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iPhone Debuts In Sea Of Hype

With analysts predicting 2007 sales to reach 2 million to 3 million or more units in the United States, the iPhone is on track to become one of the most successfully hyped and consumer coveted consumer electronics devices yet.

It took the iPod itself more than two years to reach 1 million units; DVD players required one year and nine months; and satellite radio required close to two years to attract 1 million subscribers.

The iPhone began redefining the smartphone market even before its launch and it may serve as a lesson to a consumer electronics industry — still reeling from price slashing in flat-panel TVs — that price is not everything.

The iPhone has become “a phenomenon” said Gary Shapiro, president/CEO of the Consumer Electronics Association (CEA), noting, “The lesson is a challenge to all manufacturers to go for excitement and profitability rather than simply have the lowest price.”

Speaking at the recent CEA CEO Summit (see p. 1), Dell president/CEO Ron Garriques, formerly with Motorola, noted, “If you can reset in the consumers’ minds that cellphones can be priced at $499 to $599, instead of the thinking that it is just $1, that’s good.”

Others at the conference admired Apple’s marketing mystique. “When you have consumers tattooing themselves with your company’s logo, that’s consumer loyalty,” said Stewart Muller, president/CEO of Philips Consumer Electronics NA, and a former Apple executive. Sony’s president/COO Stan Glasgow credited Apple with “great marketing.”

At least initially, the iPhone has won mostly favorable reviews with the single largest drawback cited being its service over the AT&T EDGE network, with spottier coverage and slower data speeds than competitors.

The success of the iPhone throws a spotlight on the up and coming smartphone category and the potential of a handheld computer that is designed well. Gartner’s Research VP Mike McGuire noted that for all the other smartphones on the market using small buttons, the die has been cast. The iPhone “puts pressure on other manufacturers to revisit and invest in new software and a new user interface.”

The smart phone category has been steadily gaining over the past nine months despite years of slower growth, said Gartner principal analyst Hughes de laVergne. This has been due to recent supplier willingness to advertise the category and subsidize new lower prices. Looking at the entire cellphone market, de laVergne says 70 percent to 80 percent of U.S. retail volume is performed at under $100.

Of course, the price of the iPhone could limit its appeal beyond early adopters said Parks Associates. It found in a survey of 2,000 Internet users that only 3 percent have a strong interest in purchasing the iPhone at its current $499 [and $599] price points and two-year contract.

Some of the iPhone’s key features have been noted as follows:

  • It has one of the largest, more vivid displays on the market, measuring 3.5 inches with a scratch-resistant glass screen;
  • It relies on touch screen operation and an intelligent virtual keyboard. Users run their finger down the screen for scrolling;
  • As an iPod it can hold approximately 800 and 1,800 songs depending on the version;
  • When users turn the iPod on its side, sensors automatically rotate the image on the screen;
  • Users can watch movies, music videos, etc, that are downloaded through iTunes and more than 10,000 videos will be available through YouTube at launch;
  • The iPhone claims one of the longest talktimes on the market at up to eight hours, compared with many devices with four to five hour capacity;
  • It offers one of the highest memory storage capacities at a choice of 4GB or 8GB, but it lacks an external card slot;
  • Carrier rates for the unit are considered competitive, ranging from $60 to $100 per month, with the basic plan including 450 minutes of voice time and unlimited data (email and Web) and the $100 plan offering 1,350 minutes of talktime. Users can activate their phones at home through iTunes;
  • It offers Web surfing that shows true-to-form Web pages;
  • It provides “visual voicemail” with at-a-glance displays of incoming messages so users can select which to answer..

Apple has indicated that software upgrades will be available for the iPhone, which will add new functionality.

One note, the iPhone’s has an unusual recessed headset jack that may not be compatible with standard 3.5 mm stereo headsets, so that current aftermarket hands-free headsets and stereo headphones will not fit, according to one supplier. The company, however, said it expects to offer a compatible headphone this week. — Additional reporting by Steve Smith