This article is written by Shivom Sharma, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.
Apple Inc. is a big tech giant which needs no introduction. In 1997, the story that Apple Inc. sold in their commercial was, “The people who are crazy enough to think they can change the world are the ones who do.” Rightfully keeping up with the trend, In January 2007 Steve Jobs the then CEO of the Corporation announced the release of the millennium within the upcoming 5 months. He announced the release of a revolution – the iPhone. The work for the iPhone was far too long in the making. At the release he capped the date and set a deadline which made everyone hold on to their hearts and hats.
In 1885, Alexander Bell founded the Alexander American Telephone & Telegraph Company (AT&T). It enjoyed a monopolistic market in the telecommunication sector till the late 1900s. Post the 1900s the diversification of the sector began. The Corporation began to come to terms with market acquisitions. At the same time the competition in the market soared. Through thick and thin the AT&T was and remains a telecommunication giant in the USA. AT&T was sought, solicited and wooed by Jobs as a telecommunication partner. The contract with AT&T and Apple partnership was no piece of cake. Another Corporation named Verizon was being considered as a Telecom Partner. However, AT&T ironed out the details and was named as the Telecom Partner for iPhone. It took about 2 years for the Corporations to dot all the i’s and cross the t’s. As a result of this partnership, the responsibility of Apple with respect to the parcel of network issues and the consumer hue and cry was curbed and shifted to AT&T.
AT&T became the choice telecom partner for the sale of iPhones with exclusivity for the term of the Agreement i.e. 5 years. By the end of the Partnership, Steve Jobs had most of the control. The service provider was left with complete control over their activities. The combination of these resources led to an optimal launch as envisioned by Steve Jobs.
Highlights of the Apple and AT&T partnership
Even though the nitty gritties of the partnership remain confidential, some details have been released to the public. The highlights amongst the released details are as follows:
- AT&T was the exclusive telecom carrier of Apple.
- Investment from AT&T towards the development of the device.
- AT&T had 10% share in the sales of the device.
- Apple had a 10% share in the charges raised by AT&T from the customers.
- AT&T had a miniscule share in the revenue of iTunes.
- Apple had the last word in the design and manufacture.
- The Marketing of the device was controlled by Apple.
- The manufacture and software of the device remained in the control of Apple. Features of the Apple and AT&T Partnership
1. Strategic alliance
The acquisitions and management changes in AT&T had resulted in increased competition. As the Corporation began as a monopoly, it was amidst adjusting to the then market scenarios. Similarly, Apple was revamping. They had promised a revolution and were on the brink of not delivering. Therefore, this partnership became a strategic alliance between giants.
- An unlikely expansion
AT&T was a mess of Assets due to its fast changing environments and comparatively slow coping. AT&T was scouting for opportunities to rebrand as a wireless network provider. At the same time, Apple was hunting for a wireless network provider who could also invest into the development of the device. Apple found the perfect partner in AT&T who not only invested in the device but also permitted Apple to retain most of the control.
- The balance of control
Jobs as the then CEO of Apple was famous for his control over every aspect of his projects. However, in terms of this partnership, he transferred the reins of control of telecom to AT&T. After the successful issue of the iPhone, AT&T stated that Jobs did not try to control their speciality. He stayed focused on the manufacturing, software and marketing of the device.
- Harbouring and reaping trust
AT&T CEO, Randall Stephenson is known to claim that the AT&T Corporation had bet on Steve Jobs and his vision. Steve Jobs had a conception which he envisioned and stood to implement. His passion and proposal proved impossible to say no to. It was this trust component that was placed on the able CEO of Apple which paved the way to the Partnership. It extended the benefit of this partnership to both the giant Corporations. It remains a close knit partnership till date.
- Blend of design and services
The Partnership was the best blend of quality. Apple took care of the manufacture, design and software while AT&T could focus on the quality of service provided to the customers. High speed wireless connections paired with the innovative design and efficient software made the iPhone a much desired product.
- Marketing and sales
The Corporations resorted to the best marketing tactics available. They ensured that their product was constantly in the news. They knew they had good content and they left no stone unturned to flaunt their device. The surge in sales was unexpected once the release was executed. The baffling response of customers was an outcome of the work that the Corporation had done pre-release in providing a revolutionary product.
Benefits of the Apple and AT&T partnership
- The onus of consumer remedies of network complaints was transferred to AT&T. 2. Apple could emphasise on the software development without any distractions.
- Access and benefits of AT&T’s fast and efficient technology. 4. Access to good speed internet and network.
- Diversification and propagation of AT&T as a wireless network provider.
- Access to funding for development of the Apple device.
Limitations of the Apple and AT&T partnership
After the launch there was an immense spike in network traffic. The data demands of the customers were off the charts. AT&T was not prepared or equipped to deal with the statistics which confronted it. As a result, they wanted Apple to limit the user interface of customer data (e.g. limit YouTube usage to Wi-Fi.) However, Apple refused to intervene. Apple did not take any measures to limit the user interface. Apple stuck to making the user interface the best experience. This issue was escalated when Apple refused to deal with any network problems which may arise. The entire burden was left on AT&T true to its Contract.
Then, AT&T rose to the occasion. They invested in equipment and carried out research to better understand the customer needs. They set up better network bases in cities such as New York and Chicago where the network traffic was dense and in turn truly conquered the market.
Another limitation of the deal was that people who had already subscribed to some other service providers could not purchase the iPhone without incurring a small loss. Therefore, there was a small customer base which was left untapped by the Partnership. However, surveys and data which was then collected shows that people actually held off subscribing to another provider and postponed such subscription where possible till the launch of the iPhone.
Effects of the Apple and the AT&T partnership
The Apple and AT&T Partnership was a mutually beneficial partnership amidst the then market scenarios. There was good division of role and responsibility amongst the Corporations which made the transition of launch smoother. Both the Corporations benefited from the partnership. AT&T went on to be the sole carrier of Apple iPhone till 2011. However, the limitations of the partnership and the changing market conditions left no scope for its extension.
Apple generated billions of dollars in service revenue profits over the life of the partnership all because of AT&T. At the same time, AT&T’s main purpose of rebranding itself as a wireless service provider was fulfilled. AT&T took up the challenges that the launch of the iPhone threw at it and emerged a stronger Corporation. They set the basic services of good speed telecom in a number of cities in the USA for this purpose and thus lead the revolution in the telecom sector. The Partnership has improved and strengthened the AT&T image and brand.
Though presently the exclusivity of sale of iPhones no longer rests with AT&T, it still continues to be the primary contributor in iPhone sales. Surveys conducted show that individuals still prefer to approach the service provider for purchase of the device. Therefore, AT&T remains the preferred option to purchase an iPhone instead of an Apple store.
Steve Jobs said, “Stay Hungry, Stay Foolish.” Maybe it was this strategic thinking of the entrepreneur which resulted in a more or less Win-Win situation for both the Corporations. The iPhone has not only actually revolutionized the smartphone market but also made millions in profits and dividends for the manufacturers and the service providers. The Partnership was not only powerful, it also expanded and tapped into the unused potential of the giants. The Partnership was beneficial to both the Corporations, it helped both of them grow.
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