Tuesday, June 10, 2008

Why revenue sharing failed

It was a nice experiment. Apple sells the phones for almost full price and gets a share of revenues from those who subscribe to AT&T. The AT&T did not suffer badly - it pays only for those who actually use its services. At first, it looks pretty good, especially for Apple. It is a nice example of market segmentation (discrimination). If warranty and safety is valuable (or service provided by AT&T does not seem much worse than others), you pay full price. If you do, you still pay for the phone. Apple gets less, but more than if you would not buy at all.
What did not work well is that more people choose to unlock and jailbreak than anybody expected. In the profit equation, revenue was probably high enough, but the share of people delivering this revenue was too small.

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