Monday, August 06, 2007

iPhone Revenues Flow in Three Streams

What makes Apple's situation unique is that it marks the first time a handset maker has acted as the retailer, the manufacturer, and the data service provider (iTunes is a data service, right?) for a single device.

iPhone Revenues Flow in Three Streams
August 03, 2007

Apple Inc. is receiving a $175 activation fee for each iPhone sold through its store or Website, a source close to the situation says. This revenue comes in addition to the regular payments Apple is rumored to receive from its carrier partner and monies from the hardware sale itself.

We already knew Apple was getting some kind of sweet bounty on each phone; Analysts reported that last week and one said the payment could be up to $200. But now Unstrung has a source putting an exact figure on the story, and that $175 in extra payments could represent a significant revenue stream for Apple.

Apple sold 270,000 iPhones in the last 36 hours of the June quarter after the device's media-drenched launch, and says it will top a million devices by the end of September. Apple expects to move 10 million of the phones through 2008. The great unknown here, sources say, is that we can't tell how many phones have been sold by Apple online, through Apple stores, and through AT&T retail outlets.

The activation fee is one of three revenue streams that Apple realizes through the iPhone, according to analysts and industry chatter. There are some margins on the hardware sold. There has also been some talk of Apple receiving a percentage of service revenues from AT&T.

American Technology Research analyst Albert Lin suggests, however, that Apple is far more likely to get a small "single-digit" payment from AT&T related to the computer vendor's management of its iTunes service for the phone. "Almost for sure, Apple is getting a monthly fee," says Lin.

Canuck mobile email maven Research In Motion Ltd. (RIM) set the stakes for this kind of service fee by running its own messaging service for the BlackBerry handhelds and phones, Lin notes. RIM gets $7 to $10 a month for each BlackBerry user on its various carrier partner networks.

Carriers love the BlackBerry, Lin asserts, because they get $50 per month or more from enterprise customers that don't actually place much stress on their networks. Apple's iPhone could be a far lower margin device, he says, since consumers are encouraged to exploit its media-rich feature set.

Apple isn't the only company seeing tasty activation fee action for phone sales, Lin says. In fact, he believes that the $175 figure could be on the low side. "For Apple activations it could be much higher than $175," he says.

Carriers generally prefer to sell phones direct, since this is the way they see most revenue. Even as brick-and-mortar third-party cellular sales outlets have declined, online operations are booming.

Big name e-commerce brands such as Amazon have been in the cellular sales game for a while now. Lin, however, says that InPhonic Inc. 's Wirefly.com site, which styles itself as the Internet's No. 1 authorized phone dealer, gets some of the most hefty fees in the phone activation game.

He says that InPhonic receives around $300 per sale for some of the phones it retails in cyberspace. The company works with all the major U.S. carriers but it is not an outlet for the iPhone, at least not yet.

What makes Apple's situation unique is that it marks the first time a handset maker has acted as the retailer, the manufacturer, and the data service provider (iTunes is a data service, right?) for a single device.

A spokesman for AT&T refused to go into contract specifics about its iPhone deal. "It is good for us and it's good for them," he said. Apple hasn't yet returned calls on the subject.

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