US newspaper USA today claimed a two year old scoop this week, when it revealed that Verizon had the first shot at signing the Apple iPhone and rejected it, way back when the company had first thought up the idea.
Verizon responded to Apple’s CEO Steve Jobs in the way that many have in the past, including Michael Eisner of Disney when he was negotiating with Jobs’ other interest, Pixar. The animation company was eventually sold to Disney by Jobs when the new CEO Robert Iger took over, in a $7.4 billion acquisition.
Jobs and Eisner could barely be left in a room together, because Eisner felt that Jobs was greedy, overrated his company’s ability, and Eisner himself was arrogant and stubborn.
The report suggests that Apple wanted control over all retail outlets, and a portion of cellphone fees, and Verizon executives showed Jobs the door.
Jobs is famous for his ability to negotiate non-standard new terms, he had product exclusivity on his early iPod disk drives, he has pre-paid $ billions to secure the right price for flash memory, and he drove the combined might of the world’s largest record labels to accepting a uniform price for ALL music tracks.
We won’t attempt to disguise our admiration for Jobs, he was uniformly right in each of those deals, and he would have been right when he asked the studios to accept uniform, and far lower pricing, for video downloads to iTunes, a move which they have so far continued to resist (a fact that single handedly explains why the market for films downloads never took off in 2006).
However Verizon Wireless now characterizes many of the terms as impossible, including the fact that Apple wanted to forbid retailers such as Wal-Mart and Best Buy from stocking the phone, and take care of all maintenance itself and be the sole arbiter of whether or not a faulty device should be fixed or replaced.
We can understand that. The profitability of consumer electronics devices can be dealt savage blows by a weak approach to maintenance.
But collectively, over the entire breadth of the contract, Verizon felt that the deal was so different from existing handset supply deals that it felt it would have taken a back seat to Apple.
The fight in branding between a Cellco and its handset makers is legendary and needs careful managing. Too tight a control over Cellco branding means that it has to miss out on innovative handset features, too lose a control and everyone goes into a retailer and asks ‘I want a Motorola RAZR phone (or iPhone or Nokia N73), and I don’t care what network it’s on.’
It’s interesting, but we said at the iPhone launch that it was likely that Cingular has accepted the principle that it would subsidize the handset, even if it meant a high price on the device PLUS a share of connection revenues.
And with an interface as strong as the iPhone, there’s virtually nothing that the network operator can influence about the look and feel of the device. Our separate story below on Ajax and fluid user interfaces suggests to in time this type of interface too will bend to operator demands, but not initially.
So it looks like Cingular has accepted all of those terms that Verizon rejected, and taken what some say is a five year exclusivity deal with Apple.
We’ll soon see, come June, if Wal-Mart and Best Buy don’t have any of the iPhones it will be pretty obvious.
If Apple is right and it can ship 10 million iPhone devices during its 2008 financial year, then it will add close to $6 billion to its existing $20 billion plus revenues, and a substantial improvement on its net income, even if the iPhone business begins to undermine the original iPod business.