Apple's Interesting Challenge with the Best Buy Deal

Kevin Maney writes: Apple barged its way into the cell phone business and created lust in the wireless marketplace by creating a singular, super-fidelity handset. Stretching further toward the mass market by selling Best Buy stores will create an interesting and potentially dangerous test for Apple.

I've been working on a book, to be published next year by Doubleday, on the trade-offs consumers make between the fidelity (or experience) of something and its convenience (i.e., how easy is it to get and use). The trade-off plays a huge role in business successes and failures. One of the discoveries is that it's almost impossible to offer consumers both high fidelity and high convenience at the same time. Products and services that do best are usually one or the other, while trying to do both muddies the brand message and starts to erode either the fidelity or convenience.

It's important to note that part of the secret to a super-fidelity product is at least a certain amount of exclusiveness. In the case of the iPhone, for instance, it's way cooler to have an iPhone when most people don't than to have an iPhone if everybody does.

So, you probably see where I'm going with this. The iPhone is a great, high-fidelity product in and of itself. But part of its fidelity comes from its unusualness and its cool factor. Apple sold about 5 million iPhones in 2007. This summer, it sold 3 million iPhone 3Gs in just its first month on the market. Meanwhile, the price keeps dropping, which makes the iPhone more available -- and at the same time, more pedestrian. Selling the phones at retail outlets like Best Buy instead of just at Apple Stores will contribute to that trend. At what point will the iPhone no longer seem so cool? (This is pretty much what happened to Motorola's RAZR.)

Apple, it seems, is at a strategic crossroads with the iPhone. It can pull up short now, continue to pump R&D into making the iPhone the industry's premium product, keep prices high and availability low, and maintain a solid niche market of fanatical owners. Or it can drive the iPhone down into the mass market -- a la the iPod -- and create a brand new top-end, super-fidelity handset that holds onto coolness/exclusivity. That is, IF it can. Not easy to do.

If Apple simply pushes the iPhone into the mass market, it will be a temporary victory. As the RAZR showed, sales will take off like a rocket as the price drops -- until a point comes when consumers see the product as run-of-the-mill, margins shrink, and prices can't fall any further. Sales suddenly fall off a cliff, and the brand is all but dead.

Can't wait to watch Apple and see.

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