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What's Behind the iPhone Success Story?

Apple iPhone
How is it possible for Apple to sell 3.8 million iPhones over the past three months -- generating $1.5 billion in revenue -- during a recession?

The impressive numbers can be attributed to Apple's (NASDAQ: AAPL) streamlined product family, marketing prowess and the sheer sexiness of the iPhone, all of which may be nibbling away at the netbook market, according to analysts.

"Let's face it, the iPhone is iconic, it's cool, it's sexy, it's now, but last week, it was all about the 1 billionth app. They're marketing geniuses, they dominate mindshare for their space in the market," Ramon Llamas, analyst at IDC, told InternetNews.com.

Another factor boosting Apple's continued growth is the company's streamlined family of tech devices, said Llamas. "If you have a Mac, and you want to get a new phone, the question to consumers is 'where do I keep my data now?' If you get an iPhone, you can sync up everything easily, you can move data back and forth," he said.

Netbooks continue to sell well compared to laptops and desktops, but when faced with a limited budget and the choice between a new smartphone or a netbook, consumers are more likely to opt for the mobile phone due to its portability, said Llamas.

"The mindset is you use the phone as a communications and entertainment device. The other extreme is the laptop that more or less stays on the kitchen table. In between is the netbook, but there's not a clear consensus on whether netbooks would replace laptops or replace phones, because the beauty of the phone is it fits in your pocket and you take it everywhere," he said.

Greg Sterling, a senior mobile analyst with Local Mobile Search, agrees. "I don't think it's necessarily a substitute for a netbook, maybe for some, but it's more that people view the mobile phone as the most important piece of technology they can own. It's a crude generalization, but it's true, there's lots of research that backs that up, and that's why people will give up their landline or even Internet access before they give up their mobile phone," Sterling said.

Pricing, namely AT&T (NYSE: T) subsidizing the iPhone, also bolstered sales well into the recession, he said. "When the price goes down from $500 to $200 and you get the 3G improvements too, that's a huge driver, a crucial factor," said Sterling.

But he adds that you have to create something truly eye-catching that's also easy to use to continue sales growth beyond the early adopters.

"As more of the population sees what the iPhone can do, give you Internet on the go, it becomes a transformative device, in the same way the iPod finally brought all the existing pieces of the MP3 universe together in an elegant and very chic fashion, that's what the iPhone is doing. Smartphones have been around for years, but it took Apple to make one that, when a person sees someone else with it on a train say to themselves 'I want one.'"

Still, there are signs that the Apple iPhone may have peaked, though with new versions rumored to be out this summer, that's not necessarily a bad thing.

[cob:Special_Report]Llamas pointed out that iPhone sales numbers are dropping down, with 6.9 million sold in 3Q of 2008, 4.4 million in the fourth quarter of last year and now 3.79 million for the first quarter of this year. "These numbers are great, nothing to shrug at, but it's important to keep Apple's numbers in context. RIM by the end of the quarter ending February 28 moved more than seven million units, but no one is talking about that because Apple has mindshare."

Indeed, in the fourth quarter, RIM shipped roughly 7.8 million devices and for the fiscal year shipped about 26 million handhelds. In addition, RIM added 3.9 million net new BlackBerry subscriber accounts, pushing its full subscriber base to more than 25 million worldwide.

Still, Sterling believes Apple will continue to dominate the headlines with success stories. "It is quite remarkable how well they've done during the recession. Apple is exceptional, they create enormous hype that's impossible to live up to, and yet, they do. It's like standing at the other end of a basketball court and saying, 'I'm going to throw the ball through the hoop' and then doing just that."