“Factories here churn out iPhones that are exported to the United States and Europe. Then thousands of them are smuggled right back into China,” David Barboza reports for The New York Times.
“The strange journey of Apple’s popular iPhone, to nearly every corner of the world, shows what happens when the world’s hottest consumer product defies a company’s attempt to slowly introduce it in new markets,” Barboza reports. “The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing… An iPhone purchased in Shanghai or Beijing typically costs about $555. To unlock the phone and add Chinese language software costs an additional $25.”
Barboza reports, “These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are actually registered on the networks of its wireless partners in the United States and Europe?”
MacDailyNews Take: It’s no mystery unless you’re an idiot and/or trying to manipulate AAPL.
Barboza continues, “For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.”
MacDailyNews Take: On paper, maybe. In reality, Apple makes a profit on each iPhone sold. Those with at least half a brain understand that this iPhone unlocking craze is clear evidence of massive future iPhone successes as it is introduced into each country. The bleeding edge, first adopter, high-price-paying iPhone unlockers will be dwarfed by the average Joe and Jane who do not want to hack their US$400+ investment. This tremendous iPhone grey market also strengthens Steve Jobs’ already formidable negotiating position with the likes of China Mobile and other carriers vying for iPhone around the world.
Barboza continues, “Negotiations between Apple and China Mobile, the world’s biggest mobile-phone service operator with more than 350 million subscribers, broke down last month, stalling the official release of the iPhone in China.”
MacDailyNews Take: Don’t believe everything you read in The New York Times. Repeating rumors that have been clearly refuted is just poor journalism. Apple CEO Steve Jobs told CNBC on January 15, 2008, that rumors of on-again, off-again negotiations with China Mobile are simply untrue; just a single China Mobile rep. has flown out to Cupertino only once. There are no ongoing negotiations, just a first meeting, Jobs explained. Jobs wants iPhone in China, but details will come later.
Barboza continues, “Some analysts say abandoning the locked phone system and allowing buyers to sign up with any carrier they choose, in any country, could spur sales. ‘The model is threatened,’ Mr. Wolf, the analyst, said. But ‘if they sold the phone unlocked with no exclusive carrier, demand could be much higher.'”
Full article here.
[Thanks to MacDailyNews Readers “Ken C.” and “Citymark” for the heads up.]
MacDailyNews Take: We highly doubt that someone of Steve Jobs’ business acumen entered into this market without a plan that considered such basic concepts as selling unlocked devices vs. exclusive carriers and the possibility of changing these models in the future.
If Apple were able to implement visual voicemail without a network partner, I bet they would have released it as an unlocked device.
As it is, I think Steve thinks visual voicemail is a killer app for the iphone and wants to push it.
Although I think safari for the iphone is the real killer app.
This is a problem ??
People want the device so bad they are smuggling and hacking the devices….paying big premiums while at the same time giving up support from the carrier and the device manufacturer.
Apple is basically selling millions of handheld computers at a 30 % margin (Dell would wish for such a thing!) and these idiots see it as a problem ? Getting the carrier revenue share is an additional benefit….cream on top, not the primary goal. Once service is established in these countries and new releases and additional software is available don’t you think Apple will recapture some of these hacked phones ? And don’t forget these phones are running OSX, establishing ITunes, Quicktime, and Safari as new standards. This is stopping the Microsoft effort cold (does anybody remember the train wreck called “Origami” ?)
In addition to protecting the Ipod/Itunes franchise the iPhone is expanding Mac sales through a strong positive experience halo effect. With all this who the hell cares if some are hacked to run on non-supported networks. Again….they are making money on the sales…not loss leading !!!
ANY newspaper with the masthead TIMES in it is a crap laden yellow dog sheet. Great for Apple that even in remote markets people are willing to buy their products at higher than market prices. The ‘model’ is invented by Apple to supplement earnings post appliance sale in exclusive markets. China will come to the table, too, soon.
Visual Voicemail is NOT a killer App. Not even close.
iPhone: still getting free publicity.
Barbozo!
I think Visual voicemail is just one part of the equation but a significant one at that. I agree that it’s one of the best but most overlooked features on the iphone.
But I think getting a chunk of the monthlies as well as the novel (and much better) iTunes/activaton system are the main reasons why they chose an exclusive carrier versus keeping the iphone open.
My favorite app of all is the useless ‘burp’ from the i-app-a-day series for jailbroken iphones. silly, but fun
Wow, the lack of basic business sense in this article is shocking.
Let’s see, Apple could have no unlocked phones being sold AND not being registered, and so make NO money outside of the “target” markets, OR Apple can make money off phones sold to the grey market, and thereby also creating a ready-to-sign potential market for whomever negotiates their way in as Apple’s iPhone carrier.
David Barboza (11 years old?) thinks:
“For Apple, the booming overseas market for iPhones is … a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts.” (For “some analysts”, read, “Steve Ballmer” )
Barboza’s logic makes as much sense as saying that Toyota should sell no cars if customers don’t also purchase an extended warranty add-on.
This article seems to be a blatant attempt at Apple share price knock-down, and an attempt to artificially weaken Apple’s negotiating position with potential carriers. It’s like watching organised crime print newspaper articles.
Those US centric idiots typically thinks that US = the world. All of us who live outside knew what happened immediately when reports of discrepancy between activation and sales figures surfaced.
Anyone claiming to be named “marcos” is a wannabee snob named Mark by his mother, his father, and any scam artist who ever met him. It isn’t like he has any information to back up his comments.
Jobs thought he had a pretty good plan. It looked great on paper. It worked great initially. Then it got hacked. So the next update broke the more obvious hacks. Then it got hacked again. And patched. And hacked again. The flaw in Jobs’ plan was that the product was just too desirable! With its multiple weaknesses – just starting with “no 3G” – it is still THE Hot Item. Analysts familiar with the M$ reporting style saw the discrepancy and said “AhHA! Flooding the channel!”, not realizing that Apple doesn’t work that way.
And now the AAPL begins to rise, again, beyond reasonable levels. Go AAPL!
“costing the company as much as $1 billion over the next three years, according to some analysts.””
Define costing. yeah Apple isn’t getting the kickback from ATT on these phones but how can anyone say it’s costing them when the phones are still being paid for.
All this will do is help cement the iPhone as a leader in those markets when they are officially introduced. Gotta think into the future. It’s not going to be tied to ATT forever and when it’s not, it will really explode.
Locking the iPhone was a big mistake. They just had to do it in order to get communications revenue. It’s not about the voicemail.
The author doesn’t know what smuggling is. The iPhone is a legal product, both in the USA and in China.
-jcr
“(does anybody remember the train wreck called “Origami” ?)”
Wasn’t that a poorly conceived project that was hyped mostly on paper and then folded?
You’re flying China Air. There’s a little turbulence. Suddenly, you hear the muffled sounds of marimbas and harps coming from the gut of the mule sitting next to you. He massages his lumps and then you hear click, click, click, click, click. You get a text message. It’s his liver.
Flawed reasoning all around.
The lost “billion dollars” is only true if every one of these bootleg sales cannibilizes a US sale- except that Apple is making plenty of phones to go around. They are able to sell a phone to anyone in the US who wants one, in addition to the phones that are going overseas. Therefore, the phones going overseas are pure extra income.
This flawed reasoning is also based on the myth that Apple was negotiating with Chinese phone companies, and that the talks “fell through”, and these unlocked phones represent a threat to the bottom line of whatever co. takes on the phone in China.
Sorry- Steve Jobs says the so-called China negotiations never happened- one guy from one company came to Cupertino and talked to them briefly about the possibility- that’s all.
So, these unlocked phones to Asia are pure gravy- and spreading the Apple lore farther every day. The best free advertising Apple could ask for- and they are making a profit on each sale too.
Beware of the moronic “analysts”- who may or may not have a financial incentive to spread the FUD. They may be profiting from driving down Apple’s share price.
Apple negotiating team to China Mobile team:
“We’re coming out with a 3G iPhone and the chipset will support all world standard 3G protocols including TD-SCDMA and WiMax (Not LTE 4G as this is too far down the road). And oh by the way, this new iPhone will be seriously “hack proof” (okay, much tougher to hack).
Full pitch here >
http://idannyb.wordpress.com/2008/02/16/400k-unlocked-iphones-heres-the-pitch-apple-might-make-to-china-mobile/
LOCKED and UNLOCKED option: Don’t be surprised if new TBA carrier deals include a two-tiered offering for next-gen iPhone (ala Orange in France where law prohibits handsets from being locked to a network for more than 6 months) – a locked iPhone in each nation and an “official” unlocked iPhone at a modest premium price. If the premium is too high. black-marketers will engage in arbitrage (unauthorized unlocking options at a lower cost). If the premium is modest, or “just right,” buyers will opt for the “official” easily upgradable iPhone that will come with a warranty and w/o the need to hack or jail-break.
I’ve had my iPhone just a couple of weeks, and Visual Voicemail is awesome. I suppose I could live without it, and the iPhone has other great benefits, but VV is definitely very useful.
My first attribution!
Anyhow, these analysts quoted are numbnuts. Unlocked phones are a sign of great demand, and will put pressure on their local carriers to get a deal with Apple. Why?
Imagine if China’s #2 carrier, Unicom were to strike a deal with Apple, offering iPhones with a reasonable service plan INCLUDING unlimited data. Now all those 400,000 unlocked iPhones roaming on China Mobile, paying for data by the Kb, will jump to Unicom, because it’s CHEAPER. Being unlocked, they won’t have a 2 yr plan holding them back. That’s why having this many people on China Mobile, will force China Mobile to strike a deal, because it’s good business. And, when they do, those unlocked phones will eventually register to get the cheaper plan and Apple will collect its carrier fees. Just think of it as deferred revenue!
Also, don’t forget unlocked phones don’t get warranty service, or regular updates or specific features like vis. voicemail.
BTW, chinese characters look great on an iPhone.
很好
Don’t have an iPhone yet, waiting for the official release here in Thailand..(hopefully 2nd half this year, likely an AIS-Thailand/Singtel-Singapore deal), but the unlocked phones I’ve seen from my friends are all updating and downloading latest and greatest automatically.
Trust me, these friends are all nitwits when it comes to even installing a simple program on their computer, no knowledge at all when it comes to software or hardware.
The only thing they want is the latest shiny toy to show off! But to my surprise, none of them even has the least trouble with using and maintaining their jail-broken iPhone.
These phones and the process of upgrading/jail-breaking are so easy and effortless that it just invalidates everybody’s talking here about warranty loss, no updates, trouble here trouble there…
On top of that, their phones are just filled up with software from all kind of types and sources. From games to office-applications to I don’t know what, and it all works…
Steve Jobs made a calculated move to make the mobile phone the driver instead of the wireless network. It worked.
Apple asked for concessions in exchange for exclusivity… Changes to the network to make visual voicemail work. Changes to sales practices to have activation go through iTunes. Changes to wireless revenue sharing practices. And so on.
There is no way Apple could have done this if it was negotiating with multiple wireless carriers in each market. Ultimately, Apple will make iPhone available to multiple carriers, after the initial period of exclusivity expires. By that time, Apple will be able to demand in negotiations, “if you want to sell iPhones, here’s a list of changes you need to make to your business processes and practices when you work with us.” Those that agree will have iPhones to sell. I think that’s a very smart strategy.
Apple sell a pile of stuff, but its not enough.
They sell more stuff and its not enough.
They make the best phone/device/thing ever and its not enough.
Screw the lot of ’em.
I live in Vancouver – have had four iPhones – first a 4 gb, I sold it to get an 8gb,, then bought another 8gb as a spare.
Then I came to the conclusion that I would never need a spare, because the iPhone is so good.
Sold that.
Then bought a 16gb yesterday and am selling my other 8gb right now.
All 4 have come from Lynwood, Washington State, and they are all in the hands of Canadians.
Hurry up Apple, get the damn contract signed with the crappy Rogers network so I get VVM.
(I will still unlock it for the apps.)
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