South by Southwest Interactive has turned into SXSW Music. One attendee told me a funny story about watching the revolving door at a downtown hotel as techies were replaced by stereotypical rockers with long hair, beards, and tattoos.
With the exodus of the geeks, I'd imagine that the population of iPhone users in the greater Austin area has declined since AT&T had its widely reported problems over the weekend.
Apparently, there are still too many iPhones in town for AT&T's network to handle the load. On Wednesday, my iPhone was rendered a useless brick for much of the day. I frequently got no data coverage at all, including inside the convention center and several music venues, and several times, I was relegated to AT&T's slower EDGE network instead of the 3G network for which I'm paying close to $100 a month.
I had trouble completing voice calls, and on one, the person on the other end said I was almost incomprehensible because of the warbly modulation. (If you're an iPhone customer, you've probably heard this.) I can't even get the GPS navigation to work, though I don't know if this is related to AT&T or a separate problem.
Regardless, it's not like I'm in the backwoods--Austin's the state capital of Texas, the home of one of the largest universities in the country, and a major tech center.
I imagine that AT&T had to make some concessions to Apple to become the exclusive carrier for the iPhone in the United States, such as not being allowed to sell music through its own store.
In the short run, those concessions have probably paid off, as millions of customers switched from other carriers just to get an iPhone. But unless AT&T steps up its coverage sometime in the next six months, it is going to have a huge wave of cancellations when those two-year contracts end in late 2010.
Here's hoping that the company starts to make good by offering partial refunds to anybody with an iPhone and an SXSW badge.
Meanwhile, I'm sure that Apple's contract with AT&T is coming up for renewal sometime soon. I hope that it takes these complaints to heart.
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It looks like the iPod's still got a bit of life left. It may no longer be the main driver of innovation at Apple, but the company sold 22.7 million iPods during its fiscal first quarter. That's up 3 percent from the same period last year, although a much slower rate of growth than in previous years. Still, it's growth nonetheless. Not only did Apple beat expectations but the results reported Wednesday also marked an all-time quarterly sales record for its iconic MP3 player.
Meanwhile, iPhone sales actually fell from the previous quarter, from 6.9 million to 4.4 million, coming in slightly shy of Wall Street's consensus expectations of 5 million. That's a definite reversal of the "hockey stick" sales trend we saw beginning last quarter.
What's going on here? My theory is that the iPod Touch is cannibalizing some potential iPhone sales. Plenty of users are satisfied with their current cell phone provider, but have read reviews indicting AT&T's cellular network. I've found this to be true in my own case--AT&T's 3G network has spotty coverage around Seattle, and my iPhone drops calls more frequently than my last phone, a RAZR from Verizon, although it's not as bad as the phone I had with T-Mobile until 2006. (I literally threw that one into a garbage can at the hospital, when I couldn't use it to call my family about the birth of my daughter.)
But most of the best things about the iPhone--the touch screen, the App Store, the music interface--are available on the iPod Touch, plus you get full Web access and e-mail when you're within range of an open Wi-Fi network. Better yet, you get more capacity for your music--I'm constantly having to delete apps and albums from my 8GB iPhone, but a 32GB iPod Touch would be enough for my entire digital music collection. Except the darn thing would have cost $200 more than my iPhone.
Actually, scratch that--once you add in the cost of the required AT&T data plan, any iPhone is far more expensive than the $399 32GB iPod Touch.
I reckon a lot of potential iPhone buyers are doing the same calculations and buying an iPod Touch instead. If so, offering a $99 iPhone--as I'm willing to bet Apple will do before the end of 2009--probably won't help sales all that much. Rather, Apple might have to consider changing from AT&T to another partner carrier--Verizon seems to be the least-bad of the big U.S. cellular networks, based on anecdotes I hear from its customers.
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Yesterday, top cellphone maker Nokia announced Ovi, an umbrella brand for a forthcoming set of online services. Among these services is a new Nokia Music Store, which will offer both over-the-air and PC-based downloads, with two-way sync between device and PC. The service will launch in Europe, featuring a catalog of "millions" of tracks. Individual song downloads will cost 1 Euro and full albums 10 Euros. A subscription, PC-tethered, streaming-only service will also be available for 10 Euros per month. (The whiz-bang Flash site introducing Ovi is here. A press release is here.)
The service leverages Nokia's acquisition of Seattle-based Loudeye last August. Loudeye was founded in 1997 by Martin Tobias, an ex-Microsoftie, and created online music stores for third parties, similar to what MediaNet (formerly MusicNet) does. Microsoft cited Loudeye as an important Windows Media partner, although Loudeye also employed other technologies in its stores.
Nokia and Loudeye originally partnered back in 2004 to create an music platform for wireless carriers. Nokia reasoned that as these stores became more common, it would help Nokia sell more expensive multimedia-capable handsets. But while ringtones have been a reasonably good (if rapidly maturing) business, full-song over-the-air downloads haven't really taken off. For example, according to a Jan. 2007 study by Telephia, while 10.5% of U.S. phone users have a music player on their phone, only 8.5% of those users have actually bought a song over the air.
The relatively lackluster performance of carriers' music stores, combined with Apple's entry into the handset business, appears to have spooked Nokia into creating its own music store. But there's a problem here: Apple's brand is so strong, and demand for its phone was so high, that the company was able to extract some concessions from AT&T. In particular, instead of letting users download songs over the air from an AT&T store, Apple requires iPhone users to transfer songs from their computers using iTunes, just like an iPod. (This may change on Sept. 5, although I suspect any over-the-air downloads would come courtesy of a wireless version of iTunes, not an AT&T store.)
Is Nokia's brand as strong as Apple's? I don't think so. Nokia makes some great handsets, but people don't wait in line for days to buy them. In addition, Apple controls its distribution through its Web site and Apple Stores, while Nokia depends mainly on carriers to resell its handsets.
The upshot? Carriers have a lot more leverage over Nokia than over Apple. European wireless carrier Orange has already threatened to boycott handsets that feature the new Nokia store. The dispute is supposedly over "user experience," but I suspect that Orange would simply prefer to keep any profit from music downloads for itself, rather than collecting only data fees.
Who do you think will win this war of wills, the carriers or Nokia? And could Apple face similar resistance as it tries to expand into other markets?
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