iTunes Phone A Flop. Big Returns

As many as six times more customers are returning the Rokr phones than is normal for new handsets, according to American Technology Research analyst Albert Lin,

As many as six times more customers are returning the Rokr phones than is normal for new handsets, according to American Technology Research analyst Albert Lin, who said he talked to distributors, retailers and call center workers at retailers and phone companies which sells the phone. Motorola Chief Executive Officer Ed Zander said he is disappointed with the phone’s marketing and plans to fix it.

Talking to BloombergWe got off to a little bit of a rough start,'' Zander said in an interview after Motorola reported on Oct. 18 that third- quarter profit tripled, driven by more-popular phones such as the Razr.People were looking for an iPod and that’s not what it is. We may have missed the marketing message there.” Zander said that Motorola didn’t make it clear enough that the Rokr stores fewer songs than an iPod. The phone holds 100 songs the iPod Nano, introduced on the same day, holds 1,000 songs and costs about the same as the Motorola phone.

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The Motorola iTunes Phone

The response to the phone blemished an otherwise better- than-expected earnings report from Motorola, the world’s No. 2 mobile-phone maker. There's an overall disappointment with the product,'' said Lin. </P><P>Apple CEO Steve Jobs unveiled the phone early in September 2005 after 15 months in development. Pop singer Madonna joined in the introduction via telecast from London. Madonna is also featured in a television ad for the Rokr. She's crammed into a phone booth with musicians such as Little Richard and an actor portraying Beethoven. She shoutsBiggie! No!” when the late rapper Notorious B.I.G. approaches the booth. As the commercial ends, a voice-over intones, A hundred tunes in your phone, baby.'' Apple, on its Web site, advertises that the firm's iTunes software can link to the phone. The program hascompatibility bugs,” Lin said.

On Apple’s online discussion boards about the Rokr, the longest discussion among more than 70 topics concerned how to synchronize the Rokr with an existing iTunes account on a personal computer. Motorola sold 250,000 iTunes phones in the weeks it was on sale last quarter, or about 83,000 a week. About 6.5 million Razr phones were sold during the entire quarter, or about 500,000 a week. Lin said Rokr’s sales matched estimates, though the high rate of customers returning the phone means it won’t be a superstar product.''The Rokr is performing equal or better to any product launch and I don’t have anything that would corroborate” higher returns, said Alan Buddendeck, a Motorola spokesman.

Mark Siegel, a spokesman for Cingular, the biggest U.S. mobile-phone service provider and the only U.S. carrier sells the iTunes model, said the company is satisfied with the results of the sales.'' Apple spokesman Steve Dowling declined to comment.There’s a difference in the marketplace around the world,” Buddendeck said. The U.S. is very familiar with the iPod and the reviewing audience was unfairly comparing it to the iPod.'' Zander said the Rokr phones are selling better in Europe and Asia.&nbsp; The iTunes phone failed to inspire buyers in the same way as the Razr, Motorola's previous new product, analysts said. The company has sold 12 million Razrs since the introduction last year. The phone accounted for 17 percent of its 38.7 million handsets sold last quarter, Ron Garriques, president of Motorola's mobile-devices unit, said in an interview. Demand for Razr helped Motorola's net income jump to $1.75 billion, or 69 cents a share. Revenue rose 26 percent to $9.42 billion, beating analysts' estimates. </P><P>Zander this year added an all-black Razr. Former Wimbledon champion Maria Sharapova, who endorses Motorola, requested an all-pink version for herself. Zander, 58, plans to sell a similar version to consumers by the end of the year. Motorola shares fell 19 cents to $20.70 at 4 p.m. in New York Stock Exchange composite trading. Apple dropped 48 cents to $55.66 on the Nasdaq Stock Market. The iTunes phone is only one of Motorola's music-focused phones, Zander said. The company next year will roll out a new service dubbed iRadio that will allow subscribers to wirelessly transfer music from a home entertainment system to a cell phone or a car stereo. </P><P>ITunes is a small subset of Motorola’s music strategy,” Lin said. As far as their financial focus, they're much more interested in other devices, and by the end of the year, it's iRadio that's going to be front and center.''&nbsp; Apple has sold more than 600 million songs through its iTunes store and more than 10 million users have iTunes accounts. That's still a big target market, Zander said. Some analysts are skeptical about the company's ability to reach those users. </P><P>Beyond the flash of the iPod name and the newly proud Motorola marketing machine, you’d be hard-pressed to say the Rokr is a good product,” said Paul Sagawa, an analyst with Sanford C. Bernstein & Co. in New York. He rates Motorola shares “market perform” and said he doesn’t own them.