[oalvarez]

JOHN DVORAK'S SECOND OPINION
Apple should pull the plug on the iPhone
Commentary: Company risks its reputation in competitive business
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy John C. Dvorak
Last Update: 7:18 PM ET Mar 28, 2007


BERKELEY (MarketWatch) -- The hype over the unreleased iPhone has actually increased over the past month despite the fact that nobody has seen or used the device. This, if nothing else, proves the power of branding and especially the power of brand loyalty.
It's the loyalists who keep promoting this device as if it is going to be anything other than another phone in a crowded market. And it's exactly the crowded-market aspect of this that analysts seem to be ignoring.
Apple Inc.'s past successes have been in markets that were emerging or moribund. Its biggest hit has been the iPod. But let's examine what happened here.
First the MP3 player business was segmented and unfocused with numerous players making a lot of cheap junk and not doing much to market any of it.
Apple does what? Advertise. Gosh, what a concept.
Then there was the online music distribution business, again unfocused and out-of-control with little marketing and a lot of incompatible technologies. So Apple comes in with a reasonable solution, links it to the heavily promoted iPod and bingo. A winner.
It advertises on TV, on billboards and on the Internet. Within no time the company takes over the business that would probably still be languishing without Apple.
Thus Apple does what it does best. It produces a jazzy product and promotes it like any good business should do. And in the process manages to get a high margin.
This is nothing more than the fundamentals.
Now compare that effort and overlay the mobile handset business. This is not an emerging business. In fact it's gone so far that it's in the process of consolidation with probably two players dominating everything, Nokia Corp. During this phase of a market margins are incredibly thin so that the small fry cannot compete without losing a lot of money.
As for advertising and expensive marketing this is nothing like Apple has ever stepped into. It's a buzz saw waiting to chop up newbies
The problem here is that while Apple can play the fashion game as well as any company, there is no evidence that it can play it fast enough. These phones go in and out of style so fast that unless Apple has half a dozen variants in the pipeline, its phone, even if immediately successful, will be passé within 3 months.
There is no likelihood that Apple can be successful in a business this competitive. Even in the business where it is a clear pioneer, the personal computer, it had to compete with Microsoft and can only sustain a 5% market share.
And its survival in the computer business relies on good margins. Those margins cannot exist in the mobile handset business for more than 15 minutes.
And note that the Microsoft Corp. versus Apple battles are laughable compared to the frenzied marketing mania in the handset business. Even Microsoft itself has troubles with its attempts to get into a small sub segment of the handset business with its operating system.
What Apple risks here is its reputation as a hot company that can do no wrong. If it's smart it will call the iPhone a "reference design" and pass it to some suckers to build with someone else's marketing budget. Then it can wash its hands of any marketplace failures.
It should do that immediately before it's too late. Samsung Electronics Ltd. might be a candidate. Otherwise I'd advise you to cover your eyes. You're not going to like what you'll see.

[surur]

Ha. Dvorak forgets Apple's major asset - its fanboys. They would believe anything Jobs says and buy anything with the logo. (Cue Archie '10 000 recharge cycles')

This is just another Dvorak article cashing in on the Apple fanboys, just like Apple itself does regularly, by driving traffic to his site.

Surur

[marcol]

I like Dvorak and often read his Market Watch pieces - the ones about how he hates cell phones and how Apple will be making perfume next are classics. You wouldn't want to take anything he says to seriously of course. He's really just a shock jock at this point.

[marcol]

Ha. Dvorak forgets Apple's major asset - its fanboys. They would believe anything Jobs says and buy anything with the logo.

The only good fanboy is a Microsoft fanboy?

As you know, I'm a bit of a MS fanboy.

[Iceman6]

Apple's designers (and marketers) made Apple what it is today. The iPod and iTunes revolutionized the music business. It has nothing to do with fanboys. In fact, most of us here, who are interested in how things work, find Apple's fanboys pretty annoying.

[surur]

The only good fanboy is a Microsoft fanboy?

There is no fanboy as rabid as a Apple fanboy. I heard their bite is deadly.

Apple Fanatics Are Amusing, Slightly Scary
The biggest reason I try to avoid covering the company is the community of rabid Apple fanatics.

When you are in the mood for it, they can be fun — in a nasty sort of way. It's sort of like bear-baiting: A dirty, little secret in the computer media is that if you want to goose your readership or spike the traffic to your Web site, just say something negative about Apple Computer.

Suggest that Larry Ellison is a serial killer or that Dell Computers sterilizes children, and you'll get a letter from their corporate PR people politely requesting that you run a correction in the next issue.

Intimate that a new Apple product is less than perfect or that Steve Jobs falls slightly short of being a paragon of humility and virtue, and 1,000 crazies come out of the woodwork, screaming obscenities at you in the blogosphere, calling for the death of your family (I'm exaggerating that one, but only slightly), and demanding that your editor fire you immediately.
.
.
.
And, as I noted in the Journal piece, the Apple crazies also play an important role in the food chain — by purchasing every new Apple product that hits the market they fund the development of later, improved versions of those products that the rest of us want to buy.

Surur

[marcol]

Engadget's take on the Dvorak article:

"Prepare to have your feathers ruffled Apple fanboys, John Dvorak -- a name synonymous with curmudgeon -- has called on Apple to "pull the plug on the iPhone" and pass it along to some other "suckers" before it's too late. His case? Essentially, as a newcomer "there is no likelihood that Apple can be successful in a [cellphone] business this competitive." Echoing similar sentiments already shared by Palm's Ed Colligan. Of course, we've already witnessed a newcomer step into the mobile handset business, which Dvorak describes as a "buzz saw waiting to chop up newbies," and emerge as the boutique, go-to provider for high-end handsets -- heard of HTC? Hell, you don't have to be a fanboy or even an iPhone fan to feel the retch of nonsensical nausea welling within. Look, we're not saying Apple's success is guaranteed by any stretch, but let's call this rant what it is: shameless attention whoring. Well, he's got it."

[marcol]

What does anyone think of Dvorak's actual analysis? Is it an impossible task to break into the phone market at this stage? Engadget have a fair point about HTC but of course they were around for a while supplying devices to others before they started putting their own name on stuff. Mitac and Eten seem like relatively new entrants who are doing OK?

[marcol]

There is no fanboy as rabid as a Apple fanboy.

That definitely depends on your perspective!

[marcol]

Dvorak on cell phones:

"Let me begin with a bias you should understand: I hate cell phones. And not just a little.

Yes, I use them once in a while -- usually when traveling. But I'm not prone to be seen with a phone clamped to my head endlessly jabbering about nothing important while "catching up" with someone whom I see so infrequently that perhaps I should give up on them or meet them over lunch and really chat.

And the real reason I hate the things is the sociology they've created. People now casually roam around like zombies speaking into these phones, oblivious to their surroundings.
I've seen people walk right into busy streets while walking their dog and yakking on the cell phone, apparently in their own little world. The dog must think them crazy, since the animal is the one dragging them into traffic -- obviously in a vain attempt to kill them. You go, dog!"

and on Apple perfume:

"Everyone talks about Macintosh and iPods as being fashion statements, but nobody wants to come out and say that Jobs is more Hugo Boss than he is an Al Sloane. It's just a matter of time before Jobs bites the bullet and turns Apple into an out-and-out fashion and accessories company. Let's face it, he's halfway there.

The question that remains in my mind is whether he'll use the Apple brand, his own name or some new brand. This will be particularly important with the line of both women's clothing and perfumes.

I do not think that a Steve Jobs Eau de Toilette sounds very appealing. But there are brand names within the already noteworthy line of trademarks that could work.

I'm thinking that OSX, for example would make a great brand name for perfumery. I can almost hear the announcer, "Ah, mmmm, OSX, the smell of it!"

There is, I suppose, a sort of coherence to his rants.

[surur]

He's analysis is good, in that Apple will not take over the cellphone market, but another poster at Engadget hit the nail on the head when he said Apple is going for the top 5% with the highest margins, the same as in the PC world.

Surur

[marcol]

But isn't the top 5% exactly the market that HTC, Mitac and Eten have managed to break into? Which would make his you-can't-get-into-this-market analysis incorrect, no?

[surur]

HTC, Mitac and Eten are in the smartphone market, an area that is still wide open. Dvorak is taking about the separate feature phone market.

Surur

[randyg]

All this talk about HTC, Mitac, Eten, etc. Don't hear any sort of major buzz about them in the US, guessing that's just a UK thing? If Palm knew how to create buzz the way Jobs does, they just might be number one! Unfortunately Palms advertising is lame and only directed at a small slice of the market. As far as Apple not being able to compete, i'd say they're doing pretty well in the MP3 market which they basically created. I don't see them doing near as well in the phone market though, mainly because too many people are looking for a $60 phone or one they can get free. I think they will definitely give Palm and the other smartphone makers a run for their money though, and this is exactly the competition Palm needs to make them get off their lazy butts and do something with the Treo!

[Pearl_Diva]

HTC makes most of the WM smart devices Cingular sells. They're pretty much one of the top WM device makers worldwide. I believe they manufactured the Treo 750. I think they did the 650 too, one of the few non-WM devices.

[Malatesta]

All this talk about HTC, Mitac, Eten, etc. Don't hear any sort of major buzz about them in the US, guessing that's just a UK thing?

Offtopic/HTC is huge.

Thing is they were primarily just a contractor to make devices for other companies (like Palm). So they did the hardware thing. About a 1 1/2 years ago they broke away from that and decided to design and make (and now brand) under their name, whereas before they were mostly anonymous.

HTC is going to be one of the major players on the smarthphone world. They have something like 7 or 8 devices coming out this year alone (ppc-6800, 8525, Athena and maybe the 5800 Libra will all be US phones, plus the Vox in Canada).

[imageone]

he's starting to sound like Charlie Brown's parents "Wah Wah...Wah Wah Wah.

[beachtrader]

Dvorak on cell phones:

and on Apple perfume:

[INDENT]"Everyone talks about Macintosh and iPods as being fashion statements, but nobody wants to come out and say that Jobs is more Hugo Boss than he is an Al Sloane. It's just a matter of time before Jobs bites the bullet and turns Apple into an out-and-out fashion and accessories company. Let's face it, he's halfway there.

All joking aside, I just have to remind everyone that the profit margin for perfumes is huge, just huge. Britney Spears made over 30 million dollars selling her line of perfume and sales have been dropping a lot.

An average store will markup perfume 100% as soon as it hits the sales floor. Most of the cost for perfume is money spent on marketing; the actual cost to produce the product is pennies.

With profits like this and the Apple media machine already set up can Steve really afford to dismiss an idea outright?

[surur]

With profits like this and the Apple media machine already set up can Steve really afford to dismiss an idea outright?

Like this?

[ [ edit by septimus - - tsk. sorry, had to go. ] ]

Surur

[Pearl_Diva]

We can post pics like that here??? :evil:

[Pearl_Diva]

All joking aside, I just have to remind everyone that the profit margin for perfumes is huge, just huge. Britney Spears made over 30 million dollars selling her line of perfume and sales have been dropping a lot.

An average store will markup perfume 100% as soon as it hits the sales floor. Most of the cost for perfume is money spent on marketing; the actual cost to produce the product is pennies.

With profits like this and the Apple media machine already set up can Steve really afford to dismiss an idea outright?

I think T-shirts for Apple lovers would be better for Apple. T-shirts sold in their stores would sell, I think.

Perfume is out there for a tech company. But maybe it could work. You never know.

[surur]

I shall remove it at the first complaint :evil:

Surur

[bloodycape77]

I frequent and Apple forum. And even when Apple does something wrong the fans hate to admit Apple did wrong. Apple perfume is odd, but t-shirts, pants, glasses or even shoes maybe more like it. But I guess we will have to see what Apple will do next and how well the iPhone will do.

[RICHINMJ]

All joking aside, I just have to remind everyone that the profit margin for perfumes is huge, just huge. Britney Spears made over 30 million dollars selling her line of perfume and sales have been dropping a lot.

An average store will markup perfume 100% as soon as it hits the sales floor. Most of the cost for perfume is money spent on marketing; the actual cost to produce the product is pennies.

With profits like this and the Apple media machine already set up can Steve really afford to dismiss an idea outright?

Don't want anything that smells like Britney now.

[copernicus]