Why Apple's iPhone is Not the Next iPod

The latest USA-based ChangeWave consumer cell phone survey, which polled 2,640 users, indicates that if the phone lives up to expectations, Apple is likely to exceed its 2008 goals. In fact, the survey indicates that the iPhone could alter the face of the cell phone industry dramatically. At the moment, according to ChangeWave, the market belongs primarily to Motorola (33 percent), LG (15 percent), and Nokia (14 percent). The survey indicates that with the release of Apple's new phone, Motorola's share among consumers will register a dramatic decline -- perhaps falling as low as 17 percent.

"As more and more consumers switch to the iPhone, we are going to see a huge migration from cell phone manufacturers like Motorola to the hipper, cooler iPhone," states Tobin Smith, founder of ChangeWave Research and editor of ChangeWave Investing. "And, because of Apple's deal with AT&T's Cingular as their exclusive service provider for the iPhone, we are also going to see a big migration away from Verizon and other cellular providers." About 79 percent of likely buyers from the survey said they would abandon their existing wireless carrier, switching to Cingular to use the new iPhone.

This may seem like a huge percentage, but the number of likely buyers is limited: the survey indicates that just 9 percent of respondents said they are likely to buy the phone for themselves, and just 7 percent are likely to buy it as a gift for someone else.

Apple experts, such as MacWorld's Chris Breen, and Editorial Director Jason Snell, argue that the company is unlikely to dominate the cell phone market the way it does the music player market. First and foremost, the iPod entered a far less competitive and well populated market than the one the iPhone will have to crack. Additionally, Apple has limited itself by committing to Cingular, which has a customer base of about 60 million. It is notable that 55 percent of those polled in the ChangeWave survey expressed satisfaction with their existing cell phones -- indicating no intention of switching networks.

Snell points out that that doesn't necessarily mean Apple made a mistake however. It would have been impractical for the company to try to launch the iPhone independent of an established service provider. Had it done so, Jobs and his team would be faced with creating different versions of the phone to fit the capabilities and structures of different networks. Plus, even if Apple could overcome its technical complications and enter into agreements with cell phone providers other than Cingular, other networks might not even be interested in partnering with it. Jack Shofield of the Guardian Technology blog explains that adopting the iPhone will not prove lucrative for all providers. For Cingular, which does not offer its own music business and which currently has exclusive dibs on the iPhone, the deal makes sense. However for network providers that aim to sell music and movie downloads directly to their consumers, adopting the iPhone could mean forsaking a hefty chunk of potential profit as well as reinforcing Apple's dominance over the digital music market.

Additionally, the potential success of the iPhone could be dampened by its price. If looked at as three devices in one, the price isn't unreasonable -- buying a 4GB iPod Nano and a BlackBerry 8700c (which acts as a phone and Internet device) separately for instance would set you back about $500. But when looked at as simply a phone, which is the way many people perceive the device, it's just plain expensive. People may not be willing to pay $499 to $599 for a cell phone that does not function any better as a phone per se, in that it makes calls as well as the next phone.

Some consumers will just not be interested in all the additional capabilities that the iPhone offers. "What the iPhone potentially does promise is to make the features that most people don't use on their phones -- web browsing, more advanced kinds of messaging, email, music playback, etc -- far easier to use," states Breen. "The question is how many people desire these kinds of features; are there enough to propel the iPhone to the top of the heap? I kind of doubt it. If less expensive iPhones appear, younger users are likely to gravitate to them in a big way. I'm not so sure about the parent who just needs to keep in touch with their kid, or the grandparent who flings a cell phone into the glove compartment for safety sake, or the many, many people who just want to make a call."

According to Steve Koenig, Senior Manager for Industry Analysis at the Consumer Electronics Association, research indicates that in spite of the 'new convergence' among consumer electronics, strong counter trends to consolidation do exist. Many users continue to prefer stand alone devices that perform their designated function as simply and effectively as possible, others may simply shy away from the idea of having one master device that could get lost or broken.