Thursday, June 28, 2007

iPhone-o-nomics: 1 million to be sold on day 1?

This morning, iPhone penny dropped. It bounced from the balcony in the Rotunda of the Nebraska State Capital building, as I lay, incognito and nondescript, in the center of the the cool marble floor below, a loud slow bounce, fading to softer quicker bounces, and finally a rolling, twirling stop (limp simulacrum available from groovy site, The FreeSound Project).

I had been pondering something that bugged me about Steven Levy's iPhone review ( At Last, the iPhone ), in which he says:
"Instead of going through the usual complicated contract signing and credit-vetting ceremony with a fast-talking and slow-processing salesperson, Apple has come up with a startling idea: you simply buy the thing and go home."

One million iPhone

Apple is going to sell a million iPhone the first day.

Well, more properly, Apple are preparing to sell a million iPhone, starting on Friday with a four hour sales window, continuing through the weekend, and capped off with a press release to be issued Monday or Tuesday. They think they can do it.

They stand a non-zero chance of reaching that goal. It would be difficult, and no other cell phone has ever done anything like this on launch day before. In fact, it would be difficult for AT&T alone to sell a million cell phones in a single day under normal circumstances. If things go horribly awry, they'll still sell a million iPhone the first week, and probably take the banner for most impressive cell phone launch of all time.

How to sell a million cell phones: iTunes

I don't think they could do it without iTunes. See, the way things operate today, before iPhone and iTunes, it takes a minimum of about 20 minutes to get into the store, get a phone, choose a plan with the assistance of the helpful staff, register, and activate the phone. This doesn't count the time you'll spend waiting around the store because the guy ahead of you is asking how to configure email on their BlackJack.

iTunes takes probably at least 15 minutes of that process and puts it in control of the customer. They can register with iTunes, which they already know how to use. They can do it at home without a salesperson annoying them. They can do it reliably, securely, and easily, using the world's most popular non-browser e-commerce solution, iTunes.

To prepare for iPhone Day ("iDay" inside the company) AT&T hired, on average, an extra sales agent for each of their 1800 stores. They seem to be limited to an average of three check-out sales agents per store, due to the number of cash registers available. Unlike most days, they will be fully staffed on iDay. AT&T has about 1800 stores x 3 registers per store x 4 hours to sell iPhone from 6 p.m. to 10 p.m on Friday x 60 minutes per hour, for a total of about 1,296,000 minutes to sell phones. At twenty minutes a phone that's a paltry 64,800 phones. With all three registers staffed and other staff in the store to handle questions, at three minutes per transaction AT&T could possibly sell over 400,000 phones on Friday night, over 200 phones per store on average.

There are only 200 Apple stores, but they sport sales agents equipped with wireless, hand-held point of sale terminals. They can probably sell an iPhone every three minutes per employee, and they can probably staff as many as five or six per store on iPhone Day. Big stores might have even more. Apple can probably sell 500 phones per store in 4 hours, for about 100,000 phones on launch day. Almost certainly they will.

Clearly the retail infrastructure will be unable to sell a million phones in four hours on Friday, though they could probably do it through the weekend. However, this estimate doesn't include the wild card: The Apple Store online. There could be quite a few people betting on FedEX as the best way to get an early iPhone, less hassle, no camping on the streets of Manhattan. Apple might easily pick up the extra half million sales online.

How to sell 100 Million iPhone

The iTunes-based iPhone registration system is designed to shake up an aspect of the cell phone industry that hasn't been much discussed, with the focus on all the cool iPhone features. That twenty minutes hanging out in a wireless store to buy a phone isn't really high on the list of things people don't like about their cell phones. In fact, I've never heard anybody mention that, ever.

It is, however, a bottleneck for selling phones.

If you want to sell 100 million iPhone, like you sold 40 million iPod last year, you have to change the very mechanics of how phones get sold. It may not happen until the exclusive ATT agreement has expired and iPhone models for other vendors are created, but eventually iPhone will be available for sale at BestBuy, as well as many if not all of the other thousands of locations where iPod music players are sold today.

Apple is going to try to sell 1 million iPhone on day 1. There is a chance they might miss by half, and if they do, it will still be the most successful launch of a product in the cell phone market, and in consumer electronics in general, of all time.

(Bootnote: Steven Levy is not to be confused with Steven Levitt, co-author of Freakonomics.)

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