Phones for nothing and my Music players for free

I know you have to believe in your product or you are not going to get anywhere. I know you need to tell analysts that you are going to conquer the world. If you do not think you can be the best you are not going to be the best. All that being said I was just shocked at some of the answers from the analyst Q&A session with Apple COO Tim Cook. Here is one of them that caught my attention.

Q: Your stated goal for calendar 2008 is to ship 10 million units, which is about 1 percent of the overall market. Given the functionality and price point of the product, it eliminates the low end of the market. How do you look at the available market for the first generation of iPhone and what kind of marketshare do you think you can take?

A: The traditional way of look at a market you look at products you are selling, you think about the price bands that are currently market, you look at price band your product is in, and you assume you can get a percentage of it. And that's how you get to the addressable market. That kind of analysis doesn't make really great products. The iPod would not have been brought to market if we would have looked at it that way. How many $399 music players were being sold at that time?

Today in the cell phone industry, a lot of people pay zero for the cell phone. Guess what? That's what it's worth! And so, if we offer something that has tremendous value and is sort of this thing that people people didn't have in their consciousness -- it was unimaginable, I think a whole bunch of people will pay $499 and $599. Our target is clearly to hit 10 million and I would guess that some of those people -- there are some of those in the audience -- who are paying zero because it's worth zero, will pay more a bit more because its worth it.

To start with you are not paying zero for a "free" phone. The price of that phone is rolled up into your plan. Cell phones are happy to give phones away to get people to sign up. That same phone when you are not signing up for a new plan is $200 to $250. Many of the people who want your phone will not be signing up for new contracts. How much will the iPhone be for them? Will it be $699 or $799. That will have to be a hell of a lot better than a free phone for that price.

Second, are you really competing with free phones? I thought you were competing with other smart phones. Most of the people I know who get the free phones, only want a phone. They do not want any of the other features. I have seen some free smart phones, but most of the time they start at $199. You are saying that you phone is more than three times better than the $199 smart phone.

Third, your partner has to sell those free phones also. It might not be so good to make the partner look bad. You cannot throw too many stones at the other companies in the same stable. It might be bad for you in the end.

I am still in the unconvinced camp. Just because apple has been able to keep the iPod line in great shape, it does not mean their phone will be great. I hope they are being more thoughtful about other phones than the COO seem.


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