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Iphone
Iphone
On January 10, 2007, Apple unveiled the iPhone, a new smartphone that combines a music player, camera, web browser, e-mail and phone in a single device. The iPhone is unique not because it offers anything fundamentally new, but because it brings together almost all of the currently separate portable consumer gadgets into a single well designed package driven by a powerful and intuitive interface. The big question, and the topic of an article I recently read in the Wall Street Journal, is whether the iPhone will have trouble attracting customers due to the high price tag. Granted, Apple has a large and loyal fan base that can be counted on to rush out and buy almost anything the company produces. That said, Apple has produced a few lemons (e.g. Macintosh Cube, Newton) that even its own fanatics won't buy.

Company

Apple's recent decision to drop the "Computers" from its corporate name reflects its increasing focus on the entire consumer electronic experience. Apple's legacy still remains with the design, manufacturing and marketing of personal computers and related software. However, in recent years the company has branched out into portable digital music players (iPod) and related accessories, online services (iTunes Store, iTV), video creation software (iMovie), educational products (MacBook) and more recently, mobile phones (iPhone).

Customers

Almost 1 billion cellphones were sold worldwide in 2006. About 60% of mobile phone users in the US and Europe are unwilling to pay for anything extra other than basic voice and texting. Of the remaining 40%, about a third are communication enthusiasts (sales people) who are willing to pay for advanced phone features that help them communicate better (e.g. email, short messaging, IM, conference calls). Another third are information enthusiasts (doctors, lawyers, research) who are willing to pay for features that extend their memory and help them manage their information (e.g. larger screens, reading documents, databases). The remaining third is entertainment enthusiasts (younger people) who want to keep their fun lifestyles and are willing to pay for fun features (e.g. music, games, video).

Competitors

The smartphone market is extremely competitive and characterized by several well-financed and highly innovative companies. The industry is currently dominated by RIM's ubiquitous BlackBerry device (34% market share), which is preferred by most corporate enterprise customers because of its push email software. Other participants include Palm (28%), Motorola (13%), Nokia (6%) and Sharp (6%).

Product

The unique value behind the iPhone is its ability to integrate three products into a single device: the widescreen iPod, mobile phone, and a comprehensive set of Internet communication applications. Of arguably greater value is the iPhone's sleek design. The device is only 11.6mm thick and includes a 3.5-inch screen (bigger than on most iPods) which extends for almost the entire length of the nearly button-free device. Instead of the mechanical buttons found on most traditional smartphones, users will make calls or type emails on a virtual keyboard that pops up onscreen as needed and navigate through their song collections, make phone calls and perform other tasks by tapping their fingers on the iPhone's touch-sensitive screen. The biggest drawback to the iPhone is that it is not compatible with Microsoft office products (Word, Excel or Outlook) that are important to business-minded customers.

Price

The biggest potential pitfall for the iPhone is the price. At $499 for the 4-gigabyte model and $599 for the 8-gig version, iPhones will be one of the most expensive smartphones on the market. On top of that, Cingular will require a 2-year service contract, which will cost users an additional $2,500. Apple has not indicated whether they are considering lowering the price or introducing a less-expensive model, but some analysts estimate the iPhone will have a gross margin as high as 50%, well above the company's average of 30%. That said, Apple has been reluctant to cut is product prices too quickly and have instead opted to add more memory and new features, but hold prices steady (e.g. iPod).

Place

The iPhone will only be available through the Cingular Wireless network. Thus, subscribers to other major cellular networks like Verizon and Sprint will have to switch carriers if they want to use the phone. Cingular currently has 60 million subscribers, however, the iPhone's current price will likely only appeal to a small subset of this customer base. Thus, iPhone will need to not only penetrate Cingular subscriber base, but also convert users from the other networks. It is also unclear whether Apple will also sell the iPhone directly through its popular company-owned stores and website.

Promotion
Apple and Cingular have yet to outline its promotion strategy for the iPhone, but is currently aiming to sell about 10 million units through the end of 2008, which would account for about 1% of annual global shipments of cellphones. However, Apple will be going after only a fraction of the overall market, as less than 5% of the world's handsets wholesale for more than $300.

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