Street Insight: Apple iPhone faces a number of potential obstacles

“My assessment [of Apple’s iPhone] is positive, but with some real reservations about the lack of certain features. It is less optimistic — especially when viewed in the context of the amount of additional market capitalization that has already been attributed to the iPhone — than the near-unanimous optimism expressed by many industry analysts, commentators in the media or, with almost certainty, current holders of shares in Apple common (none of whom have ever used the iPhone in practice). There is no doubt that the phone has numerous innovative features, and time will tell how the product and extensions of the product will fare in the marketplace,” Doug Kass writes for Street Insight.

Kass writes, “My observations are based not only on my own analysis but, more importantly, on actual product reviews in PC Magazine, the New York Times, the Wall Street Journal, Information Week and The Gartner Group, among others.”

“History also shows that it not a great idea to bet against Sir Steven Jobs, the master of innovation. To be sure, the iPod is far from being the next Nehru jacket. According to Walt Mossberg, The Wall Street Journal’s personal technology columnist, the many pixels per inch creates a user interface that is very sophisticated and vivid, serving to make his (and my) ‘Treo look primitive,'” Kass writes. “The iPhone contains many new and innovative features beyond the virtual keyboard, such as its ‘visual voice mail which allows users to go directly to any of their voice messages without listening to any of the prior messages.'”

Kass writes, “Nevertheless, Apple faces a number of potential obstacles to reaching the company’s goal of selling 10 million units next year. (If the company’s sales goal for 2008 is achieved, it will represent twice as many as current BlackBerry unit sales and nearly one-fifth of Cingular’s total handset sales.) Here are some additional concerns raised by the aforementioned industry reviews:”

1. High selling price spells limited marketing potential
2. Why not target the corporate market?
3. Closed systems can be confining
4. The slow Cingular Edge network is like the slow boat to China
5. Lack of keyboard makes typing tedious
6. A June introduction might be challenging
7. Will competitors sit still?

Kass writes, “In summary, notwithstanding the previous successes of the Mac and iPod, there seem to be enough questions regarding the iPhone (is it really differentiated from products already on the market that have advanced features, strong operating systems, have penetrated enterprise and rely on email as their killer application?) — especially in light of the market’s starry-eyed reaction and Apple’s surge in value… As the Wall Street Journal’s Mossberg writes ‘The Apple entry is so full of promise that anyone buying a smartphone in 2007 should at least wait for the full reviews and a chance to try it out…'”

Full article here.
To repeat the most important line in Kass’ piece: As the Wall Street Journal’s Mossberg writes “The Apple entry is so full of promise that anyone buying a smartphone in 2007 should at least wait for the full reviews and a chance to try it out…” In other words: Apple has gone a long way towards freezing the so-called “smartphone” market.

Kass seems concerned about Apple’s recent price appreciation, but he’s forgetting something important: Macintosh.

Also of note: “Apple will announce that Steve Jobs will be taking a leave of absence from the company.” – Doug Kass, January 05, 2007

Related articles:
Apple iPhone tops Amazon’s bestselling electronics list in Germany – January 13, 2007
BusinessWeek explores ‘the real genius of Apple’s iPhone’ – January 12, 2007
Wired News: Steve Jobs’ iPhone shows the future – January 12, 2007
Cringely: Apple iPhone will suddenly go 3G, gain features, and be renamed ‘Apple Phone’ – January 12, 2007
Apple’s Phil Schiller gives CBS News hands-on tour of iPhone – January 12, 2007
20 unanswered questions about Apple’s iPhone – January 11, 2007
Report: iPhone could be upgraded to 3G with software update if Apple wishes – January 11, 2007
Report: Rogers Communications to offer Apple iPhone in Canada – January 11, 2007
David Pogue: hands on preview of Apple’s iPhone, ‘gorgeous and so packed with possibilities’ – January 11, 2007
PC Magazine hands-on test of Apple iPhone: multi-touch UI ‘takes the breath away’ – January 11, 2007
Mossberg’s initial take on Apple iPhone: ‘radical and gorgeous’ with ‘brilliant new user interface’ – January 11, 2007
NewsWeek’s Levy interviews Apple CEO Steve Jobs about iPhone – January 11, 2007
Why Apple’s iPhone doesn’t do high-speed mobile phone networks (yet) – January 11, 2007
RealMoney: Apple just blew up the whole damn mobile-phone supply chain with its new iPhone – January 11, 2007
ZDNet: Hands on with Apple’s iPhone: ‘elegant, ravishing, simple, sleek; impeccable & intuitive UI’ – January 11, 2007
Apple iPhone FUD campaign begins – January 10, 2007
Nine ways Apple changed the face of consumer electronics yesterday – January 10, 2007
Analysts and investors applaud arrival of Apple iPhone – January 10, 2007
Top 10 things to love and top 10 things to hate about the Apple iPhone – January 10, 2007
How Apple kept the iPhone top secret for 30 months – January 10, 2007
Hands-on with Apple’s iPhone – January 10, 2007
The only thing really wrong with Apple’s iPhone is its name – January 09, 2007
Is Apple building ‘The Device?’ [revisited] – January 09, 2007
Analyst Bajarin: Apple’s iPhone and Apple TV are industry game changers – January 09, 2007
Time: ‘iPhone could crush cell phone market pitilessly beneath the weight of its own superiority’ – January 09, 2007
Analyst: Apple iPhone should be given its own category – ‘brilliantphone’ – January 09, 2007
Cingular to use Synchronoss Technologies’ platform for Apple iPhone – January 09, 2007
iPhone photos from Apple’s Macworld Expo booth – January 09, 2007
Enderle: Apple’s iPhone is going to do very well – January 09, 2007
Apple debuts iPhone: touchscreen mobile phone + widescreen iPod + Internet communicator – January 09, 2007
Analyzing Apple’s iPhone market potential – January 15, 2007

IDG News Service: ‘Reality might tarnish iPhone’s shine’ – January 16, 2007
The Times: Apple’s brand of corporate hubris is almost always damaging in the long run – January 16, 2007
Hackers ‘salivating’ over Apple’s iPhone – January 15, 2007
Bloomberg writer: Apple iPhone won’t make long-term mark; will only appeal to a few gadget freaks – January 15, 2007
Dvorak on Apple iPhone: ‘I think Apple can do wrong and I think this is it’ – January 13, 2007
USA Today writer: Apple iPhone is an ‘ordinary, average product’ at heart – January 12, 2007
FUD Alert: Analyst – I am pretty skeptical Apple’s iPhone can succeed – January 11, 2007
The massive FUD campaign against Apple’s iPhone ramps up – January 10, 2007
The Register’s Ray: Apple ‘iPhone’ will fail – December 26, 2006
Analyst: Apple iPhone economics aren’t that compelling – December 08, 2006
CNET editor Kanellos: ‘Apple iPhone will largely fail’ – December 07, 2006
Palm CEO laughs off Apple ‘iPhone’ threat – November 20, 2006


  1. Steve said it himself,”The killer app is the telephone.” Making the phone simple and easy to use is the best part of the iPhone. All the rest, Internet, Photos, Music, etc. is just eye candy. Most people, after the novelty wears off, will mainly use it as a phone. The fact it is also an iPod will induce people to pay the big bucks. I doubt the average buyer will want to pay the high data usage charges required for internet access. Business users can fulfill their email requirements at less cost and more flexible cell plans with other smartphones.

    I think the iPhone will be a modest success and will be profitable for Apple. I do not think it will take over the smartphone marketplace.

  2. Have these naysayers learned nothing over the past decade?

    No one thought that Apple could be saved; it was.
    No one thought that the iPod would sell; it did.
    No one thought that the mac would survive; it has.
    No one thought that anyone could get the music companies to agree to an online music store; they did.
    No one thought the transition to intel processors would be smooth; it was.

    Making the impossible happen everyday.

  3. Kass is an ass…..

    > he makes the point several times that the iphone is 2.5G and therefore doomed (Jobs said 3G comming soon)

    > he says June is a problem; typical Cingular testing cue (as if Cingular isn’t going to give this top priority, phone samples probably aren’t even functional (didn’t he read the reviews with people calling home with the device.

    > this guy actually uses his treo as his MP3 player ??
    I have a treo and the mp3 capability is a joke…..we are supposed to listen to him on product design/acceptance in the marketplace ?

    > bottom line …he is frustrated that the Ipod is a success, doesn’t understand what people see in it (and Apple).

    he’s a stupid ass

  4. 1. High selling price spells limited marketing potential

    HAHA!!? really? serious? What else can I get with these features for $500????????????? (moron.)

    2. Why not target the corporate market?

    Make the camera optional, bingo bango corporate targeted.

    3. Closed systems can be confining

    #1 its not confining because it does more out of the box. #2 Its not a closed system, wanna make a widget or application for iphone… okay goahead.

    4. The slow Cingular Edge network is like the slow boat to China

    So they should have went with a carrier with a smaller customer base and therefore a smaller initial target audience espesially considering the age of Cingular customers.

    Cingular is going 3G GSM wich will in theory be faster then sprint and verizon’s 3G CDMA network.

    I jsut hope they come out with a wifi only version.

    5. Lack of keyboard makes typing tedious

    What about the term “error correcting multitouch” dont you understand?

    6. A June introduction might be challenging

    to who? you because you cant afford the $500? !

    7. Will competitors sit still?

    Thats what they do best!

  5. The biggest obstacle to the iPhone’s success doesn’t pertain to Apple, Inc. Cingular rates will determine iPhone’s viability.

    Few will likely be able to afford Cingular’s always-on rates. Just as my desktop is always on, so should my iPhone be. Per call charges, time-limited charges, etc., are likely out-of-the-picture with regard to the iPhone’s use. Cingular’s always-on charges may have to be the equivalent of daily bread if the iPhone is to be remarkably competitive.

    It may prove to be the always-on access of Cingular’s service that determines this product’s success. All the design features of the iPhone combined can’t compare with the attractiveness of an always-on wifi/cellular connection.

  6. Like it or not exchange is the prevailing infrastructure in corporate America and without interoperability selling 10 million of these things in the first year is nigh on impossible. Thats 20% of cingulars subscriber base! A subscriber base that 95% of spend $0-$100 on a phone. Not gonna happen no matter how shiny it is. I’m perfectly happy with the actual smartphones I do have, you know, the ones that let me add the software I want to add, use autd on my exchange server, add the memory that I want to add and have an actual “useable” keyboard (unlike the touchscreen monstrosity that David Pogue found “Difficult”) that I can use one handed while driving and composing SMS messages without having to look at what I’m doing (damn those little plastic keyboards)… Plus, and this is a biggie, I can stay contract free with t-mobile, get my phones unlocked by them and get my data for $19.99 instead of the $45 that cingular charge..

  7. Sell 10 million units, then drop the price $50 bucks. Sell another 10 million and drop the price $50 bucks and give it its first software upgrade. By that time the early adopter phases out and you have a hot product that is hot selling at a more affordable price.

  8. I think Kass doesn’t really understand the Mac market at all. I don’t think Apple is going to sell the majority of iPhones to current “smart phone” owners, which is filled with the likes of Palm, Blackberry, and Microsoft mobile. I think the majority of iPhone buyers are going to be tech loving geeks and Mac fanatics that don’t own smart phones because they suck, but can’t wait to get their hands on an iPhone.

    The big mistake these folks are making is thinking of the iPhone as a phone; it is so much more than that, and will become a whole new platform.

    Apples is low balling their projected sales numbers. They are going to blow past ten million as fast as they can make that many. Price be damned! And after they have accomplished that small miracle they will release a smaller version, a 3G version, ect.

    The iPhone is just the opening salvo.

  9. 1. I kinda doubt it.
    2. I see a big red bullseye. As an individual, I don’t need a smartphone.
    3. Hey, it works.
    4. I suspect there is a more considered reason behind the choice, but please, go ahead and second guess.
    5. How do they know?
    6. How do they know??
    7. No. They rush out some me-too products or flasher versions of their old products. Er… make that a Yes.

  10. One more thing:

    Non Apple users don’t appreciate the seduction factor of Apple products. I have more than once fell victem to this phenomena; my current MacBook Pro being the most recent example. This is why Apple stores are so important. Once you hold it in your hands and start touching it, playing with it, you start wanting it; even if you don’t need it, but somehow you convince yourself you have to have it. It the precioussss….we mussst have it!

    Apple will sell a lot of these phones to people who really have no need for one, but they will be so overcome by the wonder of it all they will buy it.

  11. this is the same regurgitation of the typical FUD article. He actually is pretty careful in comparing to useful figures instead of to iPod and is giving a balanced look at the potential with fair caveats.

    However, it should be pointed out that it does have a keyboard, albiet a virtual one. Will it be different to use than an actual keyboard? Sure. However, the tiny keys on PDA keyboards also take some getting used to.

  12. It wouldn’t make sense to compare his figures to the iPod. Sure they’ve sold millions of iPods, but even Jobs said that the best ever selling was the mini, i suppose now that the nano is the best selling, so a sub $250 device. The high dollar iPods do not sell in near the numbers that the cheap ones sell. So a comparison to the iPod and the phone cannot be made by a reasonable person. Consider also that with the iPod you are not saddled with a requisite $1700.00 extra, the cost of 2 years of service with cingular (assuming $40 data plan and $30 voice).. No, there are cheaper and better phones available now, even for browsing the web. I agree that the safari browser looks great in that full screen view, but zoom into a useable, readable level and you’ll be scrolling all over the place to read a page, which is why current phone browsers re-format the page into a single column view to make it useable. It just seems to me that form over function, style over substance is taking a precedence here.

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