IPhone Wows Fans, But Some Question Price Tag,

IPhone Wows Fans, But Some Question Price Tag, Features; Missing: 3G Wireless, Storage; Apple can generate buzz, but will the iPod creator build a decent handset?
BY PATRICK SEITZ
802 words
11 January 2007
Investor's Business Daily
NATIONAL
A04
English
(c) 2007 Investor's Business Daily

Despite breathless media coverage, Apple's new iPhone multimedia smart phone faces some major challenges in the market.

As cool a product as the iPhone appears to be, Apple might have trouble persuading many people to pony up the $500 to $600 for one. Plus, it might disappoint consumers because it doesn't offer 3G high-speed Internet access or features such as over-the-air song downloads, at least not yet, analysts say.

Another factor is that Apple doesn't plan to sell the device until June. That gives rivals such as Nokia, Palm and Sony Ericsson less than five months to come up with copycat designs and to announce their own new products. And then there's the iPhone name, which Cisco Systems says it trademarked first for one of its products. Late Wednesday, Cisco said it was suing Apple over use of that name.

Apple's superstar Chief Executive Steve Jobs unveiled the iPhone with great fanfare Tuesday at the Macworld trade show in San Francisco. The iPhone combines a mobile phone, widescreen video iPod and Internet communications in an easy-to-use device.

The product got an enthusiastic reaction at Macworld and elsewhere, and it continues to get many rave reviews. Indeed, Apple shares rose 4.8% on Wednesday to an all-time high of 97.

But now that industry analysts have had time to digest the details of the iPhone, many are starting to raise questions about how well the high-end product might be received.

"The most obvious (challenge) is pricing," said Forrester Research analyst Charles Golvin.

No one doubts that Apple has a large following of those willing to buy almost anything it makes.

"The question is: After that fan base is exhausted, how willing will the rest of the potential audience be to spend a pretty significant premium over most of the other options out there?" Golvin asked.

Apple looks like it came up with the price for the iPhone by adding what it would cost for an iPod portable music device and a smart phone separately, says Kevin Burden, an analyst with research firm Telephia.

Burden also says price will be its biggest hurdle. "We're at a point now where you can get a very good high-end phone for only $200," he said. Wireless carriers routinely offer free phones with a service contract.

The iPhone features Edge and Wi-Fi wireless technologies for data networking. Apple has chosen AT&T'sCingular Wireless to be its exclusive carrier in the U.S. The iPhone is slated to be available in Europe in late 2007 and Asia in 2008.

Analysts say surfing the Web or downloading content over the Edge network, which is a 2.5G technology, won't be as good of an experience as using a faster 3G, or third-generation, network. Carriers have just started to roll out 3G networks in the last couple of years.

The iPhone has a new user interface that features a large touch-screen and software innovations. It has applications such as visual voice mail, which lets users see a list of messages and go directly to the one they want to hear first. Also, the iPhone has a 2-megapixel camera.

Positioning the iPhone as a multi-function device could be another stumbling block to its success, Burden says. The trend in the industry with smart phones is to offer one main application in addition to voice calls. That's led to music phones, video phones and e-mailing phones.

"Those phones tend to sell best in the mass market rather than phones that say they do a lot of different things," Burden said. Consumers shy away from devices that look too complex, Burden says.

Smart phones are just a small percentage of the overall cell phone market because most users still are primarily interested in making voice calls, analysts say.

Yet another big challenge for Apple is simply the question of entering a new field. Can the company actually deliver a decent cell phone? asks Avi Greengart, an analyst at research firm Current Analysis. It's never made a mobile phone. Building a mobile phone that gets good reception and has good voice quality is not easy, he says.

Using a touch-screen instead of physical buttons to dial the phone and send messages is a risk too, Burden says. Users may prefer the traditional hard buttons. Phones with touch-screens have not done well in the past, he says.

Apple is selling two iPhones -- a model with 4 gigabytes of storage for $499 and an 8GB one for $599.