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The Cafe Table Effect

People purchase things for all sorts of reasons. One reason, of course, is to impress your friends and potential mates; You want people to know just how “cool” you are.

This, in turn, creates problems for companies that upgrade product lines without offering meaningful visual differentiation from earlier releases.

This excerpt of this post below speaks to how the iPhone might be in trouble.

The problem of the iPhone 3GS is that it fails the cafe table test; can someone tell that you’ve upgraded by looking at it? No. It looks almost exactly the same. Apple is asking you to pay up to $200 extra for minor feature tweaks, when what most people really need to get for that kind of money is a phone that shows to women and men passing by your cafe table, handset ostentatiously displayed, that you are of high status, and possibly worth shagging, or sucking up to.

You laugh? Ask Ed Zander, the man who killed Motorola with the RAZR and its clones. Back in 2005, the RAZR phone was the only one a thinking, style conscious person could possibly buy, at least for a while. It was shocking in its thinness, its style, while retaining the specs of similarly priced, and now suddenly obsolete, thick handsets. They sold 100s of millions of RAZRs, while most mainstream models do well if they rack up 5-20 million units in their lifecycle. Then they made RAZR variants and updates, and cut the price of the RAZR; this didn’t go so well. The unique selling point of the RAZR was its style, the thin thing. The new RAZRs looked more or less like the old RAZRs, had slightly higher specs, but cost $100 to $200 more. There was no point trading up; sales of RAZR remained high, updates like the KRAZR and SCPL never took off. Meantime the competition was catching up; Nokia and Samsung were doing “thin”, but with better specs and pricing. Motorola had to keep cutting price to maintain volumes and scale and cram the channel to keep making its quarters and maintain its stock price, hoping that something would happen to break the vicious circle. But eventually revenues collapsed with ASPs, and sales channels, now stuffed with RAZRs they could no longer sell, swore off Motorola for life. Moto=toasto.

Motorola failed the cafe table test. Now Apple has given up on it as well. I think cost conscious punters are going to buy old iPhone and spurn 3GS. Meantime the opposition are catching up. Android offers at least a similar browsing experience, for cheaper. Samsung’s Omnia HD is a shit smartphone but looks like an iPhone, has touch screen and mega mega pixels on its camera, while the iPhone has only got 3 of them. The Pre has fanboys trembling with anticipation and Palm could sell loads of them if they could actually make any that work. Nokia is still crap at smartphones but is trying, very trying, and has hired a whole bunch of younger Finns to cover the conferences of the earth making noises about social networking. Apps, yes: iPhone has a huge lead. But it’s not even the first innings in that game, and Android has apparently an easier SDK and better developer economics. Eventually every manufacturer is going to carry the key apps that everyone uses, even if Apple may still own the long tail. And more and more of these machines look like iPhones, essentially the same big screen, rounded edges, with a couple of buttons at the bottom.

So Motorola-isation is a clear and present danger for Apple here. This second half of 2009 is going to see the first big battle of well-supported heavyweight smartphones, and I am not sure that Apple has done enough in the 3GS to live up to expectations. They may have lost the ability to surprise. Old 3G iPhone is still better than most of the other machines out there, and at $99 it will sell like hot cakes, but soon it won’t be, and if they can’t migrate users to more expensive units, what are they going to to then? Getting off these operator exclusives could be a start.