Apple shifts [recurring] revenue source from AT&T to ME

June 15th, 2008 | by Laurent FP |

Digital ink has flooded since last Monday’s announcement by Steve Jobs of the release of the next generation iPhone, named appropriately the iPhone 3G.

That day, the first shockwave happened when Steve announced that the price of the phone would be dropped to $199 for the entry-level model. Everyone rejoiced. The aftershock was felt quickly thereafter through a discreet and traditional press release by AT&T mentioning that the phone would be subsidized the same as all other handsets.

This meant one thing : AT&T would NOT be sending $20 per month per phone to Apple.

What struck me as closely related is that a few minutes before announcing the new iphone, Jobs introduced MobileMe, the rebirth of .Mac. And introduced it as a paying service for $99 per year. While a user won’t need MobileMe to make full use of the iPhone 3G, push emails, contact and picture sync come very handy especially now that Apple didn’t introduce wireless sync (as in wifi). Each customer wanting the full potential of the phone will most likely subscribe to the service. Is this a coincidence that the $120 per year Apple was getting from AT&T is replaced by about $100 per year directly from me?

Operator = 100% of monthly plan – minus the financial cost of subsidy
Apple = handset, MobileMe subscription, 30% of 3rd party software

MobileMe seems to be an integral part of making the iPhone 3G appear less expensive by removing the first barrier to entry. Complementing it with the 3rd-party software store guarantees another continuous stream of revenue. Very clever way to get more iPhones in the hands of the consumers while Apple and the operator increase their overall revenues.

Apple shifts the source of its revenue stream from the operators to our own pockets. Not surprising then that operators are more likely to list the iPhone as they don’t have to manage a new type of partnership. Subsidizing a handset has been part of the operator’s everyday practice for a very long time. The iPhone 3G, by actually launching in more countries (70) than initially planned (25), looks like they’re admitting they failed at imposing a new royalty mechanism to the operators worldwide.

Quote from AT&T press release “The new agreement between Apple and AT&T eliminates the revenue-sharing model under which AT&T shared a portion of monthly service revenue with Apple. Under the revised agreement, which is consistent with traditional equipment manufacturer-carrier arrangements, there is no revenue sharing and both iPhone 3G models will be offered at attractive prices to broaden the market potential and accelerate subscriber volumes.”

Related posts about the iPhone launch

3 and a half minute to introduce the iPhone

Sorry, comments for this entry are closed at this time.