If you’re a bit of a tech geek like me, you are probably checking in on the Apple v Samsung drama from time to time. Some interesting accusations and facts have come out, but one in particular caught my eye this morning.
What does Apple really charge carriers for the iPhone?
Thanks to documents released Friday, we have a pretty good idea.
For those of us who grew up during the peak of the Nokia/Sony Ericsson/Motorola days, remember when mobile carriers introduced the “free phone” concept? There was a period where quality service was expected, and carriers differentiated with their devices and associated marketing campaigns. That’s how AT&T scored the iPhone exclusively…at the time, even though Apple was a bit of an anomaly, as a whole the carriers called the shots. It was normal for carriers and device manufacturers to cozy up and work together exclusively.
Wow, how times have changed in just a few short years. Device manufacturers now rule the yard, as it’s their product that interacts directly with the customer…the service is a commodity, it’s the device that creates the relationship and maintains loyalty (quick plug for the power of the consumer!!!) Mobile plan costs have skyrocketed 2x and 3x from past pricing. The carriers claim its the advent of the smartphone and the need to invest in the bleeding edge technology that these devices require, and consumers expect.
Today, you sign up for new service via your preferred carrier, be it VZW, AT&T, Sprint, etc. you typically pay $199 for your shiny new iPhone. If you’re used to FREE, well, $199 can be tough to swallow. After all, those evil carriers are charging us $100-$200 a month, can’t they hook us up with a freebie device? Well, yes, if you’re willing to use the modern day version of the Startac. If you want that iPhone, pony up!
However, while the iPhone has literally changed the face of multiple industries, impacting our lives in many ways…who is footing the bill? Ultimately it’s us, but taking a look at their sales figures, there is more to it than that.
How much do you think VZW, for example pays for that iPhone?
Yes, Mobile carriers take, on average, a nearly $400 hit every single time a customer signs up for their service and chooses Apple’s one button wonder. Furthermore, if you look at costs over time, they are increasing steadily.
2007 (the iPhone is introduced) – $428 average revenue per device
2010 – $563 average revenue per device
2012 – $621 average revenue per device
These numbers raise a few observations and of course many questions. Before we draw conclusions, we need to point out some variables here:
– Firstly, there is no way to distinguish between the people who paid the $200 intro price, versus the $650 non-upgrade price either via Apple directly, or a carrier. So while the price per device numbers are direct from Apple, we can’t tell for sure how many devices were sold directly to consumers without a plan which would impact the overall profit loss carriers have experienced. Go conservative and cut it in half if you want, it’s still startling.
– Second, Apple still sells older iPhones at a discount. So in reality, if we are talking strictly their latest 4S model, the average cost per unit is actually HIGHER than what is above.
– Finally, Apple’s sales claims are quite contradictory. In 2011 Jobs claimed Apple had sold its 100 millionth iPhone. In 2012 analyst estimates were around 250m units sold worldwide. Per recent court filings, that number is approaching 100m iPhones sold…what number is correct? We will use the 100m number to be conservative.
OK, on to the commentary and analysis:
– Kudos to Apple for turning an industry upside down and completely changing the way their
partners think…and doing it by delivering what customers want, before we know we want it. This has ushered in a whole new era of customer focused companies who create the path forward versus simply copying others. Last night a friend of mine mentioned the new Sony Ericsson phone that “looks like a Droid 1.” If you aren’t innovating and driving consumer demand, you are the punchline. Companies have been dong this successfully for years, but Apple deserves their credit for recent contributions.
– Assuming 100m iPhones sold, at an average ~$400 loss…over the last 5 years mobile carriers have experienced nearly $40 BILLION in losses via iPhone pricing. That is one hell of a commitment to this technology and this device.
– For comparison purposes, in 2012 Samsung received $316 per device (Galaxy S2). That results in a much more cost effective proposition for carriers. Another testament to Apple that carriers actively market more profitable devices, yet consumers still choose Apple more than half the time versus dozens of other options.
– I would love to see someone do an analysis/chart of the major carriers’ R&D investment over this same time period. Has it truly risen parallel to the cost of service plans? Furthermore, how has profit risen/fallen over that same time period?
– Clearly the carriers feel this whole situation, at a minimum, is egregiously acceptable, or they wouldn’t be scrambling to get in on the action. However the trend here just isn’t sustainable long term. Something has to give. Plan prices obviously are increasing (and now we see a big reason why), one has to imagine Apple will continue increasing their prices as their own R&D costs increase. They are facing more legitimate competition than ever. I’m no Tim Cook, but I would venture to guess their strategy is to do what they have always done, but do it better, and faster. Well, for you automotive gearheads out there, you know the old adage – “cheap, reliable, fast – pick two”? Yep. There is also that little commitment they have to shareholders to grow profitability quarter over quarter.
My guess? Price hikes are coming…with regards to your plans…and your device. Carriers have to draw the line somewhere. If the iPhone 5 is released and Apple expects carriers to take a $500+ hit again and again…what will they do? My guess is charge the consumer more…maybe a $249 price point for the device, and some iPhone feature-specific pricing, if things get really hairy.
After all, someone has to pay for it 🙂