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By jpenston | November 5, 2007 |
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O2 is predicting that they will sell up to 200,000 iPhones over Christmas and the New Year here in the UK. On the face of it, that is quite an astonishing claim, but please folks, bear in mind this is telecoms where the words “up to” are very, very important.
Let me also make a prediction
Prices will fall after Christmas.
You would have to be a millionaire to afford the launch prices! There are approximately 450,000 millionaires in this country, and that may be where the 200,000 sales number is driven from? Perhaps that many people are insensitive to price and just want an iPhone to brag about? I don’t know…
Chrsitmas is of course a big factor in all this. Apple have historically sold 45% to 55% of a year’s total iPods (by volume) in the October to December quarter and Christmas is when people are most prone to irrational exuberance. Of course, skimming the market is a standard entry strategy which Apple used it in the US iPhone launch where they cut the price after just two months.
£900
But you have to wonder how many people are going to treat themselves (or someone else) with a present worth upwards of £899 over 18 months. Let me simplify that - £50 a month, for a phone and a contract giving you 200 mins and 200 texts.
If you get an iPhone for Christmas, smile sweetly and say thank you, but do please ask whether the £35+ a month bill is also covered. It may not be very diplomatic but it’s kinda’ important so as not to wake up with a big hangover on New Year’s Day.
For £30 a month you can get a FREE Nokia N95 with 400 mins and 500 texts, although whether the shop would open specially for you to get one on a Friday evening is debatable. Perhaps the iPhone is marketed to the strong silent type? Or to Billy-No-Mates with no-one to call?
Now, the N95 may not be “The iPhone”, but it is £359 cheaper, and gives you twice as much talktime and up to 5,400 more texts included in the price. Ladies and gentlemen, Friday truly sees the launch of a premium product.
Are we going to buy it?
I know all the sceptics in the US had their words forced straight back down their throats and those same people have had to endure an even smugger than usual Steve Jobs announcing stupendous financial results for the Apple group. It would be a fool who says that it won’t happen here…
It won’t happen here.
Is that the headstrong non-conformist in me? Or even the intractable recalcitrant? (Don’t worry, my mother called me worse…) Maybe it is. After all, I am not putting any money on my views. I can write what I like and the worst that can happen is that I get tagged as yet another false prophet of doom predicting the premature death of the next big thing.
Perhaps I had better explain myself
Firstly, and by way of qualification, I am not saying that the iPhone will never catch on. I am saying that it won’t catch on at these prices. The iPhone is going to be able to carry a price premium over the competition, and a substantial one at that, but maybe 15-25% is what I have in mind. I’m going to play a little game here:
Let’s just say a minute has a nominal value of 1 groat and a text the same. On that basis, the above N95 package is worth 900 groats a month, the iPhone contract 400 groats. Over the course of an 18 month contract, the N95 costs £540, the iPhone £899. Correcting for price and minutes/texts the iPhone carries an astonishing 275% premium over the Nokia N95. Ok, so I haven’t taken into account the WiFi and Unlimited Data or any under usage of the fatter N95 plans, but this is a blog and not an analyst’s research note so you get the picture.
Money Up Front
Factor number 2 in my sceptical forecast is the £269 up front charge. Without any real evidence to back this up, I believe there is a cultural ocean between American consumers and Brits when it comes to paying up front. Even discounting the Scots among us, we are a tight fisted bunch - witness how popular Free Internet has been here. It might look nice and have a fancy touch screen, but TWO HUNDRED AND SEVENTY QUID? You’re having a laugh, mate. We like to spread the cost, hence the mountain of credit card and mortgage debt here…
Finally, factor number three (again it is price based like the first two). We don’t like a superiority complex, and although we may secretly covet premium brands, if they are out of reach - particularly because of perceived greed - social envy can quickly turn “yuppie” into an insult. There is a delicate balancing act here for Apple to create aspiration and not kill it by stretching it too far.
So what is the conclusion?
Firstly, if you want an iPhone and don’t want to look like a yuppie, wait until the prices come down. Secondly, don’t bet on anything like the success in America being repeated here but thirdly, don’t think that an inability to hit volume targets is necessarily a bad thing for Apple.
The iPhone is not a volume play and it’s value is at least in part attributable to it’s niche positioning. This will change in time as it becomes more affordable but by then the value will have been enhanced by the period during which the majority could only enviously disparage the lucky few.
Jobs and co know what they are doing. They have their partners where they want them to the point that you have to wonder whether it will really be Apple that funds the price cuts when they do come. You see, their interests are not necessarily in line…
Apple makes more selling 250 thousand iPhones at 4 times cost (250 x 3C) than they do by selling half a million at twice cost (500 x C). On the other side O2 make more simply by pumping more units because their costs are largely sunk in the network.
200,000 units would be an almighty achievement for O2 over the seven and a bit weeks between launch and New Year’s Day. It took 10 weeks to sell 1 million in the US, a country with a GDP 5.6 times greater than the UK. Two hundred thousand does sound a bit like wishful thinking, particularly with the added uncertainty in the market of the Google (Software Stack on a) Phone… My guess? 65,242, but what do I know.
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November 24th, 2007 at 2:47 am
brilliant. just brilliant. gr8 writing too. But hang on to ur bootstraps m8 (i think thats how y’all talk right:) ) i think u just might see your fellow brits catch a little yankee fever. Prices will go down on the iPhone but not anything less than 7 months after the last drop. so See ya may-ish.