Apple's Dangerous Contempt

This column was originally published on RealMoney on Jan. 17 at 7:15 a.m. ET. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Much has been said about Apple's (AAPL Quote) first phone -- most of it tainted with feverish hyperbole.

But a week after the grand announcement, it is striking how limited the device seems at a second glance. The iPhone's willful disregard of the global handset market will come back to haunt Apple.

Glory Days

Many highly successful people and companies stumble when they try to relive past glories in a radically different environment. Half a decade ago, the digital music player market was a hot mess. Consumers had rejected a string of early entries until Apple stepped in and both created and defined a new market with the totally different iPod.

Last week, Steve Jobs seemed to attempt to recapture those glory days during his unveiling of the Apple phone. He suggested that consumers are confused by or disinterested in the smart-phone market, and Apple will now step in to save the day.

The company's first phone design has undoubtedly been shaped by how little Jobs thinks of the phone manufacturers: The device is defiantly out of step with the existing smart-phone market, which, incidentally, is wildly more successful than the iPod on a global scale.

However, the smart-phone market of 2007 sure isn't the MP3-player market of 2001. Outside of America, consumers are anything but disinterested in smart-phones: This year, the market will top 100 million devices sold worldwide, and it has evolved at a feverish pace over the past 12 months. The new phenomenon of smart-phones priced below $300 without subsidies has enabled operators in Europe and Asia to offer the devices for free with relatively cheap annual contracts.

While the price revolution of 2006 redefined the smart-phone market in Europe and Asia, several major markets have simultaneously made a decisive transition to 3G. Practically every new smart-phone features third-generation technology, and operators have all but stopped subsidizing high-end phones that do not support 3G. Instead, subsidies in Europe and Asia are geared toward phones with keypads (so people will send as many text messages as possible) and two cameras (so that they'll engage in video calls).