N92

Wednesday, 11 August 2010

Let’s concede for the moment that Amy Thomson’s report for Bloomberg back on June 29 is correct, and that Verizon is going to start selling iPhones in January 2011. Let’s further say that this first Verizon iPhone will be a CDMA iPhone 4 — pretty much the same specs as the iPhone 4 we have now, but with CDMA instead of GSM. Let’s say an early January announcement, perhaps at CES, on sale at the end of the month.

What does that first day look like? Is it going to be a lines-around-the-block situation, like the last four summer iPhone debuts on AT&T? Or is it going to be un-sensational — on the grounds that the sort of people who’d wait for hours in line to get an iPhone as soon as possible already have one on AT&T?

I’m going to say it’d be an event. I don’t think the lines would be as long as they were this summer for the iPhone 4 on AT&T, but I think there are going to be lines — especially in places where AT&T service is poor, like New York and San Francisco.

I don’t think there’s anyone who doesn’t think Verizon could sell a lot of iPhones over the course of a year. But I think they could sell a lot of them right away. Apple sold 1.7 million iPhone 4 units in the first three days it was on sale. I think they could sell at least one million on Verizon over the opening weekend. Who knows how many loyal-to-Verizon customers are just biding their time, waiting for an iPhone, though? Could be more.

Apple is good at keeping future products secret, and, if anything, they’re getting better at it. But the weak spot in the secrecy chain is production. If you need millions of units, you need millions of components. That takes time, and it necessarily involves suppliers. If there are going to be millions of CDMA iPhones in January, we’re going to start hearing about signs of production.

And, it seems, we are.

If anything, Apple has been too conservative with its production for iPhones and iPads this year. Their online store is quoting 7-10 days to ship an iPad ordered today, and three weeks for the iPhone 4. I think they need to be aggressive to meet the demand for a hypothetical Verizon-compatible iPhone 4. January sounds far off given that it’s only August now, but there’s not that much time left before production needs to start in earnest if they want to come close to meeting demand.

I don’t know anything about negotiations with Verizon, and I doubt anyone does other than the highest-level executives at both companies. But I do know that engineering-wise, the wheels are turning on N92, the CDMA variant of the iPhone 4. It’s certainly not in production yet, and hasn’t reached DVT status (device verification test — like Gray Powell’s infamous stolen unit), but it is, a few little birdies claim, at EVT (engineering verification test). That’s one step below DVT, which is one step below production. So it’s right about where you’d think it would be if it were scheduled to go on sale in January. The CDMA iPhone is no longer a cold storage, keep-it-alive-just-in-case-we-need-it project.

That doesn’t make it a sure thing. It is essential to reiterate that for all I know, it is coming to market but has nothing to do with Verizon. GSM is more popular worldwide, but Verizon is not the only major CDMA carrier in the world. Maybe it’s going to Sprint. Maybe it’s going to South America, or Asia. Maybe it’s all about China Telecom.

Or maybe it’s many of the above, and this is Apple’s next step toward maximizing market share at the expense of higher per-unit profits from exclusivity deals. But combine the signs that the CDMA iPhone 4 is moving toward production with BusinessWeek’s report that a deal is set between Verizon and Apple, and, well, it all just seems to make sense.

I’ve often quoted the following bit from a 2004 Steven Levy interview with Steve Jobs (including, last May, in a piece speculating on — yes — Verizon and the iPhone):

If that’s so, then why is the Mac market share, even after Apple’s recent revival, sputtering at a measly 5 percent? Jobs has a theory about that, too. Once a company devises a great product, he says, it has a monopoly in that realm, and concentrates less on innovation than protecting its turf. “The Mac user interface was a 10-year monopoly,” says Jobs. “Who ended up running the company? Sales guys. At the critical juncture in the late ’80s, when they should have gone for market share, they went for profits. They made obscene profits for several years. And their products became mediocre. And then their monopoly ended with Windows 95. They behaved like a monopoly, and it came back to bite them, which always happens.”

The key bit: “At the critical juncture […], when they should have gone for market share, they went for profits.” I think this encapsulates Jobs’s philosophy since taking over Apple in 1997. Take the high end of the market first, establish a brand and presence, then steadily start to expand.

If they’re at that juncture with the iPhone now, expansion means CDMA. And in the U.S., it means Verizon.