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iTunes Phones Disappoint With High Return Rates

By Keith Regan MacNewsWorld ECT News Network
Oct 24, 2005 10:01 AM PT

The highly touted iTunes phone from Motorola and Apple is being returned at a much higher rate than is typical for new mobile phone handsets, leading some to speculate that Apple may have a rare iTunes-related flop on its hands.

iTunes Phones Disappoint With High Return Rates

The Rokr phones, jointly marketed and built by Apple and Motorola, are being returned at six times the rate of typical mobile phone handsets, American Technology Research analyst Albert Lin reported after talking to distributors, retailers and call center workers at Cingular Wireless, which is the only U.S. carrier licensed to sell the phone.

In its earnings report last week, Motorola said it sold about 250,000 iTunes phones in the last several weeks of the quarter, or about 83,000 a week. By comparison, Motorola sells about 500,000 of its Razr phones weekly.

The iTunes phone sales were about what was expected, but high return rates may spell trouble for the phone, especially since many Apple products benefit from positive word of mouth and viral marketing.

Motorola believes the problem may lie in the marketing of the phone, with users expecting to get a device that has the storage capacity of the iPod. The Rokr phones will hold just 100 songs, a fraction of the number most stand-alone iPod devices will hold.

New Wrinkle

Apple has had reported troubles with returned items and unhappy customers in the past, and is now said to be facing potential lawsuits from unhappy buyers of the new iPod nano, with customers saying the screens scratch too easily. But most past problems have been minor blips on the radar screen, with otherwise clear sailing for several straight quarters as Apple has rolled out a number of hit devices, from the original iPod to the iPod mini and the new nano and taken control of the market for digital music delivered over the Internet.

In fact, the timing of the Rokr phone launch may be one problem, say analysts. The Rokr and the nano were released at the same time and cost about the same, with both retailing for around US$250 -- but the Rokr also requires a 2-year Cingular contract. And the Rokr isn't as sleek or fashionable as the Razr phones from Motorola or the iPod nano.

With many of the target market for the phones already owning a mobile phone, the argument in favor of upgrading to the Rokr may be proving a hard sell. Audio quality has also been a question that some users of the Rokr -- and other combination MP3/phones -- have had.

Apple fanatics may also be more eager to get their hands on new video-capable iPods as well.

Apple was not available to comment immediately on the reports. A Motorola spokesman said the phone is one of the company's better performing product launches in recent years.

Back to the Drawing Board?

Building the iPod into a phone is seen by many analysts as a necessary competitive move for Apple. Many other handset makers have launched or soon will launch phones that double as music players, some offering both downloadable song playback as well as streaming music capability. For instance, Sprint has teamed with RealNetworks on a music phone.

Following its earnings release, Motorola's CEO said the phone is a strong product but one that may need an improved marketing campaign, one that helps distinguish it from iPods and emphasizes the all-in-one convenience.

The Rokr had been on the drawing board longer than expected, with the launch delayed several months by the two companies.

Ovum analyst Roger Entner said the phone seemed to offer promise when it was launched, since it incorporated many of the sleek, effective design features of the Apple iPod.

He said the one drawback appeared to be the inability to download songs directly over the air, but that was unlikely to be a reason for users to return the phone once they had bought it. "Apple rolls out enough products that users have to make choices about which ones they're going to focus on," he added.

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