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Apple's poor planning becomes expensive

The 3G iPhone will be a success. This achievement has been a forgone conclusion since before it was even announced. However, the way in which Apple chose to launch the 3G iPhone will cost it and its customers' bottom lines much more than it needed to.

First, let's start with Apple. They chose to have the employees at the store activate the iPhones and sign up for the plans this time around instead of having the customers do this themselves. This was likely in response to up to a third of the previous models heading off to 'unlock land.' The downside is that it adds 20 minutes to the checkout procedure. So Apple, in a best case scenario, has to pay an employee an hour's work to sell three iPhones....and that is if all is going well. We know that the scenario was far from the best case. At one million iPhones and $10/hour employees (both wild estimates), that is $3 million wasted dollars...pocket change really though.

Sure, AT&T employees could also be selling iPhones. However, AT&T ran out of iPhones only a few hours into the sales on Friday. When I visited an AT&T store in the hot Manhattan afternoon, it was a ghost town. They had about 10-20 employees ready to sell iPhones but no stock to sell. They reluctantly told me to head around the corner to the 8 hour line at the Apple Store.

The same is true of Europe. They have even less inventory there. O2 was sold out before they even went on sale.

Someone in Apple logistics should be fired.

And that brings me to the cost to Apple customers. Let's say Apple sells a million iPhones this week. Not impossible the way the lines are looking but obviously those lines are very slow. People have had to wait anywhere from 1-7 hours to pick up their iPhones. Giving a relatively generous estimate of two hours per customer for waiting, that is two million man hours wasted waiting in line that didn't have to happen. That is over 83,000 24-hour days of wasted time. Yep, 12,000 weeks or 3,000 months in line. That is almost 250 years! Oh, and at $10/hour, that is $20 million.

Ouch! We could have probably put a man to Mars with that kind of manpower. Unfortunately we could have (and did) also spend it chatting to an Apple fanboy in front of us on line.

For the record, I still haven't got my 3G iPhone yet. I've checked out the line at the local Apple store a few blocks away all weekend but the line just won't die. My wife and I will get one of these when and if it does.

So what should Apple have done?

  • More points of sale. AT&T stores have no iPhones. This is a no brainer. Share your inventory with your partner and let them help you sell these things. Your customers will thank you.
  • Heck, Apple has partners at Best Buy and Radio Shack selling iPods and also selling mobile phone service. Putting them together isn't rocket science. That is about a billion more points of sale. Apple wouldn't have the lines but would have the numbers in terms of sales and eventually profit.
  • Have a rolling release. Start selling white 16Gb iPhones on Wednesday, black 16Gb iPhones on Thursday and everything on Friday. That way everyone isn't there on day one. Added bonus, you sell a lot more high margin 16Gb iPhones to the crazies.
  • Instead of making your customers wait for a plan/activation, sell the iPhone for its real price - $599. If the customer signs up with AT&T within 30 days the credit card is only charged the $199-$299. Easy. Using this model, Apple could also sell it online, making it easier for people who don't want to drive 500 miles to the nearest Apple or AT&T store.
  • Um, don't release the iPhone 2.0 firmware to the older iPhone users the same day that you have the biggest activation needs. Bonus, don't release the iPod 2.0 firmware update on the same weekend. That poor activation server never had a chance.

In a few weeks, we won't remember all of this hassle. Most people don't remember that AT&T was having issues activating iPhones during the first weekend last year. This year's problems will all be memories soon enough. The financial cost, however, won't go away.

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What People Are Saying

Mars, not

A typical shuttle mission costs $450 million, or more than 22x the $20 million you mention could possibly put us on Mars. The actual cost to go there would be about $200 BILLION, which would have been nicer than going to Iraq (for more).

yeah, that wasn't meant to

yeah, that wasn't meant to be taken literally...but good point on Iraq. In the end, they will probably be looking like the same place if it is any consolation

Read Mark Smith comment

What a bunch of small minded whiners! Apple pulled it off exactly like they wanted (tons of free publicity and buzz). Apple makes easy to use cool products because they understand people. They're great marketers because... they understand people and that's why suckers like you were on those lines. Yeah, PT Barnum was right, so was BF Skinner, Pavlov... oh what's the use, nevermind;-)

Someone in Apple logistics

Someone in Apple logistics should be fired? How do you know that the inventory problems in Europe are due to the amount that Apple shipped the carriers?

How do you know they aren't sitting in an O2 warehouse or in transmit between their stores. On the Mac side Apple has shown that their supply chain is best of breed in both products arriving on time and in minimizing inventory levels of previous products when new products come out.

Do you think that all these carriers are really as finely tuned as Apple? When do they need such precise inventory management? They have little experience in this field and are just as likely to blame.

Real dumb.

OK so on the one hand, you have the folks that designed a revolutionary, industry-changing product, launched that product in 21 countries with god knows how many different partners and sold a million units during the first weekend. On the other hand, you have the folks who thought it was a good idea to get on a huge line and wait 10 hours so they could get that product RIGHT NOW. And which group is calling which group dumb? HAHAHAHAHAHAHAHAHAHAHA!

Do These People Have A Life?

Stand in line for an iPhone? Does anyone have a job anymore? I like the iPhone but would not stand in line to get one. My time is more valuable to me than that. I think you Apple geeks who defend this company to the death have to wake up.

What a great marketing scheme, they have brain washed you all into buying a proprietary product with a sealed battery that you can not replace on your own, proprietary connector cable (not the mini USB like most devices), proprietary app like iTunes....

The company, with its great brain washing scheme, owns you......standing in line for hours.....SHEEP, the lot of you!!!

PS. Hats off to Madison Avenue, marketing at its best.

Don't go into finance

I think your analysis is very short sighted. Not once did you mention At&T's lost yearly revenue from the first iPhone, and potential lost revenue on this phone because of iPhones not on At&T's network. Whether you like the partnership or not, At&T only got into it to gain more 2-year contracts. So consider what they lost on the first phone when considering the losses on this phone. Also take into account that this was the largest consumer electronics launch ever.

Having said that, I agree that apple was not smart to release the firmware on the same day as the launch.

I like Seth's back-o-napin

I like Seth's back-o-napin math about how much this launch cost everybody but there one assumption he's making I want to address. Had Seth waited in line after the tech issues of Friday's melt down were over, he'd have probably been even more outraged by what was going on. I bought my iPhone on Saturday. The experience was a classic example of the "hurry up and wait" syndrome. I waited for over 3 hours outside the Stonestown mall in SF only to find that I then had to get in line again outside the Apple store inside the mall. Then once inside the store we had to wait in line a third time before getting to talk to someone about actually making the purchase.

Once inside the store it became clear what was causing the delays. It was the activation process. That took less than a minute. The problem came from the ridiculously over complicated procedure that Apple employees were using to "manage" customers. First we were lined up while a greeter told us what to expect. Then we had to wait for a rep to come to the line to get us individually to take us to another part of the store. Once there we had to listen to this lengthy explanation of how she was going to sell us the phone. Then we had to wait while she went out of the back of the store to get the unit out of stock (yes, they didn't have a pile of them in the store, they were all held in the stock room!!!). When she finally returned with the phone there was yet more explanation of AT&T calling plans, etc.. She even offer to read the terms and conditions to me!!! I politely declined. At this point I'd have signed anything just to get out of there..

Once the phone was out of the box, the speeches stopped. iTunes activated the thing in less than 15 seconds and I was free!!!!!

This didn't need to be the circus it turned out to be. Apple went way over the top on ensuring the "experience" was positive. So far over the top that they actually left me with a negative impression of my phone purchase. I love the phone itself but I still can't figure out what they were thinking putting all that unnecessary process in the way.

Well put. However ...

Your comments and analysis were spot on!

However, let us look at the marketing budget. Spending $20 million to launch a consumer product is nothing (seriously, that is over 20 years in the business speaking). What Apple did was not a mistake or an oversight. Their approach afforded them coverage (including this blog) that they could not buy for $20 million or 10 time that amount. No one will be fired. Instead they will count the minutes of TV/radio coverage, inches of print media and number of web mentions, then compare that to the actual money spent and celebrate!

I am not being cynical, I am suggesting that a company as smart as Apple does things for a reason. Don't believe me ... look at the very design of the product or look at their supply chain skills (you can type and see your desired engraving on an iPod, order it, have it engraved in China, shipped and arrive at your door within 36 hours after hitting the enter button). This company "gets it" on most every front.

This said, there are clearly areas for improvement in the process with the sales, rollout of iPhone OS 2.0, and the .Me launch. But, over all ... it was a huge success and went off just as planned.

Mark

Chicago

I was at the Woodfield Mall Apple Store by 6:00am and out with an iPhone by 8:45am. But that was because the store employee let me go home and finish activation which was done about 4 hours later. The first day will be forgotten as things smooth out, but they should have learned from last time.