The long-awaited iPhone 4 has arrived, ushering in a new wave of upgrades and early adopters for Apple Inc.’s latest darling gadget. The new device could also signal the last gasp of carrier exclusivity for Apple’s U.S. distribution strategy.
While a report in May in USA Today contended that Apple had confirmed AT&T Inc.’s U.S. exclusivity until 2012, there has been no independent confirmation of that. It’s clear that Apple itself has no standard pro-operator policy, and makes its decisions on a country-by-country basis. Apple has loosened up carrier exclusives in most of its markets for the iPhone worldwide, with multiple operators selling the device in the United Kingdom, Germany and other big markets.
Also, Apple COO Tim Cook said at the recent Goldman Sachs investors’ conference said that multicarrier models work well in markets where carriers have a sticky relationship with their customers. The single-carrier model in the United States has been beneficial on the development side, Cook remarked, visual voice mail to the first iPhone.
But App Store developer numbers have ballooned, creating a powerful culture of innovation for the device independent of any single carrier. And AT&T's exclusive deal is actually becoming a drag on Apple. The positive impact to the iPhone's market share is declining with each successive launch, indicating a trend toward saturation.
Declining Benefits from Exclusivity
According to Piper Jaffray analyst Gene Munster, who forecast sales of between 1 to 1.5 million units in the first three days, 77 percent of opening-day iPhone 4 sales were upgrades by existing iPhone owners. Upgrades accounted for 56 percent of sales when the iPhone 3GS launched in 2009, and just 38 percent in 2008. And look at the defections: Only 6 percent of Blackberry owners switched to iPhone 4. Even more telling is the fact that only 3 percent of Android owners switched. Other switchers feel into the “other” category: users getting a true experience upgrade from non-smartphone handsets.
“Apple is effectively building a recurring revenue stream, where iPhone users pay on average $200 year to stay current with the latest phone,” Munster wrote in a note to clients. “While it's true that iPhone 4 is a more significant feature upgrade compared to the 3GS, and we expect this upgrade rate to decline next year, Apple has in three years built brand loyalty in the phone market that compels users to upgrade to the latest version and wait in line for one to six hours to pick up their iPhone.”
