iPhone price cut

Welcome to the mobile phone business, Apple! A mere ten weeks after introducing the iPhone, Apple has made some big adjustments. The company is slashing the price of its 8 GB iPhone from $599 to $399 in time for the holiday shopping season. The company is also phasing out the 4 GB version, which had sold for $499.

Handset price decreases are nothing new to the mobile space, but such drastic price reductions at such an early stage are a rude wake-up to Apple as it enters a market where it faces stiff competition. There's no question that the iconic iPhone is as slick as a device as the mobile phone industry has seen in sometime, and Apple is already transferring features such as the touchscreen to its new iPod devices.

However, after such a hyped introduction, it would appear that Apple hasn't overcome the resistance that we predicted in our June white paper - The iPhone: A Consumer Perspective. Granted, we know that Steve Jobs is definitely not referring to the iPhone as a "hobby" (as he did with the underperforming AppleTV). However, even with Apple's great history of developing intuitive and in-demand products, pricing is a big hurdle to overcome as consumers consider the purchase of an advanced mobile phone handset.

In Parks Associates' white paper we noted that only 3% of consumers surveyed in a recent study (Mobile Entertainment Platforms and Services: Second Edition) expressed a strong willigness to pay $499 or more for an iPhone. We're still not convinced that a $399 price point is going to spur significant dividends, either. At this price point, the needle only bumps to 4% of consumers.

Apple has enjoyed some great gains in the last few years, but it's got major challenges ahead of it if growth is going to continue. Recent defections from content providers away from the iTunes service and the company's need to convince millions of users to replace their existing iPods are among two key issues. Perhaps this is only a moment where Apple simply catches its breath before charging ahead, or it's a sign that even the great Apple has its limits. We're watching closely.

Apple® iPhone May Struggle Initially to Cross the Chasm

High price point and doubts about utility of a convergence platform could inhibit early adoption

The Apple iPhone may find strong demand among early-adopter technophiles, but building a larger market may be difficult initially, according to "The iPhone: A Consumer Perspective." This new white paper from Parks Associates includes primary consumer data from "Mobile Entertainment Platforms & Services (Second Edition)," a 2007 survey of 2,000 U.S. Internet users. The survey finds only 3% of these consumers have a strong interest in purchasing the iPhone at its $499.99 price point and two-year contract.

"The underlying drivers for converging music, multimedia, and communications capabilities in a device such as an iPhone are certainly prevalent in today's market," said Kurt Scherf, vice president and principal analyst with Parks Associates. "However, the high price point may prevent the iPhone from achieving greater adoption over the short term. It may be an early-adopter product that appeals to technophiles but initially leaves other interested users on the outside looking in."

"The iPhone: A Consumer Perspective" is a free white paper available for download at http://www.parksassociates.com/iphone.htm

Introduction to CONNECTIONS™: Digital Lifestyle Developments

Summary information from Day 1: CONNECTIONS™ May 2007, hosted in Santa Clara, CA.

The pace of digital lifestyle developments continues unabated. A great deal of activity has occurred in the since CONNECTIONS™ 2006. The Parks Associates’ analyst team has compiled this list of the top trends in the last year:

• Broadband penetration in the U.S. will surpass 50% of residences in the middle of 2007. On a global basis, broadband penetration is approaching the 300 million household mark.
• The two large U.S. telcos – AT&T and Verizon – officially entered the IPTV space in 2006, accounting for more than 200,000 subscribers in the first full year of availability. On a global basis, Europe surpassed Asia in terms of overall subscribers, and there is much more activity in Europe in terms of cross-border competition among different telecommunications providers. At the end of 2006, the total number of IPTV subscribers worldwide was slightly more than four million.
• Entertainment content disruption accelerated with News Corp. buying MySpace and Google buying YouTube – leading to the “NewTube.”
• The launch of all the three new game consoles (Microsoft Xbox 360, Sony PlayStation3, and the Nintendo Wii) was significant. The Xbox 360 and its associated content services are now positioned – according to Microsoft – as second only behind Apple for video downloads.
• Agreement on the underlying protocols that make up the next Wi-Fi standard – 802.11n – was reached. We’re already seeing high volume shipments of Draft-N products, and wireless is aiming at the entertainment and multimedia space.
• Apple announced a month ago that they had sold 100 million iPods (plus two billion music downloads as of year-end 2006), a testament to consumers’ desire for more accessible and easy-to-use media services and products. In addition, the company released AppleTV, where PCs and CE seamlessly interoperate to enhance entertainment applications, and this move should be a significant boost to the growth of multimedia networks.
• Microsoft officially launched the Vista operating system, which places a new level of media creation and consumption capabilities in front of end users.
• Virtual economies are booming — World of Warcraft has nine million subscribers, and Second Life has more than five million users. With this growth, the online gaming community is becoming more entwined with unique social and commerce applications.
• Digital rights management (DRM) issues continue to ebb and flow:

- High-end media server company Kaleidescape was found to be within compliance of the DVD Copy Control Association's license to the Content Scramble System, the method used to encrypt video and audio data on DVDs. Speculation is that this may open the door to “managed copy,” where the studios agree that consumers can take their owned DVDs and make a copy on a server for safekeeping.

- On another positive front, Dan Glickman, the head of the Motion Picture Association of America (MPAA), recently affirmed the studios’ blessing on “authorized copies of the content they [consumers] purchase.”

- Steve Jobs at Apple recently discussed the abolition of rights management for digital music. After all, he argues, fewer than 2 billion songs were sold under DRM with digital music services (such as iTunes); at the same time, the music industry sold 20 billion unprotected songs on CDs.

- Legal challenges persisted to dampen any positive DRM news. A federal judge recently blocked Cablevision from continuing its RS-DVR service, which basically put time-shifting capabilities in the head-end. We view Europe and Asia as much more significant markets for “nDVR” applications. And music publishers are suing XM Satellite for allowing subscribers to copy broadcasts to MP3 players.

• Companies in home controls continued to consolidate, with Nortek acquiring LiteTouch and Gefen and Legrand acquiring Vantage and UStec. Best Buy released its Home System in a Box, called ConnectedLife.Home. BT and Bell Canada marked the entry of telcos into the home security space.
• Retailers, service providers, and third-party entities are discovering there are significant business opportunities in digital home tech and customer support services. Revenues from Best Buy’s Geek Squad services (including product installation, configuration, troubleshooting, and repair) exceed $1 billion in U.S., and other major big box retailers have either launched or rebranded their own digital home technology service offerings. Circuit City launched its firedogSM service in September 2006, and OfficeMax® just launched ctrlcenter™ for remote tech support in April 2007. Both CompUSA and Staples rebranded their tech support services to TechPro and EasyTech, respectively.

Finally, Stuart Sikes, president of Parks Associates, said the industry is moving forward because big players are spending big money to build out the digital home.

Key Topics at CONNECTIONS™ Europe: Strategies for Digital Living Markets include IPTV, Mobile Entertainment, Home Controls and Management

CONNECTIONS™ Europe: Strategies for Digital Living Markets today announced preliminary topics for its upcoming three-day executive conference and showcase, to be held Dec 4-6, 2007, at the Adlon Kempinski Hotel in Berlin, Germany, and is currently accepting speaker submissions from industry executives interested in participating.

CONNECTIONS™ Europe, produced by Parks Associates in partnership with the Consumer Electronics Association (CEA®), is an executive conference focused on the global market for advanced digital lifestyle solutions.

Topics for 2007 include services, equipment and hardware, and emerging areas for future opportunities:

• IPTV: Business models, consumer segmentation, & forecasts by region
• Remote Self Monitoring: Incremental vs. Core Revenues
• Mobile Entertainment: Shift from portable to mobile video and TV
• Wireless In-home Networking
• Consumer Media Habits
• Social Media and Web 2.0
• Infrastructure Elements: Supplying the Service Providers for IPTV
• Segmenting and reaching consumers
• Social Benefits to E-technologies
• IP-based Entertainment and Control Systems
• Digital Media Servers & Adapters
• Digital Health
• End-to-End Managed Digital Home Solutions

Recent research from Parks Associates indicates the number of IPTV subscribers will reach nearly 60 million worldwide by year-end 2011. Television choices for European consumers in particular will expand greatly in the next several years, due to a growing number of IPTV providers per country, a surge in digital terrestrial offerings, and a resurgence of cable providers in certain markets.

“On many levels, digital home business cases on the European continent are indicative of things to come worldwide for service providers and manufacturers,” said Kurt Scherf, vice president and principal analyst, Parks Associates. “Europe holds a great deal of promise and insight into the next developments in the digital lifestyle space, and we’re pleased to be hosting CONNECTIONS™ Europe to discuss the opportunities, challenges, and business cases for these growing markets.”

Anchor sponsors for the 2006 event included Deutsche Telekom, Echelon Corp., and Siemens Communications.

Current 2007 event sponsors and supporters include Casero, NXP, the Broadband Services Forum, the Wi-Fi Alliance, BPL Today, Connect-World, HiddenWires, HomeToys, IP Television Magazine, Multimedia I.T., Multiroom France, TVover.net, and xchange Magazine.

View the Sponsor Benefits for more information about sponsoring CONNECTIONS™ Europe. www.connectionseurope.com