Al Reis doesn’t like the iPhone

I saw this video by Al Reis, basically prognosticating an iPhone flop, and I disagree with both the prediction and especially the underlying reasoning.

First, Apple is probably anticipating a slow ramp in the beginning. Smart phones are expensive and are almost universally sold with a contract. Unlike regular phones where breaking a contract might be under $200, a smart phone migration is a bigger deal. Plus iPhone is going to be introduced Cingular-only. Many prospective buyers will not switch, especially if they are on company plans.

Also, even the iPod ramp really got cooking after the earliest adopters and a big advertising budget spread the word to the masses. Just because initial sales may not be record-shattering, does not mean it will be a flop.

Second, nobody (I hope) thinks the iPhone is going to have the universal adoption of the iPod. It’s not. If Apple needed iPod level adoption to make the iPhone profitable, they would never have pursued it.

I assume with the iPhone, Apple is hoping to firmly plant itself in the phone business for the long haul. If the first iteration of the phone is not profitable, fine. In fact, I doubt it will be after the likely advertising budget is deducted. That’s ok. In order for Apple to “win” with the iPhone, they need a product that Apple fans like and adopt. That’s pretty much it. Apple needs to please its core base with this salvo. If the product does this, it’s a success. If not, it’s a failure. Depending on how far Apple misses the mark, they will have to react.

Al Reis’s overarching theme that iPhone will fail because it is a convergence device is way off the mark. Further, implying that “divergence” and “convergence” are opposite in product terms is very thin. He gave a bunch of examples of technologies diverging to suggest they don’t converge. What? Convergence and divergence, the way he used them, are not really opposing forces. The SUV category is both convergence and divergence at the same time. It’s a separate category, but is based on convergence. I appreciated the humor in some of his examples of lame attempts to converge technologies (a toaster with a radio in it), but he belabored the point so much, I wondered whether cookies and cream ice cream would have ever been invented in his world. Plenty of products succeed based on convergence.

Specifically in terms of the iPhone, it is also a product that is a convergence and divergence product. Obviously, it is convergence because it is a smart phone, a phone with a PC-like feature set. It is divergence because it is clearly a smart phone. It doesn’t try to appeal to Joe Prepaid. It is clearly designed for the core Apple base who love sleek, feature-rich products.

It clearly stands to compete against the Treo, the Blackberry, and other Windows Mobile PDA’s. That’s the market. To say that iPhone is going to be a “disaster” in competing in this market is a stretch, but a fine opinion. I just don’t know why Reis primarily blasted the category itself (smart phones), not the phone. If smart phones isn’t a profitable market — or market worth Apple’s time — I guess the Treo and Blackberry are flops, too.

Put another way, to me, the litmus test for the iPhone is whether Apple computer owners buy it, not whether iPod owners do. Once we narrow things down to that, Apple’s recent track record suggests a very good shot at success.

Seth Godin projected 2 million in the first year. That would be a great success, maybe a little optimistic, but more likely than a total bust.

Features to watch:

Core phone quality (reception, volume/speaker quality, etc)
Quality of Internet browser
Experience of messaging/typing
Add-on quality (such as bluetooth headsets, etc)
OSX tie-in/applications
Video playback experience
(Probably future versions…quality of Cingular’s IPTV with the iPhone)


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