Is the iPhone the Paris Hilton of phones?

Posted by Rob Enderle, Principal Analyst, Enderle Group

Opinion - If there is one IT company that teaches us lesson after lesson how to market yourself and your products, then it has to be Apple. But it looks like marketing got ahead of reality with the iPhone: There are early signs that Apple is sailing into rocky waters and will have to pay the price, if the hyped hardware will not be able to deliver what the marketing department has promised.If there is one IT company that teaches us lesson after lesson how to market yourself and your products, then it has to be Apple. But it looks like marketing got ahead of reality with the iPhone: There are early signs that Apple is sailing into rocky waters and will have to pay the price, if the hyped hardware will not be able to deliver what the marketing department has promised.

 


The iPhone in detail ...


 

No doubt about it, Apple knows marketing. The iPhone hasn’t shipped yet, but images and words were enough to convince financial analysts in the past months to estimate Apple stock prices to climb into the near Google range.  

Unfortunately, the company underwhelmed at its Worldwide Developer Conference (WWDC) and did not meet the high expectations it had built over recent weeks: A lack of excitement (and information) about the device caused Apple’s stock to drop sharply.

So, what does that mean? Well, it for sure is an early warning sign that, if the iPhone doesn’t do well, Apple’s stock will get beat up. And, as good as the iPhone looks right now, there are indications that the - as Apple calls it - “best iPod ever” will, at least initially, not meet expectations. Shipment and sales forecasts appear to be so far ahead of reality: In the end, it is a generation one product and it would take divine intervention to meet shipment predictions.
 

The power of marketing

For those either in marketing, planning a career in marketing, or just watching this play out, there are a number of lessons that can be learned. Number one is that Apple marketing is taking names and kicking butt. The iPhone campaign is arguably one of the best demand generation campaigns I’ve ever had the privilege to see executed.   

They teased out effectively before the product was announced, they presented the product so that you only saw its benefits (and had to dig for its shortcomings) and they will release it at a price point and volume that will keep it exclusive for much of the year. This should, if the product is adequate, not only result in a sales spike but a strong sales year for Apple. The product-is-adequate part is a problem we’ll deal with in a moment and may reflect marketing, or organizational failing, as well.

Apple has been making good use of TV from the beginning as they continued the tease and dovetailed with the old Mac (capturing the hearts of their core advocates), to the mid campaign, which built expectations around the features, to the current campaign, which focuses on one thing and makes it seem compelling (even though the current product focus does not relate to the phone feature).  

Now compare this to a Microsoft Zune ad.  Can anyone, outside of Microsoft, even tell me what the heck it is they are doing here? How about this one?  Or this one?  You look at the elegance and simplicity of the Apple ad and you can understand why people want it. Looking at the Zune material, there’s something not right. The Microsoft advertising team must have had some really compromising pictures of Microsoft’s execs to get away with this. Or they gave up on their Microsoft options and decided to sell the stock short.

You can understand the why behind many of the Zune opinions and why it didn’t exactly have the same impact as the iPod or iPhone.  
The lesson here is: Keep it simple, focus on the core benefits and tell a story. This isn’t really rocket science, Apple does this over and over again. Yes, they have had a bad ad from time to time, but it’s rare. And for anyone thinking of doing an ad could learn a lot from watching Apple’s execution, including don’t make fun of potential buyers.   

Of course, in all fairness, not all Microsoft ads are bad (this is one of my favorites). There are a couple that are high concept and do get the point across, but even then, I think you could argue Apple does a better job of making you actually want to buy the product.  

The danger of overhype: The iPhone is the Paris Hilton of phones

However, one of the lessons you may learn shortly is what happens when the advertising is very successful but the product doesn’t live up to the hype.  This is a generation one device from Apple. It doesn’t matter who you are - first-generation one devices rarely do well, particularly with Apple, because the vendor is learning to understand the market.  

Now Google is a company that has showcased that you can break a lot of rules and do well, but in hardware that just doesn’t happen that often. The rules for a great phone, as defined by the latest hot product (Motorola Razr) are: Features aren’t that important, it needs to be a good phone, it needs to look cool, it needs adequate battery life and it needs to be small and relatively inexpensive (around $100 or less). If it is a smartphone, it needs a keyboard because touch screen input simply sucks.
 
The iPhone looks cool, but appears to miss almost every other single requirement. It is optimized for video, pictures and music creating a device that will drain a battery dry (using video) in a very short period of time. It has no replaceable or extendable battery and it lacks the keyboard required for a smartphone (try to text or do anything but read email on a touch screen). Plus, perhaps most importantly, it isn’t primarily a voice communication device and it is way too large for a feature phone.

Every problem I’ve listed was avoidable and known to the more mature cell phone companies in this segment; Sony in particular learned these lessons the hard way.  This is not uncommon, companies entering a market have no experience and don’t know what, or who, to ask about what does, or does not, work in a segment.  You would think, given Apple was successfully sued on the iPod battery (Lithium Ion batteries have a 300 cycle average service life), on something like the iPhone that could be as little as 6 months if people use car chargers.

The lesson here is also that marketing and research need to be involved at the front end of the device, not (as was likely the case with the iPhone) to simply assure a good campaign, but to assure the product as well and make sure it meets expectations.  There is really no reason, if folks learn from others, why a first generation product like the iPhone or Zune needs to be risky, they simply need to be done right and marketed well.
 
In the end, both the Zune and the iPhone have serious issues as generation one products, the iPhone is vastly better marketed, but that may turn out to actually be a bigger problem, if this failure results in a material problem for Apple (which is now likely).   The Zune was never material to Microsoft, but it also was a really good lesson on what not to do.  

Advice on the iPhone

Wait until fourth quarter on this device. Rumor has it (and this appears to be solid intelligence) that Apple is rushing a generation 2 product to market and it is expected to surface before the end of the year.  Remember, unlike the iPod, you have to sign up to use this thing for two years on AT&T only and, if you don’t like it (or the service), getting rid of it could be very expensive (the SIM is built in so unlocking this puppy is out).  If you take into account the $200 subsidy, you are paying over $700 for this first version - you could buy a nice laptop computer or 32” flat panel TV for that kind of money.
 
Paris Hilton would probably love this phone: Long on hype, short on substance - and she can afford it. But you might want to wait for a better and more reasonable device - or you’ll have two years to reminisce over your purchase. Safari on Windows is generation one as well and look at what is already being reported with that product.  

Remember the “Pioneers get the Arrows, the Settlers get the Land”? My advice is to wait until at least version 2.0, even if it is only to get a choice of carriers.  If you do decide to go first, after the initial wonder wears off, be sure to let me know what you think of the device.

 

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies.