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June 29, 2007

Out Of The Box

Earlier this week, Apple posted a video that shows how you activate the iPhone. As I plan to buy an iPhone tonight (provided, of course, that supplies are available) this was of no small interest - I mean, I'm a current AT&T/Cingular customer, and was curious about how the whole buying experience was supposed to work.

I have generally found the process of buying a new cell phone to be, well, laborious. Usually, even if you know the phone you want, you're going to sink 10 or 20 minutes working with the rep behind the counter as they activate your new phone, switch over your account, validate your credit card, run a credit check, take a blood sample, have you sign the new two-year agreement, switch the SIM card from one phone to the other, and so on. I've had some great experiences of late at the Cingular store at Pacific Place Mall (they're very pro down there), but even those experiences tend to be far, far more time-consuming than, say, buying an iPod (walk in, grab box, pay nice man, walk out).

This 10-to-20 minute transaction overhead for cell phones was spookin' me - there's going to be a gazillion people waiting in line for iPhones across the country, and, in my mind's eye, I envisioned crazy pandemonium at Apple and AT&T stores as rabid would-be buyers tried to get the attention of harried clerks, each of whom was already working to serve 4 or 5 different customers by getting their phones sold/activated. Cell phone stores have the luxurious, languid feeling of a country club at, like, 3 PM on a Sunday - nowhere else to be, nothing to do, have another highball - whereas tonight is going to be something more akin to Christmas shopping during Cabbage Patch Kid/Tickle Me Elmo season. Put frankly, the cell industry has never seen demand for phones that looks anything like this.

So it pleased me to no end to see that Apple, apparently, knows that the cell-phone-activation experience could be improved, and has elected to reboot it. Rather than activate your iPhone at the Apple/AT&T store, you just buy the box, take the phone home, and activate it there.

Over the Internet.
Through iTunes.

This is genius.

I'm unbelievably impressed with how smart this is, and am also agog at, once again, how much flexibility Apple is able to wring out of its business partners while improving its customer experience. A few thoughts:

• Assuming the activation works as advertised, this may be the best phone-buying experience ever. The iTunes assistant walks you through the necessary steps to turn up the account ("Are you a current AT&T customer?"), helps you add a line or switch your account over to this new plan, and so on. It's simple, it's easy. And it also lets people on Verizon, et. al. easily port their current mobile numbers over to their new account.
• Apple is using their iTunes music store account/Apple ID to verify your personal information, and also to ensure that, if you're already an Apple customer, your data-entry requirements are minimal. Again, slick, and again, a great user experience.
• The sales model for iPhones is totally frictionless. Most cell phones (at least, non-prepaid phones) require some assistance to buy - that's the reason you see those Cingular and T-Mobile kiosks at every mall you go to. Selling a phone requires trained staff and dedicated activation equipment. iPhone doesn't need that. Rather than sell you a "phone" in the conventional sense, Apple is going to sell you a "box" that you take home to do the important stuff. This also means Apple can sell iPhones anyplace you can buy a box, which is pretty much anywhere - Fry's, MacMall, Best Buy, Target, you name it. Adding retail partners is trivially easy - no special training or equipment necessary - and it also makes the phone-buying experience similar to the iPod-buying experience. Smart, smart, smart - and it also lets Apple reach consumers away from the naysaying voices of the dudes at the Sprint/T-Mobile/Verizon stores.
• iPhones will be an easy, easy item to give at Christmas.
• AT&T's cost of sales is going to go through the floor. I can just imagine AT&T CEO David Dorman rubbing his hands with glee when he sees how many people have switched over to his network after this weekend - and he didn't do anything except watch the money roll in. AT&T will be able to scale sales to an unprecedented volume for a fraction of their traditional, per-transaction variable costs.
• It's hard to overstate how much of a strategic asset iTunes has become. It's a jukebox, a synchronization engine, an e-commerce front end for music, movies, TV shows, and games, a podcast and radio directory, the hub of AppleTV, and, now a seller of wireless services. It's also Just Great Software. The Nokias and Motorolas of the world are so far behind on this score - handset-maker PC software has always sucked, and as a result the experience of pairing a phone to your PC for, well, anything has been strictly for propellerheads. They're really behind.
• (Note to makers of cell phones everywhere: it's great that your phone can play music or look at pictures, but if your sync experience blows, nobody's gonna do it. And thus, your functionality might as well not exist. This is one of the big iPhone lessons, right? There's a difference between checkbox-feature and useful-feature. For some reason, people prefer to pay for the useful features.)
• I'm pleased with the cost of the data plans. Apple and AT&T did a good job of making the call+data rates competitive (cheap, actually), adding roughly $20 a month to the standard cell plans. This will only drive more smartphone adoption. Back when the iPhone was announced, I predicted that this was the best thing ever to happen to Cingular's data business. Hoo, boy it's true: let's say Apple & AT&T sell 3M iPhones by the end of this year. That means there are now 3,000,000 people paying $20 a month to AT&T for data - that's $60,000,000 a month ($720M in annual revenue). That's three-quarters of a billion dollars a year in (mostly) new contribution, against a system that's basically all fixed costs. The finance MBAs must be peeing themselves with excitement.
• It's also interesting that Apple sells the rate plans, and brands them as 'iPhone plans."
• I wonder if anyone at AT&T has thought about what happens when their exclusive deal with Apple is up. I mean, it's pretty trivial to imagine Apple cutting deals with Sprint, T-Mobile, or any other GSM wireless carrier and then simply offering those providers through iTunes in 2010 or 2012 or whenever. Apple owns everything here - they own the experience, they own the customer, they own the brand, they own the technology. The future relationship of the cell provider to iTunes will be identical to the relationship between music labels and the iTunes store - just one more thing Apple sells to add value to its products.
• The Outlook and Entourage (yay!) integration are nice, nice touches. Apple could have easily just supported its own stuff (Mail.app only), but instead took an inclusive route and supported our stuff, too. Bravo.

Really, as boring as an "activation video" might be - check it out. The sales model for the iPhone may well shake the industry as much as anything else: "just buy the box and use the Internet to do the rest."

I'm in line for the 8GB version this afternoon.

Posted by Gavin Shearer at June 29, 2007 7:53 AM. Posted to Apple.

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