Major Hangups Over the iPod Phone

chadwick writes "It seemed like a sure thing: the iPod mobile phone. What could be more irresistible than a device combining the digital-music prowess of Apple Computer (AAPL) with the wireless expertise of Motorola (MOT)? Motorola sent its buzz machinery into overdrive in January when it leaked word that the product would debut at a cellular-industry conference in New Orleans in mid-March. Well, hold the phone. At the New Orleans confab, a frustrated Edward Zander, Motorola's chief executive, stood before a roomful of analysts and reporters and said the handset's debut would have to wait. "

Comments

Pre announcements

[BWJones]

At the New Orleans confab, a frustrated Edward Zander, Motorola's chief executive, stood before a roomful of analysts and reporters and said the handset's debut would have to wait. "

Showing precisely why pre-announcement of products only leads to problems, frustrations, and customer dissatisfaction.

Only announce products when they are done and ready to ship and you avoid this sort of garbage. Everybody is speculating on just what the hold-up is. It could be that the phone is not ready or that the wireless carriers are trying to extract every last cent out of somebody else's (Apple and Motorola) hard earned work. But the point is that there is now a consumer expectation and they are complaining to Apple and Motorola saying "why can't you get your $#!t together and release the product?" when it may actually be the fault of Verizon, Cingular et. al. The problem of course is that on sales of the songs themselves, Apple's profit is next to nothing. So having other companies try and muscle in on very thin margins means 1) either somebody has to take it in the shorts or 2) we all lose. Of course if the record labels would allow more access to the music for Internet delivery, it would be treated as the commodity it really is and there would be more room for profits from higher volume, but that is another post.

Oh, and it would be nice if people who are submitting articles would actually summarize the story rather than posting verbatim what the writer of the referenced article says.

Re:Pre announcements

[tha_mink]

"Only announce products when they are done and ready to ship and you avoid this sort of garbage. Everybody is speculating on just what the hold-up is. It could be that the phone is not ready or that the wireless carriers are trying to extract every last cent out of somebody else's (Apple and Motorola) hard earned work. But the point is that there is now a consumer expectation and they are complaining to Apple and Motorola saying "why can't you get your $#!t together and release the product?" when it may actually be the fault of Verizon, Cingular et. al. The problem of course is that on sales of the songs themselves, Apple's profit is next to nothing. So having other companies try and muscle in on very thin margins means 1) either somebody has to take it in the shorts or 2) we all lose. Of course if the record labels would allow more access to the music for Internet delivery, it would be treated as the commodity it really is and there would be more room for profits from higher volume, but that is another post."

But then you forget how the market reacts. You pre-announce a product, or an idea, and when it makes sense and gets buzz, your stock goes up. But when you announce you need more time, nothing bad happens. (or at least you don't lose your previous gains) So, when you need capital to do such a thing, you pre-announce. Nobody gets hurt...you'll get your iPod phone soon enough, if of course, you can spend the dollars.

Re:Pre announcements

[lowrydr310]

I thought the wireless companies make enough profit by passing on their fees and surcharges directly to the customer. Imagine buying something at Target and having them charge you an electricy surcharge, security surcharge, paper surcharge (to cover the cost of the paper your receipt was printed on), etc.

Ok, maybe it's not exactly the same, but wireless companies seem pretty greedy and I read an article somewhere that said they make a hefty chunk of change by passing telecom fees directly to the consumer. Even if my bill was the same amount that I pay now, I would feel more comfortable if they didn't itemize those fees and make it seem that the government requires them to directly bill the consumer.

Re:Pre announcements

[thparker]

Last I checked, apple pays 60c per song and resells them for 99c. That is approximately a 40% margin.... You can hardly say iTMS is next to nothing in margin.

You were pretty harsh for someone who is so totally wrong. While the exact numbers are not available, it is believed that 60-65 cents is what goes to the record label. There are additional costs associated with the song publisher and the technology infrastructure that's required. So your claim of a 40% direct margin doesn't come close to including all direct costs, and completely ignores indirects.

It looks like you don't have any concept of margins at all, e-commerce or otherwise, the different types of margins that get calculated, or how margin differs from net profit. But hey, you did get to make a nasty crack about Apple iPod fanboys, right?

Apple claims the music store is a breakeven deal, and others estimate they make roughly 4 cents a song. That's a pretty trivial amount flowing through to Apple's bottom line. To put this into a "real world scenario" for you -- iTMS downloads are now estimated at well over 1,000,000 per day. Your ridiculously inaccurate numbers would mean that Apple is netting over $100 million a year from music downloads -- nearly double Apple's entire net profit in 2003 and more than 2/3 of their incredible 2004 results. I find that scenario, um, unlikely.

To make this a little simpler for you: Apple's goal is to make money and increase its stock price. They benefit from hugely successful and profitable products. Believe me, if the iTMS store was profitable, Apple would not keep it a secret and deceive us all with a fabricated story that they're just breaking even.

Re:Pre announcements

[Desert Raven]

The operators do not make any profit on any of them, quite the contrary.

See what you get when you state absolutes...

There's no way there's only $100-$150 margin on units like the Handspring Treo 650 or the Audiovox XV6600, and that's usually the best discount you can get on those.

On the *very high end*, there is plenty of margin left after the discounts. And the very high end is often what businesess are buying, which accounts for a decent percentage of sales.

Not only that, existing customers who are upgrading often cannot get even half the discount that new customers get, especially on high-end units.

So, while a lot of the mobile companies' stock is loss-leader, they're still making some money on the sales of handsets.

Re:Pre announcements

[Ohreally_factor]

No, but they add money to the owners of the company, the shareholders, who are ultimately the employers.

Re:Pre announcements

[tbone1]

• Guess why the US lags in mobile phone use? - stupid monopolies doing stupid things and the customers having to take it as it's the only game in town - literally sometimes.

Actually, the real reason is that the land line infrastructure in the US isn't the complete crap it is in other countries. I've been to a lot of countries overseas and worked with quite a few foreigners here in the US. I know that, at one time, it would take up to six months to get a land line phone in Germany. The union got the government to make it illegal for anyone else to hook up a phone, and they would dig a new trench from the box to your house for every new hookup, then dig it up when you had it disconnected.

And from what I've heard, the situation in India was dire.

So if you're blaming government monopolies and stupid monopolies, you're partly right, but probably not in the way you thought.

Re:Pre announcements

[hey!]

That's a good point about the land lines. I should point out to be completely historically accurate though, that the land line system was already excellent in the US under the AT&T monopoly. If anything, once the break up was in full swing, the network suffered slightly in my opinion, although that was a temporary thing.

The thing that the breakup was supposed to do was to take an excellent phone system and make even more excellent. The idea was that providers would introduce digital services to compete with each other. In point of fact it was probably the worst thing they could have done to promote digital services. There was very little effort to promote digital services, since supporting them was expensive. People who insisted on getting ISDN soon found the telcos were terrible at provisioning and supporting the services because they hadn't made the investments in training and staffing needed to do a half way decent job.

The choice for a telco was simple -- spend money convincing people to buy into an expensive service they didn't understand and then spend tons of money to support it, or compete on price. Well, the rest as they say is history. We've had over a incredibly low prices on phone calls, and only recently had telcos competing to bring digital services to the home through DSL.

The thing is, while we clearly benefit from cheaper calls, and Internet technology is probably more flexible than ISDN, it has come at a price. Life is more complicated. Nobody had to understand anything like a "calling plan", unless you were a government regulator. The cost of figuring this out and managing telephone use in business has to be set against the direct cost savings. This is not to mention the horribly pushing telemarketers trying to get you to switch to some fly-by-night telephone company, which was the spam problem of the 80s.

There's a net benefit of course, but I suspect that most of us when we are on our deathbed would probably like to have the time we spent comparing calling plans back. Heck, I'll probably want my /. posting time back, I suppose.

Re:Pre announcements

[Anonymous Coward]

It looks to me like these are all derived from the Fortune article, not independent sources. So no matter how many repetitions you come up with, it still doesn't strengthen your argument.

Re:Pre announcements

[mp3phish]

"Apple is not buying 100,000 Brittany .AAC files from RIAA and reselling them. They're providing digital files and distribution, and the cost of goods sold calculation is somewhat more involved."

This is exactly what they are doing. The only difference is they don't have to buy 100,000 at a time. They just have to report which ones they sold and collect their check.

It is a zero inventory resale business. The cost of goods sold calculation is NOT more involved, if anything less involved. With a physical product you have to put in warehouse costs. Shipping and recieving labor. Inventory shrink costs. RMA costs. Markdowns costs. the list goes on.

None of these costs are involved with iTMS. Instead they have other costs such as bandwidth (which online retailers also have to deal with) and system admin costs )which also online retailers must have) and development costs (which again, retailers must deal with)

There isn't much special about iTMS to any other ecommerce business other than the fact that their costs are significantly LOWER Than any other physical product reseller. So trying to argue the OPPOSITE doesn't really make much sence.

You can criticise my understanding of supply chains and reselling business and revenues and costs all day. it doesn't change the fact that your argument is not supportive of iTMS's reality. If you are trying to say that iTMS has more costs than an online retailer of physical products, then you must have no faith in Steve Jobs as a CEO.

Re:Pre announcements

[M-G]

In the US, you can NOT buy your phone, and then plug it into ANY wireless carrier. In an open wireless market, you can switch providers ANY TIME and keep the same physical phone.

You can, as long as the carriers in question are using the same technology, and you didn't benefit from a healthy subsidy on the phone. Go buy a full retail-priced GSM phone, and get a SIM card for whatever carrier you want to use. Buy a full price CDMA phone, and you can have whatever CDMA carrier you want service it.

It's the subsidies that the carriers provide on handsets that create most of the problems. They've spent a lot of money on you up front, and they want to get that back. You can't blame them for that, but it sure makes life a PITA for the rest of us. I spent the time researching how to get pictures and ringtones on my phone without paying my carrier for it, and many others do the same.

It seems though, that given the money people have been willing to cough up for an iPod, that perhaps Moto should release the damn thing unlocked and let early adopters fork over the cash for it. Once there's good buzz around it, the first carrier to give in and subsidize the phone will get a lot of people who want it, but didn't want to pay full fare.

Re:Pre announcements

[Keeper]

a) I never claimed I've been to Hong Kong lately, nor do I see the benefit of a single person owning multiple cell phones
b) You can't get those phones here because the network infrastructure here doesn't support them. Economics of scale...Hong Kong=small; US=way bigger -- that technology doesn't come for free or deploy to rural areas by itself. It works in Hong Kong due to the population density.
c) Cell phone companies don't control what price cell phone manufacturers charge for phones
d) Contracts aren't manditory; people get them because they're a good deal
e) I've never had a problem with available features or service

Same issues as usual, actually

[Dancin_Santa]

Basically there are two opposing parties in any cellphone you see on the market. The first is the obvious one, the handset maker. The other is the operator (Vodafone, Sprint, etc). While it may seem like these two would normally be a happy bunch. But they aren't.

Handset makers want to stylize their phone as much as possible. Adding features and making their phone stand out from the rest of the pack. Operators want all the phones to support a certain set of basic functionality and fit into a certain form factor. They don't want to allow the handset maker's trademarks overshadow their own. On the other hand, the makers want it to be obvious to the user who the maker of that phone is.

Apple, and to a large extent Microsoft too, have very strong brands. They love branding. That's why we're talking about an iPhone and not an Apple-produced cell phone. But operators don't want that kind of power shifted into the hands of the makers.

So you get what we have here, which is the way he wants it.

uhhh

[Illserve]

A phone in my MP3 player? That's pretty easy to resist. I beat the living tar out of my phone. Most people do.

The ipod is pretty tough yea, but it wouldn't last a week in the chassis of my mobile phone.

Nor would I want my phone to have a net worth of $400 either.

Can we get over this fixation with phone/mp3/toaster oven/breadmakers already? Their day has come and gone. I want devices grouped by how I use and abuse them.

Re:uhhh

[Illserve]

Convenience? The more you cram into one device, the worse job it will do at all of them. Don't even try to convince me that the picture quality from some integrated widget is going to be within a mile of the quality of a $300 camera or $400 camcorder.

And I don't to have to push a few buttons to get my pda/phone/camera into phone mode to make a call. Nor do I want some kiddie to hack into my pda/phone/camera and download everything about me.

I want a phone that calls people, it should be lightweight, very very tough (no 5 inch touch screen!) and not have a camera lens that I have to worry about. Nor do I want to recharge it every day. Integrated devices sacrifice in durability and longevity.

I want an ipod with many gigs of storage so that I can just grab it whatever mood I'm in, and find a suitable playlist. Integrated devices sacrifice in storage (at least right now)

I want a camera that takes good pictures and has a big honkin lens to capture lots of light for decent night time pictures. It should have a variety of features that allow me to tailor my pictures to different techniques (exposures, focus settings, etc). Integrated device sacrifice in picture quality.

You get what you pay for.

Re:uhhh

[rgmoore]

It's not like a Swiss army knife; these combo phones are like a cheap, flimsy, tradeshow swag knockoff.

Sounds exactly like a Swiss army knife to me. It's really cool that a Swiss army knife can cram a bunch of gadgets into a compact form factor, but that comes at the cost of none of the gadgets doing a very good job. I have a real knife for when I want to cut things and a real toolbox for when I want to fix things. About the only thing that my Swiss army knife is good for is as a nicknack to keep my hands busy when I'm thinking.

Well then.

[mcc]

If that really is the problem, then why deal with Verizon and Cingular at all? Release the thing in Europe, or somewhere (if some such place exists) where consumers have enough of a choice of cell phone providers that the provider can't stop the customer from doing what they like with their own phone. Once it's been out awhile, quietly try to make the public aware that the people in Europe have access to this phone iPod thing and that the only reason why Americans can't use it is because the American cell phone oligopoly doesn't like it. At that point the idea of defecting will start to look awfully attractive to the local providers...

Isn't Motorola supposed to be German anyway?

Why not add a cell phone service charge?

[jkeyes]

The Wireless services are being stupid on this. They could just add a 'iTunes Phone Access Fee' that's $5.00 to everyone who gets the phone. Then no matter how many songs they add they get their $5.00 and I think that if meant you got the phone for free most people who read the terms after they sign wouldn't care or would just want the shiny new phone.

So?

[Locke2005]

I've got a Samsung Uproar cell phone that plays MP3's which is several years old (and which I don't even use any more). Seems to me combining a cell phone and MP3 player isn't exactly a novel idea... but wait, it's Apple, so that makes it special?!?

Don't release it untill it's ready for sale.

[Aqua OS X]

It depends on the product. In this case, I think Apple is right. Motorola doesn't have much experience with releasing consumer products that people lust for... Apple does.

If you announce an iTunes / Motorola Cellphone before it is ready to hit the market, you adversely affect current sales of iPods and Moto phones. People like to have the next best thing, and they hate buying something that's outdated in a month. Consumers will usually hold off on purchasing a new device if they can get a cooler device in a few months / weeks.

This is precisely why Apple usually announces hardware and sells it the very same day. If they don't do that, they have to liquidate a load of outdated hardware. Consumers won't buy a 15 gig iPod if they know a 20 gig with more features will be on sale for the same price next month.

The only time Apple doesn't do this is when they have a future product that doesn't directly compete against what they are currently selling.

Apple has one of the best inventory records in the tech industry. Motorola should listen them.

Re:Motorola should have known this

[serfx]

Well aside from the technical standpoint that apple and motorola have been working togeather for years. The whole other reason to partner with them over _ANY_ other celular phone maker is that much like Apple, Motorola makes the sexiest damn cell phones around. So why not combine that with the sexiest mp3 player in town?
Think from a design/marketing point of view.
I know you've been thinking about Motorola's M3 razor or whatever that damn thing i don't need but severly want is.

Re:Motorola should have known this

[Phleg]

I cannot understand why Apple is sodding around with Motorola on this. They should have partnered with Nokia.

I couldn't agree more. My Nokia ended up breaking after about four years, and I ended up getting a Motorola. I've regretted every minute of it. Whereas Nokia seems to have a smiliar mindset to that of Apple (a focus on usability), my Motorola is the most unusable piece of crap I've ever had the displeasure of dealing with.

I can store something like five minutes of voice on the cell phone, but I'll be damned if it runs out of space with twenty text messages. You can't turn the volume off without making more noise. Even when the volume is off, some buttons still make noise (and are conveniently on the outside of the phone, so it can beep in your pocket) making the vibrate feature nearly useless. The "Accept" and "Cancel" buttons are on different sides at different times. The dial and hangup buttons are permanently juxtaposed. The "Memory Meter" shows you a representation of how much memory is left on the phone, but you have no way of telling whether or not a full bar means it's full of space or filled up. Assigning a one-touch dial number to contacts is a pain in the ass. The power connector features two microscopic hooks which are so easy to break it's unbelievable. The phone takes five minutes after "booting" before I can place a call, view my contact list, check messages, etc. Switching the phone to "Silent" or "Vibrate" does not necessarily turn the volume off.

I swear to god if I ever meet the man who designed this worthless piece of shit, I am going to bludgeon him with a tractor.

Re:We need to change this

[SamDrake]

But but but ... you CAN already do that! At least with the GSM carriers, you can already buy any phone you want, from any source you want, stick in your SIM card, and away you go.

Of course - and this is the part you won't like - you'll have to pay full price for the phone. But that's fair - if Cingular doesn't like a particular phone then why should they pay more than half the price of it for you?

Darn - it would be convenient if this was a "big nasty corporation vs little guy" story. But it's just an "I don't want to pay for my own toys" story after all....

Just a thought

[Zapraki]

What could be more irresistible than a device combining the digital-music prowess of Apple Computer (AAPL) with the wireless expertise of Motorola (MOT)?

Cell phones and mp3 players aren't exactly a match made in heaven. One is used to talk to people, the other is used to AVOID talking to people. :)

So ya, imho, stick to your iPod (or, if you're *really* cool, iRiver) for music, and whatever you prefer for a cell phone.

Re:Motorola should have known this

[Queer Boy]

I cannot understand why Apple is sodding around with Motorola on this.

Apple has had a partnership with Motorolla for over 20 years on the Macintosh. Right now it looks like they're going to be getting their chips from IBM for the foreseeable future, so they have to do something to stay good business partners with Motorolla in case Motorolla comes up with something good again (like they did with Altivec). Nokia is a competitor to Motorolla. It is a BAD idea to partner with your partner's competitor.

That's why.

Other manufacturers to the rescue...

[Humorously_Inept]

People wanting MP3 playback and advanced telephony in a package that doesn't sacrifice one for the other needn't worry. This product will surely exist in a highly marketable form within the next year and if it's no thanks to Apple, then that's all the better for consumers because you won't have to deal with iTMS copy protection and you won't have to install special software to copy music to your MP3 phone.

We've heard from all the major manufacturers where next-generation MP3 phones are concerned except Nokia, who just so happens to have a publicly announced contract with Loudeye. Loudeye, in turn, has signed a deal to provide a music store to O2. Read the press releases these companies have put out in the past few months and connect the dots here, people! The fact that the most powerful mobile phone manufacturer in the world isn't saying much probably means that it's coming to the party with sleeves full of aces!

Samsung is already on its second generation hard drive MP3 phone. The first was an unmitigated disaster and the second's not too bad! You can bet that the third will be a winner.

The world will move forward without Apple and Motorola.

YAWN! This is already reality in Japan.

[InakaBoyJoe]

As of March 1 there have already been 3 million downloads on 'iPod phones' in Japan. KDDI's "chaku uta full" service is exactly what's being ballyhooed here in the States, and it's been in full operation since November 19, 2004.

See data comparing mobile downloads and iTMS here.

Let's get our heads out of the sand, now shall we?

Don't talk to me about motorola's "expertise"

[obarthelemy]

I purchased an E398 a few months back, and it's the worst phone I ever had:
- takes longer to boot than my XP desktop
- flaky power/headset connectors, my phone sometimes doesn't charge during the night, and half the time I have to disconnect the headphones to have a conversation
- volume is too low, without headphone or hands-free I have trouble hearing what my correspondents say
- screen illegible in bright sunlight
- phone makes all king of noises, especially at boot, even in silent mode, so I do look like one of those obnoxious idiots
- the USB synch software doesn't work, I tried on 4 different PCs. And got no support.
- typing SMSs with their "assist" feature is actually slower than without it
- the phone is incredibly sluggish, kind of always looses the first key typed when it's in sleep mode, and for some reason I can't wrap my brain around that
- I'm still waiting for the bigger RAM cards that were promised for January

On a brighter note, the UI is nice (though slow), there are nice "classic phone" ringtones, the unit is solidly built.

I'm thinking of junking it, though.

Mmmmm, actually feels good to vent my frustrations ;-)

As a Moto V710 "user"

[fsck!]

I'm sure the delays are due to software or hardware issues on Moto's part. Their platform is insanely awful, and no amount of insanely great from Apple is going to be enough to bring it back to just mediocre. Come on guys, why does everything having to do with the contact list get exponentially slower with each entry over a dozen? Why do your cameras suck so bad? More to the point, why couldn't Apple found a less horrible cell phone maker to join up with, like Nokia or LG?

I wouldn't blame apple

[Matey-O]

And I'm sure this won't be moderated up due to how late I'm posting, but I've never been more dis-satisfied with a piece of hardware than with my and my wife's v600's. They've got stability issues that rank right up there with windows 95/98. (I was on my fourth phone in less than a year...Now I'm using a Nokia with _no_ issues.)

Svelte is good, features are good, but they're worthless without stability.