Rumors are flying about an iPhone being manufactured in Taiwan. What are the pitfalls of an Apple branded iPod phone? Clearly, the biggest problem is that the mobile phone providers think they can sell songs over their networks at prices much higher than the iTunes music store. I doubt it, but that does not stop them from thinking that way. Most people get their phones heavily discounted or free from their service provider in exchange for a service contract that typically lasts two years. Very few people pay retail for a phone, even though doing so gets you an unlocked, uncrippled phone with no multiyear commitment to any particular service. An iPhone will not succeed without subsidy and branding from Cingular, Verizon, and T-mobile.
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Rumors are flying about an iPhone being manufactured in Taiwan. What are the pitfalls of an Apple branded iPod phone? Clearly, the biggest problem is that the mobile phone providers think they can sell songs over their networks at prices much higher than the iTunes music store. I doubt it, but that does not stop them from thinking that way. Most people get their phones heavily discounted or free from their service provider in exchange for a service contract that typically lasts two years. Very few people pay retail for a phone, even though doing so gets you an unlocked, uncrippled phone with no multiyear commitment to any particular service. An iPhone will not succeed without subsidy and branding from Cingular, Verizon, and T-mobile.
I think the iPod will eventually merge with the mobile phone. As the technology gets better, there is no reason that such a product could not be just as good a phone as it is a music player. Motorola has come closer to this on their second try and the benefits of a single device will outweigh any drawbacks. I also think that soon, such a phone could house a camera that will provide photos as good as those provided by the current crop of small 5 megapixel cameras. Some phones are almost there now. Coupled with a good datebook, a phone that does all of these things well enough is imminent and Apple could be the one to get it right.
Working with Apple, Moto was caught between two very difficult players. Trying to please Apple and pay them a licensing fee on the one hand and getting the phone service providers to even sell a phone that did not use their network for downloads on the other must have proved extremely difficult. Their iTunes phone looks like a compromise and has not proven all that popular. In order to succeed, such a device will have to be a great phone and as good as a real iPod at the same time. If it is going to have a camera, it needs to be the best one available in a phone. This will all have to fit in a small package too.
How can Apple do this? I suppose they could pay the phone service providers a fee for mobile downloads from the iTunes music store. Order your iTunes songs over the phone and $1 goes where it always has and a second $.50 could go to the phone service provider. They could never approach the kind of sales volume this would generate by setting up their own stores. They would simply be providing a paid delivery service and not have to negotiate with the record companies. They should be concentrating on selling network time and not on a new business enterprise as complicated as the music industry. The only problem I see, is that this would give even more ammunition to those who view iTunes as a growing monopoly. If Apple cannot work to license the iPod brand with all of the major phone manufacturers, they need to step into that arena with the very big advantage that iTunes gives them.
added 3/25/06
The monopolist approach – Apple to Cingular: We own the direct distribution of compressed digital music in the US. At best you will get 1% of that competing with the other phone service providers – not enough to cover your costs. Team up with us and become the exclusive source for telephone downloads from the iTunes store. You can have a lock on the phone network distribution of music in the US, practically guaranteed. This will gain you many new customers as well as a distribution fee for every song. You have to do almost nothing but offer our phone and accommodate our store which is built into the phone. This may dramatically change the number of customers who buy advanced network services from you and allow you to price those services lower than your competitors. This offer is good for one week and then we open talks with T-mobile. They have even more incentive to deal with us, but we like your extensive coverage. We look forward to your response.