Thursday, May 24, 2007

AT&T puts one over on Apple

If the reports in this week’s USA Today are true, Apple has made an incredible strategic blunder on its iPhone rollout strategy — one that could be fatal.

As Leslie Cauley writes:

AT&T has exclusive U.S. distribution rights for five years — an eternity in the go-go cellphone world. And Apple is barred for that time from developing a version of the iPhone for CDMA wireless networks.
USA Today itself provides the US market share:
  • AT&T (GSM): 27.1%
  • Verizon + Sprint (CDMA): 49.9%
  • T-Mobile (GSM): 11.1%
  • Others: 11.9%
The text does not make it clear whether will be any T-mobile iPhone users in the next 5 years, either by taking their AT&T phone or via gray market European imports.

Last year there were 145 million cellphones sold in the US, so if they are in direct proportion that’s 39 million for AT&T and 72 million for the CDMA carriers. (Yes the numbers are not proportional every year, but it’s a more realistic assumption going forward). If Apple hopes to sell 2 million iPhones this year, that’s 5% of all AT&T subscribers.

I haven’t completely suspended disbelief: the previous irreconcilable claims by AT&T, Verizon and Apple show that there are chronic problems with ”spin” (lying) in this high-stakes game of shaping market perceptions.

Not having a product to sell to half the US market for the next five years is going to guarantee that knock-off products will become well established in the US market, because they will be heavily promoted by AT&T’s rivals. Samsung and LG already have credible competing products, while Nokia, Palm and Blackberry are not likely to sit still for five years.

In fact, many of the iPod owners that Apple’s natural constituency will stick with their carrier rather than switch to the iPhone and AT&T. The chronic problem of first-movers is that competitors catch up, and here Apple is creating a whole pool of customers pre-disposed to try the competing products.

The whole question of why Apple had problems in the 1990s has been controversial, with many (not I) claiming that Apple’s mistake was that they failed to license their OS to competitors. Here they’re repeating the no-licensing decision (not necessarily wrong), and then limiting their distribution to 27% (40%) of the US market that is AT&T (GSM). No matter what kind of concessions they got from AT&T, it’s hard to see how they can hit their targets while conceding 3/4 of the market.

The AT&T-Apple view is that a hot phone will shift carrier loyalties. I just don’t see it happening to any large degree, although I may be blinded by my dislike of Cingular and SBC. Thus — absent disconfirmation of AT&T’s latest claims — I now retract my previous prediction of reaching their sales predictions.

PS: In the same story, there was this inane comment:
“It’s guerrilla warfare,” says Jane Zweig, CEO of market researcher The Shosteck Group. “They all want to say ‘We’re No. 1.’ ”.
As defined by Ries & Trout, guerilla warfare means (as in the military sense) a small, weak competitor making vicious, targeted attacks on the vulnerable points of a big lumbering enemy. (Think the Bali disco bombing). To recalibrate the cliché usage, a “we’re number one” policy is more like blitzkrieg, saturation bombing, or no-holds-barred competition.

Technorati Tags: , ,

No comments: