The Calm Before the iPhone Arrival Storm: The Last Days of the Cell Phone Industry Cabal

It is interesting how in the final days before the iPhone Arrival Storm, the other cell phone manufacturers and cell phones networks seem to think all is well. That, no, they haven’t really noticed that they are guardians of a decaying system – much like feudal lords thinking the serfs would never rise up and that the order of their world will always stay the same.

After all, this system has served them well for 15 years, a lifetime for bureaucrats. And long enough to fool many analysts who make proclamations such as the iPhone will not equal the success of the iPod … that is sort of like saying, the Moon is not the Sun – they are right but then they’re really not saying anything at all.

But why won’t the iPhone be a success according to “them?”

Of course, some people are just plain pessimists, anything new or different is scary for them so they hope it doesn’t succeed since that would require opening new pathways in their brain. I say anyone who thinks the iPhone will fail and who also thought the iPod or Apple retail stores would fail, please take a step back and I think you should take up another line of work that is less taxing on your brain – clearly you are not ready to cope with anything new.

Speaking of which, let’s start there – the 5% who dismiss the iPhone because it’s not really “new.” Apparently since it’s metal, plastic & a screen with batteries – well, that’s been done before – and a cell phone, please, how old school. Better or different is not good enough for them – they either have extraordinary high expectations of Apple or they set the bar so high … or perhaps they would sneer at anything from Apple as just the same old, same old.

Of course, that is really the cell phone industry. Really, how far have we advanced in the cell phone business? I’ve had a cell phone since the early 1990’s – I could not afford the Motorola brick but I remember a flip phone after that (pretty sure it was Motorola) and paying about $1 a minute for a call and the thing having a battery life of about 30 minutes. Now, some 10-12 phones later including the Palm, Handspring, Treo, Blackberry and the RAZR, have we really advanced that far? Surprisingly no. I had the Motorola Startac which was an excellent phone. It didn’t do much except have an address book and maybe one other feature and now, 11 years later, the RAZR is actually heavier … though it has a video camera, still camera and WiFi capabilities but beyond taking blurry photos and blurry videos, has it really changed? It has sync but it’s a dumb sync – insisting that if my contact has 5 numbers, every number should get an entry. So, it’s back to entering each name by hand with its wonky keyboard and “smart” feature that is about as smart as a tree on fire. Now, the PDA/smartphones do a better job with sync but then it falls down in other areas … like, why am I holding a pop tart to my ear? Or why jostling the phone will change the ringer to vibrate?

I also don’t think I’m alone. Show of hands (outside of people who work for Moto, Sony, Nokia, etc ), who here has a phone they think is flawless? Nearly flawless? Mostly perfect? Or at best, nice but has some serious flaws you skirt around?

And cell phones are not some fly by night or minor part of consumer electronics like wifi picture screens or something like that – this a $100+ BILLION dollar industry and this is the best they can do? They get to throw some 200 versions of their phones at us EVERY YEAR and after some 15 years and THOUSANDS of phones later, you have to ask – this is it?

That’s not to say there aren’t phones with great or brilliant aspects – the Blackberry is brilliant with email but the rest? What do 40% of the icons even mean – you have to stare at it – is that a guy holding a sickle or 4 rings on his head – WTF? What does that even mean in phone communications? Or a lock right in front with the iPhone – sure, you can lock other phones – it’s only 3 menus deep. Hell, it took Microsoft 10 years to copy the Palm OS whose last great innovation was a snap-on cover for the screen.

It also hasn’t helped that the cell manufacturers could care less or are powerless to let the cell phone companies destroy their brand value by dropping the price of their latest phone from $300 to ZERO in a year. Of course, you’re not really satisfied anymore – what you bought for $300 is now worth zero – who is happy with that? It devalues your choice and of course, makes you want to switch to yet another phone. And does that other phone deliver anything unique? – can anyone honestly tell a Nokia from a Moto or a Samsung or an LG outside of some design history?

Analysts seem to confuse sales with satisfaction – if your only choice are these choices and your second choice is no phone, of course, people are going to be on the hunt for something new – and yes, given the same price of something, who is going to turn down extra features if it’s “free?” Why not a camera phone, a video phone, wifi, etc, etc … but you’ll notice that when consumers have to PAY for that extra feature, they balk.

“No one wants to type on a touchscreen,” analysts cry … well, it appears that 97% of humans do not want to type on a phone keypad either – smartphone/PDA’s only hold about a 3% market share so clearly, while people use the phone for SMS, no one wants to PAY extra for a better keyboard because they don’t think think it’s worth it. They also claim that because they’ve once typed on a touchscreen and hated it, everyone will hate it forever and touchscreen will never be any good ever … well, that’s one way to not bother to try or invent anything new.

And going back to the “extra” features – just look at the phones that can play music or link to a cell phone storefront – Nokia claims to have sold more phones than Apple has sold iPods but if NO ONE is using it, what is the point? That is like saying my phone can talk to anyone on Mars. The point being that cell phone manufacturers think people are actively choosing their phones because they want “that” technology … when the reality is that most people could care less because no one will turn down extra FREE features but if you’re going to charge to use it, you can see how much value consumers place on it. That’s why “advanced” services in the US comprise of about 6% of users. That’s the bottom line.

Sure, we’ll take photos but will we pay $3 a month to upload it to the cell companies site? Or will we go to a free place or just copy the photos off? Will we pay $15 a month to buy tracks while walking around plus pay $2.50 for the first track each month? Yes, you can blame the greed of the cell phone carriers but the point is that people are not buying new phones because they want to spend an extra $20 a month to access and activate the new features but instead are buying new phones because they hope it works better than the current one and why not – it only costs another $20 to $50 dollars – it’s cheaper than buying a new pair of shoes. But the technology bar hasn’t changed, it’s still the same old UI or OS and while they might add another whole number to the megapixel count of the camera, the lens is still plastic, so really, what has changed?

Make a list of all that you find wrong/missing or dumb on your phone now and match it to the list of what Apple will offer in the iPhone – until it’s actually released, we won’t know if Apple delivers but who has the better track record? AND if Apple delivers, what will be their excuse then? They only had a 15 YEAR head start …

Another belief is the price of the iPhone will limit the market – sure, yes – that is not saying anything. Even if are selling a gumdrop for a penny, that price might be too high for most people – do you drop a quarter into every newsstand or candy dispensing machine? Of course not, we make buying everyday for whatever reason – sometimes good, sometimes not so good but it’s all your perspective and your buying decisions. The iPhone is $500 which is not immediate disposable money for most people but then you can spend $500 on a round of golf & some drinks, or dinner for two or for some people, a month’s rent. $500 can buy you a diamond, shoes, a used car or a clothes for a year. $500 is just a number – whether it’s costly or cheap is completely your perspective, income and buying expectations. Would you spend $500 on feeding the homeless or dropping it on a table in Las Vegas in 30 minutes? Again, all perspective. The iPhone is not unreasonably priced for a phone in 2007 PLUS an iPod Video built in. The new T-Mobile Wing phone is $600 (though it comes with $400 in rebates) but it does not come with an iPod built in.

There are probably 100 million people just in the US who could afford $500 – whether they want to buy an iphone with it or not is another question but that’s like everything we buy. Whether we buy something because it’s useful, because it’s cool, because we want it, because we have to have it or just because it makes us feel good – everyone is different. You cannot just randomly say something is more expensive and that will make it a difficult sale – if anything, sometimes the higher prices makes it an easier sale so don’t go leaping to conclusion and those buying surveys are idiotic. If I ask you would you rather pay $25k for a Porsche or 50k, how are you going to answer? Or if I ask you if X is overpriced, how are you suppose to answer? That answers nothing because they presume people will always buy the cheapest no matter what. If that were the case, wouldn’t we all be shopping at $.99 stores and buying Yugo’s? People have DIFFERENT price points for different things. Just like old aging journalists were convinced no one would pay $300 for an Mp3 player …

Some people also bring up the cost of a contract – uh, in case they hadn’t noticed, we’re already under contract so how is that going to be different?

And for the analysts who boldly proclaim the iPhone cannot replicate the success of the iPod? Will they weasel out of their words in a year by saying they meant market share and not sales? Because that proclamation also means nothing – that’s like saying the Apple won’t replicate the success in the speaker market as the iPod did with Mp3’s – why, because even though they are both consumer electronics items, they are different market conditions … the mp3 player market was something like a $200 million dollar market when Apple entered it – of course, massive sales means you become the leader in more ways than one. Clearly, the cell phone market is much more mature BUT on the other hand, the selling infrastructure is in better shape – Apple literally had to explain to people what an mp3 player was AND then why you should buy an iPod. Now, Apple’s selling is much, much easier. It’s a cell phone and an iPod. 99.9% of your potential market gets it (the 20% of people without cell phones clearly do not care about either). You just have to look at the buzz the iPhone has built based on ONE keynote speech, TWO official websites (Apple & Cingular/AT&T) and ONE TV ad. So, in many sense, the iPhone has already won the mindshare market. Now, it will just have to replicate sales – and in many ways, it is easier because the percent of people who love music enough to buy a portable player to carry around is much lower than people who want a cell phone … so will Apple get to 100 million cell phones in 5 years? If Motorola can sell 50 million RAZR’s in two years, how many phones can Apple sell? Or maybe the measurement is revenue & profit? While there are two iPhones, let’s just $600 in revenue per phone presuming there will also be some sales in the bluetooth handset plus other accessories so for every million iPhones sold, that’s @$600 MILLION in additional revenues/gross. If Apple’s margins stay around 30%, for every million phones sold, that’s about another @$180 million in profits (give or take) per million sold – not counting new customer service costs. Obviously there are some startup selling costs BUT there is also a rumor based on what Verizon rejected that Apple will make @$300 per new customer … meaning if it’s true, for every million iPhone’s sold, Apple will add @$900 MILLION in revenue or @$300 MILLION in profits … so will dollar to dollar sales matching the ipod be good enough for analysts or are they not quite ready to concede that Apple has clearly moved into the top tier in branding, manufacturing, marketing & sales (to go along with technology, usability & design?)

So in summary, the iPhone is a reset for the cell phone industry. People will buy it in droves because it’s probably going to deliver a lot more than every promise by the cell phone industry … I’m not saying it’s going to be 100% but it will be much more than what’s been delivered so far – we have 15 years of their best shot at advancing the cell phone for users … now, they’re pretty good about adding in tech features but usability? Pretty low on the scale. The report card will be how close to 100% Apple delivers. If it’s an “A,” then the cell phone industry has to revamp EVERYTHING because suddenly they are peddling horses and a carriage. Then the other big decision will be – should we be petty and point out all those who are called analysts but were so far off the mark? 😉

ADDENDUM: Release Day – It’s June 29 and here are the new ads.