Opinion: Keep Your Shirt On

By Rob Enderle

July 14, 2008

If you haven't already rushed out to buy a new 3G iPhone, Datamation columnist Rob Enderle says you may be well-served by waiting until September.

Apple is an expert at social engineering. They, and specifically Steve Jobs, can build product feeding frenzies unlike any company I’ve ever covered.

I can still recall the first iPod which sold in surprising numbers that first Christmas and had the highest return rate of any product I’ve ever seen because most who got it for Christmas couldn’t actually use it (because it initially ran only on Apple hardware). I can’t recall any other vendor who created so much excitement for a product that people completely missed the fact they couldn’t actually use it.

But, as consumers, our goal isn’t typically to make a company like Apple rich. Our goal is to buy intelligently, and to do that you probably should wait until September before buying the new iPhone. There are a number of reasons for this so let’s walk through them.

Choices

I believe the strategy that Apple is using is based on denying the market to a company they know is coming with a very competitive offering under the theory that if people buy the new iPhone they won’t have the money to buy a competing product because of the cancellation penalties surrounding the offering.

We know of at least three interesting products coming but there is a good chance Apple knows of one or two we haven’t heard of yet. The three that appear to provide good alternatives are the RIM Bold and Thunder, and the HTC Touch Pro. While none are likely better iPhones, each has unique differences that likely would make them better for many users than the iPhone is – and these are simply the phones we know are coming later on in the year.

Prices

With the first iPhone the initial problem was Apple was too greedy and they had to reduce prices substantially to get people interested in buying the phone.

With this latest phone they are trying an experiment that could work. They effectively raised the price of the services to create the impression of a lower priced phone while actually increasing the overall cost to you. It’s about $40 plus the cost of texting and the phone improvements are worth this if you take competition out. But they also reduced the cost of building the phone at the same time, increasing their profit significantly.

The cell phone market is incredibly competitive. Generally, costs of phones go down over time and the total price to the user goes down as well. For Apple to reverse this trend may not hold, which suggests that a price decrease may be coming at some point, likely on the services side this time but possibly coming on the phone side. Much like the early iPhone customers discovered, the incentive to keep the first buyers happy by giving them some kind of a post purchase product discount isn’t very good.

On that early release the pricing action was done by Apple alone, and thus could be done within a few weeks of the product launch. This time the problem is the cost of the service, indicating that the change will need to be negotiated between Apple and AT&T and neither entity will want to give up margin, making the negotiation protracted and very difficult to resolve.

However there is a clear drop-dead date to do this that is set by the back-to-school buying season. This suggests that, if there is a correction to be made, it will happen around the September time frame, particularly if they are responding to competitive pricing pressure.

As I’m writing this HTC announced the pricing for their initial iPhone competitor the Touch Diamond. Price is $149 with a 3-year contract with a $30 unlimited data plan monthly charge (or $15 for just unlimited email and IM). This should place it well below the iPhone price and service charges putting competitive pressure on Apple, though 3 years seems too long to me.

Reliability

With any new product it takes awhile to work out the bugs and problems. This new iPhone has a number of significant, and largely positive, changes. However there are always risks associated with major changes.

3G phones have had historically poor battery life; this is one of the reasons Apple was slow to bring one out. There has been no magical solution to the limitations of either battery life or power consumption when performing at full 3G speeds. And Apple’s strategy of stepping down the radio could do some really painful things to applications. The iPhone will eventually start dynamically shifting bandwidth to conserve power, but this feature is not yet being shipped so application vendors can’t test against it. Once it does ship, applications that use this bandwidth are likely to either not perform well or prevent the power conservation feature from working initially, until they can be rewritten. It will take awhile to work though this. The improvements promised in September should address most of these issues.  

The presence of 3rd party applications may also have an adverse impact on reliability and you may want to move slowly in terms of loading those applications regardless of when you buy the phone, so that others experience the problems first and you benefit from their work as opposed to the other way around. This experience should improve dramatically over the next several weeks.

Finally, they have cost-reduced the case of a phone that has a large glass screen. Plastic may actually hold up better than the aluminum case that the old phone has but it will take a number of weeks to confirm this and, if it doesn’t, Apple will likely fast track a fix. While the fix probably won’t make it in September, we should be aware of any problems by then and be better informed with regard to how to protect the phone.

Wrapping up

I’m not suggesting you don’t buy the iPhone, just suggesting you wait until you can make the most informed decision. This year in particular money is tight and this phone will cost you nearly $2,000 over its life. If you find you’ve made a mistake you’ll have a lot of months to regret that mistake so, I’m suggesting, it is better to ensure the decision is the right one than it is to be one of the first to get the new phone.

Or, putting it another way, do you want to be first or appear foolish? The folks who initially stood in line for the first iPhone ended up feeling foolish. You may want to learn from them.

Article courtesy of Datamation.

Originally published on .

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