Massive Unlocking is a Sign of Massive Demand
And product “demand” is rarely a bad problem to have – Business 101.
Businessweek has just published an article Millions of iPhones Go AWOL reviewing the surprisingly high volume of unlocked iPhones. The article notes that 800,000 to 1 million iPhones have been ‘jailbroken’ for use on carriers’ networks that don’t presently have an agreement with Apple. The article highlights that demand for ‘hacked’ iPhones is much greater than analysts had anticipated and further notes that China has a particularly robust black-market in unlocked iPhones. The Businessweek piece also outlines the problems Apple faces as it defends the “exclusive carrier + rev sharing” business model. Yet the article fairly points out a number of ways Apple might use this unlocked iPhone ‘demand problem’ to its advantage as future carrier agreements are negotiated.
A number of pundits and business journalists have been quick to find problems for Apple resulting from this unlocking phenomenon. Apple has exclusive iPhone distribution contracts with their carrier partners and revenue sharing is an important part of these agreements. Unlocked iPhones do not generate cash-flow to Apple from ongoing subscriber payments (i.e. no revenue for off-network iPhones). Apple has not made their carrier/partner revenue sharing split public, leaving analysts to do a bit of guesswork. Most have speculated that this number ranges between $8 to $12 per month per subscriber. Over the life of a two-year contract this amounts to an additional $192 to $288 to Apple for authorized “on-contract” subscribers.
Many on the Street (market players) have seized on this “massive unlocking” story to pummel AAPL shares. Yet the other side of the story is only beginning to be realized. It is simply this … Massive unlocking is a sign of massive demand. And product “demand” is rarely a bad problem to have (Econ 101). Right now, the hunger for iPhones worldwide is so strong that unlockers are willing to:
- Pay a premium ($150 to $500 above retail to own a hacked iPhone)
- Own a non-warrantied iPhone
- Forego visual voicemail
- Forego regular software upgrades that would otherwise ‘brick’ a ‘jailbroken’ iPhone.
As one astute iPhone owner put it …
“Would you want a hacked, non-warrantied iPhone you couldn’t run a software update on? If the choice was that, or wait a few months (when iPhone officially arrives in your market), I’d choose ‘wait’ easily. I think 97% of folks want to just walk in a store, buy an authorized iPhone and use it normally – warrantied with updates … even if it means switching carriers.
I think we are just getting a tiny percentage % of advance sales from tinkerers, hackers etc., and from the folks willing to pay a premium, take risks, and have bragging rights. Guess what, this same demographic will all want the Apple 3G iPhone the second that it’s available as well.”
… “I can’t see this as anything but a good sign about insane demand, worldwide.”
Unlocking: The editor of iPhone in Asia strongly discourages unlocking iPhone. Wait for an official iPhone launch in your country. The iPhone is not a prisoner to fixed buttons and it is designed to evolve. Buying an iPhone from an authorized carrier/distributor will allow the owner to easily upgrade as new features are released.
iPhone VIDEO HERE (Unlocking Issues and iPhone Demo – Chris Griffith The Australian)
EXCERPTS from Businessweek:
Full article > HERE
A SWARM OF DO-IT-YOURSELFERS
Some 800,000 to 1 million iPhones had been unlocked by the end of 2007, the sources say. The high end of that range far outpaces most analysts’ assumptions of 750,000 unlocked phones. The vast majority of those phones are trickling into nations around the world where Apple has yet to sign up a local carrier—especially China, say industry sources (BusinessWeek.com, 12/4/07). “In my travels around the world, two out of three iPhones I’ve seen outside of the U.S. have been unlocked,” says Richard Doherty, director at consultant Envisioneering Group. “In China, nine out of 10 phones are hacked.”
CRAZY LIKE A FOX?
But are unlocked phone sales really so bad for Apple? In countries where the iPhone isn’t yet legally available, unlocked devices may function as part of the company’s hype machine. Every time someone flies home with an armful of iPhones purchased at a local shop or online, it revs up awareness of Apple’s brand. That, in turn, could make it easier for Apple to strike more carrier distribution deals and make a case for better revenue-sharing terms. After all, unlocked devices sell for as much as a 70% premium to Apple’s retail price on foreign gray markets.