By now you’ve probably heard of the scandal that erupted over the past few days over a “Baby Shaker” app that debuted on Monday. Apple pulled it from its App Store Wednesday after a public outcry.

The 99-cent app presented a crying baby the user quieted by shaking the phone. The silenced baby had two red X marks over its eyes.

In a week that otherwise featured great news from Cupertino – a record non-holiday quarter and the billionth app sold from the App Store – the affair was an inopportune distraction.

Responding to multiple media inquiries, Apple spokesperson Natalie Kerris delivered this brief apology Wednesday:

“This application was deeply offensive and should not have been approved for distribution on the App Store. When we learned of this mistake, the app was removed immediately. We sincerely apologize for this mistake and thank our customers for bringing this to our attention.”

The developer responsible for Baby Shaker, Sikalosoft, apologized as well. A statement on its Web site says, in part: “Yes, the Baby Shaker iPhone app was a bad idea. You should never shake a baby! Even on an Apple iPhone Baby Shaking application. In case you are unaware Baby Shaker was an Apple iPhone application that was greatly lacking in taste.”

But several organizations concerned with the prevention of head trauma to infants and children remain unsatisfied. In particular, the Sarah Jane Brain Foundation has announced a prolonged national demonstration against Apple and iPhone partner AT&T that will run from May 3 through May 17 across 15 U.S. cities unless Apple does more to atone for its error.

This is one of those times when Apple’s characteristic reticence does not serve it well.

The Baby Shaker app is offensive in a way much more profound than some of the other questionable offerings on the App Store, such as those that make rude noises or simulate bouncing breasts. This app made a joke out of a deeply serious and tragic issue.

And because from the outset Apple has insisted on screening every app, it assumes responsibility for anything objectionable.

That means Apple is on the hook for more than just a terse 44-word statement. It has a raging PR fire on its hands, and the quicker it acts to extinguish it the better.

The folks at the Sarah Jane Brain Foundation have requested Steve Jobs publicly apologize to the families and victims of Shaken Baby Syndrome, provide a full explanation of how the app got through Apple’s screening process and take action to “mitigate the damages it has caused to the many prevention efforts throughout the country.”

Mostly, I agree. One of Apple’s greatest assets is its image. Allowing that image to become further tarnished by this incident is unwise and unnecessary. Waiting for it all to “blow over” would make Apple look like just another big, callous corporation.

Here’s what Apple should do:

Get personal: Tim Cook, not Steve Jobs, should apologize to the families. Cook is in charge during Jobs’ medical leave; it’s his responsibility to deal with any crisis. Showing some heartfelt contrition here would help defuse much of the anger.

Fix the system: Apple is loath to offer any details about how it does anything internally, but could at least say it is investigating how the Baby Shaker app got approved. Better still, it could promise to identify the responsible employee(s) and discipline them. That could mean involuntary discharge, though that would be up to Cook. Apple needs to fix whatever went wrong not only to placate the offended, but for its own good.

Make a contribution: Since it was sold for only two days, the Baby Shaker app likely caused little actual harm, so I don’t see much need for Apple to create a plan to mitigate damage.

But that doesn’t mean Apple shouldn’t try to help. The company has a vast pile of cash – $28.9 billion -- at its disposal. Some large donations to a few organizations working to help victims and families of Shaken Baby Syndrome would be a great gesture and could make a real difference.

Ironically, the publicity from this unfortunate incident probably will help those organizations by focusing a great deal of attention on an issue most people rarely think about. Raising public awareness is a major function of these groups.

Although Apple never should have let this happen, a pro-active approach could mitigate damage to its image while aiding a worthy cause.

But only if it can defy its obstinate corporate culture. Frankly, I’m not sure that’s possible.

Posted by David Zeiler at 4:25 AM | Permalink | Comments (2)
                       

Apple may not quite be recession-proof, but it’s darn close.

Reporting earnings for the March quarter yesterday, Apple exceeded Wall Street expectations by a resounding 24 cents per share. Its profit of $1.21 billion translated to $1.33 per share, well above the $1.09 predicted.

To put this achievement in perspective, consider that Apple’s total profit was 26 cents per share as recently as the September quarter of 2004. In its fiscal 2003 Apple’s entire annual profit was just 19 cents per share.

So once again Apple made the gloomy prognosticators look foolish. (Even I admit I had my doubts.)

Overall Apple had its best non-holiday quarter ever, said Chief Financial Officer Peter Oppenheimer, with revenue increasing 9 percent year over year and profits increasing more than 15 percent.

Though Mac sales declined 3 percent from 2.29 million units in last year’s March quarter to 2.22 million, the iPhone picked up the slack and then some.

Unit sales of the iPhone rocketed 123 percent resulting in a 302 percent revenue increase year over year. The iPhone contributed $1.52 billion to Apple’s revenue total for the quarter, compared to $378 million last year.

Of course, the comparison isn’t exactly fair. The iPhone now is sold in 81 countries; in the early part of last year it was available in just four, including the United States.

Meanwhile, iPod unit sales grew 3 percent to 11 million, though revenue declined 16 percent from $1.818 billion to $1.665 billion.

I found this odd since Apple Chief Operating Officer Tim Cook said iPod Touch sales had more than doubled year over year. I’d have thought the Touch’s higher margins would have helped prop up overall iPod revenue.

But the iTunes Store segment (which includes “iPod services and Apple-branded and third-party iPod accessories) had a nice 18 percent bump in revenue from $881 million to $1.049 billion.

The amazing success of the App Store – which is on the verge of selling its 1 billionth app -- apparently gave the iTunes Store an extra boost this quarter.

A less likely contributor to Apple’s successful quarter was the Software, Service and Other sales category, which also saw revenue increase 18 percent to a tidy $625 million. Oppenheimer said that sales of the iLife ’09 and iWork ’09 suites, introduced in January, were better than anticipated.
A few more nuggets from the conference call:

Mac holds its own: For the past three months, numerous analysts and pundits have berated Apple for refusing to lower prices or introduce a low-cost laptop to compete with cheap netbook PCs. Apple has stubbornly held its ground, but was not punished as harshly as some predicted.

In fact, given the “challenging economic environment, Oppenheimer said the company was “very positive about our Mac performance.” He noted that IDC data showed the larger PC market contracting by 7 percent in the quarter, making the 3 percent decline in Mac sales look better by comparison.

No wonder Oppenheimer prefers IDC’s data; its report last week showed Apple’s market share increasing from 7.2 percent to 7.6 percent. Gartner’s report showed Apple’s market share falling from 8 percent to 7.4 percent.

The 2Q results could have been much worse. Cook said the refresh of the entire Mac desktop line March 3 gave sales a big boost at the end of the quarter. He said Mac sales in the U.S. suffered because both creative professionals and education customers were putting off buying due to the poor economy.

Unit sales of laptop Macs dove 22 percent, and many of those who did buy went for the previous-generation model $999 MacBook. Cook called that a “good thing,” seeing it as strength among the consumer market.

The dreaded netbook question: Asked about the diminutive PCs, Cook blasted the category as he has before, criticizing the “cramped keyboards, terrible software, junky hardware, [and] very small screens.”

Cook said Apple had no interest in creating such a product, then deftly pointed out that the iPhone and iPod Touch can perform many of the tasks for which people buy netbooks, such as e-mail and light Web browsing.

And then he hinted once again that Apple might be developing some sort of innovative product in the genre, offering teasers such as “the product pipeline is fantastic for the Mac.”

Retail Stores: The stores made a bit less money, but Apple is selling its wares – particularly the iPhone – in more places these days. Still, Oppenheimer said “about half” of all Mac sales in the stores were to customers who had never previously owned a Mac, same as he always does. So apparently people haven’t stopped switching from Windows to the Mac, no matter what Lauren says.

The money’s in the mattress: Apple’s cash position grew by $841 million, bringing its war chest to $28.9 billion. And no plans to spend it. “Our investment priority for the cash continues to be preservation of capital,” Oppenheimer said. So there.

Steve Jobs: When asked for an update on the recuperating CEO, Oppenheimer reiterated the company line: “We all look forward to Steve returning to Apple at the end of June.”

The iPhone platform: The combined sales of the iPhone and iPod Touch have reached 37 million units, with about 21 million iPhones and 16 million Touches. Both Cook and Oppenheimer spoke often of the new platform’s potential, particularly with the iPhone OS 3.0 coming this summer. “I think it unleashes a whole new level of innovation that keeps Apple years ahead of everyone else,” Cook said.

Feeling the love for AT&T: Piper Jaffray’s Gene Munster, citing survey data showing that some people don’t buy an iPhone just to avoid AT&T, asked why Apple maintains the exclusive relationship in the U.S.

Cook replied that AT&T has “done a very good job with the iPhone.” He said Apple is happy with AT&T and has no plans to change the relationship. He also admitted that Apple’s choice of GSM technology – driven by the need to make the iPhone work with the most common networks globally -- precluded a relationship with Verizon, which uses CDMA.

Posted by David Zeiler at 7:13 AM | Permalink | Comments (1)
                       

Whatever success the Palm Pre may enjoy, it won’t come at the expense of Apple.

According to the latest ChangeWave Research survey on smartphones, only 1 percent said they were “somewhat likely” to but a Pre. No iPhone owners were “very likely” to buy a Pre.

Owners of Research in Motion’s BlackBerry displayed a similar loyalty; just 3 percent said they’d be “somewhat likely” to switch to a Pre, with 1 percent “very likely.”

Those most likely to buy the Pre were current Palm customers. However, if the Pre should gain traction, the bulk of its share gains will come from weaker players in the smartphone market, such as Nokia and Samsung.

Apart from that insight, the ChangeWave results indicate RIM and Apple will continue to dominate the smartphone arena for the foreseeable future, and that Apple will continue to thrive.

Rockville, Md.-based ChangeWave conducted the survey of 4,292 cell phone owners March 17-23. The company conducts frequent surveys from among the 20,000 members of its “ChangeWave Alliance,” a self-selected group of mostly U.S.-based business professionals and early adopter consumers.

Apple’s numbers haven’t changed much from the previous survey (conducted in December), which mostly is good news. The iPhone continues to hold a strong No. 2 position to RIM’s ever-growing family of BlackBerries.

In fact, Apple gained 1 point from December, reaching 24 percent of current owners while RIM held steady with 41 percent. It’s the seventh consecutive ChangeWave survey in which Apple has increased market share.

In the data on planned purchases, Apple maintained its 30 percent while RIM dropped 2 points to 37 percent.

ChangeWave also asked some iPhone-specific questions, including some speculating on the new models expected to appear in June.

A hypothetical new $299 32GB iPhone 3G appealed to 9 percent of the respondents, while 11 percent said they’d buy a $199 16GB model. And 8 percent would go for a $99 8GB iPhone without 3G network capabilities. The ChangeWave report surmises that such new models “have considerable potential to move the needle.”

The new iPhone operating system also could help attract more customers. One out of five respondents said the upgraded iPhone OS 3.0 would make them “significantly more likely” or “somewhat more likely” to buy an iPhone.

For those not considering the purchase of an iPhone, Apple has made significant progress in the key area of affordability. The number of people who cited cost as the main reason for passing on the iPhone fell from 14 percent in December to 6 percent in March. That number was as high as 23 percent as year ago.

Only 1 percent named the economy as the primary reason for not wanting an iPhone, which could indicate that iPhone sales won’t get hit too badly by the recession.

Other nuggets from the ChangeWave survey:

Steve Jobs: For the past three surveys, ChangeWave has asked what impact the departure of Steve Jobs as CEO would have on the likelihood of buying Apple products in the future (not just the iPhone).

The number saying it would make them “less likely” has fallen each time, from 18 percent in June 2008, to 14 percent in December and just 9 percent in the current survey.

“While Apple still has a long way to go in ameliorating consumer concern,” the report says, “ things do appear to be moving in the right direction.”

Satisfaction: Apple once again led in customer satisfaction with 79 percent of iPhone owners saying they were “very satisfied.” That’s up from 72 percent in December, but almost identical to Apple’s rating in the June 2008 and March 2008 surveys.

RIM fell two points to 50 percent. RIM had a 54 percent rating in both the June and March surveys last year.

Operating Systems: The current share for the iPhone OS remained the same as in December -- 22 percent -- although it had more than doubled from 10 percent in June 2008. RIM slid 1 point to 39 percent, while Google’s Android registered for the first time with 1 percent.

Windows Mobile notched 18 percent, a 2-point decline. That continues Microsoft’s plummet from 29 percent in last year’s June survey.

When asked what OS they’d prefer on their next smartphone, Apple got 22 percent, but RIM just 27 percent. Apple had the same number in December, but RIM dropped from 32 percent. Android got 4 percent.

Windows Mobile picked up a point here (to 12 percent), but has fallen from a high of 24 percent in January 2008.

Posted by David Zeiler at 5:57 AM in iPhone | Permalink | Comments (14)
                       

What can’t you do with the iPhone?

The third version of the iPhone’s operating system, demonstrated today by several Apple executives, accelerates its evolution into the Swiss Army knife of mobile computing.

Apple Senior Vice President for iPhone Software Scott Forstall, who led the presentation along with Apple vice president of iPod and iPhone marketing Greg Joswiak, said this “major update” to the iPhone software includes 100 new features.

The addition of perhaps the two most requested features, MMS (multimedia messaging service, which allows audio and photo files to be sent via text message) and cut and paste should quiet some of the harshest criticism of the iPhone.

Since just about every competing smartphone already offers those two features, they were way overdue in the iPhone.

Nevertheless, the cut and paste feature looks particularly well implemented and easy to use. My favorite part: shaking the iPhone serves as the “undo.”

Apple also said it has solved issues with its push technology, which allows the iPhone to “listen” for such things as e-mail and instant messages, sending them automatically to the iPhone without the user having to do anything.

Push was promised for the current version of the iPhone software, but developer requests for extended capabilities delayed it until now (at least that’s the reason Forstall gave).

Beyond those major enhancements, the new iPhone software includes many other welcome changes.

For example, users can search not only their contacts, but also their calendar, iPod music, e-mail and notes. Just as on the Mac, the feature is called Spotlight and is available from a new, additional Home screen.

Many users also will like the ability to use the landscape keyboard – which makes the individual keys wider and easier for fat fingers to hit accurately – in all of Apple’s apps, such as Mail and Notes, not just the Safari browser.

Several of the iPhone 3.0 features pitched as tools for developers – Apple is giving developers more than 1,000 new APIs – could result in a variety of clever new apps for users.

Peer-to-Peer connectivity, either wirelessly via Bluetooth or via the dock connector, has tons of potential. It allows the iPhone to recognize and connect to other iPhones or devices by using the Bonjour automatic network discovery protocol built into Mac OS X.

As an iPod Touch owner I wonder whether this feature will be enabled on Touches upgraded to the 3.0 version of the iPhone OS. The Touch does not have Bluetooth switched on, but when iFixit disassembled a second generation Touch last fall it found a chip capable of both Bluetooth and FM reception. (Crossing fingers.)

Also intriguing is the new ability to control hardware accessories. Forstall demonstrated how the iPhone’s equalizer, for example, could control external speakers.

Something developers will appreciate is how Apple has made it easier for customers to make purchases from within apps. Now people who buy a magazine app can buy a subscription right in the app. Likewise, a game app can offer additional levels. Of course, developers need to add this support to existing apps.

Thankfully, the “In-App Purchase” feature will work only in paid apps, not the free ones, so “you won’t be asked to buy something in that app,” promised Forstall. I think this is a good idea, but I hope developers won’t abuse it.

The changes to the iPhone software show Apple plans to keep pushing the platform forward aggressively. It will remain the envy of rival phone vendors, all of which are desperately trying to copy it.

Some statistics Joswiak gave at the start of the presentation illustrate just how big of a phenomenon the App Store has become. The number of apps has exploded to 25,000 in just eight months, with the total number of downloads exceeding 800 million. That won’t be easy for competitors to duplicate.

Developers can get a beta version of the iPhone 3.0 OS as of today so they can start building cool new apps; customers will get it “this summer” (no date was given). The update will be free for iPhone owners and a $9.95 upgrade for iPod Touch customers.

All previous models of iPhones and Touches can run the new OS, but not every new feature will work. For example, MMS won’t work on first-generation iPhones because of a slight difference in the hardware.

Posted by David Zeiler at 4:34 PM in iPhone | Permalink | Comments (7)
                       

AdMob’s January report shows Apple’s iPod Touch with the highest rate of growth among mobile devices capable of browsing the Internet.

The number of worldwide requests from the iPod Touch rose from 4.7 percent in December to 7.4 percent in January, by far the biggest increase of any mobile device. The iPhone’s share rose from 10.8 percent to 11 percent.

Last month an AdMob report on ad requests from mobile devices showed the iPod Touch second only to the iPhone. AdMob supplies online ads to such devices, most of which are cell phones.

Like the monthly reports on Web usage from Net Applications, the AdMob data is not scientific, but can illustrate trends over time.

For what it’s worth, the January report from Net Applications jibes well with the data from AdMob. It’s clear more and more people are using the Internet capabilities of their iPhones and iPod Touches.

As was the case in January, the iPhone and iPod Touch are No. 1 and No. 2 in AdMob’s latest report, with Motorola’s RAZR V3 a distant third and slipping further behind – it lost 0.4 percent.

The Nokia 6300 was the only other device other than the iPhone to register even a modest 0.2 percent increase.

Apple also gained ground on Nokia in the AdMob data broken down by manufacturer. Nokia’s share increased from 29 percent to 30.1 percent, but Apple’s increased from 15.5 percent to 18.3 percent. Third-place Motorola’s share slipped 1.8 points to 9.9 percent.

In the U.S.-specific data, Apple’s mobile platform did even better. Among the handsets, the No. 1 iPhone picked up 0.7 points, generating 16.8 percent of January’s ad requests. But the iPod Touch gained a stunning 5.2 points, reaching 12.3 percent.

The iPhone/iPod Touch’s combined total of 29.1 percent opened up Apple’s lead in the list of manufacturers in the U.S. data. Apple’s 5.9-point gain coupled with Motorola’s loss of 2.3 points and Samsung’s loss of 1.3 points shows how rapidly the momentum is shifting towards Apple’s nascent mobile platform.

AdMob data from Western Europe shows similar Apple dominance. There the iPhone leads among devices with 21 percent of requests, followed by the iPod Touch with 10 percent.

In the operating system data Apple has an even larger lead, an anomaly that holds true in several geographic categories. The iPhone OS made 44 percent of all worldwide ad requests, 51 percent of those from the U.S. and 52 percent of those from Western Europe.

With Apple staking out a big chunk of territory in the mobile Web space, its competitors – primarily RIM, Nokia and Palm – still need to prove they can keep up by building devices people will want to use not just to make calls, but to access the Web.

Posted by David Zeiler at 3:53 PM | Permalink
                       

Riding an explosion in smartphone sales growth in 2008, Apple’s iPhone sales grew 101 percent from 2007, but the twin dampers of the economy and a maturing market will slow growth in 2009.

According to IDC data reported in RCR Wireless, the iPhone was No. 6 among all mobile phone vendors in the United States with 4 percent of the total market.

Apple fared better in the smartphone-specific data, with its 21 percent share of that market second only to RIM’s still-dominant 46 percent.

Of course, Apple’s 101 percent year-over-year growth is not really a fair comparison; the original iPhone was on sale for just the latter half of 2007.

Nevertheless, Apple did meet both of its goals for iPhones sales in 2008. The total of 13.7 million units sold exceeded Apple’s goal of 10 million set when the product launched.

And, using IDC’s total of 1.181 billion phones shipped in 2008, that 13.7 million figure equals 1.16 percent of the global mobile phone market, exceeding Apple’s goal of 1 percent of the total market. This closely matches a similar report on mobile phone market share from ABI Research last week.

Looking ahead to 2009, IDC senior research analyst Ramon Llamas predicts a “challenging” first half “as vendors and distributors grapple with clearing inventory.”

But the smartphone market in which the iPhone competes should fare a bit better: “As long as operators are able to continue to subsidize these devices, and developers continue to enhance applications, then this segment will be a silver lining to an otherwise gloomy market,” said IDC senior research analyst Ryan Reith.

IDC forecasts a U.S. smart phone growth rate of between 4 and 5 percent for 2009, a far cry from last year’s 68 percent growth.

“Carriers are now making more money from data attachment rates than from new subscribers,” Reith said. “It’s a mature market.”

To maintain the iPhone’s marketing momentum, Apple will need to come up with some unusually compelling updates this year.

Analyst Peter Misek of Canaccord Adams thinks Apple may have three new variations of the iPhone in the pipeline for 2009: a 32 gigabyte iPhone in multiple colors; a cheaper iPhone based on the 2.5G technology and targeted to customers in China and India; and finally, a version of the 3G iPhone shrunk to a third of the size of the current model (the much-rumored “iPhone Nano”) that could cost as little as $99.

I still have my doubts about the iPhone Nano – the necessarily much smaller screen would negate the size and price advantages in my view – but the other two possibilities seem plausible.

And Apple being Apple, whatever new iPhones do appear this year probably will confound all predictions anyway.

Posted by David Zeiler at 8:59 PM in iPhone | Permalink | Comments (3)
                       

With the 25th anniversary of the Macintosh upon us (officially it’s January 24), retrospectives have flooded the Web.

Rather than add to the nostalgia parade, I thought I’d do something nutty: compare the specs of the original Mac 128k not with one of today’s Macs, but with the iPod Touch 2G I got for Christmas.

The iPhone/iPod Touch platform has assumed the paradigm-changing mission of the original Mac -- it’s a new approach to computing for a new era. Someday pundits will look back on the significance of the launch of the iPhone and iPod Touch platform as they’re doing with the Mac now.

It’s amazing how much more powerful the iPod Touch and iPhone are compared with that original groundbreaking Mac despite their far smaller physical size.

And check out the chart’s bottom line: A Mac 128k cost about $5,000 in 2008 dollars, adjusted for inflation, compared to $229 for the least expensive iPod Touch, not to mention a $199 subsidized iPhone.

Happy 25th birthday, Macintosh!!
Long live the iPhone/iPod Touch!!

Posted by David Zeiler at 8:00 PM | Permalink | Comments (3)
                       

Though sales of mobile phones will slow or decline this year, Apple’s iPhone will buck the trend with increased sales, according to an analyst quoted in the trade publication RCR Wireless last week.

Included in an article published last Monday, this news tidbit got lost among all the distractions of the Macworld Expo.

“Apple Inc. will continue to surge in smartphone shipment volumes with further market expansion,” writes RCR Wireless’ Phil Carson in paraphrasing the thoughts of analyst Bonny Joy of Strategy Analytics. Joy also expects Apple to gain ground on Research in Motion.

Carson paints an ugly picture of how the drooping economy will disrupt the mobile phone industry in 2009. All the analysts he interviewed predicted flat or negative growth (there’s an oxymoron for you).

Only smart phones – the subcategory to which the iPhone belongs – promise to enjoy higher sales.

Forecasts for the overall cell phone market have sales falling anywhere from 3.5 percent to 10 percent. Smart phones sales should grow in the 9 to 14 percent range – better than negative for sure, but a steep drop from the 40 percent year-over-year growth they had in the third quarter of 2008.

The RCR article predicts virtually all the major handset makers but Apple will suffer; Carson describes several, such as Motorola and Palm, as “vulnerable.”

“The strongest brands with the most alluring products may gain share as weakened competitors pull back in survival mode,” Carson writes.

If the iPhone does maintain its momentum in 2009, it will boost Apple’s ability to endure what may prove a disastrous year for many other consumer electronics companies.

Posted by David Zeiler at 8:16 AM in iPhone | Permalink
                       

AdMob, a company that supplies online Web ads, released metric data on Thursday showing an enormous spike in traffic coming from users of the iPod Touch on Christmas and in the days afterward.

Meanwhile, iPhone users continue to comprise an ever-larger number of people using mobile devices to access the Web.

Apple must have sold mountains of iPod Touches. From Thanksgiving on, the three models of the Touch periodically were out of stock at Amazon and other retailers, and a number of anecdotal reports in December pointed toward strong sales.

If Apple is in a bragging mood at its January 21 earnings conference call, it might break out the iPod Touch’s quarterly sales numbers (it usually doesn’t). In any case, one can find plenty of powerful evidence for the Touch’s success in the metric data supplied by companies like AdMob.

Ad requests from the iPod Touch increased from 86 million in November to 292 million in December, AdMob reported. Worldwide Touch traffic was 2.4 times higher in the week after Christmas than it was the week before.

But things look even sweeter for Apple when you look at the data for the iPod Touch and iPhone together. With the Touch’s surprising performance and the iPhone’s share growing at the expense of nearly all other Web-enabled mobile phones, Apple appears to have a good chance of fulfilling its goal of creating a dominant new mobile computing platform.

In the data that ranks the top handsets by the number of worldwide ad requests, the iPhone holds the No. 1 spot with 10.8 percent. That’s more than double the No. 2 device – astonishingly, the iPod Touch -- with 4.7 percent.

Motorola’s RAZR V3 followed with 3.4 percent; the Nokia N70, with 2.7 percent, was No. 4. The highest BlackBerry on the list, the 8800, was seventh with 1.5 percent.

Of course, Apple benefits in this category by having just one model of iPhone rather than the dozens of models sold by the competition, although the fact the Touch beat them all as well weakens that excuse.

Nevertheless, even in the data that lists the worldwide leaders by manufacturer, Apple’s 15.5 percent is second only to Nokia’s 29 percent. BlackBerry maker Research in Motion came in seventh with 3.5 percent.

And get this: of the 10 manufacturers, only Apple posted a gain in share (plus 7.6 percent) from the previous month. Every other manufacturer lost share except HTC, which was flat at 1.8 percent.

AdMob’s U.S. specific data tilts even more favorably toward Apple. In the handset data, the iPhone-iPod Touch team again take the top two spots with 16.2 percent and 7.1 percent.

Apple leads all manufacturers in the U.S. market with its 23.3 percent share, followed by Motorola with 21.6 percent. RIM is fifth with 6.4 percent.

And again, only Apple gained share from the previous month, picking up 11.1 percent. RIM lost 1.1 percent and Motorola 3.5 percent.

AdMob also breaks the data down by operating system, though in this category it leaves out the iPod Touch because it isn’t a phone.

Symbian leads in worldwide OS share with 41 percent, but the iPhone’s Mac OS nets 32 percent even without the Touch’s help. RIM takes third with 10 percent, just edging Windows Mobile’s 9 percent.

That Apple’s devices show rapidly growing share among mobile devices on the Web tells us that people who want such capabilities – and there are more of them every day – are choosing Apple products.

So far Apple seems to be a step ahead of the competition, with the wild success of the App Store giving it a major advantage over all rivals (for the present, anyway).

The coming year will tell if Apple’s platform can hold off those rivals, primarily RIM’s BlackBerry Storm and Google’s Android operating system. Both have or plan to have app stores of their own.

And just this week, Palm reawakened from the dead with its just-announced Pre touchscreen phone, which has received very favorable early reviews.

What the competition can’t duplicate is the iPod Touch, a means to gain Web share from customers who don’t want a smart phone’s expensive monthly contract. The 8 GB iPod Touch gives customers a Web-capable mobile device for as little as $229.

Posted by David Zeiler at 7:21 PM | Permalink | Comments (7)
                       

One out of ten people browsing the Web in December were using a version of Mac OS X, according to the monthly statistics from Web services company Net Applications.

Users of Mac OS X on Intel (7.19) and PowerPC (2.44) Macs combined for 9.63 percent; iPhone users added 0.44 percent and iPod Touch users another 0.08 percent.

The total of 10.15 percent marks the highest share of users ever for Mac OS X in the Net Applications stats.

A point of clarification: although Net Applications describes its data as “market share,” a more accurate description would be “user share,” as in the percentage of people on the Web using a particular operating system or Web browser.

The free monthly statistics derive from data the company gathers in the course of its business -- measuring Web traffic for its clients. It’s not a scientific process, but the sample is huge – 160 million Web site visits – so the data is useful in detecting trends.

Back in June I noted the Mac’s share had more than doubled from 4.26 percent in June 2006 to 7.83 percent in May 2008. With share now over 10 percent, the upward trend for Mac OS X appears to be accelerating.

A disclaimer on the Net Applications site warns “the December holiday season strongly favored residential over business usage. This in turn increases the relative usage share of Mac, Firefox, Safari and other products that have relatively high residential usage,” but the trend line for OS X had virtually the same trajectory in November (see chart).

The numbers jibe with market share reports on sales from such firms as IDC and Gartner, both of which reported Apple’s U.S. market share in the third quarter of 2008 at about 9.5 percent.

And while most of the gains in the Net Applications stats have come from people using Apple’s computers, one can’t dismiss the iPhone. In fact, one could argue the iPhone’s rise to 0.44 percent is more impressive than the Mac’s gains. We’re talking about a phone, after all.

Compare the iPhone’s number against other smartphone operating systems: Windows CE managed only 0.05 percent and the mighty BlackBerry a tiny 0.01 percent. The iPod Touch – not even a smart phone itself -- had more than both combined.

In the battle for dominance among mobile devices on the Web, Apple has the clear early lead.

Meanwhile, Microsoft’s Windows has continued its slow erosion in share, having slipped below 90 percent (hitting 89.62) for the first time in the November survey. The December stats put Windows share at 88.68 percent, nearly a full percentage point drop in one month.

Windows accounted for 95.25 percent of Web users in the June 2006 survey, so we’re looking at a loss of 6.57 percent compared to Mac OS X’s gain of 5.89 percent over the same period.

Of greater concern to Microsoft might be the relatively small adoption rate of Windows Vista. More than 65 percent of Windows users are still on XP, with only 21.12 percent on Vista. The next version of Windows, Windows 7, is expected in early 2010, so many users may bypass Vista altogether.

And if Microsoft chief Steve Ballmer wants yet something else to stew over, he can check the browser usage numbers. Internet Explorer, which had 84.11 percent share in June 2006, now has only 68.15 percent, a nearly 16 point fall; IE lost 1.62 percent just from November.

Safari has taken some share, having risen from 3.19 percent in June 2006 to 7.93 percent in December 2008, but Firefox has emerged as a significant threat. As of December Firefox has a share of 21.34 percent, nearly twice the 10.77 percent it had in June 2006.

Methinks the era of Microsoft hegemony is crumbling fast.

Posted by David Zeiler at 8:44 PM | Permalink
                       

I got an iPod Touch for Christmas. And not any iPod Touch, mind you, but the 32GB model.

After playing with it for several days now, I’ve finally experienced first-hand the huge leap this device (along with its more advanced cousin, the iPhone) represents over any previous iPod.

With Wi-Fi available both at home and at work, the Touch truly is a computer in my pocket, giving me the ability to check e-mail, the weather, and the stock market as well as browse the Web.

But that’s nothing compared to the game-changing power of the iTunes App Store. Although I have noted often in this blog that Apple’s aim is to create a new platform with the iPod Touch and iPhone, I still was wowed by the variety, utility, ingenuity and polish of the apps available.

And it’s oh-so-dangerous to your wallet. With predominantly low prices – many apps go for as little as 99 cents -- and purchasing as easy as a mouse-click, you can quickly find yourself scooping up apps like so many holiday M&Ms.

Like the iPod/iTunes ecosystem before it, the iPhone/iPod Touch/App Store ecosystem will grow into a monster that will leave competitors eating Apple’s dust for years. Yes, I know Research in Motion plans to launch a BlackBerry Application Store in March and Google’s Android Market opened a few months ago.

But this is Apple’s strength. It will emerge as the leader in the new “pocket pc” platform race because it knows how to build and perfect an integrated ecosystem better than anyone else.

As with the Mac and iTunes/iPod ecosystems, Apple controls all the elements in the iPhone-iPod Touch/App Store universe, giving it an advantage in avoiding incompatibilities and other user-offending glitches.

The contribution of the iPod Touch can’t be overestimated. The Touch brings in millions of customers Apple’s phone-making competitors can’t reach – people like myself who want many of the capabilities of a smartphone without the steep monthly fees. (My cheap, pay-as-you-go T-Mobile phone suits me fine for my limited cell phone needs.)

Already the iPhone/iPod Touch ecosystem shows signs of explosive growth, with Apple reporting more than 300 million downloads since the App Store’s inception in July. That’s an astounding feat for an entity less than five months old.

I can attest to the lure of the App Store. In less than a week I’ve downloaded 10 apps myself.

According to a story in today’s Washington Post, iPhone/iPod Touch app developers are making more money than they dreamed possible. Long-time Mac developer Brian Greenstone of Pangea Software told the Post the new platform would generate $5 million for him this year.

The holiday shopping season added more momentum, with various models of first and second-generation iPod Touches consistently among the top-selling electronic devices at Amazon.

All those new Touch owners now join the 5 million-plus new iPhone owners as well as the millions of people who already had bought one of the devices. The race to establish the dominant mobile computing platform may be over before it started.

I’ll have more thoughts on the iPod Touch as I continue to play with it. Which reminds me … it should be fully recharged by now.

Posted by David Zeiler at 2:12 PM | Permalink | Comments (18)
                       

During the hypefest leading up to the introduction of the iPhone in 2007, some overexcited pundits dubbed the device the “Jesus phone.” Thanks to the efforts of a clever Italian priest, the iPhone might just have earned that lofty title.

The app iBreviary, created by Father Paolo Padrini, brings a compendium of daily prayers -- including morning prayers, evening prayers and prayers for daily Mass as well as other prayers – to your iPhone or iPod Touch.

Released in November as an Italian-only free trial, iBreviary was downloaded 10,000 times, according to the Associated Press. The official version, a 99-cent download (or 0.79 euros on the other side of the pond), includes English, Spanish, French and, for old-school Catholics, Latin. Portuguese and German will appear in a future version.

Father Pedrini will donate his profits to charity, though the AP story made no mention of what Apple plans to do with its 30 percent cut.

Earlier this week the Vatican endorsed iBreviary, with Monsignor Paul Tighe, secretary of the Vatican’s Pontifical Council for Social Communications citing the app as an example of the Church “learning to use the new technologies primarily as a tool or as a means of evangelizing, as a way of being able to share its own message with the world.”

Perhaps iBreviary will counterbalance some of the more absurd apps that have cropped up for the iPhone, such as the 99-cent iFart (depressingly the Number One download at the App Store), the similar Pull My Finger (28th), and iBeer (9th). Apple did reject the jiggly iBoobs, however.

Not that I’m against silly apps, but it seems like such a waste of great technology. More apps that make a positive contribution would be a much better use of the nascent iPhone/iPod Touch platform.

As of today, iBreviary is the 67th most downloaded app on iTunes, an impressive feat given the large number of games, utilities and goofy apps against which it must compete. Apparently the world is not yet completely bereft of spirituality, despite all efforts to the contrary.

Merry Christmas.

Posted by David Zeiler at 2:40 PM in iPhone | Permalink | Comments (2)
                       

Demand for Apple’s iPhone 3G rose rapidly over the past year and should remain steady heading into 2009, according to a survey by Rockville, Md.-based ChangeWave Research.

The survey of 3,803 ChangeWave “alliance members” was conducted Dec. 9-15 and looks at trends in the smart phone market, particularly regarding the iPhone and Research in Motion’s BlackBerry Storm. Launched in November, the Storm is RIM’s first touchscreen smart phone.

So far it doesn’t look like the Storm has harmed iPhone sales in any significant way.

The current market share chart (based on which phone respondents currently own) shows the iPhone climbing from 6 percent in January to 23 percent in December. And that’s up from 17 percent in the September survey.

Meanwhile the BlackBerry has been rock-steady. Its share in January was 43 percent; in December, 41 percent, down 1 point from September.

My take on the ChangeWave data is that Apple and RIM aren’t so much cannibalizing each other as driving all the other smart phone players to the margins.

Look at Palm. In January 2008 it still had 18 percent of the smart phone market. By December it was down to 9 percent. In January 2007 (when the original iPhone was announced) Palm had 30 percent.

Motorola slid from 7 percent in January to 4 percent in December. Few cell phone makers have not surrendered share to the Apple/RIM duopoly.

I found more evidence elsewhere in the ChangeWave report. Current Apple customers were least likely to switch to RIM – only 6 percent said they were “likely” or “somewhat likely” to buy a Storm compared to 21 percent of Palm owners, 17 percent of Motorola owners and 16 percent of Samsung owners.

Of current Storm owners 31 percent already were BlackBerry users, but 29 percent switched from a Palm Treo and 21 percent from a Motorola phone. The iPhone did not appear in that data.

In a similar question directed to current iPhone owners, just 8 percent switched from a BlackBerry to the iPhone. But 34 percent said their previous phone was a Motorola; 13 percent Nokia; 11 percent Samsung; and 10 percent Palm.

However, among those planning to buy a smart phone in the next 90 days, RIM has the edge over Apple. The BlackBerry rose from 30 percent to 39 percent, while the iPhone fell from 34 percent to 30 percent.

ChangeWave attributed the reversal to waning enthusiasm for the iPhone 3G, which went on sale back in July, while RIM currently is engaged in a series of flashy product launches with the Storm, the Bold and the Pearl Flip.

Of course, this chart tends to be more volatile than the market share chart; the iPhone 3G launch caused Apple’s number in the June survey to spike to 56 percent!

Though RIM’s products no doubt will prove popular in 2009, Apple has one clear trump card going forward: its customer satisfaction numbers remain much higher than those of its smart phone competitors.

Apple leads with 72 percent of customers reporting they are “very satisfied;” RIM is a remote second at 52 percent. Palm’s 24 percent hints at why its share has plummeted.

The Storm itself had some rocky reviews in the tech press, with many criticizing its un-BlackBerry lack of a physical keyboard and slow, quirky touch screen interface. Though many problems were fixed with a firmware update, the issues created a negative impression from which the Storm has not yet recovered.

The inclusion of a touch screen appealed to 49 percent of Storm owners in the ChangeWave survey, though 21 percent bemoaned the absent physical keyboard and 20 percent disliked the touch screen interface. Another 20 percent knocked the Storm as “difficult to use.”

Alas, the Storm would seem an improbable “iPhone killer.”

Other tidbits gleaned from the ChangeWave survey:

What bad economy? The percentage of respondents who said they planned to buy a smart phone of any kind in the next 90 days was actually up 0.3 percent from the September survey. In the current nightmarish economic climate, that’s amazing.

OS X vs. Windows Mobile RIM dominated in operating system market share among current smart phone owners, echoing its share in the hardware chart with 40 percent. Apple’s Mac OS X came in second with 22 percent, with Windows Mobile close behind at 20 percent.

But when asked which OS they’d prefer to have on their next smart phone, RIM’s lead over Apple shrunk to 10 points (32 percent to 22 percent). And only 11 percent wanted to see Windows Mobile on their next phone. (Google’s Android, available since late October, managed 4 percent.)

Posted by David Zeiler at 8:31 AM in iPhone | Permalink | Comments (20)
                       

Showing surprising strength in a weakening economy, Apple reported an extraordinary September quarterextraordinary September quarter yesterday.

Mac sales up, iPod sales up, iPhone sales way, way up, and an uncharacteristic appearance by CEO Steve Jobs at the analyst conference call. It’s hard to know where to begin.

Jobs showed up in part to discuss Apple’s decision to disclose some alternative financial data from now on. Because Apple periodically issues free software updates for the iPhone and Apple TV, revenue from those sales is recognized over the two-year life of the product rather than entirely in the quarter the product is sold, as with Macs and iPods.

To help analysts and investors better “evaluate the company’s overall performance,” Jobs said the company plans to release “non-GAAP” financial results along with the usual earnings figures. (GAAP stands for Generally Accepted Accounting Principles.)

Tremendous sales of the iPhone 3G – 6.9 million units – prompted the change, Jobs said. The iPhone accounted for a whopping 39 percent of Apple’s 4Q revenue.

“The non-GAAP results are truly stunning,” Jobs crowed, and it’s hard to argue with the numbers. Including the iPhone and Apple TV sales in their entirety adds nearly $3.8 billion in revenue, a 48 percent increase over the $7.9 billion the company reported.

Non-GAAP adjusted income doubles from $1.14 billion to $2.44 billion, a 115 percent increase. For those keeping score at home, the $1.26 per share Apple reported balloons to $2.69 per share in the adjusted figures. Yowza!

Jobs probably has grown tired of AAPL’s slumping stock price – which had slid $6.95 to $91.49 yesterday before Apple announced its results. He wants the world to know how much dough Apple is really making.

Apparently investors got the message: AAPL rose $12.12 in after-hours trading and is up today in a down market.

More details from Apple’s earnings call, by topic:

The blockbuster iPhone 3G/App Store: The star of the quarter, the iPhone 3G blew away all expectations. Customers bought more iPhones in the September quarter than during the entire previous lifespan of the product (6.9 million vs. 6.1 million).

Oppenheimer said Apple has “already surpassed our goal of 10 million iPhone sales in calendar 2008,” but that claim must include some October sales. Adding the reported sales of the first three quarters of 2008, I get 9.3 million iPhones. At the rate iPhones are selling, Apple probably hit 10 million about a week or so ago.

Prospects for future iPhone sales also look good. Oppenheimer said Apple is now selling the iPhone 3G in 51 countries, with the number expected to increase to 70 by the end of the year. Apple has 3,100 iPhone distribution points in the United States and over 30,000 worldwide, he said.

Jobs pointed out that Apple beat Research in Motion’s BlackBerry in unit sales 6.9 million to 6.1 million this quarter. Furthermore, Jobs said, Apple is now the No. 3 mobile phone maker as measured by revenue, with $4.6 billion in sales (behind Nokia with $12.7 billion and Samsung with $5.9 billion).

The App Store, despite some grumblings from developers whose apps Apple rejected, has amply demonstrated the iPhone’s potential as a software platform. “Customers will download the 200 millionth application from the App Store tomorrow [Wednesday], only 102 days since its launch,” Jobs said, noting the availability of over 5,500 apps.

Jobs also said Apple’s strategy is not to build “a hundred variations” of the iPhone like other handset makers, but to use software as the differentiating factor.

The Mac hangs tough: Mac sales fell slightly short of last month’s optimistic analyst projections, but at 2.61 million units still set a record for most Macs sold in a quarter. The growth rate of 21 percent year over year wasn’t as impressive as March’s 51 percent or June’s 41 percent, but remains respectable.

Apple CFO Peter Oppenheimer said cutbacks in education budgets as well as rumors of imminent new MacBook models (which Apple did indeed unveil last week) probably hampered Mac notebook sales at the end of the quarter. Two-thirds of all Macs sold are notebooks.

Apple has its corporate fingers crossed the new models will boost notebook sales going forward. “We’ve had a very, very strong launch and we are anxiously awaiting to see the demand trajectory that will unfold during the quarter,” Jobs said.

When asked if Apple would consider “more affordable” Macs, Jobs repeated a long-standing Apple philosophy: “There are some customers we choose not to serve,” he said. “We don’t know how to make a $500 computer that’s not a piece of junk.”

If fresh iMacs appear in November as rumored, unit Mac sales could set another record come January.

iPod not dying: Apple sold 11 million iPods in the quarter, a record for a non-holiday quarter and an 8 percent increase year over year. Market share for the iPod remains at a healthy 70 percent. The iPod stubbornly continues to defy predictions of its decline.

During what could be a bleak retail holiday season, the line of iPods refreshed in September should keep it high on many shopping lists.

Apple TV on pause: Jobs reiterated his take that Apple TV is “still a hobby.” He said it would stay that way at least through 2009, dashing the hopes of those dreaming of a major Apple TV announcement at the annual Macworld Expo in January.

More stores: The growth of the retail chain continued unabated, with the addition of 31 new stores, bringing the total to 247. As always, Oppenheimer said half of all Macs sold in the stores were to people who had never owned a Mac before.

The stores saw 42.7 million visitors in the quarter, another record and further evidence that the ailing economy has so far failed to impair the lure of the Apple brand.

Rainy Day Fund pays off: Having generated another $3.7 billion in cash, Apple’s stockpile of money stands at $24.5 billion. Jobs brushed off a question about returning some cash to shareholders in the form of dividends. “It’s not burning a hole in our pocket,” he said.

But Jobs also said Apple’s unusual cash position “provides us tremendous stability and the ability to invest our way through this downturn,” which he said means more money going into research and development of future products. He wouldn’t comment, however, on the possibility of acquiring other companies.

Posted by David Zeiler at 1:06 PM | Permalink | Comments (1)
                       

The Holy Grail of iPhone lovers – an official, Apple-sanctioned unlocked iPhone 3G – is now available in Hong Kong.

“Unlocked” means the iPhone can be used with the carrier of the buyer’s choice, an option Apple has resisted almost everywhere else it sells the iPhone. A few countries have the option of choosing between two Apple-sanctioned carriers but in most --including the United States -- customers have no choice.

Those who illegally unlocked the first version of the iPhone felt Apple’s wrath when a software update “bricked” the devices.

As a long-time advocate of an Apple-approved unlocked iPhone option, I’m pleased to see one appear, even if it is in faraway Hong Kong.

However, unlocked iPhones are not cheap. In Hong Kong an unlocked 8GB iPhone costs HK$5,400 ($695 U.S. dollars) while the 16 GB version costs HK$6,200 ($798 U.S.). Compare that to the AT&T subsidized prices in the United States: $199 for the 8 GB model and $299 for the 16 GB.

The prices are similar to those in Italy, where pre-paid iPhones – which also come unlocked -- cost €499 (8GB) and €569 (16GB), or $728 and $830 at current exchange rates.

Apple is promoting the deal, including free shipping, on the Hong Kong version of its online Apple Store: “iPhone 3G purchased at the Apple Online Store can be activated with any wireless carrier. Simply insert the SIM from your current phone into iPhone 3G and connect to iTunes 8 to complete activation.”

The iPhone has been available since July from Hong Kong carrier Hutchison Telecommunications, but with a two-year contract.

Unlocked iPhones, however, could easily be bought on the black market in Hong Kong. That’s probably what inspired Apple to sell an official version there.

Does this mean Apple might consider selling unlocked iPhones in the United States? Hard to say.

Back in July, AT&T issued a press release that stated, “In the future, AT&T will offer a no-contract-required option for $599 (8GB) or $699 (16GB).”

We're still waiting.

One can assume it is Apple, not AT&T, blocking the sale of contract-free iPhones in the United States. If and when it changes its mind is impossible to predict, but the shift in Hong Kong shows Apple might consider it, particularly if changes in the market forces its hand.

Posted by David Zeiler at 6:19 PM in iPhone | Permalink | Comments (3)
                       

Owing to its influence over how it has changed the way people use mobile phones and its potential as a mobile ad platform, the iPhone made Adweek’s Digital Hot List for the first time.

The iPhone placed third behind No. 1 Google and No. 2 Facebook.

Here’s what Adweek had to say:

“Yes, it's a piece of hardware. But the iPhone makes the Hot List for single-handedly elevating an entire medium and potentially -- finally -- delivering a robust platform for mobile ads. To date, mobile advertising has been all potential and little payoff, with the average consumer still using his or her cell for calls and texting. Then, this past July, the 3G smartphone model sold 1 million units in its first weekend. With 82 percent of iPhone users accessing the Web, per Nielsen, and 37 percent watching video --10 times the average for mobile users -- more brands are paying attention to the medium, all because of this single, remarkable little machine.”

Adweek’s primary criteria for selection are Web traffic statistics, but it also considers factors such as “influence on the world of digital media, as well as the culture at large; ad innovation and results; and the informed judgment of our best contacts in the ad business.”

This latest accolade indicates Apple is making headway in establishing the iPhone as a dominant mobile computing platform. When the advertising industry takes notice, we’ve moved into new territory.

Others now see moneymaking potential in iPhones that has nothing to do with the selling of the devices and everything to do with how they are used.

Here’s the entire Adweek Digital Hot List:

1. Google
2. Facebook
3. iPhone
4. Hulu
5. Glam
6. YouTube
7. Xbox Live
8. The Huffington Post
9. imeem
10. Stardoll

Posted by David Zeiler at 1:58 PM in iPhone | Permalink
                       

Interest in the iPhone 3G continues to rise among corporate customers, which should bode well for Apple’s prospects for selling more Macs to businesses.

The latest survey of IT purchasing plans from Rockville,Md.-based ChangeWave Research shows Apple gaining ground at the expense of both Research in Motion (BlackBerry) and the ever-sinking Palm.

When asked which smart phone they expected to buy in the next quarter, 17 percent of the companies said they’d purchase iPhones, up from 14 percent in May. The most recent survey, conducted Aug. 11-21, queried 1,947 respondents.

The BlackBerry, while remaining far ahead of the iPhone with 79 percent, fell three percentage points from the May survey. Palm slipped from 8 percent to 6 percent.

ChangeWave’s Paul Carton noted in his report that RIM’s new BlackBerry model, the Bold, is not yet available in the United States. Customer anticipation of new RIM models could have influenced the results, though that won’t be clear until the next survey (probably in November).

Nevertheless, Carton views the August results as positive news for Apple.

“While recent ChangeWave consumer surveys have shown the 3G iPhone having a huge impact on consumer demand, the current results show the iPhone is beginning to gain real traction in the corporate market as well,” Carton said.

In a related question, 19 percent if the respondents said the iPhone 3G made their company “more likely” to buy Apple products in the future, with only 1 percent saying “less likely.”

“Thus the 3G iPhone release appears to be having a positive ‘halo’ effect in terms of improved overall corporate purchasing intentions for Apple products in general,” Carton said.

Just the other day I wrote about how Apple’s overtures to businesses with the iPhone 3G could be contributing to an upsurge in Mac sales in the enterprise. The ChangeWave survey provides some real-world evidence that this indeed is happening.

Posted by David Zeiler at 8:39 AM | Permalink | Comments (3)
                       

When a fellow worker in Chinese iPhone factory casually snapped her picture, neither could have imagined the Internet buzz they would generate.

It started when a visitor to MacRumors posted three pictures of the winsome young lady (her name has not been released) in an iPhone forum on the site Aug. 20.

“Not sure if this is or is not the 'norm' but I just received my brand new iPhone here in the UK and once it had been activated on iTunes I found that the home screen (the screen you can personalise with a photo) already had a photo set against it!!!!” wrote Markm49uk of Kingston Upon Hull. “It would appear that someone on the production line was having a bit of fun - has anyone else found this?”

The photos attracted enough attention that news organizations both in the U.K. and China soon took an interest. This morning the South China Morning Post tracked down someone at Foxconn Technology Group, the Taiwan-based contractor that builds the iPhone for Apple, who confirmed the girl works in a factory in the city of Shenzhen.

The spokeswoman explained that the workers may have taken the photos to test the device but neglected to delete them. Another Foxconn official told China’s, Southern Metropolitan Daily that the mystery girl had not been fired, as several of those commenting on the MacRumors forum had predicted.

Apple as usual had no comment when contacted by the Associated Press, but I think it could be missing a big opportunity here.

Apple could encourage factory workers in Asia to put their photos -- or even their names -- on the iPhones, iPods and Macs they build as a fun gimmick so customers could see the person who built their device. Apple could even supply a template for the workers: “Designed by Apple in California. Built by [insert name here] in Shenzhen, China.”

Not every device would have a photo of course, so getting one would be like winning a raffle. It could be one more thing that would set Apple apart from the competition and make its products even more personal.

Why not?

Posted by David Zeiler at 3:40 PM in iPhone | Permalink | Comments (15)
                       

After the botched MobileMe/iPhone 3G launch, as well as more recent problems users have reported with iPhone 3G reception, you’d assume customers would punish Apple.

Add to that an assortment of other issues over the past year or so, from the bricking of unlocked iPhones last fall to a plethora of Mac OS X Leopard bugs to last week’s iPhone “kill switch” dustup, and you have a lot of reasons consumers might want to avoid Apple products.

But whatever the disappointments, you won’t see it reflected in the company’s third quarter sales numbers.

Apple is expected to report another record quarter in September, according to a note to clients by Royal Bank of Canada analyst Mike Abramsky. AppleInsider reported this morning that Abramsky said Apple should see year-over year growth of 44 percent, with Mac sales topping 3 million for the first time.

That would beat the previous record – 2.496 million Macs sold, just set in the July quarter – by an amazing 20 percent. Abramsky also predicts iPhone 3G sales for the quarter to reach 5.1 million, which would nearly double the previous record for iPhone sales (2.315 million in the December 2007 quarter).

Earlier this week Apple made news by scoring 10 points higher than its closest competitor (Dell) on the University of Michigan’s American Customer Satisfaction Index. Apple received its highest score ever, 85 on the ASCI’s 100-point scale. Last year it scored a 79.

"Apple is not without its quality problems," ACSI project head Claes Fornell told Computerworld. "People know there have been some service and product quality problems, but Apple has an almost Teflon-like quality. Its problems don't really seem to matter to consumers."

The ASCI survey was taken before the MobileMe launch and recent iPhone 3G problems, but it seems someone is always complaining about an Apple product or service, if not taking them to court.

How can Apple commit so many wrongs and yet continue to enjoy record customer satisfaction numbers and booming sales growth?

Apple’s hold on customers can’t be completely explained by the “fanboy effect”; that is, people so devoted to the company they forgive it for any transgression. Apple has added many new customers in the past few years that do not fall into that category, from casual iPod owners to disgruntled PC users switching from Windows.

Such customers have bought Apple products with high expectations they would “just work.” I can’t imagine they’d tolerate consistently poor quality and bad service when those factors most likely drove them into the Apple camp.

Here’s what I think Apple’s “Teflon” is made of:

Cool factor: Apple’s marketing machine has successfully sold the idea of Apple as the coolest consumer technology company, a notion reinforced by its acclaimed product designs. People who buy Apple products feel that the company’s hip image will reflect on them. It doesn’t fix the problems, but it makes it harder to turn away from Apple.

Worse alternatives: Even if you have had a bad experience with Apple, many know first-hand that living with a Dell or Hewlett-Packard PC running Windows could be worse. Apple’s seamless control of the entire user experience has no substitute in the consumer technology world.

Apple trying harder: Though historically poor at fixing problems, Apple has gotten better recently. Not only did it work hard to address MobileMe’s problems, it just this week gave MobileMe account holders 60 more free days in addition to the 30 days it awarded a month ago. The company apologized. Customers will forgive a company that makes an effort to make things right.

Apple also has made an effort to get software fixes out to customers more rapidly, although it could do a better job of explaining to affected customers what the heck is going on (e.g., this week’s iPhone 3G reception fix).

Not as bad as it looks: Apple benefits from the media’s obsession with it when it rolls out new products – no tech company gets comparable attention – but that backfires when Apple has trouble. Many of Apple’s problems that draw extensive coverage would be largely ignored if they befell another company.

Squeaky wheels: With the exception of some large-scale blunders, like the MobileMe/iPhone 3G launch, most of Apple’s problems affect a relatively small number of customers, many of whom are very vocal. Most Apple customers have minor, easily rectified problems, and have no serious beef with the company.

For Apple to lose massive numbers of customers, it’s going to have to commit sins far worse than any it has thus far and be utterly non-repentant.

Posted by David Zeiler at 4:37 PM | Permalink | Comments (9)
                       

To protect the iPhone from malicious software, Apple made a controversial choice.

Last Wednesday the iPhone Atlas Web site noted the discovery of code in the iPhone operating system that linked to a page on Apple’s Web site. Dubbed the “kill switch,” the code appears to be part of a system that would allow Apple to zap an iPhone app remotely.

Detected by Jonathan Zdziarski, an iPhone developer and author of two books on the iPhone, the page looked like the framework for a blacklist of iPhone apps, though it listed no programs.

For the terminally curious, the page generates this odd string of data:
{ "Date Generated" = "2008-08-12 19:11:39 Etc/GMT"; "BlackListedApps" = { "com.mal.icious" = { "Description" = "Being really bad!"; "App Name" = "Malicious"; "Date Revoked" = "2004-02-01 08:00:00 Etc/GMT"; }; }; }

Later posts by Zdziarski suggested the kill switch might be directed only at programs trying to access the global positioning software, which could transmit the location of the iPhone to a cybercriminal.

After several days of speculation in the blogosphere as to the legitimacy of Zdziarski’s claim, Monday’s Wall Street Journal obtained verification from Apple CEO Steve Jobs himself: “Hopefully we never have to pull that lever, but we would be irresponsible not to have a lever like that to pull.”

Since then the debate has focused on whether the kill switch oversteps the bounds of Apple’s authority. Many believe it’s a violation of privacy. Others worry Apple would wield the kill switch to nuke a legitimate app.

That Apple would zap legit apps customers have purchased strikes me as unlikely. After all, Apple has veto power over every piece of software in the App Store. Unless an app contained malicious code that escaped detection, Apple would have no reason to kill it.

Besides, Apple suffered enough of a PR black eye over the MobileMe/iPhone 3G launch fiasco. Why would it create another one by killing valid iPhone apps?

I think the kill switch is exactly what it appears to be: an emergency-use-only tool for Apple to prevent malware from getting a toehold on the fledgling iPhone platform.

Recall that when the iPhone debuted in June 2007, it was closed to developers precisely because of Apple’s malware fears. And though Apple announced in October it would make an SDK available, that SDK was not released until the following March, with security concerns cited as the cause of the delay.

From Steve Jobs’ October announcement: “There have been serious viruses on other mobile phones already, including some that silently spread from phone to phone over the cell network. As our phones become more powerful, these malicious programs will become more dangerous. And since the iPhone is the most advanced phone ever, it will be a highly visible target.”

So a kill switch fits the pattern of Apple’s previously demonstrated paranoia over iPhone vulnerability.

I also wonder how the iPhone community will react when a clever hacker sneaks some nasty code into an otherwise innocent-looking app and it slips by Apple’s screening process. It’s inevitable.

And just as predictably angry iPhone owners will expect Apple to come to the rescue.

At that point millions of iPhone owners will be grateful for the kill switch, regardless of how they feel about it now (yes, I’m talking to you, Dan Gillmor).

While I understand why it makes people uneasy, putting a kill switch in a device otherwise defenseless against malware seems to me a wise precaution.

Opinions?

Posted by David Zeiler at 12:50 PM in iPhone | Permalink | Comments (14)
                       

In yet another signal of Apple’s determination to build market share for the iPhone, Best Buy will start selling the popular smart phone as of Sept. 7.

The Best Buy deal means customers will have nearly 1,000 more places to purchase an iPhone. Apple has 189 U.S. stores, while AT&T has more than 2,000.

More precisely, the iPhone will be sold through Best Buy Mobile, a joint venture with U.K.-based Carphone Warehouse Group PLC. Carphone Warehouse already sells the device in the United Kingdom.

Best Buy, of course, has an arrangement with Apple to sell Macs and iPods. Those existing relationships reportedly eased the deal.

The terms of sale will be identical to what you’d get buying from an Apple or AT&T store: the same prices ($199 for the 8 GB model, $299 for the 16 GB model) and the same requirement for a two-year service contract with AT&T.

Selling more iPhones obviously benefits AT&T and Apple, but what’s in it for Best Buy?

Since it will offer the iPhone at the same prices as Apple and AT&T, one wonders whether Best Buy will make much money, if any, from serving as an iPhone retailer.

Apparently Best Buy hopes the iPhone will bring in new customers while enhancing the chain’s tech hip factor.

“It solidifies us as the place to go for the cool stuff,” Best Buy Mobile president Shawn Score told Reuters, also noting that customers have been asking for the product.

One wonders if Apple might consider more deals with retailers to sell the iPhone. Though Apple told the Wall Street Journal that it has no plans for other U.S. deals, we all know how easy it is to find an iPod. Apple’s desire to make the iPhone ubiquitous could encourage more partnerships in the future.

For example, adding RadioShack’s 6,000 stores to the retailing mix -- it already sells other AT&T phones – would more than double the number of places where the iPhone is sold.

Posted by David Zeiler at 3:13 AM in iPhone | Permalink | Comments (2)
                       

In a rare admission of culpability, Apple CEO Steve Jobs sent out a memo to employees last night admitting that launching MobileMe at the same time as the iPhone 3G was a bad idea.

The memo, obtained by Web site Ars Technica, was sent to Apple employees Monday evening.

“It was a mistake to launch MobileMe at the same time as iPhone 3G, iPhone 2.0 software and the App Store. We all had more than enough to do, and MobileMe could have been delayed without consequence," Jobs wrote.

Since I came down pretty hard on Apple and Mr. Jobs in the aftermath of the chaotic MobileMe launch, during which customers had trouble accessing the service (particularly their e-mail) and activating their new 3G iPhones, I’d like to be among the first to applaud this admission Apple could have executed better.

Jobs goes on: “The MobileMe launch clearly demonstrates that we have more to learn about Internet services. And learn we will. The vision of MobileMe is both exciting and ambitious, and we will press on to make it a service we are all proud of by the end of this year."

Good for you, Steve. In the past Apple has struggled to admit mistakes, which inevitably has delayed correcting them. Perhaps Jobs has had an epiphany. (We can hope.)

I suspect the unusually negative publicity that accompanied the iPhone 3G/MobileMe launch and the ensuing MobileMe service glitches caught Jobs’ attention.

And not just Apple bloggers like yours truly, but major tech journalists such as David Pogue of The New York Times and Walt Mossberg of the Wall Street Journal. Those two nearly always swoon over everything Apple does, but both had harsh words for MobileMe. That must have bruised Jobs’ ego.

But hey, whatever works, right? Apple is committed to making MobileMe work as intended, and that’s all that matters now.

Posted by David Zeiler at 12:18 PM | Permalink | Comments (4)
                       

Even as Apple revels in the sales successes of the iPhone 3G, the reigning king of smart phone market share – Research in Motion – is preparing to launch as many as three new BlackBerry models.

According to Rockville, Md., -based ChangeWave Research, this scenario puts Apple and RIM “on a collision course in the consumer smart phone market.”

In a follow-up to its June survey, which showed RIM leading Apple among consumers with 42 percent of the market versus 11 percent, ChangeWave asked its members how likely they would be to buy one of the new BlackBerries.

Each of the models – the already announced “Bold” as well as two other expected variations, the “Thunder” and the “Kickstart” – showed “considerable potential among consumers.”

The most expensive of the new BlackBerries, the $299-$399 Bold, proved the most popular, with 17 percent saying they’d be very likely or somewhat likely to buy it. The middle model, Thunder ($199-$299), generated a bit less interest (15 percent) and Kickstart, with the cheapest price range ($149-$199), the least interest (13 percent).

One would expect the opposite, particularly given Apple’s findings that its customers wanted a cheaper iPhone (Apple CEO Steve Jobs said in his WWDC keynote that the number one reason people didn't buy iPhones is because they just can't afford it (56%)."

Then again, it could be that Apple and RIM may not be competing for as many of the same customers as one might think.

Another question sorted the data by which brand of phone the respondent already owned. Of current RIM customers, 47 percent were very likely or somewhat likely to go for the Bold, for example.

Only 9 percent of current iPhone owners said they’d be likely to buy a Bold. Even fewer (6 percent) would be likely buy the cheaper Kickstart. Only 2 percent expressed interest in the Thunder.

Most of the phone makers didn’t enjoy that kind of loyalty. Among Palm customers, 31 percent were willing to try the Bold. Other manufacturers had numbers ranging from 11 percent (LG) to 15 percent (Samsung). Only Nokia had customers nearly as loyal as Apple’s, with numbers in the 8 to 10 percent range.

ChangeWave predicts these “second-tier” players will suffer “as the two Goliaths battle for market place dominance.”

The new data indicate Palm will get hit the hardest, adding to the evidence from ChangeWave’s June survey: Palm’s market share dropped from 29 percent in April 2007 to 14 percent in June.

The next ChangeWave smart phone market share survey is due in the fall (usually the data is released in October). Stay tuned.

Posted by David Zeiler at 9:01 AM in iPhone | Permalink | Comments (1)
                       

On multiple occasions during Apple’s earnings conference call yesterday, CFO Peter Oppenheimer cited a “future product transition” as one of the reasons the company expected somewhat lower gross margins for the September quarter.

That any Apple executive would hint at an imminent new product in a public forum is extraordinary. It means whatever is coming will make a big splash, though probably not of the magnitude of the iPhone.

But what is it? It’s likely that the mystery product or products – or as Oppenheimer put it, “state-of-the-art new products that our competitors just aren’t going to be able to match” – will involve a touch screen.

I believe it could be the long-rumored Mac tablet PC. In any case, Oppenheimer’s remarks about it affecting the September quarter tells us it will arrive soon. He also hinted at other products in the pipeline that might shave gross margins in 2009.

As for Apple’s earnings, they were routinely spectacular. Apple made a profit of $1.07 billion in the June quarter on revenue of $7.46 billion. The earnings per share of $1.19 beat Wall Street estimates by 11 cents.

Strong Mac sales led the way. Apple sold nearly 2.5 million Macs, its highest quarterly Mac total ever. According to Oppenheimer, the 41 percent year-over-year growth is three times the overall PC market growth rate.

That would seem to jibe with last week’s market share reports from research firms IDC and Gartner, both of which showed Apple gaining more ground in the U.S. IDC had Apple’s 2Q share rising year over year from 6.2 percent to 7.8 percent; Gartner’s data had Apple increasing from 6.4 percent to 8.5 percent.

The biggest surprise was the iPod, which despite a woozy economy and two years of predictions that the product had peaked, pulled out a 12 percent increase in sales year over year, although iPod revenue was up only 7 percent because of a February reduction in the price of the Shuffle models to $49 and $69.

The iPhone numbers were predictably low – a mere 717,000 -- since Apple cut off the supply of the original iPhone mid-way through the quarter to prepare for the launch of the iPhone 3G on July 11.

Some other clues, news and tidbits from the conference call:

Steve Jobs’ health Ben Reitzes of Lehman Brothers apologized for asking the question, but a story in the New York Post yesterday almost guaranteed the subject would come up. Oppenheimer’s response was less than reassuring: “Ben, Steve loves Apple. He serves as CEO at the pleasure of Apple’s board and has no plans to leave Apple. Steve’s health is a private matter.”

Geez Louise, Peter. How about something like “We’re confident Steve will be leading Apple for a long time to come”? Oppenheimer’s stilted, non-committal answer will only serve to fuel more speculation on Wall Street that Steve is very seriously ill, and probably contributed to the 10.8 percent walloping AAPL took in after hours trading last night.

Margins are everything The other reason AAPL shed $18.04 last night almost surely was the lower guidance Oppenheimer gave for the company’s gross margins – from 34.8 percent in Q2 to a still robust 31.5 percent for Q3. You’d think the booming Mac and iPod sales driving record revenues and profits might count for something. Oh, and Apple did sell 1 million new iPhones in three days. And the company always beats its guidance numbers anyway. But noooo. SELL AAPL!!!

The international factor Apple saw significant growth overseas in the June quarter, which could become insurance against a slowdown in its rate of growth in the U.S.

For example, international sales of the iPod grew 15 percent (compared to 10 percent in the U.S.) While the iPod’s U.S. MP3 player market share has stabilized at about 70 percent, Oppenheimer said it has been increasing elsewhere and now stands at over 60 percent in Canada and over 50 percent in the U.K., Japan and Switzerland.

Apple is adding more retail stores overseas as well. One just opened in Beijing with more expected to open in Switzerland and Germany later this year.

Piggy bank full Oppenheimer blew off a question about what Apple plans to do with its ever-swelling cash hoard – now up to $20.8 billion. Sooner or later shareholders are going to demand Apple use it for something, be it stock buybacks, acquisitions of other companies or dividend payments. Even Microsoft is sitting on a mere $24 billion in cash these days.

The iPhone rollout The iPhone 3G is now shipping in 22 countries, with 20 more coming on Aug. 22. Oppenheimer reiterated that Apple expects to have the iPhone 3G available in 70 countries by year’s end. Also, COO Timothy Cook re-confirmed Apple’s confidence that it will sell 10 million iPhones in calendar year 2008.

Posted by David Zeiler at 8:13 AM | Permalink | Comments (6)
                       

“What were you thinking?” a legendary editor at the Baltimore Sun, Tony Barbieri, would ask his underperforming underlings. Before they could respond (they knew better), he would answer the question for them: “You weren’t thinking.”

After Apple made a perfect mess of the twin MobileMe/ iPhone 3G launch Friday, I couldn’t help but picture Tony in his office dressing down a contrite Steve Jobs. (Hey, I have a wild imagination, OK?)

As always, Apple had set the table for massive media coverage of the iPhone 3G launch. But the plan backfired when Apple’s servers, strained to the breaking point by excessive traffic, all but stopped functioning. Instead of the usual accolades and interviews with enthralled customers, the stories focused on the anger and frustration of disgruntled customers.

People buying the new iPhone in Apple Stores and AT&T stores could not get their new toy activated in the store, as required by Apple’s new purchasing rules. Many were sent home and told to activate it via iTunes from their home computer.

In most cases that didn’t work, either.

Meanwhile, Mac users trying to access the new MobileMe services experienced similar vexations. The service was up and down – mostly down – for the better part of the day.

But it was the iPhone debacle that drew the bulk of the bad publicity. A sampling of headlines: “For Apple, a taste of humble pie,” (Boston Globe); “Apple bungles its iPhone 3G launch” (Time); “iFiasco: Apple's iPhone launch flawed, faithful told to go home” (Chicago Sun-Times); “iPhone Users Plagued by Software Problems” (New York Times). There are many more. Many, many more.

Despite being an Apple advocate, I have to give the company a collective slap upside the head for this one.

The date was set months ago; Apple knew from its experience with the launch of the original iPhone last year that its stores (and AT&T’s) would be packed with early adopters. The change in policy to have customers activate their phones in the store instead of when they got home meant a lot of high, steady traffic on its servers.

And Apple knew that owners of the original iPhone, trying to upgrade to the iPhone 2.0 software to enjoy many of the goodies available on the iPhone 3G, would also be hitting those same servers.

And Apple scheduled the switchover of its .Mac service to the beefier MobileMe the night before, creating more chaos. I realize Apple did this because the MobileMe service syncs with iPhones as well as Macs, but doing it so close to the iPhone 3G launch meant Apple had to take a giant gamble – a gamble it lost big time.

The more prudent but less dramatic strategy would have been to set up the MobileMe service several days in advance of the iPhone launch. That would have taken some of the pressure off Apple’s servers from thousands of .Mac users like myself eager to test out MobileMe’s new features as soon as they were available.

And while it would have slightly spoiled the drama of the iPhone 3G’s introduction, Apple could have allowed the current iPhone owners to download the whopping 225 megabyte iPhone 2.0 software update a few days earlier.

Less orchestrated, less dramatic yes, but minus the meltdown.

This would be a humiliation for any large company, but it’s worse for Apple, which has built its public image on a foundation of superior design and customer service. Long-time Apple critics are feasting on this blunder as proof Apple isn’t the premium company it claims to be.

Apple’s best hope for minimizing the damage from this fiasco is that customers are so wowed by the iPhone 3G (and the iPhone 2.0 software, and the new MobileMe features) they’ll begrudgingly forgive it – as they have with previous transgressions.

But it never should have happened.

Posted by David Zeiler at 8:09 AM | Permalink | Comments (28)
                       

Of those planning to buy a smart phone in the next three months, people eyeing an Apple iPhone outnumber those pondering a RIM BlackBerry by a two-to-one margin.

So says a smart phone survey of consumers conducted June 17-23 by Rockville-based ChangeWave Research. The company conducts periodic surveys on technology and business trends from amongst the members of its “ChangeWave Alliance.”

A remarkable 56 percent of the respondents said they planned to buy an iPhone in the next 90 days; 23 percent said they planned on purchasing a BlackBerry, a 6-point drop from a similar survey taken in March. All other manufacturers had 3 percent or less.

The iPhone number is 21 percent higher than it was in the March survey, and double what it was in the January survey. Though the hype building up to the iPhone 3G’s launch tomorrow hasn’t matched that of last year when the iPhone debuted, this data suggests a high level of consumer anticipation.

Even though many consumers have waited for the arrival of the iPhone 3G, the product’s market share has grown. Among the current smart phone owners surveyed 11 percent have an iPhone, a 2 percent increase from March and a 5 percent increase since January.

While market leader BlackBerry has held steady at 42 percent, Palm has dropped 4 percent since January to 14 percent of the market. Given the sales surge expected for the new iPhone and Palm’s ever-sinking numbers, Apple should overtake Palm in the next survey.

Despite rapidly rising numbers in the planned purchase category, Apple has yet to make a dent in RIM’s market share, which has actually increased a couple of points since the iPhone’s debut last year.

Maybe the iPhone 3G will change that, but RIM is expected to unleash several new smart phone models in the coming months – the “Bold,” the “Thunder” and the “Kickstart” – to thwart Apple’s momentum in the consumer market as well as prevent any encroachment on its utter dominance of the enterprise market.

In the mobile operating system category, Apple’s use of Mac OS X on the iPhone appears to be paying dividends. When asked which mobile OS they’d prefer on their next smart phone 43 percent said OS X, swamping the RIM OS (17 percent) and Windows Mobile (12 percent). Google’s Android made the wish list of only 2 percent of the respondents.

That’s a stark contrast to where things stand now: the RIM OS is on 40 percent of the respondents’ current phones; Windows Mobile on 29 percent; Palm OS on 11 percent; and OS X on 10 percent.

A few more intriguing tidbits from the survey:

Steve Jobs: In this survey, ChangeWave threw in a rather unorthodox question about Steve Jobs, asking what effect his stepping down as Apple CEO would have on the likelihood they’d buy Apple products in the future. Most (68 percent) said it would have no effect, but 18 percent said they’d be less likely to buy from an Apple without Jobs at the helm (14 percent said they didn’t know).

Some pundits have worried an Apple Inc. without Jobs would lack the vision to generate the exceptionally consumer-friendly products that have become routine since Jobs’ return in 1997. The response to this question tells us that, products aside, Jobs’ celebrity-like persona alone boosts sales. Astounding.

Why they buy: ChangeWave asked those planning to buy an iPhone which features most influenced their decision, allowing up to three choices each. Lower price was cited by 67 percent; 3G capability by 63 percent; GPS mapping by 47 percent; Microsoft Exchange support by 35 percent; and third party applications by a surprisingly low 20 percent. I expect third-party apps eventually to become a major driver of iPhone sales.

Customer satisfaction: The iPhone retained its large lead over the BlackBerry: 78 percent said they were “very satisfied” with the iPhone compared to 54 percent for the BlackBerry, almost identical to the March numbers.

Smart move: The wisdom of AT&T making a deal with Apple to be its exclusive U.S. iPhone partner becomes increasingly apparent with every survey. Almost half (48 percent) of the iPhone owners switched from another provider, a number that has risen steadily from 34 percent in the July 2007 survey.

The influx of new customers has helped AT&T edge ahead of Verizon in overall market share (30 percent vs. 29 percent) and the iPhone 3G should help AT&T pad its lead.

Posted by David Zeiler at 8:12 AM in iPhone | Permalink | Comments (3)
                       

Few hunting for information on the Web are as obsessed as those searching for news about the iPhone.

According to a study conducted by comScore, Inc., a Web traffic measuring service based in Reston, Va., 1.3 million people conducted 6.9 million searches for iPhone-related terms in the month of April – a full month before Steve Jobs announced the iPhone 3G at the Worldwide Developers Conference.

Other topics may generate more searches overall, but the folks digging for iPhone nuggets search more frequently.

To see the obsession, you have to do the math. The iPhone numbers cited above work out to about 5.3 searches per person.

By comparison, 2 million people conducted 3.8 million searches for troubled pop star Britney Spears in April – less than two per person, according to a post on the Los Angeles Times Technology blog. Searches for Barack Obama in April equaled about 2.5 per person.

I can vouch for the extraordinary degree of interest in all things iPhone. The Google Analytics data I use to track traffic to my blog shows that posts on the iPhone draw far higher levels of traffic than any other topic.

And items on the iPhone also draw much more international traffic, sometimes as high as 50 percent.

Four of the top six most viewed posts on my blog since September (when I started tracking the data) have been on iPhone topics. And of those four posts, two were on unlocking the iPhone.

Information regarding unlocking iPhones remains of perpetual interest. A post I wrote in November speculating on whether Apple would eventually relent and sell iPhones unlocked has generated continuous traffic.

A post I wrote nearly a month ago after Jobs’ WWDC keynote is still getting hundreds of hits a day, with the numbers increasing daily as we approach the iPhone 3G’s July 11 launch. It’s crazy.

But it’s not quite clear what these iPhone-obsessed people are looking for. While they come in large numbers, they often leave quickly. My best guess is that a majority of this group is seeking instructions on how to unlock the iPhone, which they don’t find on my blog.

Although it’s difficult to draw any definitive conclusions about what this abnormal craving for iPhone information might mean to sales, I think it’s safe to interpret it as a positive indicator. Apple would be wise to keep those iPhone factories humming.

Posted by David Zeiler at 2:32 PM in iPhone | Permalink
                       

The iPhone unlocking game has changed again.

Though neither Apple nor AT&T had hinted at an unsubsidized option for the iPhone 3G, today AT&T issued a press release that states it will sell iPhones without a contract.

The relevant sentence: “In the future, AT&T will offer a no-contract-required option for $599 (8GB) or $699 (16GB).”

The subsidized prices are $199 and $299, which puts the premium for a contract-free phone at $400. The only catch appears to be the timing. You won’t be able to buy an unsubsidized iPhone on July 11 when the new version goes on sale, but at some unspecified point in the future.

Still, the arrival of a contract-free iPhone 3G will make life much easier for the folks who wish to unlock their iPhone for use with a carrier other than AT&T.

When Apple announced the iPhone 3G at the Worldwide Developers Conference June 9, the picture for unlocked iPhones looked bleak.

Customers would be required to sign a two-year contract with AT&T and activate the phone at the time of purchase. No online sales, no way to fudge it. You buy an iPhone, you buy a contract.

Breaking the contract would not be impossible, but inconvenient enough that doing it just to have an unlocked iPhone would have proven impractical for many.

Although the unsubsidized 3G iPhone also will be locked to AT&T’s network, unlocking it will be a trivial matter -- as we saw last year with the first version. I expect unlocked 3G iPhones to surface within days -- if not hours -- after it goes on sale July 11.

I applaud this decision. Everybody benefits. Apple and AT&T still make money while customers who desire more flexibility in the use of their iPhone get what they want. The $400 premium is a bit steep but probably worth avoiding the hassle of AT&T’s draconian rules for canceling a contract.

It would be even better if the unsubsidized iPhone came unlocked, but I suppose Apple and AT&T need to at least make it appear they disapprove of the inevitable rampant unlocking that will ensue.

AT&T also expects to offer a prepaid plan to accompany the sale of the unsubsidized iPhones, but offered no details on that today. Such a plan might appeal to customers wary of the cost of any of AT&T’s pricey contract plans, which start at $70 a month.

AT&T’s “Get iReady” customer information page can be found here.

Posted by David Zeiler at 1:45 PM in iPhone | Permalink | Comments (2)
                       

UPDATE 7/2: For those just finding this post, you might be interested in reading my thoughts on how AT&T's plans to sell the new iPhone without a contract will affect the unlocking equation.

UPDATE 1/2/09: Amazingly, this old post still gets hundreds of hits a day. For those seeking the holy grail of an unlocked iPhone 3G,check out this PC World article on the "yellowsn0w" utility.



Sellers of unlocked iPhones are about to go out of business.

The revised terms of Apple’s agreement with carrier AT&T will make buying an iPhone with the intent of unlocking virtually impossible.

Those who buy the iPhone 3G will need to purchase a service contract with AT&T before leaving the store. Apple will not allow customers to buy an iPhone online. And those who do not activate their iPhone within 30 days will face an as-yet-unspecified penalty.

After hackers cracked the iPhone last summer, unlocked iPhones became an industry unto itself. Some domestic customers unlocked iPhones for use on T-Mobile’s network (the only other domestic network compatible with the iPhone).

But many more iPhones became part of a substantial international grey market. People bought iPhones online without purchasing a contract with AT&T, unlocking them and shipping them outside the United States for sale to eager customers in dozens of countries.

In September Apple tried to stop the unlocking with a software update that “bricked” unlocked iPhones, resulting in a backlash from irate customers and negative media coverage. The incident bruised Apple’s customer-friendly public image and probably left CEO Steve Jobs seeking better options.

Not long after that ugliness it became apparent most of the phones were going to countries in which Apple had no deals with carriers, generating sales the company wouldn’t otherwise have had. Apple policy quietly shifted to unofficial toleration of unlocked iPhones.

Until this week, anyway.

Now Apple has contracts with carriers in over 70 countries, all of which are preparing to sell the new iPhone 3G. A large and active grey market in unlocked iPhones no longer serves Apple’s interests. Apple needed to make it go away, and quickly.

Apple’s bricking strategy apparently has yielded to a method much harder to defeat: the terms of the AT&T service contract.

Simply canceling the contract with AT&T after the iPhone purchase would seem a workable tactic. Adding the lower cost of the new iPhone ($199) to the $175 fee for canceling the contract and the initial $40 activation fee brings you to a total of $415, just $16 more than buying the original iPhone without a contract.

But according to a Computerworld article, AT&T will require the return of the iPhone before it cancels the contract.

So if you really want to own an unlocked iPhone, you’ll face no insurmountable technical barrier. But since you’ll be paying full freight for AT&T’s service, you’ll have gained little.

As an advocate for Apple selling unlocked iPhones for a premium price alongside carrier-subsidized locked iPhones, I’m disappointed Apple decided to choose this path. I understand the strategy behind it, though.

To sell much higher numbers of iPhones, Apple knew it needed to drop the price. The only way Apple could sell the iPhone for significantly less money was to have AT&T subsidize it. You can bet AT&T insisted on the airtight restrictions in the contract terms to ensure it would get the monthly fees needed to cover that subsidy.

Apple will sell more iPhones, AT&T will make more money and customers will pay more while losing what little hope remained of someday being able to use a carrier of their choosing.

And while on the subject of pricing, the long-term cost of the iPhone 3G will exceed the original’s since the minimum service fees with AT&T will run at least $10 per month higher.

With a two-year contract, that’s $240 -- $40 more that the $200 price cut you’ll get with the new subsidized iPhone. If AT&T charges more for text messaging as some suspect (monthly fees start at $5), the discrepancy could be more severe.

Furthermore, AT&T is the one reaping all the extra dough, not Apple. Another part of the companies’ new agreement ends the revenue sharing of the monthly contract fees. (Apple will continue to collect fees from existing iPhone contracts, however.)

So not only will AT&T collect more from each customer every month, it gets to keep all that money for itself.

It appears the revolution the iPhone supposedly had brought to the phone maker-carrier relationship has crumbled prematurely.

Posted by David Zeiler at 5:21 PM in iPhone | Permalink | Comments (136)
                       

Some of the iPhone’s biggest fans – tech bloggers, mostly – have had a lot to say today about the new iPhone’s shortcomings. Apple CEO Steve Jobs unveiled the iPhone 3G yesterday at the Worldwide Developers Conference in San Francisco.

Despite the much-desired addition of faster 3G network capabilities, GPS and a $200 price cut, astute iPhone watchers zeroed in on several improvements they expected but did not get, such as a better camera, multimedia messaging and greater storage capacity.

These folks make some valid points. The iPhone 3G’s 2-megapixel camera is unchanged from the previous model. Most other smart phones give you at least 3 megapixels. Others had hoped for a front-facing video camera, which would turn the iPhone into a videophone via Apple’s iChat software.

Apple also failed to add the ability to cut and paste, an inexplicable omission given the relative simplicity of the function.

Other complaints include weak Bluetooth support, the lack of a landscape-oriented keyboard, no Adobe Flash in the Safari Web browser (which renders many Web sites all but useless) and the failure to boost storage in the high-end model to 32 gigabytes.

As an Apple watcher, I was impressed by yesterday’s announcements, but in the case of the iPhone I view developments from a strategic perspective, not that of a user (I don’t yet own an iPhone -- gasp!).

From a strategic perspective, Apple is doing a lot of things right to increase sales and market share. Apple focused on those features it determined would sell the most iPhones: a faster network, lower prices and an abundance of cool software.

I suspect Apple spent less effort trying to please existing owners precisely because they already had bought an iPhone. Satisfying existing iPhone customers was not the priority this time around.

Instead Apple concentrated on changes aimed at increasing iPhone sales as rapidly as possible. That iPhone availability will extend to 70 countries this summer is not a coincidence.

The cynical voice inside my head also wonders if Apple held back on some improvements intentionally to save them for the next version of the iPhone. Most of those who bought the first version of the iPhone may not be ready to upgrade now, but probably will be next year when Jobs introduces iPhone 3.0.

If Apple rectifies most of the issues that irk current iPhone owners in next year’s model, all will be forgiven. And Apple will sell even more iPhones.

Posted by David Zeiler at 1:00 PM | Permalink | Comments (30)
                       

Apple CEO Steve Jobs fulfilled the world’s expectations today by introducing the iPhone 3G, which will use AT&T’s much faster next-generation network to access the Internet. The new iPhone will go on sale July 11 starting at $199 for the 8-gigabyte model and $299 for the 16 GB model (which also comes in a white model).

Jobs also introduced a new $99-a-year “cloud computing” service, MobileMe that replaces the .Mac service that has long been dinged for costing more than it was worth.

Jobs presented a checklist of improvements to the iPhone that included the 3G network support, increased affordability, better enterprise support and wider international availability.

In addition to a faster network connection, the iPhone 3G features built-in GPS, better battery life and a plethora of new apps written by a growing legion of developers.

The new models did not get a bump in memory, no doubt helping Apple afford the big price cut -- from $399 and $499 – to make the device more affordable. Jobs said 56 percent of those who wanted an iPhone but did not buy one said the reason was cost.

Apple has taken care of increasing the iPhone’s global availability by signing contracts with cellular carriers in nearly 70 countries over the past month or so.

As for enterprise support, Jobs crowed about how the iPhone 3G includes many of the features business customers said they wanted: push e-mail, VPN, support for Microsoft Exchange, and so forth. He said 35 percent of companies in the Fortune 500 have participated in the program.

Perhaps to build suspense for the expected iPhone announcement, Jobs devoted about half of the keynote to iPhone software created by the first wave of iPhone developers.

Though hard to argue with given the audience – Mac and iPhone application developers – all that tech talk and the endless string of demos began to wear thin. As Engadget’s Ryan Block put I in his live blog commentary, “Man, these demos are crazy boring. Throw us a bone here Apple!”

Still, the overall impact of those demos was to show off the amazing potential of the iPhone as a platform. In addition to the many games, the keynote included demos of a music creation app, several medical apps and “At Bat,” an app that allows users to follow Major League Baseball games in real time and even catch video highlights from mlb.com.

As the stable of wide-ranging iPhone apps continues to swell, it will make the iPhone itself more and more compelling, particularly in relation to its competition.

The other major announcement Jobs made at the keynote was the arrival of MobileMe, which Apple senior vice president of Worldwide Product Marketing described as “Exchange for the rest of us.” Microsoft Exchange allows businesses to centrally manage e-mail, calendar and contact information.

MobileMe enables individuals to use the Internet to manage their e-mail, contacts and calendars among multiple devices, including Macs, PCs running Windows and an iPhone.

For example, if you add a contact to your Address Book on your Mac, it shows up seconds later in the contact list on your iPhone. According to Schiller, MobileMe uses wireless networking to maintain up-to-date data on all a user’s devices.

MobileMe integrates with iCal, Address and Mail on a Mac and Microsoft Outlook on a PC. No mention was made of whether MobileMe would work with Microsoft’s Office for Mac Entourage mail program.

Even more dramatic is MobileMe’s Web 2.0 applications. When a user logs in to MobileMe, he can access not just online iDisk storage (which has doubled from 10 GB to 20 GB), but also a group of common applications – a calendar, mail, photos and more over the Internet, much like Google Apps.

The MobileMe Apps look very much like their Mac counterparts, and even support Mac-like features like drag-and-drop.

Those with existing .Mac accounts will be upgraded to MobileMe automatically, while those new to the service can get a 60-day free trial to see if they like it. The service will cost $99 a year, just like .Mac did.

Conspicuous by its absence in the Jobs keynote was any mention of the next version of Mac OS X or a new multi-touch device, both of which were the subject of much rumor chatter in recent days.

Posted by David Zeiler at 3:34 PM | Permalink | Comments (9)
                       

With another Steve Jobs keynote looming Monday, rumors are flying about a preview of Mac OS X 10.6, a retooled and renamed .Mac service, and the possibility of a totally new multi-touch product, perhaps the long-anticipated iTablet.

Although the alleged purpose of Apple’s annual Worldwide Developers Conference is to engage professional software makers who write programs for Mac OS X, WWDC gradually has evolved into more of a Macworld-type event -- particularly since the demise of the summer East Coast Macworld show a few years ago.

Let’s have a look at the rumors and expectations for the keynote, which Jobs is scheduled to deliver at San Francisco’s Moscone West 10 a.m. Monday:

The iPhone: The one thing everyone agrees will appear Monday, from the Wall Street analysts to the most obscure Mac blogger, is a new iPhone. So Jobs better have one in his pocket when he steps onstage.

Apart from 3G network capabilities, few agree on what other features the new iPhone will have. Some possibilities: built-in GPS and a slimmer case available in several colors.

Most also expect Apple to keep selling the current 2.5G iPhone models at much lower prices, since many of the 70-odd countries where Apple plans to launch the iPhone this year still use the older technology. (Personally I would love to see one iPhone that incorporates all three technologies -- EDGE, 3G and Wi-Fi – and unlocked to boot, but that’s just a fantasy.).

I suspect we’ll also see a high-end version with at least 32 gigabytes of flash memory (up from the current 16 GB), possibly even 64 GB. The top iPod Touch model has had 32 GB since February, so a 32 GB iPhone would seem inevitable.

Since this is WWDC after all, Jobs definitely will speak of the joys of the iPhone 2.0 software that enable developers to write apps for the iPhone, as well as the App Store where Apple will sell them (while taking a 30 percent cut for itself). Many of the five-day conference’s developer sessions focus on the iPhone.

Mac OS 10.6: A few days ago The Unofficial Apple Weblog claimed Apple would distribute a developer release of the next version of the Mac operating system at WWDC. The site further claimed this version would be a “minor” release focused on stability and speed improvements with no significant new features.

Well-respected tech site Ars Technica said it had a source that confirmed most of this while adding the moniker “Snow Leopard.”

Both sites claimed this new version of OS X, purportedly due in January 2009 (way too soon in my opinion), would drop support for Power PC Macs, running only on Intel-based machines. Many Mac users commenced griping immediately.

True enough, Jobs often has made significant Mac OS announcements at WWDC (remember the funeral for Mac OS 9?), so I figure a preview of Mac OS X 10.6 is a strong possibility.

But as for the rumors – that’s all they are, rumors. I’m reluctant to comment further on any aspects of OS X 10.6 until Apple gives us some concrete details.

.Mac makeover: Apple’s often-criticized .Mac $99-per-year Web service could be reborn as MobileMe with enhanced features such as the ability to sync with Windows, Exchange-like over-the-air syncing and push e-mail.

Many of these features would be most useful to iPhone owners, which would dovetail nicely with this year’s iPhone-dominated conference. This rumor feels right. If it pans out, cheers will fill the auditorium when Steve announces it.

iTablet: Like the iPhone rumor before it, the iTablet rumor has been around for a years. This device would be about twice the size of the iPhone but would feature the same multi-touch screen and wireless connectivity.

I do not foresee an iTablet in the keynote. Even if Apple has such a gizmo in the works, as a totally new product it would probably get its own separate special event later this year.

For that matter, I’m not even sure what niche an iTablet would fill. But then Apple does have a way of re-inventing product categories to add those “gotta-have-it” qualities.

New MacBooks: If they’re coming, we won’t see them until after WWDC. Jobs won’t want any competition for the iPhone stuff. And Jobs generally goes light on hardware announcements at WWDC anyway.

Posted by David Zeiler at 12:45 PM | Permalink | Comments (4)
                       

Apple must have planned it this way.
Today yet another deal to sell the iPhone surfaced, this one with a current partner, France Telecom’s Orange. Followers of the iPhone’s adventures will recall that Orange is the official iPhone carrier in France.

The non-stop publicity the current series of announcements has generated recalls last year’s six-month hypefest leading up to the iPhone’s debut at the end of June. Apple is expected to unveil a fresh version of the iPhone within weeks.

The new deal includes an assortment of countries in Europe, the Middle East, Africa and even the Caribbean. In a one-sentence press release, Orange named the following countries: Austria, Belgium, the Dominican Republic, Egypt, Jordan, Poland, Portugal, Romania, Slovakia and Switzerland.

Orange also mentioned its African markets, which includes 14 countries and territories in addition to Egypt. Those areas are Guinea Konakri, Guinea Bissau, Ivory Coast, Cameroon, Equatorial Guinea, Botswana, the Central African Republic, Cameroon, Senegal, Niger, Mali, Kenya, Madagascar, Mauritius and Réunion Island.

In a note to clients, Piper Jaffray analyst Gene Munster noted the Orange deal brings the total number of countries where the iPhone is due to appear this year to 42, representing a total market of 575 million potential customers.

Munster said he had “increased confidence” that Apple would hit his previous estimate of 12.9 million iPhones sold this year and repeated his prediction of sales of 45 million iPhones in 2009. That estimate is predicated on Apple adding China and Japan at some point, which would nearly double the iPhone’s potential market to 1.1 billion customers.

Keen observers will note that the Orange deal includes a few countries already covered by deals with other carriers; apparently Italian iPhone buyers will not be alone in having a choice of wireless service.

This bodes well for U.S. customers who dream of using the iPhone on a network other than AT&T’s. If Apple sees that offering a choice of carrier helps sales, we should see the policy expand to more countries.

Although I don’t see it happening this year (or even next year) because of Apple’s exclusive arrangement with AT&T, eventually Apple will want to offer the iPhone in the United States through a second carrier. More availability will equal more market share growth. It’s a no-brainer.

Posted by David Zeiler at 5:44 PM in iPhone | Permalink
                       

The long wait to find out which countries will get the iPhone next ended dramatically over the past week with a flurry of announcements that should have the device on sale in 26 more nations by year’s end.

Not that you can’t buy an iPhone almost anywhere in the world already. But those unlocked iPhones are unauthorized -- purchased primarily in the United States for resale in places with demand but no supply.

In its past several earnings conference calls, Apple CFO Peter Oppenheimer has described this worldwide “grey market” not as a problem for Apple but as an opportunity, a demonstration of extraordinary demand for the product.

While Apple makes a profit from iPhones that end up in the grey market, it would make more by selling them to customers in those countries via a cellular partner along with a service contract.

Perhaps that’s why we’re seeing such a large number of countries on Apple’s iPhone schedule – the longer it takes Apple to set up its international iPhone distribution network, the more money it loses from the lucrative revenue-sharing deals it makes with the carriers.Depending upon how the iPhone is priced, grey markets may continue to thrive in many places. But a legitimate iPhone should take back the bulk of sales in most countries.

So just who is getting the iPhone this year? Canada made the list when Rogers Communications announced its deal with Apple last week.

On Tuesday U.K. -based Vodafone – the world’s largest mobile carrier – said it would be selling the iPhone in 10 countries by the end of 2008.

And yesterday America Movil SAB, Latin America’s largest wireless carrier with 37 percent of the market, announced plans to “bring the iPhone to its Latin American operations,” which includes 15 countries and Puerto Rico.

Expect the list to keep growing, as reports of several unconfirmed deals also surfaced this week. Yesterday the Swiss newspaper Le Matin said that mobile carrier Swisscom had forged a deal with Apple to bring the iPhone to Switzerland this summer.

And France Telecom CFO Gervais Pellissier hinted during a conference call that his company, owner of the Orange network, is in talks with Apple to sell the iPhone in countries besides France. Two prime suspects are Spain and Poland, but Pellissier said the discussions extend to more than just two countries.
On top of all that Apple also announced that in Italy, Vodafone will not have exclusive rights to the iPhone, breaking its policy of one country, one carrier. Vodafone will share the privilege with Telcom Italia TIM. Some suspect the Australia deal also may not be exclusive, but that is not yet confirmed.

But the Italy situation alone marks a major shift in strategy for Apple. Here we have proof that -- at least with the iPhone -- Apple is willing to break with its traditional stubbornness and pursue whatever business model works best in a given situation.

What we don’t know is how much (if any) shared revenue Apple will get in a country with multiple carriers. Until now, Apple had used the exclusivity as a bargaining chip to obtain a percentage of revenue from the service contracts.

We also don’t know if this new willingness to experiment means Apple itself will start selling unlocked versions of the iPhone, at least in countries where Apple considers it practical.

What we do know is that Apple’s global iPhone strategy has kicked in to high gear. The countries lined up so far constitute a huge chunk of the worldwide market, which should accelerate sales substantially.

And then factor in the impact of the 3G iPhone everyone expects Apple to announce next month. Whoa.

Posted by David Zeiler at 12:30 PM in iPhone | Permalink | Comments (8)
                       

Fans of the iPhone and the BlackBerry both have their reasons for preferring the device of their choice, but coming changes to the iPhone could make it more tempting to a wider audience.

A report released today by Rockville, Md.-based ChangeWave Research on customers of the top two smart phones identifies what they like and don’t like about Apple’s iPhone and Research in Motion’s BlackBerry. The report data was drawn from a previous ChangeWave survey on smart phones conducted in March.

The results echo commonly accepted notions about the strengths and weaknesses of the rival communication devices, but also illustrate how a few changes to the iPhone – several of which are expected in June -- could make it far more attractive to many more customers.

The single most important feature to BlackBerry customers is overwhelmingly “e-mail access,” with 56 percent calling it the feature they like best. The second-most mentioned response, mentioned by just 7 percent of the respondents, was “size.”

The original iPhone software could not integrate well, if at all, with corporate e-mail systems. But Apple has an answer in the pipeline -- the iPhone 2.0 software due out in June. In one stroke Apple will neutralize the BlackBerry’s single biggest advantage.

Customers’ dislikes about the BlackBerry were more varied. They disliked the Internet browser (13 percent) most, followed by the keypad (11 percent) and application problems (10 percent).

The iPhone enjoys an edge in Web browsing, with its customized version of Mac OS X’s Safari. Instead of “application problems,” iPhone users complained their device “doesn’t support third party software” -- but again, Apple has targeted that issue with the impending release of the iPhone Software Development Kit.

The dissatisfaction with the BlackBerry’s keypad surprised me a little, as numerous critics have claimed the iPhone’s touch screen keyboard is harder to use. Yet 27 percent of iPhone users cited the touch screen interface as their favorite feature.

Not surprisingly, even more iPhone owners (36 percent) preferred its “integration of phone, iPod and Internet browser” functions in a single device. Those two features comprise the essence of the iPhone’s appeal.

The iPhone dislikes chart similarly contains no major surprises. The top two items involve AT&T, Apple’s designated cellular provider in the U.S. One in five iPhone owners (21 percent) said their biggest gripe is the slow speed of AT&T’s EDGE network, and nearly as many (17 percent) objected to the requirement to use AT&T.

If recent conjectures on the June arrival of a 3G iPhone prove true, Apple soon will have an alternative for those dissatisfied with AT&T’s network speed.

Citigroup analysts Richard Gardner and Yeechang Lee predicted in a research note last week that Apple CEO Steve Jobs will introduce the 3G iPhone in an as-yet-unannounced keynote address at the Worldwide Developers Conference (June 9-13).

A report yesterday on the DigiTimes Web site that Chinese-based FoxConn Electronics – which makes the current iPhone models – had landed orders for the next-generation model added more weight to the likelihood of the 3G iPhone. The first 3 million units supposedly are due to ship in June (fancy that!), with a total of 24 million to 25 million expected to ship through the model’s life cycle.

A 3G capability was the feature most cited by iPhone users (19 percent) in the ChangeWave survey when asked which new feature they’d like to see. Third party software (18 percent) followed close behind along with GPS (15 percent).

Talk about giving the people what they want. A 3G iPhone married to the iPhone 2.0 software will satisfy several customer desires in one swoop.

Only two significant impediments to iPhone sales appeared in the ChangeWave survey: price and the AT&T requirement.

Of those surveyed that said they planned to buy an iPhone but had not yet done so, 24 percent said they were waiting for the price to drop. Almost as many (22 percent) said they were waiting for the iPhone to become available on other service providers.

I have said often on this blog that Apple should sell an unlocked version of the iPhone at a higher price, and someday it probably will. But not in June.

So when Apple makes its numerous iPhone announcements in a little over a month, the only murky piece of the puzzle will be the product’s price -- a sticky issue ever since the startling $200 price drop last year just 10 weeks after its introduction.

American Technology Research analyst Shaw Wu said in a note to clients last week he foresees a reduction in the price of the “old” 2.5G iPhone models to $349 and $299 when the 3G versions arrives. (The current prices are $499 for the 16 GB model and $399 for the 8 GB model.)

Matching the ChangeWave data with what we know of Apple’s plans, I see a strategy that squares extremely well with what current iPhone customers have asked for and what potential iPhone customers have been waiting for.

That goal of selling 10 million iPhones in 2008 looks more realistic every day, doesn’t it?

Posted by David Zeiler at 5:16 AM in iPhone | Permalink | Comments (14)
                       

Far more iPhone owners are “very satisfied” than owners of other smart phones, according to data from a ChangeWave Research survey conducted March 17-24.

Furthermore, the iPhone’s market share increased 50 percent, from 6 to 9 percent, since a January survey.

ChangeWave, a Rockville, Md.-based research company, conducts periodic surveys from amongst the members of its “ChangeWave Alliance” on technology and business trends.

The results of this survey, focused on consumers, echoes the results from a similar ChangeWave survey on corporate smart phone purchasing taken in February. (See my blog entry on that here.)

The customer satisfaction chart shows Apple leading with a breathtaking 79 percent of owners saying they are “very satisfied,” handily beating Research in Motion’s (BlackBerry) 54 percent.

The market share numbers show Apple gaining, but mostly at the expense of Palm, which has declined from 23 percent when the iPhone went on sale in July of last year to 16 percent in the March survey.

Somewhat ominously for Apple, RIM’s market share has increased since the iPhone’s launch, from 38 percent last July to 42 percent in the most recent survey. Perhaps as Apple builds upon the iPhone's potential as a WiFi mobile platform, it will begin to eat into the BlackBerry's market share.

Nevertheless, Apple managed to pull into third place in the smart phone market in just nine months, disproving the negative predictions of the iPhone’s doubters last year.

Of those respondents who plan to buy a smart phone in the next 90 days, Apple scored its highest number yet – 35 percent plan to buy an iPhone, compared to 29 percent planning to buy a BlackBerry. That’s reversed from January, when 32 percent said they expected to buy a BlackBerry versus 23 percent for the iPhone.

ChangeWave attributes this dramatic shift partly to Apple’s announcement in January of the availability of the iPhone software development kit, which promises to greatly expand the iPhone’s capabilities relative to its competitors.

However, when asked this directly, only 10 percent of the respondents said the iPhone SDK announcement along with the iPhone road map and Enterprise beta program made them “more likely” to buy an iPhone in the future, with 79 percent saying none of that mattered.

One other noteworthy portion of the survey concerns cellular providers. In the chart showing future buying plans by provider, the iPhone appears to have had a dramatic impact on AT&T’s business.

Through 2006 AT&T’s numbers hovered in the mid-teens. But in January 2007 – when Steve Jobs announced Apple’s partnership with AT&T as the exclusive carrier for the iPhone in the United States – AT&T’s number jumped 43 percent. In the April survey, AT&T overtook Verizon, and has remained ahead in each survey since.

The number of people saying they planned to switch to AT&T hit a high of 30 percent in July 2007 – when the iPhone went on sale. In the current survey, AT&T holds a 6 percent lead over Verizon.

The draw of the iPhone could have provided an even bigger pop to AT&T’s numbers save for one problem – its customer satisfaction numbers seriously lag Verizon’s. Only 28 percent said they were “very satisfied” with AT&T compared with 42 percent for Verizon.

Looking at it another way, one wonders how many iPhones Apple could have sold had it been possible to sign Verizon as its exclusive partner.

Posted by David Zeiler at 7:12 AM in iPhone | Permalink | Comments (3)
                       

I don’t often write about rumors I read elsewhere, much less contribute my own, but I happened upon a tidbit of information recently that could very well come to pass.

My source is not a secret informant from deep inside one of the companies or a parts supplier in a distant nation – the sources of most Apple rumors. This information came up in a casual conversation with a salesman at a RadioShack store.

I had gone to get the batteries in my cordless phones replaced when I noticed the displays for the various cell phone providers, including one for AT&T. As the salesman was digging for my replacement batteries, I half-jokingly asked him when the store would be getting the iPhone.

To my surprise, he answered seriously. “They told us we were getting them in January,” he replied, “But we haven’t seen any yet.” He suggested he still expects to see iPhones in his RadioShack at some point.

True, this guy is at the bottom of the communication chain and could have been mistaken. But my sense was that the promise he had heard came from an authoritative source.

Since I’m already living on the edge today, let’s look at whether selling the iPhone at RadioShacks makes sense.

It’s not such a ridiculous notion. In addition to the existing relationship with AT&T, RadioShack currently sells Apple’s line of iPods.

As for incentives, RadioShack would love to offer the iPhone. It’s a sexy product of the sort RadioShack has in very short supply and would help generate traffic into the struggling chain’s stores. People coming to shop for an iPhone might buy some of that other odd electronic clutter you find there.

The more puzzling question is why Apple (or AT&T, for that matter) would feel the need to add RadioShack to the iPhone distribution channel.

It could be a simple numbers game. Apple sells the iPhone through its 170-plus U.S. Apple Stores, strategically located in high-end malls but not necessarily convenient for everyone. AT&T sells the iPhone through 1,800 of its retail locations.

But RadioShack has nearly 6,000 stores in the United States and 800 wireless phone kiosks. Putting RadioShack on the iPhone team would make it more convenient for more people to buy an iPhone (well, in the U.S. anyway).

Apple’s motive for partnering with RadioShack is its ambitious sales goals for the iPhone. The company’s objective is to sell 10 million iPhones in 2008; adding 6,800 locations could help a little.

That also would fit in with Apple’s aggressive iPhone marketing strategies. Recall the six months of hype before anyone could even buy the product. Recall the rollout just months later into the United Kingdom, Germany and France. Recall the recent release of the iPhone SDK to permit developers to write software for the iPhone.

And Apple’s move to give the iPhone corporate-compatible features to attract enterprise customers is almost shockingly out of character for a company that has for years willfully ignored business customers.

RadioShack selling iPhones? Crazier things have happened.

Posted by David Zeiler at 12:57 PM in iPhone | Permalink | Comments (8)
                       

Not only are Apple’s three primary businesses each doing extremely well, but each retains significant potential for growth, Tim Cook, the Cupertino company’s chief operating officer said yesterday.

In a wide-ranging question-and-answer session at the Goldman Sachs Investment Symposium in Las Vegas, Cook fielded queries about “missing” iPhones, the possibility that the iPod market has become “saturated,” why the Mac’s market share has seen explosive growth and what Apple hopes to achieve with the Apple TV.

Much of what Cook had to say wasn’t new, although it was far more engaging than the sleepy, redundant comments he and CFO Peter Oppenheimer serve up to analysts during those quarterly earnings conference calls. Frequently he sounded very much like the Apple cheerleader he is paid to be, but at times Cook offered clues about Apple’s broader strategies.

Let’s look at what Cook said by category (he switched among topics frequently during the session, which you can hear for yourself here):

The iPhone: Cook said the iPhone has received the highest customer satisfaction ratings of any product Apple has ever shipped, a notable achievement for a company that routinely scores very highly in customer satisfaction.

When asked a question that has been buzzing on the Web for weeks – what’s become of the million or so iPhones Apple said it has sold but have never been activated – Cook acknowledged most of them have found their way to countries in which the iPhone is not yet available.

Without addressing the shared revenue Apple loses from its partner carriers when an iPhone is unlocked for use on another network, Cook said the company “smiles” at the problem. “It means there’s great demand for the iPhone,” he said.

The company will apply the lessons it has learned from selling the iPhone in the U.S. and three European countries as it proceeds with plans to expand availability of the product elsewhere in Europe and in Asia this year, Cook said.

Most intriguingly, he said Apple is not “married to any business model,” suggesting Apple could deviate from having one exclusive carrier per country. Cook explained that different market conditions could require a “different business model,” and in some places “being exclusive might not be in our best interests.”

This may be the first public indication that Apple is considering different approaches to the iPhone-carrier model, at least in some nations. However, Cook only had nice things to say about Apple’s relationship with AT&T, a disappointment to those hoping for a re-evaluation of the exclusivity deal in the U.S.

Cook indicated Apple expects the issue of unlocked iPhones to diminish as the device becomes available in more countries, and ominously hinted at a “series of actions” aimed at thwarting iPhone hackers (presumably those unlocking it, not those installing software on it).

Better news for iPhone owners was Cook’s frequent references to the week-overdue announcement and release next Wednesday (March 6) of the iPhone SDK, which will permit developers to write software legitimately for the iPhone and iPod Touch.

The iPod: Cook reiterated Apple’s position that the iPod Touch is a fresh platform for the company and that developing that platform is a priority. He artfully answered a question about flat iPod sales in the holiday quarter by pointing out that while unit sales increased by only 5 percent, revenues increased by 17 percent, primarily due to the higher margins on the iPod Touch, introduced only last fall.

Meanwhile sales of the low-end, lower margin Shuffle slipped 17 percent worldwide. Cook said Apple cut the price on the Shuffle to $49 Feb. 19 because “we believe there’s elasticity in the market,” whatever that means. He added that the price drop should boost sales a bit in “emerging markets” (such as China and India) as well as in the U.S.

The Mac: “The ceiling for the Mac is nowhere in sight,” Cook said in discussing the Mac’s market share. He noted that Apple sold 7 million Macs in a PC market of 260 million, leaving a lot of room for further growth.

In responding to a question asking why the Mac has become more popular with customers – he said the platform grew 44 percent in the last quarter alone – Cook described the Mac’s gains as “almost a movement.” He continued: “I think it’s gone, in many people’s minds, to asking not why buy a Mac, but why not?”

He cited two statistics showing the Mac’s resurgence in the education market. One was Student Monitor’s annual survey of college students conducted each summer asking which type of computer they planned to buy; this past summer those who said they were buying a Mac rose to 44 percent, 20 points higher than the previous year. Cook gave no source for the second statistic but said the company learned Monday that “Apple has surpassed Dell as the number one supplier of portables to higher education for 2007.”

Apple TV: Cook waffled a bit on the Apple TV, last year described by CEO Steve Jobs as a hobby and the low sales of which led to some Apple critics deriding it as a failure. “We say no to a lot of things,” he said in explaining why Apple expended resources on developing Apple TV. “We do products where we can make a difference and where we control the primary technology.”

Later Cook acknowledged Apple TV is a “niche product,” but said the company thinks that “something cool cold come out of this product.” He essentially admitted the company had erred in treating video like music, expecting customers to buy video as they buy music at the iTunes Store.

Somehow Apple missed that most people watch movies just once and would rather rent than buy them (wasn’t Blockbuster a big enough hint?) The availability of movie rentals combined with the recent changes to Apple TV – essentially releasing it from the bonds of the PC so it can download movies directly from the Internet –sets up the video realm as “an area that could be big for us,” Cook said.

Posted by David Zeiler at 4:58 AM | Permalink | Comments (8)
                       

Although Apple has declined to make an overt push into the corporate market, a few daring business customers bought iPhones anyway. And they like them.

Three out of five business customers (59 percent) who bought an iPhone said they were “very satisfied” with it, leading all other smart phones, according to a survey on corporate IT spending conducted by Rockville, Md.-based ChangeWave Research.

While Research in Motion ranked second on the customer satisfaction question with 47 percent saying they were “very satisfied” with their BlackBerries, ChangeWave notes this is an 8 percent decline from the previous survey.

The survey, composed of 2,013 business customers, was conducted Feb. 11-15 and released last week.

Of course, the iPhone still lags in market share -- ChangeWave’s data shows Apple (5 percent) trailing RIM (73 percent), Palm (18 percent), Motorola (9 percent) and Nokia (7 percent).

The picture is a bit brighter for the iPhone on the planned purchases front. Of the survey sample 11 percent said they would buy iPhones, second only to RIM’s 77 percent. However, that’s a 3 percent drop for Apple from the November survey, not the direction it wants to go.

At the same time, RIM picked up 3 percent, demonstrating the BlackBerry’s powerful grip on the corporate smart phone market.

Apple’s not-so-secret weapon is that customer satisfaction rating. It should gradually help win over more corporate customers, even without Apple marketing the iPhone as a business product.

And despite its dominance of the market, RIM’s service outage two weeks ago (as well as one last April), could inspire disgruntled business customers to take a look at the iPhone as an alternative.

It’s conceivable the iPhone could crack double-digit share in the corporate smart phone market at some point -- no trivial achievement for a product targeted primarily at consumers.

Posted by David Zeiler at 3:15 AM in iPhone | Permalink | Comments (4)
                       

Two research reports released last week indicate that Apple released the iPhone just in time to benefit from a major consumer shift toward “converged devices” – in other words, smart phones and wireless handhelds.

One report comes from Canalys, a technology market research company based in the U.K. Canalys says that shipments of converged devices rose 72 percent year-over-year in the fourth quarter of 2007.

According to the Canalys data, Nokia owns the worldwide smart mobile device market with a 52.9 percent share. RIM comes in second with 11.4 percent. But Apple edged out Motorola for third with 6.5 percent -- a noteworthy achievement considering the iPhone was available for just six months of the year and in just four countries.

“When you consider that it launched part way through the year, with limited operator and country coverage, and essentially just one product, Apple has shown very clearly that it can make a difference and has sent a wake-up call to the markets leaders,” Canalys senior analyst Pete Cunningham says in the report.

In the U.S. Canalys estimates that the iPhone took 28 percent of the converged device market in Q4 of 2007, putting it in second place behind RIM (41 percent) but way ahead of Palm (9 percent).

What’s remarkable about Canalys’ U.S. numbers is that the iPhone’s 28 percent share exceeds the combined share of all the Windows Mobile device vendors (21 percent). At least in the world of smart phones, the Mac OS has bested its Windows rival.

The other report is a survey from Rockville, Md.-based ChangeWave Research, which examined cellphone buying among 4,182 respondents.

“Research in Motion [maker of the Blackberry] and Apple appear to be the primary beneficiaries of the seismic shift toward more-advanced cell phone,” the ChangeWave report says. The iPhone ranks first among those planning to buy a cellphone in the next six months with 17 percent while RIM is a close second with 16 percent.

At least one Apple competitor, Motorola, appears to have suffered from the introduction of the iPhone last year. The percentage of those surveyed planning to buy a Motorola phone in the next six months has plunged from 33 percent in October 2006 to 11 percent in the latest survey. So much for the early criticism that Apple would struggle against the established cellphone makers.

Meanwhile, Apple’s partner AT&T appears to have gotten a boost from being the sole iPhone service provider in the U.S. Among respondents who plan to switch carriers in the next six months 25 percent named AT&T, a gain of 2 percentage points.

In the customer satisfaction portion of the survey, the iPhone had an extraordinary showing. Apple led the pack by a large margin with 72 percent of iPhone owners saying they were “very satisfied.” RIM was second with 55 percent and LG third with 41 percent. Palm was last with 30 percent.

The iPhone’s high customer satisfaction ranking reflects two other ChangeWave surveys covering Apple products. In a survey on operating system satisfaction, 81 percent of Mac OS X Leopard users were “very satisfied” versus 53 percent for Windows XP Home and 27 percent for Vista Home Premium.

Another survey released in December on PC purchasing habits showed 80 percent of recent Mac buyers “very satisfied,” with Dell a remote second at 61 percent.

Apple’s consistently high customer satisfaction ratings should pay off as time goes on, attracting more and more new customers while keeping existing customers loyal to the brand.

Was there any bad news in the reports? Yeah, a little. The ChangeWave survey showed a 3 percent drop in respondents planning to buy any cellphone in the next six months, from 26 percent to 23 percent. It looks like concerns about the economy may slow spending on cellphones over the next few months, and that’s likely to affect iPhone sales.

Posted by David Zeiler at 5:56 PM in iPhone | Permalink | Comments (8)
                       

“For some users, there’s never enough memory,” Greg Joswiak, Apple Vice president of Worldwide iPod and iPhone Marketing, said in yesterday’s press release announcing memory-enhanced versions of the iPhone and iPod Touch.

Apple is banking on it.

The new model of the iPhone boasts 16 gigabytes of storage capacity, twice that of the existing iPhone. The catch: you’ll pay a $100 premium for that extra 8GB of memory. Apple will continue to sell the 8GB version for the same price, $399, with the new one going for $499.

The iPod Touch got a similar upgrade. The existing 8GB and 16GB Touches do not otherwise change and will be sold at the same prices ($299 and $399) while a new 32GB model will go for $499.

Here we see Apple applying a lesson it learned with the introduction of the iPhone last year. Recall that originally Apple sold a 4GB model selling for $499 and an 8GB model priced at $599. Just two months later came the infamous $200 price cut on the 8GB model and the elimination of the 4GB model, which wasn’t selling nearly as well.

Apple learned that 1) the original iPhone price was too high and 2) most customers willing to buy a premium mobile phone also were willing to pay an extra $100 for the model with the most storage.

Fast forward to yesterday. Instead of following the pricing strategy it typically uses with new Macs and iPods -- offering beefier specs for the same price as the models they replace -- Apple is offering static prices on existing models while counting on the extra memory to entice customers to fork out $100 more.

Silicon Valley Insider did some math based on iSuppli’s breakdown of the cost of the iPhone’s components and calculated the 16 GB iPhone will reap a profit of $201 versus the 8GB model’s $141. (I’m ignoring the AT&T contract factor, since it provides the same profit in both cases.)

On one hand, this move is good for Apple as a company and good for AAPL shareholders because it gooses the iPhone’s profit margins. But it stinks for customers, who aren’t really getting $100 worth of added value with the new models. Flash memory is not that expensive. Silicon Valley Insider surmised that Apple’s profits could be even higher than its estimates, assuming that flash memory prices have dropped further since iSuppli did its analysis last July.

Why might Apple do this? I’m guessing that the ever-growing number of unlocked iPhones – for which Apple does not collect any revenue from a service contract with one of its partner cellular carriers – has thrown the strategic planners in Cupertino for a loop.

Apple has tried bullying customers to preserve that lost revenue by bricking unlocked iPhones with software updates. But that was a public relations catastrophe. Perhaps fearing damage to its relationships with its partner cellular carriers, Apple also has passed on another option -- selling unlocked iPhones at a higher price.

Beyond the problems with preserving high profits, Apple’s lofty goals for making the iPhone/iPod Touch into “the first mainstream WiFi mobile platform” means it needs to sell a lot of both in 2008.

So we get new models with premium prices based on a solitary improvement (albeit an alluring one) provided by a component Apple can obtain increasingly cheaply.

Small wonder Apple’s customers sometimes can’t decide whether they love the company or hate it.

Posted by David Zeiler at 10:42 AM | Permalink | Comments (8)
                       

Anyone who doubted the durability of the iPhone need only read Mike Beauchamp’s story on Flickr, where he posted numerous photos of his iPhone that still works despite falling onto an interstate highway and getting run over.

You can read his first-person account on his Flickr page, but here’s the abridged version: After putting gas in his car at a highway rest stop, Beauchamp forgot that he had left his iPhone sitting on the trunk.

Soon after he got back on the road, he realized the iPhone was missing. He returned to the rest stop and searched 30 minutes for the phone, but had no luck.

Figuring he’s lost the iPhone forever, Beauchamp again got back on the interstate. About a quarter of a mile along he spotted something glimmering in the next lane – his iPhone.

What follows is a testament to one man’s devotion to a piece of hardware. He pulled over and got out of his car, “waiting for the passing cars and trucks to go by so I could run across 2 lanes of 75mph traffic to retrieve my poor phone.”

Alas, even after all he’d been through, Beauchamp faced one last horror. As he waited for the last big truck to pass so he could run into the highway (kids, this is NOT a good idea), it moved over to the lane where the iPhone was lying. From Beauchamp’s account: “As I watched helplessly from the shoulder, the semi plowed [into] my phone at full speed, throwing it to the ditch on the other side of the highway.”

Despite believing he had just witnessed its violent demise, Beauchamp went after the phone. To his astonishment, he heard the iPhone ringing as he approached. He answered it and heard his Mom’s voice (no doubt admonishing him for playing in traffic – Moms always know).

Beauchamp writes that his iPhone retains full functionality. He estimates the device sat on the interstate for about an hour before he rescued it, enduring punishment from cars and trucks traveling at highway speeds.

So impressed was Beauchamp that he called Apple’s customer relations department. They expressed interest in making a commercial out of the incident, which wouldn’t be a bad idea.

It wouldn’t be unprecedented, either. Recall that an amateur’s YouTube video inspired the “Music is My Girlfriend” iPod Touch commercial.

They could even play off the old Timex commercials with John Cameron Swayze: “It takes a dinging and keeps on ringing.”

Posted by David Zeiler at 7:22 AM in iPhone | Permalink | Comments (3)
                       

Where oh where are those iPhones?

Bernstein Research analyst Toni Sacconaghi touched off a frenzy of fretting at the end of last week when he issued a report saying that as many as 1.4 million iPhones are either being used unlocked or are sitting in inventory.

You can read all the details of how Sacconaghi arrived at this conclusion here, but essentially he subtracted the number of iPhones AT&T says it has activated by the number of iPhones Apple says it has sold.

Sacconaghi also estimated that Apple derives as much as 75 percent of its profit from the iPhone from the shared fees it collects from service providers. That means an annual loss of $500 million and 37 cents a share in annual profits.

Another analyst, Gene Munster of Piper Jaffray, came up with somewhat lower numbers but still figured 25 percent of the iPhones sold in the U.S. have been unlocked. He projected a loss of $362 million in revenue over two years.

Commentary from the media has tended toward the dire, with one piece on Australia’s ITWire Web site declaring the missing iPhones “bad news for Apple” and making the preposterous assertion that Apple actually loses money on each $399 sale. Yeah, right.

If Apple has a lot of unsold iPhones sitting around, that would indicate slowing demand, which would be the worst of all scenarios. I doubt this is the problem. During the earnings conference call last week, Apple Chief Financial Officer Peter Oppenheimer made it a point to repeat the company’s confidence in meeting its goal of selling 10 million iPhones in 2008. If sales had shown signs of slowing in the December quarter, Oppenheimer would have avoided the topic.

It strikes me as far more likely Apple has sold a ton of unlocked iPhones. Many of the people in the U.S. who crave the iPhone are well-heeled and technically minded. Plenty of them are willing to take their chances with an unlocked iPhone to avoid a contract with AT&T.

In the three European countries where the iPhone is officially available, customers prefer having a choice of cellular carrier. Third parties are happy to meet the even greater demand for unlocked iPhones there.

Elsewhere in the world, unlocked iPhones are the only kind you can get. People have them in dozens of nations, including China, India and Brazil. Since Apple isn’t shipping iPhones to those countries, they had to be purchased somewhere else.

Two things need to be determined: how much will the proliferation of unlocked iPhones hurt Apple, and what will the company do about it?

The loss in revenue and profits sounds awful, but remember that Apple raked in $24 billion in profit in fiscal 2007. If you figure Apple’s prospects for growth across its various product lines (Mac, iPod, iPhone) will offset a potential recession this year, the company should end up with at least the same revenue for 2008.

With the $9.6 billion head start it got in the December quarter, Apple only needs to average $4.8 billion for the next three to hit $24 billion. Last year it made in the $5 billion to $6 billion range in quarters two through four.

If Apple does lose $500 million to unlocked iPhones in 2008, that’s only 2 percent -- or less -- of its total annual revenue. So it’s not the end of the world.

Of course, every business strives to avoid hits on their revenue whenever possible. What are Apple’s options for retrieving the revenue it stands to lose to unlocked iPhones?

It could continue its hard-line approach, going after those selling unlocked iPhones and “bricking” them with software updates. But that strategy hasn’t worked so well, enraging customers while failing to deter the grey market in unlocked iPhones.

Given this latest difficulty, I am more convinced than ever that Apple’s best path is to sell an unlocked version of the iPhone for $599, the original sales price, while continuing to offer the $399 version as part of a service package with its partner carriers in each country.

Munster has estimated that Apple makes about $432 in shared service fees for each iPhone sold with a two-year contract. The extra $200 Apple would get from an unlocked iPhone only would make up less than half of that profit, but it’s better than losing all of it. Moreover, by offering a legitimately unlocked iPhone, Apple probably would sell more of them, further helping restore otherwise lost revenue.

Demand for unlocked iPhone will keep growing. Rather than fight it, Apple needs to figure out how to meet it and still make a profit.

Posted by David Zeiler at 12:07 PM in iPhone | Permalink | Comments (2)
                       

Apple CEO Steve Jobs delivered no huge surprises in his keynote address this morning in San Francisco, but still hit home runs with the new Macbook Air laptop and the iTunes Movie Rental Service.

Both had been rumored in recent weeks, but one can never be sure what’s going to happen in a Macworld keynote.

Though he saved the MacBook Air for last, the iTunes Movie Rental Store announcement was probably more significant in terms of what it will mean to Apple in the long term. This move should position Apple to dominate the realm of video downloads.

Jobs said that all the major film studios were on board, a major coup for Apple. The rental service will offer new films 30 days after their release on DVD as well as a library of older films. New films will cost $3.99 to rent, older titles $2.99. The iTunes Store also will continue to sell movies and TV shows at their current prices.

Customers will be able to watch the movies instantly, and can view a film as often as they like within 24 hours of starting the stream. If a user wants to finish watching their movie on their iPod or iPhone, they can do that, too. Users have 30 days to launch the stream before the rental expires.

The iTunes Movie Rental Store service launches today, Jobs said, with 100 titles, but will have 1,000 by the end of February. At first the service will be available only in the United States, but Jobs said it will be available internationally “later this year.”

Just as significant as the announcement of the iTunes rental service is the vehicle with which many customers are likely to access it: a much-improved Apple TV.

No longer does the Apple TV need to be tethered to a computer for functionality. As I had hoped, the device can access the Internet directly through a wireless connection, allowing it to link to the iTunes Store directly. Customers can browse movies, TV shows and music on their TV screen right from the snazzy Apple TV interface. You can buy or rent.

After you’ve made your choice you can watch the content on your TV or your computer – or your iPod or iPhone. The Apple TV still syncs with your computer, but now it also syncs backwards. So stuff you obtain via Apple TV will be available on your computer, too.

Apple didn’t stop there. The new Apple TV can access photos from Flickr or a .Mac site as well as YouTube videos. Apple has vastly improved Apple TV by allowing a variety of ways to access digital content (though digital rights management was never mentioned … hmmm). And on top of all that, the company dropped the price of Apple TV from $299 to $229. The few who bought an Apple TV last year will get a free software upgrade to enable these features. I think Apple will sell a lot more Apple TVs in 2008 than it did in 2007.

The MacBook Air gave Jobs some sexy new Mac hardware to show off. The 3-pound notebook is wedge-shaped, just .76 inches thin at its thickest point and an astonishing .16 inch thin at its slimmest. It sports a 13.3-inch LED display and a full-sized backlit keyboard (the keys are black). The trackpad is oversized to allow the use of iPhone-like gestures, such as twisting your fingers to rotate an image in iPhoto.

The MacBook Air uses a tiny 80-gigabyte hard drive like the one found in the iPod Classic, and comes standard with a generous 2 GB of memory, the same as the MacBook Pro. The price: $1,799.

But the MacBook Pro’s most distinguishing feature is what it doesn’t have – an optical drive. One can buy an external SuperDrive that connects via USB for $99, but Jobs argued that people won’t bother. “We don’t think most users will miss the optical drive or need the optical drive,” Jobs said. As an alternative Jobs said the MacBook Air will be able to access the optical drives of other Macs or PCs over a wireless network.

The omission of an optical drive recalls Jobs’ introduction of the first iMac in 1997, which omitted a floppy disk drive (though external ones could be purchased as an option). Clearly Jobs foresees optical media – CDs and DVDs – suffering the same fate as floppies.

Jobs also introduced new software features for the iPhone and iPod Touch, as well as a new wireless hardware backup device, Time Capsule. Designed to work with Mac OS X 10.5 Leopard’s Time Machine automatic backup feature, Time Capsule uses the fast 802.11n wireless protocol and comes in two sizes: a 500 GB version for $299 and a 1 terabyte version for $499. I wish I had known about this before I bought a Buffalo LinkStation a few months ago. (sigh.)

I may have more thoughts on the keynote later.

Posted by David Zeiler at 2:40 PM in MacBook, Macworld & WWDC, iPhone, iTunes/iTunes Store | Permalink
                       

One week before Steve Jobs takes the stage in San Francisco for his annual Macworld keynote, the Mac universe is abuzz with the usual rumors and speculation.

Regulations governing Apple pundits require that I contribute to the collective cacophony or forfeit my license to blog on Apple. In that spirit, here’s my take on what might be coming – or not – on Jan. 15:

Mac Pro update – Apple completely shocked me by announcing new pro towers (and server models) this morning. I don't recall Apple ever making such a major product announcement just one week before a Stevenote. So these rumors panned out early. The twin quad core CPUs (giving this Mac 8 cores of processing power) are standard as expected, but there is no mention of Blu-ray DVD support. Steve will mention this, but not spend much time on it.

Retail stats – Steve will probably open the keynote with a rundown of assorted statistics demonstrating Apple’s prodigious business successes. We will hear about how many millions of people visited Apple’s retail stores, and that half of them were “new to the platform.” Steve will tell us how many new stores opened in 2007, and may announce new stores in such countries as China, Brazil and Mexico.

He should gloat about yesterday’s Bernstein Research report that showed Apple’s annual sales per square foot of retail space light years ahead of other retailers. At $4,491 per square foot, Apple not only clobbered Best Buy at $991/sq. ft. but also handily outshone other upscale retailers such as Saks ($388/sq. ft.), Coach ($1648/sq. ft.) and Tiffany and Co. ($2,746/sq. ft.).

Leopard stats – Steve will tell us how many copies of Mac OS X 10.5 have been sold since its launch at the end of October. Whatever the number, it will be the best operating system launch in Apple history. Leopard also will have had the fastest adoption rate of any Mac operating system version.

Office for the Mac 2008 – Craig Eisler, the new general manager of Microsoft’s Mac Business Unit, will join Steve onstage to introduce Office for Mac 2008. There will be a tedious demo.

Other software – Since iWork and iLife both were released in August, we won’t hear of them in the keynote. In fact, it’s hard to say what other software might get mentioned, since Apple got most of its upgrades out over the summer. He might spend a few moments on the prosumer video editing program Final Cut Express, which was updated in mid-November.

Video – The other week I predicted some major video-related announcements at the Stevenote. We will hear about the new iTunes movie rental service, heretofore unannounced by Apple but widely reported in the mainstream media. Various news reports over the past few weeks have said Apple is on the verge of making deals with almost all the major film studios, including 20th Century Fox, Walt Disney, Warner Bros., Paramount and Sony, MGM and Lionsgate. Availability is the major question here; if the deals aren’t final, the service may not launch for a few more months.

Apple TV – Going hand-in-hand with the iTunes Store movie rental news should be an announcement of a new, improved version of the Apple TV. This is not a shoo-in, but it would make a lot of sense for Apple to fix this product by adding the ability to record TV shows (like a TiVo) and access the Internet independently of a computer. The pièce de résistance will be integration with the iTunes Store, so that music, videos and movies could be ordered directly from the user’s sofa with the included remote control.

New iPods – You got ‘em in September. Let’s not be greedy.

iPhone updates – Some think Steve will announce a 3G iPhone next Tuesday; my gut feeling is that it’s too soon. Even if he does announce it, you won’t be able to buy one for several months. One thing we will get at some point during the keynote: stats on how many iPhones have been sold, and a recap of the product’s launch in the U.K., France and Germany. Steve might announce the next nation(s) set to get the iPhone (Spain? Italy? Japan?), but I haven’t read any rumors that further deals are near.

Steve will definitely mention the software development kit that will allow third-party developers to write programs to run on the iPhone. Although Steve has said the SDK would be available in February, he might wow the crowd by announcing its immediate availability.

One more thing ... One product the rumor sites have convinced themselves is coming at Macworld is some sort of Mac subnotebook, something smaller and lighter than a MacBook. This device could incorporate the same touch screen technology used in the iPod Touch. It could use flash memory in place of a hard drive, or at the very least will use flash memory to speed boot times. It will use a LED display (Apple has committed to using the more environmentally friendly LED technology in all its displays.) Despite the prevalence of rumors about this, no one is quite sure what such a beast will look like. But the odds are high we will see some incarnation of a MacBook Mini.

For anyone who’d like to follow the keynote live (it starts at 9 a.m. PST, or noon Baltimore time), several Web sites will be posting updates during the event. I prefer Engadget, but a full list of sites offering coverage will appear on MacSurfer the day of the event.

Posted by David Zeiler at 7:55 AM in Macworld & WWDC, Software by Apple, iMac, iPhone, iPod, iTunes/iTunes Store | Permalink | Comments (1)
                       

Japan is the iPhone’s next target, according to today’s Wall Street Journal.

Apple is negotiating with at least one of Japan’s top three cellular providers, notably its largest one, NTT DoCoMo Inc. The news is consistent with previous announcements from Apple that it plans to launch the iPhone in Asia in 2008.

Many iPhone watchers in the United States were thrilled at this news. Since the major cellular networks in Japan use the faster 3G technology (as opposed to the 2.5G GSM technology in the current iPhone), the talks with the Japanese carriers has been taken as confirmation that Apple indeed plans to release a 3G version of the iPhone in 2008.

The Journal article points out that although Japan is an ideal market for the iPhone – its 100 million cell phone customers “are already used to shelling out hundreds of dollars for expensive phones with advanced features” – nowhere is the competition among handset makers more fierce. Given its track record so far, I think the iPhone will fare well in Japan.

But before the iPhone can measure itself against the Japanese competition, Apple needs to make a deal with one of those cellular providers. As usual, the holdup is Apple’s demand for a portion of the carrier’s monthly revenues, which have been estimated at between 10 and 20 percent.

Two weeks ago, Apple’s negotiations with two of China’s popular carriers – China Mobile and China Unicom -- reportedly broke down over the revenue sharing issue. China Mobile has said it’s still talking to Apple, but resistance to sharing revenue seems higher among the Chinese carriers than it has been in other nations.

Apple likely will succeed in Japan the way it has in other countries, by playing the cellular providers off each other. If the dominant DoCoMo doesn’t bite, the No. 3 carrier, SoftBank Mobile Corp., probably will. Just as with AT&T in the U.S., SoftBank’s rationale would be to pay Apple its iPhone membership dues as a strategy to gain market share.

However, as Apple continues to introduce the iPhone in more countries I wonder how often the tactic will prove ineffective, as appears to be the case in China.

A Reuters story from Nov. 14 quoted an anonymous Chinese telecom executive saying that their “business model does not entail sharing revenue with terminal producers – we don’t share revenue. That’s a Chinese rule.”

Another problem with the iPhone in China that could crop up elsewhere is that the SIM cards in Chinese mobile phones are not “locked” as are those in Apple’s product. The same anonymous executive said the iPhone’s locked SIM cards might have compatibility issues with the Chinese cellular networks.

All of which only serves to strengthen my belief that Apple should be thinking about offering a universal, unlocked iPhone that would work on any network in any country.

A universal iPhone would cure the compatibility headaches that vary from nation to nation while saving the company the trouble and expense of battling those resourceful iPhone unlockers.

Apple also would no longer require a partner carrier in each country in order to sell the iPhone (although I think it still would have a “preferred” carrier in most countries that could sell an iPhone with a contract at a lower price.)

The iPhone carries the promise of being at least as successful as anything Apple has ever done, including the mighty iPod. If only Apple would let the beast out of its cage ...

Posted by David Zeiler at 8:42 AM in iPhone | Permalink | Comments (1)
                       

Almost lost in yesterday’s tech news was Google’s announcement that it has released an application for the iPhone that consolidates several of its Web services such as e-mail, search and calendar functions into a single interface.

Owners of an iPhone (or an iPod Touch) need only visit Google.com to access the new goodies; no download is required. A single Google software engineer, Steve Kanefsky, envisioned the feature after being impressed with the iPhone’s large touch screen as well as the inclusion of the full Safari Web browser.

“I set out to create an application that would preload my favorite Google products and allow me to switch between them instantly,” Kanefsky wrote in the Google Mobile Blog, a group blog for the Google Mobile development team.

After sharing a prototype with others at Google, “things started moving pretty quickly,” Kanefsky said. Within weeks they had the software ready for release.

This move should put to rest any suspicions that Google’s recent ventures into the mobile phone space threaten Apple. In particular, some wondered what Android, Google’s in-development platform for “smart phones,” will mean for the iPhone.

The purpose of Android is to move Google’s Web services to mobile phones. The iPhone already is a great platform to achieve that. Google’s strategy is to include all agreeable parties. Apple and Google already have demonstrated a willingness to work together by including Google Maps on the iPhone.

“Google’s overall goal is to provide users with access to information, wherever they are,” the company stated in its press release announcing the iPhone application. “This commitment is device-independent, and we are working to develop new mobile technologies that are faster, easier to use, and available on more devices.”

So Android itself will not compete against the iPhone, although rival handsets that use it will. That essentially leaves Apple where it is today, going against the likes of Samsung and Nokia, but retaining the advantage of its legendary hardware design savvy.

Though the iPhone won’t run the Android software, given Google’s strategy I would expect many Android features to be ported to the iPhone. As Android is based on the Linux operating system, a cousin to the BSD Unix at the heart of Mac OS X (which the iPhone runs), such a feat should prove a trivial for Mr. Kanefsky and his cohorts. That task will get even easier after Apple releases the iPhone SDK to developers next year.

Add to all this the natural synergy between Apple and Google -- the companies share an overall philosophy of making the world a better place through technology -- and you get a formidable alliance. It also doesn’t hurt that Google CEO Eric Schmidt sits on Apple’s board of directors. Or that fellow Apple board member Al Gore is a Google advisor.

Yesterday’s announcement strengthens further the nascent Apple-Google alliance. That could mean headaches for the old guard in the cellular industry, but good things for mobile phone customers in 2008 and beyond.

UPDATE: As if we needed any more evidence of this ever-more-cozy relationship, Google today unveiled its "Mac Developer Playground." According to a company blog post, the Web site is a place "where the Mac community can look for new and interesting open source projects and demos from our Mac team."

Posted by David Zeiler at 12:29 PM in iPhone | Permalink | Comments (5)
                       

After years of stagnation, the mobile phone market has begun to go haywire, and next year the landscape figures to change even more dramatically.

Already we’ve seen Verizon Wireless announce that it will open up its network to allow customers to use phones they’ve purchased elsewhere. The FCC auction in January of the old broadcast television spectrum for use by wireless networks will help promote even more interactivity between devices. Because of efforts led by Google, some chunks of that spectrum will be required to be open to all devices. And Google’s Android initiative will further stir the pot by providing a new, more adaptable platform for handset makers.

The trend towards openness – wireless devices that will run on any network – will eventually completely dissolve the connection between cellphones and cellular service providers.

Apple, of course, adopted a cellular business model predicated on locking the iPhone to a single carrier with long-term contracts. A year ago, the company could not have foreseen the cracks that are now appearing in that strategy not just for Apple, but also across the industry.

Look at what’s happened as the iPhone has launched in Germany and France in recent weeks.

In Germany Vodafone’s court challenge to Deutsche Telekom/T-Mobile’s exclusivity deal quickly led to the availability of unlocked iPhones there. Just days after T-Mobile responded by offering unlocked iPhones for €999, €600 ($890) more than the price of one with a contract, competitor Debitel said it will offer unlocked iPhone owners a €600 rebate if they switch.

A French law against locking mobile phones to a single carrier forced Orange, Apple’s French partner, to offer unlocked iPhones for €649, quite a bit less than what Germany’s T-Mobile is asking. (Point to ponder: if someone buys a €649 unlocked iPhone in France could they sign up with Debitel in Germany and get the €600 rebate?)

As I have pointed out in a previous post, Apple needs to switch to something like a “preferred carrier” strategy under which iPhones locked to a contract would sell for less while unlocked iPhones with some features disabled would sell at a premium. Essentially, they need to roll with what’s already happening in Germany and France, though I can’t see many people willing to pay T-Mobile’s €600 premium.

And let’s not forget that of the first 1.4 million iPhones sold in the United States, 250,000 were purchased to be unlocked -- illegally.

Yesterday news Web sites were buzzing with a quote from AT&T CEO Randall Stephenson that we will see a 3G iPhone at some point next year.

Here’s where Apple – if it plays its hand aggressively -- has a huge opportunity to expand the iPhone’s market footprint in a very short time. Imagine a 3G iPhone that retains its ability to connect to Wi-Fi hotspots as well as AT&T’s GSM-based network, which is the most commonly available mobile network technology in the world.

A hybrid phone is not so crazy a thought. Research in Motion started selling a “world phone,” the Blackberry 8830, through Verizon back in April. It can use both GSM and CDMA networks (Verizon Wireless in the U.S. is a CDMA network.)

Apple could sell such a “Universal” iPhone as a high-end option at a very steep price. But it also would have to surrender on the concept of locking the device to a single provider.

Rather than continue to fight the inevitable, Apple should announce at January’s Macworld that a 3G unlocked iPhone is coming, along with the expected price premiums. AT&T will still get to sell a locked version along with a contract for a lesser sum.

The question is whether the massive boost in sales Apple would get from an unlocked iPhone, Universal or otherwise, would outweigh the profit the company would forfeit from the lost shared monthly revenues with its partner carriers. Profits would have to come primarily from hardware sales, as they do with Macs and iPods.

If high-end cellphones are indeed destined to become portable mini-computers, Apple is ideally positioned to thrive. The iPhone already does this better than its rivals; as with the Mac, Apple’s control of both the hardware and software gives it an ongoing advantage.

If Apple can bend a little on the issue of locking the iPhone to one provider, the potential is mind-boggling. The three main impediments to higher iPhone sales have been 1) the price; 2) being locked to AT&T’s network for two years; and 3) the relatively slow speed of the GSM technology.

Apple showed how changing just one of those factors could spur sales when they dropped the price $200. Think how many more people would buy an unlocked 3G-enabled iPhone. And how many would buy an unlocked Universal iPhone.

The possibilities boggle the mind.

Posted by David Zeiler at 8:55 AM in iPhone | Permalink | Comments (12)
                       

Now we know what a legally unlocked iPhone is worth: 999 euros, or $1,477.

That’s what Deutsche Telekom’s T-Mobile unit in Germany is charging for a contract-free iPhone in the wake of Monday’s court injunction ordering it to cease selling locked iPhones. The price for an iPhone with a two-year contract is 399 euros, or $590.

Apparently T-Mobile simply baked the revenue it would have received from the two-year contract into the initial sales price.

To put it in perspective, a black MacBook or the 20-inch iMac with the 2.4 GHz processor costs about the same as an unlocked German iPhone.

At first it sounds crazy. Who would pay that much money for a cellphone? And while such a customer is free to choose his or her cellular provider, that still means shelling out even more dough for monthly service.

And yet that is the crux of T-Mobile’s (and presumably, Apple’s) strategy. By offering an unlocked iPhone at an outlandish price, T-Mobile satisfies the demand of the court order while simultaneously discouraging anyone from taking advantage of it. The court order said nothing about a decent price. Expect the unlocked French iPhone, due out by the end of this month, to carry a similar weighty premium.

Not everyone faces the tough choice between paying a reasonable price and freedom of carrier choice, though. Any lucky ducks who already had bought an iPhone in Germany from T-Mobile can have the SIM lock on their phones removed at no extra charge.

In a post yesterday I suggested that the legal problems in France and Germany will be repeated as the iPhone launches in other parts of the world, and that Apple needed to re-evaluate its “one-country, one carrier” policy.

I’m not sure that charging an exorbitant amount for an unlocked version of the iPhone will be the answer in every case, but it could work in Europe. In countries with more active underground economies such as China -- where the black market price of unlocked iPhones already has dropped below $500 -- the strategy could backfire.

Apple has created a bit of a trap for itself in brokering these clever revenue-sharing deals with carriers that depend on locked in customers. They’re lucrative for Apple, but not very customer-friendly. A lot of customers want unlocked iPhones, but unlocked iPhones wreck the business model. Ugh.

Eventually Apple will need to come up with a better answer that preserves a decent profit for itself without alienating the millions of customers it needs to ensure the iPhone’s success.

I don’t envy the guy with that assignment.

Posted by David Zeiler at 2:01 PM in iPhone | Permalink | Comments (7)
                       

Constant rumors of Apple negotiations with cellular carriers in an ever-growing roster of nations – Spain and China being the most recent – indicate that the company is pushing forward rapidly toward realizing its dream of selling the iPhone worldwide. But its policy of tying the iPhone to one carrier per country has met with increasing resistance.

Yesterday the German unit of Vodafone Group obtained an injunction against Deutsche Telekom AG’s T-Mobile unit to try to force it to sell unlocked iPhones in Germany. Apparently T-Mobile could sell locked iPhones as well, but Vodafone claims German law says it must offer an unlocked version as well.

"We want it to be available to buyers without a mandatory calling plan," said Vodafone Germany chief executive Friedrich Joussen.

T-Mobile disagrees. Another hearing on the matter is scheduled to take place in two weeks in the same Hamburg court that issued the injunction. It could well result in the availability of legally unlocked iPhones in Germany.

If that does happen, it will mirror the situation in neighboring France. There the sale of mobile phones locked to a single carrier explicitly violates French law, which forced Apple and its French partner Orange to offer an unlocked version of the iPhone.

France and Germany are just the beginning. I suspect lots of other countries where Apple would like to sell iPhones have similar regulations against locking customers to a single carrier with long-term contracts.

Signs of trouble can already be seen in countries like China and India where Apple has yet to introduce the iPhone. The black market for unlocked iPhones is exploding.

Tim Bajarin, an analyst for Creative strategies witnessed this himself during a recent visit to China. “I saw unlocked iPhones everywhere – in cell phone stores and camera shops, all over the place,” Bajarin told Wired. “It was unusual even if one of the major Hong Kong stores didn’t have at least one or two [unlocked iPhone] advertisements outside the store. It was really blatant.”

Apple’s negotiations with China Mobile reportedly are sticking on Apple’s demand for 30 percent of the monthly fees, but that may be the least of its problems in its plans to break into the massive Chinese cellular market. Chinese customers accustomed to unlocked SIM cards in their cellphones may well prefer a black market iPhone to Apple’s locked, legal version.

With a the market for unauthorized unlocked iPhones thriving and a widespread distaste for locked mobile phones, Apple may soon find its “one country, one carrier” policy on very shaky ground.

Apple’s rationale for doing it that way – to lay claim to a hefty chunk of the monthly carrier fees, as well as to benefit its cellular partners – may have seemed like a good idea at the time but it is facing steeper challenges overseas than it did in the United States.

Even in the U.S. where customers are used cellphones locked to one carrier, many jumped at the opportunity to unlock their iPhones once a few enterprising individuals proved it was possible.

The growing international legal quagmires and widespread customer resistance will push Apple to reverse course on this issue. It wouldn’t be the first change in iPhone policy.

Apple has already altered its strategy on several aspects of the iPhone in response to various events. It dropped the price $200 to increase sales volume. It announced it would open up the platform to third party software next year. And in Europe, it made a deal with Wi-Fi hotspot providers so iPhone owners can use those networks for free.

I realize Apple would lose revenue from the shared fees, but the tangle of issues it faces calls for new tactics. Apple could still have a “preferred provider” in each country that could offer certain services that users of unlocked iPhones could not get (much as illegally unlocked iPhones now lose some functionality). That would preserve some the shared revenue.

And using the French model as a precedent, Apple could offer unlocked iPhones at a slightly higher price (we still don’t know how much higher the unlocked French iPhone will be) to try to push customers toward the “preferred provider.”

It may not be a perfect solution, but at least it would address most of the legal issues and present a viable option to customers uncomfortable with being locked to a single carrier. Apple can’t wait until its partners lose court battle after court battle and customers all over the planet choose to bypass Apple for the black market.

Steve Jobs, can you hear me now?

Posted by David Zeiler at 1:42 PM in iPhone | Permalink | Comments (8)
                       

While it won’t be available until 2009, Korean electronics company Samsung unveiled a new type of flash memory chip that it says will enable the manufacture of 128-gigabyte memory cards. Oh, what Apple could do with a 128 GB flash card.

Apple uses flash memory in many of its products, most notably its iPods and iPhone. Flash memory requires less power and is far less fragile than a hard drive, but provides much less storage space -- at least in the capacities available today. While the hard drive-based iPod Classic comes in 80 GB and 160 GB versions – capable of holding 20,000 songs and 40,000 songs respectively – the 16 GB iPod Touch, Apple’s largest-capacity flash-based product, holds just 3,500 songs.

The availability of even 64 or 32 GB flash memory would invigorate the entire iPod product line. A 128 GB Nano would almost certainly kill the iPod Classic. And the introduction of higher-capacity iPhones would help keep that product moving off the shelves.

But it’s not just iPods and iPhones that would benefit from beefier sizes of flash memory. Apple and other PC makers would love to replace the hard drives in their laptops with flash memory to help stretch battery life and provide a hardier storage mechanism less prone to damage if the device is accidentally dropped. Apple is supposedly planning to include flash memory in future Mac laptops to enable much faster startup times.

Knowing Apple, uses like that would just be the beginning. I can envision the Apple skunkworks in Cupertino dreaming up entirely new products. In the near-term, such chips could be very valuable as part of Apple’s long-rumored “mini-computer” that allegedly uses the same touch screen technology as the iPhone.

Over the past several years Apple has gained a reputation as a flash memory hog, gobbling up supplies worldwide from many chipmakers, including Samsung. If I were Steve Jobs I’d be on the next plane to Korea.

Posted by David Zeiler at 1:55 PM | Permalink | Comments (3)
                       

I’m not sure if Apple should be flattered or nervous that nations like the United Arab Emirates – which as far as I know was not expected to get the iPhone any time soon – already are fretting over how to handle its arrival.

Today an item in Gulfnews.com reports that the UAE, a small but wealthy nation on the coast of the Persian Gulf, has a law similar to one in France that makes locking a mobile phone to a single carrier illegal. From the Gulfnews.com article: “The Telecommunications Regulatory Authority has said that it will not allow any company to establish an exclusive right to iPhone services with either of the two licensed telecom operators in the UAE.”

That makes two countries so far with laws forbidding cell phones locked to one carrier. It stands to reason there are others. As Apple rolls out the iPhone throughout the world in the coming weeks and months, it will find selling an unlocked version a necessity in more and more places. And once Apple starts selling unlocked iPhones anywhere, it will get much harder for Apple to defend selling locked phones, particularly here in the United States.

Adding to the pressure will be folks buying unlocked iPhones in countries where they are available and transporting them for profit to those where they are not. At some point Apple almost certainly will have to give in and sell unlocked iPhones everywhere.

Posted by David Zeiler at 2:11 PM in iPhone | Permalink | Comments (3)
                       

I didn’t get the chance to write about several key developments in Apple’s always busy world last week, so I’m catching up today:

Poisons in the iPhone: On Monday Greenpeace released a report criticizing Apple’s iPhone for containing environmentally hazardous chemicals. “Steve Jobs has missed the call on making the iPhone his first step toward greening Apple’s products. It seems Apple is far from leading the way for a green electronics industry as competitors like Nokia already sell phones free of PVC,” said Zeina Alhajj, identified on Greenpeace’s Web site as the organization’s “toxics campaigner.”

To compound matters, the Greenpeace report inspired the Center for Environmental Health to initiate legal action against Apple under California’s Proposition 65 law, which says products containing toxins must carry a warning label.

Apple issued a statement back on May 2 outlining its policy for phasing out various toxic chemicals from its products. On the PVC chemicals cited by Greenpeace, the policy states: “Apple plans to completely eliminate the use of PVC and BFRs [brominated flame retardants] in its products by the end of 2008. As I glance at the calendar, I see we’re still in 2007. The iPhone that went on sale in June was actually completed before January, when Jobs revealed it to the public. You’d think Greenpeace would have given Apple until next year before excoriating the iPhone.

And while today’s iPhone does contain some traces of hazardous chemicals, even the Greenpeace report concedes that the product complies with the European Union’s tough RoHS (Restriction of Hazardous Substances) Directive.

So why pick on Apple?

Reporting for the U.K.’s Register news site, Tony Smith submits: “We'd guess it's because Apple is an easy target, and Greenpeace knows iPhone related commentary gains press coverage.” Dozens of comments posted on Web sites that reported the news agreed, overwhelmingly blasting Greenpeace. But if generating publicity by going after Apple was Greenpeace’s primary aim, it succeeded. Unfortunately it gave Apple a black eye it didn’t deserve.

iPhone in France: A month after the announcement of iPhone deals for the U.K. and Germany, Apple on Tuesday announced its delayed agreement with Orange of France. The iPhone will debut Nov. 29, just in time for the holiday shopping season, and will cost €399 ($560). This much was expected.

But the interesting bit, reported in the International Herald Tribune, is that an unlocked version of the iPhone will be available for a higher, though undisclosed price. Apple was hog-tied by a French law that prohibits “bundling the sale of a mobile phone and a mobile operator,” according to the Tribune report.

The existence of legitimately unlocked iPhones in France raises the likelihood that entrepreneurs will buy them up there to export to customers in other countries who will pay a premium to have them. Apple already might have built in a way to prevent this, but any such mechanism couldn’t be as hard to crack as the original iPhone lock. In any case, the existence of an unlocked version of the iPhone will give those incensed over this issue fresh ammunition.

DRM-free songs get cheaper: Apple said it’s dropping the price of songs without copy protection from $1.29 to the same 99¢ as songs with DRM. All “iTunes Plus” tracks will still be available in the higher 256 kbps bitrate (double the 128 kbps of regular iTunes songs). Two million songs now are available in the DRM-free format, compared with more than six million copy-protected songs.

Apple appears to be responding to the challenge of the Amazon MP3 store. With Amazon selling DRM-free MP3s for 89¢, Apple’s $1.29 per song looked awfully expensive. Though the iTunes Store still has several big advantages over its rivals – a huge catalog, a superior user experience and a better encoding format in AAC over MP3 –price is the one area competitors like Amazon and Wal-Mart can beat it on.

Apple’s advantages will allow it to keep its prices a little higher than the others, but not 40 to 50 percent higher. Apple wisely made the price cut quickly rather than wait for large numbers of price-conscious customers to abandon iTunes. Such timely reaction to the changing market will continue to be crucial in light of Universal’s aggressive strategy to partner with every possible iTunes alternative in its quest to weaken iTunes’ dominant position.

One more thing: Prepare to be impressed when Apple reports earnings after the market close Monday.

Posted by David Zeiler at 5:04 PM in iPhone, iTunes/iTunes Store | Permalink | Comments (1)
                       

Apple boss Steve Jobs posted a note on Apple’s Hot News section of its Web site this morning in which he changes the company’s position on allowing third party applications to be written for the iPhone – an issue that prompted many of the controversial iPhone hacks.

While this issue has not been as contentious as the ability to unlock the iPhone for use on other cellular networks, it nevertheless had irked many, if not more, iPhone customers. This change will take the iPhone a big step closer to realizing its potential as an ultra-portable mini-computer.

It should also help repair Apple’s relationship with those upset over the closed nature of the iPhone, although I doubt the people who had already hacked their phones – and had them “bricked” by Apple’s recent software update to the device – will forgive the company any time soon. (I know many feel such people created their own problem by hacking the phone in the first place, but most of them blame Apple. Sigh.)

Some may still grumble because the iPhone SDK (software developers kit), the tool developers need to write programs for the iPhone, will not be available until February. In his statement Jobs counsels patience “because we’re trying to do two diametrically opposed things at once – provide an advanced and open platform to developers while at the same time protect iPhone users from viruses, malware, privacy attacks, etc.”

Jobs also responds to critics who had ridiculed his previous explanations about why the iPhone was a closed platform: “There have been serious viruses on other mobile phones already, including some that silently spread from phone to phone over the cell network. As our phones become more powerful, these malicious programs will become more dangerous. And since the iPhone is the most advanced phone ever, it will be a highly visible target.”

I personally can’t speak to how easy it might be to create malware for a mobile device like the iPhone, but in the brief time it has been publicly available many determined people have managed both to unlock the iPhone and create unauthorized third party applications. So I think Jobs’ caution is justified.

In a “P.S.” note tacked on the end of his statement, Jobs mentions that the SDK will work with the iPod Touch, sort of a “one more thing” like those he so often drops on audiences at his keynotes. That should please many iPod Touch owners, who hadn’t been nearly as vocal about this issue as had iPhone owners.

Posted by David Zeiler at 1:03 PM | Permalink | Comments (5)
                       

After the one-two punch of announcements of iPhone availability in the U.K. and Germany last week, every Apple enthusiast fully expected Steve Jobs to make a public announcement at this week’s Apple Expo in Paris of a deal with French cellphone provider Orange. He did not.

It’s crazy. Last Friday Didier Lombard, chief executive of France Télécom (which owns Orange) told a reporter a trade show in Vietnam that Orange had made a deal with Apple, which many media outlets reported. But Apple never said a word.

The Apple Expo was a perfect setting for such an announcement – it’s France’s version of Macworld San Francisco and draws tens of thousands of people. The event runs through tomorrow, but Apple has nothing on the schedule relating to the iPhone. The devices aren’t even on display at Apple’s booth in the exhibit hall.

This curiosity has touched off all sorts of speculation, from Apple holding a grudge over last year’s iPod law requiring iTunes downloads to be “interoperable” with competing devices to questions about the health of Steve Jobs. Some think Jobs is punishing Lombard for speaking out of turn. He has a history of getting very ticked at partners who announce cooperative ventures before Apple is ready (see graphics board maker ATI’s July 2000 gaffe).

The explanation probably is nothing so dramatic – in all likelihood details of the deal are still being worked out – but for Apple to let such an obvious PR opportunity slip by is completely out of character. You’d think that Jobs would have made sure the ink was dry on all three European deals before he hopped on that plane to London.

Then again, perhaps the two parties have reached an agreement but Jobs wanted to wait a few weeks before announcing it in order to gin up more free publicity for the iPhone after the current chatter has died down.

With Apple, you never know.

UPDATE: Mystery solved. The French magazine Challenges has reported that the Apple-Orange deal is hung up on the size of the commission payments that the cellphone operator would pay Apple. The magazine says Apple wants more than one third of each subscription fee. If the two companies can't resolve their differences by next week, Orange may not be selling the iPhone before Christmas.

Posted by David Zeiler at 12:27 PM in iPhone | Permalink | Comments (4)
                       

You mess with your iPhone, you void your warranty.

That’s the blunt message Apple sent to the iPhone hacking community in a statement it issued yesterday. Many had wondered when or if Apple would retaliate against the widespread unlocking schemes and other iPhone hacks that have emerged over the past two months on the Internet.

Here’s what Apple had to say:

Apple has discovered that many of the unauthorized iPhone unlocking programs available on the Internet cause irreparable damage to the iPhone's software, which will likely result in the modified iPhone becoming permanently inoperable when a future Apple-supplied iPhone software update is installed. Apple plans to release the next iPhone software update, containing many new features including the iTunes Wi-Fi Music Store (www.itunes.com), later this week. Apple strongly discourages users from installing unauthorized unlocking programs on their iPhones. Users who make unauthorized modifications to the software on their iPhone violate their iPhone software license agreement and void their warranty. The permanent inability to use an iPhone due to installing unlocking software is not covered under the iPhone's warranty.

While I think Apple is stretching it by describing software damage as “irreparable” – it’s rare that you can’t simply reinstall software on an otherwise undamaged piece of hardware – I believe the company when it says the upcoming software update is incompatible with many of the hacks. And Apple in no way wants to be in the business of ensuring that every screwball hack will work on the iPhone as it continues to update and enhance both the hardware and the software. (I’d like to point out here that I’m not equating third-party software designed to run on the iPhone with hacks that modify the built-in software, hardware or firmware. I believe Apple should re-think opening the iPhone up to third party apps.)

Some folks on Apple’s iPhone support forum questioned Apple’s motives, wondering if AT&T was pressuring Apple to crack down on the unlocking software. Every time someone unlocks an iPhone, AT&T loses a customer as well as the revenue from that customer. Nevertheless, I don’t think Apple needed a push from AT&T. It has plenty of its own reasons for playing hardball with the hackers.

Apple has an almost psychotic need to control every aspect of its products. While it can’t prevent people from making unauthorized changes, it doesn’t have to support them. It never has and never will. This policy applies to everything the company makes. For example, among the many things my MacBook warranty does not cover is “a product or part that has been modified to significantly alter functionality or capability without the written permission of Apple.”

I understand that people want functionality that Apple has not provided. That’s why the hacks have proven so popular. History tells us that eventually Apple will implement some of the hacks into future versions of the iPhone. But in the meantime Apple needed to do something dramatic to show it wasn’t tacitly condoning the hacks by inaction.

As the hacks have spread and become easier to implement, Apple must have worried more and more people would feel it was OK to do it. Recognizing that the iPhone was turning into a DRM-like situation, in which hackers would invariably break whatever locks Apple could devise, the company saw the need to adopt a different strategy. By making a public pronouncement on the evils of hacking the iPhone, Apple is seeking to shield itself of all consequences while frightening most iPhone owners from ever trying it in the first place.

Apple also wanted to fire a preemptive strike against a PR disaster in which an iPhone software update – such as the one due out this week – would “brick” thousands of hacked iPhones. Having just soothed the fury over the unexpectedly rapid $200 price drop, Apple would prefer not to have its retail stores filled with crowds of even angrier iPhone owners waving (or hurling) their useless devices at the heads of hapless Mac Geniuses.

Now Apple can say, “You were warned.” People who end up with a dead iPhone as a result of running the update on a hacked unit will have themselves to blame. Apple’s statement has preemptively drained much of the venom from the inevitable complaints that will arise from bricked iPhones.

Some may object to the severity of Apple’s policy, but the company has little choice. Hacks are risky. That’s why they’re called “hacks.” Apple simply refuses to share that risk with anyone who chooses to hack his iPhone. Makes sense to me.

What do you think?

Posted by David Zeiler at 1:07 PM in iPhone | Permalink | Comments (3)
                       

Yesterday in London Apple CEO Steve Jobs launched his iPhone invasion of the European mobile market with the announcement that the much-hyped device will go on sale in the United Kingdom starting Nov. 9. Deals announcing iPhone availability in France and Germany are expected within weeks, if not days.

The terms of the deal with UK carrier O2 sound familiar: it’s an exclusive deal for an undisclosed period; Apple gets an undisclosed share of O2’s monthly subscriber fees (estimates range from 10 to 40 percent); customers must agree to an 18-month service contract; and customers will pay the full price of the iPhone with no subsidy from O2.

Maybe it’s that stiff upper lip, but the British appeared generally unimpressed at becoming the first country other than the United States to enjoy iPhone availability.

The quibbles start with the price. The iPhone will cost £269 in the U.K., which at current exchange rates equal about $536. Jobs blamed the $136 difference on Britain’s value-added tax (which accounts for about half the difference) and the higher cost of doing business in the UK.

British mobile customers sounded much like their U.S. counterparts in voicing their displeasure with the 8-gigabyte iPhone’s slower 2.5G network technology, O2’s relatively high monthly fees (ranging from £35 to £55 per month, or $70 to $110 in Yankee money) and the required 18-month contract. For good measure some added their disappointment over the lack of a new model, such as one with 16 GBs of storage. Apparently few Brits were paying attention in June when U.S. critics leveled almost identical criticism at the iPhone.

Such an unenthusiastic reaction would not appear to bode well for iPhone sales in the U.K. While the device sold 1 million units in 74 days on sale in America, it faces several obstacles in Britain and the rest of Europe that it didn’t face in this country.

For example, The New York Times pointed out that many UK mobile users – about 20 percent -- are already using the faster 3G networks and may balk at downgrading to 2.5G just to use the iPhone. European resistance to the high prices and contract restrictions is likely to be stronger since cellular operators there typically offer more flexible terms than those in the U.S. And Apple’s powerful brand does not carry quite as much weight in Europe. The iPod, for example, has only 20 percent of the portable music player market in European nations other than Britain, where it has 40 percent. That’s considerably lower than the approximately 70 percent share the iPod enjoys in the U.S.

Finally, many potential U.K. iPhone customers have expressed concern about buying too soon in the aftermath of the $200 price reduction in the U.S., not to mention persistent rumors that a 3G version is in development.

One thing Apple has in its favor is that twice as many Brits buy expensive “smart phones” as do their American counterparts, which means they’re willing to spend their pounds on a fancy mobile phone. And the iPhone has an unmatched “cool factor,” which for many overcomes all shortcomings.

The iPhone’s goal, as we frequently are reminded, is just 1 percent of the global market next year. Apple plans a steady rollout of the iPhone throughout Europe and then into Asia from now through 2008. I’m sure Asia will present issues distinct from those in either Europe or the U.S. Apple has taken on perhaps its greatest challenge in seeking to become a global player in the cell phone market. It can succeed, but only by remaining nimble.

The signs so far indicate Jobs realizes competing successfully in the cell phone market will require Apple to adopt new tactics — tactics which have the potential to annoy customers as happened in the recent price reduction fiasco. Responding to questions at the London news conference yesterday, he all but admitted that frequent new models and price cuts will be the norm for the iPhone.

“In technology there’s never any guarantees,” Jobs told the gathered news media. “There’s always new models of things, there’s always price reductions on old models. If you wait to buy something, always looking over the horizon, you’ll never buy anything.”

UPDATE: This morning Apple announced that T-Mobile will be the iPhone carrier in Germany with availability starting Nov. 9, same as in the U.K. I should have said "hours," not days! Apple is wasting no time here.

Posted by David Zeiler at 6:09 AM in iPhone | Permalink
                       

Today Apple posted the terms for qualifying and obtaining the $100 Apple Store credit promised to early buyers of the iPhone miffed over the unexpectedly quick $200 price drop. For the most part, it’s just what you’d expect: instructions on how to confirm your eligibility and get the $100 credited to your Apple Store account.

Not everyone is eligible for the credit. For example, anyone who bought after Aug. 22 falls in the 14-day window covered by product price reductions and thus qualifies for a full $200 rebate. Also excluded are iPhones provided to Apple employees, logical since every one of Apple’s nearly18,000 employees received their iPhone free.

The curious part comes in the last paragraph of the “terms and conditions” section. In addition to such expected rules as forbidding redemption of the credit for cash, you can’t redeem the credit at any iTunes Store. Nor can you use it to purchase iTunes Store gift certificates. Nor can you use it to give iTunes Store content as gifts. Just to cover all their bases, Apple also forbids using the credit to purchase Apple Gift Cards, which you might think of using at the iTunes Store.

Let’s see. Why would Apple prevent aggrieved iPhone owners from spending their $100 credit on music from the iTunes Store? Since the iPhone is part iPod, you’d assume that many iPhone owners would want to use at least some of their credit on music or video purchases.

The only answer that makes sense is that Apple’s margins on digital content purchased from the iTunes Store are miniscule compared to almost everything else it sells. True, the company is trying to buy back customer goodwill, but each $100 credit claimed by a customer is $100 in lost profits. Allowing customers to use the credit at the iTunes Store would result in a near-total loss of that $100. Forcing them to use it on other products in the Apple Store, which carry an average profit margin of more than 30 percent, will allow Apple to retain much more of each $100 claimed and used by a disgruntled iPhone early adopter.

While this may be smart business, it’s lousy public relations. Steve Jobs apologizes and promises to “do right” by his customers and then pulls a cheesy, transparent maneuver like this? That’s not the Apple that has won the hearts and minds of millions of loyal customers.

Apple has almost $14 billion in cash and $0 in debt. It could have afforded to give its early iPhone customers a true credit they could have spent on any Apple product. I wouldn’t be surprised if this touches off another wave of discontent among iPhone owners. We’ll see what happens in the forums over the next few days, but it would be a shame if Apple has bungled what should have been a commendable gesture to some of its best customers.

UPDATE: A story appeared onBloomberg News this evening that contradicts the document on Apple's Web site. Apple spokeswoman Natalie Kerris told Bloomberg the information on the site is wrong and that the iPhone credit will indeed be applicable to iTunes Store purchases. That's one heckuva typo. As of 1:30 a.m. EDT Saturday, the original document remains unchanged on Apple's Web site. What's going on in Cupertino, anyway?

Posted by David Zeiler at 6:38 PM in iPhone, iTunes/iTunes Store | Permalink | Comments (1)
                       

Apple truly is a company apart. Who else could create such a tempest over something so mundane as a price cut on a single product?

After the initial shock of last week’s $200 iPhone price reduction wore off, the media fed on the reaction of angry early adopters. The next day Steve Jobs uncharacteristically apologized to said customers and offered them an olive branch in the form of a $100 coupon good for any Apple Store purchase.

Wall Street saw all this as a sign that Apple had stumbled badly in its cell phone strategy and punished the stock for the rest of the week. By Friday, AAPL had slipped from $144.16 to $131.77, a drop of 8.59 percent. But give Apple credit for knowing how to play investors. After it announced the sale of the millionth iPhone yesterday, the stock recovered $4.95, more than half of last week’s loss.

Over the weekend pundits, both on Wall Street and in the Mac community, alternately argued that last week’s erratic developments either portrayed Apple in a panic or the company had artfully planned out the entire sequence of events weeks ahead of time.

I surmise Apple had intended an iPhone price cut before Christmas, but saw slowing sales numbers and decided that taking action sooner would spur more holiday sales – just as Jobs said. I don’t think Jobs considered the customer reaction at all; the price cut was purely a business decision. Reading Jobs’ apology letter, I believe he was genuinely surprised by the ferocity of the reaction. A large number of iPhone customers, many of who were among Apple’s most loyal customers, genuinely felt the company had betrayed them. The sentiments expressed in those e-mails, punctuated by the heavy media coverage, got to the normally impenetrable Jobs.

Faced with the necessity of immediate action, the company could not have devised a better response than the $100 Apple Store coupon. It should placate a majority of the angry customers, most of whom can find plenty of things they’d want in an Apple Store. It costs Apple some money, but all of it will be spent with Apple anyway. And the media thoroughly covered the whole affair, helping rescue Apple’s reputation as a company that cares about its customers.

Fundamentally, the iPhone price cut was a shrewd business move. I don’t think Apple is sacrificing as much on its profit margins as Wall Street at first feared; Jobs hinted last week that economies of scale and falling component prices had helped bring down the cost of manufacturing the iPhone. And imagine what the $200 price drop will do for sales volume. Apple has positioned the iPhone to succeed – if you don’t think so, just wait until Jobs announces the device’s holiday sales numbers at Macworld San Francisco in January.

Posted by David Zeiler at 3:49 AM in iPhone | Permalink | Comments (5)
                       

As many cheered the $200 drop in the price of an 8 GB iPhone, others who paid $599 for the much-hyped device had a much different reaction. Several Web sites, including some of Apple’s own user forums, exploded with messages throughout yesterday afternoon and evening claiming that the cut had come too soon. Those most upset said they felt betrayed by a company to which they had been faithful customers for many years. Demands for a $200 refund were common, and a few went so far as to call for Apple CEO Steve Jobs’ resignation.

Meanwhile on Wall Street, investors whacked 5 percent off AAPL’s share price, apparently surmising the price reduction not only would hurt margins but also indicated lagging iPhone sales. Although Jobs said the company was on track to sell its 1 millionth phone by the end of September, cutting the price of the year’s hottest tech device by a third 10 weeks after it went on sale was bound to spook people.

As I followed Jobs presentation yesterday my reaction to the iPhone price cuts was that it was a good thing; at the new more affordable price Apple would sell a ton of them through the holiday buying season. But then, I didn’t buy one.

I can understand why people who paid a premium price are upset. But that is the way of the consumer technology world. New products are introduced at ridiculously high prices. After the wave of early adopters willing to pay that price dries up, the price drops to catch the next group. Does anybody remember what HDTVs cost a few years ago?

And the cell phone industry carries this practice to great extremes. The Motorola RAZR cost $500 when introduced in 2004 and now is virtually given away with cellular service plans.

People need to realize that Apple has ventured into new territory with the iPhone. Allowing prices to stand for six months to a year, as Apple historically has done with its Mac and iPod product lines, was a model doomed to fail in the fiercely competitive cell phone market. Apple loyalists lining up to buy the iPhone that first weekend had this history in mind, but failed to consider how the product would fare in the market after the initial rush. Even Apple couldn’t be certain how it would play out.

I suspect Apple purposely set the price of the iPhone higher than necessary to see what the market would bear. While there has been evidence that the iPhone has continued to sell respectably (see my Tuesday post), perhaps internal numbers were showing a steady decline. Rather than wait a few months, risking slumping sales numbers and sacrificing momentum generated by months of hype, Apple decided to take action.

Note that the shock isn’t over the price cut itself, but that it dropped so much so quickly. Here again this most likely stems from Apple feeling its way in an unfamiliar market. Maybe Apple executives had banked on the iPhone changing the rules of the cellular market so much they’d be able to charge a premium price for it for a longer period. In any event, if a plan ever existed to lower the price more gradually, it went out the window.

Jobs spun the cut as an “aggressive” move to put more iPhones in Christmas stockings. Sure enough, Apple will sell more iPhones at $399 this fall than it would have at $599. The move can be seen as a defensive one, ensuring the iPhone captures more market share -- a fundamental measure of its success. Don’t think Jobs has forgotten what critics said when he introduced the device in January: that the cellular market was out of Apple’s league, that Apple couldn’t compete with established manufacturers like Nokia, Samsung and Motorola.

Jobs is determined to prove them all wrong, and if that means a dramatic price cut that knocks a few noses out of joint, then so be it. Jobs has devoted too much of Apple’s resources to the iPhone to play his hand conservatively now.