By any measure, the Apple Inc. (NASDAQ: AAPL) iPhone 4 is a huge hit. According to Apple, it sold 1.7 million smartphones in the first three days of sales. That’s an enormous number. It took the AAPL more than 2 months to sell the first million of the original iPhone.
There’s some long-term good news in those numbers as well. According to an analyst at Piper Jaffray, 77% of the first day’s iPhone sales were upgrades. That indicates that Apple is building a revenue stream based on satisfied customers who will spend around $200 a year to remain at the front-edge of the smartphone market. That is the sort of brand loyalty number that other smartphone makers like Motorola Inc. (NYSE: MOT), Nokia (NYSE: NOK), HTC and Samsung would likely kill for. Supply constraints actually held down sales, which would have been even greater if Apple had been able to meet demand.
But the stunning sales figures could be hiding some issues that could come back to haunt Apple. First, of course, is the iPhone’s availability on a limited number of networks. In the US, only AT&T (NYSE: T
) is licensed to sell the iPhone, and the number of new buyers willing to switch to AT&T to get an iPhone is falling. Most consumers who want an iPhone have already made the switch to AT&T.
Apple needs another partner. Striking a deal with Verizon Wireless, the joint venture between Verizon Communications (NYSE: VZ) and Vodafone plc, (NASDAQ: VOD) would double Apple’s potential base. If the company wants to boost, or even maintain, market share, signing another network partner is probably the only way to do that.
Another way of looking at the situation, however, is that Apple owned essentially 100% of the consumer market when the iPhone was introduced in 2007, and there was nowhere to go but down. The fastest growing smartphone operating system is Android, from Google Inc. (NASDAQ: GOOG), which still trails Apple’s iOS operating system but is closing fast. Without adding another network carrier, Apple’s iOS doesn’t really stand a chance of maintaining share.
Of course the company will still sell millions of handsets. According to some estimates as many as 40+ million of the new iPhones worldwide in 2011 alone. But the competition sells many more — Nokia, for example, could sell an order of magnitude more phones than Apple in 2011.
For Apple, brand loyalty outweighs market share every time. Some of that loyalty is forced on customers because the company controls the entire platform so tightly. But those same customers are willing to concede control in exchange for ease of use, cutting-edge technology, and the cool factor. These are powerful incentives and Apple uses them powerfully.
