The iPhone wasn’t the first phone to be subsidized. It was one of the first ones not to be.
Former Microsoft CEO Steve Ballmer is right about one thing: Microsoft waited way too long to get serious about mobile.
But he is wrong about another point he has been making of late. In an interview with Bloomberg TV, Ballmer suggests that part of Apple’s innovation was convincing carriers to subsidize the phone.
“I wish I’d thought about the model of subsidizing phones through the operators,” he said. “You know, people like to point to this quote where I said iPhones will never sell, because the price at $600 or $700 was too high. And there was business model innovation by Apple to get it essentially built into the monthly cell phone bill.”
In reality, plenty of phones were subsidized before and after.
It was iPhone, actually, that first broke the mold of having pricey smartphones subsidized by the carrier in exchange for customers agreeing to a two-year contract. Apple decided that rather than make AT&T offset the cost of the phone, it would instead seek a cut of the monthly bill.
But, sensing that its $600-plus price tag was limiting the market, Apple decided to shake things up with its second-generation phone. With the iPhone 3G, Apple got AT&T to agree to a large subsidy by dropping the part of its deal that called for Apple to get a chunk of each month’s service fees.
To be fair, the subsidy for the iPhone was larger than that given to other phones, but BlackBerrys and other smartphones were already being subsidized by carriers when the iPhone debuted.
In short, it was the power of the iPhone, not its pricing, that made the phone a hit. If anything, you could say Apple blunted its initial appeal with a high price and then fixed that by going with the already popular subsidy model.
Also of note in the Bloomberg interview are Ballmer’s comments that his relationship with Bill Gates soured, in significant part, over disagreements on whether Microsoft needed to make its own mobile hardware.
It was Ballmer who pushed Microsoft into spending $7 billion to buy Nokia’s phone business, a deal Gates had opposed.
The acquisition ended up being disastrous, with Microsoft wasting those billions and gaining no ground in phones. The company has now written off the full cost of the deal, laid off nearly all the workers it acquired and all but given up on making its own phones.
The deal might have been just as much of a failure had Ballmer been around to oversee its implementation, but it is worth noting that he left after the deal was announced but before it closed.
Incoming CEO Satya Nadella was said to be no fan of the acquisition and began scaling back Microsoft’s phone ambitions almost from the moment the deal closed.
Here’s a video of Ballmer’s interview with Bloomberg TV: