Apple's iFuture Depends on Partners

Against entrenched rivals to its iPhone and iTV offerings, the iconic computer maker will succeed if it nurtures alliances

by Cliff Edwards

It's sometimes easy to forget how momentous 2006 was for Apple Computer. Options backdating scandal aside, the company converted its entire Mac lineup to Intel processors with barely a hiccup, it introduced software to let users run Windows on their new Macs, and it kept sales humming for its hit iPod lineup with evolutionary, if not revolutionary, product updates.

Apple (AAPL) remains king of the kill in digital music and has won a slew of converts to the Mac. But now it must step into a bout with a slew of heavyweights in the digital-home and cellular-phone markets. It's a sure bet that the move out of its comfort zone will be hotly contested every step of the way by the likes of Sony (SNE), Microsoft (MSFT), Samsung, and others.

That's not to say Apple doesn't have its own big guns for the battle. The Cupertino (Calif.) crew has rarely missed a beat in figuring out how to delight the consumer with easy-to-use products. It has a virtual monopoly in digital music players—helping to spawn nearly a multibillion-dollar business in accessories.

Different Terrain

But with the iPod, Apple helped create a new product category from one that barely existed, with few big-name competitors. As it wades further into the digital home and into cellular phones, it faces entrenched players with their own set of rabid fans.

The challenge becomes even more significant because for the first time in years, Apple's continued ascendancy won't rest solely in the hands of Steve Jobs & Co. While the company can help influence the shape of the digital home, phones, and even PCs, those areas require more finesse and a get-along attitude, something that's not been apparent in Apple's DNA over the years.

Success will rely on how well it can forge and maintain relations with key software, content, and retail partners. Here are some of the things it needs to do to succeed in:

Pressure to Measure Up

The most eagerly anticipated announcement of the year, an Apple-branded cell phone, will augur just how well the company can play with others, amid increasing rumbles of discontent from record labels, who believe they've gotten a raw deal with Apple Music Store partnerships.

Breaking the hold of the Gang of Five in the handset business will be no easy task. An Apple-branded phone would go up against an increasing number of devices from the likes of Samsung, Nokia (NOK), Motorola (MOT), Sony Ericsson, and LG that store and play music from subscription music services, cellular operators, and private music collections.

Competitors and analysts believe there could be a big backlash against Apple if the device, which most people expect to be dubbed iPhone, fails to deliver a good, seamless experience.

One big problem could be battery life, a major issue when balancing the power-hungry draws of playing music and making calls against Apple's penchant for making sleek, thin devices that would not support larger batteries. "It takes years to make a good phone," notes Joe Fabris, director of wireless solutions for Palm (PALM), which makes the hit Treo smartphone. "What happens if you're listening to music and you've got to use the phone and all of a sudden you've got no battery power?"

Lowering Expectations?

Apple partnered with Motorola to develop the failed Rokr phone that supports iTunes music. But Apple escaped unscathed from the phone's lackluster sales after essentially letting Motorola take the blame for the Rokr's design drawbacks.