Minority Report: Apple takes a risk with the promised iTunes phone

After years as a traditional computer hardware and software maker, Apple has made a go of selling music players, digital music - and now, apparently, mobile phones and mobile music. Seb Janacek ponders whether Cupertino can extend its winning streak.

It came as a surprise to many that the much-anticipated iTunes phone developed by Apple and Motorola failed to make its debut at the recent Motonow event.

A pair of snazzy Matrix-style sunglasses with an attached Bluetooth earpiece, sure, but no iTunes mobile.

Motorola CEO Ed Zander promised the device was on the way but moved quickly to quell excitement at the start of his keynote.

"We're not going to launch the iTunes phone today. Steve Jobs is not going to jump out of a cake", - although that would have been worth an admission fee - "and we're not going to launch it tomorrow", Zander said.

Despite the phone's no-show, he insisted the device would make an appearance within "66 days".

The iTunes phone was announced last year and is thought to be a Motorola E790 with an integrated iTunes Music Store interface for downloading music on the go. In June, US mobile giant Cingular was reported by Reuters to be the final part of the triumvirate as the US carrier.

The latest word on the grapevine has the device launching at the V Festival on 21 August, with Virgin Mobile acting as the UK carrier for the download service.

There are a number of things about the iTunes phone that don't quite fit, including question marks over song price, licensing arrangements as well as device storage capacities and battery life. In addition, while many are happy to download tracks via a computer broadband connection from the iTunes Music Store (half a billion and counting) the thought of downloading the latest Jamiroquai album over a GPRS or even EDGE connection is somewhat painful (though, arguably, not as painful as actually listening to it). Meanwhile, 3G take-up has been slow.

Possibly the biggest question mark about iTunes on a mobile, though, revolves around the device's interface, given that handset manufacturers and mobile operating system companies have yet to make a truly convincing stab at the convergence of several features on one device.

My mobile phone makes phone calls, takes pictures and short videos, plays MP3s (although I've never tried it), sends emails, organises my calendars and acts as my phone book. Sure, it does all these things but it doesn't really do any of them very well or in an intuitive or groovy way. The proverbial jack of all trades and master of none.

Five years ago you couldn't swing a cat in IT journalistic circles without hitting some analyst harping on about convergence and predicting that in just a few years our mobile phones would be the only gadget we would want, or in fact, need. The problem is that no-one has yet done it well enough to convince us to ditch our other gadgets.

A silicon.com reader survey in April found that nearly three-quarters of respondents regularly carry at least three gadgets about their person, with one in five admitting to carrying at least four.

And a recent US survey found that people are less fussed about having loads of capabilities crammed into modern mobiles and more concerned with good quality calls and half-decent battery life.

Motorola and Apple have committed to delivering their iTunes phone but it's unlikely all these issues will be resolved in one sleek product by the launch. It's also unlikely that product will cause a revolution in how we access music, particularly given the poor usability of Motorola phones. The likelihood is that the first incarnation of the iTunes phone will be, technically speaking, a bit pants.

Not that this really matters, of course, when you consider the stratospheric projections for the revenue growth for mobile content.

According to a recent report by LogicaCMG, the European market for content downloaded to mobile phones alone will treble to around €7.6bn. Meanwhile, wireless industry research company Arc Group has estimated that the global mobile entertainment market will be worth more than $27bn by 2008.

Given Apple's emergence as a media company, it's no surprise it wants to get in on the ground floor to try and catch the early adopters - the 18 to 24 demographic which has grown up on mobile phone technology and has significant disposable income. Collaborating with Motorola gives it a valuable, albeit not immediately lucrative, foothold in a nascent but potentially vast new vertical market - a toe in the water.

But how, one wonders, will Apple make any money off this enterprise? The company famously makes no money off its music sales, so narrow are its margins after the royalties are paid to the music companies, so it's difficult seeing the iTunes phones raking in the profits in the short term.

True, its brand will benefit from being consolidated in an increasingly valuable demographic but with uncertainties over the quality of the current mobile content offering, platform and delivery method, it all sits a little awkwardly over Apple's role as a provider of premium goods and services.

Ultimately, how the adoption of music on mobile phones gathers momentum depends on factors of licensing, cost, network speed and, perhaps above all, on device functionality. Focusing on the latter brings us full circle to the key challenge of device convergence: making many things work together seamlessly.

In the end the truly successful mobile converged device needs to be delivered by a company with a track record of marrying iconic, industrial design with superior usability. Now who would fit that bill?

For Apple to make a go of it, the evolution of the iTunes Music Store must go hand-in-hand with the evolution of the iPod.

The iTunes' content strategy is chugging along nicely and has quickly overcome early hurdles. Through it Apple has galvanised its role as the dominant supplier of online music and a likely move into music videos and possibly movie content seems likely to be complemented by upgrades to the iPod.

The company has successfully evolved the iPod since 2001 without ever losing track of the device's raison d'être.

Apple has added games, PDA features, colour screens and photo-viewing functionality to the device. Video seems likely to be the next step.

Steve Jobs was dismissive of talk of a video iPod last year. Yet, according to reports in the Wall Street Journal, Apple insiders have already indicated that a video iPod is likely to hit the shelves as soon as September. Likewise, the company embraced the podcasting phenomenon, despite early reservations over "Wayne's World" radio.

It's interesting that the company, historically so focused on its own vision of personal technology is now responding to market demand and riding the populist wave with such aplomb.

Apple will have its foothold in the mobile content market with the iTunes Motorola device and it will be in a strong position to take the iPod to the next level.

If the sales of music to the iTunes mobile are promising, don't be surprised to see Apple add wireless features to the iPod or include phone functionality, eliminating the need for a handset partnership. And if the company really chooses to assert its independence it could try and set itself up as a virtual mobile operator, piggy-backing on an existing carrier's network.

All this represents a risk for Apple but it's difficult seeing it remain solely in the content business when margins are so tight. It has demonstrated it's a company that will increasingly respond to market demand. It's also a company that has shown it's willing to take risks and move into new, unexplored markets. And if the projections are to be believed the prize on offer in the mobile music market is enormous.

After all, who would have gambled a little over two years ago that Apple would sit at the forefront of online music sales?