Why an iPhone shortage is good news for Cupertino

Conventional wisdom would tell us that a company new to a particular market (cell phones, for example) would endanger the growth of its market share if it were to sell out of the product it manufactures for that market. So why is Apple smiling?

Apple has a well-earned reputation for completely disregarding conventional wisdom and this iPhone sell-out may be a smart (and intentional) move that continues that tradition. Why would Apple want to sell out of a product that’s selling like hot-cakes? It’s simple, really.

For most manufacturers, in most markets, if their product is not available for customers to buy when they want it, they’ll just buy a similar product instead. But none of those products are the iPhone. Apple knows that the majority of people going to plunk down $400-$500 on an iPhone aren’t going to be deterred by the sold-out status to the point that they go buy a blackberry instead. Instead, they’ll wait. Apple isn’t losing iPhone sales; they’re deferring iPhone sales. And, in all likelihood, saving a lot of money doing so.

We all know there’s a new iPhone coming out, with long-awaited 3G, 3rd-party applications and enterprise support, plus many other features that have been the subjects of hot speculation. Apple is much better off not selling iPhones at all in the lead-up to that launch, especially in the two weeks immediately preceding. After all, they have a 14 day return policy. It’s safe to say that 90% of buyers in the two weeks prior to the 3G iPhone launch would be returning those units for exchange, costing Apple thousands of work-hours processing exchanges and leaving them with a giant pile of expensive iPhones that no one wants and losing the manufacturing costs for all of them.

Selling out, however, not only avoids that problem but has some other benefits as well. It causes that elusive thing called “buzz.” Apple knows that the iPhone suddenly becoming unavailable creates news stories. News stories that imply to the people who haven’t yet chosen the iPhone that they’re obviously missing out on something -- how often do you hear of a cellphone selling out? And, just in case they hadn’t heard, those news stories speculate that the shortage may be due to an upcoming 3G version, saving Apple millions in advertising costs.

That is why Apple is smiling.