iDeal or No iDeal?

UNLESS YOUVE BEEN HIDING out in the Yukon Territory, you may have heard that Apple Inc. unveiled the iPhone in January. Its a $500-$600 piece of sleek electronics that combines the iPod with wireless access (Bluetooth, Wi-Fi and GSM/EDGE cellular) and smartphone features. So, the question you have to ask is, should I become an iDealer?

iPhones built-in accelerometer detects when the user has rotated the device from portrait to landscape, then automatically changes the contents of the display accordingly, with users immediately seeing the entire width of a Web page, or a photo in its proper landscape aspect ratio.

There are plenty of pros. Apples latest toy is pretty, sure, but it also is optimized for voice and business applications with a QWERTY keyboard, and can sync with Mac or PC programs. It also adds a 3.5- inch touchtone screen, a 2 megapixel camera and the user-friendly Mac OS X to the mix. And it has full iPod functionality. When you consider that a video iPod goes for $349 on the low end, and smartphones can run between $99 and $500, the twoin- one approach begins to sound like a deal.

Even so, no one knows for sure whether this expensive gadget is really going to gain market traction once Cingular Wireless, which is rebranding under the AT&T Inc. name, launches it in June. The phonemusic combination has been tried before with lackluster results, notably Cingulars experiment with the Motorola Inc. ROKR and Verizon Communications Inc.s gambit with LG Electronics Chocolate both debuted to middle-of-the-road reviews, and the sales reflected it. Granted, neither offered smartphone functionality, but this experience may simply point to the fact that folks arent chomping at the bit to pay more to access music by cell phone. On the flip side, maybe the problem was that those devices fell far short of the iPod for usability.

More importantly, will the iPhone play for businesses? It is indeed conceived as a true miniature computer, allowing users to choose between a 4GB and 8GB hard drives. And the phone handles full Web sites, eliminating the taint of those wireless Internet portals that have sent so many fleeing the mobile Web in the past. It is, however, lacking GPS capability for location-based services and has no expandable memory.

To arrive at some answers, you can look to recent market trends. Much as the BlackBerry is beginning to infiltrate markets beyond the businessperson (IDC recently reported that BlackBerry-maker Research in Motion Ltd. has seen a significant uptick in students, parents and other so-called prosumer segments adopting the BlackBerry Pearl), perhaps the time is ripe for consumer electronics to woo business users. The real impact of the iPhone is the fact that it fits squarely into the seamless mobility vision weve been hearing so much about. You know the mantra: The ability to take your communications from home to office and anywhere in-between; the idea of having a bubble of personalized broadband and content that will encompass business and home applications, which follows you everywhere, across multiple networks. Industry players say the days of wireless, digital, converged multimedia lifestyle/business living are coming soon; maybe not today, maybe not tomorrow, but soon and for the rest of your life. And business customers could become the early adopters by embracing offerings like the iPhone.

Apples latest device offers a completely differentiated user interface, beginning with the homepage.

But Jack Gold, of analyst firm J.Gold Associates LLC, thinks Apple may be in over its head. Making an entertainment device is much different than making a phone, he says. The phone market is already established with a number of major brands. Can Apple re-architect the phone market in its image? Success is far from guaranteed in the consumer marketplace. And it is unlikely this device will appeal to business users or enterprises who are most likely to be able to afford the cost of the device and the additional carrier services required.

The problem, he says, is the ugly underbelly of the seamless mobility vision: a lack of focus. Users will have to pay at least $60 with an included data plan, or not be able to access many of the phones features, he explains. At $300-$400 (assuming the price falls rapidly), it clearly is not a casual buy. In the past, most high-end phones have been sold to business users who were willing to pay for a fancy phone with capabilities they wanted. But these users almost universally demand connectivity to corporate systems, especially push e-mail and Outlook integration. How well the iPhone does at integrating to these systems remains to be tested.

The introduction of the Mac OS into the smartphone operating system horserace is another question mark. Few third-party wireless business application vendors are developing on the Mac platform. Apple cant afford to build a dead-end system with no ability for users to enhance the device with third-party apps, says Gold. But Apple will likely have a tough time convincing app vendors to build specialized clients for the iPhone until the volumes are there, and the volumes could be limited by the lack of third-party apps a Catch 22.

Apple cant afford to build a dead-end system with no ability for users to enhance the device with third-party apps. But Apple will likely have a tough time convincing app vendors to build specialized clients for the iPhone until the vol-umes are there, and the volumes could be limited by the lack of third-party apps a Catch 22.

Analyst Jack Gold

So iDeal or no iDeal? Despite the caveats, Apple hopes to sell 10 million iPhones in 2008. Thats a nice chunk of change for wireless dealers, should the business user segment begin to adopt it. And its unlikely the device sure to evolve over time to meet market needs will fail to gain some kind of a following, given Apples considerable fan base.

Apple is the Prada, Vera Wang, Armani of the electronics/IT industry, says Al Boschulte, chairman of Probe Financial Associates Inc. Coming from any other producer in the world, this announcement would have been ho-hummed to death in the industry and the media.

This is a sexy design, a big bet with interesting, challenging innovations, but it is banking on a surge in growth in the PDA/ smartphone/pocket PC space, Boschulte adds. Its only version 1.0 and they gave themselves nearly six months to tweak it, so we expect this product to evolve rapidly.

Apple Inc.
AT&T Inc.
Cingular Wireless
LG Electronics
Motorola Inc.
Research in Motion Ltd.
Verizon Wireless
J.Gold Associates LLC
Probe Financial Associates Inc.

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