Apple’s (AAPL) new iPhone contract requirements made it trickier to give the phone as a gift this past Christmas: To buy the phone at a retail store in the U.S., for example, you needed to sign a two-year contract with AT&T (T) before leaving the store. That’s different from 2007, when Apple sold iPhones as freely as iPods — anyone, including foreigners, could buy an iPhone and give it away as a gift.
So did Apple’s more restrictive requirements hurt the company? AdAge ran some numbers.
Piper Jaffray estimates that the company sold 3.8 million iPhones in December, just over half of what it estimates were fourth-quarter unit sales. Andrew Murphy, an analyst at the firm, calculates that Apple could have sold 300,000 to 400,000 more iPhones if it were easier to give them as gifts. Since the entry-level 8GB phone costs $199 (with that pesky two-year contract), the unrealized revenue could be as much as $80 million.
We doubt Apple’s losing any sleep over this. Why?
Most important: Those pesky contracts and policies allow Apple to sell subsidized iPhones marked down several hundred dollars. We have no doubt that cutting the iPhone’s price in half to $199 is helping Apple’s sales significantly more than restrictive policies are hurting its sales. The tradeoff is worth it.
We also question how many people really canceled their iPhone gifting because it was trickier than the year before. Most people, we assume, are not that binary (or lazy). Plus, every subsidized mobile phone is that tricky to give as a gift — it’s not just the iPhone. And beginning in early December, AT&T let you order pre-activated iPhones online like the rest of its phones.
If anyone bought fewer iPhones last Christmas because of restrictions, we think it’s foreign visitors who wanted to hack them, give them as gifts, use them back home, or sell them. But that’s a different problem. And Apple’s larger, global iPhone distribution channel — much larger than it was in 2007 — should have helped with some of that.
So while it’s a neat exercise, we think this is the least of Apple’s worries. Even if Apple did miss out on some holiday sales because of gift-giving complexity, the tradeoff of subsidized pricing is worth it.
(Meanwhile, AdAge’s $80 million estimate — for whatever it’s worth — is too low. Apple doesn’t sell the iPhone for $199 — that’s the retail price consumers pay after several hundred dollars of carrier subsidies. Piper Jaffray estimates that Apple sells the iPhone to carriers for an average $630. So if Apple is really missing out on 400,000 iPhone sales, that would be closer to $250 million in unrealized revenue. But again, the tradeoff of selling subsidized phones is worth it.)