Glitches Don't Slow iPhone Much

By Tara Seals

To hear some tell it, the history of man goes something like this: There was fire. Then the wheel. Then metal tools, democracy and penicillin. And now, the next great evolution: the iPhone.

iCrazy or iTrue? Well, it finally came and went, the magic moment when Apple stores and AT&T retailers opened their doors Friday evening for the throngs of people camping out or just waiting breathlessly to get their iPhones. While the iPhones opening weekend suffered a few glitches, support for the device is staying strong.

AT&T Inc. and Apple Inc. decline to name numbers, but widely reported analyst guesstimates place Fridays opening day sales at between 150,000 and 200,000. Many stores sold out, and the iPhone quickly became an eBay cash cow, going for upward of $2,000 each despite the fact that stores were taking orders for phones to be shipped within three to seven business days. Such is the nature of instant gratification and/or keeping up with the Jones.

The competition tried what it could. Verizon stores nationwide announced they would be staying open until 9 pm on Friday, to give customers plenty of time to test drive the leading wireless company with the most reliable voice and data network and pick up a hot device with the Music Essentials Kit includes a stereo headset, a cable for music transfer from a PC to [the phone] and a 2GB memory card that can store up to 1,000 songs.

No word on whether that was a lonely vigil for Verizon dealers.

But then came the activations issue. AT&Ts servers were overloaded by the demand, and the same users who waited in line for hours or days had to wait until Sunday to get activated. And users who registered their phones on iTunes saw a warning that the process could take between 24 and 48 hours, leading to much disgruntled blogging.

AT&T said Monday the problem has largely been fixed.

Users also faced additional challenges when trying to port address books over from competitive carriers or switch corporate service, and some had trouble simply getting used to the all-touch tone interface. Meredith Viera on Fridays Today Show was flummoxed when trying to answer a call to her iPhone from a remote Matt Lauer, sending the message that answering calls on the spiffy device could be a complicated endeavor.

Other caveats came from the research community. ExpoTV, which conducts consumer research via online video polls, recently completed a survey asking whether or not the respondents will be purchasing an iPhone. It found that more than 47 percent of respondents will wait at least 12 months for Apple to work out the bugs, while more than 33 percent of respondents have no intention of buying the iPhone at all.

Telecom researchers weighed in, too. Apple benefits from an extremely high profile market entry, said Steven Hartley, a market analyst with Ovum, who called the iPhone not technically unique a statement sure to draw fire. It will also most likely evolve the device in the future to add the features missing at launch, such as WCDMA. Apple has set itself a target of 10 million units by the end of 2008, but we think this will be a challenge. The device is selling at a high price point and will not be a mass market device. Furthermore, if it signs further exclusive two-year deals with limited distribution in Europe and Asia it will be able to target only a relatively small numbers of users.

He did add a word of hope: Nonetheless, we do expect the iPhone to have a positive effect on Apple’s bottom line. Our bill of materials estimates suggest that margins are relatively high, so Apple shouldn’t lose money.

Overall, the iPhone buzz is still audible and more reviewers like the phone than not. Its unlikely Apple can sustain the messianic fervor forever, but the launch seems off to a good start despite slightly rocky beginnings. We shall see for sure once the actual sales numbers are released.

Apple Inc. www.apple.com
AT&T Inc. www.att.com