iPhone Economics

I've been an Apple fanboy before the term was coined.  I even defended Apple back in the mid 90's when they truely sucked.  I've justified their weird early iMac designs (the desk pimple with the flat screen was a little weird...) I have two of my own Macs and I convinced my wife to make the switch last year.  I love their iPods and I wait with baited breath for the next keynote when Our Father Steve will show us the future again.  

We've entered a plateau of sorts in the computer world.  Hardware and software and matured enough that a normal user's load does not bog down a computer so much that it becomes unusable.  Ten years ago I would have restarted my computer three times a day just between writing papers and surfing the web.  Firing up Soundjam (iTunes grandfather) may lead to noticeable lag.  Just yesterday I was doing all those things plus a variety of others on one machine and it never once paused.  

So now mobile is where things are maturing, and because we don't have to start from scratch, it's catching up very quickly to Desktop computing.  It's also where everyone is looking for growth, and we can see the major players (Windows, Apple, Google) all trying to own a piece of it.  

Now, the iPhone is a beautiful device.  Like the iPod before it, it oozes sexiness and functionality.  

But do I need one?

I have plenty of friends and co-workers that have them, and they talk about them a lot.  Like most Apple fans, they are always trying to convert me.  I use a Motorola QM9.  It runs Windows Mobile 6, keeps me constantly connected to work and personal email accounts, and has a browser with which I can check the news quickly.  It's not sexy, it has no touch screen, and the battery life isn't great.  It keeps me connected as well as I would need it to.  From a practical standpoint, it's doing everything I need.  The functionality that would be added by the iPhone would be a slick interface and access to lots of applications, most of which, from what I've seen, are toys.  To use the ever-useful car analogy:  I'm driving a Carola and my friends have a Lamborghini.

So now let's talk about cost.  I got my device for free, and with my 20% Verizon discount through work, my bill is about $85 a month.  My friend Tim's AT&T contract for his iPhone comes to $95 a month, assuming no overages.  We can see I'm saving $10 a month.  Both of us have two year contracts, so over the term I'm saving $240 right there.

Then there is the cost of the equipment.  My phone was essentially free after rebates.  The iPhone is going to run me at least $200 if not $400, so now we're looking at an overall savings of $440 to $640 over two years.  I'm sure this is worth it to some people.

Let's take it a step further-  Let's imagine that Tim and I are both up for new contracts tomorrow.  Tim goes for his iPhone and I get my Motorola Q.  I'm going to skip the part where Tim needs to also purchase the MobileMe package for $99 a year to have the same sorts of syncing functionality I enjoy.  I take the money that I would save upfront (we'll use the larger amount because I'd probably want the extra space) and I'm going to buy something else Apple- stock.  

Right now Apple stock is arguably undervalued even in this economy.  Yes, they make electronics and consumer spending is way down these days, but they are a top notch brand, and are not going away any time soon.  Their stock is a great buy right now.  

If I take that $640 that I'm saving, I can buy 6 shares of Apple at today's prices (quotes today are in the $100 range).  Now, I'm taking a bit of a bet here, but if the economy does recover, that stock is going to return to where it was before the crash in the $180 range.  Assuming that it gets back up there in two years, I've made abuot $80 a share, or $480.  This is while I'm still keeping my phone that, from a usefulness perspective, is doing the same things the iPhone can do.

Now, Apple's computers are, at first glance, more expensive than PCs.  However, their overall lifespan is greater in my opinion.  I've had my iMac for just shy of two years now, and I've never needed to re-format my hard drive, and I have little to no performance issues.  I plan on keeping it for at least another year as well.  Now, a PC from two years ago would be looking a little sore these days, and I'd probably have put in more maintenance hours as well.  Then there's also the superior software suite (iLife) on the Mac that needs to be considered.

Apple, I do love you, and I love your phone, but damnit, I don't see what I'm getting for the extra money in the case of your phone.

Online Video's future

Hollywood is putting content online in various formats. You have NetFlix, where subscribers can stream movies and TV without ads, The Networks all allow streaming access to shows, but with one commercial per break (though ABC is trying for more), there is Hulu, a venture between NBC and FOX to put their shows online in one central place, and you can purchase shows on a per-episode basis from iTunes. I'm not going to go into the details here, but each approach has it's ups and downs.

Now, I should mention here that I don't own a TV at all. I have a 24" iMac that sits in my small Brooklyn living room that I use as the primary source of my entertainment. The quality of most streaming sites (ABC.com's HD streams in particular) is very watchable full screen, and the audio quality is also descent.

One of the biggest driving factors in a new digital technology is always ease of use. This is why the iPod caught on, and it's why Google dominates search- people can navigate them both with ease. For any streaming site to really dominate and grab viewers (and therefore higher CPMs from Advertisers) they need to have an easy to use interface, lots of diverse content, and an Ad model that isn't intrusive.

Hulu is probably in the best place for growth moving forward. It's simple, clean interface makes it easy to bring up a video -selecting an episode of any show can be done in as little as three clicks. You can have your own que of shows to watch, and the option to embed clips. All in all, it's a well thought out site, with a balance between content control for the networks and availability for viewers. My one complaint is the constant pulling of some shows- For example at one point several seasons of The Office was availalbe, only to be pulled back to three or four episodes as of late. For Hulu to become the market leader (and at this point I don't think there is one) it will need to reliably make all content available for shows that it carries.

Mobile is never going to be big for video until wireless streaming gets to a speed similar to what we're accustomed to with broadcast TV, and I would imagine that the devices would be similar to satelite radio, where you have a smaller unit that plugs into larger devices. There's also a saftey issue that comes into play here- lately there's been news about how texting while driving / walking causes accidents, and the risk would be greater with video. Mobile Video just isn't going to catch on the way that say audio podcasts have.

I give it about three years before things start to solidify in this sector.