Friday, September 13, 2013

How Big a Deal is the Right to Sell iPhones?

How big a deal is access to the Apple iPhone? According to one study, about 66 percent of NTT Docomo customers who signed up with another service provider did so at least in part because they wanted to use the iPhone.

That probably is a mixed blessing for mobile service providers. The potential good news is that the iPhone, and smart phones in general, might be the most tangible physical expression of the value of Internet access and mobile service more broadly.

The problem all sellers of intangible products (health care, legal advice, tax and financial consulting or communications service) encounter is that it is hard to show the value of something that is a process.

The buyer has no idea how good the experience will be until after the purchase is made. In such cases, a seller has to rely on proxies for value. Those proxies might include displayed certifications and licenses, degrees, awards, furniture, office addresses or professional attire.

Communications service providers have the same problem: there is no tangible product to evaluate in advance. How many people have you ever met who have a brand preference for one supplier’s “dial tone” over another supplier’s dial tone?

One might well argue, with some justification, that Internet access allows for much more differentiation. Speed or usage policies, as well as the specific configuration of retail offers, allow for more distinctive positioning than was possible with dial tone.

Those proxies are ways an intangible product is made “tangible.”

How does one cultivate brand preference for an intangible product? One way is to emphasize the more-tangible “wrap-around,” such as customer service experience, brand and image.

But that’s inherently hard, compared to the brand preferences people develop for personal products ranging from cars to perfumes and clothing brands and styles. One might argue the iPhone is the first tangible expression of personal affinity for a product whose value hinges on a communications service.

That helps service providers when they can sell the device. People are more likely to be “loyal to an iPhone” than to a service provider. Service providers do the best when the right to sell an iPhone is exclusive, but arguably are helped very little when every major service provider in a market has rights to sell the device.

The larger problem, though, is that “value” and “loyalty” as well as brand preference largely are transferred to the device supplier.

In many ways, that illustrates the “commodity supplier of access” problem all service providers face. Though it is not impossible, it is difficult to create a consumer mental image of “access” that is differentiated and preferred.

Google Fiber might be the first access service in quite some time that has a chance to transcend the “commodity access” problem, in part because its offer is so unique. A symmetrical one gigabit service, sold for $70 a month, is unusual. And it is Google acting as an ISP. That’s unusual as well.

Most service providers offering an access service are not so lucky.

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