Apple's iPhone Marketing Machine. Is it enough?

by Aaron Huslage

I've been watching with a mix of anticipation and doubt the ongoing reportage of the Apple iPhone launch. Without a doubt it is the most genius marketing campaign I've seen of late. Starting with the early announcement of the device and dominating headlines Macworld Expo in January 2007, the machine was turned on and has revealed a highly tuned plan that has been executed with perfection. The device can sell itself and the hoards of rabid fans in the blogosphere have been hyping it since before it even officially existed. Over the intervening months, Apple has continued to seed the press with rumors and announcements about the phone having a glass screen and 8 hours of talk time (inexplicably sending the company's stock even higher). This has all been, as anyone who has followed Apple knows, extremely well calculated and planned out. Apple knows what it's doing and it has done an amazing job of hype management over the past few months. There is by now little doubt of the iPhone's imminent success in the US. This is the crux of the matter.

The US has roughly 213 million mobile phones according to the ITU. There are 2.2 billion mobile subscribers in the world. The US is a tiny market as a whole. It's a great, high-end, mature market with lots of competition and is no doubt the a good place to launch a product like the iPhone. Europe is ostensibly an even more mature market, having higher end services and a more mature tariff scheme overall and 620 million mobile phones. Apple says they want to sell 10 million devices by the end of 2008. That is unlikely if all they have to work with is the US.

Mobile churn rate of all of the other carriers in the US (excluding AT&T) is about 6% per year. That's 12.7 million accounts. Assuming optimistically that AT&T and Apple got 10% of that, we're talking 1.2 million iPhones. Adding in an additional 10% of AT&T's published 60 million subscribers you get 600,000 more devices for a total of 1.8 million devices. That isn't your typical consumer electronics play that Apple is used to. The end result of this equation is the only way that Apple and AT&T could sell 10 million devices this year is to capture all of the churn in the market and cut off any churn that AT&T has at the same time. This is very unlikely to happen. Especially with a $500-$600 device. It doesn't matter how pretty it is.

So statistically speaking, Apple needs to get Europe and Asia in the game quickly to meet its targets. There has been a lot of press out of Europe that Apple wants too much of the conservative mobile carriers in the region. They apparently want exclusive deals, infrastructure changes and most of all network upgrades. Apple also chose to forgo high-speed 3G services due to the complicated patent dispute that Qualcomm (the chipset maker for W-CDMA phones) is having with the WTO. These things have all pointed to a delay of the launch of the iPhone in Europe, and will likely have the same effect in Asia given Apple's overall smaller profile in the region.

The iPhone will be a boon for both AT&T and Apple and will likely be the largest launch of a mobile device to date. I will certainly be getting one to review for our readers. The verdict is still out, but the craziness over Apple's stock of late is not necessarily warranted or even sane given these rather obvious numbers. Given the market realities it is becoming clear to those of us who watch the mobile industry that Apple will need to have another device available soon that requires less of carriers.

10 Comments


2007-06-25 13:39:37
Your logic is flawed. You assume the market churn is a static figure. iPhone will create a dramatically increased churn rate.
Jason Devitt
2007-06-25 14:06:08
You are right that Apple have a lot of work to do and can't meet their 10 million target in the US alone. But your estimate of churn is too low.


In Q1, Sprint-Nextel lost 2.3% of their customers each month and T-Mobile lost 2.6%. Verizon's churn was the lowest in the industry at 1.7% per month, but that is still over 20% per annum.


Carriers report churn quarterly, but it is a monthly rate, like ARPU.

Anonymous
2007-06-25 15:38:43
10% of 60 Million would be 6 Million, not 600,000. What am I missing?
Steve W
2007-06-25 17:21:17
Churn is what happens when undifferentiated products compete via "sales" and "deals". Product differentiation eliminates churn. The question to answer is: Is the iPhone different, or is the difference just hype?


Next week we will know the answer.


The Macintosh story is that consumers see it as different. While there is churn in the Wintel Market, the Mac sits apart with a small loyal following.


The iPod is seen as different and sits apart with a large loyal following.

mark
2007-06-25 18:12:50
Supposedly a leaked Sprint memo is already showing an expectation of losing 6% of subscriptions to the iPhone alone.
Brent
2007-06-25 22:41:09
Math is hard.
Sean
2007-06-26 01:31:27
Just a comment on churn rate: this is typically used to define people switching from one carrier to another (as a percentage), which is different to the number who will switch phones (independently of switching carriers). I think you may need to apply a different math to this - and instead estimate the quantity who might upgrade their phones to the new iPhone.


Sean

Anonymous
2007-06-26 05:53:05
See http://www.macjournals.com/news/2007/06/25#a61


"Here is the page with all of Apple's 2007 press releases. Counting the one about Safari for Windows, Apple has issued six iPhone press releases in all of 2007, as of this date."
"Keep in mind that AP moved multiple versions of most of these stories. We collected 52 separate copies of these 16 17 (we forgot the "hype" story itself) stories. Just in 14 days. Just from AP - the service that says Apple has gone into overdrive to hype the iPhone by issuing six press releases in six months."


2007-07-16 01:41:22
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