Apple's Strategy Behind iTunes Mobile Phone

vishnu writes "CoolTechZone.com is running a story that analyzes Apple's strategy with ROKR. According to the author, the phone disappoints, but is this Apple's way of testing a potential market. Quote: "There was nothing wrong with the creative cells of the designers at Apple; ROKR is simply Jobs taking a calculated risk. He doesn't want a cell phone that doubles as an MP3 player to become too popular as that would cut straight into Apple's bread and butter product, the iPod. On the other hand, Jobs knows for a fact that in the future cell phones will play a huge role in portable digital music; therefore, he is hedging his bets. He wants to give people a taste of what is to come but at the same time, he wants to project phones as an extension but not a replacement of a portable music player. He's consequently hoping to discomfort Apple's competition with a cell phone that has nothing but iTunes going for it."

Comments

apple in cell market

[millahtime]

Could this be a lead in to apple in the cell phone market? Or at least a partnership in that area?

If they just licensed software that could greatly cut into their profit margins and their control over the style which is one of the things that makes them so popular.

Convergence devices

[Darth Maul]

Maybe I'm in the minority, but I specifically do NOT want a device that does more than one thing. In my history of owning devices that do multiple things, it is always the case that they do each poorly. It is less than the sum of the parts.

Also, sometimes I want to invest more money into one device (say, MP3 player), but don't care as much about another device (I actually don't use my mobile phone much at all, so I don't care). I want separate devices so I can upgrade independently and invest where I want more out of one device.

So maybe the market is moving away from someone like me, and perhaps everyone actually wants one device that does everything, but I don't. To me it's no surprise that the reaction to the ROKR has been poor, because it's a poor phone coupled with a poor MP3 player (100 song limit?). How is that supposed to result in a great device?

Call Option

[sg3000]

Sometimes this type of strategy is called a "call option". This means that by working with Motorola to build an "iTunes phone," Apple can test the market for MP3-enabled phones. It's probably cheaper to work with Motorola in this way than it is to do the primary market research. The ROKR, even if it does not sell well, helps Apple and Motorola be better positioned in the face of the latest telecom trend (or fad) of converged devices, specifically music-enabled phones.

If the phone is a success, Apple has a few options. First, they can build their own phone and build it with their award winning industry design sense. Second, they could work with Cingular or another wireless service provider to become a mobile virtual network operator (MVNO), similar to what Virgin Mobile (in the U.S.) and Boost Mobile do, and where Disney and ESPN are starting. Combining their ITMS with an MVNO presence would help them differentiate.

Motorola gets something out of it, too. The RAZR was an obvious choice to do this with, but I suspect the costs of that phone are pretty high, and Motorola does not want to make them higher. However, by putting this function on the uglier ROKR, the RAZR stands out better. The ROKR gets them in the store, but they walk out with a RAZR.

With the ROKR, what Motorola and Apple have done is changed the argument for convergence. Before the ROKR, a consumer might buy an MP3-enabled phone or a regular phone. The former had the potential to hurt iPod and ITMS sales, but the latter does not. If the consumer chose the music phone, Apple's role would be limited because the phone wouldn't be able to play ITMS purchases, and Motorola would be forced to compete with Nokia, Sony Ericsson, etc. So Apple and Motorola benefit from pushing the consumer towards a regular phone and away from convergence.

However, with the ROKR, the consumer will choose between the ROKR and the other music phones, if that's what they care about. And they may swing towards the ROKR because of Apple's >80% market share for online music (chances are they have bought a song from ITMS). But if they're concerned more with esthetics, standing in the store, they may look six inches over and eschew the ROKR in favor of the RAZR, and then go buy the iPod nano, which in terms of size are together smaller than most other phones.

So the ROKR actually weakens the position of other phone makers (who are pitching music phones) and pushes customers towards the RAZR and iPod nano.

Re:Call Option

[sg3000]

> So the ROKR actually weakens the position of other phone
> makers (who are pitching music phones) and pushes customers
> towards the RAZR and iPod nano.

I just thought of another way the ROKR hurts the other mobile phone makers building music phones. Now they'll have to find a way to further differentiate from the ROKR since the iTunes integration provides a big advantage. They'll have three options:

1. Make their phones better looking-- which increases their costs, and right now the RAZR wins this battle

2. Reduce their price-- and either hurt their margins, or find a way to cut production costs

3. Increase their capacity above the 100 song limitation, which will increase the costs and thus the price) -- but this still doesn't mitigate the fact that the phone won't play songs from ITMS

So Motorola gets another advantage; they have forced the other phone makers to market around the ROKR yard stick.