Sprint CEO: Exclusive Phone Deals Need Limits > Why share

reply to WhatNow

Re: Why share

Apple's cut on the apps in the store is 30%. I doubt that an extra few app sales on an influx of a million new iPhones is enough to counteract the drop in earnings kickbacks on handset sales. Apple makes a very handsome profit with thick margins, I'm sure they've done the math and determined that exclusivity is more financially viable from their perspective.

According to this article, AT&T may be paying Apple $18 per month per subscriber:
»news.cnet.com/8301-13579_3-9803657-37.html

That's a lot of recurring revenue, and probably why Apple has an interest in keeping this exclusivity agreement. I think they could satisfy the legal concerns IF they changed the exclusivity requirement to be optional. Like, "for every month that Apple is exclusive, AT&T will pay them $18/month/subscriber". Then either side can end the arrangement when they please, which could happen if another carrier waved some money in Apple's face.

Assume AT&T gives them $18/mo./sub. Also assume that they sell $10 of apps/month/subscriber, and get to keep $2 of that. To simplify, say its one subscriber, so they get $20 per month.

If they ended exclusivity and sold 200% more iPhones, they'd now have 3 subs. That's $6/mo from the App Store profit, pretty weak compare to $20/mo. They could make up for exclusivity loss by asking for $6/mo/sub kickback from any carrier who wants to sell iPhones, problem solved. Now they're making $24/month, with more market share.

But if exclusivity goes away and "everyone" has the iPhone, do you seriously believe that Apple can command the kickback you're suggesting? I don't. Also, I believe your "$10 worth of apps/mth/subscriber" claim is extremely optimistic. During initial ownership that may very well be correct, but I'm hard-pressed to believe that sales rate is sustainable over the life of an iPhone subscriber. I still stand by my claim that Apple has done the math and is confident the exclusive sales arrangement is currently the best way to healthy profits.

Here's a recent article about their total monthly sales:
»moconews.net/article/419-admob-a···h-month/

Also:
»lsvp.wordpress.com/2009/05/13/ap···p-store/

Let's say that 15 million have iphones (hard to tell who replaced vs. new customer). High estimate of profit is $3 per user, but that's over many months. So, you're right, they are keeping less than $2 per month per user.

I don't think we should prevent them from being exclusive if that's in their best interest, I think we should prevent AT&T from contractually obligating them to. I do think they can charge a premium on what they sell iPhones for, above the rate AT&T is getting. How many people buy phones without a contract? Of course its easier to go with the guaranteed income stream than assuming.