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Apple plays it safe
The iTunes phone is a good start, but just a precursor of things to come.
September 15, 2005: 5:24 PM EDT
By Matthew Maier, Business 2.0

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NEW YORK (Business 2.0) - After more than a year of false starts and rampant speculation, Steve Jobs finally unveiled Apple's much anticipated iTunes phone.

At San Francisco's Moscone Center, in front of a select crowd of journalists and tech-industry influencers, Jobs showed off the first cell phone running the Apple iTunes client, a Motorola (Research) Rokr E1 handset. Basically it's an older Motorola phone running a stripped-down version of iTunes capable of storing as many as 100 songs.

Billed as the second coming of the iPod -- but for mobile phones -- Apple's (Research) new handset was expected to single-handedly make mobile music into a mainstream phenomenon. And, in the end, it may succeed.

But the reaction to the handset has been lukewarm at best. In fact, the long-awaited iTunes phone was actually upstaged by one of Apple's other product announcements, the new, ultrathin iPod Nano. Many hoped the unveiling this week would showcase what people in the industry have dubbed the "iPhone," a sleek, elegant device that would put all other mobile phones to shame.

To the disappointment of many, that didn't happen. Yet holding off on the iPhone is a smart move for Apple because it let Motorola focus on the hardware design while Apple remained focused on the iTunes software industry, ensuring it worked on a device with a much smaller processor and far less capacity than a typical PC.

Staying focused

It's the smartest decision Apple could make. The mobile handset business is notoriously convoluted. Though consumers are, ultimately, the ones using the device, it's actually wireless carriers, such as Cingular and Verizon (Research), that Motorola, Nokia (Research), and other vendors have to please.

Each operator has detailed network specifications that must be met before it will agree to sell a new handset. Nowadays many of these carriers also have aspirations of becoming their own music distributors. Both Cingular and Verizon have experimented with music stores and eventually hope to sell songs to their subscribers over the air. Apple's iTunes service represents a direct threat to these grandiose plans.

The reason it took 13 months from the time the device was announced to this week's iTunes phone announcement was that Apple, Motorola, and Cingular needed to hammer out a deal that each could be happy with. Rather than try to go head on with carriers by developing its own phone built around iTunes, Apple wisely chose to partner with Motorola to help it navigate the complex world of phone development and carrier relations.

The deal also leaves the door open for Apple to eventually license its iTunes client to other phone vendors as well (though it's rumored that Motorola has exclusive rights to iTunes for at least a year). With the market for mobile music -- ringtones and songs downloaded to mobile phones over the air -- expected to be worth as much as $10 billion by the end of the decade, it's no wonder that there's so much interest in becoming the leader in the mobile music market.

The difficulty of creating its own phone without alienating carriers kept Apple from creating what many were hoping for -- the iPhone. Of course, that day could still come.

If, as is widely reported, Apple chooses to launch its own virtual network, there would be nothing keeping it from creating its own handset. Certainly it has a rabid enough customer base and clear understanding of the consumer market to do so.

In the meantime, Apple did the next best thing: Its iTunes client is out there, and it will start drumming up interest in music on mobile phones. It may not be the best-looking phone on the market, but it's a good start and likely just a precursor of things to come.

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