How Steve Jobs blew his iPhone keynote

The problems with Steve Jobs' iPhone keynote

Steve Jobs' blockbuster keynote at last week's Macworld was brilliantly and powerfully delivered -- one of his best ever. It was also a colossal mistake.

The keynote certainly looked familiar -- the famous jeans and black turtleneck, the black background and giant screen. But Jobs did something unique with this speech: He announced, in detail, a major new product six months before its expected availability. Apple's famous formula, successfully applied to dozens of iPod models, Macs and operating system rollouts, keeps details secret until products are ready to ship.

Sure, Jobs did the same thing -- sort-of -- when he pre-announced Apple TV back in September. But even that speech lacked product details or even the correct brand name. Last week's iPhone keynote was the first in Apple history in which a major new product line was unveiled in detail long before its actual ship date.

I think Jobs blew it. Here's are my six reasons why.

1. Jobs raised buyer expectations too high

Jobs' keynote was so highly visible that it reached deeply into popular culture, with late-night talk-show hosts joking about it, Saturday Night Live parodying it and all manner of amateur video makers creating spoofs about it. These pop-culture references seemingly all exaggerated and mocked the idea that iPhone does everything.

However, the opposite is true: The iPhone, despite its many media-oriented virtues and its sweet design, will do far less than most existing smart phones. The problem Apple now faces because of Jobs' premature detail-oriented announcement is that of dashed expectations. When customers expect more and don't get it, they become dissatisfied.

What doesn't iPhone do? Unlike most smart phones, the iPhone doesn't have voice-dialing, voice memos, 3G Internet access, Word or Excel support, one-handed operation, or video recording. It can't be used as a laptop modem. The battery can't be replaced. It doesn't support removable storage. The calendar, task list and e-mail won't sync with Microsoft Outlook.

As a media player, the screen is big and the interface is undeniably cool. But storage limitations will seriously annoy people when they actually try to use the thing. Consider this: The operating system by itself will reportedly use about half a gigabyte. Add the included applications plus personal data such as contacts, all your songs, album art (to take advantage of the music browsing feature) and maybe a dozen or so podcast subscriptions, and at least 2 GB will be used before any movies are loaded. Movies available on iTunes range from just under 1 GB to just over 2 GB. There's not a lot of space left for video.

By comparison, you could easily fit every every stoner comedy, inane chick flick and bus-oriented action movie Keanu Reeves has ever participated in on a iPod G5. But you probably could not squeeze even the Matrix Trilogy on the 8 GB iPhone and no more than one Matrix movie on the 4 GB iPhone.

Another thing that will dash expectations is the fact that Apple is not yet opening iPhone to applications created by third-party developers. By contrast, besides letting you surf the Net, chat, do e-mail, listen to music, watch videos and so on, BlackBerrys, Treos and Windows Mobile devices have literally thousands of applications developed by third parties. IPhone users will miss out on all of that.

All this will lead, analyst Avi Greengart of Current Analysis told Macworld UK, to "a backlash of sorts as people figure out how much this thing doesn't do." The point isn't that the iPhone will be bad. The iPhone, of course, will be insanely great. But it can't match the expectations raised in Jobs' keynote.

2. Jobs raised Wall Street expectations too high

Wall Street rewarded Apple for Jobs' Macworld keynote by running Apple's stock up by 13% in two days. But expectations on the part of The Street will be dashed just as they will be for consumers.

Jobs made the mistake of specifying Apple's target of selling 10 million iPhones by the end of 2008. The goal sounded modest when Jobs said the goal represents just 1 percent of the global handset market. In fact, it's probably an unreachable goal, given the price, Cingular-only availability in the U.S. and lack of business appeal. To put that 10 million figure in perspective, RIM sold about 5.5 million BlackBerrys last year. And BlackBerry is a brand available in many models from several carriers, has a huge cult following and is sold by the truckload to both business and individual customers.

By setting the bar at 10 million iPhones sold by 2008, Jobs unnecessarily risks the erosion of faith in Apple when the company fails to reach that goal.

3. Jobs gave competitors a head start

Jobs' keynote unveiled the iPhone for all to see, including Apple's many competitors in Finland, Korea and Japan. Now these companies have six more months to copy features and work on competitive products than if Jobs had stuck to the usual formula of not announcing product details until the product ships.

Now, these companies have enough time to develop competing products -- or at least competing marketing strategies -- before the 2007 holiday season. If Jobs would have announced the iPhone in June, these competitors would all have been caught flat-footed.

4. Jobs undermined Apple TV hype

Announcing the iPhone in June would have given Apple TV its moment in the sun. People would be paying so much more attention to Apple TV -- which is, by the way, a strategically important product for Apple -- if the iPhone was kept under wraps until June.

The best thing for Apple would have been for Jobs to let Apple TV top the Macworld agenda, then spring the iPhone on us during the summer.

5. Jobs put iPod sales at risk

Bernstein Research analyst Toni Sacconaghi wrote in a widely quoted report that "we believe the iPhone is likely to be largely cannibalistic to iPod sales, rather than entirely incremental to Apple, limiting upside."

Richard Gardner of Citigroup said that the fact that iPhone was announced in January but ships in June is "problematic because some iPod nano buyers, and even some hard drive-based iPod buyers, are likely to defer iPod purchases" during the interim. Even Keith Bachman, the pro-Apple analyst at Bank of America, fears that Jobs' early iPhone announcement may cause customers to delay iPod purchases.

Will Jobs' early announcement of the iPhone hurt iPod sales in the first half of 2007? Time will tell. It certainly won't help iPod sales. In any event, it was a needless risk.

6. Jobs wrecked Cisco talks

Jobs surprised everyone by referring to the new product as the iPhone. Cisco executives were especially surprised since the company owns the trademark. Cisco and Apple had been in talks over an arrangement to share or sell the name. Jobs' use of the brand "iPhone" sparked a lawsuit, which Cisco filed the day after the keynote.

Now Apple must wage an ugly public custody battle rather than conduct quiet, behind-the-scenes negotiations over use of the iPhone brand. Worse, Jobs' public commitment to use "iPhone" gives Cisco enormous leverage over Apple in the court case or any future negotiations.

Because of this early announcement, the price -- both in terms of PR and in dollars -- that Apple will pay to use the iPhone brand has gone up unnecessarily.

Why the rush to announce iPhone?

It's easy to speculate about why Apple announced the iPhone so early, so here goes.

The iPhone resembles, at least superficially, the LG KE850, which recently won the International Forum Design Product Design Award for 2007. Both phones do away with most buttons, and rely on a full-device display with on-screen buttons. LG hasn't decided yet if it will sue Apple for copying its design. It's possible Apple announced iPhone so Apple wouldn't follow the LG KE850 to the market and look like a copycat.

Maybe Jobs wanted to divert attention away from the backdating scandal. Maybe Jobs decided that Apple TV was too weak of a product to carry a keynote. Maybe the motive was good old-fashioned FUD.

Whatever the reason, I think Apple's CEO made a big mistake. A June unveiling that coincided with the actual product launch would have kept customers and Wall Street expectations in line; concealed product details from competitors; given Apple TV the full spotlight when it ships; kept iPod sales robust and would have helped Apple gracefully negotiate the rights to use the name "iPhone." In short, it would have been the traditional Apple home run.

Steve Jobs blew it.

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