An iPhone flop could cut Apple to core

Apple shares have risen 35% since the iPhone was announced on January 1st. But such optimism could die if Friday's launch doesn't live up to the hype.

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By  Reuters Published  June 25, 2007

Not since Alexander Graham Bell has so much attention been lavished on a phone.

But the hype surrounding Apple Inc.'s media-playing iPhone could be a prelude to disappointment if it does not capture a wide market, technology veterans say.

As the press feeds the iPhone frenzy ahead of its U.S. launch on Friday, experts say the wireless device could easily top a long list of digital duds, all of them once touted as "The Next Big Thing."

"God himself could not design a device that could live up to all the hype that the iPhone has gotten," said David Platt, a computer science professor at Harvard University.

Since its existence was announced in January, more than 1 million people have told exclusive carrier AT&T that they are interested in a phone that costs as much as $600. In that time, Apple shares have risen 35%.

Comedian Conan O'Brien has spoofed it as the answer to all human needs, and rumour has it multimedia mogul Oprah Winfrey wants one. Blogs chronicle leaks about the phone like children plotting Santa's path from the North Pole.

"This is the most expected phone since Alexander Graham Bell's. Expectations are just off the charts," Jupiter Research analyst Michael Gartenberg said. "All anyone wants to talk about these days - not just technology people, but mainstream consumers - is the iPhone."

Apple is likely to sell a lot of phones on Friday, particularly as die-hard gadget fans angle for bragging rights to be among the first iPhone owners, he said. But the real test for Apple is whether it appeals to a mass market of consumers, not unlike the company's best-selling iPod music player.

"The ultimate success is how quickly Apple builds this into a family - how quickly prices come down and models become more affordable," Gartenberg said. "It is what happens beyond the first 90 days that is really important."

Few people have actually seen an iPhone, whose main differentiating feature is a smooth glass touch screen that replaces number keys.

The device can surf the Internet, play music and video like an iPod, and perform other digital duties - as well as make phone calls. Chief Executive Steve Jobs hopes Apple will ship 10 million in its first year.


To be sure, even the most pedestrian mobile phone can sell hundreds of thousands of units, in a phone market where some 1 billion units are sold each year around the globe.

The iPhone would be a replacement to products many people already have, forcing some users to switch mobile carriers and trade in devices with a full keyboard like the BlackBerry.

Unlike a new video-game console, high-definition DVD or flat-screen TV, the iPhone is relatively old technology with an attractive new package.

Platt, author of "Why Software Sucks... And What You Can Do About It," says the iPhone will likely miss the mark despite its cool look in TV commercials, because it was designed more to please engineers than a regular consumer.

"It is really easy to fall in love with a Playboy [magazine] centerfold when you are just looking at it," he said of the iPhone's flash appearance.

"You can imagine iPhone will be the miracle box that solves all problems... but when you actually have your hands on it and realize it takes five or six button presses to get something, then you start to get annoyed," he said.

Apple has not been immune to flops. After delivering the "Apple II" in 1977 - its first popular microcomputer - Steve Jobs' next project was 'Lisa', a business computer labeled by many as late-arriving and expensive.

A $6,000, 20-pound Mac "Portable" met with a similar fate in 1989, followed by the Newton handheld device in 1993 and in 2000, the G4 Cube that critics said was a triumph of design over practicality.

IPhone isn't even Apple's first crack at a phone - the ROKR, its collaboration in 2005 with Motorola, was critically panned and yielded disappointing sales.

More recently, handheld computer maker Palm Inc. stirred up talk about a genre-changing new device, only to unveil "Foleo" - a mini-computer - to a collective ho-hum from investors and gadget-watching blogs.

Still on the flop fence is Microsoft's Zune. Introduced last November as a potential iPod-killer, the digital music player is expected by the end of this month to sell a million total units, a fraction of iPod's business.

"What is a failure is often in the eye of the beholder," said Ross Rubin, an analyst at research firm NPD Group. "Even though the Zune is often considered a failure, Microsoft says it is happy with where the product is in the marketplace."

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