Why a Million iPhone Sales In 74 Days Is Better Than You Think 19 comments
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Both commentators and bloggers are continuing to claim that the iPhone million unit mark represents weak demand, including some commenters on my post from yesterday. Silicon Alley Insider Dan Frommer joined the fray with this commentary titled, Apple's iPhone 1 Million Is Below Plan:
Days after Apple gets hammered by the Street over iPhones sales, Steve Jobs tells us that he's selling plenty of fancy phones: 1 million of them in 74 days. The news, announced before the market opened, bumped up AAPL: Shares immediately jumped to $137. But now they're dropping down again, below $135. So is 1 million a good number or not?It's not -- not even by Apple's own low-ball public sales goals. Jobs has announced plans to sell 10 million iPhones by the end of 2008 -- a year and a half after launch. But a million iPhones in 74 days works out to a little less than 5 million iPhones per year -- if you're selling them at a consistent rate. Apple sold 270,000 machines in the first two frenzied days it was on sale, which means it took 72 more days to sell another 700,000 phones. That's a 3.6 million annual run rate, which would give Jobs a total of 5.8 million by the end of 2008.
The iPhone hasn't been introduced in Europe yet, and when it does that run rate will certainly increase, as consumers there are comfortable with the idea of buying pricey phones without carrier subsidies. And Jobs obviously intended to cut prices -- eventually -- to boost sales again. But if Jobs was selling enough $600 iPhones, there would be no reason to drop prices by one third after just two months on the market. Lehman Brothers' Harry E. Blount, who had correctly pegged Apple's first weekend sales, predicted this move in July.
How much will that help? Remember that most potential iPhone customers can't buy one no matter what the price is without considerable hardship, because they have long-term plans with other wireless carriers other than AT&T. You may be more inclined to buy a $400 iPhone than a $600 iPhone. But if you're locked up with a two-year Verizon contract, you're not going to buy one at any price. We hear, second-hand, that Apple is running 25% below their internal sales goals, and we're in no position to confirm that. But we think that if the iPhone was on track, we wouldn't have seen a price cut this early, and we would have heard about 1 million units even earlier.
Click on the above image for a movie of iPhone availability for the month of July; Quicktime required
Most amusing. I say amusing, because the post conveniently ignores three important factors that make such a straight line extrapolation of the first 74 days silly:
- Seasonal sales He is using straightline projections assuming no holiday bumps, which we know historically are important boosts. He also conveniently ignores the fact that summer is probably the worst selling time for consumer electronics.
- Never expiring carrier lockups.The article assumes that if you're a Verizon customer today, you'll never become an ATT customer because of your two-year contract. But, over the next 18 months, three quarters of all two-year-contract carrier lockups will expire, creating new consumers who can be sold iPhones.
- Near non-existent iPhone availability for three weeks. Everyone is focusing on estimates of about 700,000 iphones sold over 74 days. But in reality, iPhones were very hard to find for nearly 21 days of that selling period!. I've included a (admittedly very rough) movie showing iPhone availability at Apple stores during the first month of sales. Suffice it to say that if you wanted an iPhone during the period between July 1 and July 21, you had to be either lucky or determined to get one, because most Apple stores were out of stock of them.
This is a very typical pattern for Apple. Whenever it tries something new, various pundits bet that it will fail in the effort because, well, just because. BusinessWeek wrote the epitaph of Apple retail when it launched, and now those stores garner more dollars per square foot than any other retailer, bar none. The iPod was written off by Slashdot as "No wireless. Less space than a Nomad. Lame.", and the iPod is now by far the dominant music player. And now bashing the iPhone's success (which by the way, writers from Bloomberg and CNET to Suckbusters, not to mention John Dvorak, claimed would fail horribly) and price cut has become the latest journalistic parlor game.
But it's also important to remember that even with all the launch and sales-bashing, the iPhone remains one of the best-selling consumer products in history as measured in dollars, passing Microsoft Windows 95, Microsoft's XBox 360, and even the Nintendo Wii launches. At one million phones, Apple has pulled in about half a billion dollars in sales that will add to its balance sheet over those 74 days, And at the new price point and with the holiday season approaching, those numbers will only go up rapidly, regardless whether the actual sales for the year are 2 million, 3 million, or 10 million.
No matter how you slice it or try to discount it, the iPhone has already proved most of the aforementioned pundits wrong. If they want to claim that Apple didn't meet their expectations, that's fine. But any business writer or analyst who claims that selling a million units of a completely new product at an average price of $575 in a little over two months "isn't a good number" just is trolling for traffic. Last time I checked, half a billion profitable dollars in sales was real money in most people's minds. Claiming otherwise is just sour grapes.
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This article has 19 comments:
In the first 74 days one model was discontinued, features were added, the price dropped and a new partner (Starbucks) joined the ecosphere. Wonder what's planned for the next 74 days?!
I like your continued penchant for showing these other pundits the facts because they are obviously having difficulty seeing them on their own.
Great article, you managed to say something entirely different and interesting than what is currently being said about Apple.
As for Sour Grapes, Al Ries and Daughter (renowned author and marketer) have predicted the demise of Apple's "Convergence device from the get go.
Al is great at hindsight marketing principles, but this one he clearly got wrong and it will be interesting if he's man enough to follow-up on his blog about the product in a year.
See Al's comments here: www.riesreport.com/ind...
Cheers.
2aday.wordpress.com/20.../
If it took the iPod long time to gain favor, it could just as easy take time for iPod sales to pick up. Yet iPhones are selling much faster than the original iPods. I guess the situation is somewhat different since the iPod didn't need a two-year contract. I just feel that once it's a bit popular and your circle of friends start buying them, you'll have a tendency to buy one if it's a good product and you don't want to be left out.
If only it can get a decent corporate following after it gets a decent push e-mail client, then sales will really take off and take over that BlackBerry niche.
In addition, I just today downloaded a software unlock for the iPhone, so I expect Apple will gain a few sales this way to those people who despise AT&T (like myself). Jobs has already went on record to state he wouldn't try to disable unlocks.
First, Dan did indeed neglect holiday sales. This could be significant, especially considering the new lower price.
Second, carrier lockups are a non-issue. Before you flame me, let me explain. All the statistics gathered by Dan were subject to the fact that some people did not have contracts, some were willing to break them, and some expired during this 74 days. This will not change over the next 15+ months. I have not bought an iPhone yet, but I will when my contract runs out. This will happen December 2008. Just in time.
Third, availability was a non-issue. Everyone who wanted an iPhone could get one. Apple did a very good job meeting demand. If you wanted one during those 21 days and couldn't get one (I haven't heard of this happening), then you certainly could get one after the 21 days were over.
Now let's talk about some real issues that were not discussed.
1. Most of the statistics Dan collected before the 33% price cut. Anybody who knows anything about economics knows that demand will go up. The rate of sales cannot be extrapolated for this reason alone. You have to collect more data at the current price. Some are saying that demand has tripled since the price cut. I think these people are optimistic.
2. The biggest complaint I hear about the iPhone (besides the price) is that EDGE is slow. I'd bet money that Apple will release a 3G iPhone with more storage (16 - 32 GB) by the next holiday season. This should have a huge impact on demand.
Apple will sell more than 10 million iPods. My prediction is for 15 million iPods.
THAT ONE WANTS. THIS IS THE GREATEST INNOVATION SINCE
ALL THE ABOVE MENTIONED.
SOON THE I-CAR, I-PLANE,THE I-BUS, AND OTHER PROGRAMS WILL BE A REALITY BEYOND MAN'S IMAGINATION.
MR. JOBS IS A GENIUS, IN ALL HE DOES AND HE IS DOING ANOTHER MACINTOSH,I-POD, AND SOON HE WILL ANNOUNCE THE INTRODUCTION APPLE'S OWN WIRELESS, AND NOT NEED AT & T.
RESPECTFULLY
FENOMINAL NORMAN