Get ready for the summer of Apple

With the iPhone on deck, it's finally time to see whether Apple's vaunted designers have come up with another winner.
Written by Tom Krazit, Contributor
Apple is preparing for one of the most pivotal summers in its history.

On June 29, the company is expected to release the iPhone, perhaps one of the most hyped gadgets in history and a clear sign of where CEO Steve Jobs is placing his bets. At Apple--in case anyone still needed reminding after Jobs & Co. dropped "computer" from the company name--people are thinking about a lot more than laptops and desktops.

"Apple isn't just a hardware company, and they aren't just a software company," said Stephen Baker, an analyst with NPD Group. "I think that's what's enabled them to be more successful in endeavors that are away from their core business."

The touch-screen phone has been the talk of both the cellular and PC industries since Jobs unveiled it on stage at Macworld in January, and competitors are likely to respond later this year. But before it gets to the iPhone launch, Apple will pause next week to shift the spotlight back to its core Macintosh business.

On Monday, Jobs is scheduled to give the keynote at the Worldwide Developers Conference in San Francisco. Events such as WWDC are extremely important to Apple's developers, but tend to be overshadowed by the more consumer-oriented Macworld and other special product shindigs, such as last year's "showtime" event.

Indeed, WWDC is expected to be dominated by Apple's Leopard OS, just like last year's event. Developers will walk away with a near-final copy of Leopard, and Jobs is expected to provide further details on some of the features inside the new release. Apple does not plan to ship the final version until October.

While Leopard is certainly important to Apple's developers, the rest of the world is likely to be looking for any new nuggets Jobs reveals about the iPhone. The iPhone, analysts argue, is more than just a new product for Apple. It's an entirely new business that, if successful, will give the company three distinct product lines--Macintosh computers, iPods and the iPhone (not to mention a smaller fourth line, the Apple TV)--to maintain Apple's strong growth.

The attraction of the phone market to Apple is clear: mobile phone makers are shipping more than a billion units a year, and that figure keeps growing. Jobs has said he'll be satisfied if the iPhone has 1 percent of the market by the end of next year, somewhere around 10 million units.

"Wherever they go with the iPhone, Mac OS X is going to follow them."
--Stephen Baker,
NPD Group

The smart phone market, in which the iPhone will compete, however, is considerably smaller than the overall market. About 81.3 million smart phones shipped last year, according to iSuppli, which defines smart phones as "handsets with an open OS (like Windows CE, Symbian, Linux), which allow functional expansion of the device through sophisticated add-on applications such as personal information management."

The iPhone runs Mac OS X and Jobs promises it will deliver the "full Internet" to a mobile phone. Moreover, he said, at the January Macworld conference: "We have reinvented the phone."

It's a bold claim, and iPhone's success is not a slam dunk. Unlike the iPod's introduction in 2001 when other companies were shipping MP3 players but no one company had strong control of the market, the smart phone business is served by well-established, deep-pocketed players such as Nokia, Research In Motion and Samsung. And unlike the PC industry, it's also controlled by the companies that provide the pipe to the Internet, like Verizon, T-Mobile and AT&T, Apple's partner for the iPhone launch.

This is also a market where design has been essential from the beginning, potentially dulling Apple's usual competitive edge. Apple's reputation in both the MP3 and PC markets has been made on cutting-edge design, though competing on design with some of the products trotted out by the PC industry over the past five or six years hasn't exactly been like facing the 1927 New York Yankees.

Still, Jobs appears to believe the iPhone's simple user interface, with its single button and multifaceted display, is a significant improvement over the QWERTY keyboards on Samsung's Blackjack or Palm's Treo, or the numeric keypads found on other smart phones. Reviewers have yet to give the iPhone a thorough test, so it's hard to know whether concerns about typing and screen smudges--not to mention the slow EDGE network it uses--will prove to be problems for the iPhone.

Apple's main advantage in the mobile phone industry could be the same thing that has attracted computer users: the complete control of both hardware and software development that the company has over its products, said Baker.

Apple already has a leg up on the rest of the PC industry in its transition to becoming a broader consumer electronics company with the success of the iPod and the power of the iTunes store. No PC company has managed to enter another consumer category this decade with even half the success of Apple's move into digital music.

Even though Apple's Mac shipments are growing faster than the rest of the industry's, the PC market as a whole is expected to slow over time as PCs become more like kitchen appliances rather than tech gadgets. And in shifting to the consumer electronics world in search of faster growth, Apple will have to avoid alienating its core audience, the die-hard loyalists who have supported the company for years through a myriad changes.

Jobs' decision to delay the release of Leopard in order to get the iPhone out on time underscores a change in priorities at Apple that's been under way since the iPod exploded. Of course, if the iPhone is a hit, and Mac OS X continues to evolve, no one will care.

"To some extent, they can't lose sight of those people because OS X is central to other products that they are doing, and that connects them back into the core of Mac users," said Baker. "Wherever they go with the iPhone, Mac OS X is going to follow them."

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