Why the iPhone Won't Kill Apple

You go two steps into a mild economic slowdown with Apple predicting a softening of sales and analysts all around are crying "the sky is falling" or the iPhone will kill Apple. Sometimes I get real tired of the nonsense that people write.

First of all, unlike other consumer products such as the XBox, Apple could halt production today, sell off the remaining supply, and walk away from the iPhone and probably generate a profit, or at worst, a negligible loss. That is a great position for Apple to be in. If the iPhone were to suddenly become a disaster, it might hurt the stock short term but it wouldn't take the company down. And Apple doesn't need to dominate the market either. With the way that they have structured the iPhone transaction, they could be very profitable with only a small slice of the market.

Second, Apple has a range of options to respond to market conditions. They could drop the price to the fire sale level and dilute the iPhone brand (never happen) or simply reduce manufacturing orders for now as they gauge demand. In addition, Apple can do what it did during the last downturn - innovate. By continuing to drive value by adding features and functionality to the iPhone, they build demand for it, even if some of that demand is pent up until disposable incomes or discretionary dollars are available. One thing is certain, Apple is not acting like a company whose sales are desperately low.

Third, Apple has a host of delivery channels for the iPhone that have yet to be explored. The business market has not fully embraced it for a number of reasons that I won't go into here. But suffice to say, solving just a few of those issues could open up significant demand in the business sector without having to compromise the device. 

Apple hasn't fully explored its Best Buy relationship either which could realize significant bump in sales just from having the iPhone on display but with iTunes activation, the buying process is simplified. And there are a bunch of high street retailers that Apple could chose from to sell the iPhone.

The international market is barely tapped potential. The release of a 3G model would be a boon to the international market, which has much more density in 3G coverage than in the US. Sometimes, it's a detail like this that can move a product from being a "cool device" to a "must-have device". 

Fourth, the release of the SDK (software development kit) should provide a wealth of third party applications that provide tremendous functionality or entertainment value. While other smart phones can already do this, none have been able to do it with the panache and interface of the iPhone.

Fifth, it's the only device out there that does the music and movie stuff right. Competitive offerings typically are a hodgepodge of services and features that don't work seamlessly together. Most of these boiled down to nothing more than schemes to line the pockets of the wireless providers. Remember the $2.50 song download that could only be done on the phone, not synced from a computer, and the quality of the song was lower than the $0.99 version from iTunes? 

Because of all these things, I don't have any long term doubt about the iPhone even though there might be some short-term softness in demand. However, I think we'll all be surprised when Apple announces their next quarter's results.

iPhone for Business and Microsoft Exchange

I'm sitting down to catch a few rays from the tube last night and an iPhone ad comes on. Nothing unusual there. But what caught my attention was that the content being showed on the iPhone was directed at business users, not the consumer. I believe it was the "All These Years" ad but after seeing it today, somehow it looked different to me.

But in any case - I was struck at how this ad was really directed at the suits and how much of the recent iPhone developments are a perfect trifecta pointing at exactly that.

First, you have AT&T creating a new iPhone add-on service plan for corporate accounts. 

Second, the impending release of the SDK has business written all over it. In my mind, Apple would want to release the SDK with a lot of fanfare. Not fanfare in touting all the technical details but by trotting out new applications that they or third parties have developed. I'm betting that Microsoft Exchange connectivity will be one of them (and no Ethel, using IMAP is not an option for far too many users so let's not get into that argument). IBM is not hiding the fact that it's working on a Lotus Notes client for the iPhone and there have been others who are chomping at the bit to do the same.

Third, in preparation for the onslaught, Apple releases a premium model that business users with a lot of disposable income or flush expense accounts will pick up. That extra storage space is not only good for all those movie rentals from iTunes, but forms a great sandbox spot for third-party applications and user storage space to reside. It also makes a great profit generating machine when the 8 GB models are sold out and some buyers will willingly pony up an additional $100 even though they hadn't planned on doing so.

If this is truly the case, and that before the end of February we will see this kind of business connectivity, I would surmise that Apple has way underestimated it's next quarter results. No wonder the iPhone supply is considered volatile right now.

I know a lot of salespeople in the company I work for would gladly front the cash to buy their own iPhone if true Exchange capability (ok, at least email and events) were part of the package. I did without Exchange support. But I wanted to buy before the rush.

For the record, I have no insider information and everything concerning knowledge of Apple's and other entities' activities are freely available on the Internet or pure speculation on my part. I do own stocks in APPL so I prefer to be bullish.