iPhone and the magic/curse of 'perceived value'

Well today is ground zone for the massive hype that has surrounded the launch of Apple's iPhone. It seems everyone(well most everyone) is standing in line for hours for the chance to pay $500 to $600 for a smartphone.

A cool phone? Absolutely. A gorgeous phone? You betcha. But it's still a $500-600 phone.

And for the people that are going home with one or a pair today, they are likely just fine with that. Everyone knows that Apple is going to sell a TON of iPhones today.

Many people are making guesses at how many iPhones will be sold this year. I think that number depends on Apple's ability to capitalize on the perceived value that the iPhone has today, and convert it into ACTUAL value.

Today is all about the hype. Hype that has been building for months around the iPhone. But after the hype fades, will the value as well? Will the iPhone be buggy? Will the glass screen crack or break easily if dropped? Will AT&T's network be able to handle demand? Or will it and the iPhone perform flawlessly and be a successful product line much like the iPod?

We just don't know at this point. But what we do know is that Apple is going to sell a ton of iPhones today on what users are viewing as its 'perceived' value. That value will quickly expire, and then the device's actual value will come into play.

How the iPhone's actual value measures up to its perceived value, will determine its future.

Bonus link: Laura Ries chimes in on Seth's prediction that iPhone will sell 2 million units this year (analysts say up to 3 million will be in stores today), and more next year. Laura doesn't think it will be a long-term success, and offers to buy Seth an iPhone if it is. Seth might get an iPhone, but I don't think it will come from Laura.

What do you think? Will iPhone be a long-term success? Will it be the revolutionary product that the iPod is? Or will it fizzle after the hype dies?


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posted by Mack Collier @ 10:34 AM,

9 Comments:

At 10:55 AM, Anonymous Bill Gammell said...

Mack,

With big hype comes big expectations. I am not sure if an all-in-one device can deliver on these expectations. Will the battery last? It sounds like the battery cannot be replaced.

The other hard part is that the device is partially a cell phone. This means contracts, fine print, add-on costs, dropped calls and all of the other baggage that can go along with cell phones. The launch of the Wii was different. With the Wii, you stood in line, paid for it and immediately went home and started playing. With the iPhone, the sexiness will quickly diminish as Vern at the Service Agreement counter explains why you have to sign up for an additional data plan in order to use some of the features (if this is true).

When it is all said and done, I think it will be a moderate hit – nothing like the iPod, but still maintaining a small but loyal fan base.

I guess we shall see.

 
At 11:01 AM, Blogger Robert said...

The crazy thing is that nobody's seemed to notice that you don't have to wait in line at the Apple Store! Why isn't anyone camping out at AT&T stores? Because this is about "brand loyalty beyond reason."

 
At 12:55 PM, Anonymous CK said...

Mack: A fun and fair review (video) by David Pogue/NYT is here:

http://video.on.nytimes.com/?fr_story=caed76f16c6132710db58210df3940afb8a3f7c8

Thought you might enjoy. He details the ups and downs but does it in such a cute manner ;-).

 
At 9:37 PM, Anonymous Paul said...

Hi Mack:

I'm pretty absolutely certain that Laura will be buying Seth an iPhone, and if she doesn't have to, I'll buy her one.

One major mistake that Laura has made in her analysis is focusing on the notion of convergence. Despite what tech analysts are saying, this isn't about convergence, at least not in the sense that it is commonly used. And, the iPhone isn't a phone. It has phone capabilities, but so does my notebook computer, and I certainly don't think of it as a phone. This is simply short term positioning so that people have an immediate sense of what functionality they'll get along with the $600 style icon that they buy today. And, it does fill an immediate need for a stylish, easy to use, thoroughly integrated, intuitive, simple, elegant device that can replace most of junk people carry around with them now.

Apple + Steve Jobs have executed a product, positioning and launch strategy that is unrivalled in our business. That's the reason people are so excited. The product is a full generation ahead of anything else, and will dictate how other products must work to compete for the next 10-15 years, just like the Mac set the pace for the PC industry for the past 23 years. Yet there is a stealth strategy still to unfold that the market doesn't yet appreciate.

I've detailed what's wrong with the convergence notion, as well as other analyst errors, why Apple has done what they've done, and why this product will exceed even Steve Jobs' expectations (at least his stated ones -- he may well expect sales run at twice the pace he has projected).

See: What
is Steve Jobs Really Up To?

 
At 9:55 PM, Blogger Mack Collier said...

"And, it does fill an immediate need for a stylish, easy to use, thoroughly integrated, intuitive, simple, elegant device that can replace most of junk people carry around with them now."

But will people want it to? Will people leave their 60 GB iPod at home for the 4 GB capacity of the iPhone? Will AT&T's network hold up? Will the glass screens get easily scratched and/or broken? What about the batteries?

I think there are too many 'what-ifs', and for a $600 phone, if ANY of those scenarios go bad for iPhone owners, I think they'll be some backlash.

And if I read your entry right, you're thinking 20 million sold by the end of next year?

Good luck with that, I can't see it.

 
At 9:57 PM, Blogger Mack Collier said...

"The crazy thing is that nobody's seemed to notice that you don't have to wait in line at the Apple Store! Why isn't anyone camping out at AT&T stores? Because this is about "brand loyalty beyond reason."

This is another sign of the 'cool' factor. It's 'cool' to stand in line for hours/days outside the Apple store, and totally uncool to walkup to the AT&T store and buy one!

 
At 10:48 PM, Blogger MarketRMan said...

I like the iPhone, however, I do not like Apple's decision to partner with AT&T/Cingular only. Personally, I am not going to drop my current provider to joint AT&T. Likewise, none of my family or friends intend to jump ship to simply to get an iPhone. I see this as an impressive "nice to have," not a "must have."

I can get a hold of some interesting data regarding online buzz about the iPhone if you are interested. Fee free to contact me by visiting my blog (http://www.conceptsmarketing.blogspot.com) or e-mail (www.conceptsmarketingresearch@hotmail.com).

 
At 10:46 AM, Anonymous Paul said...

Mack -- I'm OK if we disagree on predictions, but I think you're looking at minor problems and not the big picture. For a product to be disruptive, it does not need to be complete, or even the best (as a phone, as an iPod, as a web browser) but in the category and for the needs it satisfies, it only needs to be "good enough". And, it needs to meet an un- or under-served need for its target user.

Don't focus on the iPhone as a phone, because it isn't -- that's one of the same mistakes Laura is making. That's just initial positioning so that people who desire the elegant, stylish, etc. bit that you called out in quotes can see it fitting a need for them and get Apple a few million of these to market quickly. Longer term, and after people realize that this is the first usable handheld computer, this is a game changer. The sales estimates aren't for a phone, but for the latter.

As to the other things you bring up, yes, if you view this as an iPod then 60G is better than 8G. Especially when a big chunk is taken up by the OS. But there's the thing -- an iPod doesn't have an OS. And, an iPod needs the storage capacity because once untethered, it can't get more music and that's its sole purpose.

Watch for streaming music and video from iTunes, which will be priced differently, but also eliminate the need for massive storage. Also, this creates the opportunity for Wi-Fi radio, especially once people realize what a strong demand there'll be for WiMax infrastructure due to the iPhone.

Basically, the iPhone is so compelling, it's going to create its own ecosystem around it, just like the iPod did, and it will change the world. You just have to use a little imagination and look at the hooks built into it to see that much of this will exist in a matter of months.

I'm not worried about AT&T's network either. They've got plenty of capacity. However, AT&T's service does leave a lot to be desired. Even iPhone lovers admit that AT&T sucks as a company -- check out the blogs today and you'll see literally hundreds of people already complaining about activation problems and stupid customer service people at AT&T unable to deal with it. Still unless you're like me and have sworn off AT&T on principle, dealing with the occasional customer service snag is probably something that won't hang up someone who really wants an iPhone. It interesting that 60% of the iPhone demand is coming from people currently with other carriers, many of whom probably left AT&T at some time in the past due to their inadequacies. Same with the batteries. Most people will replace their iPhone before they have a battery issue.

One of the major media reviewers (might have been WSJ or NYT) already noted that the glass screen is significantly better than expected. No doubt, some will break, just like if I drop kick my cell phone or PDA or notebook, the screen will get damaged. But, it won't happen that often in the grand scheme of things, and my guess is that the majority of people will be replacing these well before scratches or broken screens become a problem.

Look, when the first IBM PC came out, it didn't have a hard drive, had a crappy tiny monochrome screen, used MS-DOS and C:/ prompt as its interface, used a cassette tape as its standard storage device (a 4" floppy drive was optional), had no connectivity, came with 16K of memory installed (although you could upgrade to a maximum of 256K), and worked on a chip speed of 4Mhz and with an 8-bit architecture. And, at $10,000, it was far too expensive for home use in 1981 dollars. Oh, and it had no applications on it or that you could go buy. Was there a lot to nitpick about? Absolutely. Was it disruptive and revolutionary? Even more so.

You have to consider where we are in the evolution of computing, and the iPhone interface and level of software integration and ease of use, and its form factor all point forward in a way that nothing else does. The little things you point at are nothing in the context of both the major technology leap forward, and in the face of Apple's stunningly powerful brand (Steve Jobs personal brand, really -- Apple floundered quite a bit when he wasn't there, and brought out dumb things like the Newton) for this type of product.

And, for the record, I said I expect iPhone to easily exceed 20 million units by end of 2008, not just get there.

 
At 10:55 AM, Blogger Mack Collier said...

"Basically, the iPhone is so compelling, it's going to create its own ecosystem around it, just like the iPod did, and it will change the world. You just have to use a little imagination and look at the hooks built into it to see that much of this will exist in a matter of months."

If the iPhone ends up being the home-run that you think it will be, I agree, this will be the reason why. I just don't think the product itself is so amazing to sustain the long-term growth itself. If outside players get involved and expand on it through their own offerings, maybe.

We'll see, it will no doubt be interesting to see what happens either way.

 

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