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 | Permalink | Comments (7)
                    

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 | Permalink | Comments (13)
                    

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 | Permalink | Comments (2)
                    

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 | Permalink | Comments (6)
                    

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 | 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 | 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 | 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 | 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 | Permalink | Comments (0)
                    

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 | 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 | 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 | 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 rece