iPhone: Love the Product, Skeptical about the Market

January 12, 2007

I just watched Steve Job’s presentation of the iPhone at:
http://events.apple.com.edgesuite.net/j47d52oo/event/

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!

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