Apple 3G iPhone Impending Profit Loss for Mobile Carriers

AT&T will now subsidize the 3G iPhone, paying Apple $200 for each 8GB model, but AT&T and other carriers will no longer pay Apple a share of revenue, Apple's original profit estimate will drop.


If the unlocking contnues, as expected, AT&T's expected revenues and profits from the device will also drop. But international carriers will face the largest profit loss as millions of their customers purchase unlocked iPhones and multiple SIM's for use outside each carrier's service area. The full story on MarketingVisions.

iPhone Sales on eBay USA

MTM reported on Apple's iPhone marketing challenges recently--specifically, the number of unlocked iPhones for sale on eBay USA. Today, I reviewed iPhone sales developments on eBay USA and discovered some interesting stats:

• As of February 16, 2008, there are 3,627 iPhones for sale (auctions and Buy It Now)
  
  
• Of the 3,627, 1,154 are locked to AT&T and other Apple approved carriers and 2,473 (68%) are unlocked. 702 unlocked iPhones were for sale during my last count.
  
  
• Looking at the most recent completed sales (I used averages from the first three listing pages)
  
  
• 65% of all iPhones sold while 35% did not.
• 67% of all unlocked iPhones sold; 33% did not

Observations:

• The 16GB iPhones have hit eBay, potentially lowering the closing prices of 8GB models.
  
  
• Over a third of all iPhones don't sell on eBay with the first listing, whether locked or unlocked, forcing sellers to re-list. iPhone buyers may also be waiting for the 16GB model or purchasing their iPhones through authorized channels.
  
  
• The number of unlocked iPhones is skyrocketing rapidly.
  
  
• More than a third of all iPhones listed on eBay are used, possibly revealing product dissatisfaction.
  
  
• Only a few sellers are engaged in large lot sales of 50+, but a growing number of sellers are offering up to 5 units, the maximum number obtainable from an Apple store in a single visit.
  
  
• Buyers who purchase unlocked phones are willing to pay a premium of $100 or more rather than use unlocking services. Most unlocking service listings I counted did not sell.
  
  

As Apple seeks additional international carriers to market iPhones, its marketers need to better understand the gray market for distribution of this mobile device.

iPhone Failed Marketing Strategy: Unlocked Devices and Apple Greed

Apple entered the mobile phone business without any experience and now it's paying the price. In a previous post on Mobile Telephony Innovations: "Google Rises, Apple Falls--Poor iPhone Marketing Strategies, I summarized Apple's deal with AT&T, price reductions, Google's Android initiative with the Open Handset Alliance and sales of iPhones on eBay.

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.