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iTunes phone sales ok, but it's no nano
With a quarter of a million phones sold, Motorola's ROKR is no iPod, but it's also not a flop.
October 24, 2005: 2:56 PM EDT
by Amanda Cantrell, CNN/Money

NEW YORK (CNN/Money) - Despite mixed reviews, Motorola's highly anticipated iTunes enabled cell phone ROKR hasn't flopped. But are techies getting what they expect?

Motorola said recently that in terms of sales, the ROKR is doing just fine according to the company, it sold 250,000 ROKR phones in the third quarter, within about three weeks of its launch.

Those numbers, while not indicative of a runaway success story, may still be a positive surprise given the mixed reviews and numerous controversial reports surrounding the ROKR.

First, the highly anticipated phone's launch hit several delays before finally debuting on Sept. 7. When it launched, the ROKR was promptly upstaged at the very same press conference when Apple CEO Steve Jobs unveiled the ultra-sleek iPod nano, which at around $249 for a four-gigabyte model costs the same as the ROKR and holds 10 times as many songs, at a fraction of the ROKR's size.

Critics also criticized the ROKR's design, which simply could not match the sex appeal of Apple's nano or Motorola's RAZR, its hugely popular flip phone.

Now, new research has revealed that customers are returning the phone at a rate of three to six times the industry average for cell phones, according to American Technology Research analyst Albert Lin.

Recently, Motorola chairman and CEO Ed Zander publicly criticized his company's own ad campaign, saying the company didn't make it clear enough to consumers that the phone only holds 100 songs, according to a Newsday report.

"People were looking for an iPod, and that's not what it is," he said, according to the report. "We may have missed the marketing message there."

Zander also reportedly had some choice words for the nano. At an industry event last month in Silicon Valley, trade publication Macworld reported that Zander responded to a question about the nano defensively, saying, "Screw the nano. What the hell does the nano do? Who listens to 1,000 songs?"

Motorola issued a statement saying Zander was joking and that his comments were taken out of context.

"During the Q&A session one questioner asked what Zander thought of the nano," the statement said. "Jokingly, Zander said he wasn't there to talk about the nano -- but to talk about the next big thing happening in the industry -- the fusion of the phone and music. ROKR with iTunes was a good beginning, he said, and there's more to come."

Given these setbacks, the phone's sales are something of a surprise. American Technology's Lin believes the phone's sales are ahead of the company's expectations, which he estimated were in the 150,000-200,000 range for the third quarter.

Record returns for ROKR?

So why is the ROKR getting a bum rap? Some analysts say the phone's debut was so widely anticipated that it would have been nearly impossible for the phone to live up to its pre-launch hype, setting consumers up for inevitable disappointment.

Lin said customers have been returning the phone at rates that are three to six times higher than the industry average, which he estimates to be in the low single digits.

Lin credits part of the higher than average return rates to the fact that the first customers to snap up the ROKR probably fit into the "early adopter" category, which he said is a highly demanding customer base.

They may also have been disappointed that the product was less an iPod phone than a cell phone that comes with iPod and only holds 100 songs. That makes the phone a high-maintenance device, Lin said.

Finally, the software has been plagued with bugs, Lin said, adding to the maintenance level.

Added John Bucher, an analyst at Harris Nesbitt, "The more complex a product, the more likely you are going to find a return, whether there is a real defect there or not."

Bucher, who worked for several cellular phone carriers before becoming an analyst, said he thinks the phone isn't doing as badly as reports suggest.

"I have a sneaking suspicion that Motorola is making money on this product," he said.

It's no nano

By far the most controversial issue surrounding the phone has been the amount of songs it can store, however. Media reports have suggested that Apple deliberately kept the number low, so that the ROKR would not pose a real threat to sales of its iPod. Apple did not return a call for comment by press time.

"There has to be some friction because I think Motorola did not want the ROKR to be hobbled with 100 song limits," said Lin. "I think Apple was emphatic about that because they were trying to move slowly in the mobile phone world to make sure they don't set a precedent for something that could damage iPod sales."

Motorola said in a statement, "Motorola has a great partnership with Apple... A whole family of music phones is on the way -- some might hold more than 100-songs."

Ittai Kidron, an analyst at CIBC World Markets, said the 100-song limitation may not be as much of a setback as ROKR's critics have made it out to be, pointing out that the product will likely appeal to people who don't already have an iPod.

Ittai added that the ROKR is Motorola's first generation music phone, and that, like other new technologies, it may take awhile to gain traction.

"The next generation of phones to have that functionality will see much more broad adoption," he said, adding that the ROKR's sales figure "is not disappointing by any means. It's a start, and it's a good start, but there is still a long path. Don't forget the RAZR was slow for couple quarters when it came out. Things take time to marinate."

The company is hoping to give that process a shot in the arm, starting with the recent launch of a television ad campaign featuring celebrities such as Madonna.

Now, analysts and investors are focusing on the holiday season, which should give an indication of the phone's popularity with consumers.

"That will be the real test," said CIBC's Kidron.

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Consumers sue Apple over nano: More here.

For more technology news, click here.

Analysts quoted in this story do not own shares of Motorola, and their firms do not have banking ties to the company. Lin does not own shares of Apple, and his firm does not have banking ties to Apple.  Top of page

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