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Apple reinvents consumer electronics; iPhone and Apple TV to get better over time with free updates
Thursday, April 26, 2007 - 05:02 PM EST

Apple Store"I'm still reeling from yesterday's conference call with Peter Oppenheimer, CFO of Apple," Carl Howe writes for Blackfriars' Marketing. "He dropped the bombshell in his opening remarks:"

Before I talk about the outlook for the June quarter, I'd like to provide a little more information about our strategy for the iPhone and Apple TV and how we plan to account for them. We believe the iPhone is a revolutionary device that is years ahead of the competition. At Macworld, we demonstrated a number of the iPhone's breakthrough features, including its pioneering multi-touch display and user interface, visual voicemail, desktop class e-mail and web browsing, and of course, the best iPod ever.

We plan to build on this incredible foundation by continuing to develop new software features as well as entirely new applications and incorporate them into the iPhone. Since iPhone customers will likely be our best advocates for the product, we want to get them many of these new features and applications at no additional charge as they become available. Since we will be periodically providing new software features to iPhone customers free of charge, we will use subscription accounting and recognize the revenue and product cost of goods sold associated with iPhone handset sales on a straight line basis over 24 months. So while the cash from iPhone sales will be collected at the time of sale, we will be recording deferred revenue and costs of goods sold on our balance sheet, and amortizing both of them into our earnings on a straight line basis over 24 months. We will continue to expense our iPhone engineering, sales and marketing costs as we incur them. This accounting policy will have no impact on cash flow or the economics of our business.

Apple's proven capability to create innovative software gives us a tremendous competitive advantage in the consumer electronics industry. We are taking this bold step to leverage what we do best. We hope the result will be to surprise and delight our iPhone customers, which should result in happier customers and more customers as we enter this billion unit per year mobile phone market. We also plan to recognize payments from AT&T Cingular as revenue over time, as earned. We will report iPhone results each quarter that will include unit sales, and recognize revenue for iPhones, iPhone accessories and payments from AT&T Cingular.

Similar to iPhone, we plan to periodically provide new software features and enhancements at no charge to our Apple TV customers. We will also recognize the revenue and product cost of goods sold associated with Apple TV on a straight line basis over 24 months. This will be included in the other music-related products and services in the data summary we provide you each quarter. Additionally, we will provide you with a schedule each quarter in our earnings release that indicates the total deferred revenue, including the combined amounts related to the iPhone and Apple TV.


How writes, "Apple just added a whole lot of value to those required two-year Cingular contracts. What Apple just said is that unlike most phone handset makers, this isn't going to be device you re-buy every nine months or so to get the latest model. Based on the information yesterday's earnings call, we predict the iPhone will be a device that gets better every six to twelve months you own it. The same goes for Apple TV too. Others may talk about reinventing consumer electronics; Apple just did it."

"If this is such unimportant news that it gets announced in an earnings call, I can't wait to hear Apple's big announcements this year," Howe writes.

Full article here.

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Apr 26, 07 - 04:18 pm Comment from: GmanMac

iChat coming to iTV, book it. You'll be able to set up 3 and 4 way video chats on a Big HD screen.

That'll be sweet.

Apr 26, 07 - 04:20 pm Comment from: Macaday

He's right of course.

But then anyone using OSX knows that Apple's updates are almost always improvements too.

Apr 26, 07 - 04:23 pm Comment from: CWEB

To all you fence-sitters: Get Off!

Apr 26, 07 - 04:32 pm Comment from: Mr. Peabody

The iPhone is going to rock, and I've already waited too long to get more shares.

Go Apple!

Apr 26, 07 - 04:35 pm Comment from: complainer

Let's just hope that Apple TV has the hardware capability to be upgraded...

Can it support 1080p over its HDMI port? I don't want to look at compression artifacts on my new Sony HDTV.

All of my other complaints are software related: iTunes only, lack of DVR functions, lack of support for USB ATSC tuner. But Apple will probably never enable these functions - must buy iTunes content!

Apr 26, 07 - 04:36 pm Comment from: little man

Next step...

Macs that ship with Leopard could also get free OS updates as long as compatibility allows. We'd never need to buy a new OS from Apple again! I know Apple makes money from selling new boxed OSs, but this could be another major selling point that absolutely no beige box manufacturer could match.

It could happen.

Apr 26, 07 - 04:38 pm Comment from: Cubert

Huh. Seems like my Mac gets better every 2 years when I upgrade the OS. This is totally unlike a PC where every update bogs it down more and more.

At this rate, I will never have to buy a new computer. No wonder Apple's address is Infinite Loop.

LOL

Apr 26, 07 - 04:39 pm Comment from: SirROM

As if I needed any more incentive to buy one of these the day they are available....

I'm excited that Apple puts the customer first and makes their profit on godd 'ol salesmanship, not fooling the customer into paying more for getting less.

That's why I buy Apple products!

MW: people (as in lots of people BEHIND me in line the day the iPhone goes on sale...)

Apr 26, 07 - 04:43 pm Comment from: ken1w

I'm glad we won't have to pay $1.99 every time a new feature is added (as in the MacBook wireless G-to-N upgrade deal). Smart move. Apple should do the same with new Mac purchases (and Mac OS X in-a-box purchases), starting with the Leopard release.

Apr 26, 07 - 04:46 pm Comment from: Jay

I think its interesting that Apple seems to be going thru all this trouble so the iPhone stays ahead of everyone else's features for years but there seems to be no way to address what I see as the biggest reason to want a rev. B or C version: space.

Flash prices haven't been falling as quickly in recent months as in revious years but the long term trend will pick up again and soon 8GB of storage in a phone isn't going to seem like much. For some people its too low right now. I won't be buying an iPhone until it can hold at least half of my 30gigs of music, plus the OS plus a few hundred MB for apps, contacts, calendars, and the photos that I would take with the camera. I understand that not everyone requires as much space as I do and some will happily buy as soon as possible, but one of the oldest axioms of computing is that storage capacities will increase and within a few years you will find yourself wanting more space than you ever thought you could use. Remember, Bill Gates once said he saw no reason why anyone would need more than 367 kilobytes of memory in a computer.

It'll be nice if my first gen iPhone can run OS X 10.8 Thundercat and launch the space shuttle just as well as my friend's third gen iPhone can but what I'll really want is his 128GB of flash memory. I think the first adopters are going to find that in 12 months even with Apple's free new features stratey they will still have a burning desire to buy new models, patially because they want more capacity and paritally because that is the fundamental nature of first adopters. I don't know if Apple is actually trying to change the way that consumer electronics lose their value before their Ebay auctions end or if they are just trying to make it look that way to sway those of us who really want to rush out to buy Rev. A but try to restrain ourselves until B or C. Anyone else have a thoery? something I missed?

Apr 26, 07 - 04:49 pm Comment from: CWEB

I've said it once; I'll say it again, iChat on iPhone. They have the tech to allow the screen to also function as the camera, and all those sensors would certainly make multi-touch a lot easier to implement, yes? I am ready to be surprised and delighted.

...and I can't wait to be lying on the sofa surfing the net on my iPhone via WiFi. Or, on the TV via AppleTV using the iPhone as the UID. Apple, my back thanks you.

BTW: It's Patent App. 20060007222 to which I refer.

Apr 26, 07 - 04:55 pm Comment from: squarepeg

Very smart. They're obviously doing this because they expect the first generation of both products to be, well... sub-par, as most 1st gen Apple products are. Most of us who have had experience buying Apple products know it's best to wait for the 2nd gen release if possible. This move will side-track many complaints about what will likely be initially incomplete development of the iPhone and Apple TV. It certainly makes me rethink my plan to wait to purchase an iPhone.

Apr 26, 07 - 05:19 pm Comment from: DogGone

Hopefully as new apps are added the speed of the unit will not slow down.

Apr 26, 07 - 05:26 pm Comment from: FistOfGod

Well, duh. Name one Apple product that has gotten worse over time.

Apr 26, 07 - 05:32 pm Comment from: mike

Fist: Free is the keyword here.

They want people to brag about the iPhone ON THE PHONE.

Talk about viral marketing.

"This is so cool, I plugged in my iPod today and it loaded up a bunch of neat stuff... cool new ringtones and fun drawing program..weeeh.. you have to see this"

Iono..

Apr 26, 07 - 05:39 pm Comment from: occam's razor

What, you wait for the 2nd gen, sheesh, I'm in the queue on release day in the UK. Oh wait, 5 months in the wild, no probs and 3G to boot. Mamma Mia these little babies are gonna pump up Q1 08. How boring would the world be without Apple?

Apr 26, 07 - 05:51 pm Comment from: PzKpfW

iChat on AppleTV?
You're going to need a camera.

Apr 26, 07 - 06:47 pm Comment from: R

Mike is exactly right. A sweet update here and there and it'll even make it onto the 6 o'clock news.

Apr 26, 07 - 06:48 pm Comment from: TheConfuzed1

I am sooooo getting two of these as soon as they're available!

*drools*

MW: Man, as in, I CAN'T FRIGGIN' WAIT MAN!!!

Apr 26, 07 - 06:59 pm Comment from: TheConfuzed1

Jay--

I'm with you on storage capacity. For that reason, I will keep my 60 GB iPod. Hell, I may even pick up an 80 GB.

I carry my phone and my iPod with me now anyway, so what's the difference? Other than I'll actually have a phone that I want to use.

I loved my phone when I first got it. But the longer I had it, the longer I realized that there isn't a phone available that answers every question.

Due to the capacity limitation, the iPhone isn't that product either, but it will be the closest thing available.

Every time Apple realeases a new iPod, they keep getting slimmer. I don't mind a few extra milimeters though, if the trade-off is more storage or longer battery life.

My answer, although still not as elegant as I would prefer, will be to carry two devices. Hopefully with a later model, that will change.

You're right though, I will be an early adopter, and I will also be right there to unload my unit for whatever comes out next. :D

Apr 26, 07 - 07:01 pm Comment from: Peter

Agreed with Jay.

While, on the software side, you probably won't have to upgrade to get the latest and greatest, the hardware side is a different story. I doubt that the hardware will be conveniently user-upgradable and it may not even be inconveniently upgradeable.

My other concern is that as Apple adds all this cool new stuff, space becomes a premium. As it exists now, the iPhone software takes half-a-gigabyte of your precious flash memory. Add a bunch of applications and you're slipping even further. Of course, that won't be a problem for a rev.2 or rev.3 iPhone.

It's sort of like trying to install Mac OS X 10.4 on a bondi blue iMac. Can it be done? Sure, if you go out and spend money on a DVD drive, up the RAM and hard drive space, etc. etc. But after awhile, you might as well buy a new machine. So, yeah, you'll be able to install iChat AV on your iPhone along with a bunch of other stuff. But suddenly you're not going to have room for a movie, all your photos, and several hours worth of music.

That's when you'll want an iPhone rev.2.

Apr 26, 07 - 07:39 pm Comment from: LinuxGuy and Mac Prodigal Son

Apple is the only cell phone and media center supplier with an OS that contains the stacks needed to support various buses and protocols, coming as it does from a top notch computer OS. The competition uses embedded OSs for their cell phones which have to be hacked to provide new capabilities. Apple is ramming their advantage down their competitors' throats.

Prospective customers will likely feel safe buying the iPhone and Apple TV, knowing that they will be able to get the new models by merely updating their software. This is a big win.

And as for the free upgrades, if I am correct, this form of subscription accounting probably gets past the Sarbanes Oxley restrictions on having to charge for upgrades. That is because the customer is told that he is paying in advance for the upgrades by the subscription contract. Brilliant!

Apr 26, 07 - 07:44 pm Comment from: ChrissyOne

I'm certainly going to pick up a higher capacity iPod, in addition to the phone. I wonder if there will be an HD based widescreen version as a stop-gap until flash memory is up to snuff? I'll probably keep a good deal of music on the iPhone but how many movies will it hold? 2? 3? Not too good for a summer vacation or long plane ride.
But it's really just academic a this point. The iPhone is fully realized as it is, it's just waiting for the supporting technologies to catch up. When someone makes a 160GB flash drive for cheap, then bang- we'll have one. All the other manufacturers haven't even got a decent case design on the drawing board, and Apple has a platform that will have legs for 5 years easily.
Give it a year, flash capacities will jump, prices will fall, batteries will get better, 3G will have enough coverage to warrant the switch, and mobile computing will never be the same. Can't wait!

-c

Apr 26, 07 - 07:49 pm Comment from: ChrissyOne

@ LinuxGuy and Mac Prodigal Son

I KNEW someone was going to bring up Sarbanes Oxley. And you're right, I think, about how they'll get around it.
When the phone is just a screen, it can be anything. ANYTHING. When it has GPS.. can you imagine how cool it will be to get an instant You Are Here Google map? I can think of so many applications, the ones we've been shown only scratch the surface. This is going to be bigger than anything anyone else in the game is even dreaming of.

-c

Apr 26, 07 - 07:55 pm Comment from: Dijonaise

iphone has a cam

why cant it sit there and beam you to your apple tv?

hmmm

Apr 26, 07 - 08:20 pm Comment from: KenC

To the person who wants iChat in their iPhone, of course, everyone wants that, whether it's SIP, VOIP, or Apple's flavor of iChat. Just realize that it's not a technical reason why Apple can't put in iChat from the get-go, it's more likely that ATT/Cingular wouldn't allow it, so as to not cannibalize its data services. However, given time, just like DRM, Steve will break down that wall, and free us consumers from expensive data plans. It'll require ubiquitous free wifi or wimax, but we'll get there, and all these baby steps will get us there. We all have to think strategically, like Steve does.

Apr 26, 07 - 08:23 pm Comment from: mike

why cant it sit there and beam you to your apple tv?
--

You're a putz. iPhone is already an iPod. It can be loaded up with any media when you dock it.

You've just come up with a more complicated way to get content.

Apr 26, 07 - 09:06 pm Comment from: AppleGuy

"Bill Gates once said he saw no reason why anyone would need more than 367 kilobytes of memory in a computer."

Well now, Bill may not have had much foresight into the area of personal computing, but I do believe he knew that computer memory sizes increase by the power of 2. This results in sizes of 1, 2, 4, 8, 16, 32, 64, 128, 256, etc.

No "367".

I believe the actual quote was 64kb.

Apr 26, 07 - 09:30 pm Comment from: bdb

@AppelGuy: Gates actually referred to 640KB -- the upper limit for RAM in DOS. Does anybody else remember all the wanking that had to be done to use the additional 384K of the first megabyte when memory upgrade cards became available? Of course, I still remember when memory upgrades were individual chips that came in a tube. Yikes, I'm getting old.

Apr 26, 07 - 10:12 pm Comment from: AppleGuy

@bdb:

Thanks for the clarification. I love how it illustrates how little foresight he has for the future possibilities.

Apr 26, 07 - 10:21 pm Comment from: Less is More

Seems to me that AT&T;is so pleased with the advance interest in the iPhone and has fallen under Steve's RDF that we might see iChat / VOIP on it sooner than you'd expect. I bet Steve fed them a "sugar-water" line to convince them that it's best to be a pirate leader in technological revolution.

Apr 26, 07 - 10:49 pm Comment from: Darth Avenus

Both hardware devices, iPhone & Apple TV, are the foundation. Apple, Inc. really is still "Apple Computer". It's the OS, stupid. The computer system in each device, as we all know, is some variant of OS X. The free software updates will add value. These devices will integrate seamlessly with the Mac. Apple not just preaches, but practices true convergence in consumer electronics, from the home to the office and on the go. 2007 will be a great year not just for Apple, but for its long-time and future customers!

Apr 27, 07 - 01:55 am Comment from: Toby B.

bdb / AppleGuy,

indeed!

This lack of foresight from Chairman Gates explains why Microsoft is where it is today.

Apr 27, 07 - 01:56 am Comment from: Ace

Jay,
You have accurately described the insatiable appetite of early adopters. The key that you miss in the future success of the iPhone is that there will be plenty of consumers unlike you who don't need more than 8MB to get satisfaction from the iPhone. In fact, there will be a lot more of them than the limited supply of used Rev1's on the resale market can accommodate. Meanwhile, you will find that you have grossly underestimated your greed and by then will want an iPhone with 2TB so that you can carry every file you’ve ever made or copied.

Just relax and enjoy now while you can. You may not even live to Q4.

Apr 27, 07 - 05:36 am Comment from: iPhone Crazy

Apple, bring out your 3G iPhone at the launching date!!!

Apr 27, 07 - 07:47 am Comment from: Wallace the Man

Looking forward to Free updates to a product that is not even out....
the hype is getting too much.

Apr 27, 07 - 07:53 am Comment from: R

I remember my 2G iPod getting more functionality over time. Made me fall in love with that brick all over again. This approach will make average folks love Apple's stuff even more. Then, more switchers will come to the light side.

Treating your customers with respect is a winner.

Apr 27, 07 - 08:09 am Comment from: Big Al

You idiots who say wait for Rev B or C for more memory just don't realize that the iPhone already has between 32 and 64 times the memory of the average cell phone.

While you can never have enough memory, just think about this. These iPhones are Macs. These iPhones are not disposable cell phones. You'll be able to sell them for at least half of what you paid for them when Rev B becomes available. The cost of being an early adopter is not as high as you make it out to be.

If you wait for perfection, you'll never get laid.

Apr 27, 07 - 08:18 am Comment from: Appletvbbs

Free updates for the Apple TV! This is great for the future of the iPhone and ATV!
http://www.appletvbbs.com

Apr 27, 07 - 08:31 am Comment from: Holy Mackerel

AppleGuy :

The Apple IIe had 64K so Bill set the limit (you had to set it somewhere) to ten times that i.e. 640K.

ken1w:
Two things - I reckon the payment of the AirPort Extreme firmware update was to test the legal/accounting waters, to which everyone said Huh?! Secondly, Apple now have it on record that they will be releasing new features (not just bug fixes) over time and spreading the revenue over 2 years. This will hopefully remove any legal threats.

Apr 27, 07 - 09:52 am Comment from: shen

bdb.....

my first RAM upgrade was from 256 to 512. getting old? i am right there with ya.....

Apr 27, 07 - 11:07 am Comment from: iPhone Crazy

On a 3G phone you normally see the caller on your screen.

Apr 27, 07 - 11:14 am Comment from: IPhone Crazy

Can your 3G caller see you when the iPhone's camera is at the back of the iPhone? There should be a camera in front of the iPhone so the caller can see you and you can see the caller. Please enlighten me!

Apr 27, 07 - 02:17 pm Comment from: Crabapple

To less is more; Voip communications are taken care of via Cisco's iphone (remember?). ichat on the other hand maybe a shared concept across Cisco's iphone and Apple's iphone creating a mega network across mobile and broadband connections spanning the entire World! How great is that?

Apr 27, 07 - 02:25 pm Comment from: Crabapple

Sorry, How great would that be? is what I should have said.

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