IPhone success no sure thing, says IDC

Price, network limitations, 'iPhone experience' could determine success

For all the buzz building about Apple's iPhone U.S. launch next week, success is not a sure bet, according to a survey released Tuesday.

"The first million, no problem," said Chris Hazelton, senior analyst mobile technology and trends with IDC, talking about iPhone sales. "Interest in this has been building for years. But the '08 goal [of 10 million sold]...that will depend on the iPhone experience. If it's not rock solid...."

The IDC survey, which polled online users researching their next cell phone purchase, found a majority were interested in the iPhone, but also revealed several hurdles to mass acceptance. About 10%, for example, said they were willing to pay full price -- the iPhone will list at US$499 and US$599 for the 4GB and 8GB models, respectively -- and sign a two-year service contract with AT&T, the iPhone's sole carrier. That's close to the estimate spelled out by another survey detailed yesterday by M:Metrics, a Seattle research firm, which said that 9 percent, or about 19 million, of all U.S. cell phone subscribers pegged their iPhone purchase intent at high.

Although Hazelton didn't argue with M:Metrics' numbers, he stressed the snags that could limit the iPhone to a much smaller group than Apple and AT&T hope to reach.

"The exclusivity of AT&T will be the largest barrier," said Hazelton. "Only some people will have timed it right so that they can leave their carrier and won't have to pay an early termination fee." Others, the survey found, were unwilling or unable to eat the penalties.

AT&T's rumored five-year exclusivity agreement with Apple will give the two companies the time to "weed out" other carriers from consumers interested in the iPhone, he noted, but again, that could be a slower process than the companies have planned on. "And then there's the price of the iPhone itself, and the need for a data plan on top of a voice plan," Hazelton said. "That's probably $80-plus a month right there. People will pay it if they want the iPhone experience, but moving forward, that may be simply too expensive."

If the iPhone doesn't deliver on its promises, though, all might be moot. Dubbing it the "iPhone experience," Hazelton ticked off many of the same potential pitfalls as other analysts, ranging from the lack of a tactile keyboard to the slower speed of AT&T's Edge-based data network. How users react to the iPhone, and how they expect to use it, said Hazelton, will ultimately be the most important determiner of success.

Nothing will kill the buzz faster and brand the iPhone as a failure, said Hazelton, like negative word-of-mouth from the first buyers. And although the early adopters may be especially savvy about technology, one unknown could play a major role. "There are relatively few people who use smart phones in the U.S., and most of them are business users. This will be the first smart phone aimed at consumers," he said. "It's a complicated phone, basically a computer, and like computers, like Macs, it may crash, maybe a lot." Tales of iPhone problems, say frequent crashes, will turn Apple's hope into another Newton, Hazelton argued, referring to the 1993 PDA flop.

In other words, there is much that may not go Apple's way after June 29. Ironically, that would make rivals unhappy, rather than glad to see Apple fall flat, Hazelton said.

"The iPhone could open up the smart phone market to the U.S. consumer," he said. "When we talk to other device makers and carriers, they generally welcome Apple to the game. It makes sense. The iPhone raises the bar of customer expectations for what a cell phone is. If it succeeds, other vendors will have more ability to drive product upgrades, get customers to pay more for the device, and carriers will be able to get more people to subscribe to the more expensive plans."

Apple will launch the iPhone Friday, June 29, at 6 p.m. local time, with the device available then at AT&T and Apple retail stores.

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Gregg Keizer

Computerworld

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