Apple iPhone courts failure with a late, defensive move

Few products have been launched with such a blizzard of publicity as the iPhone from Apple Inc.

To its many fans, Apple is more a religious cult than a company. An iToaster that downloads music while toasting bread probably would get the same kind of worldwide attention.

Don't let that fool you into thinking that it matters. The big competitors in the mobile phone industry, including Nokia Oyj and Motorola Inc., won't be nervous over a new threat to their business.

The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant. Advertisement
If column inches and airtime guaranteed commercial success, Apple already would have a global hit on its hands. In recent weeks, it has been impossible to open a newspaper or look at a website without reading something about the shiny new phone.

Certainly, it looks like a nice piece of equipment. The iPhone combines Apple's iPod music and video player with a mobile phone as well as having wireless Internet access for e-mail.

Instead of lugging around a phone for making calls, an MP3 player for listening to music, and a Blackberry for checking your e-mail, you can do all three on one device. Even better, you only need one charger.

It will be released in the U.S. in June, with a rollout to the rest of the world later, and will cost $499 to $599, depending on how much storage space you want. How many might sell? Ten million in 2008, according to Apple's chief executive, Steve Jobs.

Not everyone is sold on the idea. "The iPhone will not substantially alter the fundamental structure and challenges of the mobile industry," Charles Golvin, an analyst at Forrester Research Inc., said in a report this month.

There are three reasons that Apple is unlikely to make much of an impact on this market — and why it's too early to start dumping your Nokia shares.

•Apple is late to this party. The company didn't invent the personal computer or MP3 player, but it was among the pioneers of both products. Yet there is no shortage of phones out there. There already are big companies that dominate the space, all of whom will defend their turf. That means Apple will have to fight hard for every sale.

•The mobile phone industry depends on cooperation with the big networks. Phones — the high-end ones in particular — usually are sold with a network contract.

The provider subsidizes the handset and hopes to recoup its money with ridiculously expensive charges for calls and data. Yet Apple has never been good at working with other companies. If it knew how to do that, it would be Microsoft Corp.

On top of that, its rivals will be pulling out all the stops to prevent the networks from offering iPhones. Sure, a big operator such as Vodafone Group PLC would like an exclusive deal to sell the iPhone in, say, the U.K. market. Against that, how much does it want to annoy Nokia — and what kind of incentives will Nokia be offering not to go with the Apple product?

There will be lots of tough conversations between companies that know each other well. Apple will find it hard to win those negotiations.

•iPhone is a defensive product. It is mainly designed to protect the iPod, which is coming under attack from mobile manufacturers adding music players to their handsets. Yet defensive products usually don't work — con­sumers are interested in new things, not reheated versions of old things.

Likewise, at whom is it pitched? The price and the e-mail features make it look like a business product. However, Apple is a consumer company. Will your accounting department spring for a fancy new handset just so you can listen to Eminem on your way to a business meeting?

In many ways, that is a shame. The mobile-phone industry is becoming a cozy cartel among network operators and a limited range of manufacturers. It could certainly use a blast of competition from an industry outsider.

It may come — but probably from an entrepreneurial startup somewhere. How about phones with fewer gadgets but better at making calls? Or with never-ending batteries? Or chargers that don't weigh three times as much as the phone?

It won't come from the iPhone. Apple will sell a few to its fans, but the iPhone won't make a long-term mark.

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