Thursday, January 18, 2007

Is iPhone Steve Job's Greates Truimph?

As Apple sets itself for another spectacular earninings announcement after the exuberance of Steve Jobs' Macworld keynote has died down, in some sections of the media nagging doubts are beginning to surface coupled with a dose of harsh reality.

Most of the doubts concern the market positioning of the iPhone, while the harsh reality is that Apple is now the subject of a criminal investigation by the US Attorney's Office.

Starting with the possibility of an options backdating scandal which threatens to reach to the very top of Apple, meaning Jobs himself, until now there has been widespread sentiment that Jobs and the Apple Board are beyond reproach. Not many want to believe that a company of the stature of Apple led by a computer industry pioneer like Jobs could be the subject of a criminal investigation over its corporate governance practices.

However, the US Attorney's Office is probably not interested in public sentiment. If it finds that corporate laws have been broken then it will do its job and make the collar. If such a collar gets made, even if Jobs is not directly involved, as a very hands-on CEO it would be hard for him not to share at least some of the responsibility.

With this in mind, some very bullish financial analysts are starting to shift a little uncomfortably in their seats. Without Jobs, Apple would not be the same company. With Apple stock at an all time high, no-one wants to think about such a scenario.

With regard to the iPhone, in the minds of many it is Apple's killer app. It is indeed a remarkable device. However, there is a measure of uncertainty about its target audience.

Apple has never been a big player in the corporate space and the iPhone, being very much a closed system, may not be able to change that. If like the rest of Apple's products, the iPhone will primarily be considered by consumers, then it's expensive. Many consumers in the wider market outside the Apple world may baulk at paying a base price of US$499 for a phone on a fixed two year plan with a carrier.

At Macworld, Jobs pushed the fact that at US$499, the 4GB iPhone is cheaper than the cost of a smart phone and an iPod combined. However, even the wildly euphoric pro Apple crowd at the keynote could not be coaxed into raising a deafening cheer when the price was announced.

Like all mobile phones sold on contracts, the iPhone is probably heavily subsidised by the carrier and therefore is actually a bargain at the announced price points. However, in many cases, particularly in places like Europe and Australia, consumers can pick up a top end mobile phone on a contract for zero up front cost.

Some observers believe that the iPhone, being an iPod (Jobs said the best ever iPod) will merely eat into existing iPod sales. However, this is unlikely. Despite its large 3.5 inch screen, the iPhone does not have enough storage to compete directly with the iPod Video. Likewise, the much cheaper iPod Nano just does not have the same feature set as the iPhone.

Regardless of the outcome for Apple and Jobs, 2007 is likely to one of the most significant in the history of the company. Apple and Jobs have engineered a scenario where the company has a shot at bridging the divide between IT and telecommunications. However, failure could signal that the company reached its zenith with the Intel Mac and the iPod and has only one way to go.


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