Third Opinion on Dvorak's Second Opinion (Update 2)

John Dvorak argues that Apple should pull the plug on the iPhone in his latest column. He says Apple products work best in emerging or declining markets. For example, the MP3 player:

Then there was the online music distribution business, again unfocused and out-of-control with little marketing and a lot of incompatible technologies. So Apple comes in with a reasonable solution, links it to the heavily promoted iPod and bingo. A winner.

He's got it in reverse. Apple came out with iTunes first, then the iPod. The iPod was Apple's portable solution to the music distribution problem that they solved years before with their Rip-Mix-Burn iTunes software. And I'm not sure the business would be languishing without Apple-- it just wouldn't be as sexy. Sony, Sandisk, and Microsoft have music players, as do a number of phones, and the party's just starting-- Verizon is heavily promoting it's music-playing cellphones, for example.

He argues that the cellphone market is in the process of consolidation, with Nokia, and of all companies, Motorola, being the two leaders. Nokia may be a leader, but it's hardly buying up the competition-- LG, Samsung, Kyocera, RIM, and Palm all have stakes in this game, and they're not going quietly (at least Palm isn't). And Motorola just crashed after announcing lower earnings due to lack of cellphone sales and management departures, and sources say there isn't much advanced R&D for future products either.

He also says the margins are small. This is completely untrue. The reason for the excitement for the iPhone is that people will pay a premium for portable technology that works. If Mr. Dvorak uses a cellphone he would know that most of them have too many features that no one knows how to use, most of which do not do what we want them to-- like tell us how many minutes we have left and what each call is costing us, or get us on the internet without limiting us to a 10x10 pixel view.

What naysayer Dvorak is missing is that the Apple iPhone is a paradigm shift in cellphone architecture-- it's no longer the hardware that will drive sales, but the software. Apple is shipping a blank screen-- what is on it 3 months from now when your average razor-flip-camera-phone becomes unhip depends on the latest software release Apple-- or another third-party vendor--pushes onto it.

Don't mistake the iPhone for just another entree on your provider's menu of products-- it's a whole new menu.