iPhone redux

I was wrong about the iPhone last year.  It’s a great phone.  I own one.  Actually, I’ve owned three.  One had a battery problem and the second wiped its mine clean daily.  Still, compared to the crash-a-holic Treo 670, I’ll take it.  Nothing new to see here versus billions of other blogs.  Move along.

Too bad about the iPhone

Certainly, the press is agog over iPhone. This morning, I found 83,500,000 hits for “iPhone” on google. That’s more hits than for “cell phone” or even for nude.   The technorati burble bubble around the iPhone is gigantic.

But let’s be careful.  Does anyone remember the Newton ?  or NeXT computer ?  The Newton started the move to PDAs and portable computers. But it certainly didn’t finish the race in the top 3 (that title goes to Palm, Windows, and RIM). In fact, it didn’t finish at all. The important point here is that despite the recent run of successes, Apple can make market mistakes.  NeXT Software was a market failure (although a financial success for Steve Jobs when sold to Apple for $400m and 1.5m shares of Apple stock).  Jobs is also capable of error.

So it’s possible that this whole iPhone orgy is going to be the Apple Newton of 2007, whose quiet death was only 9 years ago. When I mention this to friends, they have had a few really cogent arguments against me. The first is best presented by the iPod itself, the 80% market share giant of mp3 players. I recall being in a gondola on a ski trip with 4 teenagers. Three of them pulled out their iPods to listen to tunes. The fourth, with clear embarrassment and apology, an iRiver. Even though the iRiver has some technical advantages over the iPod, the iPod is a cultural phenomenon.

There are a couple of unique reasons for this, among them Apple and Jobs clear marketing prowess. One other major reason was market timing. iPods hit a newly emerging world of mp3 players. There were, perhaps, a million mp3 players in the US. Napster was introducing millions of kids to free pirated mp3s on their computers, and those Napsterers wanted to take their songs with them. Not so with the iPhone. There are hundreds of millions of cell phones already in the US. With Jobs early announcement of the iPhone, the competition is already heating up, with LG announcing their look-alike to hit stores ahead of the iPhone.

The second argument, best articulated by Richard Simoni of Asset Management, is that even if the iPhone doesn’t get the 1% of the market that Jobs predicts, the high price and the likely subsidy by Cingular as the exclusive cell provider, will make it far more profitable than the iPod.

Great news for Apple, not so great for the folks trying to dial on that touchscreen while driving, or trying to use the iPhone for business services, or running out of battery after just 5 hours of talk time. Or, for those of us addicted to our DSL or cable modems, trying to get data into the sucker at closer to the speeds of 56kb dial-up modems on your 1998 desktop PC. (I’m using Cingular’s Edge network on this PC while sitting in downtown Palo Alto, CA. I’m getting 209kbps downloads at this moment, vs. 1,500kbps through AT&T’s DSL service.)

So all you Newton fans, stay tuned.  The internet is forever, so this prediction will be as permanent as short-selling GOOG after the IPO.