iPhone Profit numbers Wrong

Some of the popular blogs (see Crunch and TechStartups3.0) and those who link to them are going crazy over the miscalculated profits reaped by Apple’s iPhone. I hope the financial markets don’t use the same logic when buying/selling Apple Stock! Otherwise, someone’s investment could be in jeopardy. The source of this is a product teardown by Portelligent. According to BusinessWeek:

Portelligent estimates that the cost of the materials used in the iPhone add up to about $200 for the 4-gigabyte version, which sells for $499 and about $220 for the 8-gigabyte version, which sells for $599.

From this number, it would be easy but foolish to presume that profit per device is $299 (4GB version) and $379 (8GB version), and at 700,000 units sold in 3 days, that would be a massive haul for iPhone.

The Portelligent report focuses only on the bill of materials (that is the individual components that make up the iPhone), and doesn’t look at any of the other costs associated with launching a product. The picture is far from clear. To get the full picture one would have to consider the following as well:

  1. R&D costs – this would be years and years of Research & Development costs
  2. Software development costs (let’s keep this separate from R&D)
  3. Cost of integration all components into a single device.
  4. User Interface and Customer Research costs – I doubt Apple would’ve launched this without seeking user feedback on some form or the other.
  5. Testing Costs – the additional cost of testing on the AT&T network. Let’s say that Apple pays at least a part of this.
  6. Packaging costs
  7. Distribution costs
  8. Marketing costs and other overhead.

There are other costs to consider, but I don’t want to bore you with all the details. The other thing to consider is that Apple may receive volume-discounts from the Bill of Materials.

To fully understand the profit picture one has to consider additional revenue sources too. There are rumors that Apple gets a revenue share of monthly subscriptions from AT&T.

It is indeed a nice picture for Apple – I’m confident the iPhone will be huge profitable. We don’t know how much it is just yet!

No 3G iPhones for Europe yet

I was looking forward to a 3G-capable iPhone first launching in Europe (AT&T in the U.S.A. has little 3G coverage), but FT reports that iPhones in Europe will run on the slower 2.5G mobile networks, rather than on the faster 3rd generation (3G) networks. Why was I looking forward to that? because it means that a 3G capable iPhone will be out soon.

One way or the other, it makes sense from Apple’s perspective to release the same phone that was launched in the U.S.A on June 29th:

  1. Apple would have negotiated volume pricing for iPhone components that are geared to run on 2.5G networks, and there’s likely plenty of 1st generation iPhones (2.5G) yet to be sold.
  2. 3G circuitry will be costlier than 2.5G electronics. After all, 2.5G has been around for a long time and there are many manufacturers. 3G is the domain of Qualcomm and Qualcomm usually charges a significant premium for 3G chips and 3G Patent licensing and reaps gazillions in Intellectual Property. So why increase prices and lose some customers or keep the same price on more expensive phones and lose margin.
  3. Why not release a first generation iPhone first, then create some more awe for the 2nd generation iPhone.

Obopay brings Money to Mobile Phones

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Obopay is a mobile payment service in the U.S. that allows users to receive, send and spend money instantly and effortlessly via their mobile phones, whether shopping at their favorite store, going to the movies, or dining with friends. Users can immediately access their mobile money using an Obopay prepaid MasterCard®, which can be used at any ATM or retail outlet that accepts credit cards. Users can also check their account balances, collect money owed from other mobile users, view transaction histories, and invite friends to use the service.

Obopay became the first Mobile Payments Service to be offered by a major U.S. wireless operator when Verizon Wireless announced plans to make Obopay available to Verizon Wireless customers in the near future. As with the case with most applications on Verizon Wireless, Obopay will as a downloadable BREW application.

Obopay, much like its better-known cousin PayPal is a money payment service, but is focused on mobile phones. Obopay is also available on AIM, where a user can send money and make payments from the AIM Buddy List. Obopay works with Verizon Wireless, youth focused MVNO’s Amp’d and Helio, and Cellular South. Obopay is funded by ONSET Ventures, Qualcomm, Redpoint Ventures, and Richmond Management.

The strategy to win in this business is simple – get moving fast, sign up as many wireless service providers as possible (including International), and market the service to users. The technology is straightforward and is easily copied, so that’s not the strategy. This business has a first-mover advantage because wireless service providers and users are unlikely to sign up with multiple payment providers – low entry barriers and high switching costs. Obopay must move fast to establish that advantage

iPhone goes Global with T-Mobile

T-Mobile, the mobile arm of Deutsche Telekom, apparently has clinched a deal to bring the iPhone to Germany, according to a reuters news report citing the Rheinische Post.

This is expected to be an exclusive deal for T-Mobile. T-Mobile will require a contract and sell the iPhone for around 450 euros ($612) starting Nov 1. I would suspect that this is on the 3G (UMTS) network as european operators already have well built out 3G networks. In the U.S, AT&T (Cingular) has an 5-year exclusive deal with Apple to sell the iPhone, but on a 2.5G network

In Europe, Vodafone, Deutsche Telekom, France Telecom, and Telefonica are considered contenders for an iPhone partnership.

YouTube coming to LG phones

LG Electronics, the 5th largest manufacturer of mobile handsets by volume, is developing a mobile phone that allows users to view and share YouTube video clips. Most importantly, users will be able to shoot video from the handset and upload it to YouTube. The handset will be launched in Europe in the second half of this year.

LG is also stepping up its partnership with Google. LG also has launched 3G handsets called “Google phones” with one-click access to Google search, Google maps, and Gmail, in Europe last month. The first Google phone, LG-KS10, was launched in Italy in April. LG also has a similar agreement to put Yahoo Go for Mobile 2.0, Yahoo Mail, and Yahoo Messenger on some handsets.

Given that the Apple iPhone already YouTube and given Youtube’s premier status as a online video site, it’s no surprise that handset vendors are clamoring to add YouTube to handsets, although the ultimate decision as to which software gets included in a handset lies with the wireless service provider.

Yahoo launches SmartAds

Yahoo today launched SmartAds, a new advertising platform that gives marketers a way to deliver tailored display ads to targeted audiences. SmartAds works by connecting users with their expressed interests. For example, if a user is looking for hybrid cars in Yahoo Autos and had previously selected San Francisco as his or her default location in Yahoo Weather, Yahoo’s SmartAds platform can assemble and deliver a display ad in real time that showcases a hybrid vehicle, along with local dealer information for SF.

Relying on “behavioral targeting” to display more relevant ads, SmartAds combines rich media capabilities with new ad serving technology to automatically convert a marketers creative campaigns into relevant ads. When advertisers and agencies design a single set of creative components and provide Yahoo with the artwork and a feed to their offer database, Yahoo will use this to generate unique ad combinations.

Testing conducted on Yahoo FareChase has resulted in clickthrough rates of 2x to 3x higher than for static, non-customized ads. SmartAds is initially available to travel industry advertisers on Yahoo! properties. Yahoo will expand to additional vertical industries in the coming months.

All I have to ask is “What took Yahoo! sooo long?” They have so many vertical properties, so Yahoo! is in a competitively advantageous position, say over Google, to mine data on individual tastes across these sites.

Interestingly, when searching Google for “SmartAds” results in the following correction/suggestion from Google:

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Related Articles:

  1. Yahoo launches SmartAds advertising platform
  2. Yahoo Gets Smart in Online Ad Competition

GOOG-411 now has maps

Remember the 411 service 1-800-GOOG-411 that Google launched a few months back! It’s a toll free service in the U.S. that uses speech recognition to search for businesses such as ATMs, grocery stores, gas stations etc. Now, GOOG-411 allows you to say “map it” when the search results are being spoken out to get a SMS message with a link to a map of the results (the map works with mobiles only duh!).

GOOG-411 had some difficulty understanding me (perhaps its just me!), but having worked on Speech Recognition systems, I know that speech recognition still has some ways to go, especially in the presence of background noise.

I found it a little difficult to use as the URL as it wasn’t clickable and it’s difficult to type in the hard-to-remember URL into the web browser. Of course, it wont send an SMS if you call from a landline phones (but it still says “sending map”). Also, one has to input a location of interest to get information on businesses. That would require integrating with the wireless operators positioning service.

Nice but I won’t be using this unless I’m in a real-bad situation. I’ve always had the need for a service like this, but it’s much easier to call my wife at home and ask her to find directions online!

Ushering a New Era of Consumer Choice in Set-Top Boxes

Today, July 1, marks the day the US Federal Communications Commission (FCC) has mandated that set-top boxes are separated from the security mechanisms that determines which channels are descrambled. The security comes in the form of a CableCard that is inserted into the set-top box. Rather than cable TV providers renting you a set-top for US$4 to $5 a month, now you can buy a set-top from a retail store (when it becomes available) and simply activate a CableCard from the cable TV provider to (first card is free, additionals $1.91 each).

I applaud this move towards providing a new era of consumer choice. By separating the set-top box from the mechanics that determines which channels are descrambled, a customer is able to purchase a set-top box from anywhere (say BestBuy) and keep the same box even if the customer moves or switches television providers. This also gives set top box manufacturers more latitude in bringing alternate forms of video to the TV. Expect long-form Internet TV providers like Joost and Babelgum to be integrated into set-top boxes soon. Much like AppleTV has done, expect even short-form TV content such as YouTube to be on set-top boxes.

In the short term, the cost for consumers will go up because the simple set-top box will now have an added CableCARD module. However, this “integration ban”, as this is sometimes called, will:

  1. create a new retail channels to reach customers.
  2. create an opportunity for new manufacturers such as ADB and even Tivo to enter the set-top box market.

The latter will create enough competition in distribution (retail and TV service provider), manufacturing, and usage choices (purchase vs. renting), that value for consumers will go up (overall prices may increase as set-top boxes integrate Internet TV).

This is a great move for consumer and don’t let your cable provider make you think otherwise.

Related Articles:

  1. CableCards Arrive July 1, And No One’s Happy
  2. New rule for TV set-top boxes sets stage for higher cable bills