Much ado about nada

On iPhone rumors.

The Macalope was listening to the latest MacBreak Weekly today which focused on the iPhone. Leo Laporte was most interested in the story about T-Mobile CEO Robert Dotson waxing poetic about how dreamy Apple is.

It suddenly reminded the Macalope of an incident three years ago when a friend in the cell phone business called him to ask who he knew at Apple that might be working on the iPhone, as his company wanted to get some of that action. The Macalope, of course, didn’t know anyone.

So, while he does still think there will be an iPhone, the Macalope thinks that that particular bit of shtick from Dotson was probably just him sucking up. Maybe he heard the rumors that Cingular had a six-month exclusive and wants to be next in line. Maybe he’s really a Mac fan. Whatever.

Frankly, none of the rumors – including the iPhone trademark in Asia – seem particularly compelling to the Macalope. It’s really more the idea of the iPhone – an elegant cell phone that doesn’t suck – and the movement of the market toward music phones that make a compelling business case.

21 thoughts on “Much ado about nada”

  1. Has anyone made any made any bleating sounds about Steve’s claim that 2007 will be “one of the most exciting new product years in Apple’s history” (as he says here: http://www.apple.com/pr/library/2006/oct/18results.html) yet? That’s a pregnant quote if ever I did see one. In my own mind I am constructing elaborate fantasies based upon it, not that I would ever publish them.

  2. >It’s really more the idea of the iPhone – an
    >elegant cell phone that doesn’t suck – and
    >the movement of the market toward music
    >phones that make a compelling business case.

    I don’t think so. Let’s look at the facts here:

    1) Cell phones are extremely diverse. There’s no single model that could satisfy even 10% of all cell phone owners. Some people want simple, some want music, some want a PDA, some want a good camera, some want a keyboard to write SMS, some want something as small as possible… The fact that there is no single ruling cell phone is not due to cell phones being crap (although that may play a role, too), but due to people having very different needs.

    2) Cell phones aren’t sold to consumers. They’re sold to telcoms. That means that most cell phones are sold with almost no profit. Telcoms then sell them at a loss and make it up with the subscriptions to their service. Basically, this means that there is not a lot of money in the cell phone business. The money is in the subscriptions.

    So, tell me again:
    1) What exactly can Apple offer to this market?
    2) Why exactly should Apple enter that market?

    An iPhone only seems like a “compelling business case” if you don’t like the current situation. It’s not that it would make a compelling business case *to Apple,* it’s just that *you* want Apple to improve *your* situation, so it’s a compelling business case *from your standpoint.* That’s probably not due to sucky hardware, but due to sucky American telcoms. Apple can’t fix that problem. Go to Japan or even Europe, and you get a different picture.

  3. I agree with LKM on that there is no real reason for Apple to want to go into the business of phones. Except maybe to try and use the phone as an extra iTunes platform. But than again, LKM is right: there is not much money to be made for Apple in the phone itself. And the devices, that’s where iTunes brings in money, much more than in selling music. So why would that be different for a phone than an iPod?

    BTW, living in The Netherlands I can tell you that the situation in Europe is not much different from the US. Here too, almost all phones are sold with a subscription at a low price to the consumer. Practically nobody buys a phone seperately. If your phone dies, it is common practice to either get a new subscription (if the end date of your contract is coming up) or get a “prepay” contract with a phone and have that unlocked so you can use it with your existing service. Because of all this, most people don’t realise that phones are in fact expensive. And if Apple were to launch one that you can buy seperately, people would surely be put off by the high price (compared an iPod for example).

  4. Yeah ok, but I live in Europe too and I absolutely would pay a big permium for any phone that was a) decently designed [currently difficult] and b) had an interface that wasn’t totally catastrophic [currently impossible].

    The current phone manufacturers have mostly lost the plot, trying to cram in ever more features with almost no attempt at making any of them easy to use. I really think there is an opening for a well designed phone with a good UI. Meanwhile, it seems clear that the real competition for the iPod (sorry Zune, it’s not you) is going to be from music phones, so Apple will have to do something about that eventually.

    It seems it’s just a matter of time now.

  5. Jed, I totally agree on all you say about what you would like a phone to be.
    The problem lies (as LKM says) in the fact that phones are primarily sold to telco providers. The market of people who want to pay more than 500 or 600 euros (or dollars) on a phone seperate from a telco contract, is not so big, I think. And because of that, not so interesting to Apple. The iPhone would be more in the market of PDAs than regular phnoes. Don’t get me wrong, I’d like a new Apple PDA. But that’s a different market, the iPhone’s supposed to be the mass-market “phone like” phone, right?

  6. Well, Mitch, if you believe the lullabies the analysts are singing themselves, apparently the PDA-phone and the phone-phone are different parts of the same line. That doesn’t sound like the modern Apple, with its well-defined product lines, so their being labeled that way does cast some doubt on the rumors’ other claims.

  7. Here’s a thought:

    1. Apple make damn sure the iPhone comes directly under the iPod brand.
    2. Telecoms drool at the iPod halo effect / bling factor they could carry (at elevated prices) on their networks.
    3. Savvy / showy users subscribe to accounts which come with an iPhone instead of a hand shaped piece of crud, and gladly pay higher fees for doing so.
    4. Apple and the carriers share in the rewards, as outlined in their contracts. Especially if Apple “blesses” some carriers over others with exclusive deals in each national market.

    I see it working like that. Excuse my hazy nomenclature in the phone world, I’ve never owned one myself. It’d have to be an Apple, and I’m happy to wait!

  8. The only telecom to do anything but spit on the idea of an Apple phone is Cingular, and now T-Mobile. Sprint and Verizon are *far* too adept at sucking money out of your pockets for such things like ringtones, music, video, etc. to allow Apple to possibly divert some of that income.

  9. Yeah. *IF* Apple wanted to sell an iPhone as a loss-leader to generate money via the iTunes Music Store, most telcoms wouldn’t sell it. They only give away their phones so they can then kill you with all the services they sell.

  10. An iPhone only seems like a “compelling business case” if you don’t like the current situation. It’s not that it would make a compelling business case *to Apple,* it’s just that *you* want Apple to improve *your* situation, so it’s a compelling business case *from your standpoint.*

    How is that need – which the Macalope is not alone in – not a business case? People (and Macalopes) want a better phone. When people want something, you can sell it to them. Also, there’s no clear market leader – no one owns this market yet.

    The same point you make about the market being diversified was true of MP3 players. Apple dumped several features and took over the market.

    As for selling to the telcos, it may not be a great business, but they also may not have much of a choice. Music is moving to cell phones. They either have to make a play there or face getting squeezed out. If Apple can work with the recording industry, it can work with cell phone companies.

  11. They only give away their phones so they can then kill you with all the services they sell.

    No, they only give the phones away so they can get you into a contract.

  12. “An iPhone only seems like a “compelling business case” if you don’t like the current situation. It’s not that it would make a compelling business case *to Apple,* it’s just that *you* want Apple to improve *your* situation, so it’s a compelling business case *from your standpoint.*

    Well, yeah. Smart businesses in the consumer market figure out where *you* the consumer don’t like the current situation, ask what *you* want them to improve about *your* situation, then work to improve it, by providing *you* with better products and options, and make money off of *you*. That’s why its a compelling business case for a company like Apple.

    “Cell phones are extremely diverse. There’s no single model that could satisfy even 10% of all cell phone owners. ‘

    Well, yeah. There were 250 million cellphones sold last quarter. 1 billion will be sold in 2006 alone ( http://www.tgdaily.com/2006/10/19/cellphone_shipments_q3_2006/ ). You don’t think 10%, or even 2% of that market, is worth going after? I’m betting Apple does.

    “Basically, this means that there is not a lot of money in the cell phone business.”

    Well, yeah. That’s why Motorola & Nokia should just give it up-can’t make a lot of money there.(the mobile division is Motorola’s only bright spot earningswise http://www.theregister.co.uk/2006/07/20/motorola_q2_2006/ , and Nokia, well they seem to be doing ok too http://www.theregister.co.uk/2006/10/19/nokia_results/) Do most consumers want free (i.e subsidized, the ones phone companies don’t make a lot of money on) phones? Sure. They also buy Dells.

    And, as far as “compelling business case” goes, the alternative is Apple letting someone ELSE take over the growing phone w/music & video market. Do you really think that’s compelling?

  13. I’m not gonna weigh in too heavily on this, as I haven’t studied the cel phone market enough to say … although being on the “I just want a simple phone without a lot of crufty features, dammit” end of the spectrum, I’d be interested in seeing what sort of an iPhone Apple would put together.

    But here’s a few thoughts to string together:

    1) Apple doesn’t make much profit on iTMS; it uses it to sell iPods at a bigger profit.
    2) Cel phones, it is argued, are usually sold in bulk to cel service providers rather than individuals, so there’s not much profit to be made there. (Although, I don’t know, everytime I’ve had to upgrade my phone, I always had the option between ‘the cheap phone’ or ‘the much cooler but more expensive phones’ … I think a well-designed iPhone could still be a compelling purchase for many people. But ignoring that for the moment:)
    3) So, selling a piece of hardware at marginal profits in order to drive marginal profits at the iTMS may not seem like Apple’s typical plan.

    However, let’s add this wrinkle:

    4) Digital music is (so they say) moving to cel phones. So, presumably, people will be buying music.
    5) If people had an iPhone … well, then, Apple could say, “Hey, all that music you’ve been purchasing to put on your iPhone? Well, those same music files you’ve already paid for will be 100% compatible with a new iPod!”
    6) Apple sells more iPods, to both new and repeat customers.

    I know “convergence” is the big thing among techies these days, but I think there’s still a lot of people out there who would prefer having several devices, each doing one thing really well, to one overcomplicated device that does a little bit of everything. There’s plenty of room in the market for people who would want a well-designed iPhone that they can coincidentally carry a few of their favorite iTMS purchases on, while still keeping a full-sized iPod or a Nano to take on the road, or a Shuffle to take to the gym, or whatever …

  14. I realise that most phones are sold with a huge subsidy in return for a fixed length contract. That doesn’t change the fact that I would happily pay first gen iPod money right now if I could but an Apple phone that was ‘unlocked’.

    Anyway, I’m sure Apple will do deals with other telcos in fairly short order – why not? If the telco is happy to pay some of the upfront cost then Apple loses nothing. As has been pointed out already, the mobile manufacturers are doing fine and Apple is experienced at manufacturing high volume product very efficiently now.

    In other (wholly unrelated) news… the looming launch of Leopard. Apple is sounding super confident right now and inviting more and more comparison with PC/Vista. With both Vista and Leopard due to launch first quarter 2007, I started wondering about the possibilities.

    It would be a true Jobsian move to wait for a consumer Vista release date and then match it – same day for Leopard. It would be really rude, and incredibly effective. Every mainstream media outlet on the planet would stick ’em side by side and compare them – exactly what Apple has been inviting recently.

    Just thinking out loud. It’s been a long week.

  15. Although the music-playing capable cell phones have not made a dent in the iPod juggernaut, the cell phone does represent a significant threat to the iPod nano, particularly if broadband cellular takes hold.

    Apple wouldn’t simply enter the cell phone market to make something like everyone else. When the iPhone comes, it will tie into other Mac, iPod, iTunes, or .Mac initiatives, and that along with its of course gorgeous design, will make it stand out.

    Remember that Apple came quite close to releasing a PDA but didn’t. We don’t know why it was kiboshed, whether it was a declining market, lack of product quality, or lack of standout/tie-in characteristics. But it is likely that Apple has plenty of handheld technology in the lab ready for use in a smartphone like product. I think that given the lack of immediate threat from other music-playing cell phones and given the low profit made off cell phone sales, that Apple made plans to release an iPhone in conjunction with some of Leopard’s “secret features” as a way to get more Leopard upgrades and Mac sales.

  16. > “I would happily pay first gen iPod money right now if I could but an Apple phone that was ‘unlocked’”

    I reckon I would too. I’ve been wondering if the iPhone might be an early adopter thing for a year or two, only then permeating to the rest of the market.

    I don’t think Apple would attack it like that, because I don’t think it would work. With MP3 players, virtually no-one owned one they were really happy with. Apple created the market with the iPod.

    With cell phones, everyone’s got one that works. It makes calls. Reception and battery life are good enough. Apple has nothing to offer people who only want those features. Sure, there are some of us that will pay through the nose for elegance and usability. I bet there aren’t enough to make it a profitable proposition.

    The best they can do for the mass market is offer a phone that does a really good job of playing music, and hope the iPod brand helps people switch to it. The only other feature I can imagine is calls via wifi and VOIP (I guess via iChat). And I’m not quite sure how the phone networks would respond to that.

  17. People, this here is a Mac blog populated by hardcore Apple users. OF COURSE you would pay for an Apple phone. iPods, however, aren’t bought by hardcore Apple users. They’re bought by everyone. And, let’s face it, most people are quite happy with their phones. In my opinion, only high-end phones suck – I just moved from a Treo to a P990i, and with all due respect, I suspect the interface was designed by an insane crack-whore on LSD. But at the same time, my mom, who is always confused about how to save files on her Mac, has no problem sending and receiving SMS messages and making phone calls with her phone.

    That is why three people on a Mac blog claiming they would pay for an Apple phone doesn’t make a business case for Apple. Apple sells millions of iPods. Making an iPhone so you can sell a few tens of thousands more probably doesn’t even recover the development costs – especially if you need to make several different versions for all market segments, need to sell these things to telcos, and can’t make any money on services.

    When Apple entered the MP3 player market,
    1) most people did not own an MP3 player
    2) those who owned one hated it

    The phone market is entirely different.

    > How is that need – which the Macalope is not alone in – not a business case?

    Because you’re one person. Developing a phone to sell it to one person is not a business case. Developing a phone to sell it to 10000 people is not a business case. How many people would buy an Apple phone at full price – which would probably be similar to what a Treo or a P990i costs.

    >No, they only give the phones away so they can get you into a contract.

    But they don’t make the money from the contract (for example, I bought an N-Gage with a contract I did not once use, and it was significantly cheaper than buying it at full price). They make money from the text messages you send, from the videos you watch, from the calls you make, from the ringtones you download, from the sucky little Java games they sell, from your web browsing.

    > Well, yeah. Smart businesses in the consumer market
    >figure out where *you* the consumer don’t like the
    >current situation, ask what *you* want them to improve
    >about *your* situation

    Nobody is going to develop a phone for *you.* If you represent a significant portion of the market, *then* they will do it. You probably don’t. Even the answers here prove that: Some people expect the iPhone to be some kind of PDA thing (Mark), others want a bare-bones easy-to-use phone from Apple (Cooner). By the way, both of these phones already exist.

  18. People, this here is a Mac blog populated by hardcore Apple users. OF COURSE you would pay for an Apple phone. iPods, however, aren’t bought by hardcore Apple users. They’re bought by everyone.

    The Macalope thinks you should re-read that as it rather sounds like you’re making his point for him.

    And, let’s face it, most people are quite happy with their phones.

    Well, they won’t be when they see the iPhone because it’s going to have one button. ONE BUTTON!

    At any rate, the Macalope doesn’t agree with your assessment.

    Because you’re one person.

    Actually, the Macalope is legion, but he’ll let that slide.

    I bought an N-Gage with a contract I did not once use…

    Well, the Macalope has never gone over the data transfer amount already included in his plan. So his anecdote cancels your anecdote! Ah-ha!

    The Macalope suspects some of the disagreement might be because you’re in Europe. The market here isn’t as developed and perhaps there’s more discontent than you’re experiencing. The Macalope found some studies that showed A) people’s satisfaction with their phone depends on their service, which show that they’re not tied to their hardware and B) only 50% of people are satisfied with their service.

    He had the links but Safari crashed. Really. Has that been happening to other people a lot more recently?

  19. >>People, this here is a Mac blog populated by hardcore Apple users.
    >>OF COURSE you would pay for an Apple phone. iPods, however,
    >>aren’t bought by hardcore Apple users. They’re bought by everyone.
    >The Macalope thinks you should re-read that as it rather sounds like
    >you’re making his point for him.

    So your point is that Apple should target the people reading this blog? 😛

    >>I bought an N-Gage with a contract I did not once use…
    >Well, the Macalope has never gone over the data transfer
    >amount already included in his plan. So his anecdote
    >cancels your anecdote! Ah-ha!

    I think you’re missing my point. It’s not about anecdotal evidence. My point is that the difference between the price of a device and the price of the device plus the contract is quite often bigger than (or comparable to) what you’re going to pay for the contract alone. Hence, telcoms need to make money by other means. Hence, they won’t be happy if Apple sells users music (and games, and movies) from the iTMS since that means that they *can’t* sell their users music and ringtones and games and movies. Hence, they won’t be happy about selling an iPhone.

    Actually, I think Moto had some trouble getting telcoms to sell its iTMS compatible phone for this very reason.

    >The Macalope suspects some of the disagreement might be
    >because you’re in Europe.

    Highly likely, especially if we’re talking about how satisfied telcom customers currently are. So the question now becomes: Will Apple create a device that might be targeted mainly at the American market? Given Apple’s history, this is not too unlikely.

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