January 9, 2007

iPhone First Impressions

By Avi Greengart
agreengart@currentanalysis.com
Principal Analyst, Mobile Devices

I left CES early – very, very early – this morning to head up to San Francisco and attend Steve Jobs’ keynote at MacWorld. I was also able to ask Apple questions afterwards and all-too-briefly use an iPhone myself, an experience that greatly colors my analysis. Here are some first impressions. A full report will follow, and clients are encouraged to set up inquiry sessions to discuss things in finer detail.

The iPhone lives up to the hype, and presents a significant challenge to certain handset vendors, primarily Palm and Sony Ericsson. As I wrote in an Advisory Report just before the new year - “Apple Phone, Who Cares? (And Why)” - the key areas Apple impacts the competitive landscape are in user interface and completeness of product.

The UI on the iPhone is innovative, visually stunning, and incredibly responsive. Apple will likely take credit for innovations that have appeared on existing products. For example, most smartphones make it easy to accept or reject incoming calls and create conference calls. The iPhone’s tabbed phone application looks a lot like a Palm Treo 680, and Palm has offered threaded SMS for years. Palm even offers visual voicemail, but the iPhone’s implementation is more like unified messaging than just VCR-style controls. The touchscreen slide lock/unlock is brilliant, and the touch-everything UI is, to put it simply, fun. Unlike a Treo, the iPhone takes UI innovation beyond telephony and into media, as well.

iPhone is desirable – if extremely expensive – simply as a widescreen video iPod with a 480x320 screen and either 4 or 8 GB of flash storage. Sony Ericsson also offers a 4 GB touchscreen musicphone, the W950, which it sells in Europe and Asia. But Sony Ericsson doesn’t take this innovative UI and apply it throughout the product, as Apple has done.

With a full version of Safari running on the iPhone, it gives Nokia’s N800 a run for its money – the iPhone could be the first device to let users watch YouTube videos – any YouTube video – on their phone. The N800 is seeking its own WiFi-only market niche, and there should be room for both products (I personally have three Nokia Internet Tablets strewn around the house, and they all get use).

However, the iPhone’s initial market will be extremely limited. At $499 or $599 with a two year contract, it is quite expensive, and only available at Cingular. Unlocked versions will not be available (at least not until the 4Q European launch, and possibly not even then), so iPod owners who simply want to upgrade to a widescreen model will have to buy the phone, too (pricing for less than 2 year terms has not been determined).Keeping the iPhone as an exclusive should drive Cingular subscriptions, but it could damper overall sales.

The bigger issue is that smartphones make up only a small percentage of overall handset sales. When consumers walk into a Cingular store in June, they will find an array of traditional handsets that cost no more than $49 with two year contract, including the 3G Samsung SYNC and iconic Motorola RAZR. There are undoubtedly consumers willing to spend $500 on an iPhone – I personally am one of them – but it is far from a mainstream proposition.

The all-touchscreen, all-the-time UI is not for everyone, either. Many consumers prefer hard buttons with tactile feedback when dialing the phone. I found the on-screen QWERTY keyboard surprisingly usable, so consumers should be thrilled with the Yahoo! IMAP service, as it provides free push email and the first mobile HTML email client that I know of. But RIM is safe: the iPhone does not replicate the IT-controlled + tactile QWERTY keyboard + corporate push email experience.

Other issues: 3G is conspicuously missing, as are carrier entertainment services that utilize faster network speeds. Early adopters buying $600 smartphones tend to get checkbox happy, and EDGE just isn’t fast enough when compared to HSDPA or EV-DO. iTunes is not included, so there is no way to download songs over the air, even using WiFi. The iPhone runs on a full version of OS X, but it is locked down – at least initially, users will not be able to add any new application that developers dream up, as on the PalmOS, Windows Mobile, and Symbian platforms. This maintains the iPhone’s user experience and protects Cingular against a Skype client. (Hackers will probably figure out how to add one, anyway.) Finally, basic call quality is an unknown – while I expect Apple to pull no punches in terms of voice quality and reception, it does not have a track record in this regard.

Still, the iPhone is hot. Apple is just pre-launching it today; retail availability for the iPhone isn’t until June. This should give its competitors time to pre-announce revolutionary products of their own.