The iPhone Conundrum

Steve Jobs is known for being able to pull a rabbit out of his hat fairly regularly – far more regularly, anyway, than almost any other CEO. Like most Mac users, I find myself anxiously awaiting the likely announcement of the Apple phone tomorrow. Given the hype though, I wonder if Apple can actually win with this upcoming keynote.

The Apple phone has been rumored for so long, it has taken up somewhat of a legendary status. The rumor has been ignited by the popularity of the iPod and the desire to see the same ease-of-use it has become famed for appear on a convergence device. As something Apple users have been mulling about for years – perhaps even before the iPod, for the iPod itself was rumored to be the return of the Apple Newton PDA, or something like it, before its unveiling – the phone has acquired some attributes that seem to exceed what Apple can surely offer. Talk of multiple batteries, amazing video capabilities and the like are far beyond the technology in current cellular phones.

When respectable sources such as the New York Times fantasize about how Apple’s device will be a groundbreaking convergence device unlike any existing phone, clearly expectations are being set high – and not just among rumormongers. There is the distinct possibility that Jobs will unveil something that will wow us all, but the risk of disappointment is clearly higher than before almost any other product launch Apple has made. Will the iPhone leave consumers with the same disenchantment voters regularly feel a few months after their favorite politician takes office?

Full Disclosure: Tim owns a small amount of Apple stock.

Can Apple create a technological marvel? Sure, but to live up to the hype, it is quite possible that the device could risk becoming the modern heir to the legacy of Apple’s Lisa: an amazing piece of technology that simply costs too much for the average user to justify. There are niche high end phones to be sure, but Apple needs to do something really amazing and create a phone that falls into a price point that is not much more than the combined cost of buying a cell phone with similar features and an equivalent iPod. Moreover, it must also avoid the danger of creating a phone reminiscent of Motorola’s iTunes compatible phone, the ROKR, which was generally seen as poorly designed and of little interest; too many flops associated with the iPod and cell phones and Apple will end up turning what is presently an absolutely amazing amount of pre-announcement demand — an asset few CEOs would even dream of — into an equally amazing amount of disappointment that could tarnish Apple’s presently glowing image.

Apple is on a journey toward convergence, and to reach its destination, it must travel through a modern Scylla and Charybdis, like Homer’s Odysseus did so many years before. Yes, despite my enthusiasm, I must say the Apple phone is between a rock and a hard place. It would be tempting to suggest maybe Apple should not release a phone at all. Perhaps the technology simply is not yet available to support what people are demanding at a price they will pay. Perhaps, with a few carefully played big announcements of an entirely different sort, Apple could divert attention and simply pretend that the product seemingly everyone wants was never even discussed. Perhaps.

But, Apple faces two severe problems in doing so. First, cell phones are becoming better and better MP3 players. While my Sony-Ericsson Walkman W600i is not nearly as good for music playing as my iPod, if it had more storage, it would certainly fulfill most of my desires, other than iTunes Store compatibility. Perhaps even more importantly, since I have never expected it to be the revolutionary device everyone expects Apple’s phone to be, I can be content with merely a good interface, decent features and a good price tag. If the iPod remains a standalone device, it faces the risk of being marginalized over the next few years, just as standalone PDAs, such as the majority of Palm OS ones, were in just a short few years. Consumers have already asked, “If a phone can be a perfectly good PDA, why bother with two devices?” 2007 could very well be the year that consumers ask “If a phone can be a perfectly good MP3 player, why bother with two devices?”

Another potential hurdle exists in the broader picture for the Cupertino-based company. Given Apple’s outsider situation with the video game market, it faces having its multimedia aspirations caught between the all-out war of the PlayStation 3 and the Xbox 360 – two all-in-one home media devices that will do far more than it is likely the iTV can do. What Apple needs is not just a phone-iPod tie-up, but a home convergence device; it needs to create something to show it still has a chance in the convergence market despite being outside of the video game market (unless it would decide to forge an alliance with Nintendo, which has a similar design philosophy, but Apple seems unlikely to do such).

By the time you read this, perhaps Jobs will have unveiled his marvel, but the real question is not to be answered at MacWorld, but in the coming months as investors and customers react to the announcements. The question to be answered is whether Apple’s phone, whenever it surfaces, can live up to the hype and secure Apple’s future beyond the iPod.

Timothy R. Butler is Editor-in-Chief of Open for Business. You can reach him at tbutler@ofb.biz.