect people to spend that much money
(US$500 for the 4GB version) and it doesn't even have 3G?"

Among the reasons the iPhone isn't a smart phone like the Motorola Q
or the Treo line is that it doesn't support corporate e-mail or
viewing attachments in Word or other formats commonly used in the
enterprise. Nor can it use third-party applications like smart
phones, many plain-old, not-so-smart phones and even old-fashioned
PDAs. Nor is it a plain iPod since media players don't have even
mediocre voice capabilities.

"It's been billed as less a smart phone than a super-smart iPod with
phone functionality," noted Miro Kazakoff, a senior associate for
wireless technology at market research firm Compete. "It comes from a
place of being more of an entertainment device with phone functionality
added on."

Added Ken Dulaney at Gartner: "It's either a weak phone or a hot device
in the network media category."

Another thing that the iPhone isn't is just another mobile device. "The
interface is absolutely breathtaking," In-Stat's Chamberlain said.

Got it. The iPhone is a lousy phone but a breathtaking media device
that acts like a phone but isn't.

What does it compete against?

Let's move to the next level down in the rabbit hole. The fact that
the iPhone isn't anything like a smart phone doesn't mean it won't
compete against smart phones. And against a lot of other things as

"Yes, iPhone takes sales away from the (BlackBerry) Pearl," Kazakoff
said. "Devices like the Pearl or (Motorola) Q also would seem to be
primary competitors for iPhone." He said that because people will tend
to only buy one phone-like device and, until the iPhone is released,
those are the current high-tech hotties.

However, as is the case with most Apple-related things, Kazakoff
hastened to add: "But it's not really that simple."

In particular, the iPhone also helps Apple and its iTunes online media
store compete against other online media vendors such as (surprise!)
Microsoft and its Zune device and Zune Marketplace.

"If you buy an iPhone and you are locked into iTunes, chances are your
next phone will be an iPhone," Kazakoff said. "It encourages people to
lock into carriers and services."

Then, there's what, in analyst-speak could be called 'the Cingular
play.' While Cingular won't give particulars, the operator is clearly
spending a lot of money and energy on iPhone and is reasonably upfront
about one of its main reasons why.

"If a customer of another operator wants the device, they can buy it and
become a Cingular subscriber," a Cingular executive told a press
conference at the Consumer Electronics Show last week. "We fully expect
this to grow our business."

So, besides Apple competing against phone vendors, the iPhone also
could change the competitive landscape among cellular operators.

"Verizon owned the we-have-the-best-network position in the
marketplace," In-Stat's Chamberlain said. "Now, everything is switched
around and suddenly it's, 'network-shmetwork' if you want the hottest
phone in the world, you have to go to Cingular. It pulls the rug out
from under Verizon."

OK, then, let's recap. The iPhone isn't a smart phone but it is
competing against the hot new generation of smart phones. It also is a
tool to help grow Apple's media distribution business against
competitors such as Microsoft. And it also is fomenting -- Cingular
hopes -- a migration of customers from its competitors.

Are you starting to get the idea that the iPhone is much more than just
a dandy new device?

So who will buy it?

Few would disagree that Apple fanatics will stand in line for eternity
in the bottom ring of hell to pay $500 for an iPhone. But who will buy
it after those fanatics have their devices eagerly in hand?

"You can get a (Motorola) Q for 99 bucks and (consumers) may be willing
to spend another 30 or 40 bucks for those (smart phone) capabilities,"
NPD's Strother said. "But if you jump up to $500, you have to call the
wife, then get a loan. That's just the reality of the American consumer
right now."

Put differently, some analysts doubted that, after the Apple True
Believers get their devices, Apple and AT&T/Cingular will sell a whole
lot more. And the $500 price ($600 for the 8 GB version) will only be
the first expense.

"People using other carriers will either have to wait until their
contract ends or tack $200 on to the price of the iPhone (for breaking
their contract)," Kazakoff said. "Very few consumers will do that."

So that means Steve Jobs' predictions that 10 million iPhones will be
sold by the end of 2008 will be proven wrong?

"Will it sell 10 million?" asked Gartner's Dulaney. "As a media device,
maybe. As a phone, it may be difficult. "There we go again, trying to
classify the thing.

"On a global scale, they have a shot at 10 million," Strother said. "I
think it's attainable but in the U.S. alone? No way."

Let's get this straight, then. Apple has a reasonable shot at making
their stated goal of selling 10 million iPhones by the end of 2008,
except that the thing is too expensive for most mainstream
users. Also, Apple won't sell many iPhones as phones but they could
sell a ton of devices as a media player that acts like a
phone. Finally, those who aren't willing to pay the price for the
iPhone will be more attracted to smart phones, even though the iPhone
doesn't compete against such devices.

Which brings to mind this quote from Alice in Wonderland: "I quite agree
with you," said the Duchess; "and the moral of that is: Be what you
would seem to be or if you'd like it put more simply 'Never imagine
yourself not to be otherwise than what it might appear to others that
what you were or might have been was not otherwise than what you had
been would have appeared to them to be otherwise.'"

Where is all this going?

One thing the analysts do agree about is that, whether the iPhone is a
media device, a regular phone, a smart phone or something else entirely,
whether it will sell by the boatload and won't sell at all, it's very
design will change the nature of devices we'll use in the future.

"It could create a new category of devices, Gartner's Dulaney said. "Does
it raise the bar for everybody? Yes. It's a good thing for the industry
because it challenges vendors to really think about ease of use."

"It has the potential to significantly increase stratification in the
market," Compete's Kazakoff said. "People will increasingly look for
devices that focus on one or two functionalities so, hopefully, we'll
see devices that are exceptionally good at the (few) functions they're
focused on."

And, of course, the analysts think that it will lead to heightened
competition, even if that competition comes from copycats. That's
because neither competing phone vendors nor other U.S. cellular carriers
will stand still in the face of the threat from the iPhone, uh --
whatever it is.

"Right now, there are 10,000 engineers in Asia working on new things
because [of the iPhone]," Chamberlain said.

Copyright 2007 Mac Publishing LLC

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