iPhone: The Consumer Perspective

With so much hype surrounding the launch of the iPhone, and many predictions abounding about its potential success , we felt it important to provide our own commentary on the iPhone's strengths and weaknesses vis-à-vis true consumer sentiment.

We had an appropriate vehicle with which to measure consumer interest with the study Mobile Entertainment Platforms & Services (Second Edition). Parks Associates conducted this survey of 2,000 U.S. Internet users ages 13 and older between April 30 and May 10.

Its primary goal is to better understand consumer perspectives on mobile phones, portable gaming devices, portable music players, portable multimedia players, and imaging devices and applications. It further examines consumer desires for new convergent devices and services, identifying both growth opportunities and inhibitors to spending.

What Mobile Features Are Important?

With U.S. household penetration of portable digital music players (such as iPods) sitting at nearly 40 percent of all U.S. households (Figure 1), it's not surprising to find that the ability for a mobile device to play digital music files is the top entertainment feature that consumers desire on a mobile phone (see Figure 3). Additionally, downloading video from the Internet is becoming more commonplace, particularly for playback on portable multimedia players such as an iPod with video capabilities (Figure 2).

Figure 1

Figure 2

Figure 3

Consumer Familiarity With the iPhone

Apple (Nasdaq: AAPL) launched television advertisements for the iPhone at the beginning of June.

The time frame of our survey (late April and early May) preceded this mass-marketing campaign, so only 9 percent of consumers indicated a high familiarity with the device, well behind the Blackberry and just ahead of Windows mobile phones (Figure 4).

Figure 4

Interest in the iPhone at Price Points

The high price point for the iPhone (beginning at US$499.99) will be a significant deterrent to likely iPhone buyers. Consumers on average are willing to pay only $99 for a regular phone and $199 for a smartphone with a two-year contract.

Price points at $499.99 and above are keeping interest in the iPhone very low (Figure 5). The iPhone will shift a few paradigms about consumers and price points if it becomes a success.

Figure 5

Potential Inhibitors

Although "convergence" as a buzz phrase gets used quite often in the digital lifestyles arena, it's worth questioning whether consumers truly gravitate toward all-in-one devices.

This question is critical regarding the iPhone in particular, given its multiple uses -- multimedia player, music device, phone, Web access devices, etc. Mobile Entertainment Platforms & Services (Second Edition) finds that most consumers are either indifferent about multipurpose mobile devices or simply prefer a single device for one type of function. Only 22 percent of respondents are clearly in favor of a mobile device with the type of converged functionality embodied by the iPhone. Forty-one percent of portable music player owners prefer a stand-alone portable device, compared with 26 percent who prefer a multifunction device.

Figure 6

Cost and performance are key reasons why consumers prefer stand-alone devices. Forty-nine percent believe multifunction devices would be overly expensive; roughly one-third believe these devices would suffer from performance issues, including limited battery life.

Both cost and battery life remain questions with the Apple iPhone. Apple has addressed the battery issue recently, noting that it should be improved over the earlier estimates that were initially provided with its announcement. The company notes that the iPhone will be capable of eight hours of talk time, six hours of Internet use, seven hours of video playback or 24 hours of audio playback. These new numbers compare with five hours for talk, Internet, and video, and 16 hours for audio playback that the company originally referenced in January 2007.

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Figure 8

Will AT&T Get Leverage With Exclusivity?

As previously mentioned, access to an exclusive handset is not the most important consideration for consumers to choose one mobile carrier versus another. Mobile Entertainment: Platforms and Services (Second Edition) shows that only 10 percent of mobile subscribers regard "exclusive handsets" as a highly important factor in their selection of a mobile carrier (45 percent said it was not important).

Factors such as network coverage (72 percent) and voice quality (68 percent) were much more relevant for consumers. See Figure 8 for specific details.