The Apple iPhone: A call to competitors

On Tuesday, Apple's Steve Jobs announced the new iPhone at MacWorld.

It is not cheap by any means, but whenever you have something new come onto the market, it is not offered at a thrift-store price. Plus, you can't compare Apples to oranges. In this case, the appropriate comparison is Apples to Motorola RAZRs, Nokias, Samsung, and all the other “oranges” out there.

One of the analysts on CNBC, Herb Greenberg, was very skeptical in saying, “It's a phone.” He could not understand paying any premium. Evidently, he must not go to Starbucks, buy any Nikes, purchase $100 skin creams, or invest in any other “commodities” that command a super premium - sometimes only by their brand and marketing and not by any substance or superior quality.

The price that was mentioned on CNBC was $499 for an iPhone with four gigabytes of storage. With that much storage, it can easily show a full-length feature film. With that much memory and new functionality, it really renders obsolete just about everything on the market. It also commands a premium, whereas most consumers think phones have a value that should be gotten as a prize in a cereal box.

Will they pay a premium? How many buy Starbuck's? To paraphrase Greenberg: It's only coffee. How many buy a Coach purse for $400? It's only a purse. How many others pay for other “status” items that sometimes only are differentiated by a label? Status symbol? Of course

Compared to what some people thought Apple was going to come out with, the new iPhone is pretty sharp. They got rid of the keypad, and it is more of a total touch screen approach (multi touch is their label for it). It's so sharp; it's thinner than a Motorola RAZR.

Are RAZR phones out? Hey, it's only a phone. Did you think you were cool because you bought one around the holidays? Now you look like the chump that ran out to buy the last of the VHS video players while everyone else was moving up to DVD machines. You have to expect that in consumer technology. What is hot today will be out tomorrow - sometimes literally.

In an interview on CNBC, Steve Jobs said that over a billion phones were sold last year. He said if Apple could capture one percent of that market this year, it would be great. Those 10 million iPhones would make a small dent in overall sales, but I think they really have raised the bar for cell phones. If they are looking to sell 10 million to 14 million phones, that would give them about $5 billion to $7 billion in new revenue. Maybe that's why Apple's stock price went up over $7 a share Tuesday.

With its ability to download content, will the iPhone become a new revenue generator? Jobs thinks so. He pointed to the amount of downloads they have just seen with their other endeavor, iTunes.

There have been 50 million TV episodes downloaded, as well as 1.3 million feature films downloaded from their site. Also, about 30 percent of the cars sold in 2006 are supposed to be iPod compatible. This is a good indicator for a whole new market.

The iPhone has enough storage to hold a full-length movie. The applications that could be developed for this device could be abundant with the right creativity.

Richard Stice of Standard & Poors, who also was on CNBC, thought it was revolutionary for Apple. He also thought they were jumping into a real competitive market, but this could be a home-run product for Apple, as another analyst projected.

Greenberg also questioned how viable and rugged the device was. I do agree with him there.

Carlini's call

This is a giant step in phone devices. I just bought a phone at Christmas, and all I wanted was a phone. I have the connection to the Internet on a trial basis, but I probably will not subscribe to it. Why? Maneuvering around the keypad is still not easy.

On the other hand, the iPhone has changed the whole feel for maneuvering around for functionality. The smooth service looks good, but how durable is it? Can you drop it and will it still work? Can you throw it up against a wall?

And what about the core application? How good is it as a phone, and how is the voice quality? Voice quality is something that does not seem to be a critical factor anymore.

With all of the extra functionality on the iPhone, I am sure they did not skimp on trying to make it first class, even with voice quality. They are still only as good as the carrier that they are connected on, and that will be Cingular at least for the next couple of years.

I think they have set up the industry like Starbuck's set up restaurants to charge a premium for their coffee, no matter how bad it is. Try to find a restaurant with coffee under a dollar today. You can't. Some are charging $1.95 on stuff that you could use for an oil change. Coffee is coffee, but when you add some premium label, everyone else raises their price because they seem to think they are selling the same thing.

Market maneuvers

Will a RAZR drop in price? Of course. More importantly, if Apple can get people to fork over $499 for a “premium” phone, you can bet that the competitors will not be far behind with both inexpensive copies as well as superior products that offer even more.

With all of that functionality and real Internet capability, I think Apple will do well. Its stock is already predicted to move to over $100 a share.

I also think that some of the competitors will do well by coming up with their own “luxury” line of premium devices.

I remember when flat screen TVs cost $20,000. Now the market is flooded, and they are very reasonable. Look for a similar tsunami in the iPhone area.

CARLINI-ISM: What is considered “the ultimate” today sometimes becomes obsolete tomorrow - literally.

Copyright 2007 - James Carlini

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