As new speculation surfaces that AT&T will indeed lose its iPhone exclusive in mid-2010, the advantages to Apple are becoming clear over the Atlantic, where the end of exclusivity is boosting its market share (and carriers are still taking most of the margin hit of targeting the mass market and competing on price with rivals).
The iPhone has been available from all three French operators ‘ former exclusive provider Orange plus Bouygues Telecom and SFR ‘ since April, after the government banned sole rights deals. The wider distribution boosted Apple’s value market share to 32% in the third quarter, from 21% three months earlier, according to research from Bernstein. “The expansion of iPhone distribution has clearly benefited Apple, helping it to more than double sales in three months,” Pierre Ferragu, analyst at Bernstein, told Dow Jones. The gain has been made mainly at the expense of BlackBerry, he added.
Morgan Stanley estimates echo the findings, saying that Apple’s French market share rose by 17% between Q2 and Q3. As a result, France is now the biggest market for the iPhone in Europe, with more than 600,000 units sold in Q3 according to Gartner. In global market share terms, Apple rose from 1.9% in Q2 to 2.6% in Q3.
Analysts expect a similar effect in the UK, where O2 lost its exclusive recently, with Orange now offering the iPhone and Vodafone due to launch it after Christmas. “Exclusivity in France ended in April. Our numbers show that shelf share tripled and market share doubled quarter on quarter,” said Strategy Analytics analyst Neil Mawston.”Given that the UK market is pretty similar and the brand strong there, yes, you can extrapolate that.’
Apple is abandoning its premium, exclusive strategy for the iPhone in earnest in the UK, where even the low cost MVNO run by supermarket giant Tesco is to offer the iconic handset. Tesco will join former exclusive carrier O2, Orange, and ‘ from the first quarter ‘ Vodafone in offering the iPhone, and hopes to do so before Christmas. Tesco uses the O2 network and offers contract and prepaid tariffs via its stores and online.
So while the iPhone remains AT&T’s key competitive weapon, there is rising conviction that it will lose its sole rights next year. Brian Marshall of Broadpoint AmTech is the latest to raise the specter, telling Bloomberg TV that he thinks the deal will change in 2010. He said in the interview that Apple gets a $450 subsidy from AT&T for each iPhone it sells, but that after June the subsidy will drop to $300 for all carriers, so that Apple will need additional partners to boost revenues.
Meanwhile, Apple has been defending its controversial App Store approval process, which has seen some high profile developers defecting recently. In response to the FCC’s ongoing enquiry into Apple’s handling of the Google Voice app, the firm claimed about 95% of programs are approved for the store within 14 days of submission and only 20% are not approved as originally submitted. About 8,500 apps and updates are put forward each week for the iPhone and iPod Touch. Last week, Apple updated its Developer Center web site to enable coders to track the status of their software as it makes its way through the approval process, breaking it down into nine status levels.
And in an interview with BusinessWeek, Apple’s senior VP for worldwide product marketing, Phil Schiller, said: “We’ve built a store for the most part that people can trust’, and said that while most instances where Apple requests changes are because of technical bugs, about 10% relate to content ‘ for instance, apps that will ‘steal personal data, or which are intended to help the user break the law, or which contain inappropriate content’. About 1% of apps fall into grey areas Apple did not previously anticipate, he said.
Schiller clearly felt the need to defend the App Store model after several high profile developer defections, including that of Paul Kafasis from Rogue Amoeba, who publicly renounced the App Store after a ‘simple bug fix’ for his firm’s Airfoil Speakers Touch app spent over 3.5 months waiting in the approval process. ‘It took almost four months of slow replies, delays, and dithering by Apple,” he wrote on the Rogue Amoeba blog. “All the while, our buggy version was still available. There’s no other word for that but ‘broken’.”
And Facebook developer Joe Hewitt last week made a public promise to quit developing for the iPhone, also blaming Apple’s approval policies. “I’ve handed the Facebook iPhone app off to another engineer, and I’m onto a new project,” he tweeted, telling TechCrunch: “My decision to stop iPhone development has had everything to do with Apple’s policies. I am philosophically opposed to the existence of their review process. I am very concerned that they are setting a horrible precedent for other software platforms, and soon gatekeepers will start infesting the lives of every software developer.”
Palm has scored points over Apple by offering a web-based option to developers for its Pre, which bypasses the approval process required for the full blown Palm store.
It’s not just Apple that is angering some of its developers though. This week, one of the largest mobile games developers, Gameloft, said it was reducing activities for the Android platform because of weaknesses in the Market. “We have significantly cut our investment in the Android platform, just like … many others,” Gameloft finance director Alexandre de Rochefort told an investor conference. He said the Market experience is not as good as Apple’s App Store (where Gameloft is a major vendor) and Google is not driving sales for the Android app ecosystem. He said Gameloft, which got 13% of its revenue from the iPhone in the latest quarter, sells 400 times more games on that platform compared to Android.
Meanwhile in an unrelated story Plaintiffs in a 2007 lawsuit, which charges Apple and AT&T with breaking antitrust laws, last week asked a federal judge to force the vendor to hand over the iPhone source code. The action accuses Apple and AT&T of violating antitrust laws by agreeing to a multiyear deal that locks US iPhone owners into one carrier.
The complainants want US District Court Judge James Ware to compel Apple to produce the source code for the iPhone 1.1.1 software, an update that Apple issued in September 2007 to cripple iPhones that had been ‘jailbroken’. They want to examine the source code for the kernel, the core OS and core services layer, as well as for two programs – Purple Restore and BBUpdater – which are used to update the iPhone’s OS and flash its baseband chip. This, they argue, will determine whether all iPhones were given the same 1.1.1 update, and whether it was designed to ‘brick’ all of them, or just some hacked iPhones.