We're told that it costs between four and eight times more money to get a new customer than to retain an existing one, and that the way to make big piles of cash in the long term is to keep your customers sweet.
So why is O2 waving its corporate arse at its iPhone customers?
Twitter is already aflame with #o2fail messages from angry iPhone owners. They're angry that despite paying top whack for unlimited internet access, O2 wants an extra £14.68 (for 3GB) or £29.36 (10GB) per month if they want to use their iPhone as a modem.
And they're angry that there's no upgrade path for the new iPhone 3G S. If you bought your iPhone 3G on the day of release last year, you won't be able to upgrade until January 2010 without paying to end your contract.
Just whingers?
On the face of it, they're a bunch of whingers who seem unable to understand the concept of an 18-month contract. But there's more to it than that.
O2 should take their moans seriously for three good reasons.
The first is that O2 set a precedent with the iPhone 3G, enabling first-generation owners to upgrade for a reasonable price. In effect, O2 was saying to iPhone customers: "Yes, we know our contracts are 18 months, but we'll sort you out with a new iPhone when Apple releases the next version."
Had O2 told everyone to bugger off and wait for their contracts to expire last time, we very much doubt there'd be the anger we're seeing in forums and on Twitter. We know the reasons - the original iPhone wasn't subsidised but the 3G was - but that doesn't matter. O2 essentially sold the 3G to existing customers with a nudge, a wink and an implied promise of easy annual upgrades.
The second reason the lack of upgrades is a bad idea is that by January, it'll only be five months before the next iPhone is due. Savvy iPhone fans aren't going to commit to an 18-month or 24-month lock-in if they think the 3GS is about to be replaced - and unless they're demented, they're not going to upgrade now if they need to pay a big whack for the phone, pay several hundred quid to escape their current contract and commit to a contract that promises the same expense next summer.
The third reason is that O2's exclusivity has got to end some time. iPhone sales are handset driven, not network driven: people are going with O2 because that's where the iPhone is, not because they necessarily want to be with O2. That means O2 is storing up a great deal of resentment that's bound to come back and bite it when its exclusive deal with Apple ends.
The iPhone is first and foremost a luxury product, and yet O2 is betting that in the middle of a recession it can bring in enough new customers that existing ones won't matter.
If it's wrong, Apple might just discover that the "iPhone killer" isn't another handset: it's one of its business partners.
Update: O2 has responded to these criticisms in an exclusive interview with TechRadar
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Your comments (14) Click to add a new comment
kasino72
June 10th
14. Dimlocator, I agree to a point: the priority thing needs a serious spend to reduce the qualifying period. To get a 3-month reduction (Gold) you need to be paying over £50/month; if you're paying less than that the early upgrade is just one month.
Me, I think if you're an O2 iPhone customer you should hang on till next summer. 3GS is ultimately a point upgrade; next year's iPhone should be a bigger deal. Locking yourself into an 18 or 24 month contract when you can be 99% sure there's a much better model coming next summer probably isn't a good idea.
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dimlocator
June 10th
13. I work for O2's Platinum service and I feel that the article misses the fact that the priority list service allows all customers an early upgrade, depending on spend. All customers should call and check their upgrade date as they may qualify for an upgrade earlier than they think.
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leebec
June 10th
12. Seriously, what kind of business wouldn't want to lock their customers in by having them sign a new contract? I understand their subsidy argument, but all I'm asking is that they allow us to sign a contract extension. So, if I have 6 months left on my current contract, I can sign a new 18 month contract and be then locked in for two years. After all, the monthly tariffs are the same for both old and new phones, so what difference does it make?
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cousindirk
June 9th
11. I still think it is a bit stupid that a high demand device such as the iPhone, that is primarily going to be owned by people who will always want the latest model, and that has a 12 month product cycle, requires users to sign up to an 18- or 24-month contract in order to use it to its fullest.
I agree with the article, most iPhone 3G owners will probably stick with their 3G until their contract expires, and then ride it out until next summer when the NEXT iPHone is released. That's what I will be doing unless something changes.
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richmurrills
June 9th
10. I'm not bothered about the the fact I'm tied in to my 18 month contract, I knew that when I signed up for it, but the tethering price is ridiculous. I would have loved to use that functionality as occasionally I need to get online with my laptop when I'm away from my home network and this would have been a neat solution, especially as I only need to do this once or twice a month, but let's hope O2 see sense on that one!
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jericho
June 9th
9. This is bad - i work in this "business" - no -one can afford this. O2's maybe shooting themselves in the foot with this one - it will be interesting to see what the Pre does with it's offering
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