iPhone as platform = cha-ching

by Mathew on June 11, 2008 · 13 comments

My friend and fellow mesh 2008 organizer Mark Evans has a post about the iPhone and how it is just one part of a “razor and blades” market model — i.e., the carriers subsidize the phone as a lure, in order to sign you up for long-term contracts at usurious rates. Of course, in the typical razor and blades business, the same company benefits from both the giveaway and the ongoing revenue. In this case, however, Apple benefits from the giveaway — since it means that more people buy iPhones — but the carrier benefits from the ongoing revenue (Apple used to get a piece of that, but it has changed its model, which is part of the reason why its stock took a hit following the announcement at WWDC).

As I was reading Mark’s post, I was thinking about all of the talk following Steve Jobs’ keynote, about how the iPhone has become a platform now, meaning it is becoming more and more like a PC and less like just a communications device. This is clearly the future: a handheld that has a great browser, GPS with location-enabled services, integration with MobileMe cloud-computing type features, etc. Sounds cool, right? Except that (for Canadians in particular) users have to pay through the nose for every one of those bandwidth-gobbling services. For your average bandwidth-shaping and usage-cap throttling ISP, it’s a wet dream: charge per usage of everything, not just a flat fee.

What if when you used your computer, you not only had to pay for the bandwidth itself, but had to pay your provider every time you used Google Maps, or every time you sent a text message or a Twitter post or uploaded a photo? For a lot of people using regular cellphone plans (or the fake “unlimited” plans that redefine the word “unlimited”) that is an unfortunate reality. I love the idea of the iPhone — but I hate the feeling that if I were to use one, I would get taken to the cleaners in ways that I haven’t even thought of yet.

Update:

As Bob Warfield of Smoothspan notes, and Piper Jaffray is speculating, Apple is also potentially the beneficiary of the razor-and-blades approach, through the Application Store.

  • Pingback: Is the iPhone Application Store the Problem for Adobe Flash? « SmoothSpan Blog

  • http://www.keenbeans.com James

    Indeed. We need more players in the wireless carrier game in Canada. Disruption is way overdue. But how do you get into this market? You'd need to be someone with the resources of RIM or Jim Balsillie. I'd like to see that action.

  • Pingback: iPhone is coming to Canada: Wireless carriers rejoice. | Keen Beans

  • http://mikepk.com mikepk

    I'm speaking about the iPhone in the US, but one thing that was great about the original iPhone launch that many people overlooked was the thought put into the entire iPhone experience. I'm thinking specifically of the initial activation process and plan selection. I believe they were incredibly smart in saying, “there is only one plan, and it's a flat rate for unlimited data”. Sure, a small percentage of people howled that they couldn't get the phone without the unlimited data plan, but they weren't the target market anyway.

    Unfortunately people can't see past the initial cost of the phone. If you calculate the true cost for the new 3G data plans coupled with the subsidized handset, the total real cost of ownership is actually higher over the two year contract, but that's something people don't see. One good thing in the US, at least initially, is that it's still an unlimited data plan.

    The change of their model to a handset subsidized one actually doesn't bode well for the overall experience. There is already talk that users will be unable to activate their phones at home and that business users will have different phone rates from regular users (without any clear indication so far as to why). With apple relinquishing control of the plan selection and activation process, it does open up the possibility for a whole host of abusive ISP/Wireless co practices.

    I don't know about you, but when presented a whole smorgasbord of plans, I can't help but think I'm getting scammed in some way for each of them, I get the “car dealer option package” feeling “Oh you want a sunroof, then you have to take alloy wheels then”, “really? I didn't know they were connected.”

    I think if ISP's become too abusive, the market will route around the issue. People are willing to pay for pipes, but metered pipes is another question. I think Google's foray into the 700MHz spectrum auction here in the US was a warning shot aimed at Telcos. Many companies whole business model (like google moving ad inventory) depends on unfettered access to bandwidth.

  • http://www.mathewingram.com/work mathewi

    Thanks for the comment, Mike. I think a lot of people were looking to
    Apple as a kind of saviour, someone who would do battle with the
    telcos on the user's behalf, but their interest in doing that (if they
    ever had any) seems to have waned, and the carriers are once again
    firmly in the driver's seat. Maybe Google will take up the challenge
    with Android :-)

  • http://mikepk.com mikepk

    I also thought for a while that they might evolve to become a MVNO here in the US to have total control over the process (not that those have had much luck recently). I think their latest moves show they have no interest in running the bandwidth themselves. It could be that they believe the wireless providers will be forced to become more open, and with that, the shift of focus would be from the pipes back to the services and devices (the platform). It seems to me that's the bet they're making, the same one as Google, although Google has been toying with force-accelerating the opening up process (municipal wi-fi, spectrum auction, etc…).

  • http://www.zintin.com john

    The service may be expensive, but I think most of the value (as well as cost) is going to be in the iPhone apps in the future. iPhone apps a couple years from now will offer some pretty compelling services, here's a discussion: http://www.zintin.com/blog/2008/06/great-iphone

  • http://www.kenseto.ca Ken Seto

    What do you think the chances are that, as part of the deal that Apple made with Rogers/Fido would have offer a reasonable data plan (maybe $35 for 1GB?).
    I would think that it would tarnish the iPhone brand if Rogers continues their crippling data rates so that people get hit with huge data bills after the first month.

  • http://www.mathewingram.com/work mathewi

    As far as I can tell, Ken — at least from reading the tea leaves
    about the company's negotiations with AT&T in the U.S. — Apple seems
    to have given up the battle to force carriers to charge lower fees, so
    I wouldn't get my hopes up about Rogers.

  • http://www.bitcurrent.com Alistair Croll

    Completely agree, Matthew. I was writing recently about the fact that many so-called SaaS companies are actually “cloud peripherals” like printing, faxing, scanning and storage. Reading this, it occurs to me that with the requirements for physical ports and keyboard gone, there's even less of a division between handheld Internet devices like an iPhone and a PC.

  • http://www.mathewingram.com/work mathewi

    That's a good point, Alistair — with so many services available from
    the cloud, it's even easier now for the phone to take on a lot of the
    functions that previously required a PC.

  • PeaceDog

    “(Apple used to get a piece of that, but it has changed its model, which is part of the reason why its stock took a hit following the announcement at WWDC)”.

    WRONG! Apple susbidy model actually helps the stock as they get money upfront from AT&T versus over the life of the contract. The stock only went down because investors played “Buy the Rumor, Sell the News” at the announcement of the 3G device.

  • PeaceDog

    “(Apple used to get a piece of that, but it has changed its model, which is part of the reason why its stock took a hit following the announcement at WWDC)”.

    WRONG! Apple susbidy model actually helps the stock as they get money upfront from AT&T versus over the life of the contract. The stock only went down because investors played “Buy the Rumor, Sell the News” at the announcement of the 3G device.

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