It was the fall of 2006 when Apple had been working on the launch of a product that would revolutionize the smartphone market. Steve Jobs had remarked several times there was nothing “smart” to that market. True, these phones had improved a lot compared to previous phones. However, they were still hard to use, not practical, and used primarily for business. Not a consumer device.
Steve Jobs would put an end at all that with the launch of the iPhone, which would become a massive commercial success. Still in 2017 iPhone sales accounted for most of Apple revenues. The story of the iPhone and how it got to be – from the technological standpoint – has been told many times.
Thus, this time I want to focus on the businessstory. How Steve Jobs, rather then the greatest visionary we all think, he might have been a great deal maker instead. Able to squeeze any industry he set up to disrupt, with deals that took advantage of already established oligopolies, cartel, and center of powers.
How he managed to do that is still a mystery to me. This time I want to focus on the deal that made the iPhone a wild success: the AT&T deal. The iPhone’s success isn’t just about a technological device that innovated and was years ahead of its competitors. This is the story of a tool, primarily subsidized by the carriers industry which without it would have probably never had taken off as he did, and it all starts with one of the most inaccurate predictions of our time, from Steve Ballmer, former Microsoft’s CEO.
Steve Ballmer is often cited as the one who got it wrong several times about the future of the tech market. However, in my opinion when it comes to technology – but in general to any real-world forecast – we all wrong. Only a few lucky ones are right in hindsight. The success of a technology is not just the result of how good it was. That is often a combination of several variables, including distribution, the state of complementary technologies, and marketing efforts (to list some of the factors).
Steve Ballmer as Microsoft CEO was undoubtedly understating Apple products. But he was right about the iPhone price. How do you make a costly product like iPhone appealing to the consumer market? The answer resides in the “subsidized economy of mobile carriers.”
The $11 billion industry of mobile phones that didn’t care about handsets
Before Steve Jobs with the iPhone changed the rules of the game, the mobile phone industry represented a multi-billion dollar industry where the mobile carriers saw the handsets business as a commodity they could use. While that strategy had paid back in the past to bring in new subscribers, the whole industry needed a shake.
And Apple was ready to give that. One of the first players that understood that the iPhone could be a potential hit – or at least could revitalize their brand was Cingular (later AT&T). In an attempt to be branded as an “innovative company” and steal subscribers from ita rivals the time seemed right for Apple‘s deal. Before we get to that point, there is another step of the story to understand here.
Jobs first attempt to enter the mobile market was a defeat, but it set the stage for the iPhone
As the story goes, Steve Jobs had understood he had to bet on the mobile market by producing its handset, which would be something in the middle between a phone and an iPod. That phone was Rokr, and it was in partnership with Motorola.
When the Rokr came out – noted cultofmac – “In the end, the Rokr E1 proved disastrous. With its cheap plastic design, poor camera, and a 100-song limit, it fell far short of the iPod’s promise of 1,000 songs in your pocket. Designed to make listening to your music easy, and pitched as the “iTunes phone,” it also failed on that front. The Rokr E1 required that users buy songs via iTunes, then transfer them to the device using a cable.“
The demo of Steve Jobs on the “iTunes phone” might well be considered the least successful one. Yet those mistakes would set the stage for the iPhone.
Steve Jobs didn’t wait too long before losing all his enthusiasm for the Motorola-Apple partnership. That’s why in September 2006 Apple discontinued support for the Rokr. Time to change strategy and this time with a bold move.
Apple enters the mobile stage and takes it all
The Cingular team was the first to understand a change in the carriers’ business model. Where before handsets providers were a mere commodity used to lock as many new subscribers with cheap phones. There was a chance now to be perceived as an innovator in the space. And what partner would best fit this role than the company that had first disrupted the computer industry and then moved to the music industry?
Steve Jobs made a deal with AT&T, as reported by Wired “in return for five years of exclusivity, roughly 10 percent of iPhone sales in AT&T stores, and a thin slice of Apple’s iTunes revenue, AT&T had granted Jobs unprecedented power.“
However, Apple in return got a revenue-share model where it received $10 for every iPhone customer subscribing to an AT&T plan, plus total control over the design, manufacturing, and marketing of the iPhone. That was an unprecedented deal! That was the beginning of the end for the mobile carrier’s dominance over the smartphone companies – or at least Apple.
As of December 31, 2009, AT&T served 85.1 million wireless customers, compared to 77.0 million at December 31, 2008. Part of this staggering growth was also due to iPhone success.
As of 2024, major Apple shareholders comprised Warren Buffet’s Berkshire Hathaway with 5.92% of the company’s stock (valued at nearly $170 billion as of February 2024). Followed by other individual shareholders like Tim Cook, CEO of Apple, with about 3.3 million shares, and Artur Levinson, chairman of Apple, with over 4.5 million shares. Top institutional investors comprise The Vanguard Group with 8.27% ownership and BlackRock with 6.66% ownership.
Apple has a business model that is divided into products and services. Apple generated over $383 billion in revenues in 2023, of which over $200 billion came from iPhone sales, $29.36 billion came from Mac sales, $39.84 billion came from accessories and wearables (AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and accessories), $28.3 billion came from iPad sales, and $85.2 billion came from services.
iPhone and Services sales represented the main revenue drivers in 2022. Within the service revenues, the fastest growing sub-segment was the advertising business Apple built on top of the App Store, followed by the Mac, Accessories & Wearables, and the iPad.
In 2023, most of Apple’s sales (63%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by many people). In comparison, the direct channel represented 37% of the total revenues. Stores are critical for customer experience, enabling the service business and branding at scale.
Apple is a tech giant, and as such, it encompasses a set of value propositions that make Apple’s brand recognized, among consumers. The three fundamental value propositions of Apple’s brand leverage the “Think Different” motto; reliable tech devices for mass markets; and starting in 2019, Apple also started to emphasize more and more privacy to differentiate itself from other tech giants.
By February 2024, Apple was worth nearly three trillion dollars. Apple generated over $200 billion from iPhone sales in 2023, which accounted for over 52% of its net sales—followed by services revenues at over $85.2 billion, wearables and accessories at over $39.84 billion, Mac sales at $29.36 billion, and iPad sales at over $28 billion.
In 2023, iPhone sales represented 52% of Apple’s net sales, the same in 2022. Yet in 2023 revenue from the iPhone slightly slew down to over $200 billion in sales, compared to over $205 billion in iPhone sales in 2022, still a growth compared to almost $192 billion in iPhone sales in 2021.
Apple generated nearly $97 billion in profits in 2023, compared to almost a hundred billion dollars in profits in 2022, $94.6 billion in 2021, and over $57 billion in 2020.
Apple’s mission is “to bring the best user experience to its customers through its innovative hardware, software, and services.” And in a manifesto dated 2019 Tim Cook set the vision specified as “We believe that we are on the face of the earth to make great products and that’s not changing.”
It costs Apple $501 to make an iPhone 14 Pro Max, and the company sells it at a base price of $1099. This makes Apple’s base markup on the latest iPhone model at 119% Apple is the only tech company able to sell its tech products at such a premium, thanks to a combination of hardware, software, and marketplace.
While Apple Tim Cook’s salary has been $3 million since 2016, most of Tim Cook’s compensation is performance-based. For instance, in 2023, while the salary of Tim Cook was $3 million, he had total compensation of over $63.2 million, which comprised stock awards and other incentives and bonuses.
Tim Cook’s net worth is primarily comprised of his Apple stocks. As of 2024, he owned 3,28 million shares of Apple worth over $600 million at the current rate. However, Tim Cook has sold part of his Apple stocks over the years for hundreds of millions of dollars, making him a billionaire.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
