iPhone causes a stir in more ways than one

At MacWorld this month, Steve Jobs announced the very long-awaited iPhone, causing much media interest including a big burst of news on TV in Australia even though it will not be available here until next year. To reflect the new product focus, Jobs has renamed the company, dropping ''Computer'' to become Apple, Inc.

Perceived as a rival to Research in Motion''s (RIM) Blackberry by some analysts, RIM''s stock took a hiding on the Toronto Stock Exchange falling by 7.7% and on the Nasdaq it fell by nearly 8%. Other smartphone vendor stocks such as Palm fell too but to a lesser degree.

Even the iPhone name is not without its problems. Cisco has announced that it has filed a lawsuit in the United States District Court for the Northern District of California against Apple, Inc, seeking to prevent Apple from infringing upon and deliberately copying and using Cisco''s registered iPhone trademark.

Cisco obtained the iPhone trademark in 2000 after completing the acquisition of Infogear, which previously owned the mark and sold iPhone products for several years. Infogear''s original filing for the trademark dates to 20 March 1996. Linksys, a division of Cisco, has been shipping a new family of iPhone products since early last year. On 18 December 2006, Linksys expanded the iPhone family with additional products.

With its lawsuit, Cisco is seeking injunctive relief to prevent Apple from copying Cisco''s iPhone trademark.

Ovum''s analyst, Martin Garner made the following comments. &quotThe iPhone is a combination of iPod, internet tablet and phone and qualifies as a thin phone, being almost the same dimensions as a regular iPod and weighing 135 g. It would have been easier for Apple to enter the market with an established form factor (some of the early rumours focused on a slider phone), improvements to the UI and special music features. Apple has scored a major hit by not doing a me-too product, but by going for a very high degree of differentiation.

Instead, by entering the market with a smartphone, Apple has joined the fastest-growing segment of the mobile-phone market." We believe that the iPhone will define a significant new category of smartphone devices and set the bar at new levels. It has also positioned the iPhone as an upgrade to the iPod - many of the early buyers will be iPod users. Steve Jobs described it as ''the best iPod ever''. We think this is sensible, since the product will launch initially in the US, where the smartphone market is weakest.

The product really looks special. The large screen and lack of keypad make it stand out completely. But the real treat is inside, with the different approach to the UI that Apple has taken. It has done away with the physical UI, putting all the effort into a finger-powered touch screen UI. It takes a very confident company to discard one of its key strengths - the scroll wheel.

What should other smartphone vendors do now? Nokia was clever to get its N-Series announcements out just before iPhone, since all phone announcements between now and Q2 will seem boring by comparison to this one. At the product level, there are few who can enter this new category easily. The closest is Nokia - we look forward to the N810 internet tablet on the thin platform with W-CDMA/HSDPA inside. All should work very hard on their UIs, which we believe are currently an obstacle to greater usage."

Jonathan Arber, another senior Ovum analyst, questions whether Apple has really produced the ultimate media and internet phone? Steve Jobs described it as ''a widescreen iPod with touch controls ... a revolutionary new mobile phone ... a breakthrough internet communications device'', but is this, really the case?

Arber comments: &quotWhile the iPhone certainly looks the part, we have a few issues regarding its music, media and web browsing functionality. Not least the fact that this first release will only support GSM and GPRS/EDGE, with no 3G connectivity. This means that the ''breakthrough internet communications'' experience that Jobs touted will be severely restricted - 2.5G browsing can be a painful experience, and the reality of using the phone as an internet device may be a far cry from what Apple is currently promising.

In terms of music and media functionality, the lack of over-the-air (OTA) iTunes downloads is somewhat disappointing, although we think Apple is right to stick to sideloading for now. While music downloads OTA may be viable over 3G networks, over 2.5G the user experience (something that Apple prides itself on delivering) is likely to be poor.

We wouldn''t be surprised to see Apple developing a full mobile content offering of its own, and branching out beyond just full-track downloads, much as it has moved into TV and film in the fixed space.

The iPhone is certainly a huge step up from the 100-song limit of the disastrous ROKR, and with a choice of 4 or 8 GB models offers equivalent storage to the popular iPod Nano. However, the fact is that it is still far cheaper to buy a Nano and a 3G phone separately - with the operator of your choice (Apple and Cingular reportedly have an exclusive deal until 2009 in the US). It will be interesting to see what arrangements Apple makes in the European market, let alone the Australian market next year.

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