Iphone Mania Persists Despite Apple Cold Shoulder

As Liz Gannes reports, iPhone mania persists in NYC, with folks lining up at 3AM clutching fistfuls of twenties to buy iPhones five at a time — for export to Europe. This despite the fact that Apple has been throwing cold water on the whole iPhone unlocking marketplace by warning people that a future firmware update could render liberated iPhones to shiny plastic/alloy bricks. But why? When you’re looking for answers, as they say, follow the money. The NYTimes (now mercifully free for you to read) reports on their blog that Apple, with their recent price cut, is effectively taking a loss on each iPhone and making it up on the fees paid to them via the Wireless Carriers. Well, duh. This should be no surprise to folks who know the wireless industry well. The only nuance here is that Apple has altered the way the money flows over traditional mobile phone handset makers, who are content to eke out slim margins selling phones directly to carriers, who then take a hit on the sale of the phone which is subsidized by your ongoing usage fees. As I’ve been trying to point out, the business model they’ve copied is that of Research in Motion. There is some smarts there, but not much. Apple has clearly miscalculated the confrontation that it is about to face with its users. Apple has a vested interest in “locking in” your iPhone to a contract with their partner carriers: this is the Cathedral. They have also borne witness to the powerful effects of releasing their products out into the wild and benefiting from the vibrant hacking community which has grown up around some of their products, such as the Apple TV Hackers, and of course the flourishing OS X third-party development community (which could be likened to Eric S. Raymond’s notion of a Bazaar). With all of those lessons in mind, Apple’s decision-making around the iPhone appears to be somewhat quixotic. But it is, for now, a depressing practical reality of the wireless world that even Apple cannot break the cabal and catalyze the wireless industry to flourish amid an internet-style openness. Apple is attempting to preserve the “lock” on its customers because carriers have a lock on the market. And we cannot expect Apple to lose money for the benefit of the greater community in the interests of strong-arming the carriers. Or can we? If they don’t, then Google might. The GoogPhone has become the new source of promise for we proletariat who formerly clicked our heels together and begged for Apple to bust the wireless industry cabal. Google has the altruism, the mandate, and the heft to push the carriers around much moreso than RIM or Apple. It is also going after spectrum, as we all know. Even if it gets it, this doesn’t mean it will use it, because it’ll become a substantial bargaining chip when it approaches carriers to provide distribution and access for its devices. So Apple might be getting a short-term spike out of its iPhone product line only to be subverted by Google, which will represent an interesting conflict-of-interest for Google CEO and Apple Board Member Eric Schmidt. If that’s the case, then Apple has forfeited a long-term future in the mobile world in an effort to work within, rather than challenge, the fundamental realities of the wireless industry. In the meantime, el-Steve-o is talking pretty tough to the iPhone unlocking crowd (which, let’s face it, is now probably approaching the majority of iPhone users). Of course, Jobs could be borrowing a page from Yasser Arafat: talking tough when his constituency (the carriers) are listening but sliding back-handed messages of peace (and unfettered use of iPhones) under the table. If there’s a volume horizon when the cost of producing iPhones becomes less than they’re forced to sell them for sometime in Apple’s future, then this is quite possible. The fundamental problem here is that being an open platform in an interconnected world is about more than just having an open device, like a PC. In fact, PCs have gotten a free ride of sorts because the Internet via broadband has always been more-or-less unencumbered. Wireless is just the opposite, and even devices like the OpenMoko will still be tethered within the Wireless Egosystem, until carriers stop caring about how much data you use and where you use it. The problem is: will they ever?