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Apple seeks to redefine phone

Its iPhone lets users listen to music, watch video and surf the Web.

January 10, 2007|Michelle Quinn | Times Staff Writer

SAN FRANCISCO — In a sign of its growing clout as an entertainment player, Apple Computer Inc. dropped "computer" from its name Tuesday and unveiled two devices that promise further upheaval in the rapidly changing media industry.

The long-anticipated iPhone combines a mobile phone, an iPod and a hand-held Internet device, allowing users to listen to music, watch video, surf the Web and make phone calls from almost anywhere -- potentially changing the flow of information the way the iPod revolutionized the distribution of music.

Analysts who had expected the renamed Apple Inc. to introduce the so-called smart phone nonetheless were impressed by the device's capabilities. They said it was likely to quicken the pace of fragmentation that has beset traditional media and entertainment companies.

Some expressed concern that the price -- the iPhone will start at $499 when it goes on sale in June -- might be a barrier because most people are used to getting their mobile phones free as part of a service contract.

Wall Street drove shares of Apple up more than 8%, shaking off recent concerns about the potential involvement of Chief Executive Steve Jobs in the questionable timing of stock option grants at the Cupertino, Calif., company.

Apple stock closed at an all-time high of $92.57, while rivals such as BlackBerry maker Research in Motion Inc. and Palm Inc. fell sharply.

"They may have created a new category," said Tim Bajarin, president of consulting firm Creative Strategies. "Instead of smart phone, how about 'brilliant' phone? This redefines what a cellphone looks like."

Less than half an inch thick, the iPhone looks like a souped-up version of Apple's signature iPod. Unlike rivals such as the BlackBerry or Palm's Treo, it has no keypad. Instead, it employs a novel touch screen that changes with use. For example, when used as a phone, it features a numeric pad; and when browsing music, it scrolls through digital album covers.

Initially, service for the phone will be sold only by Cingular Wireless. No pricing has been set. The phone will also connect to wireless networks such as those found in airports and coffee shops.

"This is cyberspace in your pocket," said longtime Silicon Valley consultant and futurist Paul Saffo.

"It's going to be the new object of desire."

Apple also introduced a $299 device called AppleTV that wirelessly whisks movies and TV shows downloaded off the Internet to televisions, a key link necessary for online media to grow.

Taken together, the two announcements solidify Apple's role as a new kind of media conglomerate -- "a digital lifestyle company," said one analyst. Apple's iTunes is one of the largest music retailers, eclipsed only by mass-market stores such as Best Buy and Wal-Mart.

Its dominance in online music has given Apple leverage to keep prices on most downloadable songs at 99 cents, despite pressure from the record labels to raise them. And its growing influence in online video -- it has sold 1.3 million feature-length movies since September -- is making it a Hollywood player.

Paramount Pictures Corp. on Tuesday joined Walt Disney Co. in selling feature-length movies on iTunes. Jobs is Disney's largest individual shareholder after Disney's purchase last year of his Pixar Animation Studios.

Other companies have tried to build phones that do it all, with varying degrees of success. Among the most popular: Research in Motion's BlackBerry, dubbed CrackBerry by addicted users. Getting people to watch TV or download music to their phones, though, has proved trickier, in part because of the fees charged by cellular carriers.

Carriers push mobile entertainment to help boost revenues at a time when most people who want a mobile phone already have one.

Apple aims to capture 1% of the cellphone market by 2008, selling 10 million iPhones. In its last fiscal year, which ended in October, Apple sold 39 million iPods. But some analysts said the price of the iPhone could stymie growth, at least initially.

The base model, with 4 gigabytes of memory, will sell for $499. A model with 8 gigabytes of memory will cost $599.

"Apple is bringing out a product they had to bring out because the world is moving to smart phones," said Fred Hickey, editor of the High Tech Strategist, a newsletter.

"Apple is moving into a saturated market where the carrier subsidizes the price of a cellphone at $100 or less. Consumers really like paying nothing for phones."

Saffo said AppleTV and the iPhone liberate the Internet from the computer and enable people to bypass corporate control over entertainment distribution.

"If you want to deliver TV to consumers, you don't have to talk to a cable company," he said. "You can put it on the Web and consumers can put it on TV."

Part of the excitement about the iPhone is that it is controlled by touch. By rolling a finger on the screen, a user can flip through virtual record albums, make a telephone call, scroll through e-mail or zero in on a neighbor using satellite images from Google Maps.

Turn the iPhone horizontally and the image on the screen senses the shift and adjusts. With the iPhone, a few annoying cellphone problems are solved; the one-touch feature, for example, allows a user to merge calls into a conference call. Also, it is easy to scroll through voice mail rather than listen to all the messages.

"Once you have the thing, you will want to carry it all the time," said Mike McGuire, research director at Gartner Industry Advisory Services in San Jose.

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michelle.quinn@latimes.com

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