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The iPhone killer is… O2

Me on Techradar:

We’re told that it costs between four and eight times more money to get a new customer than to retain an existing one, and that the way to make big piles of cash in the long term is to keep your customers sweet.

So why is O2 waving its corporate arse at its iPhone customers?

12 replies on “The iPhone killer is… O2”

They’re angry that despite paying top whack for unlimited internet access, O2 wants an extra £14.68 (for 3GB) or £29.36 (10GB) per month if they want to use their iPhone as a modem.

Same as every other O2 customer: using the phone as a modem is a breach of their terms and conditions. They told me that this would apply to having my N810 use the phone’s connection, so I left.

On the face of it, they’re a bunch of whingers who seem unable to understand the concept of an 18-month contract. But there’s more to it than that.

Sorry, but no, there really isn’t.

Every single reason you give for why O2 should treat Iphone owners as all special and shiny also applies to all their other customers. We saw this crap when the Iphone was first launched. People bought it; the price went down later; people cried, claiming they’d been conned in some way and that Apple owed them money. What the fuck? Can I try that one with my TV? Or my house?

The first is that O2 set a precedent with the iPhone 3G, enabling first-generation owners to upgrade for a reasonable price.

But they haven’t only done that with Iphone customers. O2 occasionally, at their discretion, let people upgrade early. They’ve done it for me and for Vic before. And then sometimes they don’t. Obviously, it’s at their discretion. As you say, that’s kind-of what an 18-month contract is.

And it’s not a precedent. This used to really piss me off when I worked in customer service. You do a customer a favour. Do they thank you? Do they fuck. They start complaining every time you don’t do them a favour, as if it’s a right or something. It isn’t; it’s a favour. O2 were really, really nice to Iphone customers for no apparent reason (earning themselves a lot of resentment amongst their other customers, I might add), and not only are Iphone owners not grateful, they’re bitter about it. So, from a business point of view, what have O2 gained? They’ve pissed off loads of their customers who don’t understand why they should be treated as second-class just because they don’t own kit made by The Blessed Apple, and earned precisely zero thanks and loyalty from the Iphone owners in return. Why on Earth would they do it again?

Had O2 told everyone to bugger off and wait for their contracts to expire last time, we very much doubt there’d be the anger we’re seeing in forums and on Twitter.

Precisely. Apple owners are angry that O2 have done them a huge favour, and would be less angry if O2 had done them zero favours. That’s a clear incentive to O2 to stop doing them favours.

The second reason the lack of upgrades is a bad idea is that by January, it’ll only be five months before the next iPhone is due.

Yeah, and?

Again, every other phone manufacturer also does this: they release new phones. They release them more often than every 18 months. When I bought my new E66 (lovely, by the way), I did so knowing that there’ll almost certainly be a touchscreen version of the E90 out this year or early next. I decided to forego the opportunity to get one of them as soon as it’s released in return for getting a new phone now. When that phone comes out and I can’t buy it because I’m tied into a contract into which I entered completely voluntarily, that won’t be Vodafone’s fault.

iPhone sales are handset driven, not network driven: people are going with O2 because that’s where the iPhone is, not because they necessarily want to be with O2.

Again, same with other manufacturers and networks. We know that there are thousands of fiercely loyal Nokia customers. I originally went to O2 ’cause they were doing a deal on the 9500. I left ’cause I got an N810. Network loyalty pretty-much ended when the networks started bundling any-network minutes and so you didn’t have to be on the same network as your friends any more.

The iPhone is first and foremost a luxury product, and yet O2 is betting that in the middle of a recession it can bring in enough new customers that existing ones won’t matter.

And Iphone owners are demanding that, in the middle of a recession, O2 give them luxury products as freebies.

Incidentally, O2 can bring in lots of new customers using the 5800, which is bloody fantastic and which Nokia have released as a cheap entry-level thing. Go to O2’s site and look at the deals available to new customers on various handsets. Compare to the Iphone deals. As you say, it’s a recession. Just how badly do O2 need an overpriced luxury item to get customers?

Apple might just discover that the “iPhone killer” isn’t another handset: it’s one of its business partners.

No, the Iphone killer is Apple, and always was. The thing’s priced far too highly because there’s no competition, because Apple decided to give it to just one network.

But, while opening it up to other networks will bring prices down a bit, I don’t think any other networks will be offering it at a knock-down price on a six-month contract. Why should they? Cause it’s Apple? Cause it’s a really nice phone? I don’t get it.

Apple’s marketing has created the weird belief in Iphone owners that they must always have the latest model and shouldn’t have to pay the same premium that anyone would have to pay to always own the latest model of absolutely any other item on the market. So O2 might lose some of these customers. Big deal. Are they the sort of customers anyone really wants?

Well, it looks like I’ll be updating my iPhone when the contract runs out. In March 2010.

Either that or getting whatever is better value at the time.

I suspect I’ll stick with the iPhone. It’s so well integrated with my iMac I’d be daft to do anything else. Still, I do hope that O2 – or some other mobile carrier – will be reducing the costs before too long.

I’d not pay a penny for tethering when just about any other similarly-enabled phone will do it for free.

I think you’re right from a network point of view, but I think with the 3g release o2 did effectively say to iPhone customers: you ARE special, we won’t treat you like other customers. Hindsight is a wonderful thing of course, but by then it was apparent that iPhones would be annual – so the upgrade was a strategic mistake.

I think a big part of this is that iPhone customers don’t see themselves as o2 customers. They see themselves as apple customers, and therefore o2 becomes the evil telco blocking them from getting their apple fix. Exclusivity is good for apple but shit for apple customers, but the resulting anger is at the networks. There wa visible exasperation on apple’s part towards AT&T during the keynote this week, which kinda makes me want to shout: you signed the exclusive deal with them, you dicks…

Me, I think either o2 should offer 12 month contracts or – and this is me being naive – the whole industry should drop subsidies, charge what phones actually cost and compete on networks and services, not handsets. It’ll never happen of course. Subsidies have gone on too long.

Rutty, i would wait. 3gs is really a point upgrade. Next one should be a bigger deal: oled screen, etc.

Subsidies are great. Most customers don’t have a few hundred quid to spare. It was subsidies that made mobiles ubiquitous in the first place. Without them, we’d still be sniggering at those stupid yuppies with their mobile phones, honestly, they can’t bear to be out of touch with the office for ten minutes, they’re so pathetic…

> the upgrade was a strategic mistake.

Well, yeah, that’s what I said: they should have treated you like all their other customers. But the fact that O2 should have predicted the impressive levels of ingratitude on display this week doesn’t make it their fault.

> I think a big part of this is that iPhone customers don’t see themselves as o2 customers. They see themselves as apple customers

Yeah, and I see myself as a Nokia customer, but I still know what a contract is.

O2 once gave me free line rental for a year on a second handset. Very nice of them, I thought: I told all my friends at the time how impressed I was with their excellent customer service. It has never occurred to me for even a second that I should be entitled to free line rental every year, just ’cause they did it once.

In O2’s responses to this “controversy”, I think it’s pretty clear that they’ve noticed just how pissed off their other customers have got over the last couple of years: much emphasis on all customers being treated the same. You probably don’t know this, but, when the Iphone was first launched, any of the rest of us with Web-capable phones couldn’t even get the Web bundles you guys could. Try talking to O2 staff about wanting the same deal the Iphone customers were getting and they reacted like you were asking for a free lifetime’s supply of bananas or something. Any time we ring O2’s customer service, we have to sit through what seems like half an hour of special Iphone announcements before we can even get to the IVR. From the start, O2 have treated you as special more often than not. I’d be very interested to see how many customers, like me, have left in that time. I’m betting that it’s significant and that O2 have looked into it and found out that the unequal treatment is the problem.

> It was subsidies that made mobiles ubiquitous in the first place.

Oh, indeed. Unlike the unsubsidised personal computer. No fucker has one of them ;)

> You probably don’t know this, but, when the Iphone was first launched, any of the rest of us with Web-capable phones couldn’t even get the Web bundles you guys could.

I remember vividly. Pre-iphone O2 was far and away the worst UK operator for mobile internet. Everyone else offered flat rate; O2 didn’t. I paid £12/month over and above my contract just to get email on my blackberry.

That’s an O2 fail, though, not an Apple/Iphone thing. Apple forced ’em to join the modern world in order to sell iPhones. Otherwise they’d still be charging per-meg IMO.

> Any time we ring O2’s customer service, we have to sit through what seems like half an hour of special Iphone announcements before we can even get to the IVR.

Pisses me off too. Particularly when I’m calling to try and get a repair for a dying iPhone. Their repair/replacement process is kafkaesque. Seriously. Won’t do anything centrally; go back to carphone warehouse – who won’t give me a loaner, I’ve just to manage without a phone for however long it takes to get my phone diagnosed/repaired/replaced. O2 suggests going to an O2 shop who “might” have a loaner. This is on a £50/month contract, FFS. They’re twats.

Actually, thinking about this a bit more the arrival of flat rate internet was more proof that iPhone customers were different. For a while, the only flat-rate internet tariffs were the iphone ones; every other handset user could get bent. So I do think this is largely O2’s making: it’s treated customers differently, decided that was a bad move, and started treating iPhone customers like everyone else: ie, badly.

> I remember vividly.

Oh, yeah, I’d forgotten you were on O2 pre-Iphone. (How could I have forgotten that? What kind of a monster am I?)

> Unlike the unsubsidised personal computer.

I never said the market was made up of millions of people thinking logically consistently, did I?

Anyway, a computer’s worth the money: it does loads of things. In the mid-90s, mobiles did two things: make calls and hang up. No-one was going to spend 400 quid on that shit. Now it’s happened, the market is what it is. It’s been demonstrated that there is a market for people paying full whack for handsets on pay-as-you-go, and they do. But it’s a far smaller market than the contract one.

> it’s treated customers differently, decided that was a bad move, and started treating iPhone customers like everyone else: ie, badly.

No, I think they treated customers differently, realised that was a bad move, and started treating their other customers as well as their Iphone customers. It’s not like they’ve scrapped the flat-rate Web, is it? They still do great prices on handsets made by people who aren’t fucking them around (i.e. everyone but Apple). Vic just upgraded and got a superb deal. And they have an early-upgrade scheme for everyone that’s based on some sort of reasonable business rationale other than “Iphone owners really want new ones.”

The only thing they’re doing wrong now, in my opinion, is the tethering charge.

> Particularly when I’m calling to try and get a repair for a dying iPhone.

Heh heh heh. Not a problem I have. Remind me again why these things are worth all this money and hassle.

While we’re on the subject, I’d like to say that Vodafone completely screwed up porting my number over to them, leaving me without a working phone number for a whole day. They also misplaced the records of the two phones I traded in. And then they badly screwed up dealing with my enquiries about that, twice. But then, eventually, I spoke to a manager who apologised profusely and credited my account with 50 quid. Which is pretty bloody good compensation, in my opinion.

> Now it’s happened, the market is what it is. It’s been demonstrated that there is a market for people paying full whack for handsets on pay-as-you-go, and they do. But it’s a far smaller market than the contract one.

Yeah, I think you’re right. It’s become a very strange market now, and I do wonder whether subsidies make it impossible to properly compare value for money between handsets and networks. Does the iPhone 3GS really contain £300 more circuitry than a 32GB iPod touch? I doubt it, but I have no idea (I’ve seen suggestions that the iPhone costs about $200 to make, but I’ve no idea how reliable that is). How much of my monthly bill is for the network, and how much of it is paying for the phone? No idea about that either. It’s possible that such confusion means mobile phone firms aren’t subject to the same price pressures as PC firms. Would the N97 cost £700 in a market that was more like the PC one? Etc.

Also, I think the market as it is encourages handset churn, which kills polar bears.

> I think the market as it is encourages handset churn

Except in the case of Iphones, where it limits it ever so slightly, which is why we’re having this conversation in the first place.

OK, given all the above-mentioned fuss, I’m finding this hilarious.

Oh, I also found something out about handset churn recently.

Vodafone tell me that the handsets I trade in get refurbished and sold cheap in the developing world, so handset churn is actually reducing the number of brand-new handsets manufactured because it expands the second-hand market, plus it makes phones more affordable for people in poor countries. Sounds like a win-win to me.

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