iPhone Underground
It might be the perfect recipe for an illicit market. Take an attractive, expensive new gadget and slap an exclusivity agreement on it. In short, create the Apple iPhone. So, it shouldn’t come as a surprise that when the much-hyped device was launched last June, it became the subject of a global mystery. Apple’s sales ...
It might be the perfect recipe for an illicit market. Take an attractive, expensive new gadget and slap an exclusivity agreement on it. In short, create the Apple iPhone.
It might be the perfect recipe for an illicit market. Take an attractive, expensive new gadget and slap an exclusivity agreement on it. In short, create the Apple iPhone.
So, it shouldn’t come as a surprise that when the much-hyped device was launched last June, it became the subject of a global mystery. Apple’s sales figures didn’t match the number of activations on AT&T’s network, Apple’s exclusive carrier in the United States. More than 1 million iPhones were "missing."
In reality, though, they weren’t. The phones had simply been "unlocked," or modified to operate on any service provider’s network. Most were sent overseas. It’s difficult to determine just how many unlocked iPhones ended up where, but consumers from Afghanistan to Brazil to Russia report buying and using the devices. China Mobile reportedly had 400,000 unlocked iPhones on its network at the end of 2007.
Within weeks of the iPhone’s release, a cottage industry emerged that helped chip away at Apple’s unique business model. Bladox, for instance, a Czech firm that manufactures SIM cards that can be used in unlocked iPhones, says it was overwhelmed with orders from some 100 countries. And distributors in China say that at least some of the illicit iPhones came straight from the factory, where workers stole them for sale on the street.
Surely Apple must have anticipated such a massive gray market? Actually, no. "I don’t think they really saw it coming… [or] the scope of it," says David Zeiler, who writes the Baltimore Sun’s Apple a Day blog. But that doesn’t necessarily mean Apple is too concerned about it, either. "If they sell a handset and someone takes it overseas and unlocks it, they still make money," says Zeiler. In fact, Toni Sacconaghi, an analyst with Bernstein Research, says a vast gray market may have some benefit to Apple’s long-term strategy. "It helps Apple get to its goal of 10 million [phones sold]… and it helps increase global awareness of the Apple brand."
What’s more, there’s evidence that Apple is using the global gray market as a way to test markets where the iPhone has not yet launched. "We view [unlocking] as a positive indicator in future demand," Apple’s Chief Financial Officer Peter Oppenheimer has said. Gregory Ng, editor of the blog iPhone Matters, believes selling more iPhones, no matter where or how, is Apple’s ultimate aim. "From a very romantic point of view, [Apple] likes to think that they’re changing the way people use phones," he says. "They care about making an impact and driving the market." Apple may not let on, but those "missing" iPhones are likely music to their ears.
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