Brighthand Bytes

May 21 2010   1:31PM GMT

Giving One Carrier Exclusive Access to a Phone Is a Mistake

Ed Hardy Ed Hardy Profile: Ed Hardy

Verizon customers, ever wondered why you can’t get an iPhone? It’s because Apple and AT&T have an exclusive contract that prevents any other U.S. carrier from offering this smartphone. Such deals are completely legal, but not a good idea.

The poster child for what can go wrong is the Palm Pre, which was released exclusively from Sprint last spring.  There was tremendous anticipation for this model before the launch, but sales never lived up to the pre-release expectations.

And you don’t have to take my word for it. Palm admitted early this year that sales of its latest smartphones had been a disappointment, and Sprint’s Chief Financial Officer Robert Brust said this week “The Pre didn’t work out as well as we hoped.”

Consumers Choose Carriers before Phones
So what went wrong? It’s simple: very few customers will leave a wireless phone provider they are satisfied with just to get a hot new phone. And a recent survey found that a large majority of U.S. consumers are happy with their carrier.  So virtually all Verizon, AT&T, and T-Mobile subscribers who were considering getting a Palm Pre just moved on and bought something else.

Only in the last few months have other carriers started offering Palm’s models, and by then the ship had sailed, and all the buzz around Palm had completely faded.

The results were bad for Sprint, but they much rougher for Palm: lack of sales forced the company to sell itself to HP.

But What about the iPhone?
I’m sure some of you are thinking, “The iPhone is available from just one U.S. carrier and look how well it’s done. The Palm Pre must be a bad example.”

True, Apple’s smartphone has done well… but perhaps not as well as you might think. RIM sells nearly twice as many BlackBerrys in the U.S. as Apple does iPhones. And U.S. sales of Android OS-based devices recently passed Apple, too. Why? Because all the top U.S. wireless phone providers offer BlackBerry and Android models, giving them a vastly larger potential customer base.

So while the iPhone has sold well, it hasn’t sold nearly as well as it would have if Verizon, Sprint, and T-Mobile customers could buy one, too. Sales could have been double what they were, or even more.

RIM’s Problem Child
The BlackBerry Storm is another example of a smartphone with an exclusive contract that hasn’t done well. When the original Storm debuted in late 2008, it generated a great deal of excitement, and as it was the first BlackBerry with a touchscreen some even labeled it an iPhone killer.

A year and half later, this model and its followup the Storm2 have never gotten off the ground. It’s possible this is partially the result of early problems with the device, but the fact that only Verizon customers can get one has definitely limited its success.

Broader is Better
Smartphone makers, the next time you’re ready to launch an important new device, don’t let yourself be talked into an exclusive contract. Try to get your product on as many carriers as you can.

You don’t want to end up like Palm.

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