iPhone: Love the Product, Skeptical about the Market

I just watched Steve Job’s presentation of the iPhone.

Steve Jobs really knows how to put on a show. The device seems great. I have not played with it and would love to see how easy it really is to type on the device, but from what I have seen and read, I really like the interface. My one gripe is that they are using Edge instead of Cingular’s 3G network.

However, I am much more skeptical of the sales projections put out by analysts. I read estimates ranging anywhere from 10 to 25 million units sold in the 2008. That does not seem credible as it’s like 5-10 times the number of Treos sold a year – especially as the iPhone is very expensive. At $499 for 4GB and $599 for 8GB with a two year Cingular contract, the iPhone comes in at, or near, the top of the smart-phone market.

Also, Apple did not have choice but to release an iPhone. I am usually not big on convergence devices, but the latest MP3 phones on the market are becoming good.

I am also skeptical of Apple’s staying power in the long run:

  • They don’t make any money on content sales (on the current per download business model music labels, movie studios and credit card fees account for almost the entire retail price of the content)
  • Profits on the hardware are going to fall as Asian manufacturers copy the hardware with lower costs and sell it for lower prices
  • The iPhone won’t have enough market share to save Apple from the eventual rise of cell phones as the main mechanism for listening to music, thus relegating the Ipod to niche status

Somehow, this feels like it’s been played out before! That said, I don’t expect their competitors to catch up rapidly. It will take years, but eventually the margins will compress, the profits will decline and the stock will collapse. Of course, they will eventually build some new cool must have gadget and rise again, for a while, and the cycle will continue.

Conclusion: I am not about to become an Apple shareholder, but I will definitely buy an iPhone as soon as it comes out!

  • there is no way they will sell anything near 10 million phones. it doesn’t seem like a logical number. i haven’t done any serious number crunching yet, but i can’t even imagine them meeting half of that projection.

  • 10MM phones is 1% of the global market. how much does that remind you of a VC pitch? “and if we only take ONE PERCENT of the market it’s a home run!”

    apple sells 40MM ipods a year. will the iPhone account for 1/4 of sales 18 months from launch?

    motorola sells 30MM razrs a year (now at $99) – will the iPhone be 1/3 as successful?

    it is certainly an aggressive target. what it says to me is that apple intends to roll out lower-end models in the US fast (by EOY latest), and a 3G model for europe & asia. if one year after launch (mid ’08) apple has two or three models at multiple price points in multiple regions around the world i think they could come close to 10MM. maybe 5MM – 8MM? but getting to ten will be tough.

    more here:

    (and what up, fabrice?!?)

  • As a half time Mac Os X user, I believe that every Mac Os X user will try to get one even with the high price tag.

    Apple always pushes products aggressively, they approximately sold 4,5-5M Intel Macs last year.

    10M in 2008 is an aggressive target but I am sure they will do enough marketing for that.

  • I expect apple to launch an entire line of phones before end of 2008. A smaller one with the same amount of memory but lacking the video functions for example. They’ll have to solve the problem of a smaller touchpad !

    Time will tell !

  • While you’re right about Apple not making any money from content downloads, iTunes content does lock you into Apple hardware. What Steve’s hoping is that the next time your iPod battery dies, you’ll go ahead and spring for the phone, since a) your iTunes downloads aren’t playable on any other device, and b) all the other mobile companies are still trying to get us to pay $2 per song.

    That being said, I agree with you that this is pretty risky, and certainly unsustainable in the long run.

    But more importantly…

    People in the U.S. continue to use mobiles as phones and little else. No one downloads software, and very few use the media or internet capabilities. (Mr. Ringtone King, I’d argue that ringtones fall into the “phone” category. =])

    I’m betting the iPhone is the device that causes the general population to make the mental switch from “mobile phones” to “mobile computers.”

    So maybe Apple won’t take over the world with the iPhone, but in any case, I think this does portend really exciting things for the mobile market in the very near future!

  • Targets that can be reached as a matter of course cease to be targets. Jobs could have easily omitted mentioning the 10 million target. Why would anyone do that? Apple is not a startup hungry for VC capital. I haven’t looked at its annual reports, but companies like Apple are typically very asset efficient (compared to true-blue manufacturing companies) with strong positive cash flow. When was the last time Apple raised new capital? So why mention to the world a target that even to the most optimistic Apple-friendly observer is mightily tall?

    I think it’s a battle cry. It’s a CEO trying to do his job of galvanising his organisation around a common goal. Essentially, he’s saying, “Guys and gals, you’ve got to hit this stretch target. Otherwise, you’re going to make me look bad to the world.”

    Apple has spent two years building the phone that everyone was waiting for. Now that its finally here, it’s time to sell it like there’s no tomorrow.

  • Apple is betting that the best interface design and the best integrated software services will help them avoid commoditization while also reaching mass market numbers. It certainly worked for the iPod, particularly in its larger GB variants. Still, your critique rightly points out that their projections are very ambitious. More interesting even then whether they can take initial market share is whether they can keep it. In the iPod realm, their device really has had the best interface over many years. But it’s hard to believe that touch devices (even multipoint) can be as heavily patent protected by them as the clickwheel.