iPhone faces huge hurdles

08 Jan 2007

Macheads can rejoice that, yes, Apple is definitely making a phone. For the rest of us, we will have to see if Jobs can generate excitement in an already-crowded market.

Confirming what was the worst-kept secret in the tech world, Apple has filed a patent application for a 'portable computing device capable of wireless communications' and with a media player. That'll be the 'iPhone.'

Apple is also reported to have contracted Taiwan OEM Hon Hai Precision, the parent of Foxconn, to make the device.

Apple has remained its usual secretive self, so we have no other facts. However, analysts have predicted that although the phone is unlikely to be ready for MacWorld in January, the usual platform to major launches, it should hit the market by late in Q1.

Meanwhile, the hype mounts, and there's certainly no hype like the iHype. As news.com columnist Michael Kanellos put it: 'If Apple got into medical devices, people would come out of Steve Jobs' speech proclaiming 'The iBag is the easiest, most user-friendly colostomy device I've ever encountered.''

Different conditions

Yet Kanellos also points out that with iPod, Apple was aiming at a soft target. The music player business in 2001 was a tiny, early stage market. The iPod became a hit not just because of its sexy design but by also solving some basic display problems and, most radically, introducing hard disk storage.

It also brought a business model, namely iTunes. Well, mobile operators would happily welcome a fresh business model, but frankly there isn't one, iTunes-like, just waiting to be discovered.
Can Apple make a good phone‾ For sure. And when it comes out, whether you're a gearhead or not, you will surely know about it.

But as Kanellos observed, with the iPhone Apple is taking on a mature market dominated by a handful of large firms.

It's not like five or ten years ago when the handset business was the domain of network manufacturers: Lucent/AT&T, Nortel, Alcatel and Siemens all made mobile phones, and have all since departed.

The big four - Nokia, Motorola, Sony Ericsson and Samsung - have well-established marketing channels and deep knowledge of consumer tastes, not to mention between them several hundred models on the market.

Most importantly, they enjoy the incredible economies of scale that you get when you are shipping close to a billion handsets a year. Nokia alone is likely to sell around 350 million mobile phones in calendar '06.

Those huge numbers are the bait for Apple. While it sold 8.7 million iPods in the last quarter, and owns three-quarters of the music player business, it's a minnow a compared with cellular, which sold 230 million phones.

Apple customers aren't hugely price-sensitive, so perhaps it doesn't matter that much of the growth and the demand is in emerging markets.

But customers in India and China already have abundant choice of mobile handsets at all segments of the market.

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