The blogging world is abuzz at Apple’s new $199 iPhone 3G, with most writers (including Yankee Group) bemoaning the lack of surprises in Steve Jobs Keynote. But my analysis of the press releases that came out after the event actually produced more surprises than I would have expected, including:
- More upfront payments to Apple in exchange for no subscription payments. Based on data released by ATT, Apple will no longer receive a cut in carrier subscription revenue for iPhone 3Gs. For first generation iPhones, that amounted to $10 per iPhone per month, or about $240 over the 2-year contract. Instead, ATT is subsidizing iPhone purchases, presumably paying Apple about the same amount on the day of purchase. So who cares? Well, Apple and ATT investors do: despite charging $10 more per month for the iPhone 3G data service, ATT will take a hit of about $600 million annually over the next two years, all of which presumably will show up on Apple’s balance sheet due to subsidies. Note carefully: this does NOT mean that Apple is discontinuing its accounting for iPhone sales prices over 24 months — it simply means that it isn’t getting monthly payments from the carriers for iPhone 3Gs. By the way, the original iPhone subscription payments will continue for the full two years.
- In-store activation required in the US. Apple pioneered do-it-yourself phone provisioning through iTunes last year. Sadly, ATT has forced Apple to drop this unique feature, now requiring in-store activation of the phone, presumably to ensure that it earns back its iPhone subsidies from subscriptions. This has two significant implications: 1) Apple can no longer sell its phone online through the Apple Store, and 2) anyone waiting in line on July 11 for a phone should expect to wait hours longer as people buying phones each wait 10-12 minutes for in-store activation. This is one of the rare circumstance where Apple has decided to degrade the customer experience to please its carrier partners.
- Multiple carriers in some countries. As Apple pushes forward to deliver the iPhone is 72 countries, it seems to have gotten overly enthusiastic in countries like Portugal, Austria, Switzerland, Italy, and Australia, each of which has gotten not one, but two carriers offering the iPhone. So much for exclusive carrier deals.
- iPod touch is poised for a price cut. With the iPhone cut to $199, iPod touches selling for $299, $399, and $499 seem out of place. While there’s no similar carrier subsidy to reduce these prices, Apple’s not dumb enough to leave them there. Expect a $100 price cut on these products before the back-to-school season.
- Apple’s toe dip into running an iPhone NOC. This was a real sleeper, but an important one for developers. Apple has refused to allow developers to run background applications on the iPhone (understandable given power and stability requirements). Instead, Apple is providing a centralized push application service that can present badges, sounds, and text alerts on any number of phones at the same time. What Apple has actually created here is a poor man’s Blackberry Enterprise Server and Network Operations Center, complete with the associated single point of failure too. It’s too early to know how much developers will embrace this service, but it in essence makes the iPhone a cloud computing client.
- Multi-mode location-based services. Yes, Virginia, the iPhone does support both GPS and photo geotagging. But the dirty secret of GPS is that it doesn’t work in the most common places you use your phone — inside and in the shadows of buildings in cities. But just as the navigations systems built into cars do, the iPhone integrates multiple sources of location information — cell tower triangulation, WiFi network triangulation, and GPS — into its location service. The result: the iPhone’s location services may actually be better and more reliable than those you get from your average Garmin or Tom-Tom personal navigation system, simply because it will work in more places.
The seventh and final observation I’ll make is one that was hiding in plain site during the keynote. Steve Jobs dedicated nearly 40 minutes to third-party software demonstrations during the two-hour keynote. That’s more time than any other topic received. If there’s one thing we know about Jobs’ keynotes is that he doesn’t waste time on things that are unimportant to users. By dedicating nearly 1/3 of the keynote to third-party applications, Jobs served notice that the Apple iPhone is not just a consumer device, but is Apple’s third big developer platform, following the Mac and the iPod. And while it isn’t yet a third of Apple’s revenue, just wait. It will be — and sooner than you think.
Filed under: Anywhere Consumer, Core Transport Network | Comments (11)
Greg
June 10th, 2008 - 12:45 pm
I had also heard that in-addition to the price bump in AT&T’s plan that they will also be making you pay for all SMS messages from now on. So I think Ill wait for Apple to do the right thing and add iChat support. Because SMS chat is just not as good and I hate being charged for some thing that should be free.
Ken MacDougall
June 10th, 2008 - 1:17 pm
‘plain site’
Is that a rather ugly place where a building is being put up?
tobra
June 10th, 2008 - 1:28 pm
And the eights detail:
Instead of implementing new features (e.g. visual voicemail) with the carriers (and getting subscription payments), Apple switched to building them on their own up in the cloud (mobileMe) and charging subscription-payments directly from the customer.
Step
June 10th, 2008 - 1:36 pm
in point 2, is it an assumption that AT&T forced Apple to drop at-home activations? Or did Apple do it willingly for more money?
Doesn’t seem fair to give Apple all the credit for good stuff (as much as I like their products), nor all the blame to At&t ( as much as I dislike them). Can you provide your rationale / proof for laying this solely at At&t’s feet?
(typed on an iPhone)
The Dude
June 10th, 2008 - 2:07 pm
More quality AAPL analysis from Carl. Good read….thanks.
chris
June 10th, 2008 - 2:39 pm
thanks, a very good article
Synthmeister
June 10th, 2008 - 3:10 pm
I would expect that the iPod touch would have the same price points as the iPhone, but with twice the memory, that’s how it was pre-G3 iPhone. Perhaps they will simply drop the 8 Gig model.
Do you have a source for the in-store-activation requirement? That would be a major step backwards.
Michael Larkin
June 10th, 2008 - 3:54 pm
Carefull … you are getting ahead of yourself on some of your points.
Point 1)
So where did you conjure up the figure of $10/month/per subscriber for the current iPhone subscription revenue cut going to Apple? It has not been announced, and speculation has run quite a range for that amount. You need to tell us how you are able to write this with no qualification. Got some insider information? Did someone break their NDA and spill the beans to you?
Point 2)
Would love to see where you got the information that AT&T ‘forced’ Apple to accept in-store activation. I have not read where AT&T ‘forced’ this on Apple, although I am aware that in-store activation is now a requirement to ensure the disintermediation of the unlockers/grey marketeers. So you are sure this was not, for example, Apple’s idea … or that they decided on this action jointly. Do note that if you look at the Apple Store’s web page about the iPhone, at the bottom of the page, it does say that one can order a iPhone 3G from them by calling their toll-free number.
Allow me to copy/paste the exact text: “You can also order from The Apple Store by calling 1-800-MY-APPLE.”
You also start assuming that when the iPhone 3G goes on sale at Apple Stores, and as in-store activation will be a required part of the purchasing experience, that Apple will sit back, take no action, make customers wait much longer and will accept what you further assume to be an intentional customer experience-degradation experience.
Are you an idiot, or just plain stupid?
Hasn’t history taught you that Apple typically goes all-out and often takes extraordinary steps to ensure a successful customer experience? So tell me, on what basis do you make your assumption that Apple will punish its customers come July 11th?
Point 3)
It should be crystal-clear obvious that now as Apple now has dropped its insistence on collecting a part of the operator’s subscription payments, it also has put back onto the bargaining table the lucrative exclusivity arrangement that accompanied the former deal. True, in some markets, there will be exclusive arrangements, in others there will not. But how do you, again, make assumptions that Apple got ‘overly enthusiastic’ in the list of countries you wrote in your article? You assume Apple made a mistake, that they should have been ‘appropriately enthusiastic ‘ perhaps. And your smug statement ’so much for exclusive carrier deals’ seems to be missing a counter-balancing ’so much for shared subscription payments’.
Point 4)
So, we can now all of a sudden assume that Apple will be forced to cut its iPod Touch prices on the basis of the nominal price that it is charging for the iPhone.
I say horsefeathers.
Why don’t you do your readership a favor by explaining that the nominal price of the iPhone does drop, but that AT&T has announced that the contract price for data will rise by $10 per month, and if you made your way through 3rd grade math that could come to somewhere around an additional $240 over the life of the contract, which BY SHEER COINCIDENCE APPROACHES THE NOMINAL SALES PRICE OF THE FIRST GENERATION IPHONE. And on top of that are calling minutes, SMS messaging, etc.
Now, tell me again, how does that impact the price of an iPod Touch?
In most instances, it is never a decision to buy an iPod Touch or an iPhone … the products are hired to do different jobs. And the overall wash in the real cost of the iPhone 3G when taking the AT&T contract into consideration should have ZERO direct affect on the economics of the iPod Touch.
And as such, they are not correlated.
Finally, your Point 5) serves up a faux comparison of Apple and Rim’s hosted service approach in the form of a NOC. Christ, Rim uses it for the one and only application that justifies its existence and is crucial to businesses – email. Apple proposes it for non mission-critical apps that come nowhere near the dependency that Rim’s has on its single-failure-point NOC. Why not show some common sense and balance on that point, too?
Richard
June 10th, 2008 - 4:33 pm
I can’t believe the author is trying to pass off this entry as original thought. This so-called “blog” entry is essentially a cut-and-paste of the information on Gizmodo.com and Engadget.com.
John
June 10th, 2008 - 7:55 pm
You make a great point regarding your seventh observation. The whole ecosystem and AppStore Apple is putting together is more exciting to me than the hardware features, speeds, feeds etc. The cloud MobileMe initiative looks pretty exciting too.
MacMan
June 11th, 2008 - 1:54 am
The iPod touch will NOT drop in price! The iPhone is being subsidized. No one is going to subsidize the iPod touch and Apple is not going to sell it at a loss (duh!).
However, Apple WILL give them (iPod touchs) away for FREE- if you buy a Mac and are a student. This is how they “drop” the price. But don’t expect them to lower the regular retail price of the touch (I’m sure when people ask, they will simply point out that the iPhone really costs $200 + $70/month for 24 months = $1880- quite a lot more expensive than the touch).
