iPhone Chances for Success

By Richard Menta 1/14/07

As I play with the keys on my new cell phone I can't help but be amazed at how user unfriendly the thing is, especially considering how long mobile phones have been around. Somehow, this made me think back to 2001 when the iPod was first announced. I remember how most of the pundits at the time said that the iPod was folly, but I didn't agree.

The reason I did not agree was because I had tested almost all of the leading MP3 portables at that time and immediately recognized while reading the iPod's specifications that Apple had finally solved a problem perplexing players then. Before the iPod MP3 players came in two forms. They were either small devices that used expensive flash memory with a top end capacity of 128MB or they used laptop hard drives, which offered gigs of storage, but made the units big and heavy.

Apple iPhone

Utilizing a smaller Toshiba drive, Apple released the first player to offer large capacity in a small footprint. The iPod immediately dominated the market as savvy users flocked to it, first generation owners who also discovered is that the iPod offered the most intuitive and sophisticated interface yet seen on a player. This drove strong word of mouth and before long the iPod lept from niche electronic device to the new hot toy for the masses.

All for predictions of failure.

Since the iPhone was announced earlier this year I have heard the same predictions of failure I heard with the iPod. There are still many naysayers despite the fact that AT&T already said they have had over a million inquiries for it. When rumors began to swirl upon the announcement of the device I said "the best way for such a device to succeed was not for Apple to make a better music phone, but just to make a better phone."

As I plug away at the phone I recently acquired it becomes obvious to me that making a better phone first would not take a lot of effort on the part of Apple. Of course, this is a company known for its fluid interfaces, whether Mac or iPod. If the iPhone's design is half as good as it looks on paper, then its virtues will drive it to huge success. Again, we are just talking about its phone capabilities. The audio and video functions are the sweetener, in my opinion, not the main driver of adoption. Apple is looking at the mobile phone market not as a competitor to the DAP/PMP market, but as a new market for it to target and grow in.

Apple did two things right. First, they went for the high end mobile phone market where competition is light. I am confident there are consumers out there open to paying $499 for a phone as long as it is compelling. Second, they announced that they were shooting for 1% of the market by the end of 2008. That's 10 million units, which is a large number. The reason that Apple set a public sales goal for the device is because if Apple didn't set the expectations there are plenty of pundits who would. Some who, I suspect, would be ready to call anything under 10% (100 million units) a failure.

Apple will sell its 10 million units, drawing $5 billion in revenue in the process. If the iPhone turns out to be far and away superior to the best mobile phones out there then word of mouth will explode. Apple will be in prime position to become a leading phone maker on the market. If the iPhone is a hit, by late 2008 Apple will probably introduce less expensive phones as well as phones that work with carriers other that AT&T. I can even see Apple introducing at some point an iPhone without any video or audio capabilities to cater to a large segment of the cell phone audience that wants a better phone, but are uninterested in digital media capabilities. That may seem odd for a company synonymous with digital media, but Apple is aiming for something bigger and broader and if it makes business sense they will do it.

But that's all assuming the iPhone is indeed turns out to be a (much) better phone. We'll tell you in June.

Other MP3 stories:
The Digital Media Winners of 2006
The Digital Media Losers of 2006

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