What the iPhone and Playstation have in Common

There's wrong, and then there's WRONG.

Note, I'm pulling a story out of ancient history for this post (ancient history = 6 years ago in this case). This is not hot off the presses, like some of the stories I post on my security blog. This one is all posterity.

There are industry analysts, and then there are writers that pretend to be. In case you are afraid you're confusing the two, here's an older example to help you spot the difference.

Apple should pull the plug on the iPhone <-- NOT an analyst.

Now, it is easy to point and laugh now that the iPhone is the best selling single model of smartphone on the planet, but consider what we knew then.

Don't Sell These, Apple! You'll be sorry!

Those of us that had closely watched Apple's rise from the ashes of the mid-nineties knew better. Mr. Dvorak should have also. Back when 3rd party licensing diluted the brand, and a lack of vision was dragging the company and its products into obscurity, the Newton and its' small but loyal following were the only ray of hope in those days.

Steve Jobs came back in 1997, and the company's transformation occurred almost overnight, in relative terms. By 2006, when this article was posted, Apple had already returned to profitability, and most importantly, had already stepped outside the personal computer. They had sold almost 100 million iPods by this point.

During the Chicago Bulls' 90's winning streak, did Phil put Jordan on the bench because he had a crazy plan or idea? Right.

Was it so hard to see in 2006 that the iPhone was a small step away from an iPod? Sure, the iPod hit the scene in the infancy of the portable music player industry, and Dvorak's argument is that the phone/smartphone markets were already crowded. His argument focuses on Apple's ability to make profit on hardware. The business model he (and others) failed to see had already succeeded in the video game console industry.

Gamble, or sure thing?
We know the truth now, but back then...

Starting with the Playstation 2 in 2000, Sony took a risk in selling advanced gaming hardware at a loss. In other words, it cost Sony more to build a PS2 than they sold it for. This was a calculated risk, based on the knowledge that licensing fees from game developers should help make up the difference, and that the market price of components would quickly drop over the next year or two. Sony again made this gamble with the PS3, with some estimates setting the manufacturing cost at over $1000 per unit that sold for $600 apiece. This was less of a gamble, as the PS2 was an enormous hit, and after 12 years, is still on the retail market. That's incredible staying power for an electronic device in this age. The truth of the matter is that, if the product is successful, profit will be made on software and hardware for the majority of the device's lifecycle. Sony has been making profits on every PS2 and PS3 made for years now. Apple makes hundreds of dollars on every iPhone sold, on top of 30% of every app sold.

Apple was making the same "gamble". It wasn't a gamble though - Apple already knew it had a healthy fire burning, and the iPhone was a near-guarantee to stoke the blaze higher than ever before. At the time of Dvorak's article, it wasn't yet clear that Apple was banking on the iPhone's App Store (again, software, not hardware) being the big money maker. What we did know at this time was that Apple could do no wrong. Their product ideas, with the exception of the cube, had all been successful, and their one non-PC gamble was the most successful of all. There was every reason to expect another non-PC revolution with the iPhone. With the media player market already in the bag, Apple knew what they were doing, knew how to make a mobile device, and knew how to sell it.

And they did. Sorry, John.

UPDATE: A pre-iPhone release Bloomberg story has been making the rounds. Its author comes to similar conclusions to Dvorak's, though for different reasons.