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  • The Apple Should Have Known Report

    June 17th, 2010

    I suppose you can say I’m weird when I tell you that I enjoy the lame attempts by some members of the media to devise sensational — and usually misleading — headlines and content about Apple Inc. and loads of other subjects.

    So in the wake of that massive system breakdown when hundreds of thousands of people tried to preorder the iPhone 4, one silly article suggested Apple should have known demand for the new “Jesus phone” would increase by ten times and they, and AT&T, should have been prepared for the online onslaught.

    Using what? Fortune cookies? Ouija boards?

    Consider that Apple can only build so many pieces of hardware. The contract manufacturers with which they work have a finite capacity, and they have to place orders well in advance to guarantee that they’ll get priority when it comes to production. More to the point, they have to make good guesses about how many units they might need. If they build too many, they are left with loads of unsold inventory.

    Now most of you who have followed Apple since Steve Jobs returned to the company are aware that they keep sharp control over production. COO Tim Cook is said to be the best in the business, so they seldom possess inventories of more than a few weeks for any of their products. Often it’s less when demand exceeds those supplies.

    You have already seen what’s happened with unexpectedly high demand for new products. It took several months for you to order up a 27-inch iMac without waiting a few weeks for yours to arrive, particularly the models with quad-core processors. The iPad remains backordered, and if you can’t find one at your local dealer, expect to wait 7 to 10 business days for one to arrive.

    Last year, Apple sold more than a million iPhones over a single weekend when the 3GS was introduced. Even if they assumed the iPhone 4 would sell twice as many units on its launch, it’s clear they underestimated. Some 600 thousand were pre-ordered the very first day, and some suggested initial demand is ten times higher than Apple or its mobile partners anticipated. While I don’t know how many units they plan to have available this month, if you weren’t lucky enough to have your order accepted right away, expect to wait until some time in July for your next iPhone to be delivered.

    That’s the sort of success any company would die for. In Apple’s case, these days they have far more competition than ever. Smartphones running the Android OS are nipping at their heels, boasting enhanced hardware features and a more powerful operating system. There was even a survey released by the NPD Group recently that indicated Android-based devices had actually outsold the iPhone for a time in the U.S. Of course, it’s also true that Verizon Wireless is desperately trying to move as many units as they can, even if they have to give many of them away with those two-for-one offers.

    What’s more, the iPhone is sold in the U.S., still, by one carrier, whereas all the cell companies have several Android models available. The odds are stacked way against Apple, yet customers still managed to overwhelm the ordering systems. Think about that.

    Now I suppose some critics will say that Apple has a mystique that no other tech company can match. Also remember that Apple is actually advertising a product they want to sell. When you see even a “Droid does!” ad from Verizon Wireless, they aren’t selling you a smartphone. They are selling you a two-year contract containing buckets of minutes, plus a data plan. The handsets you acquire are sold at heavily subsidized prices. If you actually paid a regular price for a Droid or an iPhone 4, the price would be closer to $599, each, and very few of you would bother. Those insanely cheap deals are strictly intended as an inducement to order service contracts.

    My feeling, based on what Apple has said, is that they remain thoroughly amazed at the public’s reception to their recent products. They didn’t expect to have trouble fulfilling demand for an expensive all-in-one computer, and they probably expected to have decent supplies of the iPad by now.

    With the iPhone 4, I’ve little doubt that Apple anticipated a decent increase in sales, but how far it’ll go is anyone’s guess. First they have to build enough units to satisfy initial demand, and accommodate waiting customers as the international rollout expands.

    The problem, of course, is that if Apple expands production too quickly, not only do they risk greater quality control issues, but they have to know when to slow down as demand catches up with supply. That requires incredible skills at managing production and inventory that many companies cannot master near as well as Apple.

    Then again, not having enough products to sell isn’t necessarily a bad thing. The only downside is that some customers may just decide to go elsewhere rather than wait. But when an alleged journalist claims that Apple should have known and prepared for unprecedented demand, it’s downright absurd!

    I’m even inclined to give AT&T — despite its well-known network issues — a pass on this one.



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    5 Responses to “The Apple Should Have Known Report”

    1. dfs says:

      The press might be unhappy about the unexpected high demand for iPhone 4, but Wall Street is going out of its mind with joy. Right now AAPL is selling at 271.86. Apple couldn’t hope for a better vote of confidence. And anyway, the problems associated with success are a whole lot easier to deal with than those associated with failure

    2. Joe says:

      The entire ‘Apple should have known’ argument is misguided.

      The entire problem seems to lie with AT&T. Even people going through Apple’s site had no problem – until it got to the part that Apple had to validate the phone number with AT&T. Evidence of that is the fact that 600,000 phones were sold on day 1, but AT&T had to process 13,000,000 validate requests. Now, not all of the 600 k phones were sold through AT&T, but that is countered by the fact that perhaps some people validated but didn’t go through with a purchase. If those issues negate each other, AT&T processed 20 validate requests for every single order that eventually went through – because the system kept crashing. Basically, they increased their workload 20-fold due to incompetence.

      Now, let’s look at whether the load was the cause of the problems. Last year, 1 M 3GS phones were sold in the first 3 days. This year, 600 K were sold on the first day, but AT&T stopped taking orders after the first day, so in the first 3 days, they sold 600 K phones – 40% less than last year (assuming that AT&T’s percentage of the total was the same). Yet here we are Friday morning, and AT&T’s web site is STILL not working – you can’t process an upgrade request for ANY phone (not just the iPhone). How is it that they were able to process their share of 1 M orders last year, but not able to do their share of 600 k orders this year without completely destroying the system?

      Furthermore, let’s put this in context. I don’t know how many customers AT&T has, but let’s say it’s 30 million (it’s probably much higher than that, but for the sake of argument….). That means that they’re processing an average of 1 million invoices every day of the year. If the average user is like our family, that means that they’re processing about 25 million transactions (phone calls, texts, etc) ever single day. And 150,00 new phone activations killed their systems?

      The most important issue is that AT&T’s system did not fail gracefully. If they had proper queuing, those 13,000,000 verifications wouldn’t have been necessary. When the server isn’t ready, instead of crashing, it should queue the request – or send a message saying to try later. It shouldn’t bring the entire system crashing down.

      AT&T’s gross incompetence is shown by the fact that we’re now in Day 4 of the iPhone 4 era and you STILL can’t use AT&T’s web site to upgrade any phone, even non-iPhones. It has nothing to do with demand and everything to do with gross incompetence.

    3. SteveP says:

      Joe’s GROSS hyperbole and GROSS exaggeration are beyond what one would expect from even a Gross of Gross grocers.

      Totally GROSSED me out.
      Like fer real, man.

    4. Joe says:

      @SteveP:

      Instead of making inane comments, why don’t you try to disprove what I said? Obviously, because you can’t. Everything I posted is public knowledge.

    5. AdamC says:

      The other problem with android phones is they dare not put out a number just like the Kindle, no numbers so can we really believe that the android phones are selling that well? Whereas Apple always state the number of units sold. Android phones are very similar to the fabled unicorn, only appears in the minds of the very imaginative perhaps laced with some LSD.

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