Apple Mobile - To be or not to be?
My colleagues and I have been asked this question so many times that we decided that we should post our opinion on this along with an SMS short code to buy nothing for $7.99 at the bottom of the article, make a fortune and then retire! Well here it is (without the short code)… our take on whether Apple could, should or would launch an Apple Mobile MVNO, Strength, Weakness, Opportunity and Threat all in one package.
Straight up, the issue is a double edged sword for Apple through and through. I believe they woud have to spend at least $500 million to effectively launch a mobile phone service (MVNO) in the US market. On the other hand the windfall could be enormous not only in terms of cash but brand loyalty and integration with their vision for the digital home that Mr. Jobs hinted at yesterday when he launched the iPod HiFi boombox and Mac Mini Intel.
First let’s examine the pros of the Apple MVNO:
Assuming that Apple launches both post-paid and pre-paid wireless telecom services and that 80% of the business is post-paid, then they will probably end up with a a blended net profit per subscriber of about $15 per month (maybe $17 if they are good at negotiating carrier contracts). This is based on discussions I’ve had with various MVNEs (MVNO enablers) in the business.
Assuming Apple can generate 5,000,000 subscribers in the US market, that represents $900,000,000 million per year to the bottom line! If Apple were to only offer pre-paid services (focused on kids) this number would be cut by 40% down to about $550,000,000 per year based on lower spend and thus lower net profits per kid.
At the same time, assuming that Apple sells consumers an unsubsidized iPod phone for $249 (at typical 25% gross margins) we’re adding at least another $250,000,000 to the bottom line (probably more).
Now assuming that Apple focuses on 3G services they would be in a similar situation to “3″ or Amp’d Mobile who are offering similar 3G services. We’ve heard antecdotal evidence that “3″ is generating huge spend on data services compared to their UK rivals. That could improve their bottom line as represented above depending upon what type of data services wholesale pricing they are able to negotiate.
The bottom line is that Apple would be adding over $1 billion to the bottom line with 5 million subs.
The intangible benefits to Apple of Apple Mobile would be better integration with Macintosh computers and home media automation products possibly generating a halo effect for these products as witnissed by the existing iPod business.
Now let’s examine the cons:
I believe that it costs large carriers like Verizon or Cingular at least $350 to acquire a new customer (probably more). So for 5,000,000 customers Apple must spend more than $1.5 billion.
The infrastructure required to support billing, provisioning, rating, customer support, etc would need to be built or provisioned by a third party MVNE.
800 based customer support would have to be available to all Apple Mobile customers. This could probably be done by an existing MVNE or other third party like Ericsson.
Apple stores (all 100+ of them) would need to be closed and upgraded to add a mobile phone kiosk/service counter.
Probably the biggest issue in rolling out an MVNO for Apple today is the BOM (bill of materials) cost fo the iPod cell phone. The coolest phone I’ve seen that would come close to qualifying as a model for the Apple phone is the Sony Ericsson W950. not yet available but on display at 3GSm in Barcelona a few days ago. My guess is that the W950 will cost $599 unsubsidized which puts it way out of reach for Apple’s target customer base (kids) unlesss Apple chooses to subsidize the phone at first which is something that I doubt Mr Jobs is willing to do. However Apple has done a phenomenal job of beating down suppliers (with a metal pipe Sopranos style) into submitting to unreasonable distributor prices for flash memory, components, etc for the iPod (sorry I couldn’t resist the engadget style sarcasm - annoying isn’t it engadget?). I suspect that by the time the W950 launches a similar Apple Mobile iPod Phone could be launched for $399, getting down to $249 within 9 months based on volume.
Bottom line:
Assuming that Apple can keep a customer for at least one year than this is a good deal for Apple but it is a risk as the service could flop or their iPod phone could be a dud, etc.
What would we do:
This is a risk worth taking. Apple has the cash, the brand caché, the marketing muscle, and the sheer will of strength to pull this off. a W950 style phone integrated with iTunes, able to show movies, integrate with iPhoto, etc would be a huge hit.
Please Apple, wow us again, raise the bar and release an Apple Mobile service. Unfortunately Apple is wasting time working on the Video iPod that I don’t really want but will probably have to buy because I have terminal gadget-itis. Woe-is-me.
