• by Laurie Sullivan  @lauriesullivan, October 17, 2007

As Apple's iPhone bridges the gap between entertainment and productivity tools, Palm's Treo and T-Mobile take the hardest hit in lost sales and subscribers, according to a report from the NPD Group.

Initial iPhone buyers were 10 times more likely than other new phone buyers to have previously owned a Treo and three times more likely to have owned a T-Mobile phone, such as the Sidekick. Both the Treo and the Sidekick offer a physical keypad--something the iPhone, with its touch screen, does not. In contrast, those who bought iPhones were no more likely than the average buyer to have previously owned a BlackBerry because Apple's phone lacks the integration with corporate e-mail support that typically runs on Windows.

Alltel and T-Mobile took the biggest hit when it comes to switching carriers. Consumers who switched carriers to AT&T for the iPhone were three times more likely to switch from Alltel or T-Mobile than from other carriers. Sprint and Verizon also lost customers to AT&T--but not nearly as many, because they run on 3G networks, offer over-the-air music, and strong video and data services.

Apple's marketing efforts appear to be effective in getting the message across. Web videos and television spots provided a spotlight on key features and user interface, which is different from other products on the market. After the iPhone went on sale, consumers began to see marketing efforts and advertisements focus less on the technology and more on practical applications, such as utilities.

"You haven't seen Apple compare the iPhone with other phones, similar to the Mac versus PC ads," says Ross Rubin, director of industry analysis at NPD Group. "It's been a big theme with Apple's 'Get a Mac' campaign with John Hodgeman and Justin Long."

Apple spent $175 million on print, television and outdoor media between January and June 2007, according to Nielsen Monitor-Plus, compared with $286 million in 2006 and $150 million in 2005.

Rubin says consumers could see more companies create closer ties with musicians and venues, especially cellular phones and carriers. Apple recently rolled out the ability for anyone with an iPhone running the recent software update to download songs in Starbucks coffee houses.

Those who wander into the local Starbucks and download the 1.1.1 software update to the iPhone can see the song name playing in the store on their phone, and can also access the entire available library at the iTunes Wi-Fi Music Store, which runs as part of the iTunes Music Store.

Tech giants like Microsoft and Nokia have stepped up marketing and promotions related to live music, ranging from up-and-coming artists to well-established bands. On Thursday, for example, the Nokia Theater L.A. Live debuts with Eagles and Dixie Chicks on stage.

NPD's iPhone Report is a top-line view of initial buyers of the iPhone, which provides insight into how Apple's entry into the market is affecting mobile phone product sales among consumers in the U.S. Surveys were received from more than 13,000 consumers who acquired mobile phones within the prior 30 days. Among the group, more than 200 purchased a new iPhone.