So what is it? a smartphone with MP3 player? Or the most popular line of MP3 players, with a smartphone inside?

I had quite the interesting conversation with my brother about the whole Apple announcement thing. Mostly it centered around my failure to predict the price-point accurately (although I could argue I did, when I asked “Would you be willing to pay $500 or more for this?”)

First, the pricing news. The new device, sold exclusively through Cingular and Apple, will sell for $499 for a 4 gig model, and $599 for the 8 gig model. Note that $499 is quite close to what I thought would be “too expensive.” And therein lies the conversation we had.

My brother said that this price point makes sense since this is competing with the Blackberry and the latest Treo. I said then, and still argue, that it is a bit overpriced. A rather reasonable disagreement, until he told me that I didn’t understand what this product is. That I was somehow “missing it.”

Interesting. A little history here. I owned an Apple Newton when the second edition Newton MP110 came out. Even bought a close out “original” MP100 for my wife. I understood that there was a certain attraction to having a hand-held device that not only could keep your calendar for you, but functioned as a notepad and was programmable. I even bought a modem for it, and wow’d colleagues in the mid -90’s with my ability to grab a phone line and email back to the office during business meetings, and check my email for replies, without needing a large computer. (NOTE this was before wireless, and ubiquitous cell phones, or text messaging… think how far we have come in just 10 years!) That Newton retailed for around $1000.

When Apple killed it, so did much of my interest in that sort of technology, until the Handspring Visor made its debut. I was intrigued again by the opportunities that such a device, with the touted “springboard,” could offer. Here was a “Palm based” device that allowed hardware add-ons. Including, they promised, a PHONE. And just as promised, Sprint sold the first cell-phone attachment that plugged in to the PDA, creating a “convergence” device. Yes, it was pricey. The phone attachment sold for $250, and obviously that was on top of the original purchase price of the Handspring Visor.

After that, I went for the Treo 300, Handspring’s “all in one” cellphone and PDA convergence device. Again, pricey. Again, I was sold on the features, the fact that everything was working together, and I only had to carry one device. Heck, I even bought one for my wife, who also enjoyed those features.

After that, though, I found myself wanting the flexibility that I could have with separate devices. Cell phones were shrinking, stand-alone PDAs were becoming far more capable, and the “smart phones” were getting way too pricey.

“Too pricey?” you may ask, “isn’t it more expensive to buy each item separately?” Why, yes it is. And certainly this was a “personal” lifestyle choice. For me, I felt it was a better decision to be able to have the flexibility to upgrade each component as my needs or requirements for that technology changed, rather than wait for the next “all in one” to come out to meet all my needs.

I have gone with “all in one” printer/scanner/copier/fax machines. Mostly because they are so cheap, er affordable, right now. One can buy a low end HP PSC (no fax) for about $50 at Wal*Mart right now! Low price makes convergence VERY attractive.

So, all this is to say, I am not new to the concept of “convergence” and “convergent technologies.” I believe I understand what Apple’s new product offers, and I have to agree, it is light years beyond most convergent devices out there. I have traditionally been what is often labeled an “early adopter.” (Perhaps, at times, I would even fit in the “Innovators” category defined in one marketing textbook¹ as “Venturesome, higher educated, use multiple information sources.”)

So what’s my thought on this? Why do I think it is overpriced?

I am not sure that this product, though very attractive and done with the typical Apple attention to style and flare, can be seen as highly innovative and “cutting edge” in any market. And the fact that they are “moderately” priced for the smart phone market seems to indicate that Apple sees this as well. There is no real opportunity for them to capitalize on the higher margins that a truly innovative product can have when they have a market segment all their own for a while. Blackberry and Treo have enjoyed those margins.

And there it is. I don’t think (yes, my opinion) Apple can compete in the smartphone/Blackberry market. RIM has their product firmly entrenched in the big markets. Remember the discussion about the patent infringement suits? Many talking heads pointed out that the US Government would never allow the Blackberry network to be “turned off.” Too many Generals, Senators, Congressman, and senior civilian employees are dependent on that device. And it’s not just the government that has become quite reliant on the RIM handheld device. Businesses have bought into the server architecture required to support the RIM system, and that sort of investment is not easily tossed aside.
And just how different is this product from the new Blackjack that is all the rage? (selling for $199–well below the new Apple price point!) Yes, there are some marginal improvements, but what makes it a better “smart phone?”

Now, let us suppose that Apple’s new product is seen as a major competitor to the existing products. What is their response most likely to be? In the near term, perhaps they lower their prices. In the long term?

Now, ask yourself–has Apple made its name as a producer of products used in the business world, and bought in quantity by corporations? It seems to me that Apple by and large has been the “Guerilla warfare” product, sold to the person not to the corporation. Usually sold to someone who “thinks different.” (or was that the Amiga? LOL)

I realize this is a “smart phone.” But it’s not “just that.” It really is viewed by and large as an extension of the iPod into the cellphone business. When I listen to most of the techie podcasts they all start from the premise of essentially “what if we added a phone to the iPod?”

So let’s look at it this way. Rather than say it’s a smartphone with an MP3 player let’s instead view it as the most popular line of MP3 players, with a smartphone inside. Immediately we see the product differentiated from all the other smartphones out there. Every other smartphone line has started with the smart phone being a productivity device, and then added to it “Hey, look–we are an MP3 player too!” Effective? Perhaps. But still a productivity device.

If we define the product in this way, as the most popular MP3 player, with a smartphone, then we reach a different demographic. We reach those who enjoy their music, and have enjoyed the iPod, and most likely also enjoy their cellphone. What demographic does that sound like to you? High powered, on the go businessmen and women? (yes, in part…) How about the young High School, College, and recent College graduate demographic? The Gen Y’ers. Those that by and large have developed their own soundtrack to this motion picture called life.

All that said, I still think the price points they had established for their high end iPods make sense. These are “Nanos” with smartphone features added. An 8 gb Nano runs (today) for $249. Is the phone feature worth another $350?

Don’t get me wrong. Apple will sell tens if not hundreds of thousands of these. They will make money. This variant of the iPod will continue to float the company with the greatest contribution in real dollars to the profit margin.
So, perhaps my brother is right. Perhaps I don’t “get it.” But then again, maybe the comparison to the $600 BlackBerry and Treos are not the right comparison. If Apple hopes to dominate another market segment then perhaps they need to define a new market. Apple needs to remember they make products consumers love, and are willing to pay “consumer” prices to get.
¹ Marketing, 7th Edition by Kerin, Berkowitz, Hartley, and Rudelius