A few holes in the Cingular-Apple strategy

Hi Brian,

Julien Blin at IDC...

A few other holes in the iPhone:

- 2MP camera is a bit disappointing and sub-par for a premium phone.

- No memory slot: Phone will not have an expandable memory slot; Today memory is included, which explains mainly its higher price. Obviously, that's bad news for consumers and good for Apple, which will be able to control costs, which in turn could protect its margins. It might have been smarter to offer an iPhone with limited memory and a lower price tag...to drive consumer adoption. I expect Apple to do that in 2008.

- Late (June) launch could benefit the competition:
The BlackBerry Pearl offers attractive feature set at a more reasonable price ($199) that appeals to a much larger segment of consumers.
No doubt that RIM will add further innovations/features before June. A new BlackBerry is already in progress! Watch out for the 3GSM in Barcelona...RIMM is likely to fight back with a new Blackberry!

- The iPhone could cannibalize iPod sales. In the U.S. market, several music phones are already available for less than $100.
The price of the iPhone will have to come down...Motorola started to sell its RAZR phone at $500 (like the iPhone)..and he now offers it free with a contract.
The reality is that Apple cannot drop the price of the iPhone without cannibalizing its iPod sales.

- Apple announced its iPhone before getting approval from the FCC.
It is usually the opposite..The FCC approve the device and announce it. Plus the process of obtaining FCC approval for a new wireless device can take more than six months in some cases. In addition, firm's checks have consistently suggested a 2CQ volume-production ramp, consistent with a June launch.

Consequence: A six-month delay to availability could be a big deal because it curt the iPod sales...some iPod nano buyers---and even some hard drive-based iPod buyers could decide to defer iPod purchases during the first half of 2007.

The iPhone is putting a tremendous amount of pressure of handset vendors (Moto, Nokia, Samsung, LG..) and carriers/MVNOs. If they cannot offer the iPhone or a phone with similar capabilities (which is very unlikely at this point: Hello Verizon and Sprint..2 CDMA carriers..Apple's choice to focus on GSM carriers makes complete sense..80% of all carriers in the world use GSM networks today), their potential customers might go somewhere else (Good for Apple!). Plus customers tend to change their cell phone every 18 months..By that time..the price of the iPhone should go down...For those who cannot wait...they will have to pay early termination fees! $500 + $200 (termination fees)= This might actually be the real cost of the iPhone. I wouldn't do it..But that's just me!

At the end of the day, the iPhone will benefit the entire wireless industry...Sorry Nokia, Moto, Samsung! The iPhone is the new standard...If they cannot match that, well..they have to match it..That's all!!!

Best-

Julien Blin
Research Analyst - Wireless and Mobile Communications
IDC
Phone: 508.935.4574
Cell: 913.907.9674
jblin@idc.com

If you look it this device as a phone you might be right.

But with stats that read something like: over 50M iPods sold, 40% of new cars have iPod docks, over 2B songs downloaded, the most popular iPods sell for $400.

I don't think the mobile phone dynammics apply. Comparing it to the Pearl is missing the mark. There are already 3 iPods in my house (one of them is mine). The decision to buy this device is a decision to buy a new iPod - the phone comes for free.

I agree with Chris. My belief is that this device comes as an "all-in-one" package that will serve different people in different ways. For the 20 and 30 somethings who have money to burn and want the latest and greatest, the iPhone will be a status symbol and "coolest of cool." Those of us who commute to work on a daily basis via public transportation while listening to our iPods and carrying a phone in another pocket will be happy to shed the extra device--add to that the fact that we'll be able to surf the net WHILE Listening to our iPods on the SAME device, ie. checking e-mail before we get to work and whatnot, makes it a pretty nifty tool, and one that I believe many will pay for.
Secondly, it is my belief that Apple is not targeting the businessman or politico, who absolutely has to have access to e-mail at all times because they are travelling the world 20 days/month. Those folks are attached to their treo's and blackberries, and they are more than likely reading the Financial Times or the Washington Post, or some other paper, rather than listening to Jay-Z on an iPod--too busy to bother with music. They want efficient communication, and for that I don't believe the iPhone will hold a candle to the blackberry or treo, but to the rest of us who like cool gadgets, music, and sending the odd text message, this thing is going to be an absolute must have--termination fee or not.
On a side note, it is VERY disappointing that this phone will be released to Cingular. I thought about how cool the blackjack was and lamented that it was on Cingular wireless' network, and now the iPhone? Being that sprint JUST got a contract to carry the outdated Motorola Razr, i suppose it's not surprising. I wish the better carriers (verizon and sprint) would get with the times and realize the profitability of a joint venture such as this one. Hat's off to Cingular for recognizing it themselves--they may have just won over a new customer, and perhaps millions of others.

You can be sure Cingular has been working closely with iTunes. Cingular's music service is more about partnering with 3rd parties than building its own store.