Why Both Apple and Amazon Win in Newest Deal

Apple has made a deal with Amazon to sell Apple’s range of products including the new iPhone XR, iPhone XS / XS Max, Apple Watch Series 4, and iPad Pro through Amazon’s retail store, though not the Apple HomePod as that competes directly with Amazon’s range of Alexa-powered smart home products.

The deal is international, covering markets including the US, Europe and Japan. Amazon is expected to be ranging products in time for the coming holiday season.

Apple products have only been available on Amazon through third-party sellers. These sellers will now be removed and will have to apply to Apple to become authorized re-sellers if they want to continue selling Apple products through Amazon’s Marketplace. So, what does this move mean?

Overall, we see this as a consolidation of power with and between Apple and Amazon. The main losers here are the smaller vendors that have benefited from selling Apple products through Amazon Marketplace. It’s unlikely that many will achieve authorized status in this new situation.

  1. Apple is attempting to regain control over its iPhone sales on one of the biggest online channels. This will allow it to better manage pricing, warranties, and the overall customer experience. 3rd party vendors were selling on Amazon and it was near impossible for Apple to control the supply chain, assure quality control, price, etc.
  2. It likely has little to do with Apple’s latest earnings its move to stop reporting iPhone numbers. This deal was in the works for some time, however it will improve Apple’s service revenues, which has been its goal for some time.
  3. It will likely not move the needle in terms of increasing flagship sales in the US. Unlocked devices for +$800, even from Apple, will not get a big sales boost. It may have a minor positive in some other markets, like the UK, for example, which is strongly Apple-oriented and a key Amazon market and has a reasonably strong unlocked market. But overall, we would not consider this move to be a reaction to Apple’s CY3Q results.
  4. Amazon gains with the agreement. Amazon does not compete with its own hardware or bundling opportunities directly with phones, wearables or even directly with tablets; Amazon’s Kindle Fire range is aimed at a different segment than the iPad. The agreement gives Amazon sales and analytics on a segment of the phone market it has hitherto had limited information on—the premium / flagship market. Amazon’s volume sweet spot is in the much lower price tiers. We estimate the weighted ASP of phones selling on Amazon to be under $250.
  5. Losers are the 3rd party vendors selling new and refurbished Apple products on Amazon. Many will be phased out by January 2019 or not renewed. Not only will this affect many smaller businesses in terms of iPhone sales, their service offerings will also be affected. The refurbished and repair market will also take a hit as companies will either have to move off the Amazon platform or go through the authorization process.
  6. US carriers will also be disappointed seeing the deal, but to a lesser extent. They too would rather control the customer. Carriers will never turn down a new subscriber, but they would rather sell locked devices in their direct and indirect channels and save money on any kickbacks that may be paid to Amazon for the sale.
  7. There will be limited impact on other device sales. It is unlikely that customers will now suddenly alter their purchase decision behavior. The sweet spot for unlocked devices is sub $300 and since Apple is pushing much higher end devices, most other brands will be unaffected.
Maurice Klaehne is a Senior Analyst with Counterpoint Technology Market Research, based out of Boston, USA. He has spent more than five years working as a market researcher and strategy consultant heavily focused on emerging markets and uncovering new growth opportunities for his clients which include business service, CPG, healthcare, and life science companies. Maurice holds a Master’s in International Development and Management from Sweden’s Lund University, and an undergraduate degree in Political Science and International Development from Canada’s McGill University. He is a native German speaker and also speaks fluent French.

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