Why Apple May Fail in Cellphones

Everyone assumes the iPhone (or whatever it will be called) will be a huge success.

I’m not convinced.

I lean towards being an Apple fan, but if the company continues on their current path, I believe they are drastically limiting their opportunities for success in this market.

For starters, consider these two questions:

  1. Would you consider the iPod to be a market success?
  2. Would you consider the Macintosh to be a market success?

One could argue that the answer to both questions is “Yes,” but as you considered them I’m guessing your reaction to the two questions varied significantly.

The Mac has done okay.  Especially compared to the vast array of PCs running Microsoft operating systems, it’s hard to call the Mac a market winner.  (Note: I am making no editorial comment here about whether the Mac OS is better or worse than Windows, or which I like better or which is better suited to most people.  My vote would be with Apple by those criteria.)

The reality is that most people won’t buy a Mac.

Why not?

For starters, it’s priced higher than equivalent functionality from other brands (if you can even compare a Mac to a Windows PC…).  Most folks aren’t willing to pay the premium.

Second of all, the Mac does not run much of the software that folks are used to using on their PC.  Sure, there may be “better” equivalents on the Mac, but fear, uncertainty, and doubt keep the masses on their familiar Windows platforms.

Third, Apple has significantly limited the number of channels that can sell a Mac, and has changed the rules on channels over the years scaring away many otherwise valuable partners who now focus solely on Windows systems.  There are probably a dozen stores within five miles of my house that would sell me a Windows PC, but not a single store selling Macs.

Despite all this, Mac fans are insanely loyal.  Apple has made an awesome product.  But that product leadership has not translated into market leadership.

Now, what do we know about the iPod?

The iPod carries a premium price.  Over time, Apple has introduced a broad range of iPod products so that more people can afford to buy one, but even their lowest priced iPods are priced at a premium relative to similar capabilities from competitors.

Apple went out of their way to quickly land virtually all the songs that someone could want in the iTunes store.  iTunes also supports ripping music from your personal collection to load onto your iPod.  Apple has been pretty nasty about making it hard for competing online music stores to work with the iPod, but that hasn’t hurt consumers enough to reject the iPod because the iTunes store is competitive enough in selection and price.  So, the “availability of software” issue with the Mac is NOT an issue for the iPod.

Apple sells the iPod through a very broad array of channels.  I can find the iPod in lots of stores that I normally go to anyway in the course of my normal shopping experience.

The iPod, undeniably, has been a huge market success.

Which path is the iPhone headed down?

The iPhone is priced at a premium.  Over time, Apple likely will have a range of iPhones at different price points, but they likely can only strip out so much and still have the value proposition they introduced as the iPhone.  I believe the market will be limited.  Of the next billion people to become mobile users, a very very small percentage will be able to afford an iPhone.

Apple has indicated that the iPhone will be a closed platform.  It will be very hard for third parties to introduce applications to run on the iPhone.  There are tons of applications already running on Java phones, Symbian phones, Palm phones, and Windows Mobile phones.  Those applications will have a hard time moving to the iPhone, seriously hurting Apple’s appeal to current mobile customers.

Apple has indicated a very limited channel plan.  This could change, and I would recommend Apple look very hard at this, but early indications are that Apple wants to keep the channel extremely limited.

All of this points to a product with market success approximating the Mac much more than that approximating the iPod.  That’s not good for Apple and, honestly, it’s not good for the rest of the community either (consumers and developers most notably). 

Let me introduce one last comparison for your consideration.  Think about Linux.  Is Linux a market success?  Probably not.  Not yet anyway.

The Linux OS is moving increasingly into the cellphone market.

Linux is the opposite of premium pricing.  Some would say that Linux is “free.”

Linux is as open as can be.  All developers are welcome.

Linux has channel challenges, more because channels aren’t yet interested in the product than because anyone is intentionally limiting who is allowed to sell it.

Like the Mac, Linux has fans who truly are fanatical.

Over the next 12 months, 24 months, 5 years… what do you think will sell more, phones based on an Apple OS, or phones based on Linux?

Apple may have changed its name, but when it comes to the iPhone, the company is still acting like Apple Computer, Inc.

2 Responses to “Why Apple May Fail in Cellphones”

  1. […] Original post by The Law of Mobility and software by Elliott Back […]

  2. RobertoSucco says:

    Do you think this will make my iTunes stocks rise? :) http://iam.always.online.fr/tr.php?wordid=1931

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