I’m clearly in the minority when it comes to doubting the initial success of the iPhone, as I wrote last Thursday. The rebuttals keep pouring in.
Yash Patodia in Seattle wrote:
“In your articles about the iPhone and AAPL, you did not talk about the effect that this extravagant, mostly viral, marketing campaign has had on Apple as a brand. Everyone knows about it now, and most people love it. The iPhone is also closer to a Mac than the iPod in terms of software, and I think this will make users feel less shy about buying Macs.
The iPhone is a beautiful device, but when evaluating the long term capability of AAPL, we also need to evaluate how iPhone sales are going to impact Mac sales. I believe that since the iPhone has lived up to its hype for the most part, it’s going to have an extremely positive effect on the Mac business, especially with the upcoming release of the Leopard operating system. Most consumers are now very attracted by Mac computers, and within the next couple of years I expect the Mac business to see a huge upside. I also think that when you combine the effect of the iPhone sales and the potential influence on the Mac business, Apple can go a long way and become the mainstream consumer lifestyle brand.”
To which Rich Zywiak in Spokane added:
“I believe people who are making their first Apple purchase with an iPhone will be tempted to look at other Apple products. (I know I am.)”
These are fascinating takes, not far from an article I wrote a while back in The Kelly Letter discussing threats to Microsoft.
My angle was that the rise of Internet 2.0 with feature-rich applications operating independently of the computer itself will finally release people from the clutches of Microsoft, and will allow the millions of people who’ve been tied to PCs because of office compatibility issues to finally choose the most beautiful computer on the market: the Mac.
Keep in mind, however, that Macs are twice as expensive as their PC equivalents. If the goal becomes just to get to the applications online as cheaply as possible, then PCs win out. However, only the browser will be necessary to do so, making the Mac OS, Linux, or something else as viable an option as Windows, which might give Apple an edge again since it is the gorgeous choice.
It’s not clear whether OS independence favors the Apple because compatibility issues go away, or the PC because it’s cheap.
One thing I wrote about in Apple’s favor is that the slogan “It Just Works” means a lot to battle-weary PC users. Tech support nightmares are a mainstay of PC life; not so for Mac users who’ve never heard of DLL errors, blue screens, and other tidbits from the new-day-new-implosion Windows lifestyle. Rich, quoted above, also wrote that his wife just went through tech support hell with a new Dell laptop, and I don’t even have to explain further because anybody who’s ever owned a PC is already nodding. We all know what it’s like because it’s so darned common. “Even if you get your problems fixed,” wrote Rich, “it is often after spending hours if not days with tech support. This will leave a bad taste no matter the outcome.”
I estimate that my office loses about 10% of productivity to PC-related errors, blow-ups, mysterious untraceable happenings, and other teeth clenching computer moments. The problem is that nobody’s accountable because there are so many companies involved in the making of a PC, and they all blame the other ones, and the buck never stops.
On our next upgrade, we’re likely to go with Mac because the time recouped may more than make up for the initial sticker shock — and all of our work is done online now anyway. Microsoft Office? What’s that? Give me Zoho or Google Docs any day, accessed with Firefox or Opera. Microsoft Outlook? What’s that? I’ll check email at my own site or with Thunderbird.
My Calendar is at 30 Boxes, my database is at AWeber, my payments are collected at PayPal, my banking happens online, my books are sold online, and so on. I can do all of this from your computer right now if you’ll let me sit down at it. I can do any of my work from any net connected computer anywhere in the world, so I can buy a Mac. And I’m not alone. More and more people are finding themselves standing suddenly unencumbered, looking down at the broken links of a chain called Microsoft.
To get back on track, yes, the iPhone is another reason to switch whole hog to Apple’s lifestyle. It’s another way to put Apple’s name on the lips of people who might otherwise say “Dell” or “HP” or something else. Other factors are converging to make the switch to Apple computing possible for the first time, even though it’s been desirable since 1984.
Neal Lonky in Yorba Linda, California wrote:
“I happened to go to a local Apple store and play with an iPhone. It is, in my opinion, a rare ‘new’ technology experience, a true Mac computer in your hand with an open door to so many new productive programs to come. . . . If you short AAPL, buy it on a pull back. This company is a real growth company.”
That seems to be the consensus. Maybe I’m just jealous that I can’t get one here in Japan yet.
Asim Ahmed in Monroe, New Jersey wrote:
“The iPhone has been linked with words like revolutionary and industry changing. This is an important factor that should be included in your pros. I know quite a few people who never bought the iPod but will buy the iPhone simply because everyone needs a cell phone but an MP3 player is not a necessity. Based on that philosophy, iPhones will sell a lot more. Lastly, a lot of consumers, me included, are bound by existing contracts and they too plan to buy an iPhone when their contract expires (some have paid to terminate existing contracts). While most of the initial hype is already built in the stock price, I can understand not investing in it until there is a correction, but shorting it certainly does not make sense to me.”
Both Neal and Asim touched a common refrain, and that is assuming that my watching AAPL as a potential short means I’ve already shorted it. I haven’t. What I think may happen is that all this gushing positive reaction to what is without a doubt a slick product will lead to unbelievably optimistic forecasts, as has happened. If the rumors and pre-earnings guesses get crazy enough, the stock could go parabolic and give us a chance to make money on a big correction back down to levels more commensurate with what’s actually going on.
Too, we don’t know yet how “revolutionary” and “industry changing” the iPhone will prove to be. It’s up against some pretty tough competition such as the BlackBerry Curve, no slouch in its reach or its positive reviews. The iPhone has just one carrier (AT&T;, which stinks) and is in just one country (the U.S.). The BlackBerry has 300 carriers and is in 100 countries, including China as of last week after an eight-year wait. Granted, Apple will eventually get to all of the BlackBerry’s markets and will surely move beyond AT&T;, but probably not overnight and not in time to meet the overly optimi
stic sales forecasts.
The latter is a key point. Even if Apple has a long-term winner on its hands — and I actually think it does — it’s possible for the hype around the iPhone to stretch AAPL stock’s rubber band too far in the cheerful direction, allowing a short position to profit off a snap back to reality, and then a well-timed buy to profit off of Apple’s long-term growth potential, which I agree is there.
Tomorrow: What the chairman of BlackBerry thinks.
