No Hidden Agenda Behind Required iTunes Account for Apple's iPhone

A variety of authors seem to see a nefarious scheme behind Apple (AAPL) requiring an iTunes account to buy an iPhone. Sadly, this conspiracy theory that Apple requires an iTunes account so it can sell you millions of copies of Finding Nemo and thereby conquer the world is somewhat overwrought. The truth of the matter (or at least my theory of the truth -- I only have soft data validating this) is that the iTunes account is actually required only for two functions:

1. iPhone activation. Apple faced a choice of either requiring an iTunes account to activate the phone and thereby contractually commit you to the hardware and calling plan, or sending you to a Cingular, pardon at&t store to do the same thing. Trust me -- the iTunes account is going to do way less upselling than the at&t sales people. By the way, unless I've missed something, I think this will mark the first time any US carrier has allowed online activation of their phones and phone plans. Once people get over the shock of requiring an iTunes account, this technique might actually set a new convenience standard for getting a mobile phone actually on the air.

2. Software updates. In case anyone hasn't noticed, Apple has promised ongoing software upgrades for the iPhone version 1 for at least two years (at least that's the period over which it is amortizing the hardware sale, so it makes some sense). It needs a way to deliver those updates in a timely and secure way; the last thing you want is for such an update to fail and turn your iPhone into an iBrick. iTunes performs this function for iPods today, so Apple chose to rely on a proven mechanism rather than inventing a new one. Sounds like a smart business and customer experience decision to me, not a conspiracy.

But wait! There's more! Hyawatha Bray has an article in today's Boston Globle comparing five iPhone competitors. Despite the repeated wails of journalists claiming that the iPhone's high price has doomed it to failure, three out of five of the competitors cost more, not less than the iPhone. And for those prices, you get the phone and the hours of joy on hold with your carrier customer service to activate and update it (if your phone handset provider ever bothers to issue updates, which most don't), too!

Hmmm. Let me think about this. Buying an iPhone gets me a great piece of hardware, online activation, no sales people, no time on hold waiting to repeat my account and social security number ten times, and a lower price than the competition. Maybe Apple actually priced the iPhone too low.

Full disclosure: The author owns Apple stock at the time of writing.

Comments

[Tech:]

don't worry,
Music station will be
backed by Nokia, Sony Ericsson, Motorola, Samsung, 30 mobile phone operators, and all four major music labels -- Universal, Sony, EMI and Warner
No proprietary format, No proprietary mobile, Major labels , International at Launch!
;o)

2007 Jun 15 05:34 AM

[Tom B:]

Music station is a non-starter. iTunes plus gives you DRM-free tunes here and now.

2007 Jun 15 08:31 AM

[jgphoto1:]

Regardless of what happens with the iPhone you can thank Apple for the sudden rush of new phone features, designs and services now being offered by the established players in this sector but who have apparently not been giving cutomers their A game until threatened by an upstart.

2007 Jun 15 11:50 AM

[ET:]

Thanks. That last paragraph say's it all.

2007 Jun 15 07:09 AM

[mike hough:]

As usual Carl is one of the few who really understand Apple Inc. How anyone can have thought it would be any other way than iTunes is beyond me.

In addition to the points made by Carl it might be worth restating (for those commentators who seem to need that little extra help) that iTunes is cross platform (Mac and PC) along with QuickTine and Safari. Safari is too new, QuickTime and Safari not 'account' oriented so that only leaves iTunes or a 'new' platform - which would have to be cross platform.

iTunes certainly happens to be an excellent fit commercially (music + video + podcasts) but even if that were not it would still be the obvious vehicle. It is already available, ubiquitius, tested and secure. This is a no brainer.

2007 Jun 15 09:33 AM

[David Lentz:]

Has the AT&T pricing for their required 2-year contract been announced? I don't see how one can make an assessment of how cheap/expensive the iPhone will be without that bit of info.

I'm hoping that Steve Jobs was able to persuade AT&T on the merits of using a lower monthly charge to carve out larger market share.

His ability to convince the recording industry to allow single-track music sales (even if the $0.99 price is ridiculously high), keeping the costs manageable to the customers, is the thing that really made the iPod work in the music markets. If people had been required to spend $15-$20 a pop to buy only albums over the internet, the (legal) digital music markets would not be nearly as large as they are today.

If the iPhone is chained to a $100-a-month service contract, there's going to be a lot fewer of them sold than if they were accompanied with a $30-a-month contract, or one that charged by the amount of data (digitized audio or web packets) used by the owner each month.

If the service plan cost is reasonable (as opposed to the gouge-out-your-eyes billing that cellular data plans typically employ), they will have little trouble meeting their sales goals. If not, we'll see how far the hype will carry them.

2007 Jun 15 10:17 AM

[andiammiste...:]

I have an i-tunes account already, does that make me a part a vast "left-wing conspiracy?"

2007 Jun 15 10:37 AM