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Apple iPhone – apocalypse today or business strategies

Apple genuinely excites me, no kidding – a manufacturer that not only can come up with new rules of the game and make the users respect them, but also incline its partners to follow them, should have some uncanny talents under its belt. Let’s take a closer look at the recent events surrounding the iPhone and other Apple’s solutions and piece all the facts together.

Late July. Out of nowhere we get to know about an iPhone unlocking technique via multisim cards programming. This is followed by a surge of interest, many start placing orders for the phone, in some cities and even countries SIM-card burners disappear from retail stores, some companies offer their SIM-card duplication services on an official basis. It has been only a month since the sales kicked off, however enthusiasts residing in countries other than the US already can order their iPhones and crack it to use it with local carriers, unofficially of course. No reaction from Apple’s camp yet.

July also sees first third-party applications for the iPhone, and their number increases daily, but, regrettably, not their quality. Over a few months we haven’t seen any really useful applications – all these third-party developers could do are makeshift applications making up for the letdowns in the phone’s default functionality, like the ability to beam music to other devices over Bluetooth.

Late August. Several companies heat up the hype around the iPhone by announcing a soon-to-come software iPhone unlock. However they keep postponing the release dates, but bloggers are thrilled to see the application in work. At the same time, young “hacker”, by pure accident, in a couple of hours figures out how to unlock the iPhone with some soldering and software manipulations. Undoubtedly, his discovery is a hundred percent “accidental”. Do you really believe that a 17-year old boy with no experience or education could hit this one-in-a-million chance? People of my age just don’t buy these things. Nevertheless, this event doesn’t pass unnoticed and the teenager gets his reward: the Nissan 350Z and three new phones. All this – for his own unlocked handset. So the guy is now in the thick of things, he is famous and enjoys the benefits of puzzling his brains for a few hours. This method gets fully documented, so all enthusiasts along with those who just can’t wait any longer, venture to try and meet no obstacles for the most part. However, all iPhones unlocked this way have cracks and other evidence suggesting that they were unassembled and thus are no longer covered by the warranty.

At the same time, an unknown offers 100,000 USD to anyone who can come with free software for unlocking the iPhone. What a twist! Some Robin Hood wants to make everybody happy for no fee, unlike other companies, which actually intend to sell the unlocked devices.

Judged separately from one another, these are all pretty amusing events, however the big picture suggests that somebody really wants third-party companies and certain individuals to bypass the iPhones security and share their methods with others. Apple’s rivals, apparently, are not interested in this, why would they want to boost its sales and market shares anyway. So the only party that can actually gain here is Apple itself. And then the game gets kicked up to a whole new level.

September 1, 2007. iPhoneSIMFree announces that will acquire a hundred percent working iPhone unlocking technique in a couple of days, and enables pre-orders on its official page. Then, the whole community remains electrified for a few days, until “out of nowhere” come other dev teams with similar solutions. Все происходит практически одновременно.

September 5, 2007 – Apple iPhone 8 Gb’s price gets cut down from 599 USD to 399 USD. Right after that the company announces that the 4 Gb edition is being phased out. Apparently, the phone’s first adopters are the opposite of happy with the price cut coming only two months into the sales, and start flooding forums with their complaints and anger. The next day, Steve Jobs himself apologized and offered a hundred-dollar gift certificate to everyone who bought their phones before August 20. With this certificate, its owner can buy something in iTunes, and since the company actually loses nothing by granting these certificates, it is a mere graceful gesture from Apple, that along the way allows everyone involved to have probably first experiencesof purchases in iTunes. Pretty smart.

One of the most important events that take place on this day, is the debut of Apple’s new players, and the one we are interested in is the Apple Touch. On the face of it, it is the Apple iPhone, yet with slimmer profile and a tad cropped. In return for its lack of calling features, the Touch offers 16 Gb of storage – two times better than the iPhones. In contrast to the iPod Classic and the iPod Nano, this device starts shipping later – on September 28.

The market is not pleased with the Apple Touch’s debut and the company’s shares go down. The experts explain this downfall: given this inside rival for the iPhone, its sales for 2008 are now in jeopardy. Over at Apple, however, they claim these products target different price brackets, even though these two have pretty much identical price tags. Apple needs to orchestrate its sales strategy for the Touch in a way to avoid putting it up against the iPhone, and the company succeeds. But, this will be our focus only when the Touch’s sales kick off – on September 28.

On September 5 Apple presents its vision of how the users should upload custom ring tones onto their phones, alongside the new iTunes version. Specifically, to get more tunes onto your iPhone, you need to buy a song from iTunes, and cut a 30-second piece out of it for a fee – 1 buck and 98 cents in sum. And if you already have the track you want to make a ringtone of, then it is only 99 cents.

On September 10, 2007 Apple happily proclaims that the millionth iPhone has just been sold and this is the market’s most successful product. However, the company overlooks all returned phones and the sales of restored units. With these numbers taken account of, the picture changes somewhat, but still remains pretty good. But, there are two questions to be answered – why would they need to cut the price so dramatically and so early, if it is such a wild success? The other question arises in mid October when AT&T reveals the number of activated iPhone contacts in the third quarter. That’s where we come across some surprises, especially given the fact that Apple has never unveiled total sales value in the third quarter and replaced this data with the number of accessories and sold handsets. In my opinion, there will be a huge gap between the figures of these two parties and it will be impossible for Apple to explain how come their data is so different from AT&T’s activation statistics.

The market instantly reacts, and Apple’s shares go up in value, once again, the company is on an upswing. Ahead are sales reports on the new players which will make Apple’s shares soar up.

On September 10, at one time with the release of sales reports, different dev teams announce that unlocking the iPhone takes only a few hours and soon all required applications and tools will be widely available .

On September 11-2 a few applications for unlocking the iPhone pop up – they come with very intuitive interface and are straightforward in operation. Of course they are all free.

On September 18, 2007 they officially announce partnership with O2 in the UK, and set the price fro the iPhone at 269 pounds, taxes included. The tariff indented for the shiny phone offers unlimited data (EDGE) and also WiFi, the user is enabled to choose voice traffic options – 200 (200 SMS prepaid), 600 (500 SMS prepaid), or 1200 minutes (500 SMS prepaid) for 35, 45 and 55 pounds a month respectively.

Give the pound/dollar rate, the iPhone goes in the UK for about 600 USD. Furthermore, T-Mobile subscribers can get a pretty much similar tariff and pay 35 pounds a month for the Nokia N95, which is one step above the iPhone. Apple’s pricing policy is somewhat odd and many experts are quite unenthusiastic about Apple’s prospects in Europe.

All dreams about a 3G device are ruined by the grim reality, as well as all expectations of thoroughly refined devices.

On September 19, 2007 T-Mobile is officially elected as the exclusive iPhone distributor in Germany, with the release date set for November 9, the same date it starts shipping in the UK (O2) and France. The phone will go for 399 Euro, including taxes, plus the users will need to purchase a two-year contract from T-Mobile. They let slip no details on the contract – obviously so as not to shock the audience before the release date.

September 19 - Navizon virtual GPS comes out, which, in theory, should track your phone with the help of WiFi hot spots, this application is US-only. All my attempts to track myself in Sacramento bump into the app’s complete stubbornness, and it “locates” me 500 miles to the east of my real position. All in all, this looks more like an absurd attempt to enhance the iPhone with inaccurate GPS that nobody really needs. For these purposes they will definitely need a hardware solution.

On September 21, 2007 a word comes down that unlocked iPhones are not covered by the warranty, just like all devices having a couple of third-party applications onboard. Apple the official statement reads that Apple cannot connive at software modifications, since there alterations violate the Terms of Agreement. On September 24, they release this with the following: “unauthorized iPhone unlocking programs could cause irreparable damage to iPhone software”.

Overseas users get upset and are not shy of expressing their displeasure, just like the people who run third-party applications on their iPhones in the US. Knowing how robust Apple PR-specialists’ grip on online blogs and other resources is, it comes as no surprise that on September 25, Phil Schiller, senior vice-president of worldwide marketing, says in his interview that the firmware update “has nothing to do with proactively disabling a phone that is unlocked or hacked”. All users get a feeling of euphoria – how can they not, the company closes its eyes to all these “little tricks” of its customers.

On September 27, 2007 the iPhone sees its first major firmware update. A few points of interest here that you should keep in mind to get the big picture. The company has rolled out two similar products in terms of what they do, and it takes no rocket scientist degree to notice that, and on top of that Apple brings in two resembling firmware indexing systems. Obviously, it is nowhere near a “lucky coincidence” when the Apple Touch has the firmware version 1.1.1 and supports the features added to the phone.

The first and the foremost among them is double-press of the Home button, which starts up the player application. Support for iTunes Wi-Fi Music Store. Other enhancements include:

Display adjustment has been made maker-independent – previously there were some complaints about unnatural reproduction of black in videos;
Increased loudspeaker’s volume (software-related)
Disable EDGE/GPRS in roaming (important feature – previously the users were simply wasting money with it);
Landscape view mode for the mail client.

Other items on the change log may be easily overlooked. So, all dreams and hopes that the update will bring along revamped applications or all-round new feature have evaporated. However all unlocked phones have come back to their default locked state. This day is now known as “iPocalypse” for bringing about so much trouble for the owners of unlocked handsets

September 28, the Touch’s sales kick off. Apple Store has a very limited supply of these players, by the lunch time all available players are already gone and the salesman tells me that unlike the iPhone, the Touch is shipped in small lots which disappear from the shelves in no time. The next day, the store gets another bunch of players, which are all sold out in a couple of hours.

And nothing has changed so far, even though the sales have been on a downswing. But the company deliberately makes this gadget hard to get – in this case walk-ins can even go for the iPhone, which boasts pretty much the same feature pack.

Piecing the puzzle together

For such a hyped device like the iPhone, the first few days of sales took the money from the most active and solvent part of the audience – all following days were ought to see smaller numbers, and they actually did. No more queues or “sold out” signs, the device was widely available, unlike the Touch today, which is not surrounded by all this fuss, yet is in fact out of stock in most places during its first week on the market.

So what are the ways for keeping the sales up to par? They are not going down over the first month – obviously, it is the way the market works, when the first month sees the best possible sales. But the downswing will start exactly one month after that. And, what a miracle it is, here comes the first method of using the iPhone in networks other than AT&T’s. New surge of interest, many start buying up, so as to sell the phone outside the US. However the process of programming a SIM-card is not as easy as it looks, that’s why they aren’t too many phones leaked to foreign markets. Nevertheless, the very chance of getting the phone unlocked boosts its sales. And this proves to be just enough to keep the sales on the top for a month. What next?

Late in August, the iPhone once again makes the headlines all thanks to “independent dev teams, working on a software-based unlock”. Different people are doing one and the same thing and every time the release date gets postponed, which comes as no surprise. People are getting excited and anticipating the now-approaching total unlocking technique they start getting more iPhones.

And here goes the price cut, while the promised unlock software is yet to see release. People get aggravated, how could they do this to the early adopters? But in a week’s time the soft-unlock debuts and everyone is happy again, and this is exactly what will spark another surge of interest – the hundred-dollar gift certificates appear to be a well-orchestrated promo-action than something else.

Is AT&T happy about the phones going sideways, and him not getting new subscribes? Obviously not. Can Apple be possibly blamed for all this? How could you even think of this! It is innocent, the stars just went this way, so “independent” developers “suddenly” rolled out own solutions for breaking the iPhone’s defenses. And every time, at the exact moment when some backup is required, the company gets it and keeps the sales on the same level. Just a couple of lucky accidents that the company has nothing to do with.

Nevertheless, the US market is not big enough to allow the company to sell those 10 million units in a year, that’s the reason they are making a foray into Europe, specifically into three major markets where Apple’s products are most popular. This is the place where the road gets bumpy – the carriers are not delighted with widely available iPhones for 430 USD or even less. What do they do now? Right, they need to assure all carriers that all these tricks unlocking their brand-new phones are impossible and the company will punish everyone responsible for this. Then they make a statement on all steps they are going to make, and after that all fans get calmed down with another press-release suggesting that everything is fine. So you pick whichever statement you like, no hard feelings about that. However after the firmware version 1.1.1 all unlocked iPhones end up carrier-dependant again, and all carriers couldn’t be happier with this turn of events. Late in September all iPhones start shipping with this firmware version onboard, and the flow of phones to foreign countries seems to have been shut. But again, a “lucky coincidence” is here to save the day – someone posts detailed guides on how to downgrade your phone’s firmware to the version 1.0.2. Apparently, the iPhone’s story has too many similar “accidents” to it, which keep popping up when Apple needs them to.

Moreover, pay close attention to the fact that while unlocking other phones does away with all bonds tying you down to some particular carrier once and for all, in the case of the iPhone, for some unknown reasons, all unlocking techniques can be countered by the manufacturer himself. In other words, if you have unlocked some Nokia-branded phone, that’s it, you are through, and you can update its firmware as you please, without having to unlock your phone ever again. However the iPhone is different. A brutal blow for the company could be delivered by a true hardware-based unlock, but for this to happen someone has to steal service software from Apple, which doesn’t seem to be possible.

Early in November the iPhone starts shipping in Europe, what does this mean? First, there will be a whole month before the Christmas craze, so they will definitely need to boost the handset’s sales somewhat. This can be done either by cutting the European price down to the US level, but it is the least possible scenario. Probably, there will be another miracle and the iPhone will get cracked again.

A lot can be said to protect Apple, or prove that the company can’t control the situation, and what you have just read is my fantasy alone. However, personally I find the following thing significant – Apple has deliberately driven all contracted phones out of its stores, so now it offers only the hardware. This means that the goal (10 million units sold) will be achieved at any cost, even if the company’s partners, carriers in this particular case, will suffer. Apple alone is responsible for the market of illegal iPhones that has already emerged – if they didn’t make it so affordable, it all would be different. But the maker himself is not interested in making it different – basically, with all these devices not covered by the warranty it couldn’t be any more beautiful, and these phones can really be retailed for only a few coins. iSuppli has already assessed the Apple iPhone’s production costs (assembling included) – they don’t exceed 265 USD, so by selling the phone for 399 USD (no taxes) the maker will never lose money with this solution.

Especially when he has no warranty-related obligations. And the fact that the Touch is not hyped or promoted like its glamorous sibling should come as no surprise either – those who really need it and know exactly what they want will go for the Touch, and everybody else will be better off with iPhones in their pockets, for it is the company’s main focus.

All we have to do is wait for AT&T’s report on the number of activated iPhones in the third quarter – I suppose it will be quite a read.

Eldar Murtazin ([email protected])
Translated by Oleg Kononosov ([email protected])

Published — 24 October 2007

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