Lessons from My Son's iPhone Purchase

| About: Apple Inc. (AAPL)

By Carl Howe

My 14-year-old son has saved his allowances and earned money all summer to purchase an iPhone. And after the early Christmas present that Steve Jobs delivered on September 8 -- the $200 iPhone price cut -- he finally scrounged enough money to actually buy an 8 Gigabyte refurbished version for $349 from the Apple (NASDAQ:AAPL) Store. And last night his long-awaited purchase arrived, as can be seen below.

I'll spare readers the blow-by-blow, but I will touch on the highlights of iPhone unboxing Monday night:

1. Refurbished iPhones come in white boxes. We've bought refurbished products form Apple before, and they've traditionally arrived in brown cardboard boxes advertising their lower cost and refurbished status. But refurbished iPhones break that tradition by arriving in a clean white Apple box with the Apple logo on the top. This nicely sets them apart from new iPhones that come in black boxes. But even more intriguing, Apple appears to have optimized the packaging yet further -- the white boxes are, to my eyes, about two-thirds the size of the new iPhone boxes.

[Robert enjoying the unboxing experience. "It's so small and shiny!"]

2. Not all AT&T (NYSE:T) accounts are created equal. We've been AT&T wireless customers for about 10 years. That means we've been through the sale of AT&T wireless to Cingular, and Cingular's sale to SBC, and the subsequent rebranding of Cingular to AT&T. And our reward for 10 years of loyalty? We couldn't activate Robert's iPhone on our AT&T family plan because our account was "on the blue system" of Cingular instead of the good "Orange side." We called AT&T, and they literally said they couldn't help us over the phone; we'd have to go visit an AT&T retail store and trade in our old phones for new ones.

So we trekked over to Small World in Acton, MA (an AT&T franchisee, not a corporate AT&T store), and a wonderful gentleman there made it all better with nearly an hour and a half of fussing with the AT&T systems. The bottom line: since I had an unlocked phone (my Nokia E61i), I only needed a new SIM card. But since my wife's ancient Nokia 3650 was locked to the old AT&T wireless, she'd need a new Nokia phone -- which they didn't have in stock. Now given we had a child who had just spent $350 that he saved for months and was dying to turn his iBrick into an iPhone, we asked if there was any way we could get this done today rather than waiting for a phone shipment. To Small World's credit, the agent electronically activated our new SIM cards, transferred a phone from another store, which the agent would personally pick up and deliver tomorrow, and got us up and running after only an hour and a half of customer service calls, computer entries, and activation hassles. We were pleased and astonished at the amount of work the agent was willing to do to help us, but we were similarly appalled by how customer-hostile the back-end systems were he was fighting with.

3. Once our plan was right, the iPhone experience was flawless. Once we got home with our new plan activated and our wallets lighter for the experience, Robert fired up iTunes and activated his phone. Within five minutes, he had a phone number and a working phone on our family plan. The contrast with the AT&T store experience was like night and day; it was just click, click, click, and go.

So now I have a son with an iPhone, a family AT&T plan "on the orange side", and a wife with a new Nokia. And even with less than a day's experience, I already have some takeaways from the transaction.

1. Even with my recent vintage Nokia (NYSE:NOK) mobile, I'm jealous of my son's phone experience. As I've written before, the specs on my Nokia E61i far surpass those of the iPhone; it has 3G data, WiFi, video recording, zoom camera, installable software, and countless other whizzy features. Yet, I'd trade my phone for even a 4 Gig iPhone in a heartbeat. Why? Because I've spent nearly two months configuring my phone to do about half as much as my son could do within minutes of unboxing his phone. The experience of using my Nokia compared to the iPhone is comparable to using PC DOS compared to Mac OS X. The former is painfully functional but never helpful, while the latter is delightful and simple.

2. The iPhone is going to undermine cellular carrier's business as usual. The experiential difference between an hour and a half activation at a store and a five minute activation at home is huge. Add to that fact that iPhone purchasers are paying full retail prices and signing up for unlimited data plans, and you're seeing significant cream-skimming of the mobile phone market by Apple. Don't be surprised if Apple gains even more power over the mobile phone carriers simply because of the massive buying power that iPhone customers will come to represent. And in the process, manufacturers of "free" carrier-subsidized phones are going to be at a significant disadvantage competing with Apple's high customer satisfaction (and even higher margin) business model.

3. AT&T still has significant work to do. The whole "blue versus orange" distinction, while understandable, is something AT&T has to fix and fix fast. The store agent said that they plan to require all customers to be "on the orange side" by March 2008. But the fact that we had to buy at least one new phone, spend $130, and commit to new service contracts just for the privilege of adding an iPhone after being 10-year loyal AT&T customers leaves a bad taste in my mouth. Somewhere in AT&T there must be a person in charge of customer experience who should be forced to go try to put an iPhone on a blue AT&T plan every day until he gets the service fixed. As it stands now, it's the biggest blemish in the iPhone experience.

Bottom line: While the Nokia E61i is less than the sum of its specifications, the iPhone experience is more than the sum of its parts. Apple has raised the bar about six feet on what users should expect from a mobile phone. And when even a high-school kid can save his money and buy his own iPhone, that experience isn't just for a few well-heeled technophiles; it's going to affect everyone who owns a phone and every carrier who sells them.

Full disclosure: the author owns Apple stock.