Recently, the Wall Street Journal reported that AT&T is looking to extend its exclusive deal with Apple to sell in the United States until 2011. This news is not particularly surprising considering the company’s business model for the popular handset.  AT&T’s iPhone business model is like a crack addiction. It delivers a short term high, then sinks into an addiction and ends badly.

The High:Selling iPhones for less certainly helps increase Apple’s sales volume and AT&T’s short term bottom line. There were 1.6 million new iPhone subscribers on AT&T’s network in Q1 2009, with 40% of  those customers new to AT&T. According to the New York Times, iPhone customers are particularly valuable because their average bill is 60 percent higher than the company’s overall customer base. The Times estimates that iPhone exclusivity generates $700 million per year in operating profits.

The Addiction: Where’s the problem in millions of profitable new customers?  As I discussed in AT&T’s Value to iPhone Users: Negative $400/phone?!, these customers are really Apple’s  with little loyalty to AT&T.  AT&T’s business model is based on subsidizing the cost of the iPhone and making its profits from high monthly fees over the life of a 2 year contract. The Wall Street Journal estimates that it has spent upwards of $1.3 billion to discount the iPhone.  So the company relies on higher service fees that is supported through exclusivity.

Given this business model, you would expect that AT&T would make its customers feel like they get great value and service from the carrier to mitigate the effects on the eventual loss of exclusivity. Unfortunately, they do exactly the opposite.  Despite claims of the fastest 3G network,  a Gartner research study found that AT&T customers often receive half the advertised data rate.  Contact from AT&T is pretty much limited to the bill and text messages upselling higher priced services. The popular applications come from Apple and not AT&T. So customers get cheap phones and applications from Apple, and poor service and high fees from AT&T. Not surprisingly,  iPhone customers love Apple. AT&T? Not so much.

 It Ends Badly:  So, what happens when the exclusivity ends? On this issue, iPhone customers fall with three categories: customers who will leave AT&T as soon as they have an alternative, customers who might stay with enough incentives, and AT&T employees. Without customer loyalty, the company will take a significant revenue hit both from lost customers and additional subsidies and lower monthly frees that will be required to keep existing customers.

So AT&T is left with two expensive choices. To feed the addiction caused by its business model, it can pay Apple dearly to extend the exclusivity. Also, Apple will likely hold AT&T’s feet to the fire regarding expensive service upgrades to its 3G network.  Still, this only  staves off the inevitable. Eventually, exclusivity will end. At that time, profits will drop through defections to other providers and lower monthly fees. Cutting corners on communications combined with a poor business model always is very expensive.

Last night Pepcom put on their first EcoFocus event in New York City. And in the Flatiron District, almost 200 press and analysts came for free food, drinks and to experience demos from eco-friendly companies looking to get their name out there. Known for putting on mostly Mobile and Digital Technology-focused events, Pepcom moved into the new, clean tech space – and I think most vendors and attendees would agree it was a success.

While some may not be totally sold on global warming and much of the green talk that surrounds us today, this event clearly was evidence that green is more than a fad, it is an area of true innovation and growth. The vendors at last night’s event inlcude big names, like Toshiba, Lenovo and Benjamin Moore, who are recreating the wheel to become more environmentally conscious. But there also were smaller companies, such as SOMS Technologies (our client), CALMAC (our client), Green Roads and Pisat Solar, who were showcasing their innovation and passion for the environment.

The faces behind these businesses, both big and small, have a common goal – to make a positive impact on our environment. They are challenging convention, and working to change our oh so traditional behaviors to become a smarter, savvier, more eco-conscious society.

Clean technology isn’t only an expanding industry. But what this event clearly demonstrated is that it is an area of true belief, one that people have a renewed passion for. Most importantly, it is one that is and will be making a significant, positive impact for years to come.

With Michelle Obama planting the first vegetable garden in the White House, we too increasingly focusing on the role of food in our environment. However, most of us do not understand what is required to produce the food we eat and make it readily available to us day in and day out.

For example, we no longer have to wait until June to get those early season strawberries. Today, we enjoy year-round what was once considered a seasonal fruit. This convenience is something we enjoy without knowing the severe negative impacts it has on our environment. I will bet that you did not know that our food system uses 19% of all fossil fuels, the highest consumption, second only to cars.

Why not take a first step by more carefully choosing our daily food? Here is an interesting low-carbon diet quiz on Facebook provided by Bon Appetit – http://apps.facebook.com/bonappetitquiz/. Next time when you have to choose between a green salad and a Caesar salad, you will know whether or not they have roughly the same carbon footprint.

Environmental organizations are also raising consciousness on the environmental effects on the food chain.  For example, The National Resources Defense Council (NRDC) is launching the Growing Green Awards to recognize the contributions of people who have demonstrated leadership in the field of sustainable food. Winners of the “Going Green Award”  will be announced at the annual NRDC San Francisco benefit on May 9, 2009.

Vantage is proud to be partnering with Environmental Entrepreneurs (E2) to publicize this event.  E2 is a national community of individual business leaders who advocate for good environmental policy while building economic prosperity. Stay tuned to learn more about growing green.

Update: Thanks to everyone who participated and viewed our speaker panel discussing “Sustainable Innovation in a Recession” via our Live Stream and at our San Francisco Earth Day event on April 16, 2009 .  We will be posting videos of the panel discussion here on Vantage Points. So please bookmark and check back.

More details can be found here: Celebrating Earth Day – Vantage Style

Live streaming video by Ustream

Did you know that if you drink one beer after work, then throw it in the recycling bin – that one aluminum can saves enough energy to watch television for three hours? It is amazing how much of a difference we can make together if each person began cleaning up their environmental habits. With Earth Day just around the corner, the Vantage Team is celebrating the changes we’ve made to help Mother Earth, and hosting bi-coastal networking events tomorrow to do so.

Both the San Francisco event – sponsored by Autodesk – and the Orlando event will feature giveaways and collect voluntary donations to benefit the Northern California and Central Florida chapters of the United States Green Building Council (USGBC), respectively.

The San Francisco event will also feature a speaker panel discussing “Sustainable Innovation in a Recession,” with panelists from the USGBC-NCC, San Francisco’s Green Building Program, Forbes Magazine, Autodesk, and Serious Materials.In case you can’t make it, the panel will be streamed live right here on this blog starting at approximately7:00 pm Pacific/10:00 pm Eastern – so check back! Please tell your friends and use the buttons below to share and tweet.

So whether you’re on the East Coast or West Coast, we hope you can join us! For full details, or to RSVP, check out the following links –

San Francisco

http://earthdaysanfrancisco.eventbrite.com/

Orlando

http://earthdayorlando.eventbrite.com/

The value of AT&T’s service on the iPhone has been set at negative $400/per phone. This valuation is not from over-entitled iPhone users. It comes from AT&T and Apple.

Recently, AT&T and Apple started selling iPhones without a service contract for a $400 premium. Given the recent high profile problems at the SXWSi trade show and complaints from the media, apparently the two companies feel there is a market for iPhone users willing to pay a premium to not have their world delivered by AT&T.

Why This is News: Apple is coming out with a new generation of the iPhone, and wants to clean out the existing inventory. Typically, when a handset model is about to be replaced, the price drops significantly. Sometimes, the buyer even gets paid to take the phone (with a  contract).  It is interesting that rather than discounting the handset, AT&T and Apple think they can clear out inventory at a premium by losing AT&T. In a bad economy, this speaks volumes about AT&T’s perceived value.

Why This Matters: Presently, AT&T has the exclusive right to sell iPhones in the United States. But its exclusivity will eventually end. AT&T  should be using its exclusivity period to build customer loyalty and ensure that they keep customers once they have the choice of carrier.  Best case scenario for AT&T would be happy customers  that would want to stay with AT&T even if it did not have the iPhone.  However, it would probably be good enough if customers thought that AT&T was an important part of the the iPhone experience that they will stay with AT&T when they upgrade their iPhone.  If  customers are not loyal to AT&T, it risks a serious price war on the cost of the handset and monthly service on newer versions of the iPhone.

The Bottom Line: Right now, it seems clear that customer loyalty lies with Apple.  AT&T has announced upgrades and investments in its network that will become available later in 2009. Only Apple and AT&T know when the exclusivity period ends.  So perhaps, AT&T will clean up its act before the end of that period.

But, I suspect that its real ace in the hole is the fact that even after the expiration of the exclusivity period, customers  will only have a limited number of choices for wireless service providers. Moreover, the other three 3G service providers are likely to follow a similar short-term business model when they sell the iPhone.  As typically happens when marketing and customer service are ignored, it won’t end well, as we will see my next post: This is the iPhone’s Business Model on Crack.

Nine months and two Facebook redesigns ago, Jennifer Kutz wrote a post about the Wisdom of the Crowd Goes to a Trade Show. She discussed the trend of trade shows opening the show agenda selection process to their audience.  She mentioned one proposed panel in particular: Privacy and Personalization – Oxymoron or the Perfect Match?, for the SXSW Interactive show in Austin, and invited people to vote for that panel.

As SXSWi just completed, I thought it would be fun to fill you in on how things turned out. Our efforts to get the word out about the panel was successful. Privacy and Personalization – Oxymoron or the Perfect Match? received enough support that it was selected. The Guardian featured the panel in an article: @SWSXi: The impossible balance between privacy and personalisation?, and called the topic: “one of SXSWi’s core conversations.” The picture on the top left of this post is from the panel courtesy of the Guardian.

The experience also gave us an insight into the power of blogs and social media to create conversation about key issues.  We used Facebook and Twitter to point people to Vantage Points to get the word out. Rather than asking or pitching people to vote for our client, all we did was to discuss the topic and offer people a link to vote. This was a departure from the traditional PR model. But we believed facilitating conversation was more appropriate for topic and the SXSWi show audience.

The wisdom of the crowd approach has extended to voting for awards. This year, CTIA is allowing people to vote for its Emerging Technology Awards and Best of Show.  One of  our clients, Ditech Networks is nominated for its cool mStage platform which allows people to use their voice to access web applications in the middle of a mobile phone call.  You can read more about it in Technology Review. If you would like to vote for mStage for Best of Show, follow this link and choose mStage (third from left on the third line) as one of your favorites.  Feel free to check out and vote some of the other great nominated products too. It is good to part of the crowd that leads.

Update: Tweet Up location: The Las Vegas Hilton, the Pool Area on the Third Floor. The Hilton is connected to the North Hall of the Las Vegas Convention Center.

Attention all folks attending CTIA in Las Vegas. Our friends at Qik will be hosting a Tweet Up on Wednesday,  April 1, at 7-10 pm.  This is a great opportunity to connect with people interested in the intersection of social media and the mobile industry. This also is a great opportunity to build on the success of the Tweet Up at Mobile World Congress.

The location is still being determined. You can sign up and get more information at http://www.facebook.com/event.php?eid=69119667494. If you are not on Facebook, feel free to post in the comments section if you are interested in attending. I will pass the information to the folks at Qik.We will post updates here on Vantage Points and on Twitter, Facebook, etc. Check for hash tag #CTIA on Twitter.  For more information about networking events at CTIA, check out the awesome list from:

Mobileslate: http://www.mobileslate.com/blog/2009-ctia-spring-networking-events/

Look forward to meeting you there.

Traveling for 2 weeks on business taught me a lot about my iPhone.  The big lesson from my recent European trip is that the iPhone is not a viable mobile phone for business use. Here are a few simple changes for iPhone 3.0 that could go a long way to making the iPhone an effective business tool.

E-mail:This is the part where recovering Blackberry users usually gripe about the lack of a physical keyboard. But having tried the Android, combining a full screen and keyboard leads only to confusion and a fat phone.  The fix here is much simpler. Simply allow use of the e-mail keyboard in landscape (wide) mode. This will allow more space between the keys and avoid fat finger mistakes.  Typing on a touchscreen is slow enough. Typing every third word twice is unbearable.  Landscape capability already is offered is Safari. There also is an application called TouchType, however you need to work in the application and then upload to e-mail.

Keyboard Short Cuts: Cut and paste has to be at the top of the list. The ability to avoid typing large tracts of text would go a long way to alleviate the worst pain from the small keyboard.  A few standard Blackberry features would also help.  An option to delete the previous text from a reply e-mail is a really handy method of avoiding adding multiple names from scratch.  Also, the Blackberry feature where holding a letter capitalizes it would speed typing.

Background Processing: When the iPhone first came out, it was considered amazing that web applications could even be performed on a mobile phone.  However, the recently announced Palm Pre has upped the ante with  the ability to run multiple functions simultaneously. Apple has resisted adding this capability, claiming it would drain the battery.

The battery is the Achilles heel of the iPhone. If you see someone who walks in the room looking at foot level, he is an iPhone user looking for an elictric outlet or a foot fetishist. Even without using Wi-Fi, my phone can’t make it through a full day of regular use. The prospect of even less battery life inspires only dread.

While a new battery won’t be a part of iPhone 3.0, if Pre-envy is what it takes to get Apple to improve the battery on the iPhone, bring it on. Otherwise, trust me, the person holding the iPhone really is looking for an electric outlet.

The best part of a global show like Mobile World Congress is that you get tuned in to how the rest of the world lives. When it comes to mobile phones, most Americans expect to carry one phone and sometimes will carry a Blackberry for e-mail and regular handset for phone calls. After watching one person after another pulling out a never ending variety of handsets over the course of the day, I started polling people as to how many handsets they were carrying.

The typical person from EMEA or Asia was carrying a minimum of three phones. One person pulled out four, jokingly said (I think) that he had one for each wife. The typical explanation was a Blackberry for e-mail, an iPhone for applications, and then a Nokia or three depending on countries (and marital status). This could explain the relative health of the mobile phone space.

As for iPhones, universally, they were jail broken (manually “adjusted” to allow it to used on any mobile carrier’s network). People looked at my AT&T iPhone with a mixture of pity and disgust usually reserved for naive children. Invariably, they would show me a great application, then shake their head and say that I can’t get it because my phone was “on network.”

Social networking on mobile phones seemed to be in the early adopter phase. While I saw plenty of tweets and Facebook updates, I did not see many people using their phones to deliver them.

As the next major wireless show, CTIA, starts in less than a month, we will report back if there is a major difference in phone habits from the U.S. based attendees in Las Vegas.