Switched On: iPhone 3GS is fine, young, but not a cannibal

Ross Rubin (@rossrubin) contributes Switched On, a column about consumer technology.

At least since the advent of the first camera phones, people have been wondering whether the cell phone would limit the opportunity for all kinds of other products, particularly portable electronics. Even the more pedestrian features of basic cell phones have been blamed for the declines in (or at least limiting the market for) pagers, Family Radio Service (FRS) radios, and even watches. And beyond portable electronics, cordless phones have also been in a state of decline for years as more consumers cut the cord.

But the iPhone 3GS has renewed the old debate for a number of reasons, including data that shows that iPhone users are disproportionately inclined to use their phone's advanced features and changes in the hardware and software that improve the digital camera, add video capture, and open the door to in-vehicle turn-by-turn navigation. TomTom, which has returned to its roots by demonstrating navigation software for the third-party hardware of the original iPhone 3G, can now offer that software through Apple's App Store. So, will the iPhone shutter Canon, run Garmin off the road, or make Flip flop? Thankfully, for the sake of all wishing to avoid reading headlines containing these atrocious puns, not for the foreseeable future, at least in the U.S.

First, there are demographic factors, including income, that are affected by the iPhone's data plan. The core function of most products that have succumbed to cell phone cannibalization can be served by even basic prepaid cell phones. In contrast, the iPhone as an in-vehicle navigation device requires the purchase of a significant data plan (plus a turn-by-turn navigation app). Dedicated PNDs, though, have traditionally featured their lack of required subscription as a selling point (one reason why high-end two-way systems have struggled). Feature trade-offs can also come into play. The easy access to YouTube uploading that the iPhone 3GS offers is not compelling to a lot of the simplicity-seeking parents and grandparents that have been an important part of the Flip customer base.

These folks aren't using Qik to livestream the next press conference at which Facebook revises its Terms of Service.

Second, there are distribution factors. While they have lost some of their holiday luster with increasing household penetration especially during the economic downturn, digital cameras, MP3 players, PNDs, and Flip digital video cameras have all enjoyed strong sales during the holiday season as popular gift categories in retail stores. The iPhone also sees a bump during the the holiday, but a much smaller one by comparison since contracts make cell phone sales less seasonal. The conflict between the iPhone's product and service was seen recently as users protested AT&T's upgrade pricing, which is designed around a two-year contract commitment and is at odds with the annual upgrade cycle that Apple has so far been on with the iPhone.

Both of these factors could well be in for disruption if Apple incorporates features such as GPS and video capture found in the iPhone in its next iPod touch, a product that reminds us that there is a good business to be had selling to customers of carriers other than AT&T. With all the doomsday talk for cheap camcorders and PNDs, the iPod touch has paradoxically avoided speculation as an endangered product even though it is the product that now has the most direct, and now widened, price-value gap with the iPhone 3G. And yet, the iPod touch has still sold very strongly. Those who think that the iPhone will simply lay waste to competitive electronics should look to Apple itself for a vote to the contrary.

Ross Rubin is director of industry analysis for consumer technology at market research and analysis firm The NPD Group. Views expressed in Switched On are his own.