Analysis: Will Apple’s iPhone snag interest beyond the Jobs’ faithful?

By Carl Lindemann

Finally, the iPhone is no longer hanging over us as the result of the
massive six-month pr campaign and ad barrage. Now, it is finally among us
inspiring what is supposed to be an advanced case of cell phone envy.
Plebeians making due juggling cell phones and MP3-playing device (not
every MP3 player is an iPod, after all) will now feel shame. Perhaps.
What remains to be seen is what happens after the fanatical early-adopter
crew gobbles up the first wave of iPhone production. Will this
become a mainstream success like the iPod, a category-creating new
appliance? Will this be the breakthrough that will connect sports fans to
video content wherever they may roam – as long as they don’t roam too far
from a Cingular/AT&T tower? Or, much as the launch campaign has hung
over the American public, will the ghost of Mobile ESPN turn this into a
rare rotten apple leaving a bitter taste for those who shell out the big
bucks for it early on?

First, just say no to the categorical nay-sayers. Those are the smug
technophiles that are proclaiming that “convergence devices” such as the
iPhone are doomed to failure. No, people have never been enticed to buy
certain unusual combinations of gadgets, but those that awoke today to
the tunes coming from a clock/radio are an important case-in-point.
The reality is that a lot of people carry portable digital music devices
alongside their cell phones. The music devices can now easily add video
capabilities – as can the cell phones. So bringing these together makes
sense. The interest here is not novelty, as is the case with the an
exotic gadget combo bottle opener/laser pointer/WiFi detector. The
driving force is convenience. Aside from the hassle of holding onto two
devices (and not misplacing either), you also ease the day-to-day
management issues like keeping them charged. By consolidating the two,
you need only a single wall wart to keep one device charged up. The
driving force here is convenience, and that’s usually a big winner.

Another business-principled objection is that Apple is forgetting that it
is in the consumer electronics industry and so is crossing boundaries
into telecommunications. That seems like it might be a red flag. However,
there is one good example of such a strategy working. Remember that
General Sarnoff founded both RCA and NBC. He created a radio broadcast
network and also the company to manufacture the devices to close the loop
on the consumer end. The success of his business model carried through
into the TV era. Ever wonder about those super-saturated colors on the
original
Star Trek? It’s because in ’66 NBC was pushing the fact it
all the programming there was broadcast in “living color” leaving B&W
behind for good. Why? RCA, was pushing color TVs the way CE manufacturers
are hustling HD sets now. This business plan is proud as a peacock, and
successful, too.

Closer to home, Apple has already succeeded in branching out of being a pure
CE play. The success of iTunes finally busted through the resistance of
the CD hustlers at the RIAA to make digital downloads a respectable – and
profitable – venture. So why can’t they simply extend that concept to
include video clips? That sports content would likely take the lead makes
sense much as Mark Cuban saw sports as the main draw for streaming video and HD. Oh, this all
sounds like it is exactly the irresistible juggernaut that Apple would
have us believe…except…that sinister spirit of the ghost of Mobile ESPN
noted earlier.

The added element to the iPhone-as-iPod extension is that distributing
music to iPods has succeeded because it is done over the non-proprietary
Internet. As ESPN found out, dealing with a communications system
that is based on proprietary delivery systems is a different matter
altogether. ESPN sunk $150 million into Mobile ESPN to attract just
30,000 subscribers before pulling the plug fast and mercifully. The big
problem was stepping into the morass of existing cell phone contracts.
Reaching out to the bulk of new customers who would have to break
existing contracts is a tall order. Again, it violates the convenience
concept. No matter how convenient a convergence device may be, it’s a
no-go if it’s highly inconvenient to get to smooth sailing. ESPN tossed
in the towel remembering that it is in the content delivery business and
so partnered with those in the cell phone business appropriately.

Still, it seems that Apple may avoid these pitfalls by not trying to do
too much. Rather than trying to carve out a chunk of the cell phone
market as ESPN had done making this a 100% standalone device connected
only through the carrier, the iPhone is in some ways just a glorified
cell phone with music/video playing capabilities. Like the iPod, it can
work in conjunction with home computers. Content can be loaded in after
downloading it from the Internet. This sidesteps the wireless provider’s
bandwidth, resolving many of the issues. In addition, it will allow H.264
encoded streaming video over WiFi connections or over through the EDGE
network. A deal with YouTube makes 10,000 clips available at
launch.

So, ready-or-not, the iPhone is upon us. Whether it will go down in
gadget history as the iPod II or fizzle like a Segway scooter – we’ll
see.