When Apple (NASDAQ:AAPL) lost in the Final Four of this year's Stock Madness showdown, I knew that fears over the real growth potential of the forthcoming iPhone had taken hold.
Well, that, and because Chesapeake Energy is one heck of a stock. But concerns over the iPhone aren't entirely misplaced. A recent online survey from researcher Compete showed that only 1% of those interested in the iPhone would pay $500 for it, let alone $600, which is the current price tag for Apple's high-end model.
Beware the poison apple
Accordingly, some observers, including long-time tech columnist John Dvorak, have proclaimed the iPhone dead before arrival. So convinced of impending doom is Dvorak that, just a week ago, he urged the Mac maker to call the iPhone a reference design and hand the blueprints to a firm with phone-making experience, like Samsung.
I respectfully disagree. Sure, as a whole, the mobile market is a commodity business dominated by the likes of Nokia (NYSE:NOK) and Motorola (NYSE:MOT). But smart phones are different. And history shows that computer makers can do well in the sector. Palm (NASDAQ:PALM) and Hewlett-Packard (NYSE:HPQ) come to mind.
Why some might not take a bite
Yet Apple's pricing model, even if it is grounded in logic, is risky. How do you sell 10 million smartphones if no one wants to buy at the price you're selling? The answer, I think, lies in a little-noticed feature in the iPhone: Wi-Fi.
Early coverage of the phone's prospective features rightly gave little credence to this feature. It's not like Wi-Fi is available everywhere. And try logging onto the Internet from a handheld device the next time you're at Starbucks. Not exactly easy, is it?
Expect the iPhone to change that. Mac OS X, after all, usually sniffs out and easily connects Macs to Wi-Fi hotpsots. The OS X-powered iPhone will too. And mixing in a Safari browser that can operate in widescreen mode should make signing on to a premium Web service, at worst, manageable.
And your point is?
But if it's a breeze, $600 could look cheap. Why? Skype. eBay's (NASDAQ:EBAY) rebellious VoIP service has more than 136 million users.
No doubt only a fraction of those are Skype freaks that spend freely on tech gear. Maybe it's just 1% of downloaders. Even then that's 1.36 million geeks with money to spend. Skype is catering to them now by selling Wi-Fi phones from the likes of Belkin and Netgear (NASDAQ:NTGR), among others.
What's a Wi-Fi phone? It's a device that allows you to make Skype calls without a computer. Instead, it uses a Wi-Fi connection to log on to the Web and into your Skype account. From there, software recreates the Skype interface to give users a working phone.
This isn't exactly new stuff. Wi-Fi phones have been around since Skype and Vonage (NYSE:VG) emerged as mainstream services. But they remain the Rodney Dangerfield of telephony because:
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They can't usually be used to dial 911 emergency service.
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Wi-Fi -- especially free Wi-Fi -- isn't available everywhere.
In a word, Wi-Fi phones are geekery. And that's good for Apple, because the iPhone is bound to have its greatest appeal to cash-rich geeks.
But there's a business case here, too. Everyone likes free calls. Skype on the iPhone could give users that without the angst of relying on VoIP as a line replacement. Would that be worth $600? At least -- and that's just one feature.
The Foolish bottom line
My point here is simple. For all of the hubbub over what the iPhone isn't today, the device hasn't yet shipped. Don't assume that Apple and its software partners are unaware of what they have in the iPhone, and what it could be. History says the Mac maker knows better.
Fool contributor Tim Beyers, who is ranked 1,403 out of more than 25,400 in our Motley Fool CAPS investor intelligence database, wrote this article on his MacBook Pro, but didn't own shares of Apple at the time of publication. He did, however, own shares of Nokia. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile.
Palm, eBay, and Netgear are Stock Advisor picks. Chesapeake is an Inside Value selection. The Motley Fool's disclosure policy remembers the old Apple Newton. It thinks of the iPhone as a slimmer, sexier cousin to that once-lovable black box.
