Apple and AT&T managed to dominate the headlines in 2007 with a steady stream of announcements, controversies, lawsuits and rumors swirling around the iPhone. Apple CEO Steve Jobs unveiled the iPhone in early January at the company's Macworld event, which was coincidentally held during the same week as CES and subsequently dominated the week's news. After months of speculation, Apple and AT&T announced that the handset would go on sale during the last few days of June. A report in The New York Times, however, claimed that some Apple executives were worried that first-generation users would be disappointed if the device did not live up to the hype. While the device seemed to please most buyers, the worry proved prescient months later.
The iPhone launch went off with only a few minor glitches. Point of sale terminals went down temporarily. Some iPhones wouldn't activate. And most people had to wait in line for hours. According to The Wall Street Journal, about 2 percent of iPhones had activation issues. Various analyst reports estimated the number of Apple iPhones sold over the first weekend at 500,000 (Piper Jaffray) or 525,000 (Global Equities Research), and about half of those phones went to existing AT&T subscribers. The analysts' estimates proved way off the mark--Apple sold 270,000 iPhones during the first two days.
In early September, Apple announced that it was dropping the price of its 8GB iPhone by $200 while discontinuing the 4GB version of the handset. The 8GB model would now retail for $399, down from the $599 price tag attached at its late June commercial debut. First generation iPhone buyers were outraged at the sudden price drop, which led to a formal apology letter from CEO Steve Jobs and a promise of a $100 (store credit) refund. After the price cut, iPhone tripled its pace of sales. The firm plans to keep iPhone sales strong by introducing a 3G model of the handset sometime next year.
The iPhone was more than just one of the best-selling smart phones of all time, it shifted the industry's idea of how a handset maker-carrier relationship could work. Apple reportedly takes a cut of the service revenue each of AT&T's iPhone users produces for the carrier, which was an unprecedented deal, since typically the handset maker only gets a cut from sales of the phone. The iPhone is also one of the first major phones to launch in the U.S. that does not sell with a subsidy from the carrier, proving that consumers are willing to shell out $400 or $500 for a mass market phone. Finally, Apple also proved that you do not need to be an incumbent handset maker to launch a successful mobile phone in the U.S., other new entrants could find a place in the market following the iPhone's success.