Tech Check

iPhones: iRisk, iRewards With One Week To Go


One week from today, Apple Inc. will unleash its iPhone on what appears to be a ravenous marketplace; panting about the prospects, pouting about the long lines expected and the chance consumers who want one may not get one on that first day.

For Apple though, it's all about ringing up sales, or racking up risk: Will iPhone measure up to all the hype it has enjoyed these past several months. What hype, you might ask?

"The iPhone is the most anticipated consumer product in the history of time," Gene Munster at Piper Jaffray tells me.

And if that's not enough, do a Google  search of the iPhone and you might get a lot of Web sites dubbing the device as the "Jesus Phone," complete with beautifully designed stained glass windows, portraying Jobs as Christ with some of his disciples wearing Apple's trademark white earbuds. We've gone beyond hype and moved squarely into "phenomenon."

For Apple investors, watching Apple shares continue to teeter near all-time highs, there's a healthy degree of nervousness. When Apple entered the portable digital music market, devices were clunky and competition came from a bunch of second tier tech companies. But now, Apple is diving face-first into tech's most competitive sector: The Wireless World. Though when I asked Steve Jobs about that very point back in January when he first unveiled iPhone, he brushed the concerns aside.

"It's a category that needs to be reinvented, needs to be not only more powerful but much easier to use and we thought we could contribute something," Jobs told me.

So now, Apple finds itself in the unusual position of having to worry about over-promising and under-delivering, a role the company is completely unfamiliar with. That certainly wasn't the case when Mac burst on the scene back in 1984. And really not a problem with iPod in 2001. Both times, expectations were muted because both industries were so young.

Now, the game has changed. "I think the iPhone may really change the whole phone industry," said Jobs in January. That kind of bluster only served to raise expectations even higher, even though some analysts wonder just how truly revolutionary the iPhone will be.

"There are many things in the iPhone that are not ground-breaking," Forrester's Charles Golvin tells me. Critics seize on the phone's 2.5G platform instead of the higher-capability 3G technology. They also point to the slow EDGE network from AT&T Wireless on which the phone will operate.

But technological questions aside, Apple will have to deal with cut-throat competition from established players in the industry, including Research in Motion, Nokia, Palm, Motorola, Sony Ericsson and so many others. Not to mention Apple's decision to rely on a new touch-screen interface to operate the phone. Sure, it looks super cool, and feels neat (I had the chance to play with it the day the phone came out), but consumers used to the tactile feedback of traditional keypads will indeed have to re-learn how to use their cell phones.

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And while we don't want to admit we text while we drive, I'm not sure how easy the touch-screen will be if you're not looking at it, and maybe more importantly, how easy the phone will be to operate with one hand.

"People who use a BlackBerry are probably not going to be as enamored with the iPhone for doing a heavy load of email," says Forrester's Golvin.

That's a problem for Apple if the company tries to go after the big corporate smart-phone market where email is such a killer app. Then there's the issue of what enterprises iPhone will work with: we know it'll work with consumer-oriented Yahoo Mail,Google's Gmail, Microsoft'sOutlook and web-based mail. But it won't work with corporations that use the Blackberry enterprise software; or Microsoft's Exchange. There's talk that could change, that workarounds might be on the way, but no one seems to know how or when.

And don't forget cost. I'll go into the bigger consumer issues in a post next week, but suffice it say that the iPhone is the gift that keeps on costing. The 8-gig model sells for $599 plus tax, or over $640 here in California. Then, you gotta go for AT&T's voice plan, the cheapest monthly voice plan is $60. You'll need the Media-Max bundle for all the net, email and texting you'll do. I'm hearing that the cheapest $40 plan won't be available for iPhone users; that it will cost a minimum $50 instead. That's $110 a month, or about $2,000 that first year. About the cost of an Apple MacBook laptop.

But those concerns aside, there's still a healthy amount of optimism, not just among consumers, but among Wall Street analysts who are looking for big returns from the little phone. (I'll address key questions and answers for investors on a later post as well.)

"In 2009, we estimate (Apple) will do $15 billion in revenue with the iPhone, and $13 billion in computer sales," says Piper's Munster. "In other words, we estimate their phone business is gonna be actually bigger than their historical legacy business."

In other words, big bucks and big pressure for Apple to bank them.

Update: I am out of the office Monday the 25th through Wednesday. Be sure and check back with me later this week.

Questions?  Comments?