Cord Blomquist

Unlocking the iPhone and the Death of Exclusivity

Is it even possible for companies to strike exclusive deals when teams of nerds across the country have been at work on hacking the iPhone since it’s release in late June? Engadget declared the Apple/AT&T exclusivity deal dead at noon on Friday, so sorry if this story is a little old, but now that media outlets like Wired, BusinessWeek, and CNN are covering the story, I thought that TLF should also weigh in.

I don’t know if I should view this as good news, bad news, or just another lesson in the folly of trying to lock-out the tech set from something as desirable as the iPhone. Exclusivity deals, from a policy standpoint, are like most any other private, legal arrangement to me–they’re perfectly fine. However, the corporate managers of the world may want to start reconsidering exclusivity arrangements that rely on hack-proof tech. Why? Because no such thing exists.


AT&T and Apple have so far ignored this story publicly, but privately both have to be fuming. AT&T was obviously banking on the iPhone subscription rates and activation fees, but Apple was also getting a cut of both charges. So, every iPhone that uses the new software hack and goes to T-Mobile (the only compatible U.S. carrier) loses money for Ma Bell and Mr. Jobs.

Does AT&T, Apple, or both companies have a legal case to bring against the hackers? Likely. But will pursuing this in court really amount to anything? Other than shutting down a few websites, no. There should be new aphorism in the digital world: once there’s a hack, you can’t go back. Then again, most consumers will probably stick with activating the old fashioned way.

One more thing to consider: how will this affect U.S. cellular phone business models? If exclusivity becomes impossible, networks will become less device driven and more data-rate driven. This might be a very good thing–making networks one layer of competition and devices another, separate layer. However, technologies like Visual Voicemail (not available with T-Mobile service hack), that involve network or server-side changes, will be harder for device makers to pursue without the leverage of exclusivity. Visual Voicemail is rather simple and likely not all that costly, but future techs that rely on carrier compatibility may need the financial boost that exclusivity provides.

While I acknowledge that device locking and exclusivity can be annoying, should we celebrate its demise or mourn its passing?

August 28, 2007 | Comments |

Viewing 6 Comments

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    If the death of exclusivity is basically inevitable (and I am inclined to agree with this) then does it make much difference whether we praise or mourn it? We just need to work with it.
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    I agree Doug. I just wonder if it will be a "liberating" experience--one worth celebrating--right away or if it will involve some uncomfortable readjustment before business models are able to transition. Creative destruction is part of the capitalist system for sure, but smooth transition and adaptation is undoubtedly preferable.
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    I think it's overstating things to say that exclusivity is dead. I would be shocked if more than 10 percent of the people who bought iPhones took advantage of these hacks to switch to another carrier. Most people just don't see that much difference among the carriers, and a lot of people would be afraid of breaking their phone and voiding their warranty.

    So going forward, companies signing exclusivity deals will have to keep in mind that some small fraction of their customers will hack their products and use them in ways not envisioned by the deal. But in the grand scheme of things, those people are little more than rounding error.
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    I agree with you, to a point. We won't see people running out to hack their iPhone, especially for fear of damaging a $700 piece of hardware. However, one of the handful of hacks that have been reported in the last week supposedly is restore and update "resistant." Assuming that the software is easy to run, and cheap, this may affect sales in an appreciable amount.

    If these hacks can be made into a commercial download the real effect will be seen in the international market. I think you're right that most people just don't see a difference in the carriers here, but for people in Europe who don't have an iPhone carrier yet. Using a bit of unlocking software for $40 or $50 is a small price to have the gadget 6 months or a year before your peers.
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    I agree that hack-proof tech for hardware isn't viable in an environment where the hardware is directly available without restriction. In the case of Apple and AT&T;, they made the mistake of making the iPhone hardware available for sale absent a service contract. However, they did, at least at launch, limit purchases to no more than two iPhones per person.

    It may not be too late for them to shore-up exclusivity by requiring hardware and service purchases to be simultaneous, and by not offering pre-paid service plans for the iPhone. A service contract requires identity and credit verification, and therefore would make it impractical and expensive to amass a substantial number of iPhones for exportation to the international market.

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    The i-opener and the CVS video camera are two more examples of unlocking. Both of those were popular unlocks because the business plan behind the lock-in was to make a low-end product in an existing category available at a very low price, and then make the profit on the associated service. There were lots of people who could use an extra PC or a cheap video camera who were willing to do the unlocking.

    Lock-in might still work if there is an existing cheap product in the category, and the locked-in product/service combination just gets you a better overall customer experience than you would get by spending the same money up front for a cheap product without service. Many of the marginal hackers would go for the cheap product instead of taking the risk of "bricking" the locked-in product.

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