Analyst Angle: Apple’s possible iPhone miss

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Current Analysis’ Peter Jarich, NPD Group’s Ross Rubin, and more.
Apple rarely misses and when they do they are so good at spinning the event that you often don’t know until well after the fact that there was a problem. But the second generation iPhone launch was a unique event in many ways and one of them is that it may represent a misstep by Apple and given how closely this product is tied to Apple’s future, if this is true, that would be a big problem.
Let’s walk through how critical this launch was for Apple and why I think this may have been a belly flop.
Competitive pressure
I’m kind of surprised how long it took for competitors to respond to the iPhone but respond they eventually did and by the end of August virtually every major cellphone manufacturer will have competing phones in the market.
Samsung is already positioning with Verizon their very nice intrigue phone and doing an aggressive job of marketing its strengths against the original iPhone weaknesses. In a few weeks RIM is expected to launch their Bold and Thunder products, which may actually be vastly better for business phone users than the new iPhone is, and HTC has their Touch Diamond and Diamond Pro phones, both of which may have advantages as well. I just started using the Touch Diamond and it is by far the best screen-based Windows Mobile phone I have ever seen, with a number of advantages, including size, which may make it a better choice for at least some iPhone users. And the Pro adds the keyboard that the iPhone has never had.
Motorola is bringing out a brand new Q and Nokia is expected to come out with a line of phones all targeting different aspects of the iPhone market, so getting this product to market on time was critical. Most of the features and prices were leaked so we already knew that it would be a 3G phone, would start at $200, would support enterprise e-mail, and needed to maintain core performance specifications like size and battery life so Apple didn’t have much wriggle room. They had to hit, but did they, or was this launch mostly smoke and mirrors? Is Apple betting that buyers, particularly IT buyers, are stupid?
Smoke and mirrors
If you think about what Apple actually announced they missed. The phone wasn’t ready by the time they needed to announce it, much of the critical IT functionality that was expected has been delayed until September, and the price reduction wasn’t. In effect what they did is lower the price $200 initially and increase the cost of the service by $240 ($10 a month for two years); it was actually a sneaky price increase.
I don’t think there is another company on the planet that would get away with missing the launch date, missing core features when the device was available and positioning a price increase as a massive decrease in pricing. Yet that is exactly what Apple seems to be trying to do, and we’ll see in July if they get away with it. Had the phone been available on launch day the feeding frenzy likely would have kept people from figuring this out, but a month is a long time to keep people bamboozled and many are already asking questions about the “creative” pricing.
So I think they missed but I was amazed at how they presented the information so that people got excited about the positives of the device and not the problems with its release schedule or its pricing. One other thing I’m not sure people got was Apple with MobileMe basically created a more limited copy of Microsoft Mesh. You seldom see Apple copying Microsoft so blatantly and then delivering what may be an inferior product (Mesh is designed to be cross platform with the MacOS as one of the initial targets while MobileMe appears to be Apple centric).
I also wonder if the price may backfire another way. Years ago Macy’s found out that people actually attached price to quality and that certain products, when they got too cheap, actually sold at lower volumes than they did at a higher price. Part of what made the iPhone attractive was that it was kind of exclusive and made that way because of its initial cost, the perception that this phone at a lower price isn’t as exclusive may actually reduce its market opportunity. Remember the Motorola Razr? It seemed to actually sell better at higher prices than when it was free. This suggests there may actually be a floor.
But this pricing model really has me wondering if Apple thinks IT is stupid.
Betting on IT being stupid
When you think about the pricing in particular you have to wonder if Apple truly believes other companies’ IT organizations are dumber than Apple’s. While in the consumer segment there is nothing wrong with shifting initial pricing to finance programs (no down payment, no payments until some future period etc.) for phones this actually shifts who pays the money. You see, and most of you know this, companies commonly pay for the voice and data services for smart phones but rarely pay for the phones themselves (RIM Blackberry users being one of the few exceptions where the company pays for both).
This means that Apple shifted dollars from the employee for about half of the phone’s cost to the IT organization, effectively working around many IT policies. Now I think most IT shops are smart enough to figure this out and flag it as a problem. Back when I was in Internal Audit my team would particularly look for things like this and flag them as problems. But what is kind of ironic is Apple, and particularly Steve Jobs, is known for being so tight they squeak and they are also known for actually firing people who take advantage of the company. My sense is if this weren’t an Apple product and an employee tried this and Steve Jobs found out you’d have an empty desk where that employee used to work.
Are iPhone buyers stupid?
I can honestly say the folks that currently use iPhones I know are generally some of the smartest people I know. Apple is known for taking advantage of their customer’s loyalty with the most blatant example being their lying about the move to Intel technology for their PCs, which they had been working on for years, until they were actually ready to move.
This time, though, they aren’t just messing with the Apple fans but general consumers and were this not Apple I’d say this was sure to be a big problem, but since this is Apple, they may just get away with it. We’ll see.
Questions or comments about this column? Please e-mail Rob at renderle@enderlegroup.com or RCR Wireless News at rcrwebhelp@crain.com.