The iPhone Before the Apple iPhone

3/26/12Follow @allegiscapital

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conferencing features. And the seven-inch, 640 X 480 screen and keyboard allowed users to also send e-mail and surf the Web.

Many of the specs of the first device seem primitive these days. The original iPhone had just one phone line, meaning users couldn’t be on the phone and online at the same time. The phone had only one megabyte of total memory. But it had some features that would impress even today’s power users. For example, because the device lacked a mouse-style cursor pointing devices, the iPhone’s programmers had to develop ingenious ways for users to interact with the information being presented to them on Web pages. For example, whenever a Web page displayed a phone number, the iPhone automatically turned the number into a touch-screen button, meaning the user could dial it just by touching the screen.

InfoGear and CIDCO knew that the iPhone would need an ecosystem of content suppliers, and they were all duly lined up. There was Java technology from Sun Microsystems; maps and the like from RR Donnelley & Sons; movie listings from Hollywood Online; and perhaps most impressive of all, content from Time Inc.’s family of magazines, including People, Time, Money, and Sports Illustrated.

In terms of pricing, InfoGear hardware, of course, would have a price tag. But the iPhone would also require a paid monthly data plan. The price tag of the iPhone was set at $499; the bill of materials dashed all hopes of anything less. There was a separate $19.95 Internet access plan required for the device to be operational. The $499 was then at the low end of next-generation digital consumer technology, which was much more expensive in the early days than many people seem to remember.

The second-generation InfoGear iPhone, ca. 1999

The public got to see the iPhone for the first time in January, 1998, at the huge Consumer Electronics Show in Las Vegas. Reviews were positive. Personal Computer World said it was “an exciting look at the future of telephony integration,” and PC World described it as “a well-designed product” that “smoothly combines phone, Internet, and e-mail access in one small console.” Perhaps most prescient was a trade reviewer who wrote, “As it stands the iPhone is interesting, but what it points to is more important.”

It also quickly began picking up technical honors, such as a Best of Show award for Outstanding Desktop Hardware Product at Fall Internet World ’98, and an Innovations ’98 award from the 1998 CES.

Amid all the accolades, there were some complaints too, only natural for such a new product. One was that the proprietary Web browser and relatively low-power CPU of the iPhone weren’t able to keep up with the some of the latest Web offerings, such as Flash animations. The small keyboard also had critics. While Moore’s Law has taken care of the first problem in modern “smart phones,” the issue of an adequately sized keyboard haunts engineers even today.

The company was still looking for a distribution partner to bring down costs. The company approached all of the Baby Bells—this was before the old AT&T system was effectively reconstituted—but found little interest. It was the same at cable companies.

The iPhone was available online, but sales were unremarkable. For all the good reviews, the product was not achieving break-out status. Meanwhile, the competitive space was starting to heat up. New forms of “Internet appliances” with value propositions similar to the iPhone were beginning to hit the market.

Then, six months into the iPhone’s product life, InfoGear got at unpleasant surprise. The Caller-ID market that was CIDCO’s legacy business had collapsed at an even faster rate that the company had anticipated. In July 1998, it announced that it was no longer profitable, and that as a result, it would be getting out of a number of businesses—including the iPhone Internet appliance market that it just entered. The company said it has shipped 2,600 iPhones during the quarter, far fewer than needed to … Next Page »

Bob Ackerman Jr. Ackerman is the founder and a managing director of Allegis Capital, an early-stage Silicon Valley venture capital firm that invests heavily in cybersecurity. Follow @allegiscapital

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