Brian's Brain

It's now roughly two weeks since Steve Jobs unveiled the Apple iPhone (or whatever it'll be called after the litigation's over) and some of the initial hysteria about the product is beginning to dissipate. Like Warren, I'm intrigued by the device's fresh take on the user interface. I had dinner the Wednesday night of CES with Imagination Technologies, whose director of business development was practically drooling in his food as he envisioned how Apple's move would motivate other phone manufacturers to upgrade their devices' UIs, thereby cultivating demand for his company's mobile graphics and video acceleration cores.

Like Maury, though, I walked away from reading others' impressions of Jobs' keynote, followed by my own view of the webcast, with a sour taste in my mouth. I have no doubt that in the long term, Apple's enhanced iPod strategy will be highly successful. And I realize that, just as the company did with its first iPod (and Microsoft did with its first-generation Zune), Apple's initially entered the market with a high-end product, thereby leaving the company plenty of room to later fill in lower-end, lower-priced, higher-volume derivatives. But after giving myself some time to quantify my 'sour taste' gut feel, below are ten reasons (in no particular order aside from how they popped into my brain) why I don't think this first-generation phone should be wildly successful (whether it will or not has a lot to do with Apple's marketing, whose prowess I never underestimate). And why, although my friend Keith thinks otherwise, I won't be buying a first-generation Apple iPhone.

1. EDGE-only, and limited Wi-Fi: Cingular's rapidly rolling out HSDPA across the country, with other carriers (T-Mobile with UMTS, Sprint and Verizon with EV-DO Revision A, and Sprint with WiMAX, for example) making similar high-speed data services infrastructure investments. Yet the Apple iPhone only handles comparatively archaic and slow EDGE, which will hobble Apple's hype of it as a 'breakthrough Internet communications device'. Hold this particular thought until you read my later comments on the product's profit margin, keeping in mind estimates that bumping the iPhone from EDGE to HSDPA would have only cost Apple around $20 more. Yes, the unit also offers Wi-Fi (b/g), but you won't be able to access it via your Cingular plan; get ready to also pay Boingo or another provider if you want a pervasive 802.11 experience. And as much as Zune got clobbered for its incomplete to-date Wi-Fi implementation, the Apple iPhone's no better. No wireless iTunes sync with a computer? No direct downloads from the iTunes Store? C'mon
2. No removeable battery: Long-time readers know this is a frequent sore point of mine. Manufacturers claim that by going with a completely enclosed battery they can make their systems thinner, smaller, lighter and otherwise more aesthetically pleasing than they'd otherwise be. To date, this has pretty much been BS; at end-of-day, economy-of-scale factors still motivate companies to go with off-the-shelf batteries instead of custom units. And by burying a limited-life battery within its widget, Apple's built in a guaranteed replacement requirement....one that under normal usage will conveniently occur prior to the end of the required two-year service contract with Cingular.
3. High price, and high profit margin: $500-600 for the phone. Plus a roughly $100-month voice-plus-data service plan, with two-year minimum duration. 'Nuff said on price. Regarding margin, it's interesting to see Apple engaging in Microsoft-like pre-announcement hype of late. Last summer, the company unveiled the iTV, an under-development product re-unveiled two weeks ago as Apple TV and still not shipping for another month-plus. And the Apple iPhone won't be shipping until at least the end of June....plenty of time for dissenting voices such as mine to creep into the public consciousness, along with iSuppli's recent analysis that the Apple iPhone will cultivate a roughly 50% bill-of-materials profit margin for the company. Yes, other expenses (marketing, manufacturing, sales, etc) aren't included in the analysis, but they're insignificant when amortized over the number of iPhones that Apple aspires to sell. And most consumers won't comprehend that these other costs are not included; they'll just see 50% margin and think greed.

Continue reading with 'The Continuation of Apple's iPhone Shortcomings'....