With the high-priced iPhone, Apple may be picking too many fights at once

January 10, 2007, 9:57 AM UTC


It’s brilliant, beautiful, groundbreaking. But there are a few serious hurdles Apple (AAPL) will have to clear if it wants to truly revolutionize the communications world with the iPhone it announced yesterday:

As it stands now, the iPhone will cost $500 for a 4GB version and $600 for an 8GB version. That probably will place it among the most expensive phones and media players on the market. What’s not clear, though, is whether those prices are before or after any subsidies Cingular might offer to get people to sign up for service plans. (Carriers typically discount phones by $200 or so to entice people to sign up for extended plans. If $500 and $600 are prices without a subsidy and service contract commitment, it could be a decent deal.) But either way, at these prices Apple is probably locking itself out of a market that has been key to the iPod’s success: the youth market. Cingular’s sure to sell iPhones with plenty of talk time and an unlimited data usage, and I suspect such a plan will cost at least $90 a month. High school and college students can’t afford that, and neither can many recent college grads.

The revenge of Verizon (and Samsung):
Apple has painted itself into a corner and created its own problem – the iPhone announcement got the world excited about super-capable phones, even though most people (especially those under 25) won’t be able to afford an iPhone. Also, Apple also decided to sign a multi-year exclusive deal with Cingular (T), which instantly makes it the enemy of not only every phone maker in the world, but also every other carrier in the United States – including giant Verizon (VZ). What’s more, by announcing in January 2007 that the iPhone won’t arrive in Asia until 2008, Apple has given electronics rivals Samsung and Sony (SNE) (among others) plenty of time to do their best phone work, release it first on their home turf, and even bring it to the U.S. to compete with the iPhone on every network but Cingular’s.

The iPod effect:
Apple CEO Steve Jobs began his justification of the iPhone price by describing it as an iPod and a smartphone in one. Reasonable tactic. And as an iPod, it’s the most capable yet, aside from the 4GB and 8GB of storage. (No one with an 80GB video iPod would see an iPhone as a suitable upgrade.) But there are more unanswered questions here. Will Apple build a WiFi-only iPhone/iPod that’s hard-drive based and uses Multi-touch? If not, why not? Consider that such a device could also act as a camcorder with a huge viewfinder, considering Apple has OS X and a 2-megapixel camera built into the iPhone design.

One way Apple has to get around some of these problems: license the iPhone design and mobile OS X to others. It would be a very odd move for Apple, a company that likes to control its inventions (see Mac, iPod). But it could be essential. Microsoft’s Windows Mobile doesn’t have nearly as many sleek, mobile-ready features as the iPhone, but at least it’s available to anyone who wants to build it into a phone; and while Microsoft (MSFT) doesn’t have the best reputation for inventing innovative software interfaces, it has an excellent track record when it comes to copying Apple, and making lots of money in the process. Apple must remember: Its rivals don’t have to come up with a better product to beat the iPhone in the marketplace. They just have to come up with one that’s close enough, cheap enough, and more convenient to own.