From the April 2009 issue of Rutberg & Co.’s Wireless Industry Newsletter:
An under-discussed dynamic with the iPhone has been the impact to carrier subsidy budgets for non-iPhone handsets. In our conversations with handset OEM and carrier executives, we hear that subsidy budgets for those carriers carrying the iPhone are now disproportionately allocated to the iPhone. Furthermore, OEMs continue to face the hurdle and opportunity to match the experience and capabilities of the iPhone. As a result, as stated to us by a North American industry executive recently, “OEMs are being asked to do a lot more with a lot less.” An executive in Europe, where subsidies are less widely used, similarly stated, “a battlefront for OEMs is where carriers are going to place their subsidy budgets, after the iPhone.”
Who said you need to sell billions of phones to influence the industry? You just need to make billions of dollars for yourself and your friends. (Also: 5 Ways iPhone Will Change the Wireless biz; The iPhone Will Not Destroy the Wireless Business.)
9 thoughts on “Another Way the iPhone Is Hurting Rival Phone Makers”
This makes sense. I believe a similar dynamic played out in retail with Macs and Ipods vs PCs and MP3 players. Apple would only give “10%,” vs. 25-30% required for other vendors. It’s economic lock-in behind superior product execution.
It would seem that the answer for rival phone makers is to make a better phone. As bgurley points out, same thing happened with iPods and MP3 players. iPod and iPhone were not the first to market, just the best. No other MP3 player can come close to iPod’s market share. and while iPhone’s market share is still relatively small*, it revolutionized what consumers thought a cell phone could be. (*-of course iPhone is only available to AT&T customers for now, jailbroken iPhones notwithstanding)
Oh, and I almost forgot to mention: the App Store. yet another compelling reason why iPhones (and iPod Touch) are so popular. Consumers are willing to pay for The Innovation Premium, and so it seems are wireless carriers, with good reason. No one else can (yet) match it.
Except that there is other content besides music, and much of it is free (or time-shifted and paid for): Video and Audio podcasts, DVR’d shows transferred from a TiVo, as well as other pre-existing DVD/CD-rips. Virtually no one fills a (harddrive-based) iPod with just iTunes Store content.
Manufacturers other than Apple perhaps look a little to closely to pleasing their customers the carriers – and not enough at pleasing the consumers?
The dynamics of carrier subsidies affect this – more here http://www.viewfromlondon.com/2009/05/iphone-demonstrates-that-consumers-prefer-quality-and-simplicity.html
This should help Android gain more share, as manufacturers look to cut costs.