Motorola's iTunes Phone Gets Closer to Reality

Analysts said the long lag between the initial announcement and the release, which Motorola has said will happen sometime this quarter, may have a lot to do with the disparate cultures of Apple (Nasdaq: AAPL) and Motorola.

Working Together

"My guess is that the relationship between Motorola, Apple and a carrier -- and having to come up with something in harmony -- is what's taking so long," Michael Gartenberg, vice president and research director, Jupiter Media, told MacNewsWorld.

Randy Salzman, managing partner, Tek Elements, said: "My speculation is that at this point it is more an issue of working out the licensing and marketing issues with Apple to allow interaction with iTunes and perhaps to add any additional iTunes functionality that might go along with the phone functions."

Important details remain unknown, making speculation on its eventual performance difficult. Isaac Josephson, analyst, NPD Group, said that until battery life, storage capacity and the device's functionality are made public, it's hard to tell how well it will do in the market.

Analysts agree, however, that Motorola has a good chance to capture a big audience.

"The market has barely started to mature, hobbled by a lack of handsets and an inability to handle the sticky digital rights management issues," David Chamberlain, senior analyst, In-Stat, said. "In Japan, full-song downloads are a significant source of revenue for KDDI's Chaku-uta service, and DoCoMo is starting to offer music downloads on its 3G FOMA network."

"There's definitely going to be a market, and I think it's going to be a successful product," Gartenberg said.

Surveys Reveal Potential

According to an NPD study, 20 percent of digital music buyers also have paid for ringtones, which is nearly four times the rate of the general population.

"This tells me there's a huge crossover population between cell phone users and digital music buyers," Isaacson said.

An In-Stat survey of wireless handset users earlier this year found that 9.4 percent are interested playing music files on their mobile handsets, Chamberlain said.

"These people also were willing to pay extra for a phone that had the capability and were also willing to pay quite a bit for the files themselves. Only half of those wanted to purchase and download the music over the carrier's network," he said.

The analysts agreed that the phone will not replace iPods or steal market share from them, but they will provide a secondary function to those people who always carry a phone but may want a few tunes to go as well.

"I would say that the time is truly ripe for an iTunes phone to capture a big part of this market. Notably, I think we will see convergence," Salzman said. "Much like phones have subsumed the PDA market by including PIM functionality, they might also replace some iPods, while expanding the iPod footprint to a whole new market -- those for whom iPod functionality is secondary, but interesting."