WEEKEND EDITION: Will Apple's IPhone Live Up To Its Hype As A Game Changer?
Dow Jones
June 24, 2007: 09:47 PM EST
WASHINGTON (Dow Jones) -- One of the most anticipated consumer devices ever, the iPhone is certain to find plenty of buyers when it first goes on sale despite a lofty price tag.
Industry analysts expect the iPhone to leap off the shelves after Apple Inc. and AT&T Inc. unveil the touch-screen handset to the public on June 29. Supplies could quickly grow scarce and the phone might become hard to find after an initial consumer rush.
But after the initial buzz fades, analysts are less certain whether the iPhone will turn into a mass-market juggernaut, especially at its debut price of $499 and $599. Reaching the 1 million sales mark in the first few months is quite possible, but the device's unusual design, limited distribution and resistance from the corporate world may temper the product's appeal long-term.
A survey by the wireless-research firm M:Metrics, for example, showed that only 9% of all mobile-phone subscribers in the U.S. expressed "strong interest" in buying an iPhone. And the firm IDC found that 10% of wireless users are willing to pay full price to obtain one.
"I am a true believer in the iPhone -- it's a beautiful design," said David Chamberlain, a longtime industry analyst at In-Stat, a research firm based in Scottsdale, Ariz. "I am not a true believer in spending $600, even on something like that."
Sliver of success
Clearly, Apple (AAPL) and AT&T (T) , its sole distribution partner, recognize that the iPhone will have limited appeal given its high initial cost. Yet there's considerable payoff by just gaining a small slice of the mobile market.
"Even if Apple captures just a fragment of the most interested customers, it could sell a few million units in the first year," said Mark Donovan, senior mobile analyst at M:Metrics, who noted that few wireless handsets have achieved that distinction.
Such success isn't unheard of. AT&T's wireless business, formerly called Cingular, sold several million Razr phones by Motorola Inc. (MOT) in the first nine months of an exclusive contract, when the industry's first ultra-thin handset was issued in mid-2004.
That model also sold for $500 when it first came out, though prices later plunged. Most consumers can now pick up a Razr for free with a two-year contract.
More recently, Nokia Corp. (NOK) has sold more than 1 million of its fashionable 8800 series -- a handset even costlier than the iPhone - in the past two years, mostly in Europe.
Since the iPhone is more advanced than the Razr and 8800 handsets, the odds seem high that it will match or exceed their success. The iPhone is based on a unique touch-screen design, functions much like an iPod and provides widescreen video and web-browsing, features unavailable on other mobile handsets.
Avi Greengart of Current Analysis, one of the few analysts who's actually used an iPhone, said Apple's new toy has an "element of elegance" unusual in mobile handsets and that it's easier to use than competing devices such as the Palm Treo. "Where the iPhone is unique is not in what it does, but how it does it," Greengart said.
What's more, the exclusivity of the product and the aphrodisiac-like appeal of the Apple brand enhances the iPhone's already iconic image.
Wealthy customers, status-conscious consumers and young adults are expected to be drawn to the device like moths to a flame -- not to mention the legions of Apple faithful famously devoted to the company's products. If you're thinking of trying to get an iPhone on launch day, some preparation may pay off.Watch a video report.
Supply and demand
A big question from the start was whether AT&T and Apple would have enough units in stock to match the early onslaught of consumers. Michael Coe, an AT&T spokesman, couldn't promise that enough iPhones would be available in the company's 1,800 retail stores.
"For the first few months, people will want this cool device ..." Greengart said. "The iPhone is clearly the 'it' phone today."
Chamberlain said the buzz around the iPhone is unlike anything he's ever seen, comparing it to the introduction of the Ford Mustang in 1964.
The first public viewing of the Mustang, which took the auto industry by storm, was covered by all three existing major television networks. More than 1 million Mustangs sold in the first 18 months.
"It's not a phone. It's not an iPod. It's a phenomenon," Chamberlain said. " They don't even have to release the damn thing to consider it a success."
After the iPhone finally becomes available, however, the inevitable criticism and sniping from critics and competitors will follow.
"That's when the conversation changes," Donovan said. Added Greengart: "The hype and expectation at this point are almost impossible to meet."
Some analysts question whether heavy e-mail users will approve of the iPhone's button-free keyboard. Other expected complaint topics may center on battery life and Internet-access speeds.
Even before launching the iPhone, Apple sought to preempt critics this past week by announcing that it has improved the battery life and substituted a glass for plastic screen. Complaints about scratched surfaces bedeviled earlier models of the iPod.
Accessing the Web at faster speeds, however, is not in the cards anytime soon. Early models of the iPhone will run over AT&T's slower mobile-data network, not the company's swifter "3G" network.
What's also unknown is how much AT&T plans to charge for monthly service. IPhone buyers would have to pay one rate for voice calling and an additional fee for Internet access. AT&T charges customers who use other Internet-enabled phones $20 a month for unlimited data access, but the company has not revealed how much it will charge iPhone users.
The good news is that prospective customers showing the most interest in buying an iPhone already spend more per month on wireless plans than the typical mobile subscriber, according to M:Metrics.
"Those are among the most valuable customers," Donovan said.
Market opportunity
Yet the most sought-after customers - higher-paying business clientele - are unlikely to buy iPhones in large numbers for professional use. The email software used by Apple is not compatible with the secured networks of U.S. companies and most do not plan to make their systems compatible with the iPhone.
In addition, Apple has potentially cut itself off from large segments of the population by signing an exclusive "multiyear" deal with AT&T (the two companies have not disclosed the exact length of their contract). Though AT&T is the No. 1 mobile carrier in the U.S. in terms of customers, it only controls about 27% of the market, according to Forrester Research.
In addition, the iPhone will only be available in the U.S. in 2007 and it won't reach the shores of Europe and Asia until 2008 and beyond.
AT&T executives, for their part, repeatedly have called the iPhone a "game changer" and believe they'll siphon off thousands of customers from rivals. They say more than 1 million potential customers have signed up at AT&T's Website to receive information about the iPhone -- 40% of whom now subscribe to competing mobile services.
And for AT&T, the stakes are particularly high. Verizon Wireless (VZ) , the nation's second-largest mobile operator in terms of subscribers, has been adding customers at a faster clip and could overtake AT&T within a few years. Success of the iPhone will help the company widen its lead over Verizon.
Comforted by the iPhone's pre-launch reception, meanwhile, Apple executives have publicly targeted a goal of selling 10 million units by the end of 2008. Whether they meet that target or not, the iPhone surely will be easier to find next year than in the next month.
"The first few weeks you won't be able to find one," Chamberlain predicted. " This is hot." |
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