How Apple played it smart with iPhone exclusivity

iPhone-4-feature

Apple may be on the verge of opening up its Japanese iPhone sales to another cellular service provider, ending SoftBank’s exclusive hold on the popular smartphone. A new report says that KDDI au, one of Japan’s three major mobile carriers, could get the iPhone 5 beginning next year.

Nikkei Business Online (via TechCrunch) is the source of the report, and also notes that the iPhone 5 will support CDMA as well as GSM, which could open up the possibility that NTT DoCoMo, Japan’s largest mobile carrier, might also be able to get in on the action sometime down the road. Japan is one of the last major markets where iPhone availability is still limited to one carrier. China, another lucrative market where that’s currently the case, also seems to be on the verge of entering a partnership with a second provider.

A growing trend

Early this year, Apple opened up iPhone sales to a second provider in the U.S. when it introduced the CDMA iPhone 4 on Verizon’s  network. It also started selling the iPhone 4 factory unlocked, so iPhone buyers could take their business (albeit minus 3G speeds) to T-Mobile, which it turns out has a very high number of customers using Apple’s smartphone.

Apple’s trajectory with exclusivity reflects a very smart and elaborate plan which helped make the iPhone the success it is today, and now that exclusive carrier deals are ending, Apple stands ready to reap the rewards it has sown.

Why exclusivity used to matter

In the beginning, exclusivity served to help Apple gain concessions from cellular providers it might otherwise not have been able to negotiate; the iPhone carries no on-device carrier branding, unlike most other phones, and also doesn’t come with a lot of pre-installed bloatware from network operators, the way most non-iOS phones do. Apple essentially cut carriers out of the software and services side of the equation, and even though it had its marquee brand and the success of the iPod backing up the potential success of an iPhone, it wasn’t necessarily a “sure thing.”

Aside from appeasing carriers, exclusivity also made it easier for Apple to guarantee a uniform experience across all its iPhone devices in the early days, but more importantly, it helped promote an air of scarcity around the phone. The iPhone is by no means a limited edition collectible, and Apple was doubtless happy to sell as many as it could produce, but making it available on only one carrier at launch helped it feel like a rarity without any artificial limitations on production numbers.

Why exclusivity no longer matters

But exclusivity has exhausted its early usefulness. Carriers no longer need convincing that Apple’s model can be lucrative for them, even if it does mediate their relationship with customers to some extent. Apple doesn’t need to make concessions to negotiate with carriers anymore; if anything, the reverse is true.

Also, the illusion of scarcity is no longer necessary to make Apple’s products appealing in the eyes of buyers; even after more than a year since introduction, the iPhone 4 is the highest selling Apple smartphone in the U.S. and iPhone owners are the most likely to stay with their handset maker more of any smartphone buyers.

On the flip side, ending exclusivity across most major markets opens Apple’s business to a huge number of new potential customers. Android devices are available in more markets and on more networks than Apple’s iPhone. Anything that helps narrow that gap should help Apple win back market share from Google’s mobile OS.

The staged ending of exclusivity also means that Apple effectively gets a brand new launch every few years. An iPhone might not be totally new anymore, but it’s new to a network’s subscribers if an exclusivity deal was previously in place on a competing network. That will help it appear more attractive to customers tied to their carrier who’ve been watching and waiting as their friends on other networks had all the fun. Restricted access breeds interest; Apple likely anticipated that when it penned the original iPhone exclusivity deals with AT&T and others around the world.

Everybody wins

In the end, we all benefit from Apple’s approach to exclusivity. Consumers get a pure iPhone experience, mostly unadulterated by carrier demands, software and restrictions. Apple gets more control over its product, and a staged global rollout of its handset that keeps momentum rolling in its favor. Carriers, too, benefit. Even those that suffered as rivals rode the early success of the iPhone now get a chance to steal some of that thunder at the expense of their competitors; Verizon has AT&T’s history of sub-par iPhone service in major urban areas to parlay into switched subscribers, for instance.

The iPhone 5 will be a massive hit when it arrives (most likely next month), but if it also comes with expanded availability thanks to the continued erosion of exclusivity deals with carriers worldwide (and at home in the U.S., too), sales of Apple’s latest smartphone should easily smash previous records. This is definitely the one to watch.

loading

Comments have been disabled for this post