Is Apple Attacking the Mobile Phone Market from the Bottom-Up Even as the iPhone Attacks from the Top-Down?

In case you missed it, Apple recently entered the mobile phone market with the iPhone, an elegant device designed to converge and replace a mobile phone, iPod, and Internet-computing activities such as email and Web surfing, furnishing consumers with a gadget that can basically do anything you will ever need it to do. But how many people actually use all of that functionality? Did they over-shoot consumer needs with a feature-crammed, overpriced, slow-networked techno-bauble or did they create a new device category that fulfills needs that people didn't know they had?

The iPhone fits better in the more sophisticated smartphone market segment and by selling as many as 700,000 units in its first weekend is expected to sell 10 million units in 2008 which could amount to 5% of the market, far more than Apple CEO Steve Jobs stated goal of 1% market share. However, Apple also appears to be hatching plans to launch a cheaper version of the iPhone to compete in the lower-end and much larger handset market segment (dumbphone anyone?) in the fourth quarter that could be on the future of the ultra-slim iPod Nano form factor, according to a JP Morgan report.

A patent filed on July 5 describing a multifunction handheld device with a circular touch pad control, similar to the Nano's scroll wheel led Kevin Chang of JP Morgan to declare, "we believe that the iPod Nano will be converted into a phone because it's probably the only way for Apple to launch a lower end phone without severely cannibalizing iPod Nano." Because most Americans spend no more than $100 on an cell phone, Chang also believes that a lower-priced, Nano-based phone could sell up to 40 million units.

Apple is now attacking the cell phone market from both angles - the top and the bottom. This is putting the squeeze on the middle market for other handset makers such Nokia, Motorola, Palm, RIM, Samsung, LG and Sony-Ericsson. The original iPhone created new market demand by making it easier to use smartphones and changing the  requirements of new smartphones in the minds of buyers. And even as an iPhone Nano could offer a low-priced alternative to customers that were overshot by the existing iPhone, it can be expected that as these two products grow toward the middle of the marketplace, competitors could start to collapse in the middle as Apple attacks the market. That could force cash flow away from previously sustainable business models in the middle by making their products irrelevant to enough buyers that long-time competitors are suddenly faced with unattractive options for remaining in-market.