Today's announcement of one million unlocked iPhones (nearly 30% of units), reducing Apple's continuing revenue share with AT&T and massive unsold inventory reveals all is not well. Analysts estimate that for every one million iPhones sold, Apple loses $300M to $400M in future revenue and profit. Convincing overseas carriers to accept a revenue share is now hampered. Witness China Mobile's recent rejection.
The main reason for the failed strategy is Apple's greed. If it had never linked iPhone activation to iTunes and followed AT&T's standard activation procedures, iPhone buyers would have been locked into AT&T's 14 day (30 in California) return policy with a two year contract. During the purchase, AT&T would have also obtained the original IMEI number and buyer information.
Since Apple chose iTunes for activation, hackers immediately jumped in to unlock the device, followed by Apple's ineffective software update to stop them. The product itself, although flawed, is a significant advance in touch screen mobile devices. (Read my review.) But Apple should have followed standard carrier activation procedures until established in the global wireless market.
Update on 2/18/08. I Googled "unlock iphone imei itunes sync 2008" and got over 11,000 hits. iPhone owners who want to unlock are clearly confused about iTunes synchronization, IMEI numbers and software and firmware updates. In addition, while eBay listed 706 unlocked iPhone listings (not including lots) on the day of my first blog post, eBay now has 2,129 unlocked listings and 2,909 total listings (including lots) on 2/18/08. SIM card listings have risen to 61 for the 1.1.2 firmware upgrade only.
2 comments:
Apple may lose $300M-400M on money that would have been theirs if iPhones are used with AT&T. But if iPhones could only be used with AT&T, Apple couldn't have sold many of those ~1M iPhones in the first place, seeing that China has most of those unlocked ones and China does not have any carriers compatible.
You're right, except that wasn't Apple's plan. Jobs and Apple thought they had worldwide carriers in their pocket, since AT&T agreed to the product sale revenue share and continuing monthly revenue stream. Apple is now learning, after consummating the T-Mobile Europe deal, that overseas carriers operate very differently than U.S. carriers.
But the biggest challenge to Apple is market confusion caused by the surge in unlocked phones. I analyzed unsold iPhones on eBay last night and, as expected, found over 350 unlocked and locked iphones that users are ditching for several reasons.
The 16GB units, just now appearing, are cannibalizing the 4GB and 8GB models, plus some sellers--probably more--are trying to get rid of unlocked 1.1.1-1.1.3 firmware units. The honest sellers are telling buyers NOT to sync via iTunes to avoid locking and other problems.
I don't believe Apple ever envisioned the mess they created by bypassing AT&T's activation process.
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